##### 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, 2007
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Terminal Tower
    
    50 Public SquareSuite 1100
    
    Cleveland, Ohio
    
    44113(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code 216-621-6060
  þ o
  þ o o
 o þ
  Class
    

Outstanding
at September 6, 2007Class A Common Stock, $.33 1/3 par value
    
    77,979,200
sharesClass B Common Stock, $.33 1/3 par value
    
    24,727,818 shares




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##### 



Forest City Enterprises, Inc. and Subsidiaries
 Table of Contents
 PagePART I. FINANCIAL INFORMATIONItem 1.
    

Financial
Statements (Unaudited)Forest City Enterprises, Inc. and SubsidiariesConsolidated Balance Sheets
July 31, 2007 and January 31, 2007
    
    
    2Consolidated Statements of Earnings
Three and Six Months Ended July 31, 2007 and 2006
    
    
    3Consolidated Statements of Comprehensive Income
Three and Six Months Ended July 31, 2007 and 2006
    
    
    4Consolidated Statements of Shareholders Equity
Six Months Ended July 31, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows
Six Months Ended July 31, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    9Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    29Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    58Item 4.
    
    Controls and Procedures
    
    
    62PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    62Item 4.
    
    Submission of Matters to a Vote of Security-Holders
    
    
    63Item 6.
    
    Exhibits
    
    
    64Signatures
    
    
    70CertificationsEX-31.1EX-31.2EX-32.1




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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, 2007
    
    January 31, 2007(in thousands)AssetsReal EstateCompleted rental properties
    
    $
    7,420,280
    
    
    $
    6,659,054Projects under development
    
    
    1,064,854
    
    
    
    1,396,083Land held for development or sale
    
    
    181,010
    
    
    
    174,136Total Real Estate
    
    
    8,666,144
    
    
    
    8,229,273Less accumulated depreciation
    
    
    (1,160,269
    )
    
    
    (1,085,978
    )Real Estate, net
    
    
    7,505,875
    
    
    
    7,143,295Cash and equivalents
    
    
    238,261
    
    
    
    254,213Restricted cash
    
    
    365,300
    
    
    
    292,461Notes and accounts receivable, net
    
    
    291,666
    
    
    
    287,615Investments in and advances to affiliates
    
    
    413,427
    
    
    
    333,782Other assets
    
    
    743,494
    
    
    
    670,238Total Assets
    
    $
    9,558,023
    
    
    $
    8,981,604Liabilities and Shareholders EquityLiabilitiesMortgage debt, nonrecourse
    
    $
    5,552,364
    
    
    $
    5,338,372Notes payable
    
    
    112,643
    
    
    
    96,127Bank revolving credit facility
    
    
    235,000
    
    
    
    Senior and subordinated debt
    
    
    886,900
    
    
    
    886,900Accounts payable and accrued expenses
    
    
    832,283
    
    
    
    772,964Deferred income taxes
    
    
    502,800
    
    
    
    486,329Total Liabilities
    
    
    8,121,990
    
    
    
    7,580,692Minority Interest
    
    
    375,478
    
    
    
    375,101Commitments 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; 77,533,064 and 76,692,955 shares issued
and 77,525,199 and 76,628,006 shares outstanding, respectively
    
    
    25,845
    
    
    
    25,564Class B, convertible, 56,000,000 shares authorized; 24,765,969 and 25,254,210 shares
issued and outstanding, respectively; 26,257,961 issuable
    
    
    8,255
    
    
    
    8,41834,100
    
    
    
    33,982Additional paid-in capital
    
    
    243,209
    
    
    
    247,884Retained earnings
    
    
    797,480
    
    
    
    762,062Less treasury stock, at cost; 7,865 and 64,949 Class A shares, respectively
    
    
    (531
    )
    
    
    (3,449
    )1,074,258
    
    
    
    1,040,479Accumulated other comprehensive loss
    
    
    (13,703
    )
    
    
    (14,668
    )Total Shareholders Equity
    
    
    1,060,555
    
    
    
    1,025,811Total Liabilities and Shareholders Equity
    
    $
    9,558,023
    
    
    $
    8,981,604
  2




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Earnings
  Three Months Ended July 31,
    
    Six Months Ended July 31,2007
    
    2006
    
    2007
    
    2006(in thousands, except per share data)Revenues from real estate operations
    
    $
    287,586
    
    
    $
    250,829
    
    
    $
    555,951
    
    
    $
    512,564ExpensesOperating expenses
    
    
    177,186
    
    
    
    149,566
    
    
    
    345,778
    
    
    
    297,713Depreciation and amortization
    
    
    55,741
    
    
    
    41,571
    
    
    
    115,528
    
    
    
    81,859Provision for decline in real estate
    
    
    
    
    
    
    1,923
    
    
    
    
    
    
    
    1,923232,927
    
    
    
    193,060
    
    
    
    461,306
    
    
    
    381,495Interest expense
    
    
    (72,708
    )
    
    
    (71,692
    )
    
    
    (149,507
    )
    
    
    (137,288
    )Amortization of mortgage procurement costs
    
    
    (2,839
    )
    
    
    (2,440
    )
    
    
    (5,403
    )
    
    
    (5,332
    )Loss on early extinguishment of debt
    
    
    (1,640
    )
    
    
    
    
    
    
    (4,184
    )
    
    
    (803
    )Interest and other income
    
    
    23,423
    
    
    
    7,870
    
    
    
    34,822
    
    
    
    22,717Equity in earnings of unconsolidated entities
    
    
    7,773
    
    
    
    6,310
    
    
    
    9,134
    
    
    
    6,689Gain on disposition of other investments
    
    
    431
    
    
    
    
    
    
    
    431
    
    
    
    Earnings (loss) before income taxes
    
    
    9,099
    
    
    
    (2,183
    )
    
    
    (20,062
    )
    
    
    17,052Income tax expense (benefit)Current
    
    
    1,771
    
    
    
    (5,860
    )
    
    
    79
    
    
    
    (6,217
    )Deferred
    
    
    (2,380
    )
    
    
    2,181
    
    
    
    (14,728
    )
    
    
    9,685(609
    )
    
    
    (3,679
    )
    
    
    (14,649
    )
    
    
    3,468Earnings (loss) before minority interest and discontinued operations
    
    
    9,708
    
    
    
    1,496
    
    
    
    (5,413
    )
    
    
    13,584Minority interest
    
    
    (5,519
    )
    
    
    (2,577
    )
    
    
    (8,067
    )
    
    
    (6,757
    )Earnings (loss) from continuing operations
    
    
    4,189
    
    
    
    (1,081
    )
    
    
    (13,480
    )
    
    
    6,827Discontinued operations, net of tax and minority interestOperating (loss) earnings from rental properties
    
    
    (3,596
    )
    
    
    2,415
    
    
    
    (3,108
    )
    
    
    1,562Gain on disposition of rental properties
    
    
    67,182
    
    
    
    6,158
    
    
    
    67,182
    
    
    
    52,36163,586
    
    
    
    8,573
    
    
    
    64,074
    
    
    
    53,923Net earnings
    
    $
    67,775
    
    
    $
    7,492
    
    
    $
    50,594
    
    
    $
    60,750Basic earnings per common shareEarnings (loss) from continuing operations
    
    $
    0.04
    
    
    $
    (0.01
    )
    
    $
    (0.13
    )
    
    $
    0.07Earnings from discontinued operations, net of tax and minority interest
    
    
    0.60
    
    
    
    0.08
    
    
    
    0.61
    
    
    
    0.53Net earnings
    
    $
    0.64
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.60Diluted earnings per common shareEarnings (loss) from continuing operations
    
    $
    0.04
    
    
    $
    (0.01
    )
    
    $
    (0.13
    )
    
    $
    0.07Earnings from discontinued operations, net of tax and minority interest
    
    
    0.59
    
    
    
    0.08
    
    
    
    0.61
    
    
    
    0.52Net earnings
    
    $
    0.63
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.59
  3




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Comprehensive Income
  Three Months Ended July 31,2007
    
    2006(in thousands)Net earnings
    
    $
    67,775
    
    
    $
    7,492Other comprehensive income (loss), net of tax and minority interest:Unrealized net losses on investment securities
    
    
    (115
    )
    
    
    (49
    )Change in unrealized net gains (losses) on
interest rate derivative contracts
    
    
    10,299
    
    
    
    (4,994
    )Other comprehensive income (loss), net of tax and minority interest
    
    
    10,184
    
    
    
    (5,043
    )Comprehensive income
    
    $
    77,959
    
    
    $
    2,449
 Six Months Ended July 31,2007
    
    2006(in thousands)Net earnings
    
    $
    50,594
    
    
    $
    60,750Other comprehensive income (loss), net of tax and minority interest:Unrealized net losses on investment securities
    
    
    (156
    )
    
    
    (82
    )Change in unrealized net gains (losses) on
interest rate derivative contracts
    
    
    1,121
    
    
    
    (4,727
    )Other comprehensive income (loss), net of tax and minority interest
    
    
    965
    
    
    
    (4,809
    )Comprehensive income
    
    $
    51,559
    
    
    $
    55,941
  4




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Shareholders 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, 2007Balances at January 31, 2007
    
    
    76,693
    
    
    $
    25,564
    
    
    
    25,254
    
    
    $
    8,418
    
    
    $
    247,884
    
    
    $
    762,062
    
    
    
    65
    
    
    $
    (3,449
    )
    
    $
    (14,668
    )
    
    $
    1,025,811Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,594Cumulative effect of change in accounting for uncertain tax positions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Other 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
    )
    
    $
    1,060,555Six Months Ended July 31, 2006Balances at January 31, 2006
    
    
    75,436
    
    
    $
    25,146
    
    
    
    26,149
    
    
    $
    8,716
    
    
    $
    247,926
    
    
    $
    612,371
    
    
    
    
    
    
    $
    
    
    
    $
    223
    
    
    $
    894,382Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,750Other comprehensive loss, net of tax and minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,809
    )
    
    
    (4,809
    )Dividends $.13 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,305
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    (826
    )
    
    
    
    
    
    
    (826
    )Conversion of Class B to Class A shares
    
    
    348
    
    
    
    116
    
    
    
    (348
    )
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    110
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    713
    
    
    
    
    
    
    
    (18
    )
    
    
    826
    
    
    
    
    
    
    
    1,575Restricted stock vested
    
    
    56
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,051Balances at July 31, 2006
    
    
    75,950
    
    
    $
    25,317
    
    
    
    25,801
    
    
    $
    8,600
    
    
    $
    254,671
    
    
    $
    659,816
    
    
    
    
    
    
    $
    
    
    
    $
    (4,586
    )
    
    $
    943,818
  5




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
  Six Months Ended July 31,2007
    
    2006(in thousands)Net earnings
    
    $
    50,594
    
    
    $
    60,750Depreciation and amortization
    
    
    115,528
    
    
    
    81,859Provision for decline in real estate
    
    
    
    
    
    
    1,923Amortization of mortgage procurement costs
    
    
    5,403
    
    
    
    5,332Loss on early extinguishment of debt
    
    
    4,184
    
    
    
    803Equity in earnings of unconsolidated entities
    
    
    (9,134
    )
    
    
    (6,689
    )Other income
 net gain on sale of a development project
    
    
    (10,090
    )
    
    
    Gain on disposition of other investments
    
    
    (431
    )
    
    
    Deferred income taxes
    
    
    (14,728
    )
    
    
    9,685Minority interest
    
    
    8,067
    
    
    
    6,757Stock-based compensation
    
    
    6,077
    
    
    
    4,722Amortization and mark to market adjustments of derivative instruments
    
    
    (3,622
    )
    
    
    5,579Cash distributions from operations of unconsolidated entities
    
    
    14,820
    
    
    
    22,644Non-cash operating expenses:Write-off of abandoned development projects
    
    
    5,654
    
    
    
    1,029Discontinued operations:Depreciation and amortization
    
    
    1,934
    
    
    
    6,914Amortization of mortgage procurement costs
    
    
    69
    
    
    
    318Loss on early extinguishment of debt
    
    
    363Gain on disposition of rental properties
    
    
    (106,318
    )
    
    
    (143,726
    )Minority interest  gain on disposition
    
    
    
    
    
    
    58,393Minority interest  operating earnings
    
    
    
    
    
    
    457Deferred income taxes
    
    
    34,608
    
    
    
    33,252Cost of sales of land included in projects under development and completed rental
properties
    
    
    5,171
    
    
    
    16,874Increase in land held for development or sale
    
    
    (9,214
    )
    
    
    (33,217
    )Decrease in notes and accounts receivable
    
    
    245
    
    
    
    19,723(Increase) decrease in other assets
    
    
    (2,115
    )
    
    
    7,494Increase in restricted cash used for operating purposes
    
    
    (3,669
    )
    
    
    (139
    )Decrease in accounts payable and accrued expenses
    
    
    (44,458
    )
    
    
    (30,832
    )Net cash provided by operating activities
    
    $
    48,938
    
    
    $
    129,905
  6




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Six Months Ended July 31,2007
    
    2006(in thousands)Cash flows from investing activitiesCapital expenditures
    
    $
    (729,643
    )
    
    $
    (363,952
    )Payment of lease procurement costs and other assets
    
    
    (16,628
    )
    
    
    (14,082
    )Increase in restricted cash used for capital expenditures
    
    
    (72,479
    )
    
    
    (162,969
    )Proceeds from disposition of rental properties and a development project
    
    
    291,551
    
    
    
    128,455Increase in investments in and advances to affiliates
    
    
    (37,342
    )
    
    
    (58,635
    )Net cash used in investing activities
    
    
    (564,541
    )
    
    
    (471,183
    )Cash flows from financing activitiesBorrowings on bank revolving credit facility
    
    
    409,000
    
    
    
    139,000Payments on bank revolving credit facility
    
    
    (174,000
    )
    
    
    (82,500
    )Proceeds from nonrecourse mortgage debt
    
    
    573,734
    
    
    
    414,496Principal payments on nonrecourse mortgage debt
    
    
    (284,154
    )
    
    
    (243,406
    )Proceeds from notes payable
    
    
    50,346
    
    
    
    984Payments on notes payable
    
    
    (35,177
    )
    
    
    (24,356
    )Change in restricted cash and book overdrafts
    
    
    (3,588
    )
    
    
    67,386Payment of deferred financing costs
    
    
    (7,849
    )
    
    
    (9,429
    )Purchase of treasury stock
    
    
    (3,138
    )
    
    
    (826
    )Exercise of stock options
    
    
    5,028
    
    
    
    1,575Distributions of accumulated equity to minority partners
    
    
    (13,243
    )
    
    
    Dividends paid to shareholders
    
    
    (14,341
    )
    
    
    (12,235
    )Decrease in minority interest
    
    
    (2,967
    )
    
    
    (9,465
    )Net cash provided by financing activities
    
    
    499,651
    
    
    
    241,224Net decrease in cash and equivalents
    
    
    (15,952
    )
    
    
    (100,054
    )Cash and equivalents at beginning of period
    
    
    254,213
    
    
    
    254,734Cash and equivalents at end of period
    
    $
    238,261
    
    
    $
    154,680
  7




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
 Supplemental Non-Cash Disclosures:
  Six Months Ended July 31,2007
    
    2006(in thousands)Operating activitiesDecrease (increase) in land held for development or sale(1)(7)
    
    $
    1,033
    
    
    $
    (413
    )Increase in notes and accounts receivable(1)(3)(4)(9)
    
    
    (2,849
    )
    
    
    (2,596
    )(Increase) decrease in other assets(1)(3)(4)(9)
    
    
    (66,777
    )
    
    
    365Increase in restricted cash(1)(4)
    
    
    (2,486
    )
    
    
    Increase (decrease) in accounts payable and accrued expenses(1)(3)(4)(7)(8)(9)
    
    
    79,744
    
    
    
    (31,209
    )Total effect on operating activities
    
    $
    8,665
    
    
    $
    (33,853
    )Investing activities(Increase) decrease in projects under development(6)(7)(8)(9)
    
    $
    (16,621
    )
    
    $
    38,475Increase in completed rental properties(1)(3)(4)(5)
    
    
    (57,377
    )
    
    
    Increase in restricted cash (4)
    
    
    (16
    )
    
    
    Non-cash proceeds from disposition of properties(2)
    
    
    77,960
    
    
    
    119,024Increase in investments in and advances to affiliates(1)(4)
    
    
    (3,915
    )
    
    
    Total effect on investing activities
    
    $
    31
    
    
    $
    157,499Financing activitiesDecrease in nonrecourse mortgage debt(1)(2)(3)(4)(5)(9)
    
    $
    (9,841
    )
    
    $
    (251,922
    )Increase in notes payable(1)
    
    
    
    
    
    
    4,701(Increase) decrease in restricted cash(1)(9)
    
    
    (1,412
    )
    
    
    150,418Decrease in minority interest(2)
    
    
    
    
    
    
    (27,102
    )Increase in additional paid-in capital(6)
    
    
    3,637
    
    
    
    1,329Dividends declared but not yet paid
    
    
    (1,080
    )
    
    
    (1,070
    )Total effect on financing activities
    
    $
    (8,696
    )
    
    $
    (123,646
    )
 
 (1)
    
    Change to full consolidation method of accounting from equity method due to 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
and Rockport Squarein the Land Development Group during the six months ended July 31,
2006.(2)
    
    Assumption of nonrecourse mortgage debt by the buyer upon sale of Sterling Glen of
Bayshoreand Sterling Glen of Roslyn, a development project, in the Residential Group
during the six months ended July 31, 2007. Assumption of nonrecourse mortgage debt and
direct payment to partner by the buyer upon sale of Hilton Times Square Hoteland G Street
properties in the Commercial Group and Providence at Palm Harborin the Residential Group
during the six months ended July 31, 2006.(3)
    
    Refinement of preliminary purchase price allocation during the six months ended July
31, 2007 for the Galleria at Sunsetmall in the Commercial Group and the New York portfolio
transaction that closed in November 2006.(4)
    
    Change to full consolidation method of accounting from equity method due to the
occurrence of a triggering event as described in FIN 46(R), Consolidation of Variable
Interest Entities, for Oceanpointe Towersapartments in the Residential Group during the
six months ended July 31, 2007.(5)
    
    Assumption of nonrecourse mortgage debt due to the acquisition of properties in the
Commercial Group during the six months ended July 31, 2007.(6)
    
    Capitalization of stock-based compensation granted to employees directly involved with
the acquisition, development and construction of real estate.(7)
    
    Change in construction payables included in accounts payable and accrued expenses.(8)
    
    Estimate for environmental liabilities in the Commercial Group.(9)
    
    Change to equity method of accounting from full consolidation due to admission of a 50%
partner in Uptown Apartments, a residential development project in Oakland, California
during the six months ended July 31, 2006.  8




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements
  Accounting Policies
 Basis of Presentation
  New Accounting Standards
     Variable Interest Entities
  9




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
  Restricted Cash
  Use of Estimates
  Ten MetroTech Center 80 DeKalb Avenue
 Historic Tax Credit Entities
  Capitalized Software Costs
  10




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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 forunder the Equity Method ofFully Consolidated Properties
    
    AccountingExpirations for Years Ending
    
    Notional(1)
    
    
    
    
    
    Notional(2)January 31,
    
    Amount
    
    Rate
    
    Amount
    
    Rate2008
    
    
    $
    258,920
    
    
    
    5.76
    %
    
    $
    
    
    
    
    2009
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    2010
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
 
 (1)
    
    As these 10-year forward swaps have been designated and qualified 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 must be marked to market through earnings on a quarterly basis.   11




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Accounting Policies (continued)
   Distribution of Accumulated Equity to Minority Partners
 Fifteen MetroTech Center Fifteen MetroTech Center Promenade in Temecula Columbia Park Center
 Other Comprehensive Income (Loss)
   July 31, 2007
    
    January 31, 2007(in thousands)Unrealized gains on securities
    
    $
    86
    
    
    $
    327Unrealized losses on interest rate contracts
    
    
    (22,635
    )
    
    
    (24,675
    )(22,549
    )
    
    
    (24,348
    )Minority interest
    
    $
    (217
    )
    
    $
    (443
    )Income tax benefit
    
    $
    (8,629
    )
    
    $
    (9,237
    )Accumulated Other Comprehensive Loss
    
    $
    (13,703
    )
    
    $
    (14,668
    )
 Reclassification
  12




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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 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Stock option costs
    
    $
    2,314
    
    
    $
    1,815
    
    
    
    $
    6,529
    
    
    $
    4,058Restricted stock costs
    
    
    1,488
    
    
    
    1,192
    
    
    
    
    3,185
    
    
    
    1,993Total stock-based compensation costs
    
    
    3,802
    
    
    
    3,007
    
    
    
    
    9,714
    
    
    
    6,051Less amount capitalized into qualifying real estate projects
    
    
    (1,950
    )
    
    
    (811
    )
    
    
    
    (3,637
    )
    
    
    (1,329
    )Amount charged to operating expenses
    
    
    1,852
    
    
    
    2,196
    
    
    
    
    6,077
    
    
    
    4,722Depreciation expense on capitalized stock-based compensation
    
    
    19
    
    
    
    
    
    
    
    
    39
    
    
    
    Total stock-based compensation expense
    
    $
    1,871
    
    
    $
    2,196
    
    
    
    $
    6,116
    
    
    $
    4,722Deferred income tax benefit
    
    $
    591
    
    
    $
    705
    
    
    
    $
    2,041
    
    
    $
    1,545
   13




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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 Lynbrook
 July 31, 2007(in thousands)AssetsReal estate
    
    $
    29,858Cash and equivalents
    
    
    615Restricted cash
    
    
    831Notes and accounts receivable, net
    
    
    9Other assets
    
    
    1,639Total Assets
    
    $
    32,952LiabilitiesMortgage debt, nonrecourse
    
    $
    27,696Accounts payable and accrued expenses
    
    
    280Total Liabilities
    
    $
    27,976
  Quarter/
    
    Three Months
    
    Six Months
    
    Three Months
    
    Six MonthsSquare Feet/
    
    Year
    
    Ended
    
    Ended
    
    Ended
    
    EndedProperty
    
    Location
    
    Number of Units
    
    Disposed
    
    7/31/2007
    
    7/31/2007
    
    7/31/2006
    
    7/31/2006Commercial Group:Battery Park City Retail
    
    Manhattan, New York
    
    166,000 square feet
    
    Q3-2006
    
    
    
    
    
    Yes
    
    YesEmbassy Suites Hotel
    
    Manhattan, New York
    
    463 rooms
    
    Q3-2006
    
    
    
    
    
    Yes
    
    YesHilton Times Square
    
    Manhattan, New York
    
    444 rooms
    
    Q1-2006
    
    
    
    
    
    
    
    YesG Street Retail
    
    Philadelphia, Pennsylvania
    
    13,000 square feet
    
    Q1-2006
    
    
    
    
    
    
    
    YesResidential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    130 units
    
    Est. Q1-2008
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    85 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Center City
    
    Philadelphia, Pennsylvania
    
    135 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    80 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Forest Hills
    
    Forest Hills, New York
    
    83 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    79 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    166 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    Yes
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    724 units
    
    Q2-2007
    
    Yes
    
    Yes
    
    
    
    Mount Vernon Square
    
    Alexandria, Virginia
    
    1,387 units
    
    Q4-2006
    
    
    
    
    
    Yes
    
    YesProvidence at Palm Harbor
    
    Tampa, Florida
    
    236 units
    
    Q2-2006
    
    
    
    
    
    Yes
    
    Yes
 14




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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)
  Sterling Glen of
Roslyn Sterling Glen of Lynbrook
  Landings of Brentwood
 15




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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)
  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Revenues
    
    $
    12,397
    
    
    $
    33,166
    
    
    
    $
    24,599
    
    
    $
    66,445ExpensesOperating expenses
    
    
    11,883
    
    
    
    20,472
    
    
    
    
    20,730
    
    
    
    47,005Depreciation and amortization
    
    
    921
    
    
    
    3,470
    
    
    
    
    1,934
    
    
    
    6,91412,804
    
    
    
    23,942
    
    
    
    
    22,664
    
    
    
    53,919Interest expense
    
    
    (2,000
    )
    
    
    (4,832
    )
    
    
    
    (3,608
    )
    
    
    (10,210
    )Amortization of mortgage procurement costs
    
    
    (34
    )
    
    
    (151
    )
    
    
    
    (69
    )
    
    
    (318
    )Loss on early extinguishment of debt
    
    
    (363
    )
    
    
    
    
    
    
    
    (363
    )
    
    
    Interest income
    
    
    112
    
    
    
    281
    
    
    
    
    209
    
    
    
    1,004Gain on disposition of rental properties
    
    
    106,318
    
    
    
    7,342
    
    
    
    
    106,318
    
    
    
    143,726Earnings before income taxes
    
    
    103,626
    
    
    
    11,864
    
    
    
    
    104,422
    
    
    
    146,728Income tax expenseCurrent
    
    
    5,682
    
    
    
    1,405
    
    
    
    
    5,740
    
    
    
    703Deferred
    
    
    34,358
    
    
    
    3,993
    
    
    
    
    34,608
    
    
    
    33,25240,040
    
    
    
    5,398
    
    
    
    
    40,348
    
    
    
    33,955Earnings before minority interest
    
    
    63,586
    
    
    
    6,466
    
    
    
    
    64,074
    
    
    
    112,773Minority interest, net of taxGain (loss) on disposition of rental properties
    
    
    
    
    
    
    (2,693
    )
    
    
    
    
    
    
    
    58,393Operating earnings from rental properties
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    
    457
    
    
    
    (2,107
    )
    
    
    
    
    
    
    
    58,850Net earnings from discontinued operations
    
    $
    63,586
    
    
    $
    8,573
    
    
    
    $
    64,074
    
    
    $
    53,923
 Gain on Disposition of Rental Properties
  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Discontinued Operations:Six Sterling Glen properties (Supported-Living Apartments)(1)
    
    $
    81,239
    
    
    $
    
    
    
    
    $
    81,239
    
    
    $
    Landings of Brentwood (Apartments)(2)
    
    
    25,079
    
    
    
    
    
    
    
    
    25,079
    
    
    
    Hilton Times Square Hotel (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,945G Street Retail (Specialty Retail Center)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439Providence at Palm Harbor (Apartments) (2)
    
    
    
    
    
    
    7,342
    
    
    
    
    
    
    
    
    7,342Total
    
    $
    106,318
    
    
    $
    7,342
    
    
    
    $
    106,318
    
    
    $
    143,726
 
 (1)
    
    The six properties included in the gain on disposition are 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. 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.
 16




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 C.
    
    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 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)White Acres (Apartments)(1)
    
    Richmond Heights, Ohio
    
    $
    
    
    
    $
    
    
    
    
    $
    2,106
    
    
    $
    Midtown Plaza (Specialty Retail Center)
    
    Parma, Ohio
    
    
    
    
    
    
    7,662
    
    
    
    
    
    
    
    
    7,662$
    
    
    
    $
    7,662
    
    
    
    $
    2,106
    
    
    $
    7,662
 
 (1)
    
    The Company disposed of its interest in White Acresin a non-monetary exchange for the
remaining outside interest in Midtown Towers, an apartment community located in Parma,
Ohio, which was also an equity method investment. The Company has accounted for the
non-monetary transaction based upon the fair value of the equity method investments
exchanged, which resulted in the above gain on disposition of $2,106,000 for the six months
ended July 31, 2007.
 Provision for Decline in Real Estate
  Saddle Rock Village
 Bank Revolving Credit Facility
   July 31, 2007
    
    January 31, 2007Maximum borrowings (1)
    
    $
    600,000
    
    
    $
    600,000Accordion option
    
    $
    150,000
    
    
    $
    Outstanding:Borrowings
    
    $
    235,000
    
    
    $
    Letters of credit
    
    $
    83,338
    
    
    $
    72,324Surety bonds
    
    $
    
    
    
    $
    Related Terms:LIBOR rate option (2)
    
    
    1.45% + LIBOR
    
    
    
    1.75% + LIBORPrime rate option
    
    
    1/2% + prime rate
    
    
    
    1/2% + prime rateDividend/stock repurchase limitation
    
    $
    40,000
    
    
    $
    40,000
 
 (1)
    
    $100,000,000 of the available borrowings may be used for letters of credit or surety
bonds.(2)
    
    The Company generally elects the LIBOR rate option over the prime rate option. 17




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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
     18




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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
     19




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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
    20




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Financing Arrangements (continued)
  Other Financing Arrangements
      Dividends
  21




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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 31,2007
    
    2006
    
    2007
    
    2006Numerators(in thousands)Earnings (loss) from continuing operations  Basic
    
    $
    4,189
    
    
    $
    (1,081
    )
    
    $
    (13,480
    )
    
    $
    6,827Preferred distribution on Class A Common Units, net of tax
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    Earnings (loss) from continuing operations  Diluted
    
    $
    4,764
    
    
    $
    (1,081
    )
    
    $
    (13,480
    )
    
    $
    6,827Net earnings
    
    $
    67,775
    
    
    $
    7,492
    
    
    $
    50,594
    
    
    $
    60,750Undistributed earnings allocated to participating securities
    
    
    (2,186
    )
    
    
    
    
    
    
    (1,292
    )
    
    
    Net earnings  Basic
    
    
    65,589
    
    
    
    7,492
    
    
    
    49,302
    
    
    
    60,750Undistributed earnings allocated to participating securities
    
    
    2,186
    
    
    
    
    
    
    
    
    
    
    
    Preferred distribution on Class A Common Units, net of tax
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    Net earnings  Diluted
    
    $
    68,350
    
    
    $
    7,492
    
    
    $
    50,594
    
    
    $
    60,750DenominatorsWeighted average shares outstanding  Basic
    
    
    102,239,962
    
    
    
    101,705,878
    
    
    
    102,117,423
    
    
    
    101,664,782Effect of stock options and restricted stock(1) (2) (3) (4)
    
    
    1,646,110
    
    
    
    
    
    
    
    
    
    
    
    1,483,324Effect of convertible Class A Common Units (3)
    
    
    3,894,232
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  Diluted (5)
    
    
    107,780,304
    
    
    
    101,705,878
    
    
    
    102,117,423
    
    
    
    103,148,106Earnings Per ShareEarnings (loss) from continuing operations  Basic
    
    $
    0.04
    
    
    $
    (0.01
    )
    
    $
    (0.13
    )
    
    $
    0.07Earnings (loss) from continuing operations  Diluted
    
    $
    0.04
    
    
    $
    (0.01
    )
    
    $
    (0.13
    )
    
    $
    0.07Net earnings  Basic
    
    $
    0.64
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.60Net earnings  Diluted
    
    $
    0.63
    
    
    $
    0.07
    
    
    $
    0.48
    
    
    $
    0.59
 
 (1)
    
    Options granted in March 2007 to purchase 1,067,600 shares of common stock were not
included in the computation of diluted earnings per share for the three months ended July
31, 2007 because they were anti-dilutive.(2)
    
    For the three months ended July 31, 2006, the effect of 1,551,707 shares of options and
restricted stock were not included in the computation of diluted earnings per share because
their effect is anti-dilutive to the loss from continuing operations.(3)
    
    For the six months ended July 31, 2007, the effect of 1,713,583 options and restricted
stock and 3,894,232 Class A Common Units were not included in the computation of diluted
earnings per share because their effect is anti-dilutive to the loss from continuing
operations.(4)
    
    Options granted in April 2006 to purchase 960,100 shares of common stock were not
included in the computation of diluted earnings per share for the three and six months
ended July 31, 2006 because they were anti-dilutive.(5)
    
    The Puttable Equity-Linked Senior Notes issued in October 2006 can be put to the
Company by the holders under certain circumstances (see Note E  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, 2007 as the Companys average stock price did not exceed the put
value price of the Puttable Equity-Linked Senior Notes. 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, 2007 as the Companys stock
price did not exceed the exercise price. 22




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Investments in and Advances to Affiliates
   July 31,
    
    January 31,2007
    
    2007(in thousands)Members and partners equity as below
    
    $
    741,266
    
    
    $
    592,681Equity of other members and partners
    
    
    574,698
    
    
    
    496,971Companys investment in partnerships
    
    $
    166,568
    
    
    $
    95,710Advances to and on behalf of other affiliates
    
    
    246,859
    
    
    
    238,072Total Investments in and Advances to Affiliates
    
    $
    413,427
    
    
    $
    333,782
  (Combined 100%)July 31, 2007
    
    January 31, 2007(in thousands)Balance Sheet:Completed rental properties
    
    $
    2,803,619
    
    
    $
    2,697,454Projects under development
    
    
    1,098,900
    
    
    
    777,419Land held for development or sale
    
    
    201,634
    
    
    
    160,296Accumulated depreciation
    
    
    (585,778
    )
    
    
    (554,910
    )Restricted cash
    
    
    1,345,097
    
    
    
    1,432,636Other assets
    
    
    573,839
    
    
    
    526,142Total Assets
    
    $
    5,437,311
    
    
    $
    5,039,037Mortgage debt, nonrecourse
    
    $
    4,047,069
    
    
    $
    3,834,085Other liabilities
    
    
    648,976
    
    
    
    612,271Members and partners equity
    
    
    741,266
    
    
    
    592,681Total Liabilities and Members/Partners Equity
    
    $
    5,437,311
    
    
    $
    5,039,037
 23




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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%)Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Operations:Revenues
    
    $
    234,704
    
    
    $
    164,684
    
    
    
    $
    452,164
    
    
    $
    331,624Operating expenses
    
    
    (156,653
    )
    
    
    (109,476
    )
    
    
    
    (311,434
    )
    
    
    (232,276
    )Interest expense
    
    
    (48,538
    )
    
    
    (33,100
    )
    
    
    
    (102,581
    )
    
    
    (65,479
    )Provision for decline in real estate
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    (1,000
    )Depreciation and amortization
    
    
    (37,389
    )
    
    
    (23,577
    )
    
    
    
    (75,133
    )
    
    
    (60,995
    )Interest income
    
    
    9,363
    
    
    
    3,670
    
    
    
    
    28,552
    
    
    
    6,716Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations (pre-tax)(2)
    
    
    1,487
    
    
    
    1,201
    
    
    
    
    (8,432
    )
    
    
    (21,410
    )Discontinued operations:Gain on disposition of rental properties (1)
    
    
    
    
    
    
    15,325
    
    
    
    
    4,212
    
    
    
    15,325Operating earnings from rental properties
    
    
    
    
    
    
    160
    
    
    
    
    584
    
    
    
    103
    
    
    
    15,485
    
    
    
    
    4,796
    
    
    
    15,428Net earnings (loss) (pre-tax) (2)
    
    $
    1,487
    
    
    $
    16,686
    
    
    
    $
    (3,636
    )
    
    $
    (5,982
    )Companys portion of net earnings (pre-tax) (2)
    
    $
    7,773
    
    
    $
    6,310
    
    
    
    $
    9,134
    
    
    $
    6,689
 
 (1)
    
    The following table shows the detail of gain on disposition of rental properties that
were held by equity method investments: Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)White Acres (Apartments) (Richmond Hts., Ohio)
    
    $
    
    
    
    $
    
    
    
    
    $
    4,212
    
    
    $
    Midtown Plaza (Specialty Retail Center) (Parma, Ohio)
    
    
    
    
    
    
    15,325
    
    
    
    
    
    
    
    
    15,325Total gain on dispostion of equity method rental properties
    
    $
    
    
    
    $
    15,325
    
    
    
    $
    4,212
    
    
    $
    15,325Companys portion of gain on disposition of equity method rental properties
    
    $
    
    
    
    $
    7,662
    
    
    
    $
    2,106
    
    
    $
    7,662
 
 (2)
    
    Included in the amounts above are the following amounts for the three and six months
ended July 31, 2007 and 2006 related to the Companys investment in an entity that is
reported in the Nets segment. This entity primarily reports on the operations of the New
Jersey Nets basketball team, a franchise of the National Basketball Association, in which
the Company has been an equity method investor since August 16, 2004. Summarized financial
information for this equity method investment is as follows: Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Operations:Revenues and interest income
    
    $
    15,248
    
    
    $
    19,664
    
    
    
    $
    57,606
    
    
    $
    60,502Operating expenses
    
    
    (19,081
    )
    
    
    (21,692
    )
    
    
    
    (67,097
    )
    
    
    (65,230
    )Interest expense
    
    
    (1,787
    )
    
    
    (3,420
    )
    
    
    
    (4,464
    )
    
    
    (6,233
    )Depreciation and amortization
    
    
    (3,841
    )
    
    
    (3,967
    )
    
    
    
    (24,369
    )
    
    
    (24,595
    )Net loss (pre-tax)
    
    $
    (9,461
    )
    
    $
    (9,415
    )
    
    
    $
    (38,324
    )
    
    $
    (35,556
    )Companys portion of net loss (pre-tax)
    
    $
    (1,339
    )
    
    $
    (3,087
    )
    
    
    $
    (4,009
    )
    
    $
    (10,969
    )
 24




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information
   25




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
  July 31,
    
    January 31,
    
    
    Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2007
    
    
    2007
    
    2006
    
    
    2007
    
    2006Identifiable Assets
    
    
    Expenditures for Additions to Real EstateCommercial Group
    
    $
    6,794,944
    
    
    $
    6,346,155
    
    
    
    $
    251,168
    
    
    $
    101,350
    
    
    
    $
    492,993
    
    
    $
    287,758Residential Group
    
    
    2,211,466
    
    
    
    2,032,617
    
    
    
    
    153,779
    
    
    
    30,882
    
    
    
    
    220,857
    
    
    
    69,736Land Development Group
    
    
    410,817
    
    
    
    371,729
    
    
    
    
    14,408
    
    
    
    2,090
    
    
    
    
    14,755
    
    
    
    6,327The Nets
    
    
    28,791
    
    
    
    7,999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    112,005
    
    
    
    223,104
    
    
    
    
    200
    
    
    
    63
    
    
    
    
    1,038
    
    
    
    131$
    9,558,023
    
    
    $
    8,981,604
    
    
    
    $
    419,555
    
    
    $
    134,385
    
    
    
    $
    729,643
    
    
    $
    363,952
 Three Months Ended July 31,
    
    
    Six Months Ended July 31,
    
    
    Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006
    
    
    2007
    
    2006
    
    
    2007
    
    2006Revenues from Real Estate Operations
    
    
    Operating ExpensesCommercial Group
    
    $
    209,162
    
    
    $
    176,935
    
    
    
    $
    406,596
    
    
    $
    352,285
    
    
    
    $
    107,175
    
    
    $
    89,850
    
    
    
    $
    209,724
    
    
    $
    177,229Commercial Group Land Sales
    
    
    1,564
    
    
    
    4,207
    
    
    
    
    7,157
    
    
    
    25,196
    
    
    
    
    1,905
    
    
    
    3,297
    
    
    
    
    5,171
    
    
    
    14,650Residential Group
    
    
    62,254
    
    
    
    47,593
    
    
    
    
    116,859
    
    
    
    92,173
    
    
    
    
    44,901
    
    
    
    33,410
    
    
    
    
    81,704
    
    
    
    62,037Land Development Group
    
    
    14,606
    
    
    
    22,094
    
    
    
    
    25,339
    
    
    
    42,910
    
    
    
    
    13,981
    
    
    
    12,521
    
    
    
    
    26,078
    
    
    
    25,520The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,224
    
    
    
    10,488
    
    
    
    
    23,101
    
    
    
    18,277$
    287,586
    
    
    $
    250,829
    
    
    
    $
    555,951
    
    
    $
    512,564
    
    
    
    $
    177,186
    
    
    $
    149,566
    
    
    
    $
    345,778
    
    
    $
    297,713
 Interest and Other Income
    
    
    Interest ExpenseCommercial Group
    
    $
    8,295
    
    
    $
    2,374
    
    
    
    $
    10,233
    
    
    $
    3,259
    
    
    
    $
    43,733
    
    
    $
    44,726
    
    
    
    $
    91,102
    
    
    $
    88,097Residential Group
    
    
    11,785
    
    
    
    1,303
    
    
    
    
    15,629
    
    
    
    11,192
    
    
    
    
    11,949
    
    
    
    11,716
    
    
    
    
    25,231
    
    
    
    21,939Land Development Group
    
    
    2,968
    
    
    
    4,066
    
    
    
    
    7,978
    
    
    
    7,612
    
    
    
    
    68
    
    
    
    2,643
    
    
    
    
    2,374
    
    
    
    4,472The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    375
    
    
    
    127
    
    
    
    
    982
    
    
    
    654
    
    
    
    
    16,958
    
    
    
    12,607
    
    
    
    
    30,800
    
    
    
    22,780$
    23,423
    
    
    $
    7,870
    
    
    
    $
    34,822
    
    
    $
    22,717
    
    
    
    $
    72,708
    
    
    $
    71,692
    
    
    
    $
    149,507
    
    
    $
    137,288
 Depreciation and Amortization ExpenseCommercial Group
    
    $
    40,017
    
    
    $
    30,390
    
    
    
    $
    85,606
    
    
    $
    59,496Residential Group
    
    
    14,915
    
    
    
    10,787
    
    
    
    
    28,378
    
    
    
    21,585Land Development Group
    
    
    143
    
    
    
    60
    
    
    
    
    321
    
    
    
    105The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    666
    
    
    
    334
    
    
    
    
    1,223
    
    
    
    673$
    55,741
    
    
    $
    41,571
    
    
    
    $
    115,528
    
    
    $
    81,859
 Earnings Before Depreciation,Earnings Before Income Taxes (EBIT) (1)
    
    
    Amortization & Deferred Taxes (EBDT)Commercial Group
    
    $
    27,449
    
    
    $
    15,984
    
    
    
    $
    30,589
    
    
    $
    40,593
    
    
    
    $
    60,062
    
    
    $
    45,188
    
    
    
    $
    104,863
    
    
    $
    93,785Gain on disposition of equity
method property
    
    
    
    
    
    
    7,662
    
    
    
    
    
    
    
    
    7,662
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for decline in real estate
    
    
    
    
    
    
    (1,923
    )
    
    
    
    
    
    
    
    (1,923
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for decline in real estate
recorded on equity method
    
    
    
    
    
    
    (400
    )
    
    
    
    
    
    
    
    (400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential Group
    
    
    3,446
    
    
    
    (13,265
    )
    
    
    
    (698
    )
    
    
    (8,484
    )
    
    
    
    26,077
    
    
    
    13,877
    
    
    
    
    38,567
    
    
    
    37,692Gain on disposition of equity
method property
    
    
    
    
    
    
    
    
    
    
    
    2,106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land Development Group
    
    
    6,472
    
    
    
    17,102
    
    
    
    
    7,129
    
    
    
    33,422
    
    
    
    
    3,478
    
    
    
    10,581
    
    
    
    
    781
    
    
    
    17,431The Nets
    
    
    (2,226
    )
    
    
    (4,041
    )
    
    
    
    (5,477
    )
    
    
    (12,742
    )
    
    
    
    (1,419
    )
    
    
    (2,201
    )
    
    
    
    (3,469
    )
    
    
    (7,576
    )Corporate Activities
    
    
    (26,042
    )
    
    
    (23,302
    )
    
    
    
    (53,711
    )
    
    
    (41,076
    )
    
    
    
    (16,992
    )
    
    
    (10,780
    )
    
    
    
    (35,007
    )
    
    
    (21,328
    )$
    9,099
    
    
    $
    (2,183
    )
    
    
    $
    (20,062
    )
    
    $
    17,052
    
    
    
    $
    71,206
    
    
    $
    56,665
    
    
    
    $
    105,735
    
    
    $
    120,004
 26




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Segment Information (continued)
 Reconciliation of Earnings Before Depreciation, Amortization and Deferred Taxes (EBDT) to
Net Earnings by Segment:
 LandCommercial
    
    Residential
    
    Development
    
    
    
    
    
    CorporateThree Months Ended July 31, 2007
    
    Group
    
    Group
    
    Group
    
    The Nets
    
    Activities
    
    TotalEBDT
    
    $
    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
    )
    
    
    2,735
    
    
    
    476
    
    
    
    
    
    
    
    1,834
    
    
    
    961Straight-line rent adjustment
    
    
    3,452
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,470Preference payment (3)
    
    
    (936
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (936
    )Preferred return on disposition
    
    
    
    
    
    
    (5,034
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,034
    )Gain on disposition of other investments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    264Discontinued operations, net of tax and minority interest: (2)Depreciation and amortization  Real Estate Groups
    
    
    
    
    
    
    (921
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (921
    )Amortization of mortgage procurement costs  Real
Estate Groups
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )Deferred taxes  Real Estate Groups
    
    
    
    
    
    
    (3,310
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,310
    )Gain on disposition of rental properties
    
    
    
    
    
    
    67,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,182Net earnings (loss)
    
    $
    14,485
    
    
    $
    65,975
    
    
    $
    3,628
    
    
    $
    (1,419
    )
    
    $
    (14,894
    )
    
    $
    67,775Three Months Ended July 31, 2006EBDT
    
    $
    45,188
    
    
    $
    13,877
    
    
    $
    10,581
    
    
    $
    (2,201
    )
    
    $
    (10,780
    )
    
    $
    56,665Depreciation and amortization  Real Estate Groups
    
    
    (30,336
    )
    
    
    (20,564
    )
    
    
    (43
    )
    
    
    
    
    
    
    
    
    
    
    (50,943
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (1,751
    )
    
    
    (583
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,334
    )Deferred taxes  Real Estate Groups
    
    
    (4,927
    )
    
    
    1,769
    
    
    
    (784
    )
    
    
    
    
    
    
    383
    
    
    
    (3,559
    )Straight-line rent adjustment
    
    
    2,183
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,191Provision for decline in real estate, net of tax and minority interest
    
    
    (1,180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,180
    )Gain on disposition of equity method rental properties, net of tax
    
    
    4,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,700Provision for decline in real estate of equity method rental properties, net of tax
    
    
    (245
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245
    )Discontinued operations, net of tax and minority interest: (2)Depreciation and amortization  Real Estate Groups
    
    
    (1,480
    )
    
    
    (1,962
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,442
    )Amortization of mortgage procurement costs  Real
Estate Groups
    
    
    (46
    )
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112
    )Deferred taxes  Real Estate Groups
    
    
    (318
    )
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116
    )Straight-line rent adjustment
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291
    )Gain on disposition of rental properties
    
    
    1,652
    
    
    
    4,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,158Net earnings (loss)
    
    $
    13,149
    
    
    $
    (2,813
    )
    
    $
    9,754
    
    
    $
    (2,201
    )
    
    $
    (10,397
    )
    
    $
    7,492Six 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
    )
    
    
    7,343
    
    
    
    3,661
    
    
    
    
    
    
    
    4,995
    
    
    
    12,385Straight-line rent adjustment
    
    
    7,599
    
    
    
    22
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    7,620Preference payment (3)
    
    
    (1,834
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,834
    )Preferred return on disposition
    
    
    
    
    
    
    (5,034
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,034
    )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 and minority interest: (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
    
    
    
    
    
    
    (3,560
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,560
    )Gain on disposition of rental properties
    
    
    
    
    
    
    67,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,182Net earnings (loss)
    
    $
    14,553
    
    
    $
    65,398
    
    
    $
    3,860
    
    
    $
    (3,469
    )
    
    $
    (29,748
    )
    
    $
    50,594Six Months Ended July 31, 2006EBDT
    
    $
    93,785
    
    
    $
    37,692
    
    
    $
    17,431
    
    
    $
    (7,576
    )
    
    $
    (21,328
    )
    
    $
    120,004Depreciation and amortization  Real Estate Groups
    
    
    (59,844
    )
    
    
    (34,583
    )
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    (94,501
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (3,717
    )
    
    
    (1,403
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,120
    )Deferred taxes  Real Estate Groups
    
    
    (11,509
    )
    
    
    (1,196
    )
    
    
    2,069
    
    
    
    
    
    
    
    (94
    )
    
    
    (10,730
    )Straight-line rent adjustment
    
    
    3,700
    
    
    
    19
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    3,718Provision for decline in real estate, net of tax and minority interest
    
    
    (1,180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,180
    )Gain on disposition of equity method rental properties, net of tax
    
    
    4,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,700Provision for decline in real estate of equity method rental properties, net of tax
    
    
    (245
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245
    )Discontinued operations, net of tax and minority interest: (2)Depreciation and amortization  Real Estate Groups
    
    
    (3,159
    )
    
    
    (3,925
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,084
    )Amortization of mortgage procurement costs  Real Estate Groups
    
    
    (100
    )
    
    
    (135
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (235
    )Deferred taxes  Real Estate Groups
    
    
    (318
    )
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251
    )Straight-line rent adjustment
    
    
    (687
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (687
    )Gain on disposition of rental properties
    
    
    47,855
    
    
    
    4,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,361Net earnings (loss)
    
    $
    69,281
    
    
    $
    1,042
    
    
    $
    19,425
    
    
    $
    (7,576
    )
    
    $
    (21,422
    )
    
    $
    60,750
 
 (1)
    
    See Consolidated Statements of Earnings on page 3 for reconciliation of EBIT to net
earnings.(2)
    
    See Note C  Discontinued Operations starting on page 14 for more information.(3)
    
    The preference payment of $936,000 and $1,834,000 for the three and six months ended July 31,
2007, respectively, 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. 27




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##### Table of Contents



Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 Income Taxes
   FIN No. 48
     July 31, 2007
    
    February 1, 2007Unrecognized tax benefits
    
    $
    4,523,000
    
    
    $
    4,892,000Portion that, if recognized, would impact the effective rate
    
    $
    886,000
    
    
    $
    844,000Accrued interest and penalties on unrecognized tax benefits
    
    $
    1,000,000
    
    
    $
    1,013,000Range of possible decrease in unrecognized tax benefits in next twelve months
    
    $
    0 to $3,500,000
    
    
    $
    0 to $3,900,000
 28




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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
   Overview
  
    
    The opening of Victoria Gardens  Bass Pro, a
retail store located in Rancho
Cucamonga, California;
    
    The acquisition of Richmond Office Park, an eleven building office park
totaling 571,000 square feet located in Richmond, Virginia;
    
    The opening of Mercury, a 238-unit condominium project located in Los Angeles, California;
    
    The opening of Botanica II, a 154-unit apartment community located at our Stapleton development in Denver, Colorado;
    
    The acquisition of Tobacco Row  Cameron Kinney, a 259-unit apartment community located in Richmond, Virginia;
    
    Selected to manage more than 400 Air Force Academy housing units in Colorado Springs, Colorado;
    
    Sold seven supported-living apartment properties located in the New York City/Philadelphia metropolitan area; and
    
    Closing $471 million in mortgage financing transactions at attractive interest rates.
   29




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##### Table of Contents



Net Earnings 
 
    
    $67,182,000 ($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
Bayshore, in Bayshore, New York, Sterling Glen of Center City, in Philadelphia,
Pennsylvania, Sterling Glen of Darien, in Darien, Connecticut, Sterling Glen of Forest
Hills, in Forest Hills, New York, Sterling Glen of Plainview, in Plainview, New York, and
Sterling Glen of Stamford, in 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;
    
    $5,686,000 ($9,267,000, pre-tax) in 2007 related to the
increase in fair market
value between the comparable periods of certain of our 10-year forward swaps which were
marked to market through interest expense as a result of the derivatives not qualifying for
hedge accounting (See the Interest Rate Exposure section);
    
    $1,024,000 ($1,669,000, pre-tax) related to the amortization to straight-line
rent of above and below market leases, which were recorded as a component of the purchase
price allocation for the acquisition, in November 2006, of 30
retail, office and residential
operating properties in New York City (New York portfolio transaction);
    
    $782,000 ($1,815,000, pre-tax) related to the decrease in our allocation of
losses from our equity investment in the New Jersey Nets basketball team (see the Nets
section); and
    
    $545,000 ($888,000, pre-tax) related to income recognition on federal Historic Preservation Tax Credits.
  
    
    $6,158,000 ($10,035,000, pre-tax) primarily related to the 2006 gain on
disposition of Providence at Palm Harbor, a consolidated apartment community located in
Tampa, Florida;
    
    $6,126,000 ($9,738,000, pre-tax) related to decreased earnings in 2007 reported
in the Land Development Group primarily due to a decrease in land sales at Stapleton, in
Denver, Colorado and Chestnut Commonsin Elyria, Ohio;
    
    $4,700,000 ($7,662,000, pre-tax) related to the 2006 gain on disposition of one
equity method Commercial property, Midtown Plaza, a specialty retail center located in
Parma, Ohio;
    
    $1,762,000 ($2,872,000, pre-tax) related to increased write-offs of abandoned
development projects in 2007;
    
    $1,481,000 ($2,414,000, pre-tax) related to an increase in depreciation and
amortization for amounts recorded as tangible and intangible assets, which were a result of
the purchase price allocation for the New York portfolio transaction that closed in
November 2006;
    
    $1,124,000 ($1,832,000, pre-tax) in 2007 related to the early extinguishment of
nonrecourse mortgage debt primarily at the Landings of Brentwooddue to the sale of the
property; and
    
    $658,000 ($1,072,000, pre-tax) related to decreases in Commercial Group outlot
land sales in 2007 primarily at Antelope Valley Mallin Palmdale, California.
  
    
    $52,361,000 ($85,333,000, pre-tax) related to the 2006 gains on disposition of
three consolidated properties, Providence at Palm Harbor, Hilton Times Square, a 444-room
hotel located in Manhattan, New York, and G Street, a specialty retail center located in
Philadelphia, Pennsylvania;
    
    $15,565,000 ($25,236,000, pre-tax) related to decreased earnings in 2007
reported in the Land Development Group primarily due to a decrease in land sales at
Stapleton, Waterburyin North Ridgeville, Ohio, Chestnut Commonsand Tangerine Crossingin
Tucson, Arizona;
 30




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##### Table of Contents




    
    $5,376,000 ($8,761,000, pre-tax) related to decreases in Commercial Group
outlot land sales in 2007 primarily at Simi Valleyin Simi Valley, California, and Antelope
Valley Mall, which was partially offset by an increase in land sales in 2007 at Victoria
Gardensin Rancho Cucamonga, California;
    
    $4,809,000 ($7,837,000, pre-tax) 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;
    
    $4,700,000 ($7,662,000, pre-tax) related to the 2006 gain on disposition of
Midtown Plaza,an equity method Commercial property;
    
    $4,333,000 ($7,062,000, pre-tax) related to income recognition on state and federal Historic Preservation Tax Credits in 2006 that did not recur at the same
level;
    
    $3,112,000 ($5,072,000, pre-tax) related to an increase in depreciation and
amortization for amounts recorded as tangible and intangible assets, which were a result of
the purchase price allocation for the New York portfolio transaction that closed in
November 2006;
    
    $2,928,000 ($4,773,000, pre-tax) related to increased write-offs of abandoned
development projects in 2007; and
    
    $1,889,000 ($3,078,000, pre-tax) in 2007 related to the early extinguishment of
nonrecourse mortgage debt primarily at Columbia Park Center, a specialty retail center
located in North Bergen, New Jersey in order to secure more favorable financing terms and
at the Landings of Brentwooddue to the sale of the property.
  
    
    $67,182,000 ($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 Plainview, and Sterling
Glen of Stamford;
    
    $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;
    
    $4,798,000 ($7,820,000, pre-tax) in 2007 related to the
increase in fair market
value between the comparable periods of certain of our 10-year forward swaps
which were marked to market through interest expense as a result of the derivatives not
qualifying for hedge accounting (See the Interest Rate Exposure section);
    
    $4,107,000 ($7,265,000, pre-tax) related to the decrease in our allocation of
losses from our equity investment in the New Jersey Nets basketball team (see the Nets
section);
    
    $2,167,000 ($3,531,000, pre-tax) related to the amortization to straight-line
rent of above and below market leases, which were recorded as a component of the purchase
price allocation for the New York portfolio transaction; and
    
    $1,292,000 ($2,106,000, pre-tax) related to the 2007 gain on disposition of one
equity method Residential property, White Acres, an apartment community located in Richmond
Heights, Ohio.
 31




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##### Table of Contents



Summary of Segment Operating Results
 Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    Variance
    
    
    2007
    
    2006
    
    Variance(in thousands)
    
    
    (in thousands)Revenues from Real Estate OperationsCommercial Group
    
    $
    209,162
    
    
    $
    176,935
    
    
    $
    32,227
    
    
    
    $
    406,596
    
    
    $
    352,285
    
    
    $
    54,311Commercial Group Land Sales
    
    
    1,564
    
    
    
    4,207
    
    
    
    (2,643
    )
    
    
    
    7,157
    
    
    
    25,196
    
    
    
    (18,039
    )Residential Group
    
    
    62,254
    
    
    
    47,593
    
    
    
    14,661
    
    
    
    
    116,859
    
    
    
    92,173
    
    
    
    24,686Land Development Group
    
    
    14,606
    
    
    
    22,094
    
    
    
    (7,488
    )
    
    
    
    25,339
    
    
    
    42,910
    
    
    
    (17,571
    )The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Revenues from Real Estate Operations
    
    $
    287,586
    
    
    $
    250,829
    
    
    $
    36,757
    
    
    
    $
    555,951
    
    
    $
    512,564
    
    
    $
    43,387Interest and Other IncomeCommercial Group
    
    $
    8,295
    
    
    $
    2,374
    
    
    $
    5,921
    
    
    
    $
    10,233
    
    
    $
    3,259
    
    
    $
    6,974Residential Group
    
    
    11,785
    
    
    
    1,303
    
    
    
    10,482
    
    
    
    
    15,629
    
    
    
    11,192
    
    
    
    4,437Land Development Group
    
    
    2,968
    
    
    
    4,066
    
    
    
    (1,098
    )
    
    
    
    7,978
    
    
    
    7,612
    
    
    
    366The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    375
    
    
    
    127
    
    
    
    248
    
    
    
    
    982
    
    
    
    654
    
    
    
    328Total Interest and Other Income
    
    $
    23,423
    
    
    $
    7,870
    
    
    $
    15,553
    
    
    
    $
    34,822
    
    
    $
    22,717
    
    
    $
    12,105Equity in Earnings (Loss) of Unconsolidated EntitiesCommercial Group
    
    $
    3,746
    
    
    $
    2,240
    
    
    $
    1,506
    
    
    
    $
    5,213
    
    
    $
    3,758
    
    
    $
    1,455Gain on disposition of Midtown
    
    
    
    
    
    
    7,662
    
    
    
    (7,662
    )
    
    
    
    
    
    
    
    7,662
    
    
    
    (7,662
    )Residential Group
    
    
    3,055
    
    
    
    (5,815
    )
    
    
    8,870
    
    
    
    
    4,521
    
    
    
    (5,176
    )
    
    
    9,697Gain on disposition of White Acres
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,106
    
    
    
    
    
    
    
    2,106Land Development Group
    
    
    3,198
    
    
    
    6,264
    
    
    
    (3,066
    )
    
    
    
    2,771
    
    
    
    13,187
    
    
    
    (10,416
    )The Nets
    
    
    (2,226
    )
    
    
    (4,041
    )
    
    
    1,815
    
    
    
    
    (5,477
    )
    
    
    (12,742
    )
    
    
    7,265Corporate Activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Equity in Earnings (Loss) of Unconsolidated Entities
    
    $
    7,773
    
    
    $
    6,310
    
    
    $
    1,463
    
    
    
    $
    9,134
    
    
    $
    6,689
    
    
    $
    2,445Operating ExpensesCommercial Group
    
    $
    107,175
    
    
    $
    89,850
    
    
    $
    17,325
    
    
    
    $
    209,724
    
    
    $
    177,229
    
    
    $
    32,495Cost of Commercial Group Land Sales
    
    
    1,905
    
    
    
    3,297
    
    
    
    (1,392
    )
    
    
    
    5,171
    
    
    
    14,650
    
    
    
    (9,479
    )Residential Group
    
    
    44,901
    
    
    
    33,410
    
    
    
    11,491
    
    
    
    
    81,704
    
    
    
    62,037
    
    
    
    19,667Land Development Group
    
    
    13,981
    
    
    
    12,521
    
    
    
    1,460
    
    
    
    
    26,078
    
    
    
    25,520
    
    
    
    558The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    9,224
    
    
    
    10,488
    
    
    
    (1,264
    )
    
    
    
    23,101
    
    
    
    18,277
    
    
    
    4,824Total Operating Expenses
    
    $
    177,186
    
    
    $
    149,566
    
    
    $
    27,620
    
    
    
    $
    345,778
    
    
    $
    297,713
    
    
    $
    48,065Interest ExpenseCommercial Group
    
    $
    43,733
    
    
    $
    44,726
    
    
    $
    (993
    )
    
    
    $
    91,102
    
    
    $
    88,097
    
    
    $
    3,005Residential Group
    
    
    11,949
    
    
    
    11,716
    
    
    
    233
    
    
    
    
    25,231
    
    
    
    21,939
    
    
    
    3,292Land Development Group
    
    
    68
    
    
    
    2,643
    
    
    
    (2,575
    )
    
    
    
    2,374
    
    
    
    4,472
    
    
    
    (2,098
    )The Nets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Activities
    
    
    16,958
    
    
    
    12,607
    
    
    
    4,351
    
    
    
    
    30,800
    
    
    
    22,780
    
    
    
    8,020Total Interest Expense
    
    $
    72,708
    
    
    $
    71,692
    
    
    $
    1,016
    
    
    
    $
    149,507
    
    
    $
    137,288
    
    
    $
    12,219
 32




---



##### Table of Contents



Commercial Group
 Revenues from real estate operations
 
    
    Increase of $9,243,000 related to new property openings, as noted in the table
on page 35;
    
    Increase of $5,747,000 related to the buyout of our partner in the third
quarter of 2006 in Galleria at Sunset, a regional mall in Henderson, Nevada, previously
accounted for on the equity method of accounting;
    
    Increase of $2,237,000 related to an increase in rents primarily at the
following regional malls: Victoria Gardens, Simi Valley Town Center, Promenade in Temecula,
South Bay Galleriaand Antelope Valley, all of which are located in California;
    
    Increase of $1,669,000 related to the amortization to straight-line rent of
above and below market leases, which were recorded as a component of the purchase price
allocation for the New York portfolio transaction;
    
    Increase of $1,490,000 related to revenues earned on a construction contract
with the New York City School Construction Authority for the construction of a school at
Beekman, a development project in Manhattan, New York;
    
    Increase of $909,000 primarily related to increases in occupancy and rates in
our hotel portfolio; and
    
    Increase of $580,000 primarily related to reduced vacancies at 42nd Street
Retail, a specialty retail center located in New York and Short Pump Town Centerlocated in
Richmond, Virginia.
  
    
    Decrease of $2,642,000 ($2,206,000, net of minority interest) related to a
decrease in commercial outlot land sales primarily at Orchard Town Centerin Westminster,
Colorado and Antelope Valley Mall.
   
    
    Increase of $14,246,000 related to new property openings, as noted in the table
on page 35;
    
    Increase of $10,849,000 related to the buyout of our partner in the third
quarter of 2006 in Galleria at Sunset, which was previously accounted for on the equity
method of accounting;
    
    Increase of $5,590,000 related to an increase in rents primarily at the
following regional malls: Victoria Gardens, Simi Valley Town Center, Promenade in Temecula,
South Bay Galleriaand Antelope Valley;
    
    Increase of $3,531,000 related to the amortization to straight-line rent of
above and below market leases, which were recorded as a component of the purchase price
allocation for the New York portfolio transaction;
    
    Increase of $2,090,000 related to revenues earned on a construction contract
with the New York City School Construction Authority for the construction of a school at
Beekman;
    
    Increase of $1,823,000 primarily related to reduced vacancies at 42ndStreet Retailand Short Pump Town Center; and
    
    Increase of $1,302,000 primarily related to increases in occupancy and rates in our hotel portfolio.
  
    
    Decrease of $18,038,000 ($18,696,000, net of minority interest) related to a
decrease in commercial outlot land sales primarily at Promenade Bolingbrook, Simi Valley,
Orchard Town Centerand Salt Lake City.
  33




---



##### Table of Contents



Operating and Interest Expenses 
 
    
    Increase of $7,204,000 related to new property openings, as noted in the table
on page 35;
    
    Increase of $1,551,000 related to write-offs of abandoned development projects
that we believed were no longer probable of occurring;
    
    Increase of $1,490,000 related to construction of a school at Beekman. These
costs are reimbursed by the New York City School Construction Authority, which is included
in revenues from real estate operations as discussed above;
    
    Increase of $1,367,000 related to the buyout of our partner in the third
quarter of 2006 in Galleria at Sunset, which was previously accounted for on the equity
method of accounting;
    
    Increase of $871,000 related to the appeal of our application
to secure a gaming
license in Pennsylvania;
    
    Increase of $620,000 related to straight-line rent resulting from the
amortization of above and below market ground leases which were recorded as a component of
the purchase price allocation for the New York portfolio transaction;
    
    Increase of $464,000 primarily related to increases in occupancy at Victoria Gardens; and
    
    Increase of $143,000 primarily related to increases in occupancy in our hotel portfolio.
  
    
    Decrease of $1,392,000 ($1,112,000, net of minority interest) related to a
decrease in commercial outlot land sales primarily at Antelope Valleyand Orchard Town
Center.
   
    
    Increase of $11,200,000 related to new property openings, as noted in the table
on page 35;
    
    Increase of $2,867,000 related to the buyout of our partner in Galleria at
Sunset, which was previously accounted for on the equity method of accounting;
    
    Increase of $2,090,000 related to construction of a school at Beekman. These
costs are reimbursed by the New York City School Construction Authority, which is included
in revenues from real estate operations as discussed above;
    
    Increase of $2,037,000 related to write-offs of abandoned development projects
that we believed were no longer probable of occurring;
    
    Increase of $1,134,000 related to the appeal of our
application to secure a gaming license in Pennsylvania;
    
    Increase of $998,000 primarily related to increases in occupancy at Victoria Gardens;
    
    Increase of $714,000 related to straight-line rent resulting from the
amortization of above and below market ground leases, which were recorded as a component of
the purchase price allocation for the New York portfolio transaction;
    
    Increase of $600,000 primarily related to the write-off of costs associated
with a potential acquisition in 2007, which is no longer being pursued; and
    
    Increase of $373,000 primarily related to increases in occupancy in our hotel
portfolio.
  
    
    Decrease of $9,479,000 ($9,859,000, net of minority interest) related to a
decrease in commercial outlot land sales primarily at Promenade Bolingbrook, Simi Valley,
Orchard Town Centerand Salt Lake City.
  34




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 31, 2007Revenue
    
    
    
    
    
    
    RevenueQuarter/Year
    
    
    
    
    
    from Real
    
    
    
    
    
    
    from RealOpened or
    
    
    
    
    
    Estate
    
    Operating
    
    
    Estate
    
    OperatingProperty
    
    Location
    
    Acquired
    
    Square Feet
    
    Operations
    
    Expenses
    
    
    Operations
    
    ExpensesRetail Centers:Victoria Gardens-Bass Pro (3)
    
    Rancho Cucamonga, California
    
    Q2-2007
    
    
    180,000
    
    
    $
    780
    
    
    $
    
    
    
    
    $
    780
    
    
    $
    Promenade Bolingbrook (2)
    
    Bolingbrook, Illinois
    
    Q1-2007
    
    
    755,000
    
    
    
    2,742
    
    
    
    1,853
    
    
    
    
    2,742
    
    
    
    2,684Northfield at Stapleton
    
    Denver, Colorado
    
    Q4-2005/Q1-2006/Q3-2006
    
    
    1,170,000
    
    
    
    1,686
    
    
    
    2,256
    
    
    
    
    3,991
    
    
    
    4,031Office Buildings:Richmond Office Park (4)
    
    Richmond, Virginia
    
    Q2-2007 (1)
    
    
    571,000
    
    
    
    210
    
    
    
    
    
    
    
    
    210
    
    
    
    Illinois
Science and Technology Park-Building Q
    
    Skokie, Illinois
    
    Q1-2007
    
    
    160,000
    
    
    
    288
    
    
    
    331
    
    
    
    
    288
    
    
    
    334Colorado Studios
    
    Denver, Colorado
    
    Q1-2007 (1)
    
    
    75,000
    
    
    
    105
    
    
    
    47
    
    
    
    
    105
    
    
    
    47Commerce Court
    
    Pittsburgh, Pennsylvania
    
    Q1-2007 (1)
    
    
    378,000
    
    
    
    1,750
    
    
    
    1,106
    
    
    
    
    2,789
    
    
    
    1,550Illinois Science and Technology
Park 
Building A
    
    Skokie, Illinois
    
    Q4-2006
    
    
    225,000
    
    
    
    888
    
    
    
    614
    
    
    
    
    1,735
    
    
    
    1,089Illinois Science and Technology
Park  Building P
    
    Skokie, Illinois
    
    Q4-2006
    
    
    127,000
    
    
    
    223
    
    
    
    444
    
    
    
    
    435
    
    
    
    704Edgeworth Building
    
    Richmond, Virginia
    
    Q4-2006
    
    
    142,000
    
    
    
    347
    
    
    
    411
    
    
    
    
    752
    
    
    
    577Stapleton Medical Office Building
    
    Denver, Colorado
    
    Q3-2006
    
    
    45,000
    
    
    
    224
    
    
    
    142
    
    
    
    
    419
    
    
    
    184Total
    
    
    
    
    
    
    
    
    
    
    
    $
    9,243
    
    
    $
    7,204
    
    
    
    $
    14,246
    
    
    $
    11,200
 
 (1)
    
    Acquired property.(2)
    
    This property opened on April 26, 2007.(3)
    
    This property opened on July 18, 2007.(4)
    
    These eleven properties were acquired on July 26, 2007. Residential Group
 Revenues from real estate operations 
 
    
    Increase of $6,362,000 related to military housing fee income from the
management and development of units in Hawaii and Illinois;
    
    Increase of $5,194,000 related to the buyout of our partners at Sterling Glen
of Glen Covein Glen Cove, New York, Sterling Glen of Great Neckin Great Neck, New York,
Midtown Towersin Parma, Ohio and Village Greenin Beachwood, Ohio previously accounted for
on the equity method of accounting;
    
    Increase of $2,236,000 related to new property openings and an acquired
property as noted in the table on page 37; and
    
    Increase of $1,957,000 related to an increase in rents and occupancies
primarily at the following properties: Metro 417in Los Angeles, California, 100 Landsdowne
Streetin Cambridge, Massachusetts, Sterling Glen of Ryebrookin Ryebrook, New York and
Ashton Millin Cumberland, Rhode Island.
  
    
    Decrease of $2,100,000 related to the 2006 land sale at Bridgewaterin Hampton,
Virginia.
  35




---



##### Table of Contents




    
    Increase of $10,345,000 related to military housing fee income from the
management and development of units in Hawaii and Illinois;
    
    Increase of $6,833,000 related to the buyout of our partners at Sterling Glen
of Glen Cove, Sterling Glen of Great Neck, Midtown Towersand Village Greenpreviously
accounted for on the equity method of accounting;
    
    Increase of $4,507,000 related to an increase in rents and occupancies
primarily at the following properties: Metro 417, 100 Landsdowne Street, Sterling Glen of
Ryebrookand Ashton Mill; and
    
    Increase of $3,602,000 related to new property openings and
an acquired property as noted in the table on page 37.
  
    
    Decrease of $2,100,000 related to the 2006 land sale at Bridgewater.
  Operating and Interest Expenses 
 
    
    Increase of $5,349,000 related to management expenditures associated with
military housing fee income;
    
    Increase of $3,252,000 related to the buyout of our partners at Sterling Glen
of Glen Cove, Sterling Glen of Great Neck, Midtown Towersand Village Green;
    
    Increase of $1,321,000 in write-offs of abandoned development projects; and
    
    Increase of $516,000 related to new property openings and an
acquired property as noted in the table on page 37.
  
    
    Decrease of approximately $2,000,000 related to the 2006 land sale at Bridgewater.
   
    
    Increase of $6,368,000 related to management expenditures associated with
military housing fee income;
    
    Increase of $4,459,000 related to the buyout of our partners at Sterling Glen
of Glen Cove, Sterling Glen of Great Neck, Midtown Towersand Village Green;
    
    Increase of $2,737,000 in write-offs of abandoned development projects; and
    
    Increase of $1,227,000 related to new property openings and
an acquired property as noted in the table on page 37.
  
    
    Decrease of approximately $2,000,000 related to the 2006 land sale at Bridgewater.
   36




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 31, 2007Revenue from
    
    
    
    
    
    
    Revenue fromQuarter/Year
    
    Number
    
    Real Estate
    
    Operating
    
    
    Real Estate
    
    OperatingProperty
    
    
    
   Location
    
    Opened
    
    of Units
    
    Operations
    
    Expenses
    
    
    Operations
    
    ExpensesCameron Kinney
    
    Richmond, Virginia
    
    Q2-2007 (1)
    
    
    259
    
    
    $
    704
    
    
    $
    258
    
    
    
    $
    704
    
    
    $
    258Botanica II
    
    Denver, Colorado
    
    Q2-2007
    
    
    154
    
    
    
    64
    
    
    
    40
    
    
    
    
    64
    
    
    
    401251 S. Michigan
    
    Chicago, Illinois
    
    Q1-2006
    
    
    91
    
    
    
    173
    
    
    
    77
    
    
    
    
    328
    
    
    
    223Sky55
    
    Chicago, Illinois
    
    Q1-2006
    
    
    411
    
    
    
    1,295
    
    
    
    141
    
    
    
    
    2,506
    
    
    
    706Total
    
    
    
    
    
    
    
    
    
    
    
    $
    2,236
    
    
    $
    516
    
    
    
    $
    3,602
    
    
    $
    1,227
 
 (1)
    
    Acquired property Land Development Group
 Revenues from real estate operations 
 
    
    Decrease of $11,954,000 in land sales at Stapletonin Denver, Colorado; and
    
    Decrease of $745,000 in land sales primarily at three land development
projects, Wheatfield Lakein Wheatfield, New York, Chestnut Plazain Elyria, Ohio and
Suncoast Lakesin Pasco County, Florida, combined with several other sales decreases at
various land development projects.
  
    
    Increase of $2,081,000 in land sales at Summers Walkin Davidson, North Carolina;
    
    Increase of $1,625,000 in land sales at Tangerine Crossingin Tucson, Arizona;
    
    Increase of $638,000 in land sales at Rockport Squarein Lakewood, Ohio; and
    
    Increase of $867,000 in land sales primarily at two major land development
projects, Waterburyin North Ridgeville, Ohio and Mill Creekin York County, South
Carolina, combined with several other sales increases at various land development projects.
  
    
    Decrease of $16,794,000 in land sales at Stapleton;
    
    Decrease of $4,241,000 in land sales at Waterbury;
    
    Decrease of $769,000 in land sales at Tangerine Crossing;
    
    Decrease of $585,000 in land sales at Suncoast Lakes; and
    
    Decrease of $904,000 in land sales primarily at three major land development
projects, Creekstonein Copley, Ohio, New Havenin Barberton, Ohio and Chestnut Plaza,
combined with several other sales decreases at various land development projects.
  
    
    Increase of $2,445,000 in land sales at Summers Walk;
    
    Increase of $1,760,000 in land sales at Rockport Square;
 37




---



##### Table of Contents




    
    Increase of $698,000 in land sales at Mill Creek; and
    
    Increase of $819,000 in land sales primarily at Mallard Pointin Lorain, Ohio,
combined with several other sales increases at various land development projects.
 Operating and Interest Expenses 
 
    
    Increase of $1,568,000 at Summers Walkprimarily related to increased land sales;
    
    Increase of $1,010,000 at Tangerine Crossingprimarily related to increased land sales;
    
    Increase of $856,000 at Rockport Squareprimarily related to increased land sales; and
    
    Increase of $1,688,000 primarily at Waterbury, combined with several other
expense increases at various land development projects.
  
    
    Decrease of $2,798,000 at Stapletonprimarily related to decreased land sales;
and
    
    Decrease of $864,000 primarily related to decreased land sales at two major
land development projects, Wheatfield Lakecombined with several other expense decreases at
various land development projects.
  
    
    Increase of $2,263,000 at Rockport Squareprimarily related to increased land sales;
    
    Increase of $1,823,000 at Summers Walkprimarily related to increased land sales; and
    
    Increase of $3,546,000 primarily at Tangerine Crossing, Mill Creekand Villages
of Centralin Cleveland, Ohio, combined with several other expense increases at various
land development projects.
  
    
    Decrease of $4,330,000 at Stapletonprimarily related to decreased land sales;
    
    Decrease of $1,184,000 at Waterburyprimarily related to decreased land sales; and
    
    Decrease of $1,560,000 primarily related to decreased land sales at three major
land development projects, Creekstone, Suncoast Lakesand New Haven,combined with several
other expense decreases at various land development projects.
  The Nets
   38




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##### Table of Contents



Corporate Activities
 Operating and Interest Expenses
  Other Activity
  Provision for Decline in Real Estate
  Saddle Rock Village
 Depreciation and Amortization
  Ten MetroTech Center 80 DeKalb Avenue
 Amortization of Mortgage Procurement Costs
  Loss on Early Extinguishment of Debt
 Northern Boulevard Columbia Park Center Landings of Brentwood
 39




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##### Table of Contents



Simi Valley Town Center
 Interest and Other Income
  
    
    Residential Group
 
    
    Increase of $10,090,000 related to the gain on sale of Sterling Glen of Roslyn,
a supported-living apartment community under construction in Roslyn, New York; and
    
    Increase of $888,000 related to the income recognition on the sale of federal Historic Preservation Tax Credits.
 
    
    Land Development Group
 
    
    Increase of $670,000 related to changes in the fair value of a derivative held
by Stapleton Land, LLC on the Denver Urban Renewal Authority (DURA) bonds (see Financing
Arrangements section).
  
    
    Land Development Group
 
    
    Decrease of $1,864,000 related to interest income earned by Stapleton Land, LLC
on an interest rate swap related to the $75,000,000 Tax Increment Financing (TIF) bonds
(see Financing Arrangements section); and
    
    Decrease of $106,000 related to interest income earned by Stapleton Land II,
LLC on the collateral and the 1% fee related to an agreement on the $65,000,000 Senior
Subordinate Limited Property Tax Supported Revenue Refunding and Improvement Bonds (Senior
Subordinate Bonds) (see Financing Arrangements section).
 
    
    Commercial Group
 
    
    Decrease of $1,341,000 related to interest income earned on cash proceeds from
property dispositions placed in escrow for future acquisitions.
   
    
    Residential Group
 
    
    Increase of $10,090,000 related to the gain on sale of Sterling Glen of Roslyn.
 
    
    Land Development Group
 
    
    Increase of $1,542,000 related to changes in the fair value of a derivative
held by Stapleton Land, LLC on the DURA bonds (see Financing Arrangements section).
  
    
    Residential Group
 
    
    Decrease of $7,062,000 related to the income recognition on the sale of state
and federal Historic Preservation Tax Credits.
 
    
    Commercial Group
 
    
    Decrease of $1,341,000 related to interest income earned on cash proceeds from
property dispositions placed in escrow for future acquisitions.
 40




---



##### Table of Contents




    
    Land Development Group
 
    
    Decrease of $1,787,000 related to interest income earned by Stapleton Land, LLC
on an interest rate swap related to the $75,000,000 TIF bonds (see Financing Arrangements
section); and
    
    Decrease of $112,000 related to interest income earned by Stapleton Land II,
LLC on the collateral and the 1% fee related to an agreement on the Senior Subordinate
Bonds (see Financing Arrangements section).
  Equity in Earnings of Unconsolidated Entities
  
    
    Commercial Group
 
    
    Increase of $663,000 related to increased occupancy at the Westin Convention
Center Hotel, located in Pittsburgh, Pennsylvania; and
    
    Increase of $649,000 related to our proportionate share of earnings in our
equity investment in San Francisco Centre, located in San Francisco, California, which
opened during the third quarter of 2006.
 
    
    Land Development Group
 
    
    Increase of $2,669,000 related to increased land sales at Gladden Farms II, located in Marana, Arizona.
 
    
    The Nets
 
    
    Increase of $1,815,000 due to a reduction in our proportionate share of the
loss related to our equity investment in the Nets.
 
    
    Residential Group
 
    
    Increase of $1,698,000 due to the sale of
condominium units at 1100 Wilshireand Mercury, both located in Los Angeles, California.
  
    
    Commercial Group
 
    
    Decrease of $7,662,000 related to the 2006 gain on disposition of Midtown
Plaza, a specialty retail center located in Parma, Ohio; and
    
    Decrease of $875,000 due to the consolidation of Galleria at Sunset, a regional
mall in Henderson, Nevada, in the third quarter of 2006 due to buy-out of our partner.
 
    
    Land Development Group
 
    
    Decrease of $2,920,000 primarily related to decreased land sales at Gladden
Forest, located in Marana, Arizona and Chestnut Commons, located in Elyria, Ohio; and
    
    Decrease of $885,000 primarily related to decreased land sales at Suncoast
Lakes, located in Pasco County, Florida and Canterbury Crossing, located in Parker,
Colorado.
 
    
    Residential Group
 
    
    Decrease of $829,000 due to the consolidation of Village Green, an apartment
community located in Beachwood, Ohio, in the fourth quarter of 2006 due to buy-out of our
partner.
 41




---



##### Table of Contents




    
    Commercial Group
 
    
    Increase of $1,289,000 related to increased occupancy at the Westin Convention Center Hotel; and
    
    Increase of $1,221,000 related to our proportionate share of earnings in our
equity investment in San Francisco Centre, which opened during the third quarter of 2006.
 
    
    Land Development Group
 
    
    Increase of $2,647,000 related to increased land sales at Gladden Farms II.
 
    
    The Nets
 
    
    Increase of $7,265,000 due to a reduction in our proportionate share of the
loss related to our equity investment in the Nets.
 
    
    Residential Group
 
    
    Increase of $2,106,000 related to the 2007 gain on disposition of White Acres,
an apartment community located in Richmond Heights, Ohio; and
    
    Increase of $2,039,000 related to the sale of condominium units at 1100 Wilshireand Mercury.
  
    
    Commercial Group
 
    
    Decrease of $7,662,000 related to the 2006 gain on disposition of Midtown Plaza; and
    
    Decrease of $1,874,000 due to the consolidation of Galleria at Sunset, in the
third quarter of 2006 due to buy-out of our partner.
 
    
    Land Development Group
 
    
    Decrease of $4,243,000 primarily related to decreased land sales in Mayfield Village, Ohio;
    
    Decrease of $3,215,000 primarily related to decreased land sales at Suncoast Lakesand Canterbury Crossing; and
    
    Decrease of $3,054,000 related to decreased land sales at Gladden Forestand Chestnut Commons.
 
    
    Residential Group
 
    
    Decrease of $790,000 due to the consolidation of Village Greenin the fourth
quarter of 2006 due to buy-out of our partner.
  Income Taxes
  42




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##### Table of Contents



FIN No. 48
     July 31, 2007
    
    February 1, 2007Unrecognized tax benefits
    
    $
    4,523,000
    
    
    $
    4,892,000Portion that, if recognized, would impact the effective rate
    
    $
    886,000
    
    
    $
    844,000Accrued interest and penalties on unrecognized tax benefits
    
    $
    1,000,000
    
    
    $
    1,013,000Range of possible decrease in unrecognized tax benefits in next twelve months
    
    $
    0 to $3,500,000
    
    
    $
    0 to $3,900,000
 43




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##### Table of Contents



Discontinued Operations
  Sterling Glen of Lynbrook
 July 31, 2007(in thousands)AssetsReal estate
    
    $
    29,858Cash and equivalents
    
    
    615Restricted cash
    
    
    831Notes and accounts receivable, net
    
    
    9Other assets
    
    
    1,639Total Assets
    
    $
    32,952LiabilitiesMortgage debt, nonrecourse
    
    $
    27,696Accounts payable and accrued expenses
    
    
    280Total Liabilities
    
    $
    27,976
  Quarter/
    
    Three Months
    
    Six Months
    
    Three Months
    
    Six MonthsSquare Feet/
    
    Year
    
    Ended
    
    Ended
    
    Ended
    
    EndedProperty
    
    Location
    
    Number of Units
    
    Disposed
    
    7/31/2007
    
    7/31/2007
    
    7/31/2006
    
    7/31/2006Commercial Group:Battery Park City Retail
    
    Manhattan, New York
    
    166,000 square feet
    
    Q3-2006
    
    
    
    
    
    
    
    
    
    Yes
    
    
    YesEmbassy Suites Hotel
    
    Manhattan, New York
    
    463 rooms
    
    Q3-2006
    
    
    
    
    
    
    
    
    
    Yes
    
    
    YesHilton Times Square
    
    Manhattan, New York
    
    444 rooms
    
    Q1-2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    YesG Street Retail
    
    Philadelphia, Pennsylvania
    
    13,000 square feet
    
    Q1-2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    YesResidential Group:Sterling Glen of Lynbrook
    
    Lynbrook, New York
    
    130 units
    
    Est. Q1-2008
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Bayshore
    
    Bayshore, New York
    
    85 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Center City
    
    Philadelphia, Pennsylvania
    
    135 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Darien
    
    Darien, Connecticut
    
    80 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Forest Hills
    
    Forest Hills, New York
    
    83 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Plainview
    
    Plainview, New York
    
    79 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesSterling Glen of Stamford
    
    Stamford, Connecticut
    
    166 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    Yes
    
    
    YesLandings of Brentwood
    
    Nashville, Tennessee
    
    724 units
    
    Q2-2007
    
    Yes
    
    
    Yes
    
    
    
    
    
    
    
    Mount Vernon Square
    
    Alexandria, Virginia
    
    1,387 units
    
    Q4-2006
    
    
    
    
    
    
    
    
    
    Yes
    
    
    YesProvidence at Palm Harbor
    
    Tampa, Florida
    
    236 units
    
    Q2-2006
    
    
    
    
    
    
    
    
    
    Yes
    
    
    Yes
  Sterling Glen of
Roslyn
 44




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##### Table of Contents



Sterling Glen of Lynbrook
  Landings of Brentwood
  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Revenues
    
    $
    12,397
    
    
    $
    33,166
    
    
    
    $
    24,599
    
    
    $
    66,445ExpensesOperating expenses
    
    
    11,883
    
    
    
    20,472
    
    
    
    
    20,730
    
    
    
    47,005Depreciation and amortization
    
    
    921
    
    
    
    3,470
    
    
    
    
    1,934
    
    
    
    6,91412,804
    
    
    
    23,942
    
    
    
    
    22,664
    
    
    
    53,919Interest expense
    
    
    (2,000
    )
    
    
    (4,832
    )
    
    
    
    (3,608
    )
    
    
    (10,210
    )Amortization of mortgage procurement costs
    
    
    (34
    )
    
    
    (151
    )
    
    
    
    (69
    )
    
    
    (318
    )Loss on early extinguishment of debt
    
    
    (363
    )
    
    
    
    
    
    
    
    (363
    )
    
    
    Interest income
    
    
    112
    
    
    
    281
    
    
    
    
    209
    
    
    
    1,004Gain on disposition of rental properties
    
    
    106,318
    
    
    
    7,342
    
    
    
    
    106,318
    
    
    
    143,726Earnings before income taxes
    
    
    103,626
    
    
    
    11,864
    
    
    
    
    104,422
    
    
    
    146,728Income tax expenseCurrent
    
    
    5,682
    
    
    
    1,405
    
    
    
    
    5,740
    
    
    
    703Deferred
    
    
    34,358
    
    
    
    3,993
    
    
    
    
    34,608
    
    
    
    33,25240,040
    
    
    
    5,398
    
    
    
    
    40,348
    
    
    
    33,955Earnings before minority interest
    
    
    63,586
    
    
    
    6,466
    
    
    
    
    64,074
    
    
    
    112,773Minority interest, net of taxGain (loss) on disposition of rental
properties
    
    
    
    
    
    
    (2,693
    )
    
    
    
    
    
    
    
    58,393Operating earnings from rental properties
    
    
    
    
    
    
    586
    
    
    
    
    
    
    
    
    457
    
    
    
    (2,107
    )
    
    
    
    
    
    
    
    58,850Net earnings from discontinued operations
    
    $
    63,586
    
    
    $
    8,573
    
    
    
    $
    64,074
    
    
    $
    53,923
 45




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##### Table of Contents



Gain on Disposition of Rental Properties
  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)Discontinued Operations:Six Sterling Glen properties (Supported-Living Apartments) (1)
    
    $
    81,239
    
    
    $
    
    
    
    
    $
    81,239
    
    
    $
    Landings of Brentwood (Apartments)(2)
    
    
    25,079
    
    
    
    
    
    
    
    
    25,079
    
    
    
    Hilton Times Square Hotel (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,945G Street Retail (Specialty Retail Center)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439Providence at Palm Harbor (Apartments) (2)
    
    
    
    
    
    
    7,342
    
    
    
    
    
    
    
    
    7,342Total
    
    $
    106,318
    
    
    $
    7,342
    
    
    
    $
    106,318
    
    
    $
    143,726
 
 (1)
    
    The six properties included in the gain on disposition are 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. 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 the 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.  Three Months Ended July 31,
    
    
    Six Months Ended July 31,2007
    
    2006
    
    
    2007
    
    2006(in thousands)
    
    
    (in thousands)White Acres (Apartments)(1)
    
    Richmond Heights, Ohio
    
    $
    
    
    
    $
    
    
    
    
    $
    2,106
    
    
    $
    Midtown Plaza (Specialty Retail Center)
    
    Parma, Ohio
    
    
    
    
    
    
    7,662
    
    
    
    
    
    
    
    
    7,662$
    
    
    
    $
    7,662
    
    
    
    $
    2,106
    
    
    $
    7,662
 
 (1)
    
    We disposed of our interest in White Acresin a non-monetary exchange for the remaining
outside interest in Midtown Towers, an apartment community located in Parma, Ohio, which
was also an equity method investment. We have accounted for the non-monetary transaction
based upon the fair value of the equity method investments exchanged, which resulted in the
above gain on disposition of $2,106,000 for the six months ended July 31, 2007. FINANCIAL CONDITION AND LIQUIDITY
    46




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##### Table of Contents



Bank Revolving Credit Facility
   July 31, 2007
    
    January 31, 2007Maximum borrowings (1)
    
    $
    600,000
    
    
    $
    600,000Accordion option
    
    $
    150,000
    
    
    $
    Outstanding:Borrowings
    
    $
    235,000
    
    
    $
    Letters of credit
    
    $
    83,338
    
    
    $
    72,324Surety bonds
    
    $
    
    
    
    $
    Related Terms:LIBOR rate option (2)
    
    1.45% + LIBOR
    
    
    
    1.75% + LIBORPrime rate option
    
    
    1/2% + prime rate
    
    
    
    1/2% + prime rateDividend/stock repurchase limitation
    
    $
    40,000
    
    
    $
    40,000
 
 (1)
    
    $100,000,000 of the available borrowings may be used for letters of credit or surety
bonds.(2)
    
    We generally elect the LIBOR rate option over the prime rate option. 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
   47




---



##### Table of Contents



Other Senior Notes
   48




---



##### Table of Contents



Subordinated Debt
   Financing Arrangements
 Collateralized Borrowings
   49




---



##### Table of Contents



Other Financing Arrangements
      Mortgage Financings
  50




---



##### Table of Contents



Purpose of Financing
    
    Amount(in thousands)Loan extensions/additional fundings
    
    $
    486,730Development projects and acquisitions (1)
    
    
    223,092Refinancings
    
    
    210,703$
    920,525
 
 (1)
    
    $157,575 of the $223,092 relates to development projects and represents
the full amount available to be drawn on the loan. Interest Rate Exposure
  TotalOperating
    
    Development and
    
    
    
    
    
    WeightedProperties
    
    Land Projects
    
    Total
    
    Average Rate(dollars in thousands)Fixed (1)
    
    $
    3,852,844
    
    
    
    $     5,239
    
    
    $
    3,858,083
    
    
    
    6.08
    %Variable (2)Taxable
    
    
    784,057
    
    
    
    247,400
    
    
    
    1,031,457
    
    
    
    6.90
    %Tax-Exempt
    
    
    619,592
    
    
    
    43,232
    
    
    
    662,824
    
    
    
    4.49
    %$
    5,256,493
    
    
    
    $ 295,871
    
    
    $
    5,552,364
    
    
    
    6.04
    %Commitment from lenders
    
    
    
    
    
    
    $ 663,288
 
 (1)
    
    Fixed rate debt of $3,858,083 as of July 31, 2007 includes $94,688 of Urban Development
Action Grants (UDAGs) at 2.06%.(2)
    
    Taxable variable-rate debt of $1,031,457 and tax-exempt variable-rate debt of
$662,824 as of July 31, 2007 is protected with swaps and caps described below.  Taxable
 Caps
    
    Swaps(1)Notional
    
    Average Base
    
    Notional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate
    
    Amount
    
    Rate(dollars in thousands)08/01/07-02/01/08 (2)
    
    $
    1,037,362
    
    
    
    6.51
    %
    
    $
    350,289
    
    
    
    4.72
    %02/01/08-02/01/09
    
    
    1,056,089
    
    
    
    7.19
    
    
    
    689,690
    
    
    
    5.4302/01/09-02/01/10
    
    
    391,413
    
    
    
    5.43
    
    
    
    688,432
    
    
    
    5.4302/01/10-02/01/11
    
    
    73,500
    
    
    
    5.00
    
    
    
    687,081
    
    
    
    5.44
 
 (1)
    
    Excludes the 10-year forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of August 1, 2007 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, 2008. 51




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##### Table of Contents



Tax Exempt
 CapsNotional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate(dollars in thousands)08/01/07-02/01/08
    
    $
    266,558
    
    
    
    5.83
    %02/01/08-02/01/09
    
    
    219,310
    
    
    
    5.9702/01/09-02/01/10
    
    
    158,000
    
    
    
    6.0702/01/10-02/01/11
    
    
    10,800
    
    
    
    6.96
   Forward Swaps
 Property Accounted forunder the Equity Method ofFully Consolidated Properties
    
    AccountingExpirations for Years Ending
    
    
    
    Notional(1)
    
    
    
    
    
    Notional(2)January 31,
    
    
    
    Amount
    
    Rate
    
    Amount
    
    Rate2008
    
    
    
    
    $
    258,920
    
    
    
    5.76
    %
    
    $
    
    
    
    
    2009
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    2010
    
    
    
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
 
 (1)
    
    As these 10-year forward swaps have been designated and qualified 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 must be marked to market through earnings on a quarterly basis.    52




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##### Table of Contents



Cash Flows
 Operating Activities
  Increase in rents and other revenues received
    
    $
    20,646Decrease in interest and other income received
    
    
    (1,747
    )Decrease in cash distributions from unconsolidated entities
    
    
    (7,824
    )Decrease in proceeds from land sales  Land Development Group
    
    
    (23,252
    )Decrease in proceeds from land sales  Commercial Group
    
    
    (14,857
    )Decrease in land development expenditures
    
    
    32,392Increase in operating expenditures
    
    
    (80,752
    )Increase in interest paid
    
    
    (5,573
    )Net decrease
in cash provided by operating activities
    
    $
    (80,967
    )
 Investing Activities
   Six Months Ended July 31,2007
    
    2006(in thousands)Capital expenditures*
    
    $
    (729,643
    )
    
    $
    (363,952
    )Payment of lease procurement costs and other assets
    
    
    (16,628
    )
    
    
    (14,082
    )(Increase) decrease in restricted cash used for capital expenditures and other investing activities:Forest
Trace, a supported-living community in Lauderhill, Florida
    
    
    (50,830
)
    
    
    Victoria Gardens, a retail center in Rancho Cucamonga, California
    
    
    19,509
    
    
    
    (18,290
    )Atlantic Yards, a commercial development project in Brooklyn, New York
    
    
    419
    
    
    
    8,726Investment in a development opportunity in Ardsley, New York
    
    
    
    
    
    
    (15,000
    )Simi Valley Town Center, a retail center in Simi Valley, California
    
    
    
    
    
    
    (6,609
    )Sale proceeds released from escrow for current acquisitions or (placed in) escrow for future acquisitions:Mount Vernon Square, an apartment complex in Alexandria, Virginia
    
    
    51,943
    
    
    
    (6,288
    )Battery Park City, a specialty retail center in Manhattan, New York
    
    
    25,125
    
    
    
    Six Sterling Glensupported-living communities
    
    
    (111,089
    )
    
    
    Hilton Times Square, a hotel in Manhattan, New York, which were released in the third quarter of 2006
    
    
    
    
    
    
    (110,104
    )Providence at Palm Harbor, an apartment complex in Tampa, Florida, which were released in the fourth quarter of 2006
    
    
    
    
    
    
    (7,250
    )Other
    
    
    (7,556
    )
    
    
    (8,154
    )Subtotal
    
    $
    (72,479
    )
    
    $
    (162,969
    )Proceeds from disposition of rental properties and a development project:Six Sterling Glensupported-living communities
    
    $
    188,499
    
    
    $
    Landings of Brentwood, an apartment complex in Nashville, Tennessee
    
    
    67,756
    
    
    
    Sterling Glen of Roslyn,a development project in Roslyn, New York
    
    
    34,717
    
    
    
    Hilton Times Square, a hotel in Manhattan, New York
    
    
    
    
    
    
    120,400Providence at Palm Harbor, an apartment complex in Tampa, Florida
    
    
    
    
    
    
    7,250G Street, a retail center in Philadelphia, Pennsylvania
    
    
    
    
    
    
    805Other
    
    
    579
    
    
    
    Subtotal
    
    $
    291,551
    
    
    $
    128,455
 53




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##### Table of Contents



Investing Activities
 Six Months Ended July 31,2007
    
    2006(in thousands)(Increase) decrease in investments in and advances to affiliates:Land Development:Mesa De Sol, an unconsolidated project in Covington, New Mexico
    
    $
    (6,498
    )
    
    $
    (12,189
    )Residential Projects:Fort Lincoln III & IV, primarily refinancning proceeds from an unconsolidated apartment complex in Washington, D.C.
    
    
    5,152
    
    
    
    Mercury, an unconsolidated condominium development project in Los Angeles, California
    
    
    (3,069
    )
    
    
    (2,914
    )Met Lofts, an unconsolidated apartment complex in Los Angeles, California
    
    
    (1,337
    )
    
    
    Air Force Academy, an unconsolidated military housing project in Colorado Springs, Colorado
    
    
    (1,900
    )
    
    
    Uptown Apartments,an unconsolidated apartment complex under construction in Oakland, California
    
    
    2,007
    
    
    
    (6,904
    )1100 Wilshire, an unconsolidated condominium development project in Los Angeles, California
    
    
    
    
    
    
    (1,268
    )Cobblestone Court,an unconsolidated apartment complex in Painesville, Ohio
    
    
    
    
    
    
    (1,967
    )New York City Projects:East River Plaza, an unconsolidated development project in Manhattan, New York
    
    
    (1,048
    )
    
    
    (5,612
    )The Nets, a National Basketball Association franchise
    
    
    (25,083
    )
    
    
    Sports arena complex and related development projects in Brooklyn, New York
    
    
    1,123
    
    
    
    (6,240
    )Commercial Projects:Bulletin Building, primarily refinancing proceeds from an unconsolidated office building in San Francisco, California
    
    
    8,648
    
    
    
    San Francisco Centre-Emporium, primarily refinancing proceeds from an unconsolidated regional mall in San Francisco,
California
    
    
    15,804
    
    
    
    (1,251
    )Village at Gulfstream Park,an unconsolidated retail development project in Hallendale, Florida
    
    
    (2,611
    )
    
    
    Waterfront,an unconsolidated mixed-use development project in Washington, D.C.
    
    
    (25,200
    )
    
    
    Wiregrass Ranch, an unconsolidated retail development project in Tampa, Florida
    
    
    (3,053
    )
    
    
    (1,048
    )Metreon, an unconsolidated retail commercial acquisition in San Francisco, California
    
    
    
    
    
    
    (20,000
    )Dispositions:Midtown Plaza, an unconsolidated retail center in Parma, Ohio
    
    
    
    
    
    
    6,944Other net (advances) returns of investment of equity method investments and other advances to affiliates
    
    
    (277
    )
    
    
    (6,186
    )Subtotal
    
    $
    (37,342
    )
    
    $
    (58,635
    )Net cash used in investing activities
    
    $
    (564,541
    )
    
    $
    (471,183
    )
 
 *Capital expenditures were financed as follows:New nonrecourse mortgage indebtedness
    
    $
    341,944
    
    
    $
    164,370Proceeds from disposition of rental properties and a development project including release of investing escrows (see above)
    
    
    257,530
    
    
    
    Cash provided by operating activities
    
    
    48,938
    
    
    
    129,905Portion of cash on hand at the beginning of the year
    
    
    81,231
    
    
    
    69,677Total Capital Expenditures
    
    $
    729,643
    
    
    $
    363,952
 54




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##### Table of Contents



Financing Activities
   Six Months Ended July 31,2007
    
    2006(in thousands)Borrowings on bank revolving credit facility
    
    $
    409,000
    
    
    $
    139,000Payments on bank revolving credit facility
    
    
    (174,000
    )
    
    
    (82,500
    )Proceeds from nonrecourse mortgage debt
    
    
    573,734
    
    
    
    414,496Principal payments on nonrecourse mortgage debt
    
    
    (284,154
    )
    
    
    (243,406
    )Net increase (decrease) in notes payable
    
    
    15,169
    
    
    
    (23,372
    )(Increase) decrease in restricted cash:Uptown Apartments, a residential project under construction in Oakland, California
    
    
    
    
    
    
    19,562Stapleton, a mixed-use development project in Denver, Colorado
    
    
    6,000
    
    
    
    (2,065
    )Sterling Glen of Roslyn, a supported-living community under construction in
Roslyn, New York, sold in July 2007
    
    
    2,781
    
    
    
    13,078Sky55, an apartment complex in Chicago, Illinois
    
    
    3,207
    
    
    
    5,1531251 S. Michigan, an apartment complex in Chicago, Illinois
    
    
    1,642
    
    
    
    4,910Edgeworth Building, an office building in Richmond, Virginia
    
    
    1,015
    
    
    
    (2,250
    )Lucky Strike, an apartment complex in Richmond, Virginia
    
    
    (5,295
    )
    
    
    Sterling Glen of Ryebrook, a supported-living community in Ryebrook, New York
    
    
    (4,000
    )
    
    
    Chase Financial Tower,an office building in Cleveland, Ohio
    
    
    
    
    
    
    7,663Lenox Park, an apartment complex in Silver Spring, Maryland
    
    
    
    
    
    
    3,697Other
    
    
    (2,661
    )
    
    
    (1,063
    )(Decrease) increase in book overdrafts, representing checks issued but not yet paid
    
    
    (6,277
    )
    
    
    18,701Payment of deferred financing costs
    
    
    (7,849
    )
    
    
    (9,429
    )Purchase of treasury stock
    
    
    (3,138
    )
    
    
    (826
    )Exercise of stock options
    
    
    5,028
    
    
    
    1,575Distribution of accumulated equity to minority partners
    
    
    (13,243
    )
    
    
    Dividends paid to shareholders
    
    
    (14,341
    )
    
    
    (12,235
    )Decrease in minority interest
    
    
    (2,967
    )
    
    
    (9,465
    )Net cash provided by financing activities
    
    $
    499,651
    
    
    $
    241,224
 LEGAL PROCEEDINGS
  DIVIDENDS
  NEW ACCOUNTING STANDARDS
  55




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VARIABLE INTEREST ENTITIES
   56




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INFORMATION RELATED TO FORWARD-LOOKING STATEMENTS
  57




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Taxable
 Caps
    
    Swaps(1)Notional
    
    Average Base
    
    Notional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate
    
    Amount
    
    Rate(dollars in thousands)08/01/07-02/01/08 (2)
    
    $
    1,037,362
    
    
    
    6.51
    %
    
    $
    350,289
    
    
    
    4.72
    %02/01/08-02/01/09
    
    
    1,056,089
    
    
    
    7.19
    
    
    
    689,690
    
    
    
    5.4302/01/09-02/01/10
    
    
    391,413
    
    
    
    5.43
    
    
    
    688,432
    
    
    
    5.4302/01/10-02/01/11
    
    
    73,500
    
    
    
    5.00
    
    
    
    687,081
    
    
    
    5.44
 
 (1)
    
    Excludes the 10-year forward swaps discussed below.(2)
    
    These LIBOR-based hedges as of August 1, 2007 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, 2008. Tax Exempt
 CapsNotional
    
    Average BasePeriod Covered
    
    Amount
    
    Rate(dollars in thousands)08/01/07-02/01/08
    
    $
    266,558
    
    
    
    5.83
    %02/01/08-02/01/09
    
    
    219,310
    
    
    
    5.9702/01/09-02/01/10
    
    
    158,000
    
    
    
    6.0702/01/10-02/01/11
    
    
    10,800
    
    
    
    6.96
   Forward Swaps
 Property Accounted forunder the Equity Method ofFully Consolidated Properties
    
    AccountingExpirations for Years Ending
    
    
    
    Notional(1)
    
    
    
    
    
    Notional(2)January 31,
    
    
    
    Amount
    
    Rate
    
    Amount
    
    Rate2008
    
    
    
    
    $
    258,920
    
    
    
    5.76
    %
    
    $
    
    
    
    
    2009
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    2010
    
    
    
    
    $
    91,625
    
    
    
    5.72
    %
    
    $
    120,000
    
    
    
    5.93
    %Thereafter
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
 
 (1)
    
    As these 10-year forward swaps have been designated and qualified 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 must be marked to market through earnings on a quarterly basis. 58




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59




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 July 31, 2007
 Expected Maturity DateYear Ending January 31,FairTotal
    
    MarketPeriod
    
    Outstanding
    
    ValueLong-Term Debt
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    7/31/2007
    
    7/31/2007(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    106,344
    
    
    $
    73,319
    
    
    $
    328,819
    
    
    $
    174,277
    
    
    $
    361,495
    
    
    $
    2,813,829
    
    
    $
    3,858,083
    
    
    $
    3,769,637Weighted average interest rate
    
    
    6.75
    %
    
    
    6.53
    %
    
    
    6.92
    %
    
    
    6.81
    %
    
    
    7.11
    %
    
    
    5.76
    %
    
    
    6.08
    %Senior & subordinated debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287,500
    
    
    
    579,000
    
    
    
    866,500
    
    
    
    865,941
    (2)Weighted average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    7.30
    %
    
    
    6.08
    %Total Fixed-Rate Debt
    
    
    106,344
    
    
    
    73,319
    
    
    
    328,819
    
    
    
    174,277
    
    
    
    648,995
    
    
    
    3,392,829
    
    
    
    4,724,583
    
    
    
    4,635,578Variable:Variable-rate debt
    
    
    358,376
    
    
    
    525,467
    
    
    
    37,027
    
    
    
    48,258
    
    
    
    3,137
    
    
    
    59,192
    
    
    
    1,031,457
    
    
    
    1,031,457Weighted average interest rate
    
    
    7.07
    %
    
    
    7.03
    %
    
    
    7.19
    %
    
    
    5.77
    %
    
    
    5.75
    %
    
    
    5.56
    %
    
    
    6.90
    %Tax-exempt
    
    
    146,970
    
    
    
    45,400
    
    
    
    124,435
    
    
    
    87,486
    
    
    
    26,509
    
    
    
    232,024
    
    
    
    662,824
    
    
    
    662,824Weighted average interest rate
    
    
    4.83
    %
    
    
    4.06
    %
    
    
    4.17
    %
    
    
    4.24
    %
    
    
    4.16
    %
    
    
    4.67
    %
    
    
    4.49
    %Bank revolving credit facility (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235,000
    
    
    
    
    
    
    
    
    
    
    
    235,000
    
    
    
    235,000Weighted average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.82
    %
    
    
    
    
    
    
    
    
    
    
    6.82
    %Subordinated debt (1)
    
    
    
    
    
    
    20,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,400
    
    
    
    20,400Weighted average interest rate
    
    
    
    
    
    
    4.51
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.51
    %Total Variable-Rate Debt
    
    
    505,346
    
    
    
    591,267
    
    
    
    161,462
    
    
    
    370,744
    
    
    
    29,646
    
    
    
    291,216
    
    
    
    1,949,681
    
    
    
    1,949,681Total
Long-Term Debt
    
    $
    611,690
    
    
    $
    664,586
    
    
    $
    490,281
    
    
    $
    545,021
    
    
    $
    678,641
    
    
    $
    3,684,045
    
    
    $
    6,674,264
    
    
    $
    6,585,259Weighted average interest rate
    
    
    6.47
    %
    
    
    6.70
    %
    
    
    6.25
    %
    
    
    6.31
    %
    
    
    5.51
    %
    
    
    5.93
    %
    
    
    6.07
    %
 
 (1)
    
    Represents recourse debt.(2)
    
    Includes the equity portion of the 3.625% puttable equity-linked senior notes that is
tied to our stock price. 60




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
 January 31, 2007
 Expected Maturity DateYear Ending January 31,FairTotal
    
    MarketPeriod
    
    Outstanding
    
    ValueLong-Term Debt
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    1/31/2007
    
    1/31/2007(dollars in thousands)Fixed:Fixed-rate debt
    
    $
    161,725
    
    
    $
    104,983
    
    
    $
    371,240
    
    
    $
    207,294
    
    
    $
    360,269
    
    
    $
    2,524,856
    
    
    $
    3,730,367
    
    
    $
    3,702,515Weighted average interest rate
    
    
    6.78
    %
    
    
    6.65
    %
    
    
    7.09
    %
    
    
    7.03
    %
    
    
    7.12
    %
    
    
    5.77
    %
    
    
    6.17
    %Senior & subordinated debt (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287,500
    
    
    
    579,000
    
    
    
    866,500
    
    
    
    872,650Weighted average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    7.30
    %
    
    
    6.08
    %Total Fixed-Rate Debt
    
    
    161,725
    
    
    
    104,983
    
    
    
    371,240
    
    
    
    207,294
    
    
    
    647,769
    
    
    
    3,103,856
    
    
    
    4,596,867
    
    
    
    4,575,165Variable:Variable-rate debt
    
    
    448,545
    
    
    
    302,878
    
    
    
    8,184
    
    
    
    48,258
    
    
    
    3,123
    
    
    
    59,143
    
    
    
    870,131
    
    
    
    870,131Weighted average interest rate
    
    
    7.39
    %
    
    
    6.68
    %
    
    
    6.01
    %
    
    
    5.26
    %
    
    
    5.29
    %
    
    
    5.01
    %
    
    
    6.84
    %Tax-exempt
    
    
    191,609
    
    
    
    61,565
    
    
    
    206,335
    
    
    
    31,530
    
    
    
    14,810
    
    
    
    232,025
    
    
    
    737,874
    
    
    
    737,874Weighted average interest rate
    
    
    4.70
    %
    
    
    4.50
    %
    
    
    4.23
    %
    
    
    4.47
    %
    
    
    4.16
    %
    
    
    4.66
    %
    
    
    4.52
    %Bank revolving credit facility (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debt (1)
    
    
    
    
    
    
    20,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,400
    
    
    
    20,400Weighted average interest rate
    
    
    
    
    
    
    4.51
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.51
    %Total Variable-Rate Debt
    
    
    640,154
    
    
    
    384,843
    
    
    
    214,519
    
    
    
    79,788
    
    
    
    17,933
    
    
    
    291,168
    
    
    
    1,628,405
    
    
    
    1,628,405Total
Long-Term Debt
    
    $
    801,879
    
    
    $
    489,826
    
    
    $
    585,759
    
    
    $
    287,082
    
    
    $
    665,702
    
    
    $
    3,395,024
    
    
    $
    6,225,272
    
    
    $
    6,203,570Weighted average interest rate
    
    
    6.62
    %
    
    
    6.31
    %
    
    
    6.07
    %
    
    
    6.45
    %
    
    
    5.54
    %
    
    
    5.95
    %
    
    
    6.05
    %
 
 (1)
    
    Represents recourse debt. 61




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##### Table of Contents



Item 4. Controls and Procedures
    62




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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
    
    Withheld(1) Election of the following nominated
directors by Class A shareholdersMichael P. Esposito, Jr.
    
    
    68,808,737
    
    
    
    1,390,908Joan K. Shafran
    
    
    56,593,741
    
    
    
    13,605,904Louis Stokes
    
    
    69,084,728
    
    
    
    1,114,917Stan Ross
    
    
    69,098,214
    
    
    
    1,101,431(2) Election of the following nominated
directors by Class B shareholdersAlbert B. Ratner
    
    
    246,746,410
    
    
    
    1,381,990Samuel H. Miller
    
    
    246,747,730
    
    
    
    1,380,670Charles A. Ratner
    
    
    246,749,410
    
    
    
    1,378,990James A. Ratner
    
    
    246,747,730
    
    
    
    1,380,670Jerry V. Jarrett
    
    
    247,236,450
    
    
    
    891,950Ronald A. Ratner
    
    
    246,746,410
    
    
    
    1,381,990Scott S. Cowen
    
    
    248,111,450
    
    
    
    16,950Brian J. Ratner
    
    
    246,747,730
    
    
    
    1,380,670Deborah Ratner Salzberg
    
    
    246,747,730
    
    
    
    1,380,670Bruce C. Ratner
    
    
    246,747,730
    
    
    
    1,380,670
 (3)
    
    The ratification of PricewaterhouseCoopers LLP as independent registered public accounting
firm for the Company was adopted with 318,152,664 votes for, 80,447 votes against and 94,932
votes abstaining (a).
 
 (a)
    
    The affirmative vote of the holders 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 ratification. Abstentions were
counted as cast with respect to such proposal and had the same effect as votes against
the proposal. 63




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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
    
    -
    
    Form of Senior Subordinated Indenture between the Company and National City Bank, as Trustee
thereunder, incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form
S-3 (Registration
No. 333-22695).4.2
    
    -
    
    Form of Junior Subordinated Indenture between the Company and National City Bank, as Trustee
thereunder, incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form
S-3 (Registration
No. 333-22695).4.3
    
    -
    
    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).4.4
    
    -
    
    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).4.5
    
    -
    
    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).4.6
    
    -
    
    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).+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).
 64




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.4
    
    -
    
    Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as
Collateral between Deborah Ratner-Salzberg and Forest City Enterprises, Inc., insuring the lives of
Albert Ratner and Audrey Ratner, effective June 26, 1996, incorporated by reference to Exhibit 10.22
to the Companys Form 10-K for the year ended January 31, 1997 (File No. 1-4372).+10.5
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Charles Ratner 1992 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the lives of Charles Ratner and Ilana Horowitz (Ratner),
dated November 2, 1996, incorporated by reference to Exhibit 10.23 to the Companys Form 10-K for the
year ended January 31, 1997 (File No. 1-4372).+10.6
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.24 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.7
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildrens Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.25 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.8
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildrens Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.26 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.9
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildrens Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.27 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.10
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Max Ratner 1988 Grandchildrens Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.28 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.11
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.29 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.12
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.30 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.13
    
    -
    
    Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as Collateral between Albert
B. Ratner and James Ratner, Trustees under the Charles Ratner 1989 Irrevocable Trust Agreement and
Forest City Enterprises, Inc., insuring the life of Charles Ratner, dated October 24, 1996,
incorporated by reference to Exhibit 10.31 to the Companys Form 10-K for the year ended January 31,
1997 (File No. 1-4372).+10.14
    
    -
    
    Letter Supplement to Split Dollar Insurance Agreement and Assignment of Life Insurance Policy as
Collateral between James Ratner and Albert Ratner, Trustees under the Charles Ratner 1992 Irrevocable
Trust Agreement and Forest City Enterprises, Inc., insuring the lives of Charles Ratner and Ilana
Ratner, effective November 2, 1996, incorporated by reference to Exhibit 10.32 to the Companys Form
10-K for the year ended January 31, 1997 (File No. 1-4372).+10.15
    
    -
    
    Supplemental Unfunded Deferred Compensation Plan for Executives, incorporated by reference to Exhibit
10.9 to the Companys Form 10-K for the year ended January 31, 1997 (File No. 1-4372).
 65




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.16
    
    -
    
    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).+10.17
    
    -
    
    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).+10.18
    
    -
    
    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).+10.19
    
    -
    
    Deferred Compensation Plan for Executives, effective as of January 1, 1999, incorporated by reference
to Exhibit 10.43 to the Companys Form 10-K for the year ended January 31, 1999 (File No. 1-4372).+10.20
    
    -
    
    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).+10.21
    
    -
    
    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).+10.22
    
    -
    
    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).+10.23
    
    -
    
    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).+10.24
    
    -
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, by the Company and
Albert B. Ratner, incorporated by reference to Exhibit 10.47 to the Companys Form 10-Q for the
quarter ended July 31, 1999 (File No. 1-4372).+10.25
    
    -
    
    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).+10.26
    
    -
    
    Employment Agreement entered into on May 31, 1999, effective January 1, 1999, by the Company and
Samuel H. Miller, incorporated by reference to Exhibit 10.48 to the Companys Form 10-Q for the
quarter ended July 31, 1999 (File No. 1-4372).+10.27
    
    -
    
    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).+10.28
    
    -
    
    Employment Agreement (re: death benefits) entered into on May 31, 1999, by the Company and Thomas G.
Smith dated December 27, 1995, incorporated by reference to Exhibit 10.49 to the Companys Form 10-Q
for the quarter ended October 31, 1999 (File No. 1-4372).+10.29
    
    -
    
    Summary of Forest City Enterprises, Inc. Management Incentive Plan as adopted in 1997, incorporated
by reference to Exhibit 10.51 to the Companys Form 10-Q for the quarter ended July 31, 2001 (File
No. 1-4372).+10.30
    
    -
    
    Summary of Forest City Enterprises, Inc. Long-Term Performance Plan as adopted in 2000, incorporated
by reference to Exhibit 10.52 to the Companys Form 10-Q for the quarter ended July 31, 2001 (File
No. 1-4372).10.31
    
    -
    
    Credit Agreement, dated as of March 22, 2004, by and among Forest City Rental Properties Corporation,
the banks named therein, KeyBank National Association, as administrative agent, and National City
Bank, as syndication agent, incorporated by reference to Exhibit 10.40 to the Companys Form 10-K for
the year ended January 31, 2004 (File No. 1-4372).
 66




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document10.32
    
    -
    
    Guaranty of Payment of Debt, dated as of March 22, 2004, by and among Forest City Enterprises, Inc.,
the banks named therein, KeyBank National Association, as administrative agent, and National City
Bank, as syndication agent, incorporated by reference to Exhibit 10.41 to the Companys Form 10-K for
the year ended January 31, 2004 (File No. 1-4372).10.33
    
    -
    
    First Amendment to Credit Agreement, dated as of January 19, 2005, by and among Forest City Rental
Properties Corporation, the banks named therein, KeyBank National Association, as administrative
agent, and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.37 to
the Companys Form 10-K for the year ended January 31, 2005 (File No. 1-4372).10.34
    
    -
    
    First Amendment to Guaranty of Payment of Debt, dated as of January 19, 2005 by and among Forest City
Enterprises, Inc., the banks named therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.38 to the
Companys Form 10-K for the year ended January 31, 2005 (File No. 1-4372).+10.35
    
    -
    
    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).+10.36
    
    -
    
    Forest City Enterprises, Inc. Board of Directors Compensation Policy, incorporated by reference to
Exhibit 10.2 to the Companys Form 8-K filed on March 30, 2005 (File No. 1-4372).10.37
    
    -
    
    Second Amendment to Credit Agreement, dated as of April 7, 2005, by and among Forest City Rental
Properties Corporation, the banks named therein, KeyBank National Association, as administrative
agent, and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.43 to
the Companys Form 10-Q for quarter ended April 30, 2005 (File No. 1-4372).10.38
    
    -
    
    Second Amendment to Guaranty of Payment of Debt, dated as of April 7, 2005, by and among Forest City
Enterprises, Inc., the banks named therein, KeyBank National Association, as administrative agent,
and National City Bank, as syndication agent, incorporated by reference to Exhibit 10.2 to the
Companys Form 8-K filed on April 13, 2005 (File No. 1-4372).+10.39
    
    -
    
    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 quarter ended April 30,
2005 (File No. 1-4372).+10.40
    
    -
    
    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 quarter ended April 30,
2005
(File No. 1-4372).+10.41
    
    -
    
    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 quarter
ended April 30, 2005 (File No. 1-4372).+10.42
    
    -
    
    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).+10.43
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, by the Company 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).+10.44
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, by the Company 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).+10.45
    
    -
    
    Employment Agreement entered into on July 20, 2005, effective February 1, 2005, by the Company 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).
 67




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.46
    
    -
    
    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).+10.47
    
    -
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Executives (As Amended and Restated
Effective January 1, 2005), incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed
on December 16, 2005 (File No. 1-4372).+10.48
    
    -
    
    Forest City Enterprises, Inc. 2005 Deferred Compensation Plan for Nonemployee Directors (As Amended
and Restated Effective January 1, 2005), incorporated by reference to Exhibit 10.2 to the Companys
Form 8-K filed on December 16, 2005 (File No. 1-4372).+10.49
    
    -
    
    Forest City Enterprises, Inc. Unfunded Nonqualified Supplemental Pension Plan for Executives (As
Amended and Restated Effective January 1, 2005), incorporated by reference to Exhibit 10.3 to the
Companys Form 8-K filed on December 16, 2005 (File No. 1-4372).10.50
    
    -
    
    Consent Letter to Credit Agreement and Guaranty of Payment of Debt, dated January 20, 2006 by and
among Forest City Enterprises, Inc., the banks named therein, KeyBank National Association, as
Administrative Agent, and National City Bank, as Syndication Agent, incorporated by reference to
Exhibit 10.1 to the Companys Form 8-K filed on February 24, 2006 (File No. 1-4372).+10.51
    
    -
    
    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).10.52
    
    -
    
    Third Amendment to Credit Agreement, dated as of June 30, 2006, 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 30, 2006 (File No. 1-4372).10.53
    
    -
    
    Third Amendment to Guaranty of Payment of Debt, dated as of June 30, 2006, by and among Forest City
Enterprises, Inc., 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 30, 2006 (File No. 1-4372).10.54
    
    -
    
    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).10.55
    
    -
    
    Fourth Amendment to Credit Agreement, dated as of October 3, 2006, by and among Forest City Rental
Properties Corporation, KeyBank National Association, as Administrative Agent, National City Bank, as
Syndication Agent, and the banks named therein, incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K filed on October 10, 2006 (File No. 1-4372).10.56
    
    -
    
    Fourth Amendment to Guaranty of Payment of Debt, dated as of October 3, 2006, by and among Forest
City Enterprises, Inc., KeyBank National Association, as Administrative Agent, National City Bank, as
Syndication Agent, and the banks named therein, incorporated by reference to Exhibit 10.2 to the
Companys Form 8-K filed on October 10, 2006 (File No. 1-4372).+10.57
    
    -
    
    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).
 68




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document+10.58
    
    -
    
    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).+10.59
    
    -
    
    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).+10.60
    
    -
    
    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).+10.61
    
    -
    
    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).10.62
    
    -
    
    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).10.63
    
    -
    
    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).*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. 69




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##### Table of Contents



SIGNATURES
  FOREST CITY ENTERPRISES, INC.
                     (Registrant)Date: September 10, 2007
    /s/ THOMAS G. SMITHThomas G. SmithExecutive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)Date: September 10, 2007
    /s/ LINDA M. KANELinda M. KaneSenior Vice President
and Corporate Controller
(Principal Accounting Officer) 70




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##### Table of Contents



Exhibit Index
 ExhibitNumber
    
    
    
    Description of Document31.1
    
    -
    
    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.