##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-4372
 FOREST CITY ENTERPRISES, INC.
  Ohio
    
    34-0863886(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 Terminal Tower
    
    50 Public SquareSuite 1100
    
    Cleveland, Ohio
    
    44113(Address of principal executive offices)
    
    (Zip Code)
 
  þ o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o
 o þ
  Class
    

Outstanding at
September 2, 2008Class A Common Stock, $.33 1/3 par value
    
    80,440,972 sharesClass B Common Stock, $.33 1/3 par value
    
    22,967,393 shares




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##### 



Forest City Enterprises, Inc. and Subsidiaries
 Table of Contents
 PagePART I.FINANCIAL INFORMATIONItem 1. Financial StatementsForest City Enterprises, Inc. and SubsidiariesConsolidated Balance Sheets
July 31, 2008 and January 31, 2008
    
    
    2Consolidated Statements of Operations
Three and Six Months Ended July 31, 2008 and 2007
    
    
    3Consolidated Statements of Comprehensive Income (Loss)
Three and Six Months Ended July 31, 2008 and 2007
    
    
    4Consolidated Statements of Shareholders Equity
Six Months Ended July 31, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows
Six Months Ended July 31, 2008 and 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    34Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    64Item 4. Controls and Procedures
    
    
    68PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    69Item 4. Submission of Matters to a Vote of Security-Holders
    
    
    69Item 6. Exhibits
    
    
    70Signatures
    
    
    76CertificationsEX-10.66EX-10.67EX-31.1EX-31.2EX-32.1
  i




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Forest City Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
 July 31, 2008
    
    
    January 31, 2008(Unaudited)(in thousands)AssetsReal EstateCompleted rental properties
    
    $
    7,948,753
    
    
    $
    7,561,685Projects under development
    
    
    1,775,979
    
    
    
    1,499,495Land held for development or sale
    
    
    163,853
    
    
    
    155,524Total Real Estate
    
    
    9,888,585
    
    
    
    9,216,704Less accumulated depreciation
    
    
    (1,337,106
    )
    
    
    (1,244,391
    )Real Estate, net
    
    
    8,551,479
    
    
    
    7,972,313Cash and equivalents
    
    
    225,349
    
    
    
    254,434Restricted cash
    
    
    387,213
    
    
    
    248,262Notes and accounts receivable, net
    
    
    428,994
    
    
    
    419,090Investments in and advances to affiliates
    
    
    390,778
    
    
    
    495,828Other assets
    
    
    895,705
    
    
    
    829,998Operating property assets held for sale
    
    
    -
    
    
    
    31,672Total Assets
    
    $
    10,879,518
    
    
    $
    10,251,597Liabilities and Shareholders EquityLiabilitiesMortgage debt, nonrecourse
    
    $
    6,824,880
    
    
    $
    6,338,610Notes payable
    
    
    179,904
    
    
    
    143,874Bank revolving credit facility
    
    
    143,500
    
    
    
    39,000Senior and subordinated debt
    
    
    886,900
    
    
    
    886,900Accounts payable and accrued expenses
    
    
    1,046,720
    
    
    
    1,015,844Deferred income taxes
    
    
    486,024
    
    
    
    477,238Liabilities of operating property held for sale
    
    
    -
    
    
    
    28,498Total Liabilities
    
    
    9,567,928
    
    
    
    8,929,964Minority Interest
    
    
    379,604
    
    
    
    349,517Commitments and Contingencies
    
    
    -
    
    
    
    -Company-Obligated Trust Preferred Securities
    
    
    -
    
    
    
    -Shareholders EquityPreferred stock - without par value; 10,000,000 shares authorized; no shares issued
    
    
    -
    
    
    
    -Common stock - $.33 1/3 par valueClass A, 271,000,000 shares authorized, 79,604,947 and 78,237,993 shares
issued and 79,587,550 and 78,201,673 shares outstanding, respectively
    
    
    26,535
    
    
    
    26,079Class B, convertible, 56,000,000 shares authorized, 23,236,412 and 24,387,607 shares
issued and outstanding, respectively; 26,257,961 issuable
    
    
    7,745
    
    
    
    8,12934,280
    
    
    
    34,208Additional paid-in capital
    
    
    237,600
    
    
    
    229,358Retained earnings
    
    
    717,805
    
    
    
    782,871Less treasury stock, at cost; 17,397 and 36,320 Class A shares, respectively
    
    
    (754
    )
    
    
    (1,665
    )988,931
    
    
    
    1,044,772Accumulated other comprehensive loss
    
    
    (56,945
    )
    
    
    (72,656
    )Total Shareholders Equity
    
    
    931,986
    
    
    
    972,116Total Liabilities and Shareholders Equity
    
    $
    10,879,518
    
    
    $
    10,251,597
  2




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Operations
 Three Months Ended July 31,
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per share data)Revenues from real estate operations
    
    $
    330,239
    
    
    $
    287,586
    
    
    $
    637,885
    
    
    $
    555,951ExpensesOperating expenses
    
    
    186,090
    
    
    
    177,186
    
    
    
    393,766
    
    
    
    345,778Depreciation and amortization
    
    
    70,228
    
    
    
    55,741
    
    
    
    136,847
    
    
    
    115,528Provision for decline in real estate
    
    
    365
    
    
    
    -
    
    
    
    365
    
    
    
    -256,683
    
    
    
    232,927
    
    
    
    530,978
    
    
    
    461,306Interest expense
    
    
    (82,350
    )
    
    
    (72,708
    )
    
    
    (165,721
    )
    
    
    (149,507
    )Amortization of mortgage procurement costs
    
    
    (3,169
    )
    
    
    (2,839
    )
    
    
    (6,107
    )
    
    
    (5,403
    )Loss on early extinguishment of debt
    
    
    (52
    )
    
    
    (1,640
    )
    
    
    (5,231
    )
    
    
    (4,184
    )Interest and other income
    
    
    12,887
    
    
    
    23,423
    
    
    
    21,288
    
    
    
    34,822Gain on disposition of other investments
    
    
    -
    
    
    
    431
    
    
    
    150
    
    
    
    431Earnings (loss) before income taxes
    
    
    872
    
    
    
    1,326
    
    
    
    (48,714
    )
    
    
    (29,196
    )Income tax expense (benefit)Current
    
    
    (10,727
    )
    
    
    1,771
    
    
    
    (10,172
    )
    
    
    79Deferred
    
    
    14,450
    
    
    
    (2,380
    )
    
    
    (5,684
    )
    
    
    (14,728
    )3,723
    
    
    
    (609
    )
    
    
    (15,856
    )
    
    
    (14,649
    )Minority interest
    
    
    (5,168
    )
    
    
    (5,519
    )
    
    
    (5,862
    )
    
    
    (8,067
    )Equity in earnings (loss) of unconsolidated entities
    
    
    (5,577
    )
    
    
    7,773
    
    
    
    (15,224
    )
    
    
    9,134Earnings (loss) from continuing operations
    
    
    (13,596
    )
    
    
    4,189
    
    
    
    (53,944
    )
    
    
    (13,480
    )Discontinued operations, net of tax:Operating earnings (loss) from rental properties
    
    
    (10
    )
    
    
    (1,651
    )
    
    
    69
    
    
    
    (1,163
    )Gain on disposition of rental properties
    
    
    5,294
    
    
    
    65,237
    
    
    
    5,294
    
    
    
    65,2375,284
    
    
    
    63,586
    
    
    
    5,363
    
    
    
    64,074Net earnings (loss)
    
    $
    (8,312
    )
    
    $
    67,775
    
    
    $
    (48,581
    )
    
    $
    50,594Basic earnings (loss) per common shareEarnings (loss) from continuing operations
    
    $
    (0.13
    )
    
    $
    0.04
    
    
    $
    (0.52
    )
    
    $
    (0.13
    )Earnings from discontinued operations, net of tax
    
    
    0.05
    
    
    
    0.60
    
    
    
    0.05
    
    
    
    0.61Net earnings (loss)
    
    $
    (0.08
    )
    
    $
    0.64
    
    
    $
    (0.47
    )
    
    $
    0.48Diluted earnings (loss) per common shareEarnings (loss) from continuing operations
    
    $
    (0.13
    )
    
    $
    0.04
    
    
    $
    (0.52
    )
    
    $
    (0.13
    )Earnings from discontinued operations, net of tax
    
    
    0.05
    
    
    
    0.59
    
    
    
    0.05
    
    
    
    0.61Net earnings (loss)
    
    $
    (0.08
    )
    
    $
    0.63
    
    
    $
    (0.47
    )
    
    $
    0.48
  3




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
 Three Months Ended July 31,2008
    
    
    2007(in thousands)Net earnings (loss)
    
    $
    (8,312
    )
    
    $
    67,775Other comprehensive income, net of tax and minority interest:Unrealized net gains (losses) on investment securities
    
    
    111
    
    
    
    (115
    )Change in unrealized net gains on interest rate derivative contracts
    
    
    10,469
    
    
    
    10,299Other comprehensive income, net of tax and minority interest
    
    $
    10,580
    
    
    $
    10,184Comprehensive income
    
    $
    2,268
    
    
    $
    77,959Six Months Ended July 31,2008
    
    
    2007(in thousands)Net earnings (loss)
    
    $
    (48,581
    )
    
    $
    50,594Other comprehensive income, net of tax and minority interest:Unrealized net gains (losses) on investment securities
    
    
    162
    
    
    
    (156
    )Change in unrealized net gains on interest rate derivative contracts
    
    
    15,549
    
    
    
    1,121Other comprehensive income, net of tax and minority interest
    
    $
    15,711
    
    
    $
    965Comprehensive income (loss)
    
    $
    (32,870
    )
    
    $
    51,559
  4




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Shareholders Equity
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherClass A
    
    
    Class B
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury Stock
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    (Loss) Income
    
    
    Total(in thousands)Six Months Ended July 31, 2008Balances at January 31, 2008
    
    
    78,238
    
    
    $
    26,079
    
    
    
    24,388
    
    
    $
    8,129
    
    
    $
    229,358
    
    
    $
    782,871
    
    
    
    36
    
    
    $
    (1,665
    )
    
    $
    (72,656
    )
    
    $
    972,116Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,581
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,581
    )Other comprehensive income, net of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,711
    
    
    
    15,711Dividends $.16 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,485
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,485
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    (642
    )
    
    
    
    
    
    
    (642
    )Conversion of Class B to Class A shares
    
    
    1,152
    
    
    
    384
    
    
    
    (1,152
    )
    
    
    (384
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    13
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    (825
    )
    
    
    
    
    
    
    (36
    )
    
    
    1,553
    
    
    
    
    
    
    
    732Restricted stock vested
    
    
    74
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,067Conversion of Class A Common Units
    
    
    128
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    3,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,778Distribution of accumulated equity to minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,710
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,710
    )Balances at July 31, 2008
    
    
    79,605
    
    
    $
    26,535
    
    
    
    23,236
    
    
    $
    7,745
    
    
    $
    237,600
    
    
    $
    717,805
    
    
    
    17
    
    
    $
    (754
    )
    
    $
    (56,945
    )
    
    $
    931,986Six Months Ended July 31, 2007Balances at January 31, 2007
    
    
    76,693
    
    
    $
    25,564
    
    
    
    25,254
    
    
    $
    8,418
    
    
    $
    247,884
    
    
    $
    762,062
    
    
    
    65
    
    
    $
    (3,449
    )
    
    $
    (14,668
    )
    
    $
    1,025,811Cumulative effect of change in accounting for uncertainty in income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,594Other comprehensive income, net of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    965
    
    
    
    965Dividends $.15 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,421
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,421
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    (3,138
    )
    
    
    
    
    
    
    (3,138
    )Conversion of Class B to Class A shares
    
    
    488
    
    
    
    163
    
    
    
    (488
    )
    
    
    (163
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    324
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    4,919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,028Restricted stock granted out of treasury
    
    
    (107
    )
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (6,020
    )
    
    
    
    
    
    
    (107
    )
    
    
    6,056
    
    
    
    
    
    
    
    Restricted stock vested
    
    
    135
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,714Distribution of accumulated equity to minority partners
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,243
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,243
    )Balances at July 31, 2007
    
    
    77,533
    
    
    $
    25,845
    
    
    
    24,766
    
    
    $
    8,255
    
    
    $
    243,209
    
    
    $
    797,480
    
    
    
    8
    
    
    $
    (531
    )
    
    $
    (13,703
    )
    
    $
    1,060,555
  5




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Six Months Ended July 31,2008
    
    
    2007(in thousands)Net Earnings (Loss)
    
    $
    (48,581
    )
    
    $
    50,594Depreciation and amortization
    
    
    136,847
    
    
    
    115,528Provision for decline in real estate
    
    
    365
    
    
    
    -Amortization of mortgage procurement costs
    
    
    6,107
    
    
    
    5,403(Gain) loss on early extinguishment of debt, net of cash prepayment penalties
    
    
    (253
    )
    
    
    4,184Gain on disposition of other investments
    
    
    (150
    )
    
    
    (431
    )Deferred income tax benefit
    
    
    (5,684
    )
    
    
    (14,728
    )Minority interest
    
    
    5,862
    
    
    
    8,067Equity in (earnings) loss of unconsolidated entities
    
    
    15,224
    
    
    
    (9,134
    )Other income
- net gain on sale of an ownership interest in parking
management company (2008)
and net gain on sale of development project (2007)
    
    
    (3,350
    )
    
    
    (10,090
    )Stock-based compensation
    
    
    4,948
    
    
    
    6,077Amortization and mark-to-market adjustments of derivative instruments
    
    
    (4,144
    )
    
    
    (3,622
    )Cash distributions from operations of unconsolidated entities
    
    
    32,435
    
    
    
    14,820Write-off of abandoned development projects
    
    
    28,951
    
    
    
    5,654Discontinued operations:Depreciation and amortization
    
    
    95
    
    
    
    1,934Amortization of mortgage procurement costs
    
    
    11
    
    
    
    69Loss on early extinguishment of debt
    
    
    -
    
    
    
    363Gain on disposition of operating properties
    
    
    (8,627
    )
    
    
    (106,318
    )Deferred income tax expense
    
    
    4,496
    
    
    
    34,608Cost of
sales of land included in projects under development or completed rental properties
    
    
    8,889
    
    
    
    5,171Increase in land held for development or sale
    
    
    (12,082
    )
    
    
    (9,214
    )Decrease in notes and accounts receivable
    
    
    16,707
    
    
    
    245Increase in other assets
    
    
    (6,211
    )
    
    
    (2,115
    )Decrease (increase) in restricted cash used for operating purposes
    
    
    7,948
    
    
    
    (3,669
    )Decrease in accounts payable and accrued expenses
    
    
    (69,968
    )
    
    
    (44,458
    )Net cash provided by operating activities
    
    
    109,835
    
    
    
    48,938Cash Flows from Investing ActivitiesCapital expenditures, including real estate acquisitions
    
    
    (550,307
    )
    
    
    (729,643
    )Payment of lease procurement costs and other assets, net
    
    
    (32,031
    )
    
    
    (16,628
    )Increase in restricted cash used for capital expenditures
    
    
    (167,853
    )
    
    
    (72,479
    )Proceeds from disposition of rental properties and other investments
    
    
    15,309
    
    
    
    291,551Increase in investments in and advances to affiliates
    
    
    5,128
    
    
    
    (37,342
    )Net cash used in investing activities
    
    
    (729,754
    )
    
    
    (564,541
    )Cash Flows from Financing ActivitiesBorrowings on bank revolving credit facility
    
    
    268,000
    
    
    
    409,000Payments on bank revolving credit facility
    
    
    (163,500
    )
    
    
    (174,000
    )Proceeds from nonrecourse mortgage debt
    
    
    936,213
    
    
    
    573,734Principal payments on nonrecourse mortgage debt
    
    
    (492,104
    )
    
    
    (284,154
    )Proceeds from notes payable
    
    
    46,074
    
    
    
    50,346Payments on notes payable
    
    
    (10,044
    )
    
    
    (35,177
    )Change in restricted cash and book overdrafts
    
    
    24,214
    
    
    
    (3,588
    )Payment of deferred financing costs
    
    
    (29,157
    )
    
    
    (7,849
    )Purchase of treasury stock
    
    
    (642
    )
    
    
    (3,138
    )Exercise of stock options
    
    
    732
    
    
    
    5,028Distributions of accumulated equity to minority partners
    
    
    (3,710
    )
    
    
    (13,243
    )Dividends paid to shareholders
    
    
    (16,470
    )
    
    
    (14,341
    )Increase (decrease) in minority interest
    
    
    31,228
    
    
    
    (2,967
    )Net cash provided by financing activities
    
    
    590,834
    
    
    
    499,651Net decrease in cash and equivalents
    
    
    (29,085
    )
    
    
    (15,952
    )Cash and equivalents at beginning of period
    
    
    254,434
    
    
    
    254,213Cash and equivalents at end of period
    
    $
    225,349
    
    
    $
    238,261
  6




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Supplemental Non-Cash Disclosures Table
  Six Months Ended July 31,2008
    
    
    2007(in thousands)Operating ActivitiesIncrease in land held for development or sale(5)(6)
    
    $
    (5,136
    )
    
    $
    (4,138
    )Increase in notes and accounts receivable (1)(2)(8)
    
    
    (9,960
    )
    
    
    (2,849
    )Increase in other assets (1)(2)(3)(8)
    
    
    (46,798
    )
    
    
    (66,777
    )Increase in restricted cash(1)(8)
    
    
    (363
    )
    
    
    (2,486
    )Increase in accounts payable and accrued expenses(1)(2)(6)(8)
    
    
    117,434
    
    
    
    79,744Total effect on operating activities
    
    $
    55,177
    
    
    $
    3,494Investing ActivitiesIncrease in projects under development (1)(5)(6)(7)
    
    $
    (101,158
    )
    
    $
    (12,166
    )Increase in completed rental properties(1)(2)(4)(5)(8)(9)
    
    
    (27,974
    )
    
    
    (56,661
    )Increase in restricted cash (1)(8)
    
    
    (244
    )
    
    
    (16
    )Non-cash proceeds from disposition of properties (3)
    
    
    26,119
    
    
    
    77,960Decrease (increase) in investments in and advances to affiliates (1)(8)
    
    
    25,051
    
    
    
    (3,915
    )Total effect on investing activities
    
    $
    (78,206
    )
    
    $
    5,202Financing ActivitiesIncrease (decrease) in nonrecourse mortgage debt(1)(2)(3)(8)(9)
    
    $
    24,270
    
    
    $
    (9,841
    )Increase in restricted cash (8)
    
    
    
    
    
    
    (1,412
    )Increase in Class A common stock (4)
    
    
    42
    
    
    
    Increase in additional paid-in capital (4)(7)
    
    
    7,855
    
    
    
    3,637Decrease in minority interest (4)
    
    
    (9,123
    )
    
    
    Dividends declared but not yet paid
    
    
    (15
    )
    
    
    (1,080
    )Total effect on financing activities
    
    $
    23,029
    
    
    $
    (8,696
    )
 (1)
    
    Change to full consolidation method of accounting from equity method due to the
restructuring of the partnership agreement related to Shops at Wiregrass, a retail
development project in the Commercial Group, and acquisition of partners interest in
Village Centerapartment community in the Residential Group during the six months ended
July 31, 2008 and acquisition of partners interest in Midtown Towers, Sterling Glen of
Glen Coveand Sterling Glen of Great Neckapartments in the Residential Group during the
six months ended July 31, 2007.(2)
    
    Amounts related to purchase price allocations in the Commercial Group during the six
months ended July 31, 2008 for the following office buildings: New York Times, Twelve
MetroTech Center, Commerce Court, Colorado Studiosand Richmond Office Park, and during the
six months ended July 31, 2007 for the New York portfolio transaction that closed in
November 2006 and Galleria at Sunset Mall.(3)
    
    Assumption of nonrecourse mortgage debt by the buyer upon sale of Sterling Glen of
Lynbrookduring the six months ended July 31, 2008 and Sterling Glen of Bayshoreand
Sterling Glen of Roslyn, a development project, during the six months ended July 31, 2007
in the Residential Group.(4)
    
    Exchange of the Class A Common Units during the six months ended July 31, 2008 (see
Note M).(5)
    
    Commercial Group and Residential Group outlots reclassified prior to sale from projects
under development or completed rental properties to land held for sale.(6)
    
    Increase or decrease in construction payables included in accounts payable and accrued
expenses.(7)
    
    Capitalization of stock-based compensation granted to employees directly involved with
the acquisition, development and construction of real estate.(8)
    
    Change to full consolidation method of accounting from equity method due to the
occurrence of a triggering event as described in FIN No. 46(R), Consolidation of Variable
Interest Entities, for Oceanpointe Towersapartments in the Residential Group during the
six months ended July 31, 2007.(9)
    
    Assumption of nonrecourse mortgage debt due to acquisition of properties in the
Commercial Group during the six months ended July 31, 2007.
  7




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies
 Basis of Presentation
  Use of Estimates
  Ten MetroTech Center 80 DeKalb Avenue
 Reclassification
  Restricted Cash
  Capitalized Software Costs
   8




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
 Historic and New Market Tax Credit Entities
   Distribution of Accumulated Equity to Minority Partners
 Nine MetroTech Center North Fifteen
MetroTech Center Promenade in Temecula Columbia Park Center
 Accumulated Other Comprehensive Loss
  July 31, 2008
    
    
    January 31, 2008(in thousands)Unrealized gains on securities
    
    $
    344
    
    
    $
    91Unrealized losses on interest rate contracts
    
    
    (93,707
    )
    
    
    (119,953
    )(93,363
    )
    
    
    (119,862
    )Minority interest and income tax benefit
    
    
    (36,418
    )
    
    
    (47,206
    )Accumulated Other Comprehensive Loss
    
    $
    (56,945
    )
    
    $
    (72,656
    )
 9




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
 Accounting for Derivative Instruments and Hedging Activities
   Forward Swaps
 Property Accounted forFully Consolidated
    
    
    under the Equity MethodProperties(1)
    
    
    of Accounting(2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under SFAS
No. 133, the Companys portion of unrealized gains and losses on the effective portion of
the hedges has been recorded in accumulated OCI. To the extent effective, the receipt or
payment of cash at termination on these forward swaps will be recorded in accumulated OCI
and will be amortized as either an increase or decrease to interest expense in the same
periods as the interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. The
Company recorded $2,121 and $2,133 as a reduction of interest expense related to
this forward swap in its Consolidated Statements of Operations for the three and six months
ended July 31, 2008, respectively, and $2,897 and $1,450 for the three and six
months ended July 31, 2007, respectively.   10




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
   Variable Interest Entities
   New Accounting Standards
    11




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
       12




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
  Investments in and Advances to Affiliates
   July 31,
    
    
    January 31,2008
    
    
    2008(in thousands)Members and partners equity, as below
    
    $
    614,808
    
    
    $
    741,871Equity of other members and partners
    
    
    499,824
    
    
    
    553,842Companys investment in partnerships
    
    
    114,984
    
    
    
    188,029Advances to and on behalf of other affiliates
    
    
    275,794
    
    
    
    307,799Total Investments in and Advances to Affiliates
    
    $
    390,778
    
    
    $
    495,828
  (Combined 100%)July 31,
    
    
    January 31,2008
    
    
    2008(in thousands)Balance Sheet:Completed rental properties
    
    $
    3,329,643
    
    
    $
    2,989,525Projects under development
    
    
    1,285,640
    
    
    
    1,271,998Land held for development or sale
    
    
    310,575
    
    
    
    265,943Accumulated depreciation
    
    
    (628,827
    )
    
    
    (606,961
    )Restricted cash - military housing bond funds
    
    
    984,253
    
    
    
    1,029,503Other restricted cash
    
    
    333,147
    
    
    
    574,638Other assets
    
    
    416,076
    
    
    
    409,973Total Assets
    
    $
    6,030,507
    
    
    $
    5,934,619Mortgage debt, nonrecourse
    
    $
    4,612,411
    
    
    $
    4,486,786Other liabilities
    
    
    803,288
    
    
    
    705,962Members and partners equity
    
    
    614,808
    
    
    
    741,871Total Liabilities and Members/Partners Equity
    
    $
    6,030,507
    
    
    $
    5,934,619
 13




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates (continued)
 (Combined 100%)
    
    

    (Combined 100%)Three Months Ended July 31,
    
    

    Six Months Ended July 31,2008
    
    
    2007
    
    

    2008
    
    
    2007(in thousands)
    
    

    (in thousands)Operations:Revenues
    




    $
    253,310
    
    
    $
    234,188
    
    

    $
    494,148
    
    
    $
    451,137Operating expenses
    




    
    (200,470
    )
    
    
    (156,434
    )
    

    
    (369,356
    )
    
    
    (311,002
    )Interest expense
    




    
    (55,629
    )
    
    
    (48,420
    )
    

    
    (115,162
    )
    
    
    (102,345
    )Provision for decline in real estate (1)
    




    
    (45,348
    )
    
    
    -
    
    

    
    (45,348
    )
    
    
    -Depreciation and amortization
    




    
    (30,125
    )
    
    
    (37,322
    )
    

    
    (78,360
    )
    
    
    (74,999
    )Interest and other income
    




    
    14,446
    
    
    
    9,354
    
    

    
    31,810
    
    
    
    28,541Earnings (loss) from continuing operations
    




    
    (63,816
    )
    
    
    1,366
    
    

    
    (82,268
    )
    
    
    (8,668
    )Discontinued operations:Gain on disposition of rental properties (2)
    




    
    -
    
    
    
    -
    
    

    
    3,070
    
    
    
    4,212Operating earnings (loss) from rental properties
    




    
    (81
    )
    
    
    121
    
    

    
    (99
    )
    
    
    820Discontinued operations subtotal
    




    
    (81
    )
    
    
    121
    
    

    
    2,971
    
    
    
    5,032Net earnings (loss) (pre-tax)
    




    $
    (63,897
    )
    
    $
    1,487
    
    

    $
    (79,297
    )
    
    $
    (3,636
    )Companys portion of net earnings (loss) (pre-tax)
    




    $
    (5,577
    )
    
    $
    7,773
    
    

    $
    (15,224
    )
    
    $
    9,134(1)         The following table shows the detail of the provision for decline in real estate for
equity method investments:Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Navy Midwest (Military Housing Project) (a)
    
    (Chicago, Illinois)
    
    $
    30,000
    
    
    $
    -
    
    
    
    $
    30,000
    
    
    $
    -Mercury (Condominium)
    
    (Los Angeles, California)
    
    
    12,006
    
    
    
    -
    
    
    
    
    12,006
    
    
    
    -El Centro Mall (Specialty Retail Center)
    
    (El Centro, California)
    
    
    3,342
    
    
    
    -
    
    
    
    
    3,342
    
    
    
    -Total
provision for decline in real estate for equity method properties
    
    $
    45,348
    
    
    $
    -
    
    
    
    $
    45,348
    
    
    $
    -Companys portion of provision for decline in real estate for
equity method properties
    
    $
    5,661
    
    
    $
    -
    
    
    
    $
    5,661
    
    
    $
    -
 (a)
    
    Amount relates to impairment of land located in Puerto Rico held by Navy Midwest.
 (2)         The following table shows the detail of gain on disposition of rental properties that
were held by equity method investments:
 Six Months Ended July 31,2008
    
    
    2007(in thousands)One International Place (Office Building)
    
    (Cleveland, Ohio)
    
    $
    3,070
    
    
    $
    -White Acres (Apartments)
    
    (Richmond Heights, Ohio)
    
    
    -
    
    
    
    4,212Total
gain on disposition of equity method rental properties
    
    $
    3,070
    
    
    $
    4,212Companys
portion of gain on disposition of equity method rental
properties
    
    $
    881
    
    
    $
    2,106
 14




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates (continued)
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Operations:Revenues and interest income
    
    $
    9,301
    
    
    $
    15,248
    
    
    
    $
    57,517
    
    
    $
    57,606Operating expenses
    
    
    (16,677
    )
    
    
    (19,081
    )
    
    
    
    (67,148
    )
    
    
    (67,097
    )Interest expense
    
    
    (1,683
    )
    
    
    (1,787
    )
    
    
    
    (3,540
    )
    
    
    (4,464
    )Depreciation and amortization
    
    
    (3,856
    )
    
    
    (3,841
    )
    
    
    
    (24,070
    )
    
    
    (24,369
    )Net loss (pre-tax)
    
    $
    (12,915
    )
    
    $
    (9,461
    )
    
    
    $
    (37,241
    )
    
    $
    (38,324
    )Companys portion of net loss (pre-tax)
    
    $
    (8,309
    )
    
    $
    (1,339
    )
    
    
    $
    (21,136
    )
    
    $
    (4,009
    )
 Bank Revolving Credit Facility
   July 31, 2008
    
    
    January 31, 2008(in thousands)Outstanding balances:Borrowings
    
    $
    143,500
    
    
    $
    39,000Letters of credit
    
    $
    83,898
    
    
    $
    71,802Surety bonds
    
    $
    -
    
    
    $
    -Available
credit
    
    $
    522,602
    
    
    $
    639,198
 15




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt
  Senior Notes:3.625% Puttable Equity-Linked Senior Notes due 2011
    
    $
    287,500Other Senior Notes:7.625% Senior Notes due 2015
    
    
    300,0006.500% Senior Notes due 2017
    
    
    150,0007.375% Senior Notes due 2034
    
    
    100,000Total Senior Notes
    
    
    837,500Subordinated Debt:Redevelopment Bonds due 2010
    
    
    20,400Subordinate Tax Revenue Bonds due 2013
    
    
    29,000Total Subordinated Debt
    
    
    49,400Total Senior and Subordinated Debt
    
    $
    886,900
 Puttable Equity-Linked Senior Notes
    16




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt (continued)
    Other Senior Notes
    17




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Senior and Subordinated Debt (continued)
   Subordinated Debt
   Financing Arrangements
 Collateralized Borrowings
   18




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Financing Arrangements (continued)
  Other Structured Financing Arrangements
    Fair Value Measurements
  Fair Value Hierarchy
  
    
    Level 1  Quoted prices in active markets that are unadjusted and accessible at the
measurement date for identical, unrestricted assets or liabilities;
 
    
    Level 2  Quoted prices for identical assets and liabilities in markets that are not
active, quoted prices for similar assets and liabilities in active markets or financial
instruments for which significant observable inputs are available, either directly or
indirectly such as interest rates and yield curves that are observable at commonly quoted
intervals; and
    
    Level 3  Prices or valuations that require inputs that are  unobservable.
 19




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Fair Value Measurements (continued)
  Measurement of Fair Value
     20




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Fair Value Measurements (continued)
 Items Measured at Fair Value on a Recurring Basis
  Fair Value Measurementsat July 31, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(in thousands)Interest rate caps and swaptions
    
    $
    -
    
    
    $
    4,517
    
    
    $
    -
    
    
    $
    4,517Interest rate swap agreements (positive fair value)
    
    
    -
    
    
    
    2,600
    
    
    
    -
    
    
    
    2,600TRS (positive fair value)
    
    
    -
    
    
    
    -
    
    
    
    696
    
    
    
    696DURA purchase obligation and related fee
    
    
    -
    
    
    
    -
    
    
    
    13,816
    
    
    
    13,816Interest rate swap agreements (negative fair value)
    
    
    -
    
    
    
    (76,819
    )
    
    
    -
    
    
    
    (76,819
    )TRS (negative fair value)
    
    
    -
    
    
    
    -
    
    
    
    (10,485
    )
    
    
    (10,485
    )Fair value
adjustment to the borrowings subject to TRS
    
    
    -
    
    
    
    -
    
    
    
    5,952
    
    
    
    5,952Total
    
    $
    -
    
    
    $
    (69,702
    )
    
    $
    9,979
    
    
    $
    (59,723
    )
  Fair Value MeasurementsSix Months Ended July 31, 2008Fair value
    
    
    
    
    
    
    DURAadjustment to
    
    
    
    
    
    
    purchaseNet
    
    
    the borrowings
    
    
    Total TRS
    
    
    obligation andTRS
    
    
    subject to TRS
    
    
    Related
    
    
    related fee(in thousands)Balance, February 1, 2008
    
    $
    (2,866
    )
    
    $
    (934
    )
    
    $
    (3,800
    )
    
    $
    23,108Total realized and unrealized gains (losses):Included in earnings
    
    
    (6,923
    )
    
    
    6,886
    
    
    
    (37
    )
    
    
    4,546Included in other comprehensive income
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Purchases, issuances and settlements
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (13,838
    )Balance, July 31, 2008
    
    $
    (9,789
    )
    
    $
    5,952
    
    
    $
    (3,837
    )
    
    $
    13,816
 21




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Stock-Based Compensation
      Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Stock option costs
    
    $
    2,562
    
    
    $
    2,314
    
    
    
    $
    5,138
    
    
    $
    6,529Restricted stock costs
    
    
    1,750
    
    
    
    1,488
    
    
    
    
    3,643
    
    
    
    3,185Performance shares
    
    
    286
    
    
    
    -
    
    
    
    
    286
    
    
    
    -Total stock-based compensation costs
    
    
    4,598
    
    
    
    3,802
    
    
    
    
    9,067
    
    
    
    9,714Less amount capitalized into qualifying real estate projects
    
    
    (2,387
    )
    
    
    (1,950
    )
    
    
    
    (4,119
    )
    
    
    (3,637
    )Amount charged to operating expenses
    
    
    2,211
    
    
    
    1,852
    
    
    
    
    4,948
    
    
    
    6,077Depreciation expense on capitalized stock-based compensation
    
    
    62
    
    
    
    19
    
    
    
    
    123
    
    
    
    39Total stock-based compensation expense
    
    $
    2,273
    
    
    $
    1,871
    
    
    
    $
    5,071
    
    
    $
    6,116Deferred income tax benefit
    
    $
    742
    
    
    $
    591
    
    
    
    $
    1,663
    
    
    $
    2,041
   22




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Income Taxes
    FIN No. 48
    23




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Discontinued Operations, Gain on Disposition of Rental Properties and Provision for
Decline in Real Estate
 Discontinued Operations
  Sterling Glen of Roslyn , Sterling Glen of Lynbrook
  Sterling Glen of Lynbrook Sterling Glen of Lynbrooks
 January 31, 2008(in thousands)AssetsReal estate
    
    $
    29,858Notes and accounts receivable, net
    
    
    179Other assets
    
    
    1,635Total Assets
    
    $
    31,672LiabilitiesMortgage debt, nonrecourse
    
    $
    27,700Accounts payable and accrued expenses
    
    
    798Total Liabilities
    
    $
    28,498
 24




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 I.
    
    Discontinued Operations, Gain on Disposition of Rental Properties and Provision for
Decline in Real Estate (continued)
  Three
    
    
    Six
    
    
    Three
    
    
    SixMonths
    
    
    Months
    
    
    Months
    
    
    MonthsNumber

    
    Period
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    EndedProperty
    
    Location
    
    
    of Units

    
    Disposed
    
    
    7/31/2008
    
    
    7/31/2008
    
    
    7/31/2007
    
    
    7/31/2007Residential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    
    130
    
    
    
    Q2-2008
    
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    
    85
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesSterling Glen of Center City
    
    Philadelphia, Pennsylvania
    
    
    135
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    
    80
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesSterling Glen of Forest Hills
    
    Forest Hills, New York
    
    
    83
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    
    79
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    
    166
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    
    724
    
    
    
    Q2-2007
    
    
    
    -
    
    
    
    -
    
    
    Yes
    
    Yes
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Revenues
    
    $
    162
    
    
    $
    12,397
    
    
    
    $
    706
    
    
    $
    24,599ExpensesOperating expenses
    
    
    76
    
    
    
    11,883
    
    
    
    
    287
    
    
    
    20,730Depreciation and amortization
    
    
    90
    
    
    
    921
    
    
    
    
    95
    
    
    
    1,934166
    
    
    
    12,804
    
    
    
    
    382
    
    
    
    22,664Interest expense
    
    
    (43
    )
    
    
    (2,000
    )
    
    
    
    (235
    )
    
    
    (3,608
    )Amortization of mortgage procurement costs
    
    
    -
    
    
    
    (34
    )
    
    
    
    (11
    )
    
    
    (69
    )Loss on early extinguishment of debt
    
    
    -
    
    
    
    (363
    )
    
    
    
    -
    
    
    
    (363
    )Interest income
    
    
    31
    
    
    
    112
    
    
    
    
    35
    
    
    
    209Gain on disposition of rental properties
    
    
    8,627
    
    
    
    106,318
    
    
    
    
    8,627
    
    
    
    106,318Earnings before income taxes
    
    
    8,611
    
    
    
    103,626
    
    
    
    
    8,740
    
    
    
    104,422Income tax expense (benefit)Current
    
    
    (1,055
    )
    
    
    5,682
    
    
    
    
    (1,119
    )
    
    
    5,740Deferred
    
    
    4,382
    
    
    
    34,358
    
    
    
    
    4,496
    
    
    
    34,6083,327
    
    
    
    40,040
    
    
    
    
    3,377
    
    
    
    40,348Net earnings from discontinued operations
    
    $
    5,284
    
    
    $
    63,586
    
    
    
    $
    5,363
    
    
    $
    64,074
 25




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Discontinued Operations, Gain on Disposition of Rental Properties and Provision for
Decline in Real Estate (continued)
 Gain on Disposition of Rental Properties
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Discontinued Operations:Seven Sterling Glen properties (Supported-Living Apartments)(1)
    
    $
    8,627
    
    
    $
    81,239
    
    
    
    $
    8,627
    
    
    $
    81,239Landings of Brentwood (Apartments)(2)
    
    
    -
    
    
    
    25,079
    
    
    
    
    -
    
    
    
    25,079Total
    
    $
    8,627
    
    
    $
    106,318
    
    
    
    $
    8,627
    
    
    $
    106,318
 (1)
    
    The seven properties included in the gain on disposition are Sterling Glen of Lynbrook
for the three and six months ended July 31, 2008 and Sterling Glen of Bayshore, Sterling
Glen of Center City, Sterling Glen of Darien, Sterling Glen of Forest Hills, Sterling Glen
of Plainviewand Sterling Glen of Stamfordfor the three and six months ended July 31,
2007. The Company elected to deposit the sales proceeds with a qualified intermediary for
the purposes of identifying replacement assets under Section 1031 of the Internal Revenue
Code for all the aforementioned properties except Sterling Glen of Forest Hills.(2)
    
    The Company elected to deposit the sales proceeds with a qualified intermediary for
purposes of acquiring replacement assets under Section 1031 of the Internal Revenue Code.
  Six Months Ended July 31,2008
    
    
    2007(in thousands)One International Place (Office Building)
    Cleveland, Ohio
    
    $
    881
    
    
    $
    -White Acres (Apartments)
    Richmond Heights, Ohio
    
    
    -
    
    
    
    2,106$
    881
    
    
    $
    2,106
 Provision for Decline in Real Estate
  Old Stone Crossing at Caldwell Creek
 26




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 I.
    
    Discontinued Operations, Gain on Disposition of Rental Properties and Provision for
Decline in Real Estate (continued)
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Mercury (Condominium)
    (Los Angeles, California)
    
    $
    4,098
    
    
    $
    -
    
    
    
    $
    4,098
    
    
    $
    -El Centro Mall (Specialty Retail Center)
    (El Centro, California)
    
    
    1,263
    
    
    
    -
    
    
    
    
    1,263
    
    
    
    -Other
    
    
    
    300
    
    
    
    -
    
    
    
    
    300
    
    
    
    -$
    5,661
    
    
    $
    -
    
    
    
    $
    5,661
    
    
    $
    -
 Dividends
  Earnings per Share
   27




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Earnings per Share
  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerators(in thousands)Earnings (loss) from continuing operations - Basic
    
    $
    (13,596
    )
    
    $
    4,189
    
    
    $
    (53,944
    )
    
    $
    (13,480
    )Preferred distribution on Class A Common Units, net of tax
    
    
    -
    
    
    
    575
    
    
    
    -
    
    
    
    -Earnings
(loss) from continuing operations - Diluted
    
    $
    (13,596
    )
    
    $
    4,764
    
    
    $
    (53,944
    )
    
    $
    (13,480
    )Net earnings (loss)
    
    $
    (8,312
    )
    
    $
    67,775
    
    
    $
    (48,581
    )
    
    $
    50,594Undistributed earnings allocated to participating securities
    
    
    -
    
    
    
    (2,186
    )
    
    
    -
    
    
    
    (1,292
    )Net earnings
(loss) - Basic
    
    
    (8,312
    )
    
    
    65,589
    
    
    
    (48,581
    )
    
    
    49,302Undistributed earnings allocated to participating securities
    
    
    -
    
    
    
    2,186
    
    
    
    -
    
    
    
    -Preferred distribution on Class A Common Units, net of tax
    
    
    -
    
    
    
    575
    
    
    
    -
    
    
    
    -Net earnings
(loss) - Diluted
    
    $
    (8,312
    )
    
    $
    68,350
    
    
    $
    (48,581
    )
    
    $
    49,302DenominatorsWeighted
average shares outstanding - Basic
    
    
    102,682,825
    
    
    
    102,239,962
    
    
    
    102,648,700
    
    
    
    102,117,423Effect of stock options and restricted stock (1)(2)
    
    
    -
    
    
    
    1,646,110
    
    
    
    -
    
    
    
    -Effect of convertible Class A Common Units (1)
    
    
    -
    
    
    
    3,894,232
    
    
    
    -
    
    
    
    -Weighted
average shares outstanding - Diluted (3)(4)
    
    
    102,682,825
    
    
    
    107,780,304
    
    
    
    102,648,700
    
    
    
    102,117,423Earnings Per ShareEarnings
(loss) from continuing operations - Basic
    
    $
    (0.13
    )
    
    $
    0.04
    
    
    $
    (0.52
    )
    
    $
    (0.13
    )Earnings
(loss) from continuing operations - Diluted
    
    $
    (0.13
    )
    
    $
    0.04
    
    
    $
    (0.52
    )
    
    $
    (0.13
    )Net earnings
(loss) - Basic
    
    $
    (0.08
    )
    
    $
    0.64
    
    
    $
    (0.47
    )
    
    $
    0.48Net earnings
(loss) - Diluted
    
    $
    (0.08
    )
    
    $
    0.63
    
    
    $
    (0.47
    )
    
    $
    0.48
 (1)
    
    For the three months ended July 31, 2008 and the six months ended July 31, 2008 and
2007, incremental shares from dilutive securities of 4,513,666, 4,565,100 and 5,607,815,
respectively, were not included in the computation of diluted earnings per share because
their effect is anti-dilutive due to the loss from continuing operations.(2)
    
    The weighted-average options and restricted stock of 2,439,244 and 2,263,990 for the
three and six months ended July 31, 2008, respectively, and
1,067,600 and 731,726 for the three
and six months ended July 31, 2007, respectively, were not included in the computation of
diluted earnings per share because they were anti-dilutive.(3)
    
    For the three and six months ended July 31, 2008, weighted-average contingently
issuable securities (performance shares) of 82,552 and 41,276, respectively, were not
included in the computation of diluted earnings per share because the performance criteria
was not satisfied at the end of the respective periods.(4)
    
    The Puttable Equity-Linked Senior Notes issued in October 2006 can be put to the
Company by the holders under certain circumstances (see Note D  Senior and Subordinated
Debt). If the Company exercises its net share settlement option upon a put of the notes by
the holders, it will then issue shares of its Class A common stock. The effect of these
shares was not included in the computation of diluted earnings per share for the three and
six months ended July 31, 2008 and 2007 as the Companys average stock price did not exceed
the put value price of the Puttable Equity-Linked Senior Notes. These notes will be
dilutive when the average stock price for the period exceeds $66.39. Additionally, the
Company sold a warrant with an exercise price of $74.35, which has also been excluded from
diluted earnings per share for the three and six months ended July 31, 2008 and 2007 as the
Companys stock price did not exceed the exercise price.
 
 28




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information
  July 31,
    
    
    January 31,
    
    
    
    Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2008
    
    
    
    2008
    
    
    2007
    
    
    
    2008
    
    
    2007Identifiable Assets
    
    
    
    Expenditures for Additions to Real EstateCommercial Group
    
    
    
    
    
    
    
    
    
    
    $
    7,701,733
    
    
    $
    7,345,283
    
    
    
    $
    237,067
    
    
    $
    251,168
    
    
    
    $
    403,323
    
    
    $
    492,993Residential Group
    
    
    
    
    
    
    
    
    
    
    
    2,620,935
    
    
    
    2,322,971
    
    
    
    
    75,748
    
    
    
    156,961
    
    
    
    
    145,100
    
    
    
    220,857Land Development Group
    
    
    
    
    
    
    
    
    
    
    
    418,284
    
    
    
    402,452
    
    
    
    
    930
    
    
    
    14,408
    
    
    
    
    1,799
    
    
    
    14,755The Nets
    
    
    
    
    
    
    
    
    
    
    
    12,805
    
    
    
    14,454
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    
    
    
    
    
    
    
    
    
    125,761
    
    
    
    166,437
    
    
    

    
    27
    
    
    
    200
    
    
    
    
    85
    
    
    
    1,038$
    10,879,518
    
    
    $
    10,251,597
    
    
    
    $
    313,772
    
    
    $
    422,737
    
    
    
    $
    550,307
    
    
    $
    729,643Three Months Ended July 31,
    


    Six Months Ended July 31,
    
    
    
    Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
   
    
     2007
    
    
    
    2008

    
        2007
    
    
    
    2008
    
    
    2007
    
    
    
    2008
        
    
    2007Revenues from Real Estate Operations
    
    
    
    Operating ExpensesCommercial Group
    
    $
    237,438
    
    
    $
    209,162
    
    
    
    $
    456,057
    
    
    $
    406,596
    
    
    
    $
    116,994
    
    
    $
    107,175
    
    
    
    $
    244,621
    
    
    $
    209,724Commercial Group Land Sales
    
    
    10,602
    
    
    
    1,564
    
    
    
    
    14,250
    
    
    
    7,157
    
    
    
    
    5,510
    
    
    
    1,905
    
    
    
    
    8,372
    
    
    
    5,171Residential Group
    
    
    75,040
    
    
    
    62,254
    
    
    
    
    153,997
    
    
    
    116,859
    
    
    
    
    43,546
    
    
    
    44,901
    
    
    
    
    98,453
    
    
    
    81,704Land Development Group
    
    
    7,159
    
    
    
    14,606
    
    
    
    
    13,581
    
    
    
    25,339
    
    
    
    
    9,994
    
    
    
    13,981
    
    
    
    
    19,524
    
    
    
    26,078The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    10,046
    
    
    
    9,224
    
    
    
    
    22,796
    
    
    
    23,101$
    330,239
    
    
    $
    287,586
    
    
    
    $
    637,885
    
    
    $
    555,951
    
    
    
    $
    186,090
    
    
    $
    177,186
    
    
    
    $
    393,766
    
    
    $
    345,778Depreciation and Amortization Expense
    
    

    
    Interest ExpenseCommercial Group
    
    $
    53,088
    
    
    $
    40,017
    
    
    
    $
    103,837
    
    
    $
    85,606
    
    
    
    $
    57,697
    
    
    $
    43,733
    
    
    
    $
    116,442
    
    
    $
    91,102Residential Group
    
    
    16,144
    
    
    
    14,915
    
    
    
    
    31,069
    
    
    
    28,378
    
    
    
    
    9,171
    
    
    
    11,949
    
    
    
    
    19,382
    
    
    
    25,231Land Development Group
    
    
    239
    
    
    
    143
    
    
    
    
    430
    
    
    
    321
    
    
    
    
    (69
    )
    
    
    68
    
    
    
    
    6
    
    
    
    2,374The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    757
    
    
    
    666
    
    
    
    
    1,511
    
    
    
    1,223
    
    
    
    
    15,551
    
    
    
    16,958
    
    
    
    
    29,891
    
    
    
    30,800$
    70,228
    
    
    $
    55,741
    
    
    
    $
    136,847
    
    
    $
    115,528
    
    
    
    $
    82,350
    
    
    $
    72,708
    
    
    
    $
    165,721
    
    
    $
    149,507Interest and Other Income
    
    
    
    Net Earnings (Loss)Commercial Group
    
    $
    4,566
    
    
    $
    8,295
    
    
    
    $
    6,349
    
    
    $
    10,233
    
    
    
    $
    8,090
    
    
    $
    14,485
    
    
    
    $
    (5,169
    )
    
    
    $14,553Residential Group
    
    
    2,587
    
    
    
    11,785
    
    
    
    
    6,177
    
    
    
    15,629
    
    
    
    
    8,131
    
    
    
    65,975
    
    
    
    
    9,798
    
    
    
    65,398Land Development Group
    
    
    5,202
    
    
    
    2,968
    
    
    
    
    8,038
    
    
    
    7,978
    
    
    
    
    3,505
    
    
    
    3,628
    
    
    
    
    2,911
    
    
    
    3,860The Nets
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    
    (5,472
    )
    
    
    (1,419
    )
    
    
    
    (14,432
    )
    
    
    (3,469
    )Corporate Activities
    
    
    532
    
    
    
    375
    
    
    
    
    724
    
    
    
    982
    
    
    
    
    (22,566
    )
    
    
    (14,894
    )
    
    
    
    (41,689
    )
    
    
    (29,748
    )$
    12,887
    
    
    $
    23,423
    
    
    
    $
    21,288
    
    
    $
    34,822
    
    
    
    $
    (8,312
    )
    
    
    $67,775
    
    
    
    $
    (48,581
    )
    
    
    $50,594
 29




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Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
    30




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
 Reconciliation of EBDT to Net Earnings (Loss) by Segment:
 LandCommercial
    
    
    Residential
    
    
    DevelopmentThree Months Ended July 31, 2008
    
    Group
    
    
    Group
    
    
    Group
    
    
    The Nets
    
    
    Corporate
    
    
    TotalEBDT
    
    $
    74,095
    
    
    $
    30,344
    
    
    $
    2,384
    
    
    $
    (5,472
    )
    
    $
    (13,008
    )
    
    $
    88,343Depreciation and amortization - Real Estate Groups
    
    
    (53,927
    )
    
    
    (19,502
    )
    
    
    (74
    )
    
    
    -
    
    
    
    -
    
    
    
    (73,503
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    (2,564
    )
    
    
    (753
    )
    
    
    (131
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,448
    )Deferred taxes - Real Estate Groups
    
    
    (3,545
    )
    
    
    (3,301
    )
    
    
    1,550
    
    
    
    -
    
    
    
    (9,558
    )
    
    
    (14,854
    )Straight-line rent adjustment
    
    
    (4,263
    )
    
    
    15
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (4,248
    )Preference payment (1)
    
    
    (931
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (931
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (128
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (128
    )Provision for decline in real estate, net of tax
    
    
    -
    
    
    
    -
    
    
    
    (224
    )
    
    
    -
    
    
    
    -
    
    
    
    (224
    )Provision for decline in real estate of equity method rental properties, net of tax
    
    
    (775
    )
    
    
    (2,699
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,474
    )Discontinued operations, net of tax: (2)Depreciation and amortization - Real Estate Groups
    
    
    -
    
    
    
    (90
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (90
    )Deferred taxes - Real Estate Groups
    
    
    -
    
    
    
    (1,049
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,049
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    5,294
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,294Net earnings (loss)
    
  $
    8,090
    
    
    $
    8,131
    
    
    $
    3,505
    
    
    $
    (5,472
    )
    
    $
    (22,566
    )
    
    $
    (8,312
    )Three Months Ended July 31, 2007EBDT
    
    $
    60,062
    
    
    $
    26,077
    
    
    $
    3,478
    
    
    $
    (1,419
    )
    
    $
    (16,992
    )
    
    $
    71,206Depreciation and amortization - Real Estate Groups
    
    
    (41,920
    )
    
    
    (19,469
    )
    
    
    (180
    )
    
    
    -
    
    
    
    -
    
    
    
    (61,569
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    (2,089
    )
    
    
    (1,269
    )
    
    
    (146
    )
    
    
    -
    
    
    
    -
    
    
    
    (3,504
    )Deferred taxes - Real Estate Groups
    
    
    (4,084
    )
    
    
    790
    
    
    
    476
    
    
    
    -
    
    
    
    1,834
    
    
    
    (984
    )Straight-line rent adjustment
    
    
    3,452
    
    
    
    18
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3,470Preference payment (1)
    
    
    (936
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (936
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (3,089
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,089
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    264
    
    
    
    264Discontinued operations, net of tax: (2)Depreciation and amortization - Real Estate Groups
    
    
    -
    
    
    
    (921
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (921
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    -
    
    
    
    (34
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (34
    )Deferred taxes - Real Estate Groups
    
    
    -
    
    
    
    (1,365
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,365
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    65,237
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    65,237Net earnings (loss)
    
    $
    14,485
    
    
    $
    65,975
    
    
    $
    3,628
    
    
    $
    (1,419
    )
    
    $
    (14,894
    )
    
    $
    67,775Six Months Ended July 31, 2008EBDT
    
    $
    107,126
    
    
    $
    47,571
    
    
    $
    1,698
    
    
    $
    (14,432
    )
    
    $
    (37,666
    )
    
    $
    104,297Depreciation and amortization - Real Estate Groups
    
    
    (106,015
    )
    
    
    (38,099
    )
    
    
    (149
    )
    
    
    -
    
    
    
    -
    
    
    
    (144,263
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    (5,046
    )
    
    
    (1,480
    )
    
    
    (254
    )
    
    
    -
    
    
    
    -
    
    
    
    (6,780
    )Deferred taxes - Real Estate Groups
    
    
    1,986
    
    
    
    589
    
    
    
    1,841
    
    
    
    -
    
    
    
    (4,115
    )
    
    
    301Straight-line rent adjustment
    
    
    (1,119
    )
    
    
    19
    
    
    
    (1
    )
    
    
    -
    
    
    
    -
    
    
    
    (1,101
    )Preference payment (1)
    
    
    (1,867
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,867
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (128
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (128
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    92
    
    
    
    92Provision for decline in real estate, net of tax
    
    
    -
    
    
    
    -
    
    
    
    (224
    )
    
    
    -
    
    
    
    -
    
    
    
    (224
    )Gain on disposition of equity method rental properties, net of tax
    
    
    541
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    541Provision for decline in real estate of equity method rental properties, net of tax
    
    
    (775
    )
    
    
    (2,699
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,474
    )Discontinued operations, net of tax: (2)Depreciation and amortization - Real Estate Groups
    
    
    -
    
    
    
    (95
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (95
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    -
    
    
    
    (11
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (11
    )Deferred taxes - Real Estate Groups
    
    
    -
    
    
    
    (1,163
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,163
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    5,294
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    5,294Net earnings (loss)
    
    $
    (5,169
    )
    
    $
    9,798
    
    
    $
    2,911
    
    
    $
    (14,432
    )
    
    $
    (41,689
    )
    
    $
    (48,581
    )Six Months Ended July 31, 2007EBDT
    
    $
    104,863
    
    
    $
    38,567
    
    
    $
    781
    
    
    $
    (3,469
    )
    
    $
    (35,007
    )
    
    $
    105,735Depreciation and amortization - Real Estate Groups
    
    
    (88,346
    )
    
    
    (36,425
    )
    
    
    (294
    )
    
    
    -
    
    
    
    -
    
    
    
    (125,065
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    (4,115
    )
    
    
    (1,986
    )
    
    
    (287
    )
    
    
    -
    
    
    
    -
    
    
    
    (6,388
    )Deferred taxes - Real Estate Groups
    
    
    (3,614
    )
    
    
    5,398
    
    
    
    3,661
    
    
    
    -
    
    
    
    4,995
    
    
    
    10,440Straight-line rent adjustment
    
    
    7,599
    
    
    
    22
    
    
    
    (1
    )
    
    
    -
    
    
    
    -
    
    
    
    7,620Preference payment (1)
    
    
    (1,834
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,834
    )Preferred return on disposition, net of tax
    
    
    -
    
    
    
    (3,089
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (3,089
    )Gain on disposition of other investments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    264
    
    
    
    264Gain on disposition of equity method rental properties, net of tax
    
    
    -
    
    
    
    1,292
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1,292Discontinued operations, net of tax: (2)Depreciation and amortization - Real Estate Groups
    
    
    -
    
    
    
    (1,934
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,934
    )Amortization of mortgage procurement costs - Real Estate Groups
    
    
    -
    
    
    
    (69
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (69
    )Deferred taxes - Real Estate Groups
    
    
    -
    
    
    
    (1,615
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (1,615
    )Gain on disposition of rental properties
    
    
    -
    
    
    
    65,237
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    65,237Net earnings (loss)
    
    $
    14,553
    
    
    $
    65,398
    
    
    $
    3,860
    
    
    $
    (3,469
    )
    
    $
    (29,748
    )
    
    $
    50,594
 (1)
    
    The preference payment represents the respective periods share of the annual preferred
payment in connection with the issuance of Class A Common Units in exchange for Bruce C.
Ratners minority interests in the Forest City Ratner Company portfolio.(2)
    
    See Note I  Discontinued Operations for more information.
 31




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Class A Common Units
 Master Contribution Agreement
  New York Times and Twelve MetroTech Center
 New York Times Twelve MetroTech Center
  32




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Class A Common Units (continued)
  Completed rental properties (1)
    
    $
    102,378Notes and accounts receivable, net (2)
    
    
    132Other assets (3)
    
    
    12,513Accounts payable and accrued expenses (4)
    
    
    (9,279
    )Total purchase price allocated
    
    $
    105,744
  (1)
    
    Land, building and tenant improvements associated with the underlying real
estate(2)
    
    Above market leases(3)
    
    In-place leases, tenant relationships and leasing commissions(4)
    
    Below market leases
 Exchange of Units
  Reduction of completed rental properties
    
    $
    5,345Reduction of cash and equivalents
    
    
    3,501Increase in
Class A common stock - par value
    
    
    42Increase in additional paid-in capital
    
    
    3,736Total reduction of minority interest
    
    $
    12,624
 33




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  RESULTS OF OPERATIONS
  Corporate Description
 Commercial Group Residential Group Land Development Group
 Corporate Activities The Nets
  Overview
  
    
    The election of Deborah L. Harmon, president of Harmon & Co. and principal of Caravel
Management LLC, to our board of directors by shareholders;
    
    Redemption of Bruce C. Ratners minority interest in New York Times, an office building
located in Manhattan, New York and Twelve MetroTech Center, an office building located in
Brooklyn, New York (see the Class A Common Units
section of the MD&A);
    
    Closing on a $167,000,000 financing for 80 DeKalb Avenue, a 335,000 square foot
residential building in Brooklyn, New York where construction began in the second quarter
(the financing includes a $10,000,000 mezzanine loan and $20,000,000 credit enhancement);
and
    
    Closing $127,000,000 in other nonrecourse mortgage financing transactions.
  34




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##### Table of Contents



Net Earnings (Loss) 
 
    
    $65,237,000 ($106,318,000, pre-tax) related to the 2007 gains on disposition of Landings
of Brentwood, a consolidated apartment community in Nashville, Tennessee and the following
six consolidated supported-living apartment communities: Sterling Glen of Bayshorein
Bayshore, New York, Sterling Glen of Center Cityin Philadelphia, Pennsylvania, Sterling
Glen of Darienin Darien, Connecticut, Sterling Glen of Forest Hillsin Forest Hills, New
York, Sterling Glen of Plainviewin Plainview, New York and Sterling Glen of Stamfordin
Stamford, Connecticut;
    
    $6,191,000 ($10,090,000, pre-tax) related to the 2007 net gain recognized in other
income on the sale of Sterling Glen of Roslyn, a consolidated supported-living apartment
community under construction in Roslyn, New York;
    
    $4,053,000 ($6,322,000, pre-tax) related to the increased share of losses from our
equity investment in the New Jersey Nets basketball team (see The Nets section); and
    
    $2,515,000 ($4,098,000, pre-tax) related to an impairment charge recorded in accordance
with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
No. 144). Due to the continued deterioration of the condominium market in Los Angeles,
California, Mercury, an unconsolidated condominium project, lowered certain estimates of
future undiscounted cash flows from unit sales.
  
    
    $6,948,000 ($11,385,000, pre-tax) primarily related to military housing fee income from
the management and development of units in Hawaii, Illinois, Washington and Colorado;
    
    $5,294,000 ($8,627,000, pre-tax) related to the 2008 gain on disposition of Sterling
Glen of Lynbrook,a supported-living apartment community in Lynbrook, New York;
    
    $2,056,000 ($3,350,000, pre-tax) related to the 2008 gain on the sale of an ownership
interest in a parking management company; and
    
    $1,943,000 ($3,166,000, pre-tax) related to increases in Commercial Group outlot land
sales in 2008 primarily at Short Pump Town Center, a regional mall and at White Oak
Village, a retail center, both located in Richmond, Virginia.
  
    
    $65,237,000 ($106,318,000, pre-tax) related to the 2007 gains on disposition of Landings
of Brentwood, Sterling Glen of Bayshore, Sterling Glen of Center City, Sterling Glen of
Darien, Sterling Glen of Forest Hills, Sterling Glen of Plainviewand Sterling Glen of
Stamford;
    
    $12,918,000 ($21,052,000, pre-tax) related to increased write-offs of abandoned
development projects in 2008 compared to 2007. The increase primarily relates to the
write-off at Summit at Lehigh Valley, a Commercial development project with a housing
component located in Allentown, Pennsylvania, of $13,200,000 ($21,513,000 pre-tax) in 2008.
Due to delays in the public entitlement process to fund infrastructure and overall
slowdown in retail and housing markets, we did not acquire the underlying land, which the
land owner decided to sell to a third party for an alternative use. As a result, in April
2008, we determined it was no longer probable that the project would be completed resulting
in the charge during the six months ended July 31, 2008;
    
    $10,963,000 ($16,544,000, pre-tax) related to the increased share of losses from our
equity investment in the New Jersey Nets basketball team (see The Nets section);
    
    $6,191,000 ($10,090,000, pre-tax) related to the 2007 net gain recognized in other
income on the sale of Sterling Glen of Roslyn;
    
    $2,515,000 ($4,098,000, pre-tax) related to an impairment charge recorded in accordance
with SFAS No. 144 at Mercury;
    
    $1,860,000 ($3,031,000, pre-tax) related to participation payments in 2008 on the
refinancing of 350 Massachusetts Avenue, an unconsolidated office building and Jackson
Building, a consolidated office building, both located in Cambridge, Massachusetts; and
 35




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##### Table of Contents




    
    $752,000 ($1,225,000, pre-tax) related to the difference in gains on disposition of
equity method properties between years. The 2007 gain on the disposition of our
partnership interest in White Acres, an apartment community located in Richmond Heights,
Ohio was higher than the 2008 gain on the sale of our partnership interest in One
International Place, an office building located in Cleveland, Ohio.
  
    
    $10,459,000 ($17,418,000, pre-tax) primarily related to military housing fee income from
the management and development of units in Hawaii, Illinois, Washington and Colorado;
    
    $5,294,000 ($8,627,000, pre-tax) related to the 2008 gain on disposition of Sterling
Glen of Lynbrook,a supported-living apartment community in Lynbrook, New York;
    
    $4,809,000 ($7,837,000, pre-tax) of expense in 2007 that did not recur in 2008 related
to managements approved plan to demolish two buildings owned by us adjacent to Ten
MetroTech Center, an office building located in Brooklyn, New York, to clear the land for a
residential project named 80 DeKalb Avenue. Due to this new development plan, the
estimated useful lives of the two adjacent buildings were adjusted to expire at the
scheduled demolition date in April 2007 resulting in accelerated depreciation expense;
    
    $2,056,000 ($3,350,000, pre-tax) related to the 2008 gain on the sale of an ownership
interest in a parking management company; and
    
    $1,231,000 ($2,007,000, pre-tax) related to increases in Commercial Group outlot land
sales in 2008 primarily at Short Pump Town Centerand White Oak Village, which was
partially offset by a decrease in land sales at Victoria Gardens, a regional mall located
in Rancho Cucamonga, California.
 36




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##### Table of Contents



Summary of Segment Operating Results
 Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    Variance
    
    
    
    2008
    
    
    2007
    
    
    Variance(in thousands)
    
    
    
    (in thousands)Revenues from Real Estate OperationsCommercial Group
    
    $
    237,438
    
    
    $
    209,162
    
    
    $
    28,276
    
    
    
    $
    456,057
    
    
    $
    406,596
    
    
    $
    49,461Commercial Group Land Sales
    
    
    10,602
    
    
    
    1,564
    
    
    
    9,038
    
    
    
    
    14,250
    
    
    
    7,157
    
    
    
    7,093Residential Group
    
    
    75,040
    
    
    
    62,254
    
    
    
    12,786
    
    
    
    
    153,997
    
    
    
    116,859
    
    
    
    37,138Land Development Group
    
    
    7,159
    
    
    
    14,606
    
    
    
    (7,447
    )
    
    
    
    13,581
    
    
    
    25,339
    
    
    
    (11,758
    )The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Total Revenues from Real Estate Operations
    
    $
    330,239
    
    
    $
    287,586
    
    
    $
    42,653
    
    
    
    $
    637,885
    
    
    $
    555,951
    
    
    $
    81,934Operating ExpensesCommercial Group
    
    $
    116,994
    
    
    $
    107,175
    
    
    $
    9,819
    
    
    
    $
    244,621
    
    
    $
    209,724
    
    
    $
    34,897Cost of Commercial Group Land Sales
    
    
    5,510
    
    
    
    1,905
    
    
    
    3,605
    
    
    
    
    8,372
    
    
    
    5,171
    
    
    
    3,201Residential Group
    
    
    43,546
    
    
    
    44,901
    
    
    
    (1,355
    )
    
    
    
    98,453
    
    
    
    81,704
    
    
    
    16,749Land Development Group
    
    
    9,994
    
    
    
    13,981
    
    
    
    (3,987
    )
    
    
    
    19,524
    
    
    
    26,078
    
    
    
    (6,554
    )The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    10,046
    
    
    
    9,224
    
    
    
    822
    
    
    
    
    22,796
    
    
    
    23,101
    
    
    
    (305
    )Total Operating Expenses
    
    $
    186,090
    
    
    $
    177,186
    
    
    $
    8,904
    
    
    
    $
    393,766
    
    
    $
    345,778
    
    
    $
    47,988Interest ExpenseCommercial Group
    
    $
    57,697
    
    
    $
    43,733
    
    
    $
    13,964
    
    
    
    $
    116,442
    
    
    $
    91,102
    
    
    $
    25,340Residential Group
    
    
    9,171
    
    
    
    11,949
    
    
    
    (2,778
    )
    
    
    
    19,382
    
    
    
    25,231
    
    
    
    (5,849
    )Land Development Group
    
    
    (69
    )
    
    
    68
    
    
    
    (137
    )
    
    
    
    6
    
    
    
    2,374
    
    
    
    (2,368
    )The Nets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Corporate Activities
    
    
    15,551
    
    
    
    16,958
    
    
    
    (1,407
    )
    
    
    
    29,891
    
    
    
    30,800
    
    
    
    (909
    )Total Interest Expense
    
    $
    82,350
    
    
    $
    72,708
    
    
    $
    9,642
    
    
    
    $
    165,721
    
    
    $
    149,507
    
    
    $
    16,214Equity in Earnings (Loss) of Unconsolidated EntitiesCommercial Group
    
    $
    543
    
    
    $
    3,746
    
    
    $
    (3,203
    )
    
    
    $
    984
    
    
    $
    5,213
    
    
    $
    (4,229
    )Gain on sale of One International Place
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    881
    
    
    
    -
    
    
    
    881Residential Group
    
    
    (2,019
    )
    
    
    3,055
    
    
    
    (5,074
    )
    
    
    
    712
    
    
    
    4,521
    
    
    
    (3,809
    )Gain on sale of White Acres
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    2,106
    
    
    
    (2,106
    )Land Development Group
    
    
    4,447
    
    
    
    3,198
    
    
    
    1,249
    
    
    
    
    4,220
    
    
    
    2,771
    
    
    
    1,449The Nets
    
    
    (8,548
    )
    
    
    (2,226
    )
    
    
    (6,322
    )
    
    
    
    (22,021
    )
    
    
    (5,477
    )
    
    
    (16,544
    )Corporate Activities
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    
    -
    
    
    
    -
    
    
    
    -Total Equity in Earnings (Loss) of Unconsolidated Entities
    
    $
    (5,577
    )
    
    $
    7,773
    
    
    $
    (13,350
    )
    
    
    $
    (15,224
    )
    
    $
    9,134
    
    
    $
    (24,358
    )
 37




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##### Table of Contents



Commercial Group
 Revenues from Real Estate Operations
 
    
    Increase of $21,291,000 related to new property openings, as noted in the table below;
and
    
    Increase of $9,038,000 related to an increase in commercial outlot land sales primarily
at Short Pump Town Centerlocated in Richmond, Virginia and Ridge Hill Retailin Yonkers,
New York.
   
    
    Increase of $42,207,000 related to new property openings, as noted in the table below;
and
    
    Increase of $7,093,000 related to an increase in commercial outlot land sales primarily
at Short Pump Town Centerand Ridge Hill Retailwhich was partially offset by a decrease at
Victoria Gardensin Rancho Cucamonga, California.
  Operating and Interest Expenses 
 
    
    Increase of $4,994,000 related to new property openings, as noted in the table below;
and
    
    Increase of $3,605,000 related to an increase in costs associated with commercial outlot
land sales primarily at Short Pump Town Centerand Ridge Hill Retail.
   
    
    Increase of $23,060,000 related to write-offs of abandoned development projects
primarily at Summit at Lehigh Valley;
    
    Increase of $10,749,000 related to new property openings, as noted in the table below;
    
    Increase of $3,201,000 related to an increase in costs associated with commercial outlot
land sales primarily at Short Pump Town Centerand Ridge Hill Retailwhich was partially
offset by a decrease at Victoria Gardens;and
    
    Increase of $1,206,000 primarily related to a participation payment on the refinancing
at Jackson Building, an office building located in Cambridge Massachusetts.
   38




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##### Table of Contents



Three Months Ended
    
    
    
    Six Months EndedJuly 31, 2008Revenues
    
    
    
    
    
    
    
    RevenuesQuarter/Year
    
    
    
    
    
    
    from Real
    
    
    
    
    
    
    
    from RealOpened/
    
    
    Square
    
    
    Estate
    
    
    Operating
    
    
    
    Estate
    
    
    OperatingProperty
    
    Location
    
    
    Acquired
    
    
    Feet
    
    
    Operations
    
    
    Expenses
    
    
    
    Operations
    
    
    ExpensesRetail Centers:Orchard Town Center
    
    Westminster, Colorado
    
    
    Q1-2008
    
    
    
    980,000
    
    
    $
    1,659
    
    
    $
    1,382
    
    
    
    $
    2,120
    
    
    $
    2,225Victoria Gardens-Bass Pro
    
    Rancho Cucamonga, California
    
    
    Q2-2007
    
    
    
    180,000
    
    
    
    103
    
    
    
    153
    
    
    
    
    1,053
    
    
    
    300Promenade Bolingbrook
    
    Bolingbrook, Illinois
    
    
    Q1-2007
    
    
    
    750,000
    
    
    
    810
    
    
    
    (306
    )
    
    
    
    4,242
    
    
    
    495Office Buildings:Johns Hopkins - 855 North Wolfe Street
    
    East Baltimore, Maryland
    
    
    Q1-2008
    
    
    
    278,000
    
    
    
    1,889
    
    
    
    522
    
    
    
    
    1,919
    
    
    
    590New York Times
    
    Manhattan, New York
    
    
    Q3-2007
    
    
    
    737,000
    
    
    
    13,910
    
    
    
    2,006
    
    
    
    
    26,572
    
    
    
    4,470Richmond Office Park
    
    Richmond, Virginia
    
    
    Q2-2007
    (1)
    
    
    570,000
    
    
    
    2,850
    
    
    
    870
    
    
    
    
    5,888
    
    
    
    1,773Illinois Science and Technology Park-Building Q
    
    Skokie, Illinois
    
    
    Q1-2007
    (1)
    
    
    158,000
    
    
    
    70
    
    
    
    367
    
    
    
    
    413
    
    
    
    896Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,291
    
    
    $
    4,994
    
    
    
    $
    42,207
    
    
    $
    10,749
  University Park at MIT Hotel
  Residential Group
 Revenues from Real Estate Operations
 
    
    Increase of $17,771,000 related to military housing fee income from the management and
development of units located primarily on the Hawaiian islands of Oahu and Kauai; Chicago,
Illinois; Seattle, Washington and Colorado Springs, Colorado; and
    
    Increase of $1,051,000 related to new property openings and acquired properties as noted
in the table below.
  
    
    Decrease of $5,629,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
   
    
    Increase of $41,512,000 related to military housing fee income from the management and
development of units located primarily on the Hawaiian islands of Oahu and Kauai; Chicago,
Illinois; Seattle, Washington and Colorado Springs, Colorado; and
    
    Increase of $2,694,000 related to new property openings and acquired properties as noted
in the table below.


39



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##### Table of Contents




    
    Decrease of $10,858,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
  Operating and Interest Expenses 
 
    
    Decrease of $5,252,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A);
and
    
    Decrease of $976,000 in write-offs of abandoned development projects.
  
    
    Increase of $4,830,000 related to operating expenses associated with military housing
fee income; and
    
    Increase of $1,678,000 related to new property openings and acquired properties as noted
in the table below.
   
    
    Increase of $24,227,000 related to operating expenses associated with military housing
fee income; and
    
    Increase of $3,098,000 related to new property openings and acquired properties as noted
in the table below.
  
    
    Decrease of $9,839,000 due to net lease arrangements whereby we receive fixed rental
income in exchange for the operations of certain supported-living apartment properties
which were retained by the lessee (see the Discontinued Operations section of the MD&A).
    Three Months Ended
    
    
    
    Six Months EndedJuly 31, 2008Quarter/Year
    
    
    
    
    
    
    Revenue from
    
    
    
    
    
    
    
    Revenue fromOpened/
    
    
    Number
    
    
    Real Estate
    
    
    Operating
    
    
    
    Real Estate
    
    
    OperatingProperty
    
    Location
    
    
    Acquired
    
    
    of Units
    
    
    Operations
    
    
    Expenses
    
    
    
    Operations
    
    
    ExpensesLucky Strike
    
    Richmond, Virginia
    
    
    Q1-2008
    
    
    
    131
    
    
    $
    103
    
    
    $
    66
    
    
    
    $
    124
    
    
    $
    232Mercantile Place on Main
    
    Dallas, Texas
    
    
    Q1-2008
    
    
    
    366
    
    
    
    80
    
    
    
    938
    
    
    
    
    94
    
    
    
    1,383Wilson Building
    
    Dallas, Texas
    
    
    Q4-2007
    (1)
    
    
    143
    
    
    
    536
    
    
    
    452
    
    
    
    
    1,092
    
    
    
    697Tobacco Row - Cameron Kinney
    
    Richmond, Virginia
    
    
    Q2-2007
    (1)
    
    
    259
    
    
    
    (7
    )
    
    
    76
    
    
    
    
    714
    
    
    
    425Stapleton Town Center - Botanica Phase II
    
    Denver, Colorado
    
    
    Q2-2007
    
    
    
    154
    
    
    
    339
    
    
    
    146
    
    
    
    
    670
    
    
    
    361Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,051
    
    
    $
    1,678
    
    
    
    $
    2,694
    
    
    $
    3,098
  40




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##### Table of Contents



Land Development Group
 Revenues from real estate operations 
 
    
    Decrease of $3,258,000 in land sales at Stapletonin Denver, Colorado;
    
    Decrease of $1,932,000 in land sales at Summers Walkin Davidson, North Carolina;
    
    Decrease of $1,253,000 in land sales at Tangerine Crossingin Tucson, Arizona; and
    
    Decrease of $1,476,000 in land sales primarily at four land development projects:
Wheatfield Lakein Wheatfield, New York, Waterburyin North Ridgeville, Ohio, Mill Creekin
York County, South Carolina and Creekstonein Copley, Ohio, combined with several smaller
sales decreases at other land development projects.
  
    
    Increase of $472,000 in unit/land sales primarily at two land development projects:
Rockport Squarein Lakewood, Ohio and Mallard Pointin Lorain, Ohio, combined with several
smaller sales increases at other land development projects.
  
    
    Decrease of $4,681,000 in land sales at Stapleton;
    
    Decrease of $1,781,000 in land sales at Mill Creek;
    
    Decrease of $1,737,000 in land sales at Tangerine Crossing;
    
    Decrease of $579,000 in unit sales at Rockport Square;
    
    Decrease of $574,000 in land sales at Summers Walk; and
    
    Decrease of $2,603,000 in land sales primarily at three land development projects:
Waterbury, Wheatfield Lakeand Creekstone, combined with several smaller sales decreases at
other land development projects.
  
    
    Increase of $197,000 in land sales primarily at Legacy Lakesin Aberdeen, North
Carolina, combined with several smaller sales increases at other land development projects.
 Operating and Interest Expenses 
 
    
    Decrease of $1,706,000 at Stapletonprimarily related to decreased land sales;
    
    Decrease of $1,489,000 at Summers Walkprimarily related to decreased land sales;
    
    Decrease of $721,000 at Tangerine Crossingprimarily related to decreased land sales;
and
 41




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##### Table of Contents




    
    Decrease of $976,000 primarily related to decreased land sales at Wheatfield Lake,
Waterburyand Creekstone, combined with several other expense decreases at various land
development projects.
  
    
    Increase of $905,000 primarily related to increased unit/land sales at Rockport Square
and Mallard Point, combined with several smaller expense increases at other land
development projects.
  
    
    Decrease of $2,261,000 at Stapletonprimarily related to decreased land sales;
    
    Decrease of $1,395,000 at Mill Creekprimarily related to decreased land sales;
    
    Decrease of $812,000 at Tangerine Crossingprimarily related to decreased land sales;
    
    Decrease of $770,000 at Rockport Squareprimarily related to decreased unit sales;
    
    Decrease of $594,000 at Summers Walkprimarily related to decreased land sales; and
    
    Decrease of $1,266,000 primarily related to decreased land sales at Wheatfield Lakeand
Creekstonecombined with several smaller expense decreases at other land development
projects.
  
    
    Increase of $544,000 primarily related to increased land sales at Legacy Lakes,combined
with several smaller expense increases at other land development projects.
  The Nets
   Corporate Activities
 Operating and Interest Expenses
  42




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##### Table of Contents



Other Activity
  Depreciation and Amortization
  Ten
MetroTech Center 80 DeKalb Avenue
 Provision for Decline in Real Estate
  Old Stone Crossing at Caldwell Creek
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Mercury (Condominium)
    
    (Los Angeles, California)
    
    $
    4,098
    
    
    $
    -
    
    
    
    $
    4,098
    
    
    $
    -El Centro Mall (Specialty Retail Center)
    
    (El Centro, California)
    
    
    1,263
    
    
    
    -
    
    
    
    
    1,263
    
    
    
    -Other
    
    
    
    
    
    
    300
    
    
    
    -
    
    
    
    
    300
    
    
    
    -$
    5,661
    
    
    $
    -
    
    
    
    $
    5,661
    
    
    $
    -
 Amortization of Mortgage Procurement Costs
  43




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##### Table of Contents



Loss on Early Extinguishment of Debt
 Galleria at Sunset 1251 S. Michigan Sky 55 M.K. Ferguson
Plaza Northern Boulevard Columbia Park Center Landings of Brentwood
 Interest and Other Income
 Sterling Glen of Roslyn Sterling Glen of Roslyn
 Income Taxes
    44




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##### Table of Contents



FIN No. 48
    Equity in Earnings (Loss) of Unconsolidated Entities
  -
    
    The Nets
 
    
    Decrease of $6,322,000 related to an increase in our share of the loss in The Nets (see The Nets section).
 -
    
    Residential Group
 
    
    Decrease of $4,098,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 for Mercury, a condominium project located in Los
Angeles, California. Certain estimates were lowered regarding future undiscounted cash
flows on condominium sales due to the continued deterioration of the condominium market in
Los Angeles.
 -
    
    Land Development Group
 
    
    Decrease of $2,659,000 related to decreased land sales at Gladden Farms II, located in Marana, Arizona.
 -
    
    Commercial Group
 
    
    Decrease of $1,263,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 due to a write-down of costs to fair value less
estimated selling costs for El Centro Malllocated in El Centro, California as a result of
a letter of intent to dispose of the property.
  -
    
    Land Development Group
 
    
    Increase of $4,581,000 related to increased sales at Central Station,located in Chicago, Illinois.
  45




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##### Table of Contents



-
    
    The Nets
 
    
    Decrease of $16,544,000 related to an increase in our share of the loss in The Nets (see The Nets section).
 -
    
    Residential Group
 
    
    Decrease of $4,098,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 for Mercury. Certain estimates
of future undiscounted cash flows on unit sales were lowered due to the continued
deterioration of the condominium market in Los Angeles; and
    
    Decrease of $2,106,000 related to the 2007 gain on disposition of our partnership
interest in White Acres, an apartment community located in Richmond Heights, Ohio.
 -
    
    Land Development Group
 
    
    Decrease of $2,655,000 related to decreased land sales at Gladden Farms II.
 -
    
    Commercial Group
 
    
    Decrease of $1,663,000, primarily related to a participation payment on the refinancing
during 2008 at 350 Massachusetts Avenue, an office building located in Cambridge,
Massachusetts; and
    
    Decrease of $1,263,000 related to an impairment charge recorded in accordance with SFAS
No. 144 during the second quarter of 2008 due to a write-down of costs to fair value less
estimated selling costs for El Centro Mall.
  -
    
    Land Development Group
 
    
    Increase of $4,704,000 related to increased sales at Central Station.
 -
    
    Commercial Group
 
    
    Increase of $881,000 related to the 2008 gain on disposition of our partnership interest
in One International Place, an office building located in Cleveland, Ohio.
  Discontinued Operations
  Sterling Glen of Roslyn Sterling Glen of Lynbrook
  46




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##### Table of Contents



Sterling Glen of Lynbrook Sterling Glen of Lynbrooks
 January 31, 2008(in thousands)AssetsReal estate
    
    $
    29,858Notes and accounts receivable, net
    
    
    179Other assets
    
    
    1,635Total Assets
    
    $
    31,672LiabilitiesMortgage debt, nonrecourse
    
    $
    27,700Accounts payable and accrued expenses
    
    
    798Total Liabilities
    
    $
    28,498
  Three
    
    Six
    
    Three
    
    SixMonths
    
    Months
    
    Months
    
    MonthsNumber
    
    Period
    
    Ended
    
    Ended
    
    Ended
    
    EndedProperty
    
    Location
    
    of Units
    
    Disposed
    
    7/31/2008
    
    7/31/2008
    
    7/31/2007
    
    7/31/2007Residential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    
    130
    
    
    Q2-2008
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    
    85
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesSterling Glen of Center City
    
    Philadelphia, Pennsylvania
    
    
    135
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    
    80
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesSterling Glen of Forest Hills
    
    Forest Hills, New York
    
    
    83
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    
    79
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    
    166
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    
    724
    
    
    Q2-2007
    
    -
    
    -
    
    Yes
    
    Yes
 47




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##### Table of Contents



Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Revenues
    
    $
    162
    
    
    $
    12,397
    
    
    
    $
    706
    
    
    $
    24,599ExpensesOperating expenses
    
    
    76
    
    
    
    11,883
    
    
    
    
    287
    
    
    
    20,730Depreciation and amortization
    
    
    90
    
    
    
    921
    
    
    
    
    95
    
    
    
    1,934166
    
    
    
    12,804
    
    
    
    
    382
    
    
    
    22,664Interest expense
    
    
    (43
    )
    
    
    (2,000
    )
    
    
    
    (235
    )
    
    
    (3,608
    )Amortization of mortgage procurement costs
    
    
    -
    
    
    
    (34
    )
    
    
    
    (11
    )
    
    
    (69
    )Loss on early extinguishment of debt
    
    
    -
    
    
    
    (363
    )
    
    
    
    -
    
    
    
    (363
    )Interest income
    
    
    31
    
    
    
    112
    
    
    
    
    35
    
    
    
    209Gain on disposition of rental properties
    
    
    8,627
    
    
    
    106,318
    
    
    
    
    8,627
    
    
    
    106,318Earnings before income taxes
    
    
    8,611
    
    
    
    103,626
    
    
    
    
    8,740
    
    
    
    104,422Income tax expense (benefit)Current
    
    
    (1,055
    )
    
    
    5,682
    
    
    
    
    (1,119
    )
    
    
    5,740Deferred
    
    
    4,382
    
    
    
    34,358
    
    
    
    
    4,496
    
    
    
    34,6083,327
    
    
    
    40,040
    
    
    
    
    3,377
    
    
    
    40,348Net earnings from discontinued operations
    
    $
    5,284
    
    
    $
    63,586
    
    
    
    $
    5,363
    
    
    $
    64,074
 Gain on Disposition of Rental Properties
  Three Months Ended July 31,
    
    
    
    Six Months Ended July 31,2008
    
    
    2007
    
    
    
    2008
    
    
    2007(in thousands)
    
    
    
    (in thousands)Discontinued Operations:Seven Sterling Glen properties (Supported-Living Apartments)(1)
    
    $
    8,627
    
    
    $
    81,239
    
    
    
    $
    8,627
    
    
    $
    81,239Landings of Brentwood (Apartments)(2)
    
    
    -
    
    
    
    25,079
    
    
    
    
    -
    
    
    
    25,079Total
    
    $
    8,627
    
    
    $
    106,318
    
    
    
    $
    8,627
    
    
    $
    106,318
 (1)
    
    The seven properties included in the gain on disposition are Sterling Glen of Lynbrook
for the three and six months ended July 31, 2008 and Sterling Glen of Bayshore, Sterling
Glen of Center City, Sterling Glen of Darien, Sterling Glen of Forest Hills, Sterling Glen
of Plainviewand Sterling Glen of Stamfordfor the three and six months ended July 31,
2007. We elected to deposit the sales proceeds with a qualified intermediary for the
purposes of identifying replacement assets under Section 1031 of the Internal Revenue Code
for all the aforementioned properties except Sterling Glen of Forest Hills.(2)
    
    We elected to deposit the sales proceeds with a qualified intermediary for purposes of
acquiring replacement assets under Section 1031 of the Internal Revenue Code.  Six Months Ended July 31,2008
    
    
    2007(in thousands)One International Place (Office Building)
    
    Cleveland, Ohio
    
    $
    881
    
    
    $
    -White Acres (Apartments)
    
    Richmond Heights, Ohio
    
    
    -
    
    
    
    2,106$
    881
    
    
    $
    2,106
 48




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##### Table of Contents



FINANCIAL CONDITION AND LIQUIDITY
     Bank Revolving Credit Facility
   July 31, 2008
    
    
    January 31, 2008(in thousands)Outstanding balances:Borrowings
    
    $
    143,500
    
    
    $
    39,000Letters of credit
    
    $
    83,898
    
    
    $
    71,802Surety bonds
    
    $
    -
    
    
    $
    -Available credit
    
    $
    522,602
    
    
    $
    639,198
 49




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##### Table of Contents



Senior and Subordinated Debt
  Senior Notes:3.625% Puttable Equity-Linked Senior Notes due 2011
    
    $
    287,500Other Senior Notes:7.625% Senior Notes due 2015
    
    
    300,0006.500% Senior Notes due 2017
    
    
    150,0007.375% Senior Notes due 2034
    
    
    100,000Total Senior Notes
    
    
    837,500Subordinated Debt:Redevelopment Bonds due 2010
    
    
    20,400Subordinate Tax Revenue Bonds due 2013
    
    
    29,000Total Subordinated Debt
    
    
    49,400Total Senior and Subordinated Debt
    
    $
    886,900
 Puttable Equity-Linked Senior Notes
     50




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##### Table of Contents



Other Senior Notes
      Subordinated Debt
   51




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##### Table of Contents



Financing Arrangements
 Collateralized Borrowings
   Other Structured Financing Arrangements
   52




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##### Table of Contents



Mortgage Financings
   Purpose of Financing
    
    Amount(in thousands)Refinancings
    
    $
    561,960Development projects (1)
    
    
    949,125Loan extensions/additional fundings
    
    
    254,568$
    1,765,653
    (2)
 (1)
    
    Represents the full amount available to be drawn on the loans.(2)
    
    Of the total financings shown above of $1,765,653, $711,774 was reflected as maturing loans in either
2008 or 2009 in the listing of scheduled maturities as of January 31,
2008.  Interest Rate Exposure
  TotalOperating
    
    
    Development
    
    
    Land
    
    
    
    
    
    
    WeightedProperties
    
    
    Projects
    
    
    Projects
    
    
    Total
    
    

Average Rate(dollars in thousands)Fixed
    
    $
    4,148,486
    
    
    $
    2,331
    
    
    $
    2,214
    
    
    $
    4,153,031
    
    
    
    6.05
    %Variable (1)Taxable
    
    
    1,238,326
    
    
    
    454,518
    
    
    
    36,791
    
    
    
    1,729,635
    
    
    
    5.48
    %Tax-Exempt
    
    
    601,257
    
    
    
    282,957
    
    
    
    58,000
    
    
    
    942,214
    
    
    
    3.15
    %$
    5,988,069
    
    
    $
    739,806

(2)
    
    $
    97,005
    
    
    $
    6,824,880
    
    
    
    5.50
    %Total commitment from lenders
    
    
    
    
    
    $
    1,865,065
    
    
    $
    124,361
 (1)
    
    Taxable variable-rate debt of $1,729,635 and tax-exempt variable-rate debt of $942,214
as of July 31, 2008 is protected with swaps and caps described in the tables below.(2)
    
    $178,579 of proceeds from outstanding debt described above is recorded as
restricted cash in our Consolidated Balance Sheets. For bonds issued in conjunction with
development, the local housing authority issued the full amount of the bonds at the
beginning of construction and, until costs are incurred, bond funds must remain in escrow
held by a financial institution affiliated with the bond issuance. 53




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##### Table of Contents



Taxable
 Caps
    
    Swaps(1)(3)Notional
    
    Average Base
    
    Notional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate
    
    Amount
    
    Rate(dollars in thousands)08/01/08-02/01/09 (2)
    
    $
    1,308,100
    
    
    
    5.15
    %
    
    $
    974,063
    
    
    
    4.96
    %02/01/09-02/01/10
    
    
    1,320,150
    
    
    
    5.01
    
    
    
    1,073,432
    
    
    
    4.9502/01/10-02/01/11
    
    
    126,116
    
    
    
    5.13
    
    
    
    732,081
    
    
    
    5.3702/01/11-02/01/12
    
    
    -
    
    
    
    -
    
    
    
    730,656
    
    
    
    5.3702/01/12-02/01/13
    
    
    476,100
    
    
    
    5.50
    
    
    
    729,110
    
    
    
    5.3702/01/13-09/01/14
    
    
    476,100
    
    
    
    5.50
    
    
    
    685,000
    
    
    
    5.4302/01/14-09/01/17
    
    
    -
    
    
    
    -
    
    
    
    640,000
    
    
    
    5.50
 (1)
    
    Excludes the forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of August 1, 2008 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, 2009.(3)
    
    Includes $640,000 for New York Timesat 5.50% which expires in September 2017. Tax-Exempt
 CapsNotional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate(dollars in thousands)08/01/08-02/01/09
    
    $
    232,025
    
    
    
    5.98
    %02/01/09-02/01/10
    
    
    203,625
    
    
    
    5.9702/01/10-02/01/11
    
    
    114,315
    
    
    
    5.8902/01/11-02/01/12
    
    
    12,715
    
    
    
    6.0002/01/12-02/01/13
    
    
    12,715
    
    
    
    6.00
  54




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##### Table of Contents



Forward Swaps
 Property Accounted forFully Consolidated
    
    under the Equity MethodProperties (1)
    

of Accounting (2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    Rate
    
    Amount
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133),
our portion of unrealized gains and losses on the effective portion of the hedges has been
recorded in accumulated OCI. To the extent effective, the receipt or payment of cash at
termination on these forward swaps will be recorded in accumulated OCI and will be
amortized as either an increase or decrease to interest expense in the same periods as the
interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. We
recorded $2,121 and $2,133 as a reduction of interest expense related to this forward swap
in our Consolidated Statements of Operations for the three and six months ended July 31,
2008, respectively, and $2,897 and $1,450 for the three and six months ended July 31, 2007,
respectively.   55




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##### Table of Contents



Cash Flows
 Operating Activities
  Increase in rents and other revenues received
    
    $
    66,808Decrease in interest and other income received
    
    
    (10,451
    )Increase in cash distributions from unconsolidated entities
    
    
    17,615Increase in
proceeds from land sales - Land Development Group
    
    
    3,835Increase in
proceeds from land sales - Commercial Group
    
    
    7,552Increase in land development expenditures
    
    
    (8,602
    )Decrease in operating expenditures
    
    
    3,140Increase in interest paid
    
    
    (19,000
    )Net increase in cash provided by operating activities
    
    $
    60,897
  56




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##### Table of Contents



Investing Activities
  Six Months Ended July 31,2008
    
    
    2007(in thousands)Capital expenditures, including real estate acquisitions*
    
    $
    (550,307
    )
    
    $
    (729,643
    )Payment of lease procurement costs and other assets, net
    
    
    (32,031
    )
    
    
    (16,628
    )(Increase) decrease in restricted cash used for capital expenditures:Beekman,a mixed-use residential project under construction in Manhattan, New York
    
    
    (94,435
    )
    
    
    -80 DeKalb Avenue, a residential project under construction in Brooklyn, New York
    
    
    (44,202
    )
    
    
    -Sterling Glen of Rye Brook,a supported-living community in Rye Brook, New York
    
    
    (12,500
    )
    
    
    -One MetroTech Center, an office building in Brooklyn, New York
    
    
    (8,791
    )
    
    
    -Promenade Bolingbrook,a regional mall in Bolingbrook, Illinois
    
    
    (5,040
    )
    
    
    -Victoria Gardens,a retail center in Rancho Cucamonga, California
    
    
    -
    
    
    
    19,509Forest Trace, a supported-living community in Lauderhill, Florida
    
    
    -
    
    
    
    (50,830
    )Chase Financial Tower, an office building located in Cleveland, Ohio
    
    
    (3,978
    )
    
    
    -New York Times, an office building in Manhattan, New York
    
    
    10,789
    
    
    
    -Sale proceeds released from (placed in) escrow for acquisitions:Mount Vernon Square, an apartment complex in Alexandria, Virginia
    
    
    -
    
    
    
    51,943Battery Park City,a specialty retail center in Manhattan, New York
    
    
    -
    
    
    
    25,125Seven Sterling Glensupported-living communities
    
    
    (6,349
    )
    
    
    (111,089
    )Other
    
    
    (3,347
    )
    
    
    (7,137
    )Subtotal
    
    $
    (167,853
    )
    
    $
    (72,479
    )Proceeds from disposition of rental properties and other investments:Seven Sterling Glensupported-living communities
    
    $
    11,159
    
    
    $
    188,499Landings of Brentwood,an apartment complex in Nashville, Tennessee
    
    
    -
    
    
    
    67,756Hilton Times Square,a hotel in Manhattan, New York
    
    
    -
    
    
    
    34,717Ownership interest in a parking management company and other
    
    
    4,150
    
    
    
    579Subtotal
    
    $
    15,309
    
    
    $
    291,551*Capital expenditures were financed as follows:New nonrecourse mortgage indebtedness
    
    $
    304,787
    
    
    $
    341,944Proceeds from disposition of rental properties and other investments including release of investing escrows (see above)
    
    
    8,960
    
    
    
    257,530Cash provided by operating activities
    
    
    109,835
    
    
    
    48,938Portion of cash on hand at the beginning of the year
    
    
    126,725
    
    
    
    81,231Total Capital Expenditures
    
    $
    550,307
    
    
    $
    729,643
 57




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##### Table of Contents



Investing Activities
 Six Months Ended July 31,2008
    
    
    2007(in thousands)Change in
investments in and advances to affiliates - (investment in) or return of investment:Dispositions:One International Place,an unconsolidated office building in Cleveland, Ohio
    
    $
    1,589
    
    
    $
    -Land Development:Mesa del Sol,an unconsolidated project in Albuquerque, New Mexico
    
    
    1,255
    
    
    
    (6,498
    )San Antonio I & II,an unconsolidated project in San Antonio, Texas
    
    
    3,810
    
    
    
    -Residential Projects:1100 Wilshire,an unconsolidated condominium development project in Los Angeles, California
    
    
    2,448
    
    
    
    -Mercury,an unconsolidated condominium development project in Los Angeles, California
    
    
    -
    
    
    
    (3,069
    )Uptown Apartments,an unconsolidated development project in Oakland, California
    
    
    (1,565
    )
    
    
    2,007Air Force Academy, an unconsolidated military housing complex in Colorado Springs, Colorado
    
    
    -
    
    
    
    (1,900
    )Fort Lincoln III & IV, primarily refinancing proceeds from an unconsolidated apartment complex in
Washington, D.C.
    
    

    -
    
    
    
    5,152New York City Projects:East River Plaza,an unconsolidated retail development project in Manhattan, New York
    
    
    (16,176
    )
    
    
    (1,048
    )Sports arena complex and related development projects in Brooklyn, New York currently in
pre-development; excess funds to be reinvested during the future construction phase
    
    
    12,747
    
    
    
    1,123The Nets,a National Basketball Association franchise
    
    
    (19,782
    )
    
    
    (25,083
    )Commercial Projects:Unconsolidated development activity in Las Vegas, Nevada
    
    
    (5,148
    )
    
    
    -Liberty Center,primarily refinancing proceeds from an unconsolidated office building in Pittsburgh,
Pennsylvania
    
    
    9,961
    
    
    
    -350 Massachusetts Avenue,primarily refinancing proceeds from an unconsolidated office building in
Cambridge, Massachusetts
    
    
    24,427
    
    
    
    -818 Mission Street, acquisition of an unconsolidated office building in San Francisco, California
    
    
    (7,782
    )
    
    
    -Bulletin Building,primarily refinancing proceeds from an unconsolidated office building in
San Francisco, California
    
    
    -
    
    
    
    8,648San Francisco Centre-Emporium,primarily refinancing proceeds from an unconsolidated regional mall
in San Francisco, California
    
    
    -
    
    
    
    15,804Village at Gulfstream,an unconsolidated development project in Hallendale, Florida
    
    
    -
    
    
    
    (2,611
    )Waterfront,an unconsolidated development project in Washington, D.C.
    
    
    (4,707
    )
    
    
    (25,200
    )Wiregrass Ranch, an unconsolidated retail development project in Tampa, Florida
    
    
    -
    
    
    
    (3,053
    )Other net (advances) returns of investment of equity method investments and other advances to affiliates
    
    
    4,051
    
    
    
    (1,614
    )Subtotal
    
    $
    5,128
    
    
    $
    (37,342
    )Net cash used in investing activities
    
    $
    (729,754
    )
    
    $
    (564,541
    )
 58




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##### Table of Contents



Financing Activities
  Six Months Ended July 31,2008
    
    
    2007(in thousands)Borrowings on bank revolving credit facility
    
    $
    268,000
    
    
    $
    409,000Payments on bank revolving credit facility
    
    
    (163,500
    )
    
    
    (174,000
    )Proceeds from nonrecourse mortgage debt
    
    
    936,213
    
    
    
    573,734Principal payments on nonrecourse mortgage debt
    
    
    (492,104
    )
    
    
    (284,154
    )Net increase in notes payable
    
    
    36,030
    
    
    
    15,169Decrease (increase) in restricted cash:Haverhill,a residential project under construction in Haverhill, Massachusetts
    
    
    9,484
    
    
    
    -Lucky Strike, an apartment complex in Richmond, Virginia
    
    
    7,665
    
    
    
    (5,295
    )Metro 417,an apartment community in Los Angeles, California
    
    
    2,571
    
    
    
    -101 San Fernando,an apartment community in San Jose, California
    
    
    2,509
    
    
    
    -Promenade Bolingbrook,a regional mall in Bolingbrook, Illinois
    
    
    2,300
    
    
    
    -100 Landsdowne,an apartment complex in Cambridge, Massachusetts
    
    
    2,151
    
    
    
    (335
    )Sterling Glen of Great Neck,a supported-living community in Great Neck, New York
    
    
    1,520
    
    
    
    (210
    )Legacy Lakes,a land development project in Aberdeen, North Carolina
    
    
    (1,000
    )Easthaven at the Village, an apartment community in Beachwood, Ohio
    
    
    (1,200
    )
    
    
    -Promenade in Temecula,a regional mall in Temecula, California
    
    
    (1,525
    )
    
    
    -Sky55, an apartment complex in Chicago, Illinois
    
    
    (1,652
    )
    
    
    3,207Stapleton,a mixed-use development project in Denver, Colorado
    
    
    -
    
    
    
    6,000Sterling Glen of Roslyn, a supported-living development project in Roslyn, New York, sold in July 2007
    
    
    -
    
    
    
    2,781Sterling Glen of Rye Brook,a supported-living community in Rye Brook, New York
    
    
    -
    
    
    
    (4,000
    )Other
    
    
    (224
    )
    
    
    541Subtotal
    
    
    22,599
    
    
    
    2,689Increase (decrease) in book overdrafts, representing checks issued but not yet paid
    
    
    1,615
    
    
    
    (6,277
    )Payment of deferred financing costs
    
    
    (29,157
    )
    
    
    (7,849
    )Purchase of other treasury stock
    
    
    (642
    )
    
    
    (3,138
    )Exercise of stock options
    
    
    732
    
    
    
    5,028Distribution of accumulated equity to minority partners
    
    
    (3,710
    )
    
    
    (13,243
    )Dividends paid to shareholders
    
    
    (16,470
    )
    
    
    (14,341
    )Increase (decrease) in minority interest
    
    
    31,228
    
    
    
    (2,967
    )Net cash provided by financing activities
    
    $
    590,834
    
    
    $
    499,651
 59




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##### Table of Contents



LEGAL PROCEEDINGS
  DIVIDENDS
  VARIABLE INTEREST ENTITIES
   NEW ACCOUNTING STANDARDS
    60




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##### Table of Contents



61




---



##### Table of Contents



CLASS A COMMON UNITS
 Master Contribution Agreement
  New York Times and Twelve MetroTech Center
 New York Times Twelve MetroTech Center
   Completed rental properties (1)
    
    $
    102,378Notes and accounts receivable, net (2)
    
    
    132Other assets (3)
    
    
    12,513Accounts payable and accrued expenses (4)
    
    
    (9,279
    )Total purchase price allocated
    
    $
    105,744
  (1)
    
    Land, building and tenant improvements associated with the underlying real
estate(2)
    
    Above market leases(3)
    
    In-place leases, tenant relationships and leasing commissions(4)
    
    Below market leases 62




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##### Table of Contents



Exchange of Units
  Reduction of completed rental properties
    
    $
    5,345Reduction of cash and equivalents
    
    
    3,501Increase in
Class A common stock - par value
    
    
    42Increase in additional paid-in capital
    
    
    3,736Total reduction of minority interest
    
    $
    12,624
 INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
  63




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Taxable
 Caps
    
    
    Swaps(1)(3)Notional
    
    
    Average Base

    
    Notional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate

    
    Amount
    
    
    Rate(dollars in thousands)08/01/08-02/01/09 (2)
    
    $
    1,308,100
    
    
    
    5.15
    %
    
    $
    974,063
    
    
    
    4.96
    %02/01/09-02/01/10
    
    
    1,320,150
    
    
    
    5.01
    
    
    
    1,073,432
    
    
    
    4.9502/01/10-02/01/11
    
    
    126,116
    
    
    
    5.13
    
    
    
    732,081
    
    
    
    5.3702/01/11-02/01/12
    
    
    -
    
    
    
    -
    
    
    
    730,656
    
    
    
    5.3702/01/12-02/01/13
    
    
    476,100
    
    
    
    5.50
    
    
    
    729,110
    
    
    
    5.3702/01/13-09/01/14
    
    
    476,100
    
    
    
    5.50
    
    
    
    685,000
    
    
    
    5.4302/01/14-09/01/17
    
    
    -
    
    
    
    -
    
    
    
    640,000
    
    
    
    5.50
 (1)
    
    Excludes the forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of August 1, 2008 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, 2009.(3)
    
    Includes $640,000 for New York Timesat 5.50%, which expires in September 2017. Tax-Exempt
 CapsNotional
    
    
    Average BasePeriod Covered
    
    Amount
    
    
    Rate(dollars in thousands)08/01/08-02/01/09
    
    $
    232,025
    
    
    
    5.98
    %02/01/09-02/01/10
    
    
    203,625
    
    
    
    5.9702/01/10-02/01/11
    
    
    114,315
    
    
    
    5.8902/01/11-02/01/12
    
    
    12,715
    
    
    
    6.0002/01/12-02/01/13
    
    
    12,715
    
    
    
    6.00
  64




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##### Table of Contents



Forward Swaps
 Property Accounted forFully Consolidated
    
    
    under the Equity MethodProperties (1)
    
    

of Accounting (2)Expirations for Years Ending
    
    Notional
    
    
    
    
    
    
    NotionalJanuary 31,
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate2009
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    -
    
    
    
    -
    
    
    $
    -
    
    
    
    -
 (1)
    
    As these forward swaps have been designated and qualify as cash flow hedges under SFAS
No. 133, our portion of unrealized gains and losses on the effective portion of the hedges
has been recorded in accumulated OCI. To the extent effective, the receipt or payment of
cash at termination on these forward swaps will be recorded in accumulated OCI and will be
amortized as either an increase or decrease to interest expense in the same periods as the
interest payments on the financing.(2)
    
    This forward swap does not qualify as a cash flow hedge under the provisions of SFAS
No. 133 because it relates to an unconsolidated property. Therefore, the change in the
fair value of this swap is marked to market through earnings on a quarterly basis. We
recorded $2,121 and $2,133 as a reduction of interest expense related
to this
forward swap in our Consolidated Statements of Operations for the three and six months
ended July 31, 2008, respectively, and $2,897 and $1,450 for the three and six months ended
July 31, 2007, respectively.    Fair Valuewith 100 bp DecreaseCarrying Value
    
    
    Fair Value
    
    
    in Market Rates(in thousands)Fixed
    
    $
    5,039,931
    
    
    $
    4,718,143
    
    
    $
    4,974,375VariableTaxable
    
    
    1,873,135
    
    
    
    1,788,555
    
    
    
    1,855,629Tax-Exempt
    
    
    942,214
    
    
    
    922,343
    
    
    
    1,048,006
  65




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 July 31, 2008
 Expected Maturity DateYear Ending January 31,Period
    
    
    TotalOutstanding
    
    
    Fair MarketLong-Term Debt
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    7/31/08
    
    

Value
 7/31/08(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    34,050
    
    
    $
    243,061
    
    
    $
    162,614
    
    
    $
    372,678
    
    
    $
    316,807
    
    
    $
    3,023,821
    
    
    $
    4,153,031
    
    
    $
    3,949,789Weighted average interest rate
    
    
    6.45
    %
    
    
    6.80
    %
    
    
    7.17
    %
    
    
    7.04
    %
    
    
    5.98
    %
    
    
    5.81
    %
    
    
    6.05
    %Senior & subordinated debt (1)
    
    
    -
    
    
    
    -
    
    
    
    20,400
    
    
    
    287,500
    
    
    
    -
    
    
    
    579,000
    
    
    
    886,900
    
    
    
    768,354Weighted average interest rate
    
    
    -
    %
    
    
    -
    %
    
    
    8.25
    %
    
    
    3.63
    %
    
    
    -
    %
    
    
    7.30
    %
    
    
    6.13
    %Total Fixed-Rate Debt
    
    
    34,050
    
    
    
    243,061
    
    
    
    183,014
    
    
    
    660,178
    
    
    
    316,807
    
    
    
    3,602,821
    
    
    
    5,039,931
    
    
    
    4,718,143Variable:Variable-rate debt
    
    
    143,672
    
    
    
    489,948
    
    
    
    265,130
    
    
    
    86,694
    
    
    
    45,366
    
    
    
    698,825
    
    
    
    1,729,635
    
    
    
    1,646,806Weighted
average interest rate (2)
    
    
    4.50
    %
    
    
    4.69
    %
    
    
    5.38
    %
    
    
    4.51
    %
    
    
    6.31
    %
    
    
    6.33
    %
    
    
    5.48
    %Tax-exempt
    
    
    1,770
    
    
    
    1,160
    
    
    
    1,515
    
    
    
    35,325
    
    
    
    206,560
    
    
    
    695,884
    
    
    
    942,214
    
    
    
    922,343Weighted average interest rate (2)
    
    
    2.73
    %
    
    
    2.85
    %
    
    
    2.71
    %
    
    
    4.77
    %
    
    
    3.94
    %
    
    
    2.83
    %
    
    
    3.15
    %Bank revolving credit facility (1)
    
    
    -
    
    
    
    -
    
    
    
    143,500
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    143,500
    
    
    
    141,749Weighted average interest rate (2)
    
    
    -
    %
    
    
    -
    %
    
    
    3.95
    %
    
    
    -
    %
    
    
    -
    %
    
    
    -
    %
    
    
    3.95
    %Total Variable-Rate Debt
    
    
    145,442
    
    
    
    491,108
    
    
    
    410,145
    
    
    
    122,019
    
    
    
    251,926
    
    
    
    1,394,709
    
    
    
    2,815,349
    
    
    
    2,710,898Total Long-Term Debt
    
    $
    179,492
    
    
    $
    734,169
    
    
    $
    593,159
    
    
    $
    782,197
    
    
    $
    568,733
    
    
    $
    4,997,530
    
    
    $
    7,855,280
    
    
    $
    7,429,041Weighted average interest rate
    
    
    4.85
    %
    
    
    5.39
    %
    
    
    5.62
    %
    
    
    5.40
    %
    
    
    5.26
    %
    
    
    5.64
    %
    
    
    5.55
    %
 (1)
    
    Represents recourse debt.(2)
    
    Weighted average interest rate is based on current market
rates as of July 31, 2008. 66




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 January 31, 2008
 Expected Maturity DateYear Ending January 31,Period
    
    
    Total Outstanding
    
    
    Fair MarketLong-Term Debt
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    1/31/08
    
    
    Value 1/31/08(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    84,220
    
    
    $
    327,885
    
    
    $
    174,421
    
    
    $
    375,489
    
    
    $
    319,644
    
    
    $
    2,650,047
    
    
    $
    3,931,706
    
    
    $
    4,062,237Weighted average interest rate
    
    
    6.53
    %
    
    
    6.92
    %
    
    
    6.78
    %
    
    
    7.03
    %
    
    
    5.98
    %
    
    
    5.79
    %
    
    
    6.08
    %Senior & subordinated debt (1)
    
    
    -
    
    
    
    -
    
    
    
    20,400
    
    
    
    287,500
    
    
    
    -
    
    
    
    579,000
    
    
    
    886,900
    
    
    
    812,040Weighted average interest rate
    
    
    -
    %
    
    
    -
    %
    
    
    8.25
    %
    
    
    3.63
    %
    
    
    -
    %
    
    
    7.30
    %
    
    
    6.13
    %Total Fixed-Rate Debt
    
    
    84,220
    
    
    
    327,885
    
    
    
    194,821
    
    
    
    662,989
    
    
    
    319,644
    
    
    
    3,229,047
    
    
    
    4,818,606
    
    
    
    4,874,277Variable:Variable-rate debt
    
    
    672,218
    
    
    
    152,872
    
    
    
    170,753
    
    
    
    10,056
    
    
    
    45,366
    
    
    
    653,826
    
    
    
    1,705,091
    
    
    
    1,705,091Weighted
average interest rate (2)
    
    
    6.68
    %
    
    
    6.78
    %
    
    
    6.28
    %
    
    
    5.61
    %
    
    
    6.37
    %
    
    
    6.39
    %
    
    
    6.52
    %Tax-exempt
    
    
    85,413
    
    
    
    1,160
    
    
    
    1,140
    
    
    
    505
    
    
    
    540
    
    
    
    613,055
    
    
    
    701,813
    
    
    
    701,813Weighted average interest rate (2)
    
    
    3.12
    %
    
    
    2.81
    %
    
    
    3.00
    %
    
    
    3.36
    %
    
    
    3.36
    %
    
    
    3.11
    %
    
    
    3.11
    %Bank revolving credit facility (1)
    
    
    -
    
    
    
    -
    
    
    
    39,000
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    39,000
    
    
    
    39,000Weighted average interest rate (2)
    
    
    -
    %
    
    
    -
    %
    
    
    4.89
    %
    
    
    -
    %
    
    
    -
    %
    
    
    -
    %
    
    
    4.89
    %Total Variable-Rate Debt
    
    
    757,631
    
    
    
    154,032
    
    
    
    210,893
    
    
    
    10,561
    
    
    
    45,906
    
    
    
    1,266,881
    
    
    
    2,445,904
    
    
    
    2,445,904Total Long-Term Debt
    
    $
    841,851
    
    
    $
    481,917
    
    
    $
    405,714
    
    
    $
    673,550
    
    
    $
    365,550
    
    
    $
    4,495,928
    
    
    $
    7,264,510
    
    
    $
    7,320,181Weighted average interest rate
    
    
    6.30
    %
    
    
    6.86
    %
    
    
    6.45
    %
    
    
    5.55
    %
    
    
    6.02
    %
    
    
    5.71
    %
    
    
    5.89
    %
 
 (1)
    
    Represents recourse debt.(2)
    
    Weighted average interest rate is based on current market
rates as of January 31, 2008. 67




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##### Table of Contents



Item 4. Controls and Procedures
    68




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security-Holders
  For
    
    
    Withheld1.
    
    Election of the following nominated directors by Class A shareholders:Michael P. Esposito, Jr.
    
    
    70,632,755
    
    
    
    1,368,928Joan K. Shafran
    
    
    56,939,310
    
    
    
    15,062,373Louis Stokes
    
    
    56,816,237
    
    
    
    15,185,446Stan Ross
    
    
    70,783,249
    
    
    
    1,218,4342.
    
    Election of the following nominated directors by Class B shareholders:Albert B. Ratner
    
    
    234,349,388
    
    
    
    843,937Samuel H. Miller
    
    
    234,349,388
    
    
    
    843,937Charles A. Ratner
    
    
    234,349,388
    
    
    
    843,937James A. Ratner
    
    
    234,349,388
    
    
    
    843,937Jerry V. Jarrett
    
    
    234,588,788
    
    
    
    604,537Ronald A. Ratner
    
    
    234,349,388
    
    
    
    843,937Scott S. Cowen
    
    
    234,836,808
    
    
    
    356,517Brian J. Ratner
    
    
    234,349,388
    
    
    
    843,937Deborah Ratner Salzberg
    
    
    234,349,388
    
    
    
    843,937Bruce C. Ratner
    
    
    234,349,388
    
    
    
    843,937Deborah L. Harmon
    
    
    234,929,128
    
    
    
    264,197BrokerFor
    
    Against
    
    Absentions(b)
    
    Non-Votes(c)3.
    
    Approval of
the proposal to amend and restate the 1994 Stock
Plan (a)
    
    
    292,489,118
    
    
    
    1,462,100
    
    
    
    425,505
    
    
    
    12,818,2854.
    
    Approval of
the proposal to amend and restate the Executive 
Short-Term Incentive Plan (a)
    
    
    292,995,589
    
    
    
    958,581
    
    
    
    422,553
    
    
    
    12,818,2855.
    
    Approval of
the proposal to amend and restate the Executive
Long-Term Incentive Plan (a)
    
    
    293,165,358
    
    
    
    717,986
    
    
    
    493,379
    
    
    
    12,818,2856.
    
    Ratification
of PricewaterhouseCoopers LLP as independent 
registered public accounting firm for the Company for 
the fiscal year ending January 31, 2009 (a)
    
    
    306,951,677
    
    
    
    117,478
    
    
    
    125,853
    
    
    
    -
  (a)
    
    The affirmative vote of a majority of the combined voting power of the outstanding shares of Class A common stock and Class B common stock
of the Company present or represented at the meeting was required for approval or ratification.(b)
    
    Abstentions were counted as cast with respect to such proposal and had the same effect as votes against the proposal.(c)
    
    Broker non-votes were not counted as cast for or against any proposal. 69




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##### Table of Contents



Item 6. Exhibits
 ExhibitNumber
    
    
    Description of Document3.1
    
    
    
    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
    
    
    
    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).3.3
    
    
    
    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).3.4
    
    
    
    Certificate of Amendment by Shareholders to the Articles of Incorporation of Forest City Enterprises,
Inc., effective as of June 20, 2006, incorporated by reference to Exhibit 3.6 to the Companys Form
10-Q for the quarter ended July 31, 2006 (File No. 1-4372).3.5
    
    
    
    Code of Regulations as amended June 15, 2006, incorporated by reference to Exhibit 3.5 to the
Companys Form 10-Q for the quarter ended July 31, 2006 (File No. 1-4372).4.1
    
    
    
    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).4.2
    
    
    
    Form of 7.625% Senior Note due 2015, incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 8-K filed on May 20, 2003 (File No. 1-4372).4.3
    
    
    
    Form of 7.375% Senior Note due 2034, incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 8-K filed on February 10, 2004 (File No. 1-4372).4.4
    
    
    
    Form of 6.5% Senior Note due 2017, incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 8-K filed on January 26, 2005 (File No. 1-4372).4.5
    
    
    
    Indenture, dated as of October 10, 2006, between Forest City Enterprises, Inc., as issuer, and The
Bank of New York Trust Company, N.A., as trustee, including, as Exhibit A thereto, the Form of 3.625%
Puttable Equity-Linked Senior Note due 2011, incorporated by reference to Exhibit 4.1 to the
Companys Form 8-K filed on October 16, 2006 (File No. 1-4372).9.1
    
    
    
    Voting Agreement, dated November 8, 2006, by and among Forest City Enterprises, Inc., RMS Limited
Partnership, Powell Partners, Limited, Joseph M. Shafran and Bruce C. Ratner, incorporated by
reference to Exhibit 9.1 to the Companys Form 10-K for the year ended January 31, 2007 (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).+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).
 70




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##### Table of Contents



ExhibitNumber
    
    
    Description of Document+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).+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
    
    
    
    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).+10.16
    
    
    
    Supplemental Unfunded Deferred Compensation Plan for Executives, incorporated by reference to Exhibit
10.9 to the Companys Form 10-K for the year ended January 31, 1997 (File No. 1-4372).+10.17
    
    
    
    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).
 71




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##### Table of Contents



ExhibitNumber
    
    
    Description of Document+10.18
    
    
    
    First Amendment to the Deferred Compensation Plan for Executives, effective as of October 1, 1999,
incorporated by reference to Exhibit 10.45 to the Companys Form 10-Q for the quarter ended April 30,
2005 (File No. 1-4372).+10.19
    
    
    
    Second Amendment to the Deferred Compensation Plan for Executives, effective as of December 31, 2004,
incorporated by reference to Exhibit 10.46 to the Companys Form 10-Q for the quarter ended April 30,
2005
(File No. 1-4372).+10.20
    
    
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Executives (As Amended and Restated
Effective January 1, 2008), incorporated by reference to Exhibit 10.21 to the Companys Form 10-K for
the year ended January 31, 2008 (File No. 1-4372).+10.21
    
    
    
    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).+10.22
    
    
    
    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).+10.23
    
    
    
    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).+10.24
    
    
    
    Third Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective March 12,
2004, incorporated by reference to Exhibit 10.39 to the Companys Form 10-Q for the quarter ended
July 31, 2004 (File No. 1-4372).+10.25
    
    
    
    Fourth Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective as of
December 31, 2004, incorporated by reference to Exhibit 10.47 to the Companys Form 10-Q for the
quarter ended April 30, 2005 (File No. 1-4372).+10.26
    
    
    
    Fifth Amendment to the Deferred Compensation Plan for Nonemployee Directors, effective as of March
26, 2008, incorporated by reference to Exhibit 10.60 to the Companys Form 10-K for the year ended
January 31, 2008 (File No. 1-4372).+10.27
    
    
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Nonemployee Directors (As Amended
and Restated effective January 1, 2008), incorporated by reference to Exhibit 10.60 to the Companys
Form 10-Q for the quarter ended April 30, 2008 (File No. 1-4372).+10.28
    
    
    
    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) (Replaced by Exhibit 10.62).+10.29
    
    
    
    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) (Replaced by Exhibit 10.62).+10.30
    
    
    
    Forest City Enterprises, Inc. Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to
the Companys Form 8-K filed on June 30, 2005 (File No. 1-4372) (Replaced by Exhibit 10.62).+10.31
    
    
    
    Forest City Enterprises, Inc. Executive Bonus Plan, incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K filed on March 30, 2005 (File No. 1-4372) (Replaced by Exhibit 10.61).+10.32
    
    
    
    Forest City Enterprises, Inc. Amended Board of Directors Compensation Policy, effective February 1,
2008, incorporated by reference to Exhibit 10.33 to the Companys Form 10-K for the year ended
January 31, 2008 (File No. 1-4372).+10.33
    
    
    
    Forest City Enterprises, Inc. Unfunded Nonqualified Supplemental Retirement Plan for Executives (As
Amended and Restated Effective January 1, 2008), incorporated by reference to Exhibit 10.59 to the
Companys Form 10-K for the year ended January 31, 2008 (File No. 1-4372).
 72




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##### Table of Contents



ExhibitNumber
    
    
    Description of Document+10.34
    
    
    
    Amended and Restated Form of Stock Option Agreement, effective as of June 8, 2004, incorporated by
reference to Exhibit 10.17 to the Companys Form 10-Q for the quarter ended April 30, 2005 (File No.
1-4372).+10.35
    
    
    
    Amended and Restated Form of Restricted Stock Agreement, effective as of June 8, 2004, incorporated
by reference to Exhibit 10.18 to the Companys Form 10-Q for the quarter ended April 30, 2005 (File
No. 1-4372).+10.36
    
    
    
    Forest City Enterprises, Inc. 1994 Stock Plan, as Amended and Restated as of June 21, 2005,
incorporated by reference to Exhibit A to the Companys Proxy Statement for its Annual Meeting of
Shareholders held on June 21, 2005 (File No. 1-4372) (Replaced by Exhibit 10.60).+10.37
    
    
    
    Amendment No. 1 to Forest City Enterprises, Inc. 1994 Stock Plan (As Amended and Restated as of June
21, 2005), incorporated by reference to Exhibit 10.53 to the Companys Form 10-K for the year ended
January 31, 2006 (File No. 1-4372) (Replaced by Exhibit 10.60).+10.38
    
    
    
    Amendment No. 2 to Forest City Enterprises, Inc. 1994 Stock Plan (As Amended and Restated as of June
21, 2005), incorporated by reference to Exhibit 4.8 to the Companys Registration Statement on Form
S-8 filed on May 3, 2007 (Registration No. 333-122172) (Replaced by Exhibit 10.60).+10.39
    
    
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, between Forest City
Enterprises, Inc. 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).+10.40
    
    
    
    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).+10.41
    
    
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, between Forest City
Enterprises, Inc. 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).+10.42
    
    
    
    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).+10.43
    
    
    
    Employment Agreement (re: death benefits) entered into on May 31, 1999, between Forest City
Enterprises, Inc. 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).+10.44
    
    
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and Charles A. Ratner, incorporated by reference to Exhibit 10.1 to the Companys
Form 8-K filed on July 26, 2005 (File No. 1-4372).+10.45
    
    
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among Charles A. Ratner
and Forest City Enterprises, Inc., incorporated by reference to Exhibit 10.2 to the Companys Form
8-K filed on November 13, 2006 (File No. 1-4372).+10.46
    
    
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and James A. Ratner, incorporated by reference to Exhibit 10.2 to the Companys
Form 8-K filed on July 26, 2005 (File No. 1-4372).+10.47
    
    
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among James A. Ratner
and Forest City Enterprises, Inc, incorporated by reference to Exhibit 10.3 to the Companys Form 8-K
filed on November 13, 2006 (File No. 1-4372).+10.48
    
    
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, between Forest City
Enterprises, Inc. and Ronald A. Ratner, incorporated by reference to Exhibit 10.3 to the Companys
Form 8-K filed on July 26, 2005 (File No. 1-4372).+10.49
    
    
    
    First Amendment to Employment Agreement, dated as of November 9, 2006, by and among Ronald A. Ratner
and Forest City Enterprises, Inc., incorporated by reference to Exhibit 10.4 to the Companys Form
8-K filed on November 13, 2006 (File No. 1-4372).
 73




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##### Table of Contents



ExhibitNumber
    
    
    Description of Document+10.50
    
    
    
    Employment Agreement, effective November 9, 2006, by and among Bruce C. Ratner and Forest City
Enterprises, Inc., incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on
November 13, 2006 (File No. 1-4372).10.51
    
    
    
    Master Contribution and Sale Agreement, dated as of August 10, 2006, by and among Forest City
Enterprises, Inc., certain entities affiliated with Forest City Enterprises, Inc., Forest City Master
Associates III, LLC, certain entities affiliated with Forest City Master Associates III, LLC, certain
entities affiliated with Bruce C. Ratner and certain individuals affiliated with Bruce C. Ratner,
incorporated by reference to Exhibit 10.54 to the Companys Form 10-Q for the quarter ended July 31,
2006 (File No. 1-4372).10.52
    
    
    
    Amended and Restated Credit Agreement by and among Forest City Rental Properties Corporation, KeyBank
National Association, as Administrative Agent, National City Bank, as Syndication Agent, Bank of
America, N.A. and LaSalle Bank National Association, as Co-Documentation Agents, and the banks named
therein, incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on June 12, 2007
(File No. 1-4372).10.53
    
    
    
    Additional Bank Assumption Agreement by and among The Bank of New York, Forest City Rental Properties
Corporation, and KeyBank in its capacity as administrative agent under the Credit Agreement,
incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on December 20, 2007 (File
No. 1-4372).10.54
    
    
    
    Additional Bank Assumption Agreement by and among Wachovia Bank, N.A., Forest City Rental Properties
Corporation, and KeyBank in its capacity as administrative agent under the Credit Agreement,
incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed on December 20, 2007 (File
No. 1-4372).10.55
    
    
    
    Exhibit A to the Amended and Restated Credit Agreement by and among Forest City Rental Properties
Corporation, KeyBank National Association, as Administrative Agent, National City Bank, as
Syndication Agent, Bank of America, N.A. and LaSalle Bank National Association, as Co-Documentation
Agents, and the banks named therein, revised as of December 20, 2007, further revised as of February
4, 2008 and further revised as of February 19, 2008, incorporated by reference to Exhibit 10.56 to
the Companys Form 10-K for the year ended January 31, 2008 (File No. 1-4372).10.56
    
    
    
    Amended and Restated Guaranty of Payment of Debt by Forest City Enterprises, Inc. for the benefit of
KeyBank National Association, as Administrative Agent, National City Bank, as Syndication Agent, Bank
of America, N.A. and LaSalle Bank National Association, as Co-Documentation Agents, and the banks
named therein, incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on June 12,
2007 (File No. 1-4372).10.57
    
    
    
    Registration Rights Agreement by and among Forest City Enterprises, Inc. and the holders of BCR Units
listed on Schedule A thereto dated November 8, 2006, incorporated by reference to Exhibit 10.1 to the
Companys Registration Statement on Form S-3 filed on November 7, 2007 (Registration No. 333-147201).+10.58
    
    
    
    Separation Agreement, dated April 1, 2008, by and between Forest City Enterprises, Inc. and Thomas G.
Smith, incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on April 7, 2008
(File No. 1-4372).+10.59
    
    
    
    Consultant Agreement, dated May 12, 2008, by and between Forest City Enterprises, Inc. and Thomas G.
Smith, incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on May 19, 2008
(File No. 1-4372).+10.60
    
    
    
    Forest City Enterprises, Inc. 1994 Stock Plan (As Amended and Restated as of June 19, 2008),
incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed on June 24, 2008 (File No.
1-4372) (Replaces Exhibits 10.36, 10.37 and 10.38).+10.61
    
    
    
    Forest City Enterprises, Inc. Executive Short-Term Incentive Plan (As Amended and Restated as of June
19, 2008), incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372) (Replaces Exhibit 10.31).+10.62
    
    
    
    Forest City Enterprises, Inc. Executive Long-Term Incentive Plan (As Amended and Restated as of June
19, 2008), incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372) (Replaces Exhibits 10.28, 10.29 and 10.30).+10.63
    
    
    
    Forest City Enterprises, Inc. Senior Management Short-Term Incentive Plan (Effective February 1,
2008), incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372).
 74




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##### Table of Contents



ExhibitNumber
    
    
    Description of Document+10.64
    
    
    
    Forest City Enterprises, Inc. Senior Management Long-Term Incentive Plan (Effective February 1,
2008), incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed on June 24, 2008
(File No. 1-4372).+10.65
    
    
    
    Form of Forest City Enterprises, Inc. Performance Shares Agreement, incorporated by reference to Exhibit 10.6
to the Companys Form 8-K filed on June 24, 2008 (File No. 1-4372).*+10.66
    
    
    
    Form of Forest City Enterprises, Inc. Nonqualified Stock Option Agreement for Nonemployee Directors.*+10.67
    
    
    
    Form of Forest City Enterprises, Inc. Restricted Shares Agreement for Nonemployee Directors.*31.1
    
    
    
    Principal Executive Officers Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    
    
    Principal 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 required to be filed as an exhibit to this Form
10-Q pursuant to Item 6.*
    
    Filed herewith. 75




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##### Table of Contents



SIGNATURES
  FOREST CITY ENTERPRISES, INC.(Registrant)Date: September 4, 2008
    /S/ ROBERT G. OBRIENName:
    Robert G. OBrienTitle:
    Executive Vice President and
Chief Financial OfficerDate: September 4, 2008
    /S/ LINDA M. KANEName:
    Linda M. KaneTitle:
    Senior Vice President, Chief Accounting
and Administrative Officer 76




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    
    Description of Document10.66
    
    
    
    Form of Forest City Enterprises, Inc. Nonqualified Stock Option Agreement for Nonemployee Directors.10.67
    
    
    
    Form of Forest City Enterprises, Inc. Restricted Shares Agreement for Nonemployee Directors.31.1
    
    
    
    Principal Executive Officers Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Principal 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.