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 October 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 December 1, 2003

Class A Common Stock, $.33 1/3 par value		36,240,544 shares




Class B Common Stock, $.33 1/3 par value		13,715,992 shares

THIS PAGE INTENTIONALLY LEFT BLANK

FOREST CITY ENTERPRISES, INC.
Table of Contents


			Page No.

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Forest City Enterprises, Inc. and Subsidiaries
		Consolidated Balance Sheets — October 31, 2003 (Unaudited) and January 31, 2003		2
		Consolidated Statements of Earnings (Unaudited) — Three and Nine Months Ended October 31, 2003 and 2002		3
		Consolidated Statements of Comprehensive Income (Unaudited) — Nine Months Ended October 31, 2003 and 2002		4
		Consolidated Statements of Shareholders’ Equity (Unaudited) — Nine Months Ended October 31, 2003 and 2002		4
		Consolidated Statements of Cash Flows (Unaudited) — Nine Months Ended October 31, 2003 and 2002		5 - 6
		Notes to Consolidated Financial Statements (Unaudited)		7 - 18
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			19 - 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			61
	Item 6. Exhibits and Reports on Form 8-K			62 - 68
Signatures				69

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements

FOREST CITY ENTERPRISES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets


			October 31, 2003			January 31, 2003

			(Unaudited)
			(in thousands)
Assets
Real Estate
	Completed rental properties		$	4,446,313		$	3,866,625
	Projects under development			529,384			572,476
	Land held for development or sale			36,432			35,036

		Total Real Estate		5,012,129			4,474,137
	Less accumulated depreciation			(706,878	)		(615,653	)

		Real Estate, net		4,305,251			3,858,484
Cash and equivalents				175,958			122,356
Restricted cash				133,455			127,046
Notes and accounts receivable, net				417,981			286,652
Inventories				35,743			38,638
Investments in and advances to real estate affiliates				460,345			489,205
Other assets				211,340			154,828

		Total Assets	$	5,740,073		$	5,077,209

Liabilities and Shareholders' Equity
Liabilities
Mortgage debt, nonrecourse			$	3,478,990		$	3,016,107
Notes payable				137,730			79,484
Long-term credit facility				62,500			135,250
Senior and subordinated debt				320,400			220,400
Accounts payable and accrued expenses				645,078			585,042
Deferred income taxes				288,253			255,888

		Total Liabilities		4,932,951			4,292,171
Minority interest				60,951			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; 36,509,636 and 35,678,086 shares issued, 36,240,344 and 35,525,067 outstanding, respectively			12,170			11,892
	Class B, convertible, 36,000,000 shares authorized; 13,716,192 and 14,547,742 shares issued, 13,716,192 and 14,130,592 outstanding, respectively			4,572			4,850

				16,742			16,742
Additional paid-in capital				234,668			232,029
Retained earnings				505,722			470,348

				757,132			719,119
Less treasury stock, at cost; 269,292 Class A and 0 Class B shares and 153,019 Class A and 417,150 Class B shares, respectively				(1,971	)		(4,425	)
Accumulated other comprehensive loss				(8,990	)		(8,722	)

	Total Shareholders' Equity			746,171			705,972

		Total Liabilities and Shareholders' Equity	$	5,740,073		$	5,077,209

See notes to consolidated financial statements.

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


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

			2003			2002			2003			2002

			(in thousands, except per share data)
Revenues
	Rental properties		$	242,532		$	194,697		$	666,441		$	569,143
	Lumber trading			39,627			23,296			86,508			72,896
	Equity in earnings of unconsolidated real estate entities			11,433			10,735			33,103			31,493

				293,592			228,728			786,052			673,532

Expenses
	Operating expenses			169,841			140,713			452,518			406,361
	Interest expense			50,509			39,958			142,140			127,469
	Loss on early extinguishment of debt			—			355			10,718			735
	Provision for decline in real estate			—			957			2,728			957
	Depreciation and amortization			31,062			30,356			91,300			84,285

				251,412			212,339			699,404			619,807

Loss on disposition of other investments				—			—			(431	)		(116	)

Earnings before income taxes				42,180			16,389			86,217			53,609

Income tax expense
		Current		(2,813	)		(4,320	)		1,080			4,053
		Deferred		20,098			11,028			31,669			16,429

				17,285			6,708			32,749			20,482

Earnings before minority interest and discontinued operations				24,895			9,681			53,468			33,127
Minority interest				(1,466	)		(183	)		(8,565	)		(2,037	)

Earnings from continuing operations				23,429			9,498			44,903			31,090
Discontinued operations, net of tax and minority interest
		(Loss) earnings from operations		(1,301	)		(557	)		(1,433	)		670
		Gain on disposition of operating properties		3,844			—			3,897			—

				2,543			(557	)		2,464			670

Net earnings			$	25,972		$	8,941		$	47,367		$	31,760

Basic earnings per common share
		Earnings from continuing operations	$	0.47		$	0.19		$	0.90		$	0.63
		Earnings from discontinued operations, net of tax and minority interest		0.05			(0.01	)		0.05			0.01

		Net earnings	$	0.52		$	0.18		$	0.95		$	0.64

Diluted earnings per common share
		Earnings from continuing operations	$	0.46		$	0.19		$	0.89		$	0.62
		Earnings from discontinued operations, net of tax and minority interest		0.05			(0.01	)		0.05			0.01

		Net earnings	$	0.51		$	0.18		$	0.94		$	0.63

See notes to consolidated financial statements.

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


			Nine Months Ended October 31,

			2003			2002

			(in thousands)
Net earnings			$	47,367		$	31,760

Other comprehensive (loss) income, net of tax:
	Unrealized gains (losses) on investments in securities:
		Unrealized gain (loss) on securities		305			(512	)
	Unrealized derivative (losses) gains:
		Change in unrealized losses and gains on interest rate contracts, net of minority interest		(573	)		694

Other comprehensive (loss) income, net of tax				(268	)		182

Comprehensive income			$	47,099		$	31,942

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


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

		(in thousands)
Nine Months Ended October 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															47,367												47,367
	Other comprehensive loss, net of tax																								(268	)		(268	)
	Dividends $.24 per share															(11,993	)											(11,993	)
	Conversion of Class B to Class A shares		832		278		(832	)		(278	)																	—
	Exercise of stock options												1,700						(188	)		1,441						3,141
	Income tax benefit from stock option exercises												1,065															1,065
	Restricted stock issued												(1,013	)					(113	)		1,013						—
	Amortization of unearned compensation												887															887

	Balances at October 31, 2003		36,510	$	12,170		13,716		$	4,572		$	234,668		$	505,722			269		$	(1,971	)	$	(8,990	)	$	746,171

Nine Months Ended October 31, 2002
	Balances at January 31, 2002		35,101	$	11,700		15,125		$	5,042		$	228,263		$	432,939			762		$	(6,140	)	$	(9,291	)	$	662,513
	Net earnings															31,760												31,760
	Other comprehensive income, net of tax																								182			182
	Dividends $.17 per share															(8,441	)											(8,441	)
	Conversion of Class B to Class A shares		543		181		(543	)		(181	)																	—
	Exercise of stock options												1,418						(187	)		1,671						3,089
	Income tax benefit from stock option exercises												1,412															1,412
	Amortization of unearned compensation												715															715

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

See notes to consolidated financial statements.

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


			Nine Months Ended October 31,

			2003			2002

			(in thousands)
Cash Flows from Operating Activities
	Rents and other revenues received		$	621,494		$	609,281
	Cash distributions from unconsolidated entities			13,331			13,705
	Proceeds from land sales			55,800			46,958
	Land development expenditures			(56,962	)		(28,232	)
	Operating expenditures			(404,622	)		(390,606	)
	Interest paid			(134,577	)		(128,873	)

		Net cash provided by operating activities		94,464			122,233

Cash Flows from Investing Activities
	Capital expenditures			(304,962	)		(433,997	)
	Proceeds from disposition of operating properties and other investments			2,549			—
	Changes in investments in and advances to real estate affiliates			36,911			(69,822	)

		Net cash used in investing activities		(265,502	)		(503,819	)

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			785,387			334,829
	Increase in long-term credit facility			19,000			231,000
	Principal payments on nonrecourse mortgage debt			(549,839	)		(58,284	)
	Payments on long-term credit facility			(91,750	)		(90,500	)
	Increase in notes payable			77,441			15,355
	Payments on notes payable			(18,638	)		(20,785	)
	Repayment of Lumber Trading Group securitization agreement			(55,000	)		—
	Change in restricted cash and book overdrafts			16,263			(31,490	)
	Payment of deferred financing costs			(27,168	)		(7,897	)
	Exercise of stock options			3,141			3,089
	Dividends paid to shareholders			(10,464	)		(7,933	)
	(Decrease) increase in minority interest			(7,141	)		5,799

		Net cash provided by financing activities		224,640			373,183

Net increase (decrease) in cash and equivalents				53,602			(8,403	)
Cash and equivalents at beginning of period				122,356			50,054

Cash and equivalents at end of period			$	175,958		$	41,651

See notes to consolidated financial statements.

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


			Nine Months Ended October 31,

			2003			2002

			(in thousands)

Reconciliation of Net Earnings to Cash Provided by Operating Activities
Net Earnings			$	47,367		$	31,760
	Discontinued operations:
		Minority interest		218			(278	)
		Depreciation		659			2,524
		Amortization		121			98
		Gain on disposition of operating properties		(6,769	)		—
		Loss on early extinguishment of debt		190			—
	Minority interest			8,565			2,037
	Depreciation			75,234			70,204
	Amortization			16,066			14,081
	Equity in earnings of unconsolidated entities			(33,103	)		(31,493	)
	Cash distributions from unconsolidated entities			13,331			13,705
	Deferred income taxes			32,541			13,578
	Loss on disposition of other investments			431			116
	Provision for decline in real estate			2,728			957
	Loss on early extinguishment of debt			10,718			735
	(Increase) decrease in land included in projects under development			(6,329	)		3,638
	Decrease in land included in completed rental properties			—			341
	Increase in land held for development or sale			(1,396	)		(11,164	)
	(Increase) decrease in notes and accounts receivable			(76,124	)		2,658
	Decrease in inventories			2,895			6,519
	Increase in other assets			(29,941	)		(11,566	)
	Increase in accounts payable and accrued expenses			37,062			13,783

		Net cash provided by operating activities	$	94,464		$	122,233

Supplemental Non-Cash Disclosures:

The schedule below represents the effect of the following non-cash transactions for the nine months ended October 31:


2003 *	Increase in interest in Station Square Freight House, a specialty retail center
	Disposition of interest in Trowbridge, a supported-living community
	Acquisitions of additional interests in ten syndicated residential properties:
		Arboretum Place, Bowin, Bridgewater, Drake, Enclave, Grand, Lakeland, Lofts at 1835 Arch, Silver Hill and Trellis at Lee's Mill
	Acquisition of Grove, an apartment community
	Change to equity method of accounting from full consolidation due to the admission of a 50% partner in Emporium, a retail project under development
2002 *	None


Operating Activities
	Notes and accounts receivable		$	(204	)	$	—
	Other assets			(13,151	)		—
	Accounts payable and accrued expenses			21,370			—

		Total effect on operating activities	$	8,015		$	—

Investing Activities
	Investments in and advances to affiliates		$	11,887		$	—
	Acquisition of completed rental properties			(227,499	)		—

		Total effect on investing activities	$	(215,612	)	$	—

Financing Activities
	Decrease in notes and loans payable		$	(557	)	$	—
	Increase in nonrecourse mortgage debt			227,911			—
	Decrease in minority interest			(19,757	)		—

		Total effect on financing activities	$	207,597		$	—

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 38-46 of this filing.

Accounting for Derivative Instruments and Hedging Activities

During the three and nine months ended October 31, 2003, the Company recorded approximately $25,000 and $565,000, respectively, as interest expense in the Consolidated Statements of Earnings, which represented the total ineffectiveness of all cash flow hedges. During the three and nine months ended October 31, 2002, the Company recorded approximately $19,000 and $204,000, respectively, as an increase of interest expense due to the ineffective portion of its cash flow hedges. 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 nine months ended October 31, 2003, and was $58,000 and $738,000, for the three and nine months ended October 31, 2002, respectively. As of October 31, 2003, the Company expects that within the next twelve months it will reclassify amounts recorded in accumulated other comprehensive loss into earnings as interest expense associated with the effectiveness of cash flow hedges of approximately $2,298,000, net of tax. The amount of hedge ineffectiveness relating to hedges designated and qualifying as fair value hedges was not material.

At October 31 and January 31, 2003, interest rate caps were reported at their fair value of approximately $3,917,000 and $753,000 respectively, in the Consolidated Balance Sheets as Other Assets. The fair value of interest rate swap and floor agreements at October 31 and January 31, 2003 is an unrealized loss of approximately $7,376,000 and $4,340,000, respectively, and is included in Accounts Payable and Accrued Expenses in the Consolidated Balance Sheets.

Stock-Based Compensation

During the nine months ended October 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.

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

A. Accounting Policies continued

Stock-Based Compensation (continued)

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 October 31, 2003, the unamortized unearned compensation relating to all restricted stock amounted to $5,227,000.

Stock based compensation costs, net of tax, relating to restricted stock awards were charged to net earnings in the amount of $186,000 and $121,000, respectively, during the three months ended October 31, 2003 and 2002, and $536,000 and $432,000, respectively, during the nine months ended October 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 applied the fair value recognition provisions of SFAS No. 123 to stock options.


		Three months ended						Nine months ended
		October 31,						October 31,

		2003			2002			2003			2002

Net earnings (in thousands)




	As reported	$	25,972		$	8,941		$	47,367		$	31,760




	Deduct stock-based employee compensation expense for stock options determined under the fair value based method, net of related tax effect		(896	)		(644	)		(2,443	)		(1,932	)

	Pro forma	$	25,076		$	8,297		$	44,924		$	29,828

Basic earnings per share




	As reported	$	.52		$	.18		$	.95		$	.64




	Pro forma	$	.50		$	.17		$	.90		$	.60




Diluted earnings per share




	As reported	$	.51		$	.18		$	.94		$	.63




	Pro forma	$	.49		$	.17		$	.89		$	.59

New Accounting Standards

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

A. Accounting Policies continued

New Accounting Standards (continued)

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 were 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.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 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 No. 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 and the related FASB Staff Position (“FSP”) apply immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the first year or interim period ending after December 15, 2003. The FASB issued an Exposure Draft and a number of FSP’s that address certain implementation issues that have arisen since the FASB issued FIN No. 46. The Company is in the process of quantifying the full impact of FIN No. 46 on its financial statements based on its understanding of FIN No. however, 46, the related Exposure Draft and FSPs issued to date as they are currently written. However, as of the date of this filing the guidance on FIN No. 46 has not yet been finalized. The Company believes it is reasonably possible it is the primary beneficiary of many of its equity method investments. As a result, full consolidation of these investments may be required under FIN No. 46, however, a final assessment cannot be made at this time. The financial position and results of operations for the Company’s equity method investments, which the Company is currently assessing under FIN No. 46 are presented in Note K — Investments In and Advances to Affiliates on page 17 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. This statement did not 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 continued

New Accounting Standards (continued)

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 a current 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 150”). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The minority interests associated with certain of the Company’s consolidated joint ventures that have finite lives under the terms of the agreements represent mandatorily redeemable interests as defined in SFAS 150. On November 7, 2003, the FASB indefinitely deferred the effective date of paragraphs nine and ten of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests in order to address a number of interpretation and implementation issues. However, the disclosure provisions of SFAS 150 are still required. Although no such obligation exists, if the Company were to dissolve the entities or sell the underlying real estate assets and satisfy any outstanding obligations, in all of its consolidated finite life entities as of October 31, 2003, the estimated aggregate settlement value of these noncontrolling interests would approximate book value due to the Company’s preferred returns upon settlement. The Company’s assessment of the settlement value is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Company would distribute to its noncontrolling interests, as required under the terms of the respective agreements. While additional guidance from the FASB relating to noncontrolling interests in consolidated finite life partnerships is pending, the Company does not expect the remainder of this statement to have an immediate material impact on the Company’s financial position, results of operations or cash flows.

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

B. 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 three months ended October 31, 2003, two properties, Vineyards and Laurels, were included in discontinued operations. Vineyards, a 366-unit apartment complex in Broadview Heights, Ohio and Laurels, a 520-unit apartment complex in Justice, Illinois, were both sold during the third quarter. For the nine months ended October 31, 2003, three properties, Vineyards, Laurels, and Trowbridge, were included in discontinued operations. The Company turned over the deed to Trowbridge, a supported-living community located in Southfield, Michigan, in lieu of foreclosure in April 2003. Vineyards, Laurels and Trowbridge were previously included in the Residential Group.

For the three and nine months ended October 31, 2002, five properties were included in discontinued operations: Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels. 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 Trowbridge being held for sale and operating results relating to assets sold and assets held for sale from Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels are as follows.


		October 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					Nine Months Ended
		October 31,					October 31,

		2003		2002			2003			2002

		(in thousands)					(in thousands)

Revenues		$	880	$	4,787		$	5,702		$	14,819

Expenses




	Operating expenses		1,086		3,001			4,788			9,108




	Interest expense		382		942			1,143			2,767




	Loss on early extinguishment of debt		190		—			190			—




	Depreciation and amortization		154		1,367			780			2,622

			1,812		5,310			6,901			14,497

Gain on disposition of operating properties			6,358		—			6,769			—

Earnings (loss) before income taxes			5,426		(523	)		5,570			322




Income tax expense (benefit)




	Current		382		276			2,083			2,654




	Deferred		2,501		(116	)		805			(2,724	)

			2,883		160			2,888			(70	)

Earnings before minority interest			2,543		(683	)		2,682			392




Minority interest			—		126			(218	)		278

Net earnings (loss) from discontinued operations		$	2,543	$	(557	)	$	2,464		$	670

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


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

		2003		2002		2003			2002

		(in thousands)				(in thousands)
Discontinued operations




	Laurels	$	4,249	$	—	$	4,249		$	—




	Vineyards		2,109		—		2,109			—




	Trowbridge		—		—		538			—




	Other		—		—		(127	)		—

Total		$	6,358	$	—	$	6,769		$	—

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 was 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 nine months ended October 31, 2003 and 2002. 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.


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

			2003		2002		2003		2002

			(in thousands)				(in thousands)

Leggs Hill	Land	Salem, MA	$	—	$	957	$	1,624	$	957




Hunting Park	Retail Center	Philadelphia, PA		—		—		1,104		—

Total			$	—	$	957	$	2,728	$	957

E. Reclassification

Certain items in the consolidated financial statements for 2002 have been reclassified to conform to the 2003 presentation (see Notes B and F).

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

F. Loss on Early Extinguishment of Debt

On February 1, 2002, the Company adopted the provisions of SFAS 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 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 nine months ended October 31, 2003, the Company has recorded $190,000 relating to the dispositions of Laurels and Vineyards as Loss on Early Extinguishment of Debt in Discontinued Operations. Laurels is a residential property located in Justice, Illinois, and Vineyards is a residential property located in Broadview Heights, Ohio. For the nine months ended October 31, 2003, the Company 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 net gains on early extinguishment of debt of approximately $800,000 on several residential properties.

For the three and nine months ended October 31, 2002, the Company reclassified $355,000 ($214,000, net of tax) and $735,000 ($444,000, net of tax) of early extinguishment of debt from Extraordinary Loss to Loss on Early Extinguishment of Debt to conform to the new guidance. These losses represented the impact of early extinguishment of nonrecourse debt in order to secure more favorable financing terms. The Company recorded extraordinary losses related to Lofts at 1835 Arch, a residential property located in Philadelphia, Pennsylvania, Autumn Ridge and Cambridge Towers, residential properties located in Michigan and Regency Towers, a residential property located in Jackson, New Jersey.

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

December 4, 2003*

March 1, 2004

March 15, 2004

.09

Since this dividend was declared after October 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		Average
		From		Common
		Continuing		Shares		Per
		Operations		Outstanding		Common
		(Numerator)		(Denominator)		Share

		(in thousands)
Three Months Ended




October 31, 2003:




	Basic EPS	$	23,429		49,939,452	$	0.47




	Effect of dilutive securities — stock options		—		732,522		(0.01	)

	Diluted EPS	$	23,429		50,671,974	$	0.46

October 31, 2002:




	Basic EPS	$	9,498		49,650,529	$	0.19




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

	Diluted EPS	$	9,498		50,152,885	$	0.19

Nine Months Ended




October 31, 2003:




	Basic EPS	$	44,903		49,842,969	$	0.90




	Effect of dilutive securities — stock options		—		656,729		(0.01	)

	Diluted EPS	$	44,903		50,499,698	$	0.89

October 31, 2002:




	Basic EPS	$	31,090		49,594,305	$	0.63




	Effect of dilutive securities — stock options		—		598,641		(0.01	)

	Diluted EPS	$	31,090		50,192,946	$	0.62

I. Commitments and Contingencies

In October 2003, the Company admitted Westfield America, Inc. as a partner into its Emporium project, a retail development in San Francisco. Pursuant to that agreement, the Company agreed to purchase a 50% interest in a partnership owned by Westfield America at a cost of $75,000,000. This acquisition will entitle the Company to a 50% economic interest in One San Francisco Centre, a retail property in operation located adjacent to Emporium. The purchase of this interest is planned for 2006 to coincide with the opening of Emporium.

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

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

The Company, through its Residential Group, is the 1% general partner in 23 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 nine months ended October 31, 2003, reductions of $1,813,000 and $2,043,000, and reductions for the three and nine months ended October 31, 2002 of $319,000 and $4,169,000, 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 nine months ended October 31, 2003, the Company recognized $5,300,000 in interest income on an unreserved note receivable from one of these 20 properties, representing participation proceeds from the sale of the property.

Millender Center — The Company owns a 1% general partnership 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 original principal of the note is now fully collectible.

During the three and nine months ended October 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 nine months ended October 31, 2002 the Company reduced $-0- and $690,000, respectively, of the reserve recorded against Millender Center. The reductions 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 October 31, 2003 and 2002, respectively. As of October 31, 2003, a $5,382,000 reserve against this note remains.

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

K. Investments in and Advances to Real Estate Affiliates

Included in Investments in and Advances to Real Estate Affiliates are unconsolidated investments in entities which the Company does not control and which are accounted for on the equity method as well as advances on behalf of other partners. Summarized financial information for the equity method investments is as follows.


			October 31,			January 31,
			2003			2003

			(in thousands)
Balance Sheet:




	Completed rental properties		$	2,367,862		$	2,384,920




	Projects under development			260,986			307,566




	Land held for development or sale			95,016			85,663




	Accumulated depreciation			(491,314	)		(484,845	)




	Other assets			252,733			278,024

		Total Assets	$	2,485,283		$	2,571,328

	Mortgage debt, nonrecourse		$	2,111,819		$	2,226,384




	Advances from general partner			1,385			18,355




	Other liabilities			162,313			166,286




	Partners’ equity			209,766			160,303

		Total Liabilities and Partners’ Equity	$	2,485,283		$	2,571,328


			Three Months			Three Months			Nine Months			Nine Months
			Ended			Ended			Ended			Ended
			October 31,			October 31,			October 31,			October 31,
			2003			2002			2003			2002

						(in thousands)
Operations:




	Revenues		$	121,894		$	143,634		$	415,624		$	391,583




	Operating expenses			(67,586	)		(76,213	)		(226,294	)		(205,485	)




	Interest expense			(26,213	)		(38,898	)		(95,987	)		(98,251	)




	Depreciation and amortization			(17,327	)		(16,507	)		(55,370	)		(48,553	)

		Net Earnings (pre-tax)	$	10,768		$	12,016		$	37,973		$	39,294

	Company’s portion of Net Earnings (pre-tax)		$	11,433		$	10,735		$	33,103		$	31,493

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


	October 31,		January 31,
	2003		2003

	(in thousands)
Partners’ equity, as above	$	209,766	$	160,303




Equity of other partners		65,306		30,178

Company’s investment in partnerships		144,460		130,125




Advances to partnerships, as above		1,385		18,355




Advances to other real estate affiliates		314,500		340,725

Investments in and Advances to Real Estate Affiliates	$	460,345	$	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 October 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 $110,586,000 and $98,264,000, respectively, of the $314,500,000 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)

L. Segment Information

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


					Three Months				Nine Months
					Ended October 31,				Ended October 31,
	October 31,		January 31,
	2003		2003		2003		2002		2003		2002

	Identifiable Assets				Expenditures for Additions to Real Estate

Commercial Group	$	3,809,954	$	3,628,251	$	57,489	$	101,396	$	209,070	$	311,559




Residential Group		1,312,348		990,192		78,384		22,228		128,554		146,785




Land Development Group		246,837		193,899		10,007		4,337		42,732		16,080




Lumber Trading Group		249,518		149,236		90		293		940		981




Corporate		121,416		115,631		88		290		721		793

	$	5,740,073	$	5,077,209	$	146,058	$	128,544	$	382,017	$	476,198


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

	2003		2002		2003		2002		2003		2002		2003		2002

			Revenues								Interest Expense

Commercial Group	$	157,582	$	152,922	$	481,411	$	430,852	$	36,011	$	26,362	$	98,965	$	89,175




Residential Group		40,817		36,931		132,678		109,704		6,268		5,788		18,724		16,234




Land Development Group		55,455		15,194		85,044		59,226		806		398		2,233		807




Lumber Trading Group ⁽¹⁾		39,627		23,296		86,508		72,896		966		649		2,385		2,044




Corporate		111		385		411		854		6,458		6,761		19,833		19,209

	$	293,592	$	228,728	$	786,052	$	673,532	$	50,509	$	39,958	$	142,140	$	127,469


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

	2003		2002		2003		2002		2003			2002			2003			2002

	Depreciation and Amortization								Earnings Before Income Taxes ⁽²⁾

Commercial Group	$	25,194	$	24,036	$	73,356	$	68,518	$	16,358		$	17,039		$	60,058		$	37,870




Residential Group		4,884		5,099		14,999		12,401		9,448			7,135			36,669			26,657




Land Development Group		65		46		185		147		25,920			7,955			38,854			26,934




Lumber Trading Group ⁽¹⁾		481		536		1,408		1,604		3,728			(488	)		4,306			(406	)




Corporate		438		639		1,352		1,615		(13,274	)		(14,295	)		(50,511	)		(36,373	)




Loss on disposition of other investments		—		—		—		—		—			—			(431	)		(116	)




Provision for decline in real estate		—		—		—		—		—			(957	)		(2,728	)		(957	)

	$	31,062	$	30,356	$	91,300	$	84,285	$	42,180		$	16,389		$	86,217		$	53,609


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

Commercial Group		$	40,398		$	43,340		$	120,636		$	101,178




Residential Group			18,625			17,643			55,942			45,453




Land Development Group			16,303			1,783			25,199			10,589




Lumber Trading Group			2,070			(372	)		2,158			(431	)




Corporate			(6,336	)		(12,466	)		(31,633	)		(25,640	)




Discontinued Operations ⁽⁴⁾			(1,164	)		579			(721	)		2,831

Consolidated EBDT			69,896			50,507			171,581			133,980




Reconciliation of EBDT to net earnings: ⁽⁵⁾




Depreciation and amortization — Real Estate Groups			(34,838	)		(30,973	)		(98,500	)		(86,131	)




Deferred taxes — Real Estate Groups			(15,447	)		(10,502	)		(32,374	)		(15,778	)




Straight-line rent adjustment			2,654			1,839			5,185			2,943




Provision for decline in real estate			—			(579	)		(1,449	)		(579	)




Early extinguishment of debt, net of tax			—			(214	)		—			(444	)




Loss on disposition of other investments, net of tax			—			—			(261	)		(70	)




Discontinued operations not included in EBDT, net of tax and minority interest ⁽⁴⁾




	Depreciation and amortization		(154	)		(1,283	)		(731	)		(2,376	)




	Deferred taxes		17			116			19			158




	Straight-line rent adjustment		—			30			—			57




	Gain on disposition of operating properties		3,844			—			3,897			—

Net earnings		$	25,972		$	8,941		$	47,367		$	31,760

(1) The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended October 31, 2003 and 2002 were $897,732 and $614,410, respectively. Sales invoiced for the nine months ended October 31, 2003 and 2002 were $2,083,523 and $1,951,959, 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 11 and 12 for more information.

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

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 $5.7 billion of assets in 22 states and the District of Columbia. Core markets include New York City, Denver, Boston, Washington D.C., Chicago, Philadelphia 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 October 31, 2003 were $25,972,000 versus $8,941,000 for the three months ended October 31, 2002. Net Earnings for the Company for the nine months ended October 31, 2003 were $47,367,000 versus $31,760,000 for the nine months ended October 31, 2002. The positive fluctuation for this year compared to prior year is primarily attributable to new property openings and gains on dispositions of operating properties in the Company’s Real Estate Groups (see discussion of Commercial and Residential Groups below), increased land sales in the Land Development and Commercial Groups and increased earnings in Lumber Trading Group.

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.

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 amortization 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 October 31, 2003 grew by 38.4% to $69,896,000 from $50,507,000. The Company’s EBDT for the nine months ended October 31, 2003 grew by 28.1% to $171,581,000 from $133,980,000. 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 seven residential communities, two office buildings and one retail center during the nine months ended October 31, 2003. In addition, the Company also experienced increased land sales in the Land Development, 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 complement 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% 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, a GAAP measure, 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 October 31, 2003 was $98,163,000 compared to $85,815,000 for the three months ended October 31, 2002, a 14.4% increase and for the nine months ended October 31, 2003 was $302,003,000 compared to $251,591,000 for the nine months ended October 31, 2002, a 20.0% increase. The change in each component of NOI is discussed under each operating segment below.

Under the pro-rata consolidation method NOI, defined as adjusted revenues less adjusted expenses, from the Real Estate Groups for the three months ended October 31, 2003 was $104,834,000 compared to $95,287,000 for the three months ended October 31, 2002, a 10.0% increase and for the nine months ended October 31, 2003 was $318,898,000 compared to $272,167,000 for the nine months ended October 31, 2002, a 17.2 % increase.

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

(Continued on Page 22)

Commercial Group

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


						Three Months Ended					Nine Months Ended

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

Retail Centers:




Short Pump Town Center	Richmond, VA		Q3 - 2003		1,162,000	$	(897	)*		N/A	$	(897	)*		N/A




Woodbridge Crossing	Woodbridge, NJ		Q3 - 2002		284,000		755			461		2,092			1,410




Harlem Center	Manhattan, NY		Q3 - 2002		126,000		836			193		3,227			706




Promenade in Temecula Expansion	Temecula, CA		Q3 - 2002		249,000		433			125		1,493			480




Galleria at Sunset Expansion	Henderson, NV		Q2 - 2002		121,000		260	*		N/A		931	*		N/A




Station Square - Bessemer Court	Pittsburgh, PA		Q2 - 2002		52,000		19			93		792			475




Quebec Square	Denver, CO		Q2 - 2002		691,000		431			136		1,568			732

Office Buildings:




15 MetroTech Center	Brooklyn, NY		Q2 - 2003		653,000		6,235			880		7,265			1,434




40 Landsdowne Street	Cambridge, MA		Q2 - 2003		215,000		2,339			456		3,115			538




88 Sidney Street	Cambridge, MA		Q2 - 2002		145,000		(11	)		340		2,526			685




35 Landsdowne Street	Cambridge, MA		Q2 - 2002		202,000		(117	)		314		4,522			1,140

*Total*						$	10,283		$	2,998	$	26,634		$	7,600

* Revenues 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 $4,660,000, or 3.0%, for the third quarter ended October 31, 2003 over the same period in the prior year. This increase is primarily the result of $10,283,000 from the opening of new properties as noted in the table above. These increases were partially offset by a decrease of $2,324,000 in the Company’s hotel portfolio due to a decrease in occupancy as a result of the decline in the overall travel industry and insurance claim proceeds from the Embassy Suites Hotel and $1,682,000 from the dispositions in the fourth quarter of 2002 of two specialty retail centers Bay Street and Courtland Center. 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 decrease in revenues in the Commercial Group of approximately $1,600,000 was generally due to fluctuations in operations at mature properties.

Revenues for the Commercial Group increased by $50,559,000, or 11.7%, for the nine months ended October 31, 2003 over the same period in the prior year. This increase is primarily the result of $26,634,000 from the opening of new properties as noted in the table above, $19,552,000 from increased commercial land sales and an increase of $7,248,000 in the Company’s hotel portfolio primarily due to the re-opening of 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 $5,372,000. The balance of the remaining increase in revenues in the Commercial Group of approximately $2,500,000 was generally due to fluctuations in operations at mature properties.

Operating and Interest Expenses — Operating expenses for the Commercial Group decreased $5,466,000 or 6.4% for the third quarter of 2003 over the same period in the prior year. The decrease in operating expenses was attributable primarily to $767,000 relating to dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center, a decrease in operating costs of $1,458,000 in the Company’s hotel portfolio due to a decrease in occupancy as a result of the decline in the overall travel industry and $2,125,000 from a participation payment in 2002 associated with the ground lease at the Richards Building located in University Park at MIT in Cambridge, Massachusetts that did not recur in 2003. These decreases were partially offset by increases of $2,998,000 from the opening of new properties as noted in the table above and an increase in write-offs of abandoned development projects of $1,253,000 during the third quarter of fiscal 2003 compared to the same period in the prior year. The balance of the decrease in operating expenses of $5,367,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the third quarter of fiscal 2003 for the Commercial Group by $9,649,000 or 36.6% 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 which exceeded the decrease in asset dispositions in 2003 and 2002 as previously such costs were capitalized.

Operating expenses for the Commercial Group increased $13,745,000 or 5.8% during the nine months ended October 31, 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 $7,600,000 as noted in the table above, $16,250,000 relating to costs for commercial land sales and greater operating costs of $4,959,000 in the Company’s hotel portfolio primarily due to the re-opening of the Embassy Suites Hotel. These increases were partially offset by $2,406,000 relating to dispositions in the fourth quarter of 2002 of two specialty retail centers, Bay Street and Courtland Center, a decrease in write-offs of abandoned development projects of $1,458,000 during the nine months of 2003 compared to the same period in the prior year and $2,125,000 from a participation payment in 2002 associated with the ground lease at the Richards Building located in University Park at MIT in Cambridge, Massachusetts that did not recur in 2003. The balance of the decrease in operating expenses of $9,075,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense increased during the nine months ended October 31, 2003 for the Commercial Group by $9,790,000 or 11.0% 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 as previously such costs were capitalized.

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 nine months ended October 31, 2003 compared to the same period in the prior year (dollars in thousands):


						Three Months Ended						Nine Months Ended

						October 31, 2003

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

Consolidated




Grove ^(a)	Ontario, CA		Q3 - 2003		101	$	237		$	143		$	237		$	143




Cherrywood Village ^(a)	Denver, CO		Q3 - 2003		360		24			—			24			—




Ranchstone ^(a)	Denver, CO		Q3 - 2003		368		24			—			24			—




Consolidated Carolina	Richmond, VA		Q2 - 2003		158		197			130			232			185




Southfield ^(a)	White Marsh, MD		Q4 - 2002		212		618			226			1,684			638




Landings of Brentwood ^(a)	Nashville, TN		Q2 - 2002		724		(4	)		(144	)		2,271			903




Heritage	San Diego, CA		Q1 - 2002		230		464			32			1,929			463




Chancellor Park ^(a)	Philadelphia, PA		Q1 - 2002		135		183			6			730			(334	)

*FAH Properties*




Parmatown Woods ^(a)	Parma Hts., OH		Q1 - 2003		201		329			151			927			625




Plymouth Square ^(a)	Detroit, MI		Q1 - 2003		280		689			224			2,095			842




Carl D. Perkins ^(a)	Pikeville, KY		Q3 - 2002		150		142			111			655			423




Autumn Ridge ^(a)	Sterling Hts., MI		Q2 - 2002		251		6			(340	)		1,187			(80	)




Tower 43 ^(a)	Kent, OH		Q2 - 2002		101		8			(7	)		355			290




Cambridge Towers ^(a)	Detroit, MI		Q2 - 2002		250		(82	)		(46	)		764			371




Coraopolis Towers ^(a)	Coraopolis, PA		Q2 - 2002		200		(6	)		(12	)		381			202




Donora Towers ^(a)	Donora, PA		Q2 - 2002		103		1			(3	)		202			143

Unconsolidated*




Worth Street	Manhattan, NY		Q1 - 2003		329		(93	)		N/A			(432	)		N/A




Colonial Grand ^(a)	Tampa, FL		Q1 - 2003		176		(35	)		N/A			17			N/A




Colony Place ^(a)	Fort Myers, FL		Q1 - 2003		300		1			N/A			106			N/A




St. Mary s Villa ^(a)	Newark, NJ		Q2 - 2002		360		(11	)		N/A			(101	)		N/A




Residences at University Park	Cambridge, MA		Q1 - 2002		135		285			N/A			363			N/A




Westwood Reserve ^(a)	Tampa, FL		Q1 - 2002		340		(59	)		N/A			(128	)		N/A

*Total*						$	2,918		$	471		$	13,522		$	4,814

* 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.

Revenues — Revenues for the Residential Group increased $3,886,000, or 10.5%, for the three months ended October 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 $2,918,000 as noted in the table above. Revenues also increased by $1,344,000 from the reversal of reserves for notes receivable and related accrued interest from certain syndicated properties occurring in 2003 and not occurring in 2002. These increases were partially offset by a net decrease in revenues from equity method investments of $288,000 primarily related to Kennedy Biscuit Lofts, a 142-unit community in Cambridge, Massachusetts and Waterford Village, a 576-unit community in Indianapolis, Indiana.

Revenues for the Residential Group increased $22,974,000, or 20.9%, for the nine months ended October 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 $13,522,000 as noted in the table above. Revenues also increased by $5,450,000 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 $2,663,000 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 equity method investments of $1,414,000 primarily related to Kennedy Biscuit Lofts and Waterford Village. An additional decrease resulted from $604,000 in equity method development project write-offs.

Operating and Interest Expenses — Operating expenses for the Residential Group increased by $1,664,000, or 9.0%, during the three months ended October 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 $ 471,000 as noted in the table above. Expenses also increased by $541,000 from increases in expenses associated with the restructuring of the management staff including adding new positions for the Daly portfolio, start-up costs incurred in the apartment management company related to the Hawaii Military Communities and normal inflationary increases for the management company. The Hawaii Military Communities is a project whereby the Company has partnered with the U.S. Navy to redevelop, manage, own and operate the 2,000 military housing units in Oahu, Hawaii for 50 years. The remaining increase of approximately $652,000 was generally due to fluctuations in operating costs at mature properties.

Operating expenses for the Residential Group increased by $9,376,000, or 17.5%, during the nine months ended October 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 $4,814,000 as noted in the table above. In addition, $3,600,000 was expensed as costs of nonrecurring land sales. Expenses also increased by $719,000 from increases in expenses associated with the restructuring of the management staff including adding new positions for the Daly portfolio, start-up costs incurred in the apartment management company related to the Hawaii Military Communities and normal inflationary increase for the management company. An additional increase of $418,000 was 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 $1,000,000 in the provision for project write-offs. The remaining increase of approximately $825,000 was generally due to fluctuations in operating costs at mature properties.

Interest expense for the Residential Group increased $125,000, or 2.0%, for the three months ended October 31, 2003 compared to the same period in the prior year. Interest expense for the Residential Group increased by $1,755,000, or 10.3%, for the nine months ended October 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.

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 increased by $40,261,000 during the three months ended October 31, 2003 compared to the same period in the prior year. This increase is primarily the result of the sale of the entire Hawk’s Haven subdivision in Ft. Myers, Florida for approximately $30,000,000 and combined revenue increases of $14,681,000 primarily at two major land development projects: Stapleton in Denver,

Colorado and Central Station in Chicago, Illinois combined with several smaller sales increases. These increases were partially offset by decreases of $4,420,000 primarily at one major land development project, Seven Hills in Henderson, Nevada, combined with several smaller sales decreases at various land development projects.

Revenues for the Land Development Group increased by $25,818,000 during the nine months ended October 31, 2003 compared to the same period in the prior year. This increase is primarily the result of the sale of the entire Hawk’s Haven subdivision for approximately $30,000,000 and combined increases of $10,884,000 primarily at three major land development projects: Stapleton, Thornbury in Solon, Ohio and Gladden Farms in Marana, Arizona; combined with several smaller sales increases in various land development projects. These increases were partially offset by decreases of $13,741,000 primarily at three major land development projects: Willowbrook in Twinsburg, Ohio, Waterbury in North Ridgeville, Ohio and Seven Hills; and several smaller sales decreases in various land development projects. In addition, revenue increases were partially offset by a decrease of $1,325,000 as a result of the prior year sale of land options at Paseo del Este in El Paso, Texas, which did not recur in the first nine months of 2003.

Operating and Interest Expenses — The fluctuation in Land Development Group operating expenses primarily reflects costs associated with land sales volume in each period. Operating expenses increased by $21,886,000 during the three months ended October 31, 2003 compared to the same period in the prior year. This increase is primarily due to the cost of the Hawk’s Haven subdivision sale of approximately $17,000,000 and increases of $5,921,000 at Stapleton and several smaller expense increases at various land development projects. These increases were partially offset by decreases of $1,035,000 at various land development projects.

Operating expenses increased by $12,466,000 during the nine months ended October 31, 2003 compared to the same period in the prior year. This increase is primarily due the cost of Hawk’s Haven subdivision sale of approximately $17,000,000 and increases of $2,483,000 at Stapleton and several smaller land development projects. These increases were partially offset by decreases of $7,017,000 primarily at Willowbrook and various other land development projects.

Interest expense for the Land Development Group increased by $408,000 for the three months ended October 31, 2003 and $1,426,000 for the nine months ended October 31, 2003 compared to the same periods in the prior year due primarily to higher debt levels. 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 three months ended October 31, 2003, a significant price increase for both lumber and panel products in the market occurred due to increased demand. As a result, revenues for the Lumber Trading Group increased by $16,331,000 during the three months ended October 31, 2003 compared to the same period in the prior year. Revenues increased by $13,612,000 during the nine months ended October 31, 2003 compared to the same period in the prior year primarily due to the price increase that took place during the third quarter.

Operating and Interest Expense — Operating expenses for the Lumber Trading Group increased by $11,799,000 for the three months ended October 31, 2003 and $8,558,000 for the nine months ended October 31, 2003 compared to the same period in the prior year. These increases were primarily due

to the higher variable expenses, principally traders’ commissions, resulting from the increase in revenue explained above. Interest expense increased by $317,000 for the three months ended October 31, 2003 and $341,000 for the nine months ended October 31, 2003 compared to the same period in the prior year. These increases were due to increases in the borrowing level and interest rates.

Corporate Activities

Revenues — Corporate Activities’ revenues decreased $274,000 during the three months ended October 31, 2003 and $443,000 during the nine months ended October 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 quarter to quarter depending on interest rates and the amount of investments and loans outstanding.

Operating and Interest Expenses — Operating expenses for Corporate Activities decreased $992,000 during the three months ended October 31, 2003 and increased $1,587,000 during the nine months ended October 31, 2003 compared to the same periods in the prior year. The variances in operating expenses, when compared to the same periods in the prior year, are the result of fluctuations in general corporate expenses and the timing of consulting and contract services relating to corporate projects in 2002. Interest expense decreased $303,000 during the three months ended October 31, 2003 and increased $624,000 during the nine months ended October 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

Depreciation and Amortization

Depreciation and amortization increased by $706,000 and $7,015,000 for the three and nine months ended October 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, partially offset by property dispositions and properties reclassified as discontinued operations.

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 three months ended October 31, 2003, two properties, Vineyards and Laurels, were included in discontinued operations. Vineyards, a 366-unit apartment complex in Broadview Heights, Ohio and Laurels, a 520-unit apartment complex in Justice, Illinois, were both sold during the third quarter. For the nine months ended October 31, 2003, three properties, Vineyards, Laurels, and Trowbridge were included in discontinued operations. The Company turned over the deed to Trowbridge, a supported-living community located in Southfield, Michigan, in lieu of foreclosure in April 2003. Vineyards, Laurels and Trowbridge were previously included in the Residential Group.

For the three and nine months ended October 31, 2002, five properties were included in discontinued operations: Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels. 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 Trowbridge being held for sale as of January 1, 2003 and operating results relating to assets sold and assets held for sale from Bay Street, Courtland Center, Trowbridge, Vineyards and Laurels are as follows.


	October 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 October 31,					Nine Months Ended October 31,

	2003		2002			2003			2002

	(in thousands)					(in thousands)
Revenues	$	880	$	4,787		$	5,702		$	14,819





Expenses




Operating expenses		1,086		3,001			4,788			9,108




Interest expense		382		942			1,143			2,767




Loss on early extinguishment of debt		190		—			190			—




Depreciation and amortization		154		1,367			780			2,622





		1,812		5,310			6,901			14,497





Gain on disposition of operating properties		6,358		—			6,769			—





Earnings (loss) before income taxes		5,426		(523	)		5,570			322




Income tax expense (benefit)




Current		382		276			2,083			2,654




Deferred		2,501		(116	)		805			(2,724	)





		2,883		160			2,888			(70	)





Earnings before minority interest		2,543		(683	)		2,682			392




Minority interest		—		126			(218	)		278





Net earnings (loss) from discontinued operations	$	2,543	$	(557	)	$	2,464		$	670

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


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

	2003		2002		2003			2002

	(in thousands)				(in thousands)
Discontinued operations Laurels	$	4,249	$	—	$	4,249		$	—




Vineyards		2,109		—		2,109			—




Trowbridge		—		—		538			—




Other		—		—		(127	)		—





Total	$	6,358	$	—	$	6,769		$	—

Provision for Decline in Real Estate


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

			2003		2002		2003		2002

			(in thousands)				(in thousands)
Leggs Hill	Land	Salem, MA	$	—	$	957	$	1,624	$	957
Hunting Park	Retail Center	Philadelphia, PA		—		—		1,104		—

Total			$	—	$	957	$	2,728	$	957

Income Taxes — Income tax expense for the three months ended October 31, 2003 and 2002 was $17,285,000 and $6,708,000, respectively. Income tax expense for the nine months ended October 31, 2003 and 2002 was $32,749,000 and $20,482,000, respectively. At January 31, 2003, the Company had a tax loss carryforward of $12,131,000 that will expire in the year ending January 31, 2022, General Business Credit carryovers of $6,805,000 that will expire in the years ending January 31, 2004 through January 31, 2022, and an Alternative Minimum Tax credit carryforward of $26,400,000.

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 was 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 October 31, 2003, the Company had $62,500,000 outstanding under its $350,000,000 long-term credit facility which became effective March 5, 2002. The credit facility includes a $100,000,000 term loan with an outstanding balance of $62,500,000 as of October 31, 2003 and a $250,000,000 revolving line of credit with no outstanding balance as of October 31, 2003, 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 ($23,737,000 in letters of credit outstanding and $-0- surety bonds at October 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. LIBOR interest rate caps were purchased for the period starting February 1, 2003 through August 1, 2004. These caps vary in notional from $117,400,000 to $147,882,000 over the period and carry strike rates from 4.0% to 5.0%.

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 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 primary capital strategy seeks to isolate the financial risk at the property level 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 nine months ended October 31, 2003, the Company completed the following financings:


Purpose of Financing

(in thousands)
Refinancings	$	642,895
Development projects (commitment)		283,675
Acquisition		50,474
Loan extensions		72,442

	$	1,049,486

Reduction of mortgage debt due to property dispositions	$	53,333

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


		Amount		Rate

		(in thousands)
Fixed		$	2,470,824		6.93	%
Variable
	Taxable⁽¹⁾		720,949		4.24	%
	Tax-Exempt		211,550		2.02	%
UDAG			75,667		2.02	%

		$	3,478,990		5.97	%

(1) Taxable variable-rate debt of $720,949 is protected with LIBOR swaps and caps described below.

Debt related to projects under development at October 31, 2003 totals $173,697,000, out of a total commitment from lenders of $490,621,000. Of this outstanding debt, $121,870,000 is taxable variable-rate debt, $20,550,000 is tax-exempt variable-rate debt, and $31,277,000 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							Swaps⁽¹⁾

					Average					Average
Period Covered	Amount				Rate			Amount		Rate

				(dollars in thousands)
11/01/03 - 02/01/04	$	499,331	⁽²⁾			6.31	%	$	466,841		2.48	%
02/01/04 - 02/01/05		785,771				5.18	%		510,594		2.66	%
02/01/05 - 02/01/06		592,256				5.83	%		325,587		3.41	%
02/01/06 - 02/01/07		90,953				7.58	%		385,228		3.53	%
02/01/07 - 02/01/08		88,493				7.58	%		142,733		4.09	%

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

(2) These LIBOR-based hedges as of November 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. As part of its interest rate risk management the Company currently intends to convert a significant portion of its committed variable-rate debt to fixed-rate debt.

The Company generally does not hedge tax-exempt debt because, since 1990, the base rate of this type of financing has averaged 3.25% 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 $3,400,000 at October 31, 2003. This increase is net of the protection provided by the interest rate swaps and long-term contracts in place as of October 31, 2003 and contemplates the effects of floors on $188,523,000 of LIBOR-based debt. 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 $3,900,000 at October 31, 2003.

Lumber Trading Group Liquidity

Lumber Trading Group is separately financed with a three year revolving line of credit totaling $120,000,000 (with an ability to expand to $180,000,000) at October 31, 2003 which became effective on October 23, 2003. The outstanding balance of the prior credit facility of $58,931,000 was paid in full with the proceeds of the new revolving line of credit. At October 31, 2003, $52,181,000 was outstanding under this current revolving line of credit.

Borrowings under the bank line of credit 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 1.75% to 2.25%, and have a fee of 0.25% to 0.5% per year on the unused portion of the available commitment. The LIBOR loan margin and unused commitment fee are based on an average quarterly borrowing base availability. The bank line of credit allows for outstanding letters of credit in the amount of the difference between the collateral balance available or the line limit (whichever is less) less the outstanding loan balance, with a maximum limit of $10,000,000. At October 31, 2003 $2,317,000 letters of credit were outstanding.

The Lumber Trading Group previously had a three-year securitization agreement, under which it was selling an undivided interest in a pool of receivables up to a maximum of $88,627,000 to a large financial institution. This securitization facility, which had an outstanding balance of $55,000,000, was repaid in full on October 15, 2003 using borrowing under the credit facility in place prior to October 23, 2003 and was not replaced.

To protect against risks associated with the variable interest rates on current and future borrowings on the revolving line of credit, the Lumber Trading Group entered into an interest rate swap on October 29, 2003 with a notional amount of $20,000,000. The swap fixes the LIBOR interest rate at 1.65% and is effective through January 31, 2005.

Recourse of this credit facility is limited to certain assets of the Lumber Trading Group. The Company believes that the amount available under this credit facility will be sufficient to meet the Lumber Trading Group’s liquidity needs.

(Continued on Page 34)

Cash Flows

Net cash provided by operating activities was $94,464,000 for the nine months ended October 31, 2003 and $122,233,000 for the nine months ended October 31, 2002. This decrease in net cash provided by operating activities of $27,769,000 is the result of the following (in thousands):


Increase in rents and other revenue, excluding land sales		$	82,017
Increase in accounts receivable, primarily Lumber Trading Group			(63,277	)
Other			(6,527	)

	Increase in rents and revenues received				$	12,213
Decrease in cash distributions from unconsolidated entities						(374	)
Increase in proceeds from land sales						8,842
Increase in land development expenditures						(28,730	)
Increase in operating expenses			(36,714	)
Increase in operating escrow funds			(5,710	)
Increase in accounts payable and accrued expenses			28,408

	Increase in operating expenditures					(14,016	)
Increase in interest paid						(5,704	)

	Decrease in cash provided by operating activities				$	(27,769	)

Net cash used in investing activities was $265,502,000 for the nine months ended October 31, 2003 and $503,819,000 for the nine months ended October 31, 2002.

The net cash used in investing activities consists of the following:


			Nine Months Ended October 31,

			2003			2002

			(in thousands)
Capital expenditures			$	(304,962	)	$	(433,997	)
Net proceeds from disposition of operating properties and other investments				2,549			—
Investments in and advances to real estate affiliates:
	Short Pump Town Center, a lifestyle center in Richmond, Virginia (equity method investment)
		2003: Refinancing proceeds		23,535			—
		2002: Investment and advance		—			(28,851	)
	Refinancing of Mall at Stonecrest in Atlanta, Georgia (equity method investment)			15,230			—
	Various development projects in New York City			(11,708	)		(23,111	)
	Acquisition of a 50% interest in Westwood Reserve apartments located in Tampa, Florida			—			(3,625	)
	Equity invested in a 40% interest in Stone Gate at Bellefair, an assisted living project under construction in Ryebrook, New York			—			(5,568	)
	Other			9,854			(8,667	)

	Total		$	(265,502	)	$	(503,819	)

Cash Flows Continued

Net cash provided by financing activities totaled $224,640,000 for the nine months ended October 31, 2003 and $373,183,000 for the nine months ended October 31, 2002.

Net cash provided by financing activities reflected the following:


		Nine Months Ended October 31,

		2003			2002

		(in thousands)
Proceeds from issuance of senior notes		$	300,000		$	—
Increase in nonrecourse mortgage debt			785,387			334,829
Principal payments on nonrecourse mortgage debt			(549,839	)		(58,284	)
Borrowings on long-term credit facility			19,000			231,000
Quarterly repayments of term loan, began in July 2002			(18,750	)		(12,500	)
Repayment of borrowings under the long-term credit facility:
	2003: from proceeds of the new $300,000,000 senior notes		(73,000	)		—
	2002: from proceeds of the new $100,000,000 term loan		—			(78,000	)
Retirement of $200,000,000 senior notes and premium			(208,500	)		—
Payment of senior notes issuance costs			(8,092	)		—
	Net increase (decrease) in notes payable:
	Borrowing by Lumber Trading Group on their revolving credit facility		40,173			—
	Financing of the purchase of land for Victoria Gardens, a retail project under construction in Rancho Cucamonga, California		11,432			—
	Other		7,198			(5,430	)
Repayment of Lumber Trading Group securitization agreement			(55,000	)		—
Decrease (increase) in restricted cash
	2003: Primarily releases from bond funds for two residential projects, Consolidated Carolina and Tanglewood Crest		16,924			(4,631	)
Decrease in book overdrafts, representing checks issued but not yet paid			(661	)		(26,859	)
Payment of deferred financing costs			(27,168	)		(7,897	)
Proceeds from the exercise of stock options			3,141			3,089
Payment of dividends			(10,464	)		(7,933	)
(Decrease) increase in minority interest			(7,141	)		5,799

Total		$	224,640		$	373,183

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 October 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 was 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 was 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 and fourth 2003 quarterly dividend of $.09 per share on shares of both Class A and Class B Common Stock were declared on September 10, 2003 and December 4, 2003, respectively, and will be paid on December 15, 2003 and March 15, 2004, respectively, to shareholders of record at the close of business on December 1, 2003 and March 1, 2004, respectively.

LEGAL PROCEEDINGS

The Company is involved in various claims and lawsuits incidental to its business, and management and legal counsel are of the opinion that these claims and lawsuits will not have a material adverse effect on the Company’s financial statements.

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 were 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.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 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 No. 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 and the related FASB Staff Position (“FSP”) apply immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the first year or interim period ending after December 15, 2003. The FASB issued an Exposure Draft and a number of FSP’s that address certain implementation issues that have arisen since the FASB issued FIN No. 46. The Company is in the process of quantifying the full impact of FIN No. 46 on its financial statements based on its understanding of FIN No. 46, the related Exposure Draft and FSPs issued to date as they are currently written. However, as of the date of this filing the guidance on FIN No. 46 has not yet been finalized. The Company believes it is reasonably possible it is the primary beneficiary of many of its equity method investments. As a result, full consolidation of these investments may be required under FIN No. 46, however, a final assessment cannot be made at this time. The financial position and results of operations for the Company’s equity method investments, which the Company is currently assessing under FIN No. 46 are presented in Note K - Investments In and Advances to Affiliates on page 17 of this Form 10-Q.

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. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The minority interests associated with certain of the Company’s consolidated joint ventures that have finite lives under the terms of the agreements represent mandatorily redeemable interests as defined in SFAS No. 150. On November 7, 2003, the FASB indefinitely deferred the effective date of paragraphs nine and ten of SFAS No. 150 as they apply to mandatorily redeemable noncontrolling interests in order to address a number of interpretation and implementation issues. However, the disclosure provisions of SFAS No. 150 are still required. Although no such obligation exists, if the Company were to dissolve the entities or sell the underlying real estate assets and satisfy any outstanding obligations, in all of its consolidated finite life entities as of October 31, 2003, the estimated aggregate settlement value of these noncontrolling interests would approximate book value due to the Company’s preferred returns upon settlement. The Company’s assessment of the settlement value is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Company would distribute to its noncontrolling interests, as required under the terms of the respective agreements. While additional guidance from the FASB relating to noncontrolling interests in consolidated finite life partnerships is pending, the Company does not expect the remainder of this statement to have an immediate material impact on the Company’s financial position, results of operations or cash flows.

INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS

This Quarterly report on 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 thesubsidiary 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; and 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.

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% if deemed under the Company’s control, or on the equity method of accounting if the Company does not have control.

Consolidated Balance Sheet - October 31, 2003

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Assets

Real Estate

Completed rental properties

4,446,313

686,476

1,005,594

4,765,431

Projects under development

529,384

75,930

120,850

574,304

Land held for development or sale

36,432

—

43,997

80,429

Total Real Estate

5,012,129

762,406

1,170,441

5,420,164

Less accumulated depreciation

(706,878

)

(105,991

)

(209,877

)

(810,764

)

Real Estate, net

4,305,251

656,415

960,564

4,609,400

Cash and equivalents

175,958

28,787

23,658

170,829

Restricted cash

133,455

22,895

28,438

138,998

Notes and accounts receivable, net

417,981

13,779

18,905

423,107

Inventories

35,743

—

35,743

Investments in and advances to real estate affiliates

460,345

—

(95,743

)

364,602

Other assets

211,340

40,452

31,980

202,868

Total Assets

5,740,073

762,328

967,802

5,945,547

Liabilities and Shareholders’ Equity

Liabilities

Mortgage debt, nonrecourse

3,478,990

596,546

905,286

3,787,730

Notes payable

137,730

16,299

9,521

130,952

Long-term credit facility

62,500

—

62,500

Senior and subordinated debt

320,400

—

320,400

Accounts payable and accrued expenses

645,078

88,532

52,995

609,541

Deferred income taxes

288,253

—

288,253

Total Liabilities

4,932,951

701,377

967,802

5,199,376

Minority interest

60,951

—

Total Shareholders’ Equity

746,171

—

746,171

Total Liabilities and Shareholders’ Equity

5,740,073

762,328

967,802

5,945,547

Consolidated Statement of Earnings - Three Months Ended October 31, 2003

Plus

Unconsolidated

Plus

Full

Less Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

(in thousands)

Revenues

Rental properties

242,532

36,019

67,497

880

274,890

Lumber trading

39,627

—

39,627

Equity in earnings of unconsolidated real estate entities

11,433

—

(6,122

)

—

5,311

293,592

36,019

61,375

880

319,828

Expenses

Operating expenses

169,841

20,981

37,695

1,086

187,641

Interest expense

50,509

8,899

14,330

382

56,322

Loss on early extinguishment of debt

—

190

Depreciation and amortization

31,062

4,673

9,350

154

35,893

251,412

34,553

61,375

1,812

280,046

Gain on disposition of operating properties

—

6,358

Earnings before income taxes

42,180

1,466

—

5,426

46,140

Income tax expense (benefit)

Current

(2,813

)

—

382

(2,431

)

Deferred

20,098

—

2,501

22,599

17,285

—

2,883

20,168

Earnings before minority interest and discontinued operations

24,895

1,466

—

2,543

25,972

Minority interest

(1,466

)

(1,466

)

—

Earnings from continuing operations

23,429

—

2,543

25,972

Discontinued operations, net of tax and minority interest

Loss from operations

(1,301

)

—

1,301

Gain on disposition of operating properties

3,844

—

(3,844

)

2,543

—

(2,543

)

Net earnings

25,972

—

25,972

Consolidated Statement of Earnings - Nine Months Ended October 31, 2003

Plus

Unconsolidated

Plus

Full

Less Minority

Investments at

Discontinued

Pro-Rata

Consolidation

Interest

Pro-Rata

Operations

Consolidation

(in thousands)

Revenues

Rental properties

666,441

113,038

192,866

5,100

751,369

Lumber trading

86,508

—

86,508

Equity in earnings of unconsolidated real estate entities

33,103

—

(18,806

)

—

14,297

786,052

113,038

174,060

5,100

852,174

Expenses

Operating expenses

452,518

66,020

107,605

4,130

498,233

Interest expense

142,140

24,409

42,789

1,143

161,663

Loss (gain) on early extinguishment of debt

10,718

(98

)

—

190

11,006

Provision for decline in real estate

2,728

331

—

2,397

Depreciation and amortization

91,300

13,811

23,666

731

101,886

699,404

104,473

174,060

6,194

775,185

(Loss) gain on disposition of operating properties and other investments

(431

)

—

6,446

6,015

Earnings before income taxes

86,217

8,565

—

5,352

83,004

Income tax expense

Current

1,080

—

2,083

3,163

Deferred

31,669

—

805

32,474

32,749

—

2,888

35,637

Earnings before minority interest and discontinued operations

53,468

8,565

—

2,464

47,367

Minority interest

(8,565

)

(8,565

)

—

Earnings from continuing operations

44,903

—

2,464

47,367

Discontinued operations, net of tax and minority interest

Loss from operations

(1,433

)

—

1,433

—

Gain on disposition of operating properties

3,897

—

(3,897

)

—

2,464

—

(2,464

)

—

Net earnings

47,367

—

47,367

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


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

			(in thousands)
Revenues
		Rental properties	$	194,697		$	34,114		$	57,973		$	4,144		$	222,700
		Lumber trading		23,296			—			—			—			23,296
		Equity in earnings of unconsolidated real estate entities		10,735			—			(4,473	)		—			6,262

				228,728			34,114			53,500			4,144			252,258

Expenses
		Operating expenses		140,713			21,096			30,600			2,506			152,723
		Interest expense		39,958			8,411			16,746			753			49,046
		Loss on early extinguishment of debt		355			—			—			—			355
		Provision for decline in real estate		957			—			—			—			957
		Depreciation and amortization		30,356			4,424			6,154			1,282			33,368

				212,339			33,931			53,500			4,541			236,449

Earnings (loss) before income taxes				16,389			183			—			(397	)		15,809

Income tax expense (benefit)
		Current		(4,320	)		—			—			276			(4,044	)
		Deferred		11,028			—			—			(116	)		10,912

				6,708			—			—			160			6,868

Earnings (loss) before minority interest and discontinued operations				9,681			183			—			(557	)		8,941
Minority interest				(183	)		(183	)		—			—			—

Earnings (loss) from continuing operations				9,498			—			—			(557	)		8,941
Discontinued operations, net of tax and minority interest
	Loss from operations			(557	)		—			—			557			—

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

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


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

		*(in thousands)*
Revenues
	Rental properties	$	569,143		$	96,000		$	158,132		$	12,770		$	644,045
	Lumber trading		72,896			—			—			—			72,896
	Equity in earnings of unconsolidated real estate entities		31,493			—			(15,790	)		—			15,703

			673,532			96,000			142,342			12,770			732,644

Expenses
	Operating expenses		406,361			55,748			83,799			7,595			442,007
	Interest expense		127,469			24,856			40,282			2,199			145,094
	Loss on early extinguishment of debt		735			—			—			—			735
	Provision for decline in real estate		957			—			—			—			957
	Depreciation and amortization		84,285			13,359			18,261			2,376			91,563

			619,807			93,963			142,342			12,170			680,356

Loss on disposition of other investments			(116	)		—			—			—			(116	)

Earnings before income taxes			53,609			2,037			—			600			52,172

Income tax expense (benefit)
	Current		4,053			—			—			2,654			6,707
	Deferred		16,429			—			—			(2,724	)		13,705

			20,482			—			—			(70	)		20,412

Earnings before minority interest and discontinued operations			33,127			2,037			—			670			31,760
Minority interest			(2,037	)		(2,037	)		—			—			-

Earnings from continuing operations			31,090			—			—			670			31,760
Discontinued operations, net of tax and minority interest
	Earnings from operations		670			—			—			(670	)		-

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

Consolidated Statement of Cash Flows — Nine Months Ended October 31, 2003

Plus

Unconsolidated

Less Minority

Investments at

Pro-Rata

Full Consolidation

Interest

Pro-Rata

Consolidation

(in thousands)

Cash Flow from Operating Activities

Rents and other revenues received

621,494

147,366

172,919

647,047

Cash distributions from unconsolidated entities

13,331

—

(13,331

)

—

Proceeds from land sales

55,800

3,543

21,385

73,642

Land development expenditures

(56,962

)

(3,775

)

(12,180

)

(65,367

)

Operating expenditures

(404,622

)

(105,039

)

(85,944

)

(385,527

)

Interest paid

(134,577

)

(23,373

)

(42,977

)

(154,181

)

Net cash provided by operating activities

94,464

18,722

39,872

115,614

Cash Flows from Investing Activities

Capital expenditures

(304,962

)

(45,477

)

(97,634

)

(357,119

)

Proceeds from disposition of operating properties and other investments

2,549

—

2,549

Change in investments in and advances to real estate affiliates

36,911

—

(9,139

)

27,772

Net cash used in investing Activities

(265,502

)

(45,477

)

(106,773

)

(326,798

)

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

785,387

213,958

98,564

669,993

Increase in long-term credit facility

19,000

—

19,000

Principal payments on nonrecourse mortgage debt

(549,839

)

(156,264

)

(34,724

)

(428,299

)

Payments on long-term credit facility

(91,750

)

—

(91,750

)

Increase in notes payable

77,441

—

718

78,159

Payments on notes payable

(18,638

)

(512

)

(2,757

)

(20,883

)

Repayment of Lumber Trading Group securitization agreement

(55,000

)

—

(55,000

)

Change in restricted cash and book overdrafts

16,263

1,183

3,963

19,043

Payment of deferred financing costs

(27,168

)

(8,845

)

(4,922

)

(23,245

)

Exercise of stock options

3,141

—

3,141

Dividends paid to shareholders

(10,464

)

—

(10,464

)

Decrease in minority interest

(7,141

)

(7,141

)

—

Net cash provided by financing activities

224,640

42,379

60,842

243,103

Net increase (decrease) in cash and equivalents

53,602

15,624

(6,059

)

31,919

Cash and equivalents at beginning of period

122,356

13,163

29,717

138,910

Cash and equivalents at end of period

175,958

28,787

23,658

170,829

Reconciliation of Net Earnings to
Cash Provided by Operating Activities

Net Earnings

47,367

—

47,367

Discontinued operations:

Minority interest

218

—

Depreciation

659

—

659

Amortization

121

—

Gain on disposition of operating properties

(6,769

)

(323

)

—

(6,446

)

Loss on early extinguishment of debt

190

—

190

Minority interest

8,565

—

Depreciation

75,234

10,421

19,470

84,283

Amortization

16,066

3,390

4,196

16,872

Equity in earnings of unconsolidated entities

(33,103

)

—

18,806

(14,297

)

Cash distributions from unconsolidated entities

13,331

—

(13,331

)

—

Deferred income taxes

32,541

—

32,541

Loss on disposition of other investments

431

—

431

Provision for decline in real estate

2,728

331

—

2,397

Loss on early extinguishment of debt

10,718

(98

)

—

10,816

(Increase) decrease in land included in projects under development

(6,329

)

2,886

9,335

120

Increase in land held for development or sale

(1,396

)

—

(4,526

)

(5,922

)

(Increase) decrease in notes and accounts receivable

(76,124

)

40,001

1,278

(114,847

)

Decrease in inventories

2,895

—

2,895

(Increase) decrease in other assets

(29,941

)

(9,116

)

222

(20,603

)

Increase (decrease) in accounts payable and accrued expenses

37,062

(37,602

)

4,422

79,086

Net cash provided by operating activities

94,464

18,722

39,872

115,614

Consolidated Statement of Cash Flows — Nine Months Ended October 31, 2002


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

						(in thousands)
Cash Flows from Operating Activities




	Rents and other revenues received		$	609,281		$	85,103		$	150,992			$	675,170




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




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




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




	Operating expenditures			(390,606	)		(39,362	)		(71,058	)			(422,302	)




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

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

Cash Flows from Investing Activities




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




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

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

Cash Flows from Financing Activities




	Increase in nonrecourse mortgage debt			334,829			32,077			65,545				368,297




	Increase in long-term credit facility			231,000			—			—				231,000




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




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




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




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




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




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




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




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




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

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

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

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

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

Reconciliation of Net Earnings to Cash Provided by Operating Activities




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




	Discontinued operations:




		Minority interest		(278	)		(278	)		—				—




		Depreciation		2,524			241			—				2,283




		Amortization		98			5			—				93




	Minority interest			2,037			2,037			—				—




	Depreciation			70,204			10,659			15,671				75,216




	Amortization			14,081			2,700			2,590				13,971




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




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




	Deferred income taxes			13,578			—			—				13,578




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




	Provision for decline in real estate			957			—			—				957




	Loss on early extinguishment of debt			735			—			—				735




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




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




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




	Decrease (increase) in notes and accounts receivable			2,658			(8,386	)		5,462				16,506




	Decrease in inventories			6,519			—			—				6,519




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




	Increase in accounts payable and accrued expenses			13,783			17,148			6,300				2,935

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

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. The difference between the amounts that are 100% combined compared to the Company's Pro-Rata Share is the amount of the Company's Partners' share of the investments.


			100% Combined							Company's Pro-Rata Share

			October 31,			January 31,			October 31,			January 31,
			2003			2003			2003			2003

			(in thousands)
Balance Sheet:




	Completed rental properties		$	2,367,862		$	2,384,920		$	1,005,594		$	875,282




	Projects under development			260,986			307,566			120,850			132,265




	Land held for development or sale			95,016			85,663			43,997			39,471




	Investments in and advances to real estate affiliates — syndicated residential partnerships (see page 17)			—			—			50,103			86,057




	Accumulated depreciation			(491,314	)		(484,845	)		(209,877	)		(195,301	)




	Other assets			252,733			278,024			102,980			112,324

		Total Assets	$	2,485,283		$	2,571,328		$	1,113,647		$	1,050,098

	Mortgage debt, nonrecourse		$	2,111,819		$	2,226,384		$	905,286		$	845,161




	Advances from general partner			1,385			18,355			—			—




	Other liabilities			162,313			166,286			62,516			56,457




	Partners’ equity			209,766			160,303			145,845			148,480

		Total Liabilities and Partners’ Equity	$	2,485,283		$	2,571,328		$	1,113,647		$	1,050,098


Three Months Ended October 31,			2003			2002			2003			2002

Operations:




	Revenues		$	121,894		$	143,634		$	67,497		$	57,973




	Equity in earnings of unconsolidated entities on a pro-rata basis			—			—			5,311			6,262




	Operating expenses			(67,586	)		(76,213	)		(37,695	)		(30,600	)




	Interest expense			(26,213	)		(38,898	)		(14,330	)		(16,746	)




	Depreciation and amortization			(17,327	)		(16,507	)		(9,350	)		(6,154	)

		Net Earnings (pre-tax)	$	10,768		$	12,016		$	11,433		$	10,735


Nine Months Ended October 31,

Operations:




	Revenues		$	415,624		$	391,583		$	192,866		$	158,132




	Equity in earnings of unconsolidated entities on a pro-rata basis			—			—			14,297			15,703




	Operating expenses			(226,294	)		(205,485	)		(107,605	)		(83,799	)




	Interest expense			(95,987	)		(98,251	)		(42,789	)		(40,282	)




	Depreciation and amortization			(55,370	)		(48,553	)		(23,666	)		(18,261	)

		Net Earnings (pre-tax)	$	37,973		$	39,294		$	33,103		$	31,493

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


	October 31,		January 31,
	2003		2003

Partners’ equity, as above	$	209,766	$	160,303




Equity of other partners		65,306		30,178

Company’s investment in partnerships		144,460		130,125




Advances to partnerships, as above		1,385		18,355




Advances to other real estate affiliates		314,500		340,725

Investments in and Advances to Real Estate Affiliates	$	460,345	$	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.


	October 31,		January 31,
	2003		2003

Total Assets	$	259,460	$	531,585




Total Liabilities	$	209,357	$	445,528




Partner’s Equity	$	50,103	$	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. This is useful 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 mean of sharing risk. 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, as well as a reconciliation from EBDT to Net Earnings. EBDT is useful to investors because it provides another measure for the investor to measure the Company's long term operating performance as net earnings can vary from year to year due to property depreciation, acqusitions and other factors that have a short term impact. 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						Nine Months Ended
		October 31,						October 31,

		2003			2002			2003			2002

		(in thousands)						(in thousands)

Net earnings		$	25,972		$	8,941		$	47,367		$	31,760




Depreciation and amortization — Real Estate Groups (5)			34,859			32,132			98,851			88,145




Depreciation and amortization — equity method investments (3)			133			124			380			362




Deferred income tax expense — Real Estate Groups (7)			17,948			9,945			32,231			12,463




Deferred income tax expense (benefit) on early extinguishment of debt (6)(7)			—			141			—			291




Deferred income tax benefit — Non-Real Estate Groups:(7)




	Loss on disposition of other investments		—			—			(179	)		(46	)




Current income tax expense on non-operating earnings: (7)




	Provision for decline in real estate		—			(78	)		—			(78	)




	Gain on disposition of other investments		—			—			9			—




	Gain on disposition included in discontinued operations		(4	)		—			1,725			2,566




Straight-line rent adjustment (4)			(2,654	)		(1,869	)		(5,185	)		(3,000	)




Provision for decline in real estate, net of minority interest			—			957			2,397			957




Loss on disposition of other investments			—			—			431			116




Discontinued operations: (1)




	Gain on disposition of operating properties		(6,358	)		—			(6,769	)		—




	Minority interest		—			—			323			—




Loss on early extinguishment of debt, net of tax (6)			—			214			—			444





Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) (2)		$	69,896		$	50,507		$	171,581		$	133,980

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 (including amortization of mortgage procurment 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. 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 E — 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 (in thousand).


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

	2003			2002			2003			2002

Full Consolidation	$	31,062		$	30,356		$	91,300		$	84,285




Non-Real Estate Groups		(964	)		(1,202	)		(2,885	)		(3,311	)





Real Estate Groups Full Consolidation		30,098			29,154			88,415			80,974




Real Estate Groups related to minority interest		(4,673	)		(4,424	)		(13,811	)		(13,359	)




Real Estate Groups equity method		9,280			6,120			23,516			18,154




Discontinued operations		154			1,282			731			2,376





Real Estate Groups Pro-Rata Consolidation	$	34,859		$	32,132		$	98,851		$	88,145

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 (in thousands):


Loss on early extinguishment of debt reclassified to continuing operations	$	—	$	(355	)	$	—	$	(735	)




Deferred income tax benefit		—		(141	)		—		(291	)





Loss on early extinguishment of debt, net of tax	$	—	$	(214	)	$	—	$	(444	)

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

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

2003 2002 2003 2002

(A)
Continuing operations

     Current $ (2,813 ) $ (4,242 ) $ 1,071 $ 4,131

     Deferred 20,098 11,469 32,796 17,066

17,285 7,227 33,867 21,197

(B)
Provision for decline in real estate

     Current $ — $ (78 ) $ — $ (78 )

     Deferred — (300 ) (948 ) (300 )

— (378 ) (948 ) (378 )

(C)
Loss on disposition of other investments

     Current $ — $ — $ 9 $ —

     Deferred - Non-Real Estate Groups — — (179 ) (46 )

— — (170 ) (46 )

(D)
Deferred taxes on early extinguishment of debt $ — $ (141 ) $ — $ (291 )

Subtotal (A) (B) (C) (D)

     Current $ (2,813 ) $ (4,320 ) $ 1,080 $ 4,053

     Deferred 20,098 11,028 31,669 16,429

     Income tax expense 17,285 6,708 32,749 20,482

(E)
Discontinued operations

     Operating earnings

          Current $ 386 $ 276 $ 358 $ 88

          Deferred (17 ) (116 ) (19 ) (158 )

369 160 339 (70 )

Gain (loss) on disposition of operating properties

     Current $ (4 ) $ — $ 1,725 $ 2,566

     Deferred 2,518 — 824 (2,566 )

2,514 — 2,549 —

2,883 160 2,888 (70 )

Grand Total (A)(B)(C)(D)(E)

     Current $ (2,431 ) $ (4,044 ) $ 3,163 $ 6,707

     Deferred 22,599 10,912 32,474 13,705

$ 20,168 $ 6,868 $ 35,637 $ 20,412

Recap of Grand Total:

     Real Estate Groups

     Current $ (2,893 ) $ (1,043 ) $ 7,227 $ 12,627

     Deferred 17,948 9,945 32,231 12,463

15,055 8,902 39,458 25,090

Non-Real Estate Groups

     Current $ 462 $ (3,001 ) $ (4,064 ) $ (5,920 )

     Deferred 4,651 967 243 1,242

5,113 (2,034 ) (3,821 ) (4,678 )

     Grand Total $ 20,168 $ 6,868 $ 35,637 $ 20,412

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


	Commercial Group 2003													Residential Group 2003
						Plus													Plus
				Less		Unconsolidated			Plus								Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued		Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations		Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	157,582		$	32,560	$	35,443		$	—	$	160,465		$	40,817		$	1,657	$	20,436		$	880		$	60,476
Exclude straight-line rent adjustment		(3,988	)		—		—			—		(3,988	)		(220	)		—		—			—			(220	)
Add back equity method depreciation expense		6,204			—		(6,204	)		—		—			3,209			—		(3,076	)		—			133

Adjusted revenues		159,798			32,560		29,239			—		156,477			43,806			1,657		17,360			880			60,389
Operating expenses, including depreciation and amortization for non-Real Estate Groups		80,019			18,732		20,403			—		81,690			20,217			1,257		11,850			1,086			31,896
Exclude straight-line rent adjustment		(1,554	)		—		—			—		(1,554	)		—			—		—			—			—

Adjusted operating expenses		78,465			18,732		20,403			—		80,136			20,217			1,257		11,850			1,086			31,896

Net operating income		81,333			13,828		8,836			—		76,341			23,589			400		5,510			(206	)		28,493
Interest expense		36,011			8,674		8,836			—		36,173			6,268			225		5,510			382			11,935
Gain on early extinguishment of debt		—			—		—			—		—			—			—		—			190			190
Gain on disposition recorded on equity method		—			—		—			—		—			—			—		—			—			—
Income tax provision (benefit)		(230	)		—		—			—		(230	)		(1,479	)		—		—			386			(1,093	)
Minority interest in earnings before depreciation and amortization		5,154			5,154		—			—		—			175			175		—			—			—
Add: EBDT from discontinued operations		—			—		—			—		—			(1,164	)		—		—			1,164			—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	40,398		$	—	$	—		$	—	$	40,398		$	17,461		$	—	$	—		$	—		$	17,461



	Land Group 2003													Lumber Trading Group 2003
						Plus													Plus
				Less		Unconsolidated			Plus								Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued		Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations		Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	55,455		$	1,802	$	5,496		$	—	$	59,149		$	39,627		$	—	$	—		$	—		$	39,627
Operating expenses, including depreciation and amortization for non-Real Estate Groups		28,709			992		5,512			—		33,229			34,933			—		—			—			34,933

Net operating income		26,746			810		(16	)		—		25,920			4,694			—		—			—			4,694
Interest expense		806			—		(16	)		—		790			966			—		—			—			966
Income tax provision (benefit)		8,827			—		—			—		8,827			1,658			—		—			—			1,658
Minority interest in earnings before depreciation and amortization		810			810		—			—		—			—			—		—			—			—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	16,303		$	—	$	—		$	—	$	16,303		$	2,070		$	—	$	—		$	—		$	2,070

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


	Corporate Activities 2003												Total 2003
						Plus												Plus
				Less		Unconsolidated		Plus								Less		Unconsolidated			Plus
	Full			Minority		Investments at		Discontinued		Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata		Operations		Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	111		$	—	$	—	$	—	$	111		$	293,592		$	36,019	$	61,375		$	880		$	319,828
Exclude straight-line rent adjustment		—			—		—		—		—			(4,208	)		—		—			—			(4,208	)
Add back equity method depreciation expense		—			—		—		—		—			9,413			—		(9,280	)		—			133

Adjusted revenues		111			—		—		—		111			298,797			36,019		52,095			880			315,753
Operating expenses, including depreciation and amortization for non-Real Estate Groups		6,927			—		—		—		6,927			170,805			20,981		37,765			1,086			188,675
Exclude straight-line rent adjustment		—			—		—		—		—			(1,554	)		—		—			—			(1,554	)

Adjusted operating expenses		6,927			—		—		—		6,927			169,251			20,981		37,765			1,086			187,121

Net operating income		(6,816)	)		—		—		—		(6,816	)		129,546			15,038		14,330			(206	)		128,632
Interest expense		6,458			—		—		—		6,458			50,509			8,899		14,330			382			56,322
Gain on early extinguishment of debt		—			—		—		—		—			—			—		—			190			190
Income tax (benefit) provision		(6,938	)		—		—		—		(6,938	)		1,838			—		—			386			2,224
Minority interest in earnings before depreciation and amortization		—			—		—		—		—			6,139			6,139		—			—			—
Add: EBDT from discontinued operations		—			—		—		—		—			(1,164	)		—		—			1,164			—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(6,336	)	$	—	$	—	$	—	$	(6,336	)	$	69,896		$	—	$	—		$	—		$	69,896

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)													$	69,896		$	—	$	—		$	—		$	69,896
Depreciation and amortization — Real Estate Groups														(34,838	)		—		—			(154	)		(34,992	)
Deferred taxes — Real Estate Groups														(15,447	)		—		—			17			(15,430	)
Straight-line rent adjustment														2,654			—		—			—			2,654
Gain on disposition of operating properties, net of tax														—			—		—			3,844			3,844
Discontinued operations, net of tax and minority interest:^(a)
Depreciation and amortization														(154)	)		—		—			154			—
Deferrred taxes														17			—		—			(17	)		—
Straight-line rent adjustment														—			—		—			—			—
Gain in disposition of operating properties														3,844			—		—			(3,844	)		—

Net earnings													$	25,972		$	—	$	—		$	—		$	25,972

(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 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.

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


	Commercial Group 2003													Residential Group 2003
						Plus														Plus
				Less		Unconsolidated			Plus								Less			Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued		Pro-Rata			Full			Minority			Investments at			Discontinued		Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations		Consolidation			Consolidation			Interest			Pro-Rata			Operations		Consolidation
Revenues	$	481,411		$	103,364	$	102,169		$	—	$	480,216		$	132,678		$	5,557		$	60,539		$	5,100	$	192,760
Exclude straight-line rent adjustment		(8,627	)		—		—			—		(8,627	)		(363	)		—			—			—		(363	)
Add back equity method depreciation expense		15,002			—		(15,002	)		—		—			8,894			—			(8,514	)		—		380

Adjusted revenues		487,786			103,364		87,167			—		471,589			141,209			5,557			52,025			5,100		192,777
Operating expenses, including depreciation and amortization for non-Real Estate Groups		249,033			59,560		62,099			—		251,572			63,053			4,271			34,789			4,130		97,701
Exclude straight-line rent adjustment		(3,805	)		—		—			—		(3,805	)		—			—			—			—		—

Adjusted operating expenses		245,228			59,560		62,099			—		247,767			63,053			4,271			34,789			4,130		97,701

Net operating income		242,558			43,804		25,068			—		223,822			78,156			1,286			17,236			970		95,076
Interest expense		98,965			23,727		25,068			—		100,306			18,724			682			17,236			1,143		36,421
Loss (gain) on early extinguishment of debt		—			—		—			—		—			(766	)		(98	)		—			190		(478	)
Income tax provision (benefit)		2,880			—		—			—		2,880			3,554			—			—			358		3,912
Minority interest in earnings before depreciation and amortization		20,077			20,077		—			—		—			702			702			—			—		—
Add: EBDT from discontinued operations		—			—		—			—		—			(721	)		—			—			721		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	120,636		$	—	$	—		$	—	$	120,636		$	55,221		$	—		$	—		$	—	$	55,221



	Land Group 2003													Lumber Trading Group 2003
						Plus														Plus
				Less		Unconsolidated			Plus								Less			Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued		Pro-Rata			Full			Minority			Investments at			Discontinued		Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations		Consolidation			Consolidation			Interest			Pro-Rata			Operations		Consolidation
Revenues	$	85,044		$	4,117	$	11,352		$	—	$	92,279		$	86,508		$	—		$	—		$	—	$	86,508
Operating expenses, including depreciation and amortization for non-Real Estate Groups		43,896			2,189		10,867			—		52,574			79,816			—			—			—		79,816

Net operating income		41,148			1,928		485			—		39,705			6,692			—			—			—		6,692
Interest expense		2,233			—		485			—		2,718			2,385			—			—			—		2,385
Income tax provision (benefit)		11,788			—		—			—		11,788			2,149			—			—			—		2,149
Minority interest in earnings before depreciation and amortization		1,928			1,928		—			—		—			—			—			—			—		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	25,199		$	—	$	—		$	—	$	25,199		$	2,158		$	—		$	—		$	—	$	2,158

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


	Corporate Activities 2003												Total 2003
						Plus													Plus
				Less		Unconsolidated		Plus								Less			Unconsolidated			Plus
	Full			Minority		Investments at		Discontinued		Pro-Rata			Full			Minority			Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata		Operations		Consolidation			Consolidation			Interest			Pro-Rata			Operations			Consolidation
Revenues	$	411		$	—	$	—	$	—	$	411		$	786,052		$	113,038		$	174,060		$	5,100		$	852,174
Exclude straight-line rent adjustment		—			—		—		—		—			(8,990	)		—			—			—			(8,990	)
Add back equity method depreciation expense		—			—		—		—		—			23,896			—			(23,516	)		—			380

Adjusted revenues		411			—		—		—		411			800,958			113,038			150,544			5,100			843,564

Operating expenses, including depreciation and amortization for non-Real Estate Groups		19,605			—		—		—		19,605			455,403			66,020			107,755			4,130			501,268
Exclude straight-line rent adjustment		—			—		—		—		—			(3,805	)		—			—			—			(3,805	)

Adjusted operating expenses		19,605			—		—		—		19,605			451,598			66,020			107,755			4,130			497,463

Net operating income		(19,194	)		—		—		—		(19,194	)		349,360			47,018			42,789			970			346,101
Interest expense		19,833			—		—		—		19,833			142,140			24,409			42,789			1,143			161,663
Loss (gain) on early extinguishment of debt		11,484			—		—		—		11,484			10,718			(98	)		—			190			11,006
Income tax (benefit) provision		(18,878	)		—		—		—		(18,878	)		1,493			—			—			358			1,851
Minority interest in earnings before depreciation and amortization		—			—		—		—		—			22,707			22,707			—			—			—
Add: EBDT from discontinued operations		—			—		—		—		—			(721	)		—			—			721			—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(31,633	)	$	—	$	—	$	—	$	(31,633	)	$	171,581		$	—		$	—		$	—		$	171,581

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)													$	171,581		$	—		$	—		$	—		$	171,581
Depreciation and amortization — Real Estate Groups														(98,500	)		—			—			(731	)		(99,231	)
Deferred taxes — Real Estate Groups														(32,374	)		—			—			19			(32,355	)
Straight-line rent adjustment														5,185			—			—			—			5,185
Provision for decline in real estate, net of tax														(1,449	)		—			—			—			(1,449	)
(Loss) gain on disposition of operating properties and other investments, net of tax														(261	)		—			—			3,897			3,636
Discontinued operations, net of tax and minority interest:^(a)
Depreciation and amortization														(731	)		—			—			731			—
Deferred taxes														19			—			—			(19	)		—
Gain on disposition of operating properties														3,897			—			—			(3,897	)		—

Net earnings													$	47,367		$	—		$	—		$	—		$	47,367

(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 October 31, 2002 (in thousands)


	Commercial Group 2002														Residential Group 2002
						Plus														Plus
				Less		Unconsolidated			Plus									Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued			Pro-Rata			Full			Minority		Investments at			Discontinued		Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations			Consolidation			Consolidation			Interest		Pro-Rata			Operations		Consolidation
Revenues	$	152,922		$	31,985	$	27,137		$	1,666		$	149,740		$	36,931		$	1,235	$	20,089		$	2,478	$	58,263
Exclude straight-line rent adjustment		(3,202	)		—		—			(30	)		(3,232	)		—			—		—			—		—
Add back equity method depreciation expense		3,497			—		(3,497	)		—			—			2,747			—		(2,623	)		—		124

Adjusted revenues		153,217			31,985		23,640			1,636			146,508			39,678			1,235		17,466			2,478		58,387
Operating expenses, including depreciation and amortization for non-Real Estate Groups		85,485			19,641		14,275			758			80,877			18,553			876		10,669			1,748		30,094
Exclude straight-line rent adjustment		(1,363	)		—		—			—			(1,363	)		—			—		—			—		—

Adjusted operating expenses		84,122			19,641		14,275			758			79,514			18,533			876		10,669			1,748		30,094

Net operating income		69,095			12,344		9,365			878			66,994			21,125			359		6,797			730		28,293
Interest expense		26,362			8,207		9,365			219			27,739			6,143			204		6,797			534		13,270
Exclude early extinguishment of debt^(a)		—			—		—			—			—			(355	)		—		—			—		(355	)

Adjusted interest expense		26,362			8,207		9,365			219			27,739			5,788			204		6,797			534		12,915
Income tax (benefit) provision		(4,744	)		—		—			(7	)		(4,751	)		(2,602	)		—		—			283		(2,319	)
Exclude tax on early extinguishment of debt ^(a)		—			—		—			—			—			141			—		—			—		141

Adjusted income tax (benefit) provision		(4,744	)		—		—			(7	)		(4,751	)		(2,461	)		—		—			283		(2,178	)
Minority interest in earnings before depreciation and amortization		4,137			4,137		—			—			—			155			155		—			—		—
Add: EBDT from discontinued operations		666			—		—			(666	)		—			(87	)		—		—			87		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	44,006		$	—	$	—		$	—		$	44,006		$	17,556		$	—	$	—		$	—	$	17,556



	Land Group 2002														Lumber Trading Group 2002
						Plus												Plus
				Less		Unconsolidated			Plus									Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued			Pro-Rata			Full			Minority		Investments at			Discontinued		Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations			Consolidation			Consolidation			Interest		Pro-Rata			Operations		Consolidation
Revenues	$	15,194		$	894	$	6,274		$	—		$	20,574		$	23,296		$	—	$	—		$	—	$	23,296
Operating expenses, including depreciation and amortization for non-Real Estate Groups		6,823			579		5,690			—			11,934			23,134			—		—			—		23,134

Net operating income		8,371			315		584			—			8,640			162			—		—			—		162
Interest expense		398			—		584			—			982			649			—		—			—		649
Income tax provision		5,875			—		—			—			5,875			(115	)		—		—			—		(115	)
Minority interest in earnings before depreciation and amortization		315			315		—			—			—			—			—		—			—		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	1,783		$	—	$	—		$	—		$	1,783		$	(372	)	$	—	$	—		$	—	$	(372	)

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


	Corporate Activities 2002												Total 2002
						Plus												Plus
				Less		Unconsolidated		Plus								Less		Unconsolidated			Plus
	Full			Minority		Investments at		Discontinued		Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata		Operations		Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	385		$	—	$	—	$	—	$	385		$	228,728		$	34,114	$	53,500		$	4,144		$	252,258
Exclude straight-line rent adjustment		—			—		—		—		—			(3,202	)		—		—			(30	)		(3,232	)
Add back equity method depreciation expense		—			—		—		—		—			6,244			—		(6,120	)		—			124

Adjusted revenues		385			—		—		—		385			231,770			34,114		47,380			4,114			249,150

Operating expenses, including depreciation and amortization for non-Real Estate Groups		7,919			—		—		—		7,919			141,914			21,096		30,634			2,506			153,958
Exclude straight-line rent adjustment		—			—		—		—		—			(1,363	)		—		—			—			(1,363	)

Adjusted operating expenses		7,919			—		—		—		7,919			140,551			21,096		30,634			2,506			152,595

Net operating income		(7,534	)		—		—		—		(7,534	)		91,219			13,018		16,746			1,608			96,555
Interest expense		6,761			—		—		—		6,761			40,313			8,411		16,746			753			49,401
Exclude early extinguishment of debt^(a)		—			—		—		—		—			(355	)		—		—			—			(355	)

Adjusted interest expense		6,761			—		—		—		6,761			39,958			8,411		16,746			753			49,046
Gain on disposition recorded on equity method		—			—		—		—		—			—			—		—			—			—
Income tax (benefit) provision		(1,829	)		—		—		—		(1,829	)		(3,415	)		—		—			276			(3,139	)
Exclude tax on early extinguishment of debt^(a)		—			—		—		—		—			141			—		—			—			141

Adjusted income tax (benefit) provision		(1,829	)		—		—		—		(1,829	)		(3,274	)		—		—			276			(2,998	)
Minority interest in earnings before depreciation and amortization		—			—		—		—		—			4,607			4,607		—			—			—
Add: EBDT from discontinued operations		—			—		—		—		—			579			—		—			(579	)		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(12,466	)	$	—	$	—	$	—	$	(12,466	)	$	50,507		$	—	$	—		$	—		$	50,507

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)													$	50,507		$	—	$	—		$	—		$	50,507
Depreciation and amortization — Real Estate Groups														(30,973	)		—		—			(1,283	)		(32,256	)
Deferred taxes — Real Estate Groups														(10,502	)		—		—			116			(10,386	)
Straight-line rent adjustment														1,839			—		—			30			1,869
Early extinguishment of debt, net of tax														(214	)		—		—			—			(214	)
Provision for decline in real estate, net of tax														(579	)		—		—			—			(579	)
Discontinued operations, net of tax and minority interest:
Depreciation and amortization														(1,283	)		—		—			1,283			—
Deferred taxes														116			—		—			(116	)		—
Straight-line rent adjustment														30			—		—			(30	)		—

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

(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) — Nine Months Ended October 31, 2002 (in thousands)


	Commercial Group 2002														Residential Group 2002
						Plus														Plus
				Less		Unconsolidated			Plus									Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued			Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations			Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	430,852		$	88,803	$	77,542		$	5,267		$	424,858		$	109,704		$	3,530	$	53,194		$	7,503		$	166,871
Exclude straight-line rent adjustment		(7,767	)		—		—			(57	)		(7,824	)		—			—		—			—			—
Add back equity method depreciation expense		10,868			—		(10,868	)		—			—			7,648			—		(7,286	)		—			362

Adjusted revenues		433,953			88,803		66,674			5,210			417,034			117,352			3,530		45,908			7,503			167,233
Operating expenses, including depreciation and amortization for non-Real Estate Groups		235,288			50,950		44,015			2,389			230,742			53,677			2,670		29,969			5,206			86,182
Exclude straight-line rent adjustment		(4,824	)		—		—			—			(4,824	)		—			—		—			—			—

Adjusted operating expenses		230,464			50,950		44,015			2,389			225,918			53,677			2,670		29,969			5,206			86,182

Net operating income		203,489			37,853		22,659			2,821			191,116			63,675			860		15,939			2,297			81,051
Interest expense		89,175			24,383		22,659			639			88,090			16,969			473		15,939			1,560			33,995
Exclude early extinguishment of debt^(a)		—			—		—			—			—			(735	)		—		—			—			(735	)

Adjusted interest expense		89,175			24,383		22,659			639			88,090			16,234			473		15,939			1,560			33,260
Income tax provision (benefit)		(334	)		—		—			(31	)		(365	)		1,310			—		—			119			1,429
Exclude tax on early extinguishment of debt^(a)		—			—		—			—			—			291			—		—			—			291

Adjusted income tax provision (benefit)		(334	)		—		—			(31	)		(365	)		1,601			—		—			119			1,720
Minority interest in earnings before depreciation and amortization		13,470			13,470		—			—			—			387			387		—			—			—
Add: EBDT from discontinued operations		2,213			—		—			(2,213	)		—			618			—		—			(618	)		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	103,391		$	—	$	—		$	—		$	103,391		$	46,071		$	—	$	—		$	—		$	46,071



	Land Group 2002														Lumber Trading Group 2002
						Plus														Plus
				Less		Unconsolidated			Plus									Less		Unconsolidated			Plus
	Full			Minority		Investments at			Discontinued			Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata			Operations			Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	59,226		$	3,667	$	11,606		$	—		$	67,165		$	72,896		$	—	$	—		$	—		$	72,896
Exclude straight-line rent adjustment		—			—		—			—			—			—			—		—			—			—
Add back equity method depreciation expense		—			—		—			—			—			—			—		—			—			—

Adjusted Revenues		59,226			3,667		11,606			—			67,165			72,896			—		—			—			72,896
Operating expenses, including depreciation and amortization for non-Real Estate Groups		31,430			2,128		9,922			—			39,224			71,258			—		—			—			71,258

Net operating income		27,796			1,539		1,684			—			27,941			1,638			—		—			—			1,638
Interest expense		807			—		1,684			—			2,491			2,044			—		—			—			2,044
Income tax provision		14,861			—		—			—			14,861			25			—		—			—			25
Minority interest in earnings before depreciation and amortization		1,539			1,539		—			—			—			—			—		—			—			—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	10,589		$	—	$	—		$	—		$	10,589		$	(431	)	$	—	$	—		$	—		$	(431	)

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


	Corporate Activities 2002															Total 2002
						Plus												Plus
				Less		Unconsolidated		Plus								Less		Unconsolidated			Plus
	Full			Minority		Investments at		Discontinued		Pro-Rata			Full			Minority		Investments at			Discontinued			Pro-Rata
	Consolidation			Interest		Pro-Rata		Operations		Consolidation			Consolidation			Interest		Pro-Rata			Operations			Consolidation
Revenues	$	854		$	—	$	—	$	—	$	854		$	673,532		$	96,000	$	142,342		$	12,770		$	732,644
Exclude straight-line rent adjustment		—			—		—		—		—			(7,767	)		—		—			(57	)		(7,824	)
Add back equity method depreciation expense		—			—		—		—		—			18,516			—		(18,154	)		—			362

Adjusted revenues		854			—		—		—		854			684,281			96,000		124,188			12,713			725,182
Operating expenses, including depreciation and amortization for non-Real Estate Groups		18,018			—		—		—		18,018			409,671			55,748		83,906			7,595			445,424
Exclude straight-line rent adjustment		—			—		—		—		—			(4,824	)		—		—			—			(4,824	)

Adjusted operating expenses		18,018			—		—		—		18,018			404,847			55,748		83,906			7,595			440,600

Net operating income		(17,164	)		—		—		—		(17,164	)		279,434			40,252		40,282			5,118			284,582
Interest expense		19,209			—		—		—		19,209			128,204			24,856		40,282			2,199			145,829
Exclude early extinguishment of debt^(a)		—			—		—		—		—			(735	)		—		—			—			(735	)

Adjusted interest expense		19,209			—		—		—		19,209			127,469			24,856		40,282			2,199			145,094
Income tax (benefit) provision		(10,733	)		—		—		—		(10,733	)		5,129			—		—			88			5,217
Exclude tax on early extinguishment of debt^(a)		—			—		—		—		—			291			—		—			—			291

Adjusted income tax provision (benefit)		(10,733	)		—		—		—		(10,733	)		5,420			—		—			88			5,508
Minority interest in earnings before depreciation and amortization		—			—		—		—		—			15,396			15,396		—			—			—
Add: EBDT from discontinued operations		—			—		—		—		—			2,831			—		—			(2,831	)		—

Earnings before depreciation, amortization and deferred taxes (EBDT)	$	(25,640	)	$	—	$	—	$	—	$	(25,640	)	$	133,980		$	—	$	—		$	—		$	133,980

Reconciliation to net earnings:
Earnings before depreciation, amortization and deferred taxes (EBDT)													$	133,980		$	—	$	—		$	—		$	133,980
Depreciation and amortization — Real Estate Groups														(86,131	)		—		—			(2,376	)		(88,507	)
Deferred taxes — Real Estate Groups														(15,778	)		—		—			158			(15,620	)
Straight-line rent adjustment														2,943			—		—			57			3,000
Early extinguishment of debt, net of tax^(a)														(444	)		—		—			—			(444	)
Provision for decline in real estate, net of tax														(579	)		—		—			—			(579	)
(Loss) on disposition of operating properties and other investments, net of tax														(70	)		—		—			—			(70	)
Discontinued operations, net of tax and minority interest:
Depreciation and amortization														(2,376	)		—		—			2,376			—
Deferred taxes														158			—		—			(158	)		—
Straight-line rent adjustment														57			—		—			(57	)		—

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk exposure is interest rate risk. At October 31, 2003, the Company had $994,999,000 of variable-rate debt outstanding. This is inclusive of the $62,500,000 outstanding under its long-term credit facility. Upon opening and achieving stabilized operations, the Company generally pursues long-term fixed-rate non-recourse financing for its rental properties. Additionally, when the properties’ fixed-rate debt matures, the maturing amounts are subject to interest rate risk.

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


	Caps						Swaps ⁽¹⁾

Coverage	Amount			Average Rate			Amount		Average Rate

	*(dollars in thousands)*
11/01/03 - 02/01/04	$	616,731	⁽²⁾		5.87	%	$	523,091		2.41	%
02/01/04 - 02/01/05		933,653			5.15	%		510,594		2.66	%
02/01/05 - 02/01/06		592,256			5.83	%		325,587		3.41	%
02/01/06 - 02/01/07		90,953			7.58	%		385,228		3.53	%
02/01/07 - 02/01/08		88,493			7.58	%		142,733		4.09	%

(1)		Swaps include long-term LIBOR contracts that have an average maturity greater than six months.
(2)		These LIBOR-based hedges as of November 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 October 31, 2003 was $2,866,891,000 compared to an estimated fair value of $2,919,972,000. 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 $3,104,034,000 at October 31, 2003.

The Company estimates the fair value of its hedging instruments based on interest rate market pricing models. At October 31, 2003, interest rate caps and Treasury options were reported at their fair value of approximately $3,917,000 in the Consolidated Balance Sheet as Other Assets. The fair value of interest rate swap and floor agreements at October 31, 2003 is an unrealized loss of $7,376,000 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)

October 31, 2003


		Expected Maturity Date

																				Total			Fair Market
																				Outstanding			Value
Long-Term Debt		2003			2004			2005			2006			2007			Thereafter			10/31/03			10/31/03

		*(dollars in thousands)*
Fixed:
	Fixed rate debt	$	32,761		$	63,826		$	138,900		$	422,663		$	124,485		$	1,688,189		$	2,470,824		$	2,533,810

	Weighted average interest rate		7.06	%		7.10	%		7.21	%		6.61	%		7.16	%		6.97	%		6.93	%
	UDAG		4,823			365			10,876			8,050			440			51,113			75,667			52,541
	Weighted average interest rate		3.93	%		0.00	%		3.86	%		0.00	%		0.46	%		1.79	%		2.02	%
	Senior & Subordinated Debt (1)		—			—			—			—			—			320,400			320,400			333,621
	Weighted average interest rate																	7.66	%		7.66	%

Total Fixed Rate Debt			37,584			64,191			149,776			430,713			124,925			2,059,702			2,866,891			2,919,972

Variable:
	Variable rate debt		52,358			149,820			100,217			232,586			24,886			161,082			720,949			720,949
	Weighted average interest rate																				4.24	%
	Tax Exempt		660			52,340			21,000			—			—			137,550			211,550			211,550
	Weighted average interest rate																				2.02	%
	Credit Facility (1)		6,250			25,000			25,000			6,250			—			—			62,500			62,500
	Weighted average interest rate																				3.84	%

Total Variable Rate Debt			59,268			227,160			146,217			238,836			24,886			298,632			994,999			994,999

Total Long-Term Debt		$	96,852		$	291,351		$	295,993		$	669,549		$	149,811		$	2,358,334		$	3,861,890		$	3,914,971

(1) Represents recourse debt.

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

October 31, 2002


		Expected Maturity Date

																				Total			Fair Market
																				Outstanding			Value
Long-Term Debt		2002			2003			2004			2005			2006			Thereafter			10/31/02			10/31/02

		*(dollars in thousands)*
Fixed:
	Fixed rate debt	$	11,226		$	61,075		$	49,188		$	124,934		$	396,794		$	1,278,763		$	1,921,980		$	2,003,211
	Weighted average interest rate		7.60	%		7.19	%		7.18	%		7.27	%		6.65	%		7.45	%		7.26	%
	UDAG		88			3,927			415			10,929			8,106			47,571			71,036			48,266
	Weighted average interest rate		0.03	%		3.65	%		0.61	%		3.87	%		0.03	%		1.93	%		2.10	%
	Senior & Subordinated Debt (1)		—			—			—			—			—			220,400			220,400			215,688
	Weighted average interest rate																	8.48	%		8.48	%

Total Fixed Rate Debt			11,314			65,002			49,603			135,863			404,900			1,546,734			2,213,416			2,267,165

Variable:
	Variable rate debt		172,707			402,225			148,913			2,318			2,531			97,199			825,893			825,893
	Weighted average interest rate																				4.70	%
	Tax Exempt		16,600			29,060			7,940			21,000			—			31,000			105,600			105,600
	Weighted average interest rate																				2.95	%
	Credit Facility (1)		6,250			25,000			25,000			25,000			113,250			—			194,500			194,500
	Weighted average interest rate																				4.99	%

Total Variable Rate Debt			195,557			456,285			181,853			48,318			115,781			128,199			1,125,993			1,125,993

Total Long-Term Debt		$	206,871		$	521,287		$	231,456		$	184,181		$	520,681		$	1,674,933		$	3,339,409		$	3,393,158

(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

None.

Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits


Exhibit
Number		Description of Document

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

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

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

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

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

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

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

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 (File No. 1-4372).

*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 October 31, 2003, the Company:


		(1) Filed a Current Report on Form 8-K on September 12, 2003 under Items 5 and 7 to furnish a supplemental package that provides certain operating and other data for the six months ended July 31, 2003; and


		(2) Furnished a Current Report on Form 8-K on September 12, 2003 under Item 12 to issue a press release announcing financial results for the three and six months ended July 31, 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	December 8, 2003	/S/ THOMAS G. SMITH

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

Date	December 8, 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

(1)		The Company recognizes the gross margin on lumber brokerage sales as Revenues. Sales invoiced for the three months ended October 31, 2003 and 2002 were $897,732 and $614,410, respectively. Sales invoiced for the nine months ended October 31, 2003 and 2002 were $2,083,523 and $1,951,959, 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 11 and 12 for more information.




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

	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 (including amortization of mortgage procurment 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. 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 E — 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 (in thousand).

			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.