FOREST CITY ENTERPRISES INC - 10-Q Quarterly Report

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UNITED STATES
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 the quarterly period ended July 31, 2003

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 September 2, 2003

Class A Common Stock, $.33 1/3 par value		36,159,049 shares

Class B Common Stock, $.33 1/3 par value		13,778,392 shares

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TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
EX-31.1 Principal Exec Officer's Certification 302
EX-31.2 Principal Finan. Officer's Cert. 302
EX-32.1 Section 906 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 — July 31, 2003 (Unaudited) and January 31, 2003		2

		Consolidated Statements of Earnings (Unaudited) — Three and Six Months Ended July 31, 2003 and 2002		3

		Consolidated Statements of Comprehensive Income (Unaudited) — Six Months Ended July 31, 2003 and 2002		4

		Consolidated Statements of Shareholders’ Equity (Unaudited) — Six Months Ended July 31, 2003 and 2002		4

		Consolidated Statements of Cash Flows (Unaudited) — Six Months Ended July 31, 2003 and 2002		5-6

		Notes to Consolidated Financial Statements (Unaudited)		7-17

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18-57

	Item 3. Quantitative and Qualitative Disclosures about Market Risk			58-60

	Item 4. Controls and Procedures			61

PART II. OTHER INFORMATION

	Item 1. Legal Proceedings			61

	Item 4. Submission of Matters to a Vote of Security-Holders			62

	Item 6. Exhibits and Reports on Form 8-K			63-69

Signatures				70

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets


			July 31, 2003			January 31, 2003

			(Unaudited)
			*(in thousands)*
Assets
Real Estate
	Completed rental properties		$	4,094,085		$	3,866,625
	Projects under development			524,374			572,476
	Land held for development or sale			48,748			35,036

		Total Real Estate		4,667,207			4,474,137
	Less accumulated depreciation			(658,173	)		(615,653	)

		Real Estate, net		4,009,034			3,858,484
Cash and equivalents				136,496			122,356
Restricted cash				137,290			127,046
Notes and accounts receivable, net				319,664			286,652
Inventories				34,356			38,638
Investments in and advances to real estate affiliates				499,086			489,205
Other assets				171,041			154,828

		Total Assets	$	5,306,967		$	5,077,209

Liabilities and Shareholders’ Equity
Liabilities
Mortgage debt, nonrecourse			$	3,194,934		$	3,016,107
Notes payable				89,538			79,484
Long-term credit facility				83,750			135,250
Senior and subordinated debt				320,400			220,400
Accounts payable and accrued expenses				551,303			585,042
Deferred income taxes				267,229			255,888

		Total Liabilities		4,507,154			4,292,171
Minority interest				73,950			79,066

Commitments and Contingencies
Company-Obligated Trust Preferred Securities				—			—
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; 36,180,286 and 35,678,086 shares issued, 36,136,146 and 35,525,067 outstanding, respectively			12,060			11,892
	Class B, convertible, 36,000,000 shares authorized; 14,045,542 and 14,547,742 shares issued, 13,778,392 and 14,130,592 outstanding, respectively			4,682			4,850

				16,742			16,742
Additional paid-in capital				233,617			232,029
Retained earnings				484,270			470,348

				734,629			719,119
Less treasury stock, at cost; 44,140 Class A and 267,150 Class B shares and 153,019 Class A and 417,150 Class B shares, respectively				(2,284	)		(4,425	)
Accumulated other comprehensive loss				(6,482	)		(8,722	)

	Total Shareholders’ Equity			725,863			705,972

		Total Liabilities and Shareholders’ Equity	$	5,306,967		$	5,077,209

See notes to consolidated financial statements.

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


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

		2003			2002			2003			2002

		*(in thousands, except per share data)*
Revenues
	Rental properties	$	213,285		$	203,067		$	427,442		$	377,981
	Lumber trading		26,980			23,337			46,881			49,600
	Equity in earnings of unconsolidated real estate entities		11,827			10,564			21,670			20,758

			252,092			236,968			495,993			448,339

Expenses
	Operating expenses		142,445			142,023			284,972			267,975
	Interest expense		47,740			45,382			92,392			88,135
	Loss on early extinguishment of debt		10,718			—			10,718			380
	Provision for decline in real estate		2,728			—			2,728			—
	Depreciation and amortization		30,941			27,740			60,758			54,368
	Loss on disposition of other investments		453			—			431			116

			235,025			215,145			451,999			410,974

Earnings before income taxes			17,067			21,823			43,994			37,365

Income tax expense
	Current		1,140			3,877			3,962			8,388
	Deferred		4,765			3,145			11,519			5,321

			5,905			7,022			15,481			13,709

Earnings before minority interest and discontinued operations			11,162			14,801			28,513			23,656
Minority interest			(4,559	)		(2,209	)		(7,099	)		(1,854	)

Earnings from continuing operations			6,603			12,592			21,414			21,802
Discontinued operations, net of tax and minority interest
	Earnings (loss) from operations		—			91			(72	)		1,017
	Gain on disposition of operating properties		—			—			53			—

			—			91			(19	)		1,017

Net earnings		$	6,603		$	12,683		$	21,395		$	22,819

Basic earnings per common share
	Earnings from continuing operations	$	0.13		$	0.26		$	0.43		$	0.44
	Earnings from discontinued operations, net of tax and minority interest		—			—			—			0.02

Net earnings		$	0.13		$	0.26		$	0.43		$	0.46

Diluted earnings per common share
	Earnings from continuing operations	$	0.13		$	0.25		$	0.42		$	0.43
	Earnings from discontinued operations, net of tax and minority interest		—			—			—			0.02

Net earnings		$	0.13		$	0.25		$	0.42		$	0.45

See notes to consolidated financial statements.

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


			Six Months Ended July 31,

			2003		2002

			*(in thousands)*
Net earnings			$	21,395	$	22,819

Other comprehensive income, net of tax:
	Unrealized gains (losses) on investments in securities:
		Unrealized gain (loss) on securities		339		(627	)
	Unrealized derivative gains:
		Change in unrealized gains and losses on interest rate contracts, net of minority interest		1,901		926

Other comprehensive income, net of tax				2,240		299

Comprehensive income			$	23,635	$	23,118

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


		Common Stock

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

		*(in thousands)*
Six Months Ended July 31, 2003
	Balances at January 31, 2003		35,678	$	11,892		14,548		$	4,850		$	232,029		$	470,348			570		$	(4,425	)	$	(8,722	)	$	705,972
	Net earnings															21,395												21,395
	Other comprehensive income, net of tax																								2,240			2,240
	Dividends $.15 per share															(7,473	)											(7,473	)
	Conversion of Class B to Class A shares		502		168		(502	)		(168	)																	—
	Exercise of stock options												1,361						(146	)		1,128						2,489
	Income tax benefit from stock option exercises												661															661
	Restricted stock issued												(1,013	)					(113	)		1,013						—
	Amortization of unearned compensation												579															579

	Balances at July 31, 2003		36,180	$	12,060		14,046		$	4,682		$	233,617		$	484,270			311		$	(2,284	)	$	(6,482	)	$	725,863

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

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

See notes to consolidated financial statements.

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


			Six Months Ended July 31,

			2003			2002

			*(in thousands)*
Cash Flows from Operating Activities
	Rents and other revenues received		$	417,878		$	394,964
	Cash distributions from unconsolidated entities			9,688			9,559
	Proceeds from land sales			22,471			37,106
	Land development expenditures			(39,893	)		(25,932	)
	Operating expenditures			(283,912	)		(271,980	)
	Interest paid			(91,829	)		(85,459	)

		Net cash provided by operating activities		34,403			58,258

Cash Flows from Investing Activities
	Capital expenditures			(212,037	)		(323,910	)
	Proceeds from disposition of other investments			54			—
	Changes in investments in and advances to real estate affiliates			2,419			(20,212	)

		Net cash used in investing activities		(209,564	)		(344,122	)

Cash Flows from Financing Activities
	Proceeds from issuance of senior notes			300,000			—
	Retirement of senior notes			(208,500	)		—
	Payment of senior notes issuance costs			(8,092	)		—
	Increase in nonrecourse mortgage debt			491,674			223,565
	Increase in long-term credit facility			34,000			192,000
	Principal payments on nonrecourse mortgage debt			(299,681	)		(41,526	)
	Payments on long-term credit facility			(85,500	)		(84,250	)
	Increase in notes payable			23,212			11,807
	Payments on notes payable			(13,158	)		(9,706	)
	Change in restricted cash and book overdrafts			(22,169	)		(20,513	)
	Payment of deferred financing costs			(6,571	)		(5,501	)
	Exercise of stock options			2,489			3,033
	Dividends paid to shareholders			(5,970	)		(4,954	)
	(Decrease) increase in minority interest			(12,433	)		5,065

		Net cash provided by financing activities		189,301			269,020

Net increase (decrease) in cash and equivalents				14,140			(16,844	)
Cash and equivalents at beginning of period				122,356			50,054

Cash and equivalents at end of period			$	136,496		$	33,210

See notes to consolidated financial statements.

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


			Six Months Ended July 31,

			2003			2002

			*(in thousands)*
Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings			$	21,395		$	22,819
	Discontinued operations:
		Minority interest		218			(152	)
		Depreciation		—			764
		Amortization		106			52
		Gain on disposition of operating properties		(411	)		—
	Minority interest			7,099			1,854
	Depreciation			50,149			45,607
	Amortization			10,609			8,761
	Equity in earnings of unconsolidated entities			(21,670	)		(20,758	)
	Cash distributions from unconsolidated entities			9,688			9,559
	Deferred income taxes			9,875			2,669
	Loss on disposition of other investments			431			116
	Provision for decline in real estate			2,728			—
	Early extinguishment of debt			10,718			380
	(Increase) decrease in land included in projects under development			(787	)		1,872
	Decrease in land included in completed rental properties			—			220
	Increase in land held for development or sale			(13,712	)		(8,343	)
	(Increase) decrease in notes and accounts receivable			(32,906	)		2,723
	Decrease in inventories			4,282			660
	Increase in other assets			(4,308	)		(7,509	)
	Decrease in accounts payable and accrued expenses			(19,101	)		(3,036	)

		Net cash provided by operating activities	$	34,403		$	58,258

Supplemental Non-Cash Disclosures:
The schedule below represents the effect of the following non-cash transactions for the six months ended July 31:
	2003 • Increase in interest in Station Square Freight House Disposition of interest in Trowbridge
	2002 • None
Operating Activities
	Notes and accounts receivable		$	(106	)	$	—
	Other assets			(1,705	)		—
	Accounts payable and accrued expenses			4,111			—

		Total effect on operating activities	$	2,300		$	—

Investing Activities
	Disposition of completed rental properties		$	11,014		$	—

Financing Activities
	Repayment of mortgage debt, nonrecourse		$	(13,314	)	$	—

See notes to consolidated financial statements.

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

A. Accounting Policies

Basis of Presentation

The interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended January 31, 2003. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included.

The Company uses the pro-rata method of consolidation to analyze its properties as the pro-rata method of consolidation provides operating data at the Company’s ownership share. The pro-rata method of consolidation is not a method of consolidation acceptable under GAAP. Thus, all information the Company has historically provided under pro-rata consolidation has been removed from the Company’s financial statements and related footnotes. This information is now provided in the Company’s Management Discussion and Analysis on pages 36-44 of this filing.

Accounting for Derivative Instruments and Hedging Activities

During the three and six months ended July 31, 2003, the Company recorded approximately $434,000 and $540,000, respectively, as interest expense in the Consolidated Statements of Earnings, which represented the total ineffectiveness of all cash flow hedges. During the three and six months ended July 31, 2002, the Company recorded approximately $15,000 and $185,000, respectively, as an increase of interest expense due to the ineffective portion of its cash flow hedges. The amount of hedge ineffectiveness relating to hedges designated and qualifying as fair value hedges was not material. The amount of net derivative losses reclassified into earnings from other comprehensive income as a result of forecasted transactions that did not occur by the end of the originally specified time period or within an additional two-month period of time thereafter was $-0- for the three and six months ended July 31, 2003, and was $-0- and $680,000, for the three and six months ended July 31, 2002, respectively. As of July 31, 2003, the Company expects that within the next twelve months it will reclassify amounts recorded in accumulated other comprehensive income into earnings as interest expense associated with the effectiveness of cash flow hedges of approximately $2,121,000, net of tax.

At July 31 and January 31, 2003, LIBOR interest rate caps and Treasury options were reported at their fair value of approximately $729,000 and $753,000 respectively, in the Consolidated Balance Sheets as Other Assets. The fair value of interest rate swap agreements at July 31 and January 31, 2003 is an unrealized loss of approximately $2,043,000 and $4,340,000, respectively, and is included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheets.

Stock-Based Compensation

During the six months ended July 31, 2003, the Company granted 661,900 Class A fixed stock options to key employees and nonemployee members of the Board of Directors. The options have a term of 10 years, vest 25% after two years, 50% after three years and 100% after four years and, have a weighted average exercise price of $31.03. The exercise price of the options granted was equal to the market price of the underlying stock on the date of grant resulting in no intrinsic value and no compensation expense under APBO No. 25.

The Company also granted 112,500 shares of restricted Class A common stock to key employees. The restricted shares were awarded out of treasury stock, having a cost basis of $1,012,500, with rights to vote the shares and receive dividends while being subject to restrictions on disposition and transferability and risk of forfeiture. The shares become nonforfeitable over a period of four years. The market value on the date of grant of $3,487,500 was recorded as unearned compensation to be charged to expense over the respective vesting periods. The unearned compensation of this award along with previously issued restricted stock is reported as an offset of Additional Paid-In Capital in the accompanying consolidated financial statements. At July 31, 2003, the unamortized unearned compensation relating to all restricted stock amounted to $5,535,663.

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

A. Accounting Policies

Stock-Based Compensation (continued)

Stock based compensation costs, net of tax, relating to restricted stock awards were charged to net earnings in the amount of $207,000 and $111,000, respectively, during the three months ended July 31, 2003 and 2002, and $350,000 and $311,000, respectively, during the six months ended July 31, 2003 and 2002. While these amounts were computed under APBO No. 25, they are equal to the fair value based amounts as computed under SFAS No. 123 “Accounting for Stock-Based Compensation.”

The following table illustrates the effect on net earnings per share if the Company had also applied the fair value recognition provisions of SFAS No. 123 to stock options.


		Three months ended July 31,						Six months ended July 31,

		2003			2002			2003			2002

Net earnings (in thousands)
	As reported	$	6,603		$	12,683		$	21,395		$	22,819
	Deduct stock-based employee compensation expense for stock options determined under the fair value based method, net of related tax effect		(906	)		(644	)		(1,547	)		(1,288	)

	Pro forma	$	5,697		$	12,039		$	19,848		$	21,531

Basic earnings per share
	As reported	$	.13		$	.26		$	.43		$	.46
	Pro forma	$	.11		$	.24		$	.40		$	.43
Diluted earnings per share
	As reported	$	.13		$	.25		$	.42		$	.45
	Pro forma	$	.11		$	.24		$	.39		$	.43

New Accounting Standards

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148 “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS No. 148). This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 “Accounting for Stock-Based Compensation” to require prominent disclosures in both annual and quarterly financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation is effective for the Company for the fiscal year ended January 31, 2004. The new requirements for quarterly disclosure was effective for the quarter ended April 30, 2003. The Company will continue to apply APBO No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for its stock-based employee compensation and does not expect SFAS No. 148 to have a material impact on the Company’s financial position, results of operations or cash flows.

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

A. Accounting Policies

New Accounting Standards (continued)

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The objective of this interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interests and results of operations of a VIE are to be included in the consolidated financial statements. A company that holds a variable interest in an entity will consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the entity’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The disclosure provisions of this interpretation became effective upon issuance. The consolidation requirements of this interpretation apply immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the first year or interim period beginning after June 15, 2003. The Company is in the process of assessing the impact of this interpretation and believes it is reasonably possible the Company is the primary beneficiary of many of these equity method investments and will be required to fully consolidate these investments as variable interest entities beginning in the quarter ending October 31, 2003. These entities’ assets and liabilities will be included on the Company’s Consolidated Balance Sheet. The Company has not yet determined the impact on the Company’s financial position, results of operations or cash flows related to the implementation of this new standard. The financial position and results of operations for the Company’s equity method investments are presented in Note J — Investments In and Advances to Affiliates on page 16 of this Form 10-Q.

In April 2003, the FASB issued SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). This statement amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under FAS 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for certain contracts entered into or modified after June 30, 2003 and for certain hedging relationships designated after June 30, 2003. 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 March 2003, the Emerging Issues Task Force (EITF) issued EITF No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF No. 00-21). This issue addresses certain aspects of accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This issue is effective for revenue arrangements entered into by the Company subsequent to January 31, 2004. The Company does not expect this statement to have an immediate material impact on the Company’s financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify a financial instrument that is within its scope as a liability, many of these instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective August 1, 2003 for the Company. As currently written and interpreted, for many of its non-wholly owned entities that are consolidated into the accounts of the Company, SFAS No. 150 requires that the Company reflect the Capital accounts of its minority partners involved in certain finite life entities (including most, if not all, limited partnerships and limited liability companies) as a liability. Furthermore SFAS No. 150 requires that the liability be recognized at fair value with an offsetting adjustment to earnings. Although the Company is currently evaluating and assessing the impact of SFAS No. 150, as currently written and interpreted, it is expected to have a material impact on the Company’s financial position and results of operations.

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

B. Discontinued Operations

The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company also retains the basic provisions for presenting discontinued operations in the income statement but broadened the scope to include a component of an entity rather than a segment of business. Pursuant to the definition of a component of an entity in SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations. The Company considers assets held for sale when the transaction has been approved by the appropriate level of management and there are no contingencies related to the sale that may prevent the transaction from closing. In most transactions, these contingencies are not satisfied until the actual closing of the transaction and, accordingly, the property is not identified as held for sale until the closing actually occurs. However, each potential transaction is evaluated based on its separate facts and circumstances.

For the six months ended July 31, 2003, Trowbridge, a supported-living community located in Southfield, Michigan, was included in discontinued operations. Trowbridge has 305 units and its deed was accepted by its lender in lieu of foreclosure in April of 2003. Trowbridge was previously included in the Residential Group. For the three months ended July 31, 2003, the Company had no properties reported as discontinued operations.

For the three and six months ended July 31, 2002, three properties were included in discontinued operations: Bay Street, Courtland Center and Trowbridge. Bay Street, a 16,000 square foot retail center located in Staten Island, New York, was sold in the fourth quarter of fiscal 2002. Courtland Center, a 458,000 square foot retail center located in Flint, Michigan, was also sold during the fourth quarter of fiscal 2002. Bay Street and Courtland Center were both previously included in the Commercial Group.

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

B. Discontinued Operations (continued)

The assets and liabilities relating to assets held for sale and operating results relating to assets sold and assets held for sale are as follows.


		July 31,		January 31,

		2003		2003

		*(in thousands)*
Assets
	Real estate, net	$	—	$	20,004
	Other assets		—		1,021

		$	—	$	21,025

Liabilities
	Mortgage debt, nonrecourse	$	—	$	20,822
	Other liabilities		—		574

		$	—	$	21,396


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

		2003		2002			2003			2002

		*(in thousands)*					*(in thousands)*
Revenues		$	—	$	2,937		$	1,289		$	6,497

Expenses
	Operating expenses		—		1,983			1,407			3,779
	Interest expense		—		617			—			1,201
	Depreciation and amortization		—		408			106			817

			—		3,008			1,513			5,797

Gain on disposition of operating properties			—		—			411			—

(Loss) earnings before income taxes			—		(71	)		187			700
Income tax expense (benefit)
	Current		—		(91	)		1,632			2,363
	Deferred		—		19			(1,644	)		(2,528	)

			—		(72	)		(12	)		(165	)

Earnings before income taxes			—		1			199			865
Minority interest			—		90			(218	)		152

Net earnings (loss) from discontinued operations		$	—	$	91		$	(19	)	$	1,017

The following table summarizes the gain (loss) on disposition of operating properties for the three and six months ended July 31, 2003 and 2002.


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

		2003		2002		2003			2002

		*(in thousands)*				*(in thousands)*
Discontinued operations										—
	Trowbridge		—		—	$	538			—
	Other		—		—		(127	)		—

Total		$	—	$	—	$	411		$	—

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

C. Senior Notes

On May 19, 2003, the Company issued $300,000,000 of its 7.625% senior notes due June 1, 2015 in a public offering under its shelf registration statement. Accrued interest is payable semi-annually beginning on December 1, 2003. $208,500,000 of the proceeds from this offering were used to redeem all of the outstanding 8.5% senior notes originally due in 2008 at a redemption price equal to 104.25%. The remainder of the proceeds were used for offering costs of $8,092,000, to repay $73,000,000 outstanding under the revolving portion of the long-term credit facility and for general working capital purposes. The new 7.625% senior notes contain covenants comparable to the previously outstanding 8.5% senior notes. The Company currently has $542,180,000 available under its shelf registration.

D. Provision for Decline in Real Estate

The following table summarizes the Company’s Provision for Decline in Real Estate for the three and six months ended July 31, 2003. The provision represents the adjustment to fair market value of land held by the Residential Group and a retail center held by the Commercial Group. The Company had no amounts recorded for Provision for Decline in Real Estate for the three and six months ended July 31, 2002.

Three and Six Months

Ended July 31, 2003

(in thousands)

Leggs Hill

Land

Salem, MA

1,624

Hunting Park

Retail Center

Philadelphia, PA

1,104

Total

2,728

E. Reclassification

Certain items in the consolidated financial statements for 2002 have been reclassified to conform to the 2003 presentation (see Note G).

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

F. Loss on Early Extinguishment of Debt

The Company adopted the provisions of SFAS No. 145, “Recision of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13 on Technical Corrections” (SFAS No. 145), which requires gains or losses from early extinguishment of debt to be classified in operating income or loss. The Company previously recorded gains or losses from early extinguishment of debt as extraordinary items, net of tax, in its Statement of Earnings. For the three and six months ended July 31, 2003, the Company has recorded $10,718,000 as Loss on Early Extinguishment of Debt. This amount is primarily the result of the payment in full of the Company’s $200,000,000 8.5% senior notes due in 2008 at a premium of 104.25% for a loss on extinguishment of $8,500,000 for redemption premium and approximately $3,000,000 related to the write-off of unamortized debt issue costs. These changes were offset, in part, by gains on early extinguishment of debt of approximately $800,000 on several residential properties. For the six months ended July 31, 2002, the Company reclassified $380,000 ($230,000, net of tax) of early extinguishment of debt from extraordinary loss to Loss on Early Extinguishment of Debt to conform to the new guidance. There were no amounts reclassified for early extinguishment of debt for the three months ended July 31, 2002.

G. 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 12, 2003	June 2, 2003	June 16, 2003	$	.06
June 11, 2003	September 2, 2003	September 15, 2003	$	.09
September 10, 2003*	December 1, 2003	December 15, 2003	$	.09

* Since this dividend was declared after July 31, 2003 it is not reflected in the consolidated financial statements.

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

H. 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 from continuing operations.”


				Weighted
		Earnings From		Average Common		Per
		Continuing Operations		Shares Outstanding		Common
		(Numerator)		(Denominator)		Share

		*(in thousands)*
Three Months Ended
July 31, 2003:
	Basic EPS	$	6,603		49,853,143	$	0.13
	Effect of dilutive securities — stock options		—		712,210		—

	Diluted EPS	$	6,603		50,565,353	$	0.13

July 31, 2002:
	Basic EPS	$	12,592		49,620,200	$	0.26
	Effect of dilutive securities — stock options		—		599,245		(0.01	)

	Diluted EPS	$	12,592		50,219,445	$	0.25

Six Months Ended
July 31, 2003:
	Basic EPS	$	21,414		49,793,928	$	0.43
	Effect of dilutive securities — stock options		—		613,826		(0.01	)

	Diluted EPS	$	21,414		50,407,754	$	0.42

July 31, 2002:
	Basic EPS	$	21,802		49,565,727	$	0.44
	Effect of dilutive securities — stock options		—		644,282		(0.01	)

	Diluted EPS	$	21,802		50,210,009	$	0.43

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

I. Reduction of Reserves On Notes Receivable and Recognition of Contingent Interest Income

The Company, through its Residential Group, is the 1% general partner in 25 Federally Subsidized housing projects owned by syndicated partnerships. Upon formation of these partnerships approximately 20 years ago, the Company received interest-bearing notes receivable as consideration for development and other fee services. At their inception, these notes were fully reserved as their collection was doubtful based on the limited cash flows generated by the properties pursuant to their government subsidy contracts. Likewise, a reserve for the related accrued interest was established each year.

During the years ended January 31, 2003 and 2002, 20 of these properties completed a series of events that led to the reduction of a portion of these reserves. The first event 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 and in some instances, resulted in a 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. As a result, the Company determined that the collection of a portion of these notes receivable and related accrued interest is now probable. For the three and six months ended July 31, 2003, reductions of $-0- and $230,000, and reductions for the three and six months ended July 31, 2002 of $800,000 and $3,850,000, respectively, are included in revenue in the Consolidated Statements of Earnings. The Company will continue to review the level of reserves against these notes receivable in relation to events that could change expected future cash flows from these properties.

In addition, during the three and six months ended July 31, 2003, the Company recognized $5,300,000 in contingent interest income on an unreserved participating note receivable from the limited partners of one of these 20 properties.

Millender Center — The Company owns a 4% interest in Millender Center (the “Project”), a mixed-use apartment, retail and hotel project located in downtown Detroit, Michigan, and loaned $14,775,000 to the 99% limited partners in 1985, as evidenced by a note. A full reserve against the note and accrued interest was recorded in 1995 when the Company determined that collection was doubtful due to the operating performance of the Project at that time.

In October 1998, the Project entered into a lease agreement with General Motors (“GM”) whereby the Project, except for the apartments, is leased to GM through 2010, when it is expected that GM will exercise a purchase option. This lease arrangement, coupled with the resurgence of downtown Detroit’s economy as a result of GM’s relocation of its corporate headquarters to a location adjacent to the Project and the entry of gaming has significantly improved the operating performance of the Project. At the same time, the note was restructured with the limited partners to extend the term from December 31, 2000 to December 31, 2022. The Company believes that the current and anticipated improved performance of the Project supports its assessment that the principal of the note is now fully collectible.

During the three and six months ended July 31, 2003 the Company reduced $-0- and $5,633,000, respectively, of the reserve recorded against interest receivable from Millender Center. During the three and six months ended July 31, 2002 the Company reduced $690,000 of the reserve recorded against Millender Center. The reduction of this reserve was primarily the result of increased cash flow projections due to the extension of the Project’s tax advantaged bonds. The recorded balance of the note was $20,917,000 and $16,332,000 at July 31, 2003 and 2002, respectively. As of July 31, 2003, a $5,382,000 reserve against the principal portion of this note remains.

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

J. Investments in and Advances to Real Estate Affiliates

Included in Investments in and Advances to Real Estate Affiliates are unconsolidated investments in entities which the Company does not control and which are accounted for on the equity method. Summarized combined financial information for these investments, is as follows.


			July 31,			January 31,
			2003			2003

			*(in thousands)*
Balance Sheet:
	Completed rental properties		$	2,510,357		$	2,384,920
	Projects under development			257,377			307,566
	Land held for development or sale			88,433			85,663
	Accumulated depreciation			(510,951	)		(484,845	)
	Other assets			272,747			278,024

		Total Assets	$	2,617,963		$	2,571,328

	Mortgage debt, nonrecourse		$	2,275,935		$	2,226,384
	Advances from general partner			18,355			18,355
	Other liabilities			171,336			166,286
	Partners’ equity			152,337			160,303

		Total Liabilities and Partners’ Equity	$	2,617,963		$	2,571,328


			Three Months			Three Months			Six Months			Six Months
			Ended			Ended			Ended			Ended
			July 31, 2003			July 31, 2002			July 31, 2003			July 31, 2002

			*(in thousands)*
Operations:
	Revenues		$	151,905		$	121,335		$	293,730		$	247,949
	Operating expenses			(81,456	)		(63,251	)		(158,708	)		(129,272	)
	Interest expense			(35,240	)		(29,984	)		(69,774	)		(59,353	)
	Depreciation and amortization			(19,675	)		(16,141	)		(38,043	)		(32,046	)

		Net Earnings	$	15,534		$	11,959		$	27,205		$	27,278

		Company’s Portion of Net Earnings (Pre-tax)	$	11,824		$	10,564		$	21,670		$	20,758

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


	July 31,		January 31,
	2003		2003

	*(in thousands)*
Partners’ equity, as above	$	152,337	$	160,303
Equity of other partners		10,211		30,178

Company’s investment in partnerships		142,126		130,125
Advances to partnerships, as above		18,355		18,355
Advances to other real estate affiliates		338,605		340,725

Investments in and Advances to Real Estate Affiliates	$	499,086	$	489,205

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 for the development and construction of real estate projects. The most significant partnership for which the Company provides funding relates to Forest City Ratner Companies, representing the Commercial Group’s New York City operations. The Company’s partner is the President and Chief Executive Officer of Forest City Ratner Companies and is the first cousin to four executive officers of the Company. At July 31, 2003 and January 31, 2003, amounts advanced in the normal course of business for development and construction of real estate projects on behalf of this partner collateralized by this partnership interest were $93,375,000 and $98,264,000, respectively, of the $338,605,000 and $340,725,000 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.

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

K. Segment Information

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


					Three Months				Six Months
					Ended July 31,				Ended July 31,
		July 31,		January 31,
	2003		2003		2003		2002		2003		2002

	Identifiable Assets				Expenditures for Additions to Real Estate

Commercial Group	$	3,819,759	$	3,628,251	$	89,241	$	99,198	$	151,581	$	210,163
Residential Group		1,026,605		990,192		13,102		76,049		50,170		124,557
Land Development Group		228,166		193,899		26,368		3,025		32,725		11,743
Lumber Trading Group		155,643		149,236		790		405		850		688
Corporate		76,794		115,631		550		306		633		503

	$	5,306,967	$	5,077,209	$	130,051	$	178,983	$	235,959	$	347,654


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

	2003		2002		2003		2002		2003		2002		2003		2002

	Revenues								Interest Expense

Commercial Group	$	160,415	$	146,132	$	323,829	$	277,930	$	32,207	$	31,742	$	62,954	$	62,813
Residential Group		48,465		38,613		95,394		76,308		6,113		5,904		13,217		11,070
Land Development Group		16,060		28,667		29,589		44,032		978		345		1,427		409
Lumber Trading Group (1)		26,980		23,337		46,881		49,600		768		759		1,419		1,395
Corporate		172		219		300		469		7,674		6,632		13,375		12,448

	$	252,092	$	236,968	$	495,993	$	448,339	$	47,740	$	45,382	$	92,392	$	88,135


	Depreciation and Amortization									Earnings Before Income Taxes (2)

Commercial Group	$	25,012	$	22,763		$	48,161	$	44,483	$	23,181		$	13,354		$	42,596		$	20,831
Residential Group		4,916		4,014			10,635		7,740		11,895			8,647			25,554			19,667
Land Development Group		61		(54	)		120		101		7,830			12,416			12,933			18,980
Lumber Trading Group (1)		463		533			928		1,068		1,063			(1,105	)		579			81
Corporate		489		484			914		976		(26,449	)⁽⁶⁾		(11,489	)		(37,237	)⁽⁶⁾		(22,078	)
Loss on disposition of other investments		—		—			—		—		(453	)		—			(431	)		(116	)

	$	30,941	$	27,740		$	60,758	$	54,368	$	17,067		$	21,823		$	43,994		$	37,365


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

Commercial Group		$	42,052		$	31,912		$	80,238		$	57,838
Residential Group			18,164			13,055			37,725			28,380
Land Development Group			6,337			5,538			8,896			8,806
Lumber Trading Group			436			(723	)		88			(59	)
Corporate			(16,739	)		(6,615	)		(25,297	)		(13,174	)
Discontinued Operations			—			430			35			1,682

Consolidated EBDT			50,250			43,597			101,685			83,473
Reconciliation of EBDT to net earnings: (5)
Depreciation and amortization — Real Estate Groups			(32,825	)		(28,309	)		(64,182	)		(55,596	)
Deferred taxes — Real Estate Groups			(9,926	)		(2,700	)		(16,875	)		(5,196	)
Straight-line rent adjustment			827			435			2,531			1,104
Provision for decline in real estate			(1,449	)		—			(1,449	)		—
Early extinguishment of debt, net of tax (3)			—			—			—			(230	)
Loss on disposition of operating properties and other investments, net of tax			(274	)		—			(261	)		(70	)
Discontinued operations not included in EBDT, net of tax and minority interest (4)
	Depreciation and amortization		—			(328	)		(57	)		(655	)
	Deferred taxes		—			(19	)		(50	)		(38	)
	Straight-line rent adjustment		—			7			—			27
	Loss on disposition of operating properties		—			—			53			—

Net earnings		$	6,603		$	12,683		$	21,395		$	22,819

(1)		The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended July 31, 2003 and 2002 were $651,720 and $648,653, respectively. Sales invoiced for the six months ended July 31, 2003 and 2002 were $1,185,791 and $1,337,549, respectively.

(2)		See Consolidated Statements of Earnings on page 3 for reconciliation of Earnings Before Income Tax (“EBIT”) to Net Earnings.

(3)		Early extinguishment of debt, which was formerly reported as an extraordinary item, is now recorded as an operating expense. However, early extinguishment of debt will be excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt will be included in EBDT.

(4)		See Note B — Discontinued Operations on Pages 10 and 11 for more information.

(5)		See Page 47 through 57 of this filing for additional information regarding the reconciliation of EBDT to Net Earnings.

(6)		See Note F - loss on Early Extinguishment of Debt on page 13.

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 Annual Report on Form 10-K for the year ended January 31, 2003.

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

GENERAL

The Company principally engages in the ownership, development, management and acquisition 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 and operates residential rental property, including upscale and middle-market apartments, adaptive re-use developments 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 $5.3 billion of assets in 21 states and the District of Columbia. Core markets include New York City, Denver, Boston, Washington D.C. and California. The Corporate 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.

Net Earnings - Net Earnings for the Company for the three months ended July 31, 2003 were $6,603,000 versus $12,683,000 for the three months ended July 31, 2002. Net Earnings for the Company for the six months ended July 31, 2003 were $21,395,000 versus $22,819,000 for the six months ended July 31, 2002. The fluctuation is primarily attributable to increased costs associated with the redemption of the Company’s $200,000,000 8.5% senior notes in June 2003.

EBDT - 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. EBDT is important to investors because it provides another method for the investor to measure the Company’s long term operating performance as net earnings can vary from year to year due to property dispositions, acquisitions and other factors that have a short term impact. EBDT is defined and discussed in detail under “Results of Operations — EBDT.” The major components of EBDT are Revenues, Operating Expenses and Interest Expense, each of which is discussed below. In addition, EBDT is reconciled to net earnings, the most comparable financial measure calculated in accordance with GAAP on page 47.

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) 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 (including amortiation of mortgage procurement costs) 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). Early extinguishment of debt is now reported in operating earnings instead of extraordinary items. However, early extinguishment of debt is excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt is included in EBDT.

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 the Company believes the values of its properties, in general, have appreciated, over time, in excess of their original cost. Deferred taxes from real estate operations, the result of timing differences of certain net expense items deducted in a future year for Federal income tax purposes, are excluded until the year in which they are reflected in the Company's current tax provision. The provision for decline in real estate is excluded from EBDT because it varies from year to year based on factors unrelated to the Company’s overall financial performance and is related to the ultimate gain or loss on dispositions of operating properties. The Company’s EBDT may not be directly comparable to similarly-titled measures reported by other companies. See the reconciliation of EBDT to net earnings on page 47 of this filing.

The Company’s EBDT for the three months ended July 31, 2003 grew by 15.3% to $50,250,000 from $43,597,000. The Company’s EBDT for the six months ended July 31, 2003 grew by 21.8% to $101,685,000 from $83,473,000 This increase over the prior year is primarily attributable to new property EBDT generated from 24 project openings and acquisitions that occurred during 2002 and the addition of six residential communities and two office buildings during the six months ended July 31, 2003. In addition, the Company also experienced increased land sales in the Commercial and Residential Groups, lower abandoned development project write-offs and an increase in non-recurring interest income in a participating note receivable. These increases were partially offset by a loss on early extinguishment of the Company’s $200,000,000 8.5% senior notes due 2008.

Pro-rata Consolidation - The Company presents certain financial amounts under the pro-rata consolidation method (a non-GAAP measure) as management believes that it more accurately reflects the manner in which it operates its business. This is important to investors because in line with industry practice, the Company has made a large number of investments in which its economic ownership is less than 100% as a means of sharing risk. The Company publicly discloses and discusses its performance using this method of consolidation to compliment its GAAP disclosures. The information in the tables on pages 38-46 present amounts for both full consolidation and pro-rata consolidation, providing a reconciliation of the difference between the two methods. 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.

The information in the section entitled “Summary of Earnings before Depreciation, Amortization and Deferred Taxes” on pages 47 – 57 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.

Net Operating Income from Real Estate Groups - 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 three months ended July 31, 2003 was $112,084,000 compared to $92,208,000 for the three months ended July 31, 2002, a 21.6% increase and for the six months ended July 31, 2003 was $217,030,000 compared to $178,152,000 for the six months ended July 31, 2002, a 21.8% increase. The change in each component of NOI is discussed under each operating segment below.

Under the pro-rata consolidation method, NOI from the Real Estate Groups for the three months ended July 31, 2003 was $109,393,000 compared to $89,918,000 for the three months ended July 31, 2002, a 21.7% increase and for the six months ended July 31, 2003 was $214,064,000 compared to $176,880,000 for the six months ended July 31, 2002, a 21.0% increase.

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

(continued on page 21)

Commercial Group

The following table presents the significant increases in revenues and operating expenses incurred by the Commercial Group for newly opened properties for the three and six months ended July 31, 2003 compared to the same period in the prior year (dollars in thousands):


							Three Months Ended				Six Months Ended

							July 31, 2003
			Quarter
			& Year						Operating				Operating
Property		Location	Opened		Sq. Ft.		Revenues		Expenses		Revenues		Expenses

Retail Centers:




Woodbridge Crossing		Woodbridge, NJ		Q3 - 2002		284,000	$	1,251	$	831	$	1,337	$	949




Harlem Center		Manhattan, NY		Q3 - 2002		126,000		1,224		327		2,391		513




Promenade in Temecula Expansion		Temecula, CA		Q3 - 2002		249,000		334		73		1,060		355




Galleria at Sunset Expansion		Henderson, NV		Q2 - 2002		121,000		376*		N/A		671*		N/A




Station Square - Bessemer Court		Pittsburgh, PA		Q2 - 2002		52,000		462		217		773		382




Quebec Square		Denver, CO		Q2 - 2002		691,000		653		312		1,137		596




Office Buildings:




Nine MetroTech Center South		Brooklyn, NY		Q2 - 2003		653,000		1,030		468		1,030		554




40 Landsdowne Street		Cambridge, MA		Q2 - 2003		215,000		776		82		776		82




88 Sidney Street		Cambridge, MA		Q2 - 2002		145,000		641		68		2,537		345




35 Landsdowne Street		Cambridge, MA		Q2 - 2002		202,000		2,312		426		4,639		826

	*Total*						$	9,059	$	2,804	$	16,351	$	4,602

* Revenue represent the change from the prior year of the Company’s share of net earnings.

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

Revenues - Revenues for the Commercial Group increased by $14,283,000 or 9.8 % for the second quarter ended July 31, 2003 over the same period in the prior year. This increase is primarily the result of $9,059,000 from the opening of new properties as noted in the table above and an increase of $6,135,000 in the Company’s hotel portfolio primarily due to the insurance claim proceeds from the Embassy Suites Hotel in Manhattan, New York which was closed until May 2002 after the terrorist attacks on September 11, 2001. These increases were partially offset by dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center, totaling $1,544,000. Bay Street was a 16,000 square foot retail center located in Staten Island, New York and Courtland Center was a 458,000 square foot retail center located in Flint, Michigan. The balance of the remaining increase in revenues in the Commercial Group of approximately $800,000 was generally due to fluctuations in operations at mature properties.

Revenues for the Commercial Group increased by $45,899,000 or 16.5% for the first half of 2003 over the first half of 2002. This increase is primarily the result of $16,351,000 from the opening of new properties as noted in the table above, $19,637,000 from increased commercial land sales and an increase of $10,270,000 in the Company’s hotel portfolio primarily due to the reopening of and insurance claim proceeds from the Embassy Suites Hotel. These increases were partially offset by dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center, totaling $3,690,000. The balance of the remaining increase in revenues in the Commercial Group of approximately $3,300,000 was generally due to fluctuations in operations at mature properties.

Operating and Interest Expenses - Operating expenses for the Commercial Group increased $637,000 or .8% for the second quarter of 2003 over the same period in the prior year. The increase in operating expenses was attributable primarily to costs associated with the opening of new properties of $2,804,000 as noted in the table above and greater operating costs of $2,020,000 in the Company’s hotel portfolio primarily due to the re-opening of the Embassy Suites Hotel. These increases were partially offset by $896,000 relating to dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center and a decrease in write-offs of abandoned development projects of $1,037,000 during the second quarter of 2003. The balance of the decrease in operating expenses of $2,254,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the second quarter of 2003 for the Commercial Group by $465,000 or 1.5% over the same period in the prior year. The increase is primarily attributable to the net increase in interest expense from the opening of new properties greater than the decrease in asset dispositions in 2003 and 2002.

Operating expenses for the Commercial Group increased $19,211,000 or 12.8% during the first half of 2003 over the same period in the prior year. The increase in operating expenses was attributable primarily to costs associated with the opening of new properties of $4,602,000 as noted in the table above, $16,293,000 relating to costs for commercial land sales and greater operating costs of $6,417,000 in the Company’s hotel portfolio primarily due to the re-opening of the Embassy Suites Hotel. These increases were partially offset by $1,639,000 relating to dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center and a decrease in write-offs of abandoned development projects of $2,711,000 during the first half of 2003. The balance of the decrease in operating expenses of $3,751,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the first half of 2003 for the Commercial Group by $141,000 or .2% over the same period in the prior year. The increase is primarily attributable to the net increase in interest expense from the opening of new properties greater than the decrease in asset dispositions in 2003 and 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 months and six months ended July 31, 2003 compared to the same period in the prior year (dollars in thousands):


								Three Months Ended						Six Months Ended

								July 31, 2003

				Quarter
				& Year		No. of					Operating						Operating
Property			Location	Opened		Units		Revenues			Expenses			Revenues			Expenses

	Consolidated




Consolidated Carolina			Richmond, VA		Q2 - 2003		158	$	35		$	55		$	35		$	55




Southfield Apartments^(a)			White Marsh, MD		Q4 - 2002		212		523			212			1,067			412




Landings of Brentwood			Nashville, TN		Q2 - 2002		724		642			352			2,275			1,048




Heritage			San Diego, CA		Q1 - 2002		230		722			232			1,465			430




Chancellor Park^(a)			Philadelphia, PA		Q1 - 2002		135		242			(299	)		547			(339	)




	FAH Properties




Parmatown Woods^(a)			Parma Hts., OH		Q1 - 2003		201		325			236			597			474




Plymouth Square^(a)			Detroit, MI		Q1 - 2003		280		691			314			1,405			618




Carl D. Perkins^(a)			Pikeville, KY		Q3 - 2002		150		218			162			512			312




Autumn Ridge^(a)			Sterling Hts., MI		Q2 - 2002		251		587			266			1,181			260




Tower 43^(a)			Kent, OH		Q2 - 2002		101		172			133			347			297




Cambridge Towers^(a)			Detroit, MI		Q2 - 2002		250		210			158			846			417




Coraopolis Towers^(a)			Coraopolis, PA		Q2 - 2002		200		(1	)		10			387			214




Donora Towers^(a)			Donora, PA		Q2 - 2002		103		(1	)		9			200			146




	Unconsolidated*




Worth Street			Manhattan, NY		Q1 - 2003		330		(244	)		N/A			(340	)		N/A




Colonial Grand^(a)			Tampa, FL		Q1 - 2003		176		(8	)		N/A			(4	)		N/A




Colony Place^(a)			Fort Myers, FL		Q1 - 2003		300		46			N/A			42			N/A




St. Mary’s Villa^(a)			Newark, NJ		Q2 - 2002		360		(135	)		N/A			(204	)		N/A




Residences at University Park			Cambridge, MA		Q1 - 2002		135		148			N/A			(120	)		N/A




Westwood Reserve^(a)			Tampa, FL		Q1 - 2002		340		(37	)		N/A			(100	)		N/A




Parkwood Village^(b)			Brunswick, OH		Q2 - 2001		204		94			N/A			138			N/A

		Total						$	4,229		$	1,840		$	10,276		$	4,344

*		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.

Revenues - Revenues for the Residential Group increased $9,852,000 or 25.5% for the three months ended July 31, 2003 over the same period in the prior year. These increases were partially the result of acquisitions made and properties opened during 2002 and 2003 totaling $4,229,000 as noted in the table above. Revenues also increased by $5,300,000 as a result of the recognition of contingent interest income on an unreserved participating note receivable at one of the Company’s syndicated properties. In addition, revenues also increased by $3,113,000 as a result of the sale of a parcel of land originally acquired for a supported-living development project on Long Island, New York. This parcel was sold in the second quarter when it was determined that it was not necessary to complete the project. These increases were partially offset by decreases in revenues of $1,493,000 from the reversal of reserves for notes receivable and related accrued interest from certain syndicated properties that occurred in 2002 and did not recur in 2003 as well as a decrease in investment earnings from equity method investments of $608,000 in Kennedy Biscuit Lofts, a 142-unit community in Cambridge, Massachusetts and $604,000 in equity method development project write-offs.

Revenues for the Residential Group increased $19,086,000 or 25.0% for the six months ended July 31, 2003 over the same period in the prior year. These increases were partially the result of acquisitions made and properties opened during 2002 and 2003 totaling $10,276,000 as noted in the table above. Revenues also increased by $5,300,000 as a result of the recognition of contingent interest income on an unreserved participating note receivable at one of the Company’s syndicated properties and $1,319,000 from the reversal of reserves for notes receivable and related accrued interest from certain syndicated properties. In addition, revenues also increased by $3,113,000 as a result of the sale of a parcel of land originally acquired for a supported-living development project on Long Island, New York. This parcel was sold in the second quarter when it was determined that it was not necessary to complete the project. These increases were partially offset by decreases in revenues from investment earnings from equity method investments of $835,000 in Kennedy Biscuit Lofts, a 142-unit community in Cambridge, Massachusetts and $604,000 in equity method development project write-offs.

Operating and Interest Expenses - Operating expenses for the Residential Group increased by $4,638,000 or 23.1% during the three months ended July 31, 2003 compared to the same period in the prior year. These increases were partially the result of the acquisitions made and properties opened during 2003 and 2002 totaling $1,840,000 as noted in the table above. In addition, $3,600,000 was expensed as costs of nonrecurring land sales. These increases were offset by a decrease of $1,000,000 in the provision for project write-offs. The remaining increase of approximately $198,000 was generally due to fluctuations in operating costs at mature properties.

Operating expenses for the Residential Group increased by $7,680,000 or 20.5% during the six months ended July 31, 2003 compared to the same period in the prior year. These increases were partially the result of the acquisitions made and properties opened during 2003 and 2002 totaling $4,344,000 as noted in the table above. In addition, $3,600,000 was expensed as costs of nonrecurring land sales. Expenses also increased by $418,000 due to decreased expenses in 2002 at Metropolitan, a 270-unit apartment building in Los Angeles, CA, as a result of proceeds received from a lawsuit settlement. These increases are offset by a decrease of $767,000 in the provision for project write-offs. The remaining increase of approximately $85,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense for the Residential Group increased $209,000 or 3.5% for the three months ended July 31, 2003 compared to the same period in the prior year. Interest expense for the Residential Group increased by $1,767,000 or 15.4% for the six months ended July 31, 2003 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 2003 and 2002 offset by a decrease in variable interest rates.

Land Development Group

Revenues - Sales of land and related gross margin 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 $12,607,000 during the three months ended July 31, 2003 compared to the same period in the prior year. This decrease is primarily the result of decreases in land sales of $16,750,000 at three major land development projects: Willowbrook in Twinsburg, Ohio; Stapleton in Denver, Colorado, and Central Station in Chicago, Illinois combined with several smaller sales decreases. These decreases were offset by increases of $4,143,000 primarily at two major land development projects: Gladden Farms in Marana, Arizona and Seven Hills in Henderson, Nevada and several smaller sales increases at various land development projects.

Revenues for the Land Development Group decreased by $14,443,000 during the six months ended July 31, 2003 compared to the same period in the prior year. This decrease is primarily the result of decreases in land sales of $17,637,000 at four major land development projects: Willowbrook; Stapleton; Central Station and Waterbury in North Ridgeville, Ohio combined with several smaller sales decreases. These decreases were offset by increases of $4,503,000 primarily at two major land development projects: Gladden Farms and Seven Hills and several smaller sales increases at various land development projects. In addition, revenue decreased by $1,309,000 as a result of the sale of land options at Paseo del Este in El Paso, Texas, which has not recurred in the first six months of 2003.

Operating and Interest Expense - The fluctuation in Land Development Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses decreased by $8,768,000 during the three months ended July 31, 2003 compared to the same period in the prior year. This decrease is primarily due to decreased combined expenses of $9,168,000 primarily at three land development projects: Willowbrook, Stapleton and Central Station along with several smaller expense decreases at various land development projects offset by increases of $400,000 at various land development projects.

Operating expenses decreased by $9,420,000 during the six months ended July 31, 2003 compared to the same period in the prior year. This decrease is primarily due to decreased combined expenses of $10,164,000 primarily at four land development projects: Willowbrook, Stapleton, Central Station and Waterbury along with several smaller expense decreases at various land development projects offset by increases of $744,000 at various land development projects.

Interest expense for the Land Development Group increased by $633,000 during the three months ended July 31, 2003 compared to the same period in the prior year. Interest expense increased by $1,018,000 during the six months ended July 31, 2003 compared to the same period in the prior year. Interest expense varies from year to year depending on the level of interest-bearing debt within the Land Development Group.

Lumber Trading Group

Revenues - During the past two years the lumber industry has been experiencing an oversupply situation which has resulted in volatility in lumber prices. Revenues for the Lumber Trading Group increased by $3,643,000 during the three months ended July 31, 2003 compared to the same period in the prior year due to increases in lumber prices that have materialized over recent months. Revenues for the six months ended July 31, 2003, however, decreased by $2,719,000. This is due to lower lumber prices for the first three months of the current year combined with an overall decrease in volume.

Operating and Interest Expense - Operating expenses for the Lumber Trading Group increased by $1,467,000 for the three months ended July 31, 2003 compared to the same period in the prior year. This increase is primarily due to the higher variable expenses, principally traders’ commissions, resulting from the increase in revenue explained above as well as an increase in expenses associated with the closing of one of the lumber trading offices. These increases were slightly offset by declines in travel and entertainment costs and consulting fees. Operating expenses for the Lumber Trading Group decreased by $3,241,000 for the six months ended July 31, 2003 compared to the same period in the prior year. This decrease was primarily due to the lower variable expenses, principally traders’ commissions, resulting from the decrease in revenue explained above combined with a

decrease in administrative compensation and consulting fees, offset by an increase in expense associated with the closing of one of the lumber trading offices.

Interest expense increased by $9,000 for the three months ended July 31, 2003 and $25,000 for the six months ended July 31, 2003 compared to the same periods in the prior year. This increase was due to minimal increases in the borrowing level and the interest rates.

Corporate Activities

Revenues - Corporate Activities’ revenues decreased $47,000 during the three months ended July 31, 2003 and $169,000 during the six months ended July 31, 2003 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 amount of loans outstanding.

Operating and Interest Expenses - Operating expenses for Corporate Activities increased $2,386,000 during the three months ended July 31, 2003 and $2,579,000 during the six months ended July 31, 2003 compared to the same periods in the prior year. The increase in operating expenses was the result of increases in general corporate expenses. Interest expense increased $1,042,000 during the three months ended July 31, 2003 and $927,000 during the six months ended July 31, 2003 compared to the same periods in the prior year. Corporate Activities’ interest expense consists primarily of interest expense on the Company’s senior notes and long-term credit facility that have not been allocated to a strategic business unit (see “Financial Condition and Liquidity”).

Loss on Early Extinguishment of Debt

The Company adopted the provisions of SFAS No. 145, “Recission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13 on Technical Corrections” (SFAS No. 145), which requires gains or losses from early extinguishment of debt to be classified in operating income or loss. The Company previously recorded gains or losses from early extinguishment of debt as extraordinary items, net of tax, in its Statement of Earnings. For the three and six months ended July 31, 2003, the Company has recorded $10,718,000 as Loss on Early Extinguishment of Debt. This amount is primarily the result of the payment in full of the Company’s $200,000,000 8.5% senior notes due in 2008 at a premium of 104.25% for a loss on extinguishment of $8,500,000 for redemption premium and approximately $3,000,000 related to the write-off of unamortized debt issue costs. These changes were offset, in part, by gains on early extinguishment of debt of approximately $800,000 on several residential properties. For the six months ended July 31, 2002, the Company reclassified $380,000 ($230,000, net of tax) of early extinguishment of debt from extraordinary loss to Loss on Early Extinguishment of Debt to conform to the new guidance. There were no amounts reclassified for early extinguishment of debt for the three months ended July 31, 2002.

Depreciation and Amortization

Depreciation and amortization increased $3,201,000 and $6,390,000 for the three and six months ended July 31, 2003, respectively, compared to the same period in the prior year. This increase is primarily the result of acquisitions made and new properties opened, offset by property dispositions and properties reclassified as discontinued operations.

Discontinued Operations

For the six months ended July 31, 2003, Trowbridge, a supported-living community located in Southfield, Michigan, was included in discontinued operations. Trowbridge has 305 units and its deed was accepted by its lender in lieu of foreclosure in April of 2003. Trowbridge was previously included in the Residential Group. For the three months ended July 31, 2003, the Company had no properties reported as discontinued operations.

For the three and six months ended July 31, 2002, three properties were included in discontinued operations: Bay Street, Courtland Center and Trowbridge. Bay Street, a 16,000 square foot retail center located in Staten Island, New York, was sold in the fourth quarter of fiscal 2002. Courtland Center, a 458,000 square foot retail center located in Flint, Michigan, was also sold during the fourth quarter of fiscal 2002. Bay Street and Courtland Center were both previously included in the Commercial Group.

The assets and liabilities relating to assets held for sale and operating results relating to assets sold and assets held for sale are as follows.


		July 31,		January 31,

		2003		2003

		(in thousands)
Assets




	Real estate, net	$	—	$	20,004




	Other assets		—		1,021

		$	—	$	21,025

Liabilities




	Mortgage debt, nonrecourse	$	—	$	20,822




	Other liabilities		—		574

		$	—	$	21,396


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

		2003		2002			2003			2002

		(in thousands)					(in thousands)

Revenues		$	—	$	2,937		$	1,289		$	6,497

Expenses




	Operating expenses		—		1,983			1,407			3,779




	Interest expense		—		617			—			1,201




	Depreciation and amortization		—		408			106			817

			—		3,008			1,513			5,797

Gain on disposition of operating properties			—		—			411			—

(Loss) earnings before income taxes			—		(71	)		187			700




Income tax expense (benefit)




	Current		—		(91	)		1,632			2,363




	Deferred		—		19			(1,644	)		(2,528	)

			—		(72	)		(12	)		(165	)

Earnings before income taxes			—		1			199			865




Minority interest			—		90			(218	)		152

Net earnings (loss) from discontinued operations		$	—	$	91		$	(19	)	$	1,017

The following table summarizes the gain (loss) on disposition of operating properties for the three and six months ended July 31, 2003 and 2002.


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

		2003		2002		2003			2002

		(in thousands)				(in thousands)

Discontinued operations




	Trowbridge	$	—	$	—	$	538		$	—




	Other		—		—		(127	)		—

Total		$	—	$	—	$	411		$	—

Provision for Decline in Real Estate - The following table summarizes the Company’s Provision for Decline in Real Estate for the three and six months ended July 31, 2003. The provision represents the adjustment to fair market value of land held by the Residential Group and a retail center held by the Commercial Group. The Company had no amounts recorded for Provision for Decline in Real Estate for the three and six months ended July 31, 2002.


			Three and Six Months
			Ended July 31, 2003

			(in thousands)
Leggs Hill	Land	Salem, MA	$	1,624
Hunting Park	Retail Center	Philadelphia, PA		1,104

Total			$	2,728

Income Taxes - Income tax expense for the three months ended July 31, 2003 and 2002 was $5,905,000 and $7,022,000, respectively. Income tax expense for the six months ended July 31, 2003 and 2002 was $15,481,000 and $13,709,000, respectively. At January 31, 2003, the Company had a tax loss carryforward of $10,873,000 that will expire in the year ending January 31, 2022, General Business Credit carryovers of $7,581,000 that will expire in the years ending January 31, 2004 through January 31, 2023, and an Alternative Minimum Tax credit carryforward of $33,445,000.

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 long-term 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.

Senior Notes - On May 19, 2003, the Company issued $300,000,000 of its 7.625% senior notes due June 1, 2015 in a public offering under its shelf registration statement. Accrued interest is payable semi-annually beginning on December 1, 2003. $208,500,000 of the proceeds from this offering were used to redeem all of the outstanding 8.5% senior notes originally due in 2008 at a redemption price equal to 104.25%. The remainder of the proceeds were used for offering costs of $8,092,000, to repay $73,000,000 outstanding under the revolving portion of the long-term credit facility and for general working capital purposes. The new 7.625% senior notes contain covenants comparable to the previously outstanding 8.5% senior notes. The Company currently has $542,180,000 available under its shelf registration.

Long-Term Credit Facility - At July 31, 2003, the Company had $83,750,000 outstanding under its $350,000,000 long-term credit facility which became effective March 5, 2002. The credit facility includes a $100,000,000 term loan with an outstanding balance of $68,750,000 as of July 31, 2003 and a $250,000,000 revolving line of credit with an outstanding balance of $15,000,000, 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 ($27,837,000 in letters of credit outstanding and $-0- surety bonds at July 31, 2003). Quarterly principal payments of $6,250,000 on the new term loan commenced July 1, 2002.

The long-term credit facility provides, among other things, for: 1) at the Company’s election, interest rates of 2.125% over LIBOR or 1/2% over the prime rate except for the last $50,000,000 of borrowings in the case of 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) restrictions 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. Swaps are in effect through January 31, 2004 which effectively fixed the LIBOR base rate at 1.78% for a notional amount of $56,250,000 beginning February 1, 2003, and effectively fix the LIBOR base rate at 1.77% for a notional amount of $27,500,000 beginning December 2, 2002. LIBOR interest rate caps were purchased for the period starting February 1, 2003 through August 1, 2004. These caps vary in notional from $136,370,000 to $147,882,000 over the period and carry strike rates from 4.0% to 5.5%.

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 secured solely by certain assets of the Lumber Trading Group and 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’s corporate structure and capital strategy allow for the Company to maximize returns on its equity capital. All of the Company’s mortgage debt is nonrecourse including the Company’s construction loans. The Company operates as a C-Corporation and retains substantially all of its internally generated cash flow. The Company recycles this cash flow, together with refinancing and property sale proceeds to fund new development and acquisitions that drive favorable returns for the Company’s shareholders. This strategy provides the Company the necessary liquidity to take advantage of investment opportunities.

The Company is actively working to extend the maturities and/or refinance the nonrecourse debt that is coming due in 2003 and 2004, generally pursuing long-term fixed-rate debt for its stabilized properties. During the six months ended July 31, 2003, the Company completed the following financings:


Purpose of Financing

(in thousands)
Refinancings	$	324,299
Development projects (commitment)		91,500
Land Acquisition		2,250
Loan extensions		56,442

	$	474,491

Reduction of mortgage debt due to property dispositions	$	25,933

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

At July 31, 2003, the composition of nonrecourse mortgage debt was as follows:


		Amount		Rate

		(in thousands)
Fixed		$	2,276,288		6.98	%
Variable
	Taxable ⁽¹⁾		737,930		3.73	%
	Tax-Exempt		105,000		1.97	%
UDAG			75,716		2.02	%

		$	3,194,934		5.95	%

(1)

Taxable variable-rate debt of $737,930 is protected with LIBOR swaps and caps described below.

Debt related to projects under development at July 31, 2003 totals $129,473,000, out of a total commitment from lenders of $298,756,000. Of this outstanding debt, $94,473,000 is taxable variable-rate debt, $31,000,000 is tax-exempt variable-rate debt, and $4,000,000 is taxable fixed-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⁽²⁾						Swaps⁽¹⁾⁽²⁾

				Average					Average
Period Covered	Amount			Rate			Amount		Rate

	(dollars in thousands)
08/01/03 - 02/01/04	$	933,538	⁽³⁾		6.44	%	$	288,676		2.24	%
02/01/04 - 02/01/05		485,771			6.52	%		404,502		2.72	%
02/01/05 - 02/01/06		370,495			7.23	%		261,349		3.48	%
02/01/06 - 02/01/07		167,606			6.63	%		322,575		3.61	%

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

(2) In August and September 2003, the Company executed several derivative instruments. The Company purchased approximately $144 million in Interest Rate Caps effective in August 2003 with durations of 18 months to 3 years. Additionally, approximately $255.5 million of Interest Rate Swaps were executed. The swaps have commencement dates ranging from October 2003 through May 2005 with durations ranging from 18 months to 3 years.

(3) These LIBOR-based hedges as of August 1, 2003 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, 2004.

The interest rate hedges summarized in the tables above were purchased to mitigate short-term variable interest rate risk. The Company currently intends to convert a significant portion of its committed variable-rate debt to fixed-rate debt. In order to protect against significant increases in long-term interest rates, in September 2003, the Company has executed a $31.4 million Treasury Lock at 4.60%. The Treasury Lock expires in October 2003.

The Company generally does not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.30% 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 $5,200,000 at July 31, 2003. This increase is net of the protection provided by the interest rate swaps and long-term LIBOR contracts in place as of July 31, 2003. A portion of the Company’s taxable variable rate debt is related to construction loans for which the interest expense is capitalized. 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 $4,000,000 at July 31, 2003.

Lumber Trading Group Liquidity

Lumber Trading Group is separately financed with a revolving line of credit which totaled $80,000,000 at July 31, 2003 and an asset securitization facility. The bank line of credit allows for up to $5,000,000 in outstanding letters of credit ($81,000 outstanding at July 31, 2003), which reduce the credit available to the Lumber Trading Group by the amount of the letters of credit used. Borrowings under the bank line of credit, which are nonrecourse to the Company, are collateralized by all the assets of the Lumber Trading Group, bear interest at the lender’s prime rate or LIBOR plus an applicable margin ranging from 1.5% to 2.0%, and have a fee of 0.3% to 0.5% per year on the unused portion of the available commitment. The LIBOR loan margin and unused commitment fee are based on a quarterly interest coverage ratio. The bank line of credit, which is subject to review and extension annually, expired on June 30, 2003 and was extended to November 1, 2003. At July 31, 2003, $14,512,000 was outstanding under this revolving line of credit.

The Lumber Trading Group has entered into a three-year agreement, expiring in July 2005 under which it is selling an undivided interest in a pool of receivables up to a maximum of $88,627,000 to a large financial institution (the “Financial Institution”). This agreement includes required bank liquidity support which is renewed annually and was amended June 16, 2003. The next renewal date is November 16, 2003. The Company bears no risk regarding the collectability of the accounts receivable once sold and cannot modify the pool of receivables. At July 31, 2003 the Financial Institution held an interest of $55,000,000 in the pool of receivables. Sales of accounts receivable have averaged $50,000,000 per month during the six months ended July 31, 2003.

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

These credit facilities are without recourse to the Company. The Company believes that the amount 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 $34,403,000 for the six months ended July 31, 2003 and $58,258,000 for the six months ended July 31, 2002. This decrease in net cash provided by operating activities of $23,855,000 is the result of the following (in thousands):


Increase in operating revenue, excluding land sales		$	59,983
Increase in accounts receivable, primarily Lumber Trading Group			(38,992	)
Other			1,923

	Increase in rents and revenues received				$	22,914
Increase in cash distributions from unconsolidated entities						129
Decrease in proceeds from land sales						(14,635	)
Increase in land development expenditures						(13,961	)
Decrease in operating expenses			1,109
Decrease in accounts payable and accrued expenses			(13,041	)

	Increase in operating expenditures					(11,932	)
Increase in interest paid						(6,370	)

	Decrease in cash provided by operations				$	(23,855	)

Net cash used in investing activities was $209,564,000 for the six months ended July 31, 2003 and $344,122,000 for the six months ended July 31, 2002. The net cash used in investing activities consists of the following:


		Six Months Ended July 31,

		2003			2002

		(in thousands)
Capital expenditures*		$	(212,037	)	$	(323,910	)
Disposition of other investments			54			–
Return on investments in and advances to real estate affiliates			2,419			–
Investments in and advances to real estate affiliates primarily related to development projects in New York City			–			(20,212	)

	Total	$	(209,564	)	$	(344,122	)

* Capital expenditures were financed as follows:

Approximate new nonrecourse mortgage indebtedness		$	212,037		$	236,000
Borrowings under the long-term credit facility			–			87,910

	Total	$	212,037		$	323,910

Net cash provided by financing activities totaled $189,301,000 for the six months ended July 31, 2003 and $269,020,000 for the six months ended July 31, 2002.

Net cash used in financing activities reflected the following:


		Six Months Ended July 31,

		2003			2002

		(in thousands)
Proceeds from issuance of senior notes		$	300,000		$	–
Increase in nonrecourse mortgage debt			491,674			223,565
Borrowings on long-term credit facility			34,000			192,000
Quarterly repayments of term loan, began in July 2002			(12,500	)		(6,250	)
Repayment of borrowings under the long-term credit facility:
	2003: from proceeds of the new $300,000,000 senior notes 2002: from proceeds of the new $100,000,000 term loan		(73,000	)		(78,000	)
Retirement of $200,000,000 senior notes and premium			(208,500	)		–
Payment of senior notes issuance costs			(8,092	)		–
Net increase in notes payable (2003: primarily to finance the purchase of land for a development project in Rancho Cucamonga, California)			10,054			2,101
(Increase) decrease in restricted cash (2003: primarily from a business interruption insurance settlement placed in escrow, offset by Consolidated Carolina, an apartment building under construction in Richmond, Virginia)			(6,324	)		1,110
Decrease in book overdrafts, representing checks issued but not yet paid			(15,845	)		(21,623	)
Payment of deferred financing costs			(6,571	)		(5,501	)
Proceeds from the exercise of stock options			2,489			3,033
Payment of dividends			(5,970	)		(4,954	)
(Decrease) increase in minority interest			(12,433	)		5,065
Principal payments on nonrecourse mortgage debt			(299,681	)		(41,526	)

Total		$	189,301		$	269,020

SHELF REGISTRATION

The Company, along with its wholly-owned subsidiaries Forest City Enterprises Capital Trust I and Forest City Enterprises Capital Trust II, filed an amended shelf registration statement with the Securities and Exchange Commission (SEC) on May 24, 2002. This 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 funds from the offering of Class A common stock, preferred stock, depositary shares and a variety of debt securities, warrants and other securities. At July 31, 2003, an aggregate of $542,180,000 was available under this shelf registration.

INCREASED DIVIDENDS

The first 2003 quarterly dividend of $.06 per share on both Class A and Class B Common Stock was declared March 12, 2003 and was paid on June 16, 2003 to shareholders of record at the close of business on June 2, 2003. The second 2003 quarterly dividend of $.09 (representing a 50 percent increase over the previous quarter’s dividend) per share on both Class A and Class B Common Stock was declared June 11, 2003 and will be paid September 15, 2003 to shareholders of record at the close of business on September 2, 2003. This 50 percent increase over the previous quarter’s dividend rate is in response to recent tax law changes, which lowered the maximum rate on dividends to 15 percent, and provides additional liquidity to the Company’s shareholders. The third 2003 quarterly dividend of $.09 per share on shares of both Class A and Class B Common Stock was declared on September 10, 2003 and will be paid on December 15, 2003 to shareholders of record at the close of business on December 1, 2003.

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.

NEW ACCOUNTING STANDARDS

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150). This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that an issuer classify a financial instrument that is within its scope as a liability, many of these instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective August 1, 2003 for the Company. As currently written and interpreted, for many of its non-wholly owned entities that are consolidated into the accounts of the Company, SFAS No. 150 requires that the Company reflect the capital accounts of its minority partners involved in certain finite life entities (including most, if not all, limited partnerships and limited liability companies) as a liability. Furthermore, SFAS No. 150 requires that the liability be recognized at fair value, with an offsetting adjustment to earnings. Although the Company is currently evaluating and assessing the impact of SFAS No. 150, as currently written and interpreted, it is expected to have a material impact on the Company’s financial position and results of operations.

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. Risk factors discussed on pages 5-12 of the Company’s Form 10-K at January 31, 2003 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 including lack of satisfactory financing, construction and lease-up delays and cost overruns, the effect of economic and market conditions on a nationwide basis as well as regionally in areas where the Company has a geographic concentration of properties; 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; the level and volatility of interest rates; continued availability of tax-exempt government financing; the sustainability of substantial operations at the subsidiary level; illiquidity of real estate investments; dependence on rental income from real property; conflicts of interest; financial stability of tenants within the retail industry, which may be impacted by competition and consumer spending; potential liability from syndicated properties; effects of uninsured loss; environmental liabilities; partnership risks; litigation risks; the rate revenue increases versus the rate of expense increases; the cyclical nature of the lumber wholesaling business, as well as other risks listed from time to time in the Company’s reports filed with the Securities and Exchange Commission. The Company has no obligation to revise or update any forward-looking statements, other than imposed by law, as a result of future events or new information. Readers are cautioned not to place undue reliance on such forward-looking statements.

THIS PAGE INTENTIONALLY LEFT BLANK

FINANCIAL STATEMENT PRESENTATION

The Company presents certain financial amounts under the pro-rata consolidation method (a non-GAAP measure) as management believes that it more accurately reflects the manner in which it operates its business. This is important to investors because in line with industry practice, the Company has made a large number of investments in which its economic ownership is less than 100% as a means of sharing risk. The Company publicly discloses and discusses its performance using this method of consolidation to compliment its GAAP disclosures. The information in the tables below present amounts for both full consolidation, a GAAP measure, and pro-rata consolidation, providing a reconciliation of the difference between the two methods. 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.

Consolidated Balance Sheet — July 31, 2003

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Assets

Real Estate

Completed rental properties

4,094,085

663,318

$926,539

4,357,306

Projects under development

524,374

64,348

120,625

580,651

Land held for development or sale

48,748

—

41,112

89,860

Total Real Estate

4,667,207

727,666

1,088,276

5,027,817

Less accumulated depreciation

(658,173

)

(99,899

)

(205,878

)

(764,152

)

Real Estate, net

4,009,034

627,767

882,398

4,263,665

Cash and equivalents

136,496

30,150

23,964

130,310

Restricted cash

137,290

29,580

26,819

134,529

Notes and accounts receivable, net

319,664

34,649

14,878

299,893

Inventories

34,356

—

34,356

Investments in and advances to real estate affiliates

499,086

—

(68,083

)

431,003

Other assets

171,041

27,884

42,470

185,627

Total Assets

5,306,967

750,030

$922,446

5,479,383

Liabilities and Shareholders’ Equity

Liabilities

Mortgage debt, nonrecourse

3,194,934

573,505

$866,143

3,487,572

Notes payable

89,538

16,048

3,757

77,247

Long-term credit facility

83,750

—

83,750

Senior and subordinated debt

320,400

—

320,400

Accounts payable and accrued expenses

551,303

86,527

52,546

517,322

Deferred income taxes

267,229

—

267,229

Total Liabilities

4,507,154

676,080

922,446

4,753,520

Minority interest

73,950

—

Total Shareholders’ Equity

725,863

—

725,863

Total Liabilities and Shareholders’ Equity

5,306,967

750,030

$922,446

5,479,383

Consolidated Statement of Earnings — Three Months Ended July 31, 2003

Plus

Unconsolidated

Plus

Less Minority

Investments at

Discontinued

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Operations

Consolidation

(in thousands)

Revenues

Rental properties

213,285

38,384

66,088

—

240,989

Lumber trading

26,980

—

26,980

Equity in earnings of unconsolidated real estate entities

11,827

(7,341

)

—

4,483

252,092

38,387

58,747

—

272,452

Expenses

Operating expenses

142,445

20,935

36,850

—

158,360

Interest expense

47,740

7,911

14,363

—

54,192

Loss (gain) on early extinguishment of debt

10,718

(98

)

—

10,816

Provision for decline in real estate

2,728

331

—

2,397

Depreciation and amortization

30,941

4,749

7,534

—

33,726

Loss on disposition of other investments

453

—

453

235,025

33,828

58,747

—

259,994

Earnings before income taxes

17,067

4,559

—

12,508

Income tax expense

Current

1,140

—

1,140

Deferred

4,765

—

4,765

5,905

—

5,905

Earnings before minority interest

11,162

4,559

—

6,603

Minority interest

(4,559

)

(4,559

)

—

Net earnings

6,603

—

6,603

Consolidated Statement of Earnings — Six Months Ended July 31, 2003

Plus

Unconsolidated

Plus

Less Minority

Investments at

Discontinued

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Operations

Consolidation

(in thousands)

Revenues

Rental properties

427,442

77,019

125,369

687

476,479

Lumber trading

46,881

—

46,881

Equity in earnings of unconsolidated real estate entities

21,670

—

(12,684

)

—

8,986

495,993

77,019

112,685

687

532,346

Expenses

Operating expenses

284,972

45,039

69,910

749

310,592

Interest expense

92,392

15,510

28,459

—

105,341

Loss (gain) on early extinguishment of debt

10,718

(98

)

—

10,816

Provision for decline in real estate

2,728

331

—

2,397

Depreciation and amortization

60,758

9,138

14,316

65,993

Loss (gain) on disposition of other investments

431

—

(88

)

343

451,999

69,920

112,685

718

495,482

Earnings before income taxes

43,994

7,099

—

(31

)

36,864

Income tax expense

Current

3,962

—

1,632

5,594

Deferred

11,519

—

(1,644

)

9,875

15,481

—

(12

)

15,469

Earnings before minority interest and discontinued operations

28,513

7,099

—

(19

)

21,395

Minority interest

(7,099

)

(7,099

)

—

Earnings from continuing operations

21,414

—

(19

)

21,395

Discontinued operations, net of tax and minority interest

Loss from operations

(72

)

—

Gain on disposition of operating properties

—

(53

)

—

(19

)

—

Net earnings

21,395

—

21,395

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


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

		*(in thousands)*
Revenues
	Rental properties	$	203,067		$	33,735		$	49,635		$	2,242		$	221,209
	Lumber trading		23,337			—			—			—			23,337
	Equity in earnings of unconsolidated real estate entities		10,564			—			(5,375	)		—			5,189

			236,968			33,735			44,260			2,242			249,735

Expenses
	Operating expenses		142,023			18,612			26,226			1,472			151,109
	Interest expense		45,382			8,320			11,901			424			49,387
	Depreciation and amortization		27,740			4,594			6,133			328			29,607

			215,145			31,526			44,260			2,224			230,103

Earnings before income taxes			21,823			2,209			—			18			19,632

Income tax expense
	Current		3,877			—			—			(92	)		3,785
	Deferred		3,145			—			—			19			3,164

			7,022			—			—			(73	)		6,949

Earnings before minority interest and discontinued operations			14,801			2,209			—			91			12,683

Minority interest			(2,209	)		(2,209	)		—			—			—

Earnings from continuing operations			12,592			—			—			91			12,683

Discontinued operations, net of tax and minority interest
	Earnings from operations		91			—			—			(91	)		—

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

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


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

		*(in thousands)*
Revenues
	Rental properties	$	377,981		$	61,886		$	100,159		$	5,091		$	421,345
	Lumber trading		49,600			—			—			—			49,600
	Equity in earnings of unconsolidated real estate entities		20,758			—			(11,317	)		—			9,441

			448,339			61,886			88,842			5,091			480,386

Expenses
	Operating expenses		267,975			34,652			53,199			2,762			289,284
	Interest expense		88,135			16,445			23,536			822			96,048
	Loss on early extinguishment of debt		380			—			—			—			380
	Depreciation and amortization		54,368			8,935			12,107			655			58,195
	Loss on disposition of other investments		116			—			—			—			116

			410,974			60,032			88,842			4,239			444,023

Earnings before income taxes			37,365			1,854			—			852			36,363

Income tax expense
	Current		8,388			—			—			2,363			10,751
	Deferred		5,321			—			—			(2,528	)		2,793

			13,709			—			—			(165	)		13,544

Earnings before minority interest and discontinued operations			23,656			1,854			—			1,017			22,819

Minority interest			(1,854	)		(1,854	)		—			—			—

Earnings from continuing operations			21,802			—			—			1,017			22,819

Discontinued operations, net of tax and minority interest
	Earnings from operations		1,017			—			—			(1,017	)		—

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

Consolidated Statement of Cash Flows — Six Months Ended July 31, 2003

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

417,878

71,081

117,000

463,797

Cash distributions from unconsolidated entities

9,688

—

(9,688

)

—

Proceeds from land sales

22,471

1,871

13,691

34,291

Land development expenditures

(39,893

)

(2,535

)

(6,260

)

(43,618

)

Operating expenditures

(283,912

)

(35,170

)

(66,390

)

(315,132

)

Interest paid

(91,829

)

(14,635

)

(28,886

)

(106,080

)

Net cash provided by operating activities

34,403

20,612

19,467

33,258

Cash Flows from Investing Activities

Capital expenditures

(212,037

)

(35,437

)

(51,936

)

(228,536

)

Proceeds from disposition of other investments

—

Change in investments in and advances to real estate affiliates

2,419

—

2,664

5,083

Net cash used in investing activities

(209,564

)

(35,437

)

(49,272

)

(223,399

)

Cash Flows from Financing Activities

Proceeds from issuance of senior notes

300,000

—

300,000

Retirement of senior notes

(208,500

)

—

(208,500

)

Payment of senior notes issuance costs

(8,092

)

—

(8,092

)

Increase in nonrecourse mortgage debt

491,674

114,925

49,431

426,180

Increase in long-term credit facility

34,000

—

34,000

Principal payments on nonrecourse mortgage debt

(299,681

)

(61,576

)

(24,734

)

(262,839

)

Payments on long-term credit facility

(85,500

)

—

(85,500

)

Increase in notes payable

23,212

—

2,204

25,416

Payments on notes payable

(13,158

)

(513

)

(4,533

)

(17,178

)

Change in restricted cash and book overdrafts

(22,169

)

(7,031

)

4,383

(10,755

)

Payment of deferred financing costs

(6,571

)

(1,560

)

(2,699

)

(7,710

)

Exercise of stock options

2,489

—

2,489

Dividends paid to shareholders

(5,970

)

—

(5,970

)

Decrease in minority interest

(12,433

)

(12,433

)

—

Net cash provided by financing activities

189,301

31,812

24,052

181,541

Net increase (decrease) in cash and equivalents

14,140

16,987

(5,753

)

(8,600

)

Cash and equivalents at beginning of period

122,356

13,163

29,717

138,910

Cash and equivalents at end of period

136,496

30,150

23,964

130,310

Reconciliation of Net Earnings to Cash Provided by Operating Activities

Net Earnings

21,395

—

21,395

Discontinued operations:

Minority interest

218

—

Amortization

106

—

Gain on disposition of operating properties

(411

)

(323

)

—

(88

)

Minority interest

7,099

—

Depreciation

50,149

6,869

12,296

55,576

Amortization

10,609

2,269

2,020

10,360

Equity in earnings of unconsolidated entities

(21,670

)

—

12,684

(8,986

)

Cash distributions from unconsolidated entities

9,688

—

(9,688

)

—

Deferred income taxes

9,875

—

9,875

Loss on disposition of other investments

431

—

431

Provision for decline in real estate

2,728

331

—

2,397

Early extinguishment of debt

10,718

(98

)

—

10,816

(Increase) decrease in land included in projects under development

(787

)

3,465

5,781

1,529

Increase in land held for development or sale

(13,712

)

—

(1,641

)

(15,353

)

(Increase) decrease in notes and accounts receivable

(32,906

)

(3,061

)

5,305

(24,540

)

Decrease in inventories

4,282

—

4,282

Increase in other assets

(4,308

)

(2,596

)

(11,471

)

(13,183

)

(Decrease) increase in accounts payable and accrued expenses

(19,101

)

6,390

4,181

(21,310

)

Net cash provided by operating activities

34,403

20,612

19,467

33,258

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


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

			(in thousands)
Cash Flows from Operating Activities
	Rents and other revenues received		$	394,964		$	49,334		$	99,590		$	445,220
	Cash distributions from unconsolidated entities			9,559			—			(9,559	)		—
	Proceeds from land sales			37,106			2,669			5,599			40,036
	Land development expenditures			(25,932	)		(1,381	)		(10,484	)		(35,035	)
	Operating expenditures			(271,980	)		(20,835	)		(48,000	)		(299,145	)
	Interest paid			(85,459	)		(15,655	)		(23,309	)		(93,113	)

		Net cash provided by operating activities		58,258			14,132			13,837			57,963

Cash Flows from Investing Activities
	Capital expenditures			(323,910	)		(19,415	)		(57,458	)		(361,953	)
	Change in investments in and advances to real estate affiliates			(20,212	)		—			(2,628	)		(22,840	)

		Net cash used in investing activities		(344,122	)		(19,415	)		(60,086	)		(384,793	)

Cash Flows from Financing Activities
	Increase in nonrecourse mortgage debt			223,565			12,999			56,425			266,991
	Increase in long-term credit facility			192,000			—			—			192,000
	Principal payments on nonrecourse mortgage debt			(41,526	)		(6,566	)		(7,005	)		(41,965	)
	Payments on long-term credit facility			(84,250	)		—			—			(84,250	)
	Increase in notes payable			11,807			61			3,752			15,498
	Payments on notes payable			(9,706	)		(500	)		(4,032	)		(13,238	)
	Change in restricted cash and book overdrafts			(20,513	)		(2,114	)		(5,572	)		(23,971	)
	Payment of deferred financing costs			(5,501	)		(280	)		(2,402	)		(7,623	)
	Exercise of stock options			3,033			—			—			3,033
	Dividends paid to shareholders			(4,954	)		—			—			(4,954	)
	Increase in minority interest			5,065			5,065			—			—

		Net cash provided by financing activities		269,020			8,665			41,166			301,521

Net (decrease) increase in cash and equivalents				(16,844	)		3,382			(5,083	)		(25,309	)
Cash and equivalents at beginning of period				50,054			5,030			34,862			79,886

Cash and equivalents at end of period			$	33,210		$	8,412		$	29,779		$	54,577

Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings			$	22,819		$	—		$	—		$	22,819
	Discontinued operations:
		Minority interest		(152	)		(152	)		—			—
		Depreciation		764			158			—			606
		Amortization		52			3			—			49
	Minority interest			1,854			1,854			—			—
	Depreciation			45,607			7,131			10,473			48,949
	Amortization			8,761			1,804			1,634			8,591
	Equity in earnings of unconsolidated entities			(20,758	)		—			11,317			(9,441	)
	Cash distributions from unconsolidated entities			9,559			—			(9,559	)		—
	Deferred income taxes			2,669			—			—			2,669
	Loss on disposition of other investments			116			—			—			116
	Early extinguishment of debt			380			—			—			380
	Decrease in land included in projects under development			1,872			222			2,006			3,656
	Decrease in land included in completed rental properties			220			48			—			172
	Increase in land held for development or sale			(8,343	)		—			(6,761	)		(15,104	)
	Decrease (increase) in notes and accounts receivable, net			2,723			(9,216	)		5,069			17,008
	Increase in inventories			660			—			—			660
	Increase in other assets			(7,509	)		2,995			(701	)		(11,205	)
	(Decrease) increase in accounts payable and accrued expenses			(3,036	)		9,285			359			(11,962	)

		Net cash provided by operating activities	$	58,258		$	14,132		$	13,837		$	57,963

INVESTMENTS IN AND ADVANCES TO REAL ESTATE AFFILIATES


			100% Combined						Company’s Pro-Rata Share

			July 31,			January 31,			July 31,			January 31,
			2003			2003			2003			2003

			*(in thousands)*
Balance Sheet:
	Completed rental properties		$	2,510,357		$	2,384,920		$	926,539		$	875,282
	Projects under development			257,377			307,566			120,625			132,265
	Land held for development or sale			88,433			85,663			41,113			39,471
	Investments in and advances to real estate affiliates — syndicated residential partnerships (see page 44)			—			—			92,398			86,057
	Accumulated depreciation			(510,951	)		(484,845	)		(205,879	)		(195,301	)
	Other assets			272,747			278,024			108,132			112,324

		Total Assets	$	2,617,963		$	2,571,328		$	1,082,928		$	1,050,098

	Mortgage debt, nonrecourse		$	2,275,935		$	2,226,384		$	866,143		$	845,161
	Advances from general partner			18,355			18,355			—			—
	Other liabilities			171,336			166,286			56,304			56,457
	Partners’ equity			152,337			160,303			160,481			148,480

		Total Liabilities and Partners’ Equity	$	2,617,963		$	2,571,328		$	1,082,928		$	1,050,098


Three Months Ended July 31,			2003			2002			2003			2002

Operations:
	Revenues		$	151,905		$	121,335		$	66,088		$	49,635
		Equity in earnings of unconsolidated entities on a pro-rata basis		—			—			4,483			5,189
	Operating expenses			(81,456	)		(63,251	)		(36,850	)		(26,227	)
	Interest expense			(35,240	)		(29,984	)		(14,363	)		(11,900	)
	Depreciation and amortization			(19,675	)		(16,141	)		(7,534	)		(6,133	)

		Net Earnings (pre-tax)	$	15,534		$	11,959		$	11,824		$	10,564

Six Months Ended July 31,
Operations:
	Revenues		$	293,730		$	247,949		$	125,369		$	100,159
		Equity in earnings of unconsolidated entities on a pro-rata basis		—			—			8,986			9,441
	Operating expenses			(158,708	)		(129,272	)		(69,910	)		(53,199	)
	Interest expense			(69,774	)		(59,353	)		(28,459	)		(23,536	)
	Depreciation and amortization			(38,043	)		(32,046	)		(14,316	)		(12,107	)

		Net Earnings (pre-tax)	$	27,205		$	27,278		$	21,670		$	20,758

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


	July 31,		January 31,
	2003		2003

Partners’ equity, as above	$	152,337	$	160,303
Equity of other partners		10,211		30,178

Company’s investment in partnerships		142,126		130,125
Advances to partnerships, as above		18,355		18,355
Advances to other real estate affiliates		338,605		340,725

Investments in and Advances to Real Estate Affiliates	$	499,086	$	489,205

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.


	July 31,		January 31,
	2003		2003

Total Assets	$	542,614	$	531,585
Total Liabilities	$	450,216	$	445,528
Partner’s Equity	$	92,398	$	86,057

(Continued on Page 47)

SUMMARY OF EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES (EBDT)

Management analyzes its properties using the pro-rata consolidation method because it provides operating data at the Company’s ownership share and the Company publicly discloses and discusses its performance using this method of consolidation to compliment its GAAP disclosures. The information in the tables below present 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.

Reconciliation of Net Earnings to Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) ⁽²⁾


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

		2003			2002			2003			2002

		*(in thousands)*						*(in thousands)*
Net earnings		$	6,603		$	12,683		$	21,395		$	22,819
Depreciation and amortization — Real Estate Groups ⁽⁵⁾			32,704			28,518			63,992			56,013
Depreciation and amortization — equity method investments ⁽³⁾			121			119			247			238
Deferred income tax expense — Real Estate Groups ⁽⁷⁾			8,978			2,719			14,283			2,518
Deferred income tax expense (benefit) on early extinguishment of debt ⁽⁶⁾⁽⁷⁾			—			—			—			150
Deferred income tax benefit — Non-Real Estate Groups: ⁽⁷⁾
	Loss on disposition of other investments		(179	)		—			(179	)		(46	)
Current income tax expense on non-operating earnings: ⁽⁷⁾
	Gain on disposition of other investments		—			—			9			—
	Gain on disposition included in discontinued operations		—			—			1,729			2,566
Straight-line rent adjustment ⁽⁴⁾			(827	)		(442	)		(2,531	)		(1,131	)
Provision for decline in real estate, net of minority interest			2,397			—			2,397			—
Loss on disposition of other investments			453			—			431			116
Discontinued operations: ⁽¹⁾
	Gain on disposition of operating properties		—			—			(411	)		—
	Minority interest		—			—			323			—
Loss on early extinguishment of debt, net of tax ⁽⁶⁾			—			—			—			230

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) ⁽²⁾		$	50,250		$	43,597		$	101,685		$	83,473

1) The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. Pursuant to the definition of a component of an entity of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations.

2) The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes (“EBDT”), is not a measure of operating results as defined by generally accepted accounting principles and may not be directly comparable to similarly titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations, and along with net earnings, is necessary to understand its operating results. 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) 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). Early extinguishment of debt is now reported in operating earnings. However, early extinguishment of debt is excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt is included in EBDT.

3) Amount represents depreciation expense for certain syndicated properties accounted for on the equity method of accounting under both full consolidation and pro-rata consolidation. See Note K — Investments In and Advances to Affiliates for further discussion of these syndicated properties on Form 10-K for the year ended January 31, 2003.

4) Effective for the year ended January 31, 2001, the Company recognizes minimum rents on a straight-line basis over the term of the related lease pursuant to the provision of SFAS No. 13, “Accounting for Leases.” The straight-line rent adjustment is recorded as an increase or decrease to revenue from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., with the applicable offset to either accounts receivable or accounts payable, as appropriate.

5) The following table provides detail of Depreciation and Amortization. The Company’s Real Estate Groups are owned by Forest City Rental Properties Corporation, a wholly-owned subsidiary engaged in the ownership, development, acquisition and management of real estate projects, including apartment complexes, regional malls and retail centers, hotels, office buildings and mixed-use facilities, as well as large land development projects.


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

	2003			2002			2003			2002

Full Consolidation	$	30,941		$	27,740		$	60,758		$	54,368
Non-Real Estate Groups		(993	)		(1,055	)		(1,921	)		(2,109	)

Real Estate Groups Full Consolidation		29,948			26,685			58,837			52,259
Real Estate Groups related to minority interest		(4,749	)		(4,594	)		(9,138	)		(8,935	)
Real Estate Groups equity method		7,505			6,099			14,236			12,034
Discontinued operations		—			328			57			655

Real Estate Groups Pro-Rata Consolidation	$	32,704		$	28,518		$	63,992		$	56,013

6) The Company has adopted the provisions of Statement of Financial Accounting Standard No. 145, “Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13 on Technical Corrections” (SFAS No. 145) which requires gains or losses from early extinguishment of debt to be classified in operating earnings. The Company previously reported gains or losses from early extinguishment of debt as extraordinary item, net of tax, in its Consolidated Statements of Earnings as follows:


Loss on early extinguishment of debt reclassified to continuing operations	$	—	$	—	$	—	$	(380	)
Deferred income tax benefit		—		—		—		(150	)

Loss on early extinguishment of debt, net of tax	$	—	$	—	$	—	$	(230	)

7) The following table provides detail of Income Tax Expense (Benefit):


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

			2003			2002			2003			2002

(A	)	Continuing operations
		Current	$	1,140		$	3,877		$	3,953		$	8,388
		Deferred		5,892			3,145			12,646			5,517

				7,032			7,022			16,599			13,905

(B	)	Provision for decline in real estate
		Current	$	—		$	—		$	—		$	—
		Deferred		(948	)		—			(948	)		—

				(948	)		—			(948	)		—

(C	)	Loss on disposition of other investments
		Current	$	—		$	—		$	9		$	—
		Deferred — Non-Real Estate Groups		(179	)		—			(179	)		(46	)

				(179	)		—			(170	)		(46	)

(D	)	Deferred taxes on early extinguishment of debt	$	—		$	—		$	—		$	(150	)

		Subtotal (A) (B) (C) (D)
		Current	$	1,140		$	3,877		$	3,962		$	8,388
		Deferred		4,765			3,145			11,519			5,321

		Income tax expense		5,905			7,022			15,481			13,709

(E	)	Discontinued operations
		Operating earnings	$	—		$	(92	)	$	(97	)	$	(203	)
		Current		—			19			50			38

		Deferred		—			(73	)		(47	)		(165	)
		Gain (loss) on disposition of operating properties
		Current	$	—		$	—		$	1,729		$	2,566
		Deferred		—			—			(1,694	)		(2,566	)

				—			—			35			—

				—			(73	)		(12	)		(165	)

		Grand Total (A) (B) (C) (D) (E)
		Current	$	1,140		$	3,785		$	5,594		$	10,751
		Deferred		4,765			3,164			9,875			2,793

			$	5,905		$	6,949		$	15,469		$	13,544

		Recap of Grand Total: Real Estate Groups
		Current	$	3,233		$	5,444		$	10,120		$	13,670
		Deferred		8,978			2,719			14,283			2,518

				12,211			8,163			24,403			16,188
		Non-Real Estate Groups
		Current	$	(2,093	)	$	(1,659	)	$	(4,526	)	$	(2,919	)
		Deferred		(4,213	)		445			(4,408	)		275

				(6,306	)		(1,214	)		(8,934	)		(2,644	)

		Grand Total	$	5,905		$	6,949		$	15,469		$	13,544

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Three Months Ended July 31, 2003 (in thousands)


	Commercial Group 2003

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

Revenues	$	160,415		$	34,953	$	33,046		$	–	$	158,508
Exclude straight-line rent adjustment		(1,969	)		–		–			–		(1,969	)
Add back equity method depreciation expense		4,560			–		(4,560	)		–		–

Adjusted revenues		163,006			34,953		28,486			–		156,539
Operating expenses, including depreciation and amortization for non-Real Estate Groups		78,910			18,448		20,378			–		80,840
Exclude straight-line rent adjustment		(1,285	)		–		–			–		(1,285	)

Adjusted operating expenses		77,625			18,448		20,378			–		79,555

Net operating income		85,381			16,505		8,108			–		76,984
Interest expense		32,207			7,724		8,108			–		32,591
Gain on early extinguishment of debt		–			–		–			–		–
Income tax provision (benefit)		2,341			–		–			–		2,341
Minority interest in earnings before depreciation and amortization		8,781			8,781		–			–		–
Add: EBDT from discontinued operations		–			–		–			–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	42,052		$	–	$	–		$	–	$	42,052

[Additional columns below]

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

Residential Group 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 48,465 $ 2,276 $ 21,004 $ – $ 67,193

Exclude straight-line rent adjustment
(143 ) – – – (143 )

Add back equity method depreciation expense
3,066 – (2,945 ) – 121

Adjusted revenues
51,388 2,276 18,059 – 67,171

Operating expenses, including depreciation and amortization for non-Real Estate Groups
24,685 1,877 11,954 – 34,762

Exclude straight-line rent adjustment
– – – – –

Adjusted operating expenses
24,685 1,877 11,954 – 34,762

Net operating income
26,703 399 6,105 – 32,409

Interest expense
6,113 187 6,105 – 12,031

Gain on early extinguishment of debt
(766 ) (98 ) – – (668 )

Income tax provision (benefit)
2,882 – – – 2,882

Minority interest in earnings before depreciation and amortization
310 310 – – –

Add: EBDT from discontinued operations
– – – – –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 18,164 $ – $ – $ – $ 18,164


	Land Group 2003

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

Revenues	$	16,060	$	1,158	$	4,697	$	–	$	19,599
Operating expenses, including depreciation and amortization for non-Real Estate Groups		7,231		610		4,547		–		11,168

Net operating income		8,829		548		150		–		8,431
Interest expense		978		–		150		–		1,128
Income tax provision (benefit)		966		–		–		–		966
Minority interest in earnings before depreciation and amortization		548		548		–		–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	6,337	$	–	$	–	$	–	$	6,337

[Additional columns below]

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

Lumber Trading Group 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 26,980 $ – $ – $ – $ 26,980

Operating expenses, including depreciation and amortization for non-Real Estate Groups
25,149 – – – 25,149

Net operating income
1,831 – – – 1,831

Interest expense
768 – – – 768

Income tax provision (benefit)
627 – – – 627

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

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 436 $ – $ – $ – $ 436

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Three Months Ended July 31, 2003 (in thousands) continued

Corporate Activities 2003

Plus

Less

Unconsolidated

Plus

Full

Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

Revenues

172

–

172

Exclude straight-line rent adjustment

–

Add back equity method depreciation expense

–

Adjusted revenues

172

–

172

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

7,463

–

7,463

Exclude straight-line rent adjustment

–

Adjusted operating expenses

7,463

–

7,463

Net operating income

(7,291

)

(7,291

)

Interest expense

7,674

–

7,674

Loss (gain) on early extinguishment of debt

11,484

Income tax (benefit) provision

(9,710

)

–

(9,710

)

Minority interest in earnings before depreciation and amortization

–

Add: EBDT from discontinued operations

–

Earnings before depreciation, amortization and deferred taxes (EBDT)

(16,739

)

–

(16,739

)

[Additional columns below]

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

Total 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 252,092 $ 38,387 $ 58,747 $ – $ 272,452

Exclude straight-line rent adjustment
(2,112 ) – – – (2,112 )

Add back equity method depreciation expense
7,626 – (7,505 ) – 121

Adjusted revenues
257,606 38,387 51,242 – 270,461

Operating expenses, including depreciation and amortization for non-Real Estate Groups
143,438 20,935 36,879 – 159,382

Exclude straight-line rent adjustment
(1,285 ) – – – (1,285 )

Adjusted operating expenses
142,153 20,935 36,879 – 158,097

Net operating income
115,453 17,452 14,363 – 112,364

Interest expense
47,740 7,911 14,363 – 54,192

Loss (gain) on early extinguishment of debt
10,718 (98 ) – – 10,816

Income tax (benefit) provision
(2,894 ) – – – (2,894 )

Minority interest in earnings before depreciation and amortization
9,639 9,639 – – –

Add: EBDT from discontinued operations
– – – – –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 50,250 $ – $ – $ – $ 50,250

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 50,250 $ – $ – $ – $ 50,250

Depreciation and amortization – Real Estate Groups
(32,825 ) – – – (32,825 )

Deferred taxes – Real Estate Groups
(9,926 ) – – – (9,926 )

Straight-line rent adjustment
827 – – – 827

Provision for decline in real estate, net of tax
(1,449 ) – – – (1,449 )

Loss on disposition of operating properties and other investments, net of tax
(274 ) – – – (274 )

Net earnings
$ 6,603 $ – $ – $ – $ 6,603

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Six Months Ended July 31, 2003 (in thousands)


	Commercial Group 2003

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

Revenues	$	323,829		$	70,804	$	66,726		$	–	$	319,751
Exclude straight-line rent adjustment		(4,639	)		–		–			–		(4,639	)
Add back equity method depreciation expense		8,798			–		(8,798	)		–		–

Adjusted revenues		327,988			70,804		57,928			–		315,112
Operating expenses, including depreciation and amortization for non-Real Estate Groups		169,014			40,828		41,696			–		169,882
Exclude straight-line rent adjustment		(2,251	)		–		–			–		(2,251	)

Adjusted operating expenses		166,763			40,828		41,696			–		167,631

Net operating income		161,225			29,976		16,232			–		147,481
Interest expense		62,954			15,053		16,232			–		64,133
Gain on early extinguishment of debt		–			–		–			–		–
Income tax provision (benefit)		3,110			–		–			–		3,110
Minority interest in earnings before depreciation and amortization		14,923			14,923		–			–		–
Add: EBDT from discontinued operations		–			–		–			–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	80,238		$	–	$	–		$	–	$	80,238

[Additional columns below]

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

Residential Group 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 95,394 $ 3,900 $ 40,103 $ 687 $ 132,284

Exclude straight-line rent adjustment
(143 ) – – – (143 )

Add back equity method depreciation expense
5,685 – (5,438 ) – 247

Adjusted revenues
100,936 3,900 34,665 687 132,388

Operating expenses, including depreciation and amortization for non-Real Estate Groups
45,131 3,014 22,939 749 65,805

Exclude straight-line rent adjustment
– – – – –

Adjusted operating expenses
45,131 3,014 22,939 749 65,805

Net operating income
55,805 886 11,726 (62 ) 66,583

Interest expense
13,217 457 11,726 – 24,486

Gain on early extinguishment of debt
(766 ) (98 ) – – (668 )

Income tax provision (benefit)
5,102 – – (97 ) 5,005

Minority interest in earnings before depreciation and amortization
527 527 – – –

Add: EBDT from discontinued operations
35 – – (35 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 37,760 $ – $ – $ – $ 37,760


	Land Group 2003

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

Revenues	$	29,589	$	2,315	$	5,856	$	–	$	33,130
Operating expenses, including depreciation and amortization for non-Real Estate Groups		15,187		1,197		5,355		–		19,345

Net operating income		14,402		1,118		501		–		13,785
Interest expense		1,427		–		501		–		1,928
Income tax provision (benefit)		2,961		–		–		–		2,961
Minority interest in earnings before depreciation and amortization		1,118		1,118		–		–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	8,896	$	–	$	–	$	–	$	8,896

[Additional columns below]

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

Lumber Trading Group 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 46,881 $ – $ – $ – $ 46,881

Operating expenses, including depreciation and amortization for non-Real Estate Groups
44,883 – – – 44,883

Net operating income
1,998 – – – 1,998

Interest expense
1,419 – – – 1,419

Income tax provision (benefit)
491 – – – 491

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

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 88 $ – $ – $ – $ 88

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Six Months Ended July 31, 2003 (in thousands) continued

Corporate Activities 2003

Plus

Less

Unconsolidated

Plus

Full

Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

Revenues

300

–

300

Exclude straight-line rent adjustment

–

Add back equity method depreciation expense

–

Adjusted revenues

300

–

300

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

12,678

–

12,678

Exclude straight-line rent adjustment

–

Adjusted operating expenses

12,678

–

12,678

Net operating income

(12,378

)

–

(12,378

)

Interest expense

13,375

–

13,375

Loss (gain) on early extinguishment of debt

11,484

–

11,484

Income tax (benefit) provision

(11,940

)

–

(11,940

)

Minority interest in earnings before depreciation and amortization

–

Add: EBDT from discontinued operations

–

Earnings before depreciation, amortization and deferred taxes (EBDT)

(25,297

)

–

(25,297

)

[Additional columns below]

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

Total 2003

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 495,993 $ 77,019 $ 112,685 $ 687 $ 532,346

Exclude straight-line rent adjustment
(4,782 ) – – – (4,782 )

Add back equity method depreciation expense
14,483 – (14,236 ) – 247

Adjusted revenues
505,694 77,019 98,449 687 527,811

Operating expenses, including depreciation and amortization for non-Real Estate Groups
286,893 45,039 69,990 749 312,593

Exclude straight-line rent adjustment
(2,251 ) – – – (2,251 )

Adjusted operating expenses
284,642 45,039 69,990 749 310,342

Net operating income
221,052 31,980 28,459 (62 ) 217,469

Interest expense
92,392 15,510 28,459 – 105,341

Loss (gain) on early extinguishment of debt
10,718 (98 ) – – 10,816

Income tax (benefit) provision
(276 ) – – (97 ) (373 )

Minority interest in earnings before depreciation and amortization
16,568 16,568 – – –

Add: EBDT from discontinued operations
35 – – (35 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 101,685 $ – $ – $ – $ 101,685

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 101,685 $ – $ – $ – $ 101,685

Depreciation and amortization – Real Estate Groups
(64,182 ) – – (57 ) (64,239 )

Deferred taxes – Real Estate Groups
(16,875 ) – – (50 ) (16,925 )

Straight-line rent adjustment
2,531 – – – 2,531

Provision for decline in real estate, net of tax
(1,449 ) – – – (1,449 )

Loss on disposition of operating properties and other investments, net of tax
(261 ) – – 53 (208 )

Discontinued operations, net of tax and minority interest: ^(a)

Depreciation and amortization
(57 ) – – 57 –

Deferred taxes
(50 ) – – 50 –

Gain on disposition of operating properties
53 – – (53 ) –

Net earnings
$ 21,395 $ – $ – $ – $ 21,395

(a)

The company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. Pursuant to the definition of a component of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations.

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Three Months Ended July 31, 2002 (in thousands)


	Commercial Group 2002

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

Revenues	$	146,132		$	30,865	$	24,962		$	1,499		$	141,728
Exclude straight-line rent adjustment		(2,757	)		–		–			(7	)		(2,764	)
Add back equity method depreciation expense		3,692			–		(3,692	)		–			–

Adjusted revenues		147,067			30,865		21,270			1,492			138,964
Operating expenses, including depreciation and amortization for non-Real Estate Groups		78,273			16,794		14,648			902			77,029
Exclude straight-line rent adjustment		(2,322	)		–		–			–			(2,322	)

Adjusted operating expenses		75,951			16,794		14,648			902			74,707

Net operating income		71,116			14,071		6,622			590			64,257
Interest expense		31,742			8,232		6,622			223			30,355
Income tax (benefit) provision		1,623			–		–			2			1,625
Minority interest in earnings before depreciation and amortization		5,839			5,839		–			–			–
Add: EBDT from discontinued operations		365			–		–			(365	)		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	32,277		$	–	$	–		$	–		$	32,277

[Additional columns below]

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

Residential Group 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 38,613 $ 1,186 $ 16,958 $ 743 $ 55,128

Exclude straight-line rent adjustment
– – – – –

Add back equity method depreciation expense
2,526 – (2,407 ) – 119

Adjusted revenues
41,139 1,186 14,551 743 55,247

Operating expenses, including depreciation and amortization for non-Real Estate Groups
20,047 894 9,863 570 29,586

Exclude straight-line rent adjustment
– – – – –

Adjusted operating expenses
20,047 894 9,863 570 29,586

Net operating income
21,092 292 4,688 173 25,661

Interest expense
5,904 88 4,688 201 10,705

Income tax (benefit) provision
1,929 – – (93 ) 1,836

Minority interest in earnings before depreciation and amortization
204 204 – – –

Add: EBDT from discontinued operations
65 – – (65 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 13,120 $ – $ – $ – $ 13,120


	Land Group 2002

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

Revenues	$	28,667	$	1,684	$	2,340	$	–	$	29,323
Operating expenses, including depreciation and amortization for non-Real Estate Groups		15,999		924		1,749		–		16,824

Net operating income		12,668		760		591		–		12,499
Interest expense		345		–		591		–		936
Income tax provision		6,025		–		–		–		6,025
Minority interest in earnings before depreciation and amortization		760		760		–		–		–

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

[Additional columns below]

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

Lumber Trading Group 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 23,337 $ – $ – $ – $ 23,337

Operating expenses, including depreciation and amortization for non-Real Estate Groups
23,682 – – – 23,682

Net operating income
(345 ) – – – (345 )

Interest expense
759 – – – 759

Income tax provision
(381 ) – – – (381 )

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

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ (723 ) $ – $ – $ – $ (723 )

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Three Months Ended July 31, 2002 (in thousands) continued

Corporate Activities 2002

Plus

Less

Unconsolidated

Plus

Full

Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

Revenues

219

–

219

Exclude straight-line rent adjustment

–

Add back equity method depreciation expense

–

Adjusted revenues

219

–

219

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

5,077

–

5,077

Exclude straight-line rent adjustment

–

Adjusted operating expenses

5,077

–

5,077

Net operating income

(4,858

)

–

(4,858

)

Interest expense

6,632

–

6,632

Income tax (benefit) provision

(4,875

)

–

(4,875

)

Minority interest in earnings before depreciation and amortization

–

Add: EBDT from discontinued operations

–

Earnings before depreciation, amortization and deferred taxes (EBDT)

(6,615

)

–

(6,615

)

[Additional columns below]

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

Total 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 236,968 $ 33,735 $ 44,260 $ 2,242 $ 249,735

Exclude straight-line rent adjustment
(2,757 ) – – (7 ) (2,764 )

Add back equity method depreciation expense
6,218 – (6,099 ) – 119

Adjusted revenues
240,429 33,735 38,161 2,235 247,090

Operating expenses, including depreciation and amortization for non-Real Estate Groups
143,078 18,612 26,260 1,472 152,198

Exclude straight-line rent adjustment
(2,322 ) – – – (2,322 )

Adjusted operating expenses
140,756 18,612 26,260 1,472 149,876

Net operating income
99,673 15,123 11,901 763 97,214

Interest expense
45,382 8,320 11,901 424 49,387

Income tax (benefit) provision
4,321 – – (91 ) 4,230

Minority interest in earnings before depreciation and amortization
6,803 6,803 – – –

Add: EBDT from discontinued operations
430 – – (430 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 43,597 $ – $ – $ – $ 43,597

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 43,597 $ – $ – $ – $ 43,597

Depreciation and amortization – Real Estate Groups
(28,309 ) – – (328 ) (28,637 )

Deferred taxes – Real Estate Groups
(2,700 ) – – (19 ) (2,719 )

Straight-line rent adjustment
435 – – 7 442

Discontinued operations, net of tax and minority interest:

Depreciation and amortization
(328 ) – – 328 –

Deferred taxes
(19 ) – – 19 –

Straight-line rent adjustment
7 – – (7 ) –

Net earnings
$ 12,683 $ – $ – $ – $ 12,683

(a)

Early extinguishment of debt, which was formerly reported as an extraordinary item, is now reported as loss on debt extinguishment. However, early extinguishment of debt will be excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt will be included in EBDT.

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Six Months Ended July 31, 2002 (in thousands)


	Commercial Group 2002

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

Revenues	$	277,930		$	56,818	$	50,405		$	3,601		$	275,118
Exclude straight-line rent adjustment		(4,565	)		–		–			(27	)		(4,592	)
Add back equity method depreciation expense		7,371			–		(7,371	)		–			–

Adjusted revenues		280,736			56,818		43,034			3,574			270,526
Operating expenses, including depreciation and amortization for non-Real Estate Groups		149,803			31,309		29,740			1,631			149,865
Exclude straight-line rent adjustment		(3,461	)		–		–			–			(3,461	)

Adjusted operating expenses		146,342			31,309		29,740			1,631			146,404

Net operating income		134,394			25,509		13,294			1,943			124,122
Interest expense		62,813			16,176		13,294			420			60,351
Exclude early extinguishment of debt ^(a)		–			–		–			–			–

Adjusted interest expense		62,813			16,176		13,294			420			60,351
Income tax provision (benefit)		4,410			–		–			(24	)		4,386
Exclude tax on early extinguishment of debt ^(a)		–			–		–			–			–

Adjusted income tax provision (benefit)		4,410			–		–			(24	)		4,386
Minority interest in earnings before depreciation and amortization		9,333			9,333		–			–			–
Add: EBDT from discontinued operations		1,547			–		–			(1,547	)		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	59,385		$	–	$	–		$	–		$	59,385

[Additional columns below]

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

Residential Group 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 76,308 $ 2,295 $ 33,105 $ 1,490 $ 108,608

Exclude straight-line rent adjustment
– – – – –

Add back equity method depreciation expense
4,901 – (4,663 ) – 238

Adjusted revenues
81,209 2,295 28,442 1,490 108,846

Operating expenses, including depreciation and amortization for non-Real Estate Groups
37,451 1,794 19,300 1,131 56,088

Exclude straight-line rent adjustment
– – – – –

Adjusted operating expenses
37,451 1,794 19,300 1,131 56,088

Net operating income
43,758 501 9,142 359 52,758

Interest expense
11,450 269 9,142 402 20,725

Exclude early extinguishment of debt ^(a)
(380 ) – – – (380 )

Adjusted interest expense
11,070 269 9,142 402 20,345

Income tax provision (benefit)
3,926 – – (178 ) 3,748

Exclude tax on early extinguishment of debt ^(a)
150 – – – 150

Adjusted income tax provision (benefit)
4,076 – – (178 ) 3,898

Minority interest in earnings before depreciation and amortization
232 232 – – –

Add: EBDT from discontinued operations
135 – – (135 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 28,515 $ – $ – $ – $ 28,515


	Land Group 2002

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

Revenues	$	44,032	$	2,773	$	5,332	$	–	$	46,591
Operating expenses, including depreciation and amortization for non-Real Estate Groups		24,607		1,549		4,232		–		27,290

Net operating income		19,425		1,224		1,100		–		19,301
Interest expense		409		–		1,100		–		1,509
Income tax provision		8,986		–		–		–		8,986
Minority interest in earnings before depreciation and amortization		1,224		1,224		–		–		–

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

[Additional columns below]

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

Lumber Trading Group 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 49,600 $ – $ – $ – $ 49,600

Operating expenses, including depreciation and amortization for non-Real Estate Groups
48,124 – – – 48,124

Net operating income
1,476 – – – 1,476

Interest expense
1,395 – – – 1,395

Income tax provision
140 – – – 140

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

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ (59 ) $ – $ – $ – $ (59 )

Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) — Six Months Ended July 31, 2002 (in thousands) continued

Corporate Activities 2002

Plus

Less

Unconsolidated

Plus

Full

Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

Revenues

469

–

469

Exclude straight-line rent adjustment

–

Add back equity method depreciation expense

–

Adjusted revenues

469

–

469

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

10,099

–

10,099

Exclude straight-line rent adjustment

–

Adjusted operating expenses

10,099

–

10,099

Net operating income

(9,630

)

(9,630

)

Interest expense

12,448

–

12,448

Exclude early extinguishment of debt ^(a)

–

Adjusted interest expense

12,448

–

12,448

Income tax (benefit) provision

(8,904

)

–

(8,904

)

Exclude tax on early extinguishment of debt ^(a)

–

Adjusted income tax provision (benefit)

(8,904

)

–

(8,904

)

Minority interest in earnings before depreciation and amortization

–

Add: EBDT from discontinued operations

–

Earnings before depreciation, amortization and deferred taxes (EBDT)

(13,174

)

–

(13,174

)

[Additional columns below]

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

Total 2002

Plus

Less Unconsolidated Plus

Full Minority Investments at Discontinued Pro-Rata

Consolidation Interest Pro-Rata Operations Consolidation

Revenues
$ 448,339 $ 61,886 $ 88,842 $ 5,091 $ 480,386

Exclude straight-line rent adjustment
(4,565 ) – – (27 ) (4,592 )

Add back equity method depreciation expense
12,272 – (12,034 ) – 238

Adjusted revenues
456,046 61,886 76,808 5,064 476,032

Operating expenses, including depreciation and amortization for non-Real Estate Groups
270,084 34,652 53,272 2,762 291,466

Exclude straight-line rent adjustment
(3,461 ) – – – (3,461 )

Adjusted operating expenses
266,623 34,652 53,272 2,762 288,005

Net operating income
189,423 27,234 23,536 2,302 188,027

Interest expense
88,515 16,445 23,536 822 96,428

Exclude early extinguishment of debt ^(a)
(380 ) – – – (380 )

Adjusted interest expense
88,135 16,445 23,536 822 96,048

Income tax (benefit) provision
8,558 – – (202 ) 8,356

Exclude tax on early extinguishment of debt ^(a)
150 – – – 150

Adjusted income tax provision (benefit)
8,708 – – (202 ) 8,506

Minority interest in earnings before depreciation and amortization
10,789 10,789 – – –

Add: EBDT from discontinued operations
1,682 – – (1,682 ) –

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 83,473 $ – $ – $ – $ 83,473

Reconciliation to net earnings:

Earnings before depreciation, amortization and deferred taxes (EBDT)
$ 83,473 $ – $ – $ – $ 83,473

Depreciation and amortization – Real Estate Groups
(55,596 ) – – (655 ) (56,251 )

Deferred taxes – Real Estate Groups
(5,196 ) – – (38 ) (5,234 )

Straight-line rent adjustment
1,104 – – 27 1,131

Loss on early extinguishment of debt, net of tax^(a)
(230 ) – – – (230 )

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

Discontinued operations, net of tax and minority
interest:

Depreciation and amortization
(655 ) – – 655 –

Deferred taxes
(38 ) – – 38 –

Straight-line rent adjustment
27 – – (27 ) –

Net earnings
$ 22,819 $ – $ – $ – $ 22,819

(a)

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure is interest rate risk. At July 31, 2003, the Company had $926,680,000 of variable-rate debt outstanding. This is inclusive of the $83,750,000 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 ⁽²⁾						Swaps ^{(1) (2)}

Coverage	Amount			Average Rate			Amount		Average Rate

	*(dollars in thousands)*
08/01/03 - 02/01/04	$	1,069,908	⁽³⁾		6.32	%	$	372,426		2.13	%
02/01/04 - 02/01/05		633,653			6.17	%		404,502		2.72	%
02/01/05 - 02/01/06		370,495			7.23	%		261,349		3.48	%
02/01/06 - 02/01/07		167,606			6.63	%		322,575		3.61	%

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

(2) In August 2003 and September 2003, the Company executed several derivative instruments. The Company purchased approximately $144 million in Interest Rate Caps, effective in August 2003 with durations of 18 months to 3 years. Additionally, approximately $255.5 million of Interest Rate Swaps were executed. The Swaps have commencement dates ranging from October 2003 through May 2005 with durations ranging from 18 months to 3 years.

(3) These LIBOR-based hedges as of August 1, 2003 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, 2004.

The Company estimates the fair value of its debt instruments by discounting future cash payments at interest rates that approximate the current market. Based on these parameters, the carrying amount of the Company’s total fixed-rate debt at July 31, 2003 was $2,672,404,000 compared to an estimated fair value of $2,721,797,000. The Company estimates that a 100 basis point decrease in market interest rates would change the fair value of this fixed-rate debt to approximately $2,882,255,000 at July 31, 2003.

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At July 31, 2003, LIBOR interest rate caps and Treasury options were reported at their fair value of approximately $729,000 in the Consolidated Balance Sheet as Other Assets. The fair value of interest rate swap agreements at July 31, 2003 is an unrealized loss of $2,043,000 and is included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheet.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

July 31, 2003


		Expected Maturity Date

Long-Term Debt		2003			2004			2005			2006			2007			Thereafter

		*(dollars in thousands)*
Fixed:
	Fixed rate debt	$	43,341		$	59,572		$	133,583		$	413,072		$	120,595		$	1,506,125
	Weighted average interest rate		6.92	%		7.11	%		7.23	%		6.60	%		7.17	%		7.05	%
	UDAG		4,911			365			10,876			8,050			402			51,112
	Weighted average interest rate		3.85	%		0.00	%		3.86	%		0.00	%		0.03	%		1.79	%
	Senior & Subordinated Debt ⁽¹⁾		–			–			–			–			–			320,400
	Weighted average interest rate																	7.66	%

Total Fixed Rate Debt			48,252			59,937			144,459			421,122			120,997			1,877,637

Variable:
	Variable rate debt		332,617			157,686			59,315			5,965			24,821			157,526
	Weighted average interest rate
	Tax Exempt		16,660			36,340			21,000			–			–			31,000
	Weighted average interest rate
	Credit Facility ⁽¹⁾		12,500			25,000			25,000			21,250			–			–
	Weighted average interest rate

Total Variable Rate Debt			361,777			219,026			105,315			27,215			24,821			188,256

Total Long-Term Debt		$	410,029		$	278,963		$	249,774		$	448,337		$	145,818		$	2,066,163


		Total			Fair Market
		Outstanding			Value
		7/31/03			7/31/03

Fixed:
	Fixed rate debt	$	2,276,288		$	2,335,828
	Weighted average interest rate		6.98	%
	UDAG		75,716			52,120
	Weighted average interest rate		2.02	%
	Senior & Subordinated Debt ⁽¹⁾		320,400			333,849
	Weighted average interest rate		7.66	%

Total Fixed Rate Debt			2,672,404			2,721,797

Variable:
	Variable rate debt		737,930			737,930
	Weighted average interest rate		3.73	%
	Tax Exempt		105,000			105,000
	Weighted average interest rate		1.97	%
	Credit Facility ⁽¹⁾		83,750			83,750
	Weighted average interest rate		3.91	%

Total Variable Rate Debt			926,680			926,680

Total Long-Term Debt		$	3,599,084		$	3,648,477

(1)

Represents recourse debt.

Item 3. Quantitative and Qualitative Disclosures About Market Risk (continued)

July 31, 2002


		Expected Maturity Date

Long-Term Debt		2002			2003			2004			2005			2006			Thereafter

		*(dollars in thousands)*
Fixed:
	Fixed rate debt	$	20,328		$	61,488		$	49,253		$	133,929		$	394,322		$	1,221,046
	Weighted average interest rate		7.45	%		7.26	%		7.28	%		7.37	%		6.66	%		7.54	%
	UDAG		110			2,833			415			10,929			8,106			47,571
	Weighted average interest rate		0.02	%		3.52	%		0.61	%		3.87	%		0.03	%		1.93	%
	Senior & Subordinated Debt ⁽¹⁾		–			–			–			–			–			220,400
	Weighted average interest rate																	8.48	%

Total Fixed Rate Debt			20,438			64,321			49,668			144,858			402,428			1,489,017

Variable:
	Variable rate debt		209,780			362,455			92,092			1,187			1,283			101,290
	Weighted average interest rate
	Tax Exempt		45,000			660			7,940			–			–			31,000
	Weighted average interest rate
	Credit Facility ⁽¹⁾		12,500			25,000			25,000			25,000			74,250			–
	Weighted average interest rate

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

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


		Total			Fair Market
		Outstanding			Value
		7/31/02			7/31/02

Fixed:
	Fixed rate debt	$	1,880,366		$	1,914,708
	Weighted average interest rate		7.33	%
	UDAG		69,964			44,432
	Weighted average interest rate		2.07	%
	Senior & Subordinated Debt ⁽¹⁾		220,400			214,543
	Weighted average interest rate		8.48	%

Total Fixed Rate Debt			2,170,730			2,173,683

	Variable:
	Variable rate debt		768,087			768,087
	Weighted average interest rate		4.74	%
	Tax Exempt		84,600			84,600
	Weighted average interest rate		2.33	%
	Credit Facility ⁽¹⁾		161,750			161,750
	Weighted average interest rate		5.18	%

Total Variable Rate Debt			1,014,437			1,014,437

Total Long -Term Debt		$	3,185,167		$	3,188,120

(1)

Represents recourse debt.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

Changes in internal controls. Subsequent to the date of the evaluation, there have been no significant changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

On June 11, 2003, the Company held its annual meeting of shareholders. At that meeting, the shareholders elected four directors by holders of Class A Common Stock and nine directors by holders of Class B Common Stock, each to hold office until the next shareholder meeting and until his or her successor is elected; approved the amendment of the 1994 Stock Option Plan to increase the number of shares authorized to be issued; and ratified PricewaterhouseCoopers LLP as independent auditors for the Company for the fiscal year ending January 31, 2004.

It was reported that 32,466,657 shares of Class A Common Stock representing 32,466,657 votes and 13,438,335 shares of Class B Common Stock representing 134,383,350 votes were represented in person and by proxy and that these shares represented a quorum. The votes cast for the aforementioned matters were as follows:


						Abstentions
						and/or
						Broker
		For		Against		Non-votes

(1)	Election of the following nominated directors by Class A shareholders




	Michael P. Esposito, Jr		31,680,447				786,210
	Joan K. Shafran		31,895,235				571,422




	Louis Stokes		31,693,353				773,304




	Stan Ross		31,933,963				532,694

(2)	Election of the following nominated directors by Class B shareholders




	Albert B. Ratner		134,267,936				115,417




	Samuel H. Miller		134,270,186				113,167




	Charles A. Ratner		134,267,936				115,417




	James A. Ratner		134,267,936				115,417




	Jerry V. Jarrett		134,286,680				96,667




	Ronald A. Ratner		134,267,936				115,417




	Scott S. Cowen		134,286,686				96,667




	Brian J. Ratner		134,267,936				115,417




	Deborah Ratner Salzberg		134,267,936				115,417

(3)	Approval of the amendment of the 1994 Stock Option Plan to increase the number of shares authorized to be issued to 5,875,000		146,209,989		7,565,557		24,137

(4)	Ratification of independent auditors PricewaterhouseCoopers LLP		166,515,966		300,969		33,072

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).




4.4	-	7.625% Senior Note Indenture, dated as of May 19, 2003, between Forest City Enterprises, Inc., as issuer, and The Bank of New York, as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K, filed on May 20, 2003 (File No. 1-4372).




4.5	-	Form of 7.625% Senior Notes due 2015, incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K, filed on May 20, 2003 (File No. 1-4372).




+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).


Exhibit
Number		Description of Document

+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).




+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).




+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).


Exhibit
Number		Description of Document

+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).




+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).




10.26	-	intentionally omitted.




10.27	-	intentionally omitted.


Exhibit
Number		Description of Document

+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).




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


Exhibit
Number		Description of Document

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




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




+10.39	-	Form of Restricted Stock Agreement between Forest City Enterprises,Inc. and the grantee, incorporated by reference to Exhibit 10.39 to the Company’s Form 10-K for the year ended January 31, 2003 (File No. 1-4372).




10.40	-	First Amendment to Credit Agreement, dated as of May 9, 2003, 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 10.40 to the Company’s Form 10-Q for the quarter ended April 30, 2003 (File No. 1-4372).




10.41	-	First Amendment to Guaranty of Payment of Debt, dated as of May 9, 2003, 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 10.41 to the Company’s Form 10-Q for the quarter ended April 30, 2003 (File No. 1-4372).




+10.42	-	1994 Stock Option Plan, as Amended, incorporated by reference to Exhibit A to the Forest City Enterprises, Inc. Proxy Statement for its Annual Meeting of Shareholders held on June 11, 2003.




* 31.1	-	Principle Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




* 31.2	-	Principle Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.




* 32.1	-	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Management contract or compensatory arrangement.

* Filed herewith.

(b) Reports on Form 8-K.

During the three months ended July 31, 2003, the Company:

(1) Filed a current report on Form 8-K on May 9, 2003 under Items 5 and 7 to issue a press release announcing an intended $200,000,000 senior note offering.

(2) Filed a current report on Form 8-K on May 12, 2003 under Items 5 and 7 to provide the electronic signature that was inadvertently omitted from the May 9, 2003 filing.

(3) Filed a current report on Form 8-K on May 14, 2003 under Items 5 and 7 to issue a press release announcing a $300,000,000 senior note offering.

(4) Filed a current report on Form 8-K on May 20, 2003 under Item 5 and 7 to file the indenture, form of note and opinion of counsel relating to the $300,000,000 senior note offering.

(5) Furnished a current report on Form 8-K on June 11, 2003 under Item 12 to issue a press release announcing financial results for the quarter ended April 30, 2003.

SIGNATURES

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


		FOREST CITY ENTERPRISES, INC. (Registrant)

Date September 12, 2003		/S/ THOMAS G. SMITH

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

Date September 12, 2003		/S/ LINDA M. KANE
		Linda M. Kane Senior Vice President and Corporate Controller (Principal Accounting Officer)

Exhibit Index


Exhibit
Number		Description of Document


31.1	- -	Principle Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	- -	Principle Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	- -	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

(1)		Swaps include long-term LIBOR contracts that have an average initial maturity greater than six months.
(2)		In August and September 2003, the Company executed several derivative instruments. The Company purchased approximately $144 million in Interest Rate Caps effective in August 2003 with durations of 18 months to 3 years. Additionally, approximately $255.5 million of Interest Rate Swaps were executed. The swaps have commencement dates ranging from October 2003 through May 2005 with durations ranging from 18 months to 3 years.
(3)		These LIBOR-based hedges as of August 1, 2003 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, 2004.

1)		The Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” effective February 1, 2002. Pursuant to the definition of a component of an entity of SFAS No. 144, assuming no significant continuing involvement, all earnings of properties which have been sold or held for sale are reported as discontinued operations.

2)		The Company uses an additional measure, along with net earnings, to report its operating results. This measure, referred to as Earnings Before Depreciation, Amortization and Deferred Taxes (“EBDT”), is not a measure of operating results as defined by generally accepted accounting principles and may not be directly comparable to similarly titled measures reported by other companies. The Company believes that EBDT provides additional information about its operations, and along with net earnings, is necessary to understand its operating results. 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) 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). Early extinguishment of debt is now reported in operating earnings. However, early extinguishment of debt is excluded from EBDT through the year ended January 31, 2003. Beginning February 1, 2003, early extinguishment of debt is included in EBDT.

3)		Amount represents depreciation expense for certain syndicated properties accounted for on the equity method of accounting under both full consolidation and pro-rata consolidation. See Note K — Investments In and Advances to Affiliates for further discussion of these syndicated properties on Form 10-K for the year ended January 31, 2003.

4)		Effective for the year ended January 31, 2001, the Company recognizes minimum rents on a straight-line basis over the term of the related lease pursuant to the provision of SFAS No. 13, “Accounting for Leases.” The straight-line rent adjustment is recorded as an increase or decrease to revenue from Forest City Rental Properties Corporation, a wholly-owned subsidiary of Forest City Enterprises, Inc., with the applicable offset to either accounts receivable or accounts payable, as appropriate.

5)		The following table provides detail of Depreciation and Amortization. The Company’s Real Estate Groups are owned by Forest City Rental Properties Corporation, a wholly-owned subsidiary engaged in the ownership, development, acquisition and management of real estate projects, including apartment complexes, regional malls and retail centers, hotels, office buildings and mixed-use facilities, as well as large land development projects.


	Residential Group 2003

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

Revenues	$	48,465		$	2,276		$	21,004		$	–	$	67,193
Exclude straight-line rent adjustment		(143	)		–			–			–		(143	)
Add back equity method depreciation expense		3,066			–			(2,945	)		–		121

Adjusted revenues		51,388			2,276			18,059			–		67,171
Operating expenses, including depreciation and amortization for non-Real Estate Groups		24,685			1,877			11,954			–		34,762
Exclude straight-line rent adjustment		–			–			–			–		–

Adjusted operating expenses		24,685			1,877			11,954			–		34,762

Net operating income		26,703			399			6,105			–		32,409
Interest expense		6,113			187			6,105			–		12,031
Gain on early extinguishment of debt		(766	)		(98	)		–			–		(668	)
Income tax provision (benefit)		2,882			–			–			–		2,882
Minority interest in earnings before depreciation and amortization		310			310			–			–		–
Add: EBDT from discontinued operations		–			–			–			–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	18,164		$	–		$	–		$	–	$	18,164


	Total 2003

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

Revenues	$	252,092		$	38,387		$	58,747		$	–	$	272,452
Exclude straight-line rent adjustment		(2,112	)		–			–			–		(2,112	)
Add back equity method depreciation expense		7,626			–			(7,505	)		–		121

Adjusted revenues		257,606			38,387			51,242			–		270,461
Operating expenses, including depreciation and amortization for non-Real Estate Groups		143,438			20,935			36,879			–		159,382
Exclude straight-line rent adjustment		(1,285	)		–			–			–		(1,285	)

Adjusted operating expenses		142,153			20,935			36,879			–		158,097

Net operating income		115,453			17,452			14,363			–		112,364
Interest expense		47,740			7,911			14,363			–		54,192
Loss (gain) on early extinguishment of debt		10,718			(98	)		–			–		10,816
Income tax (benefit) provision		(2,894	)		–			–			–		(2,894	)
Minority interest in earnings before depreciation and amortization		9,639			9,639			–			–		–
Add: EBDT from discontinued operations		–			–			–			–		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	50,250		$	–		$	–		$	–	$	50,250

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)	$	50,250		$	–		$	–		$	–	$	50,250
Depreciation and amortization – Real Estate Groups		(32,825	)		–			–			–		(32,825	)
Deferred taxes – Real Estate Groups		(9,926	)		–			–			–		(9,926	)
Straight-line rent adjustment		827			–			–			–		827
Provision for decline in real estate, net of tax		(1,449	)		–			–			–		(1,449	)
Loss on disposition of operating properties and other investments, net of tax		(274	)		–			–			–		(274	)

Net earnings	$	6,603		$	–		$	–		$	–	$	6,603


	Residential Group 2002

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

Revenues	$	38,613	$	1,186	$	16,958		$	743		$	55,128
Exclude straight-line rent adjustment		–		–		–			–			–
Add back equity method depreciation expense		2,526		–		(2,407	)		–			119

Adjusted revenues		41,139		1,186		14,551			743			55,247
Operating expenses, including depreciation and amortization for non-Real Estate Groups		20,047		894		9,863			570			29,586
Exclude straight-line rent adjustment		–		–		–			–			–

Adjusted operating expenses		20,047		894		9,863			570			29,586

Net operating income		21,092		292		4,688			173			25,661
Interest expense		5,904		88		4,688			201			10,705
Income tax (benefit) provision		1,929		–		–			(93	)		1,836
Minority interest in earnings before depreciation and amortization		204		204		–			–			–
Add: EBDT from discontinued operations		65		–		–			(65	)		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	13,120	$	–	$	–		$	–		$	13,120


	Total 2002

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

Revenues	$	236,968		$	33,735	$	44,260		$	2,242		$	249,735
Exclude straight-line rent adjustment		(2,757	)		–		–			(7	)		(2,764	)
Add back equity method depreciation expense		6,218			–		(6,099	)		–			119

Adjusted revenues		240,429			33,735		38,161			2,235			247,090
Operating expenses, including depreciation and amortization for non-Real Estate Groups		143,078			18,612		26,260			1,472			152,198
Exclude straight-line rent adjustment		(2,322	)		–		–			–			(2,322	)

Adjusted operating expenses		140,756			18,612		26,260			1,472			149,876

Net operating income		99,673			15,123		11,901			763			97,214
Interest expense		45,382			8,320		11,901			424			49,387
Income tax (benefit) provision		4,321			–		–			(91	)		4,230
Minority interest in earnings before depreciation and amortization		6,803			6,803		–			–			–
Add: EBDT from discontinued operations		430			–		–			(430	)		–

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	43,597		$	–	$	–		$	–		$	43,597

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)	$	43,597		$	–	$	–		$	–		$	43,597
Depreciation and amortization – Real Estate Groups		(28,309	)		–		–			(328	)		(28,637	)
Deferred taxes – Real Estate Groups		(2,700	)		–		–			(19	)		(2,719	)
Straight-line rent adjustment		435			–		–			7			442
Discontinued operations, net of tax and minority interest:
Depreciation and amortization		(328	)		–		–			328			–
Deferred taxes		(19	)		–		–			19			–
Straight-line rent adjustment		7			–		–			(7	)		–

Net earnings	$	12,683		$	–	$	–		$	–		$	12,683

(1)		Swaps include long-term LIBOR contracts that have an average maturity greater than six months.
(2)		In August 2003 and September 2003, the Company executed several derivative instruments. The Company purchased approximately $144 million in Interest Rate Caps, effective in August 2003 with durations of 18 months to 3 years. Additionally, approximately $255.5 million of Interest Rate Swaps were executed. The Swaps have commencement dates ranging from October 2003 through May 2005 with durations ranging from 18 months to 3 years.
(3)		These LIBOR-based hedges as of August 1, 2003 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, 2004.

			Evaluation of disclosure controls and procedures. The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

			Changes in internal controls. Subsequent to the date of the evaluation, there have been no significant changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

	+		Management contract or compensatory arrangement.

	*		Filed herewith.

	(1)		Filed a current report on Form 8-K on May 9, 2003 under Items 5 and 7 to issue a press release announcing an intended $200,000,000 senior note offering.

	(2)		Filed a current report on Form 8-K on May 12, 2003 under Items 5 and 7 to provide the electronic signature that was inadvertently omitted from the May 9, 2003 filing.

	(3)		Filed a current report on Form 8-K on May 14, 2003 under Items 5 and 7 to issue a press release announcing a $300,000,000 senior note offering.

	(4)		Filed a current report on Form 8-K on May 20, 2003 under Item 5 and 7 to file the indenture, form of note and opinion of counsel relating to the $300,000,000 senior note offering.

	(5)		Furnished a current report on Form 8-K on June 11, 2003 under Item 12 to issue a press release announcing financial results for the quarter ended April 30, 2003.