UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2009

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.

(Exact name of registrant as specified in its charter)

Ohio				34-0863886
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)
Terminal Tower		50 Public Square
Suite 1100		Cleveland, Ohio		44113
(Address of principal executive offices)				(Zip Code)
Registrant’s telephone number, including area code				216-621-6060

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes     x      No     o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes     o      No     o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes     o     No     x

Indicate the number of shares outstanding, including unvested restricted stock, of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at June 3, 2009
Class A Common Stock, $.33 1/3 par value		133,730,285 shares
Class B Common Stock, $.33 1/3 par value		22,672,512 shares

Forest City Enterprises, Inc. and Subsidiaries

Table of Contents

PART I. FINANCIAL INFORMATION
				Page
Item 1.		Financial Statements
		Forest City Enterprises, Inc. and Subsidiaries
		Consolidated Balance Sheets April 30, 2009 and January 31, 2009			2
		Consolidated Statements of Operations Three Months Ended April 30, 2009 and 2008			3
		Consolidated Statements of Comprehensive Loss Three Months Ended April 30, 2009 and 2008			4
		Consolidated Statements of Equity Three Months Ended April 30, 2009 and 2008			5
		Consolidated Statements of Cash Flows Three Months Ended April 30, 2009 and 2008			6
		Notes to Consolidated Financial Statements			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			63
Item 4.		Controls and Procedures			67
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			67
Item 1A.		Risk Factors			67
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			68
Item 6.		Exhibits			69
Signatures					73
Certifications
EX-10.29
EX-31.1
EX-31.2
EX-32.1

PART I – FINANCIAL INFORMATION

		April 30, 2009				January 31, 2009
		(Unaudited)				(As Adjusted)
		(in thousands)
Assets
Real Estate
Completed rental properties		$	8,348,508			$	8,212,144
Projects under development			2,310,403				2,241,216
Land held for development or sale			201,124				195,213
Total Real Estate			10,860,035				10,648,573
Less accumulated depreciation			(1,461,381	)			(1,419,271	)
Real Estate, net			9,398,654				9,229,302
Cash and equivalents			204,379				267,305
Restricted cash			487,897				291,224
Notes and accounts receivable, net			412,989				427,410
Investments in and advances to affiliates			240,576				228,995
Other assets			913,668				936,271
Total Assets		$	11,658,163			$	11,380,507
Liabilities and Equity
Liabilities
Mortgage debt, nonrecourse		$	7,401,655			$	7,078,390
Notes payable			185,172				181,919
Bank revolving credit facility			378,000				365,500
Senior and subordinated debt			846,930				846,064
Accounts payable and accrued expenses			1,237,819				1,277,199
Deferred income taxes			442,234				455,336
Total Liabilities			10,491,810				10,204,408
Commitments and Contingencies			-				-
Equity
Shareholders’ Equity
Preferred stock - without par value; 10,000,000 shares authorized; no shares issued			-				-
Common stock - $.33 1/3 par value
Class A, 271,000,000 shares authorized, 80,313,465 and 80,082,126 shares issued and 80,289,745 and 80,080,262 shares outstanding, respectively			26,771				26,694
Class B, convertible, 56,000,000 shares authorized, 22,686,427 and 22,798,025 shares issued and outstanding, respectively; 26,257,961 issuable			7,562				7,599
			34,333				34,293
Additional paid-in capital			270,623				267,796
Retained earnings			613,045				643,724
Less treasury stock, at cost; 23,720 and 1,864 Class A shares, respectively			(128	)			(21	)
Shareholders’ equity before accumulated other comprehensive loss			917,873				945,792
Accumulated other comprehensive loss			(104,613	)			(107,521	)
Total Shareholders’ Equity			813,260				838,271
Noncontrolling interest			353,093				337,828
Total Equity			1,166,353				1,176,099
Total Liabilities and Equity		$	11,658,163			$	11,380,507

 

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries

(Unaudited)

		Three Months Ended April 30,
						2008
		2009				(As Adjusted)
		(in thousands, except per share data)
Revenues from real estate operations		$	313,029			$	305,010
Expenses
Operating expenses			194,847				207,356
Depreciation and amortization			66,458				66,006
Impairment of real estate			1,124				-
			262,429				273,362
Interest expense			(91,708	)			(82,473	)
Amortization of mortgage procurement costs			(3,671	)			(2,852	)
Loss on early extinguishment of debt			-				(5,179	)
Interest and other income			6,808				8,398
Gain on disposition of other investments			-				150
Loss before income taxes			(37,971	)			(50,308	)
Income tax expense (benefit)
Current			(7,331	)			351
Deferred			(14,940	)			(20,210	)
			(22,271	)			(19,859	)
Equity in loss of unconsolidated entities			(6,306	)			(9,647	)
Impairment of unconsolidated entities			(9,560	)			-
Loss from continuing operations			(31,566	)			(40,096	)
Discontinued operations, net of tax:
Operating earnings from rental properties			36				388
Gain on disposition of rental properties			2,784				-
			2,820				388
Net loss			(28,746	)			(39,708	)
Net earnings attributable to noncontrolling interest			(1,933	)			(694	)
Net loss attributable to Forest City Enterprises, Inc.		$	(30,679	)		$	(40,402	)
Basic and diluted earnings (loss) per common share
Loss from continuing operations attributable to Forest City Enterprises, Inc.		$	(0.33	)		$	(0.39	)
Earnings from discontinued operations attributable to Forest City Enterprises, Inc.			0.03				-
Net loss attributable to Forest City Enterprises, Inc.		$	(0.30	)		$	(0.39	)

 

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries

(Unaudited)

		Three Months Ended April 30,
						2008
		2009				(As Adjusted)
		(in thousands)
Net loss		$	(28,746	)		$	(39,708	)
Other comprehensive income, net of tax:
Unrealized net gains on investment securities			93				45
Change in unrealized net gains (losses) on interest rate derivative contracts			2,681				6,070
Foreign currency translation adjustments			130				-
Total other comprehensive income, net of tax			2,904				6,115
Comprehensive loss			(25,842	)			(33,593	)
Comprehensive income attributable to noncontrolling interest			(1,929	)			(1,678	)
Total comprehensive loss attributable to Forest City Enterprises, Inc.		$	(27,771	)		$	(35,271	)

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries

(Unaudited)

																																		Accumulated
		Common Stock																Additional																Other
		Class A								Class B								Paid-In				Retained				Treasury Stock								Comprehensive				Noncontrolling
		Shares				Amount				Shares				Amount				Capital				Earnings				Shares				Amount				Loss				Interest				Total
		(in thousands)
Three Months Ended April 30, 2009
Balances at January 31, 2009, as reported			80,082			$	26,694				22,798			$	7,599			$	241,539			$	645,852				2			$	(21	)		$	(107,521	)		$	-			$	814,142
Retrospective impact of adoption of FSP APB 14-1																			26,257				(2,128	)																			24,129
Reclassification related to the adoption of SFAS No. 160																																							337,828				337,828
Balances at January 31, 2009, as adjusted			80,082			$	26,694				22,798			$	7,599			$	267,796			$	643,724				2			$	(21	)		$	(107,521	)		$	337,828			$	1,176,099
Net loss																							(30,679	)															1,933				(28,746	)
Other comprehensive income, net of tax																																			2,908				(4	)			2,904
Purchase of treasury stock																											22				(107	)											(107	)
Conversion of Class B to Class A shares			112				37				(112	)			(37	)																											-
Restricted stock vested			119				40												(40	)																							-
Stock-based compensation																			4,683																								4,683
Excess income tax benefit (deficiency) from stock-based compensation																			(1,816	)																							(1,816	)
Contributions from noncontrolling interest																																							15,464				15,464
Distributions to noncontrolling interest																																							(2,208	)			(2,208	)
Other changes in noncontrolling interest																																							80				80
Balances at April 30, 2009			80,313			$	26,771				22,686			$	7,562			$	270,623			$	613,045				24			$	(128	)		$	(104,613	)		$	353,093			$	1,166,353
Three Months Ended April 30, 2008
Balances at January 31, 2008, as reported			78,238			$	26,079				24,388			$	8,129			$	229,358			$	782,871				36			$	(1,665	)		$	(72,656	)		$	-			$	972,116
Retrospective impact of adoption of FSP APB 14-1																			26,631				(1,081	)																			25,550
Reclassification related to the adoption of SFAS No. 160																																							281,689				281,689
Balances at January 31, 2008, as adjusted			78,238			$	26,079				24,388			$	8,129			$	255,989			$	781,790				36			$	(1,665	)		$	(72,656	)		$	281,689			$	1,279,355
Net loss																							(40,402	)															694				(39,708	)
Other comprehensive income, net of tax																																			5,131				984				6,115
Dividends $.08 per share																							(8,243	)																			(8,243	)
Purchase of treasury stock																											17				(642	)											(642	)
Conversion of Class B to Class A shares			510				169				(510	)			(169	)																											-
Exercise of stock options			12				4												120																								124
Restricted stock vested			74				26												(26	)																							-
Stock-based compensation																			4,469																								4,469
Distribution of accumulated equity to noncontrolling partners																			(3,710	)																							(3,710	)
Contributions from noncontrolling interest																																							41,563				41,563
Distributions to noncontrolling interest																																							(3,412	)			(3,412	)
Other changes in noncontrolling interest																																							8,386				8,386
Balances at April 30, 2008			78,834			$	26,278				23,878			$	7,960			$	256,842			$	733,145				53			$	(2,307	)		$	(67,525	)		$	329,904			$	1,284,297

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries

(Unaudited)

		Three Months Ended April 30,
						2008
		2009				(As Adjusted)
		(in thousands)
Net Loss		$	(28,746	)		$	(39,708	)
Depreciation and amortization			66,458				66,006
Impairment of real estate			1,124				-
Amortization of mortgage procurement costs			3,671				2,852
Gain on early extinguishment of debt, net of cash prepayment penalties			-				(305	)
Gain on disposition of other investments			-				(150	)
Deferred income tax benefit			(14,940	)			(20,210	)
Equity in loss of unconsolidated entities			6,306				9,647
Impairment of unconsolidated entities			9,560				-
Stock-based compensation			2,267				2,737
Amortization and mark-to-market adjustments of derivative instruments			3,674				360
Non-cash interest expense related to Puttable Equity-Linked Senior Notes			2,141				2,200
Cash distributions from operations of unconsolidated entities			4,265				11,619
Write-off of abandoned development projects			14,393				26,692
Discontinued operations:
Depreciation and amortization			107				663
Amortization of mortgage procurement costs			5				97
Deferred income tax (benefit) expense			(1,990	)			104
Gain on disposition of a rental property			(4,548	)			-
Cost of sales of land included in projects under development and completed rental properties			17,983				2,862
Increase in land held for development or sale			(6,055	)			(10,533	)
Decrease in notes and accounts receivable			13,547				14,909
Decrease (increase) in other assets			4,438				(2,346	)
(Increase) decrease in restricted cash used for operating purposes			(5,561	)			3,632
Decrease in accounts payable and accrued expenses			(49,790	)			(71,614	)
Net cash provided by (used in) operating activities			38,309				(486	)
Cash Flows from Investing Activities
Capital expenditures, including real estate acquisitions			(234,134	)			(238,499	)
Payment of lease procurement costs and other assets, net			(3,536	)			(40,730	)
Increase in restricted cash used for investing purposes			(198,250	)			(161,316	)
Proceeds from disposition of a rental property and other investments			9,042				150
(Increase) decrease in investments in and advances to affiliates			(31,038	)			55,003
Net cash used in investing activities			(457,916	)			(385,392	)
Cash Flows from Financing Activities
Proceeds from nonrecourse mortgage debt			407,655				683,815
Principal payments on nonrecourse mortgage debt			(63,861	)			(404,259	)
Proceeds from notes payable			833				35,388
Payments on notes payable			(4,828	)			(5,342	)
Borrowings on bank revolving credit facility			132,000				80,000
Payments on bank revolving credit facility			(119,500	)			(87,000	)
Change in restricted cash and book overdrafts			207				5,697
Payment of deferred financing costs			(8,974	)			(22,694	)
Purchase of treasury stock			(107	)			(642	)
Exercise of stock options			-				124
Distribution of accumulated equity to noncontrolling partners			-				(3,710	)
Contributions from noncontrolling interest			15,464				41,563
Distributions to noncontrolling interest			(2,208	)			(3,412	)
Dividends paid to shareholders			-				(8,234	)
Net cash provided by financing activities			356,681				311,294
Net decrease in cash and equivalents			(62,926	)			(74,584	)
Cash and equivalents at beginning of period			267,305				254,434
Cash and equivalents at end of period		$	204,379			$	179,850

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

The table below represents the effect of the following non-cash transactions for the three months ended April 30, 2009 and 2008:

		Three Months Ended April 30,
						2008
		2009				(As Adjusted)
		(in thousands)
Operating Activities
(Increase) decrease in land held for development or sale(5)(6)		$	(15,057	)		$	1,320
Decrease in notes and accounts receivable (1)(2)(3)			3,248				4,064
Increase (decrease) in other assets (1)(2)(3)(4)			1,246				(19,909	)
Increase in restricted cash (3)			-				(363	)
Increase in accounts payable and accrued expenses(1)(2)(3)(4)(6)			16,148				34,607
Total effect on operating activities		$	5,585			$	19,719
Investing Activities
Increase in projects under development (2)(5)(6)(7)		$	(4,965	)		$	(100,878	)
(Increase) decrease in completed rental properties (2)(3)(4)(5)			(1,879	)			25
Increase in restricted cash (3)			-				(244	)
Proceeds from disposition of a property (1)			20,853				-
Decrease in investments in and advances to affiliates (2)(3)			-				27,685
Total effect on investing activities		$	14,009			$	(73,412	)
Financing Activities
(Decrease) increase in nonrecourse mortgage debt (1)(2)(3)		$	(22,010	)		$	51,970
Increase in additional paid-in capital (7)			2,416				1,732
Dividends declared but not yet paid			-				(9	)
Total effect on financing activities		$	(19,594	)		$	53,693

	(1)		Disposition of Grand Avenue, a specialty retail center in the Commercial Group, including assumption of nonrecourse mortgage debt by the buyer, during the three months ended April 30, 2009.
	(2)		Change to full consolidation method of accounting from equity method due to the occurrence of a triggering event as described in FIN No. 46(R), “Consolidation of Variable Interest Entities,” for Shops at Wiregrass, a retail development project in the Commercial Group, during the three months ended April 30, 2008.
	(3)		Change to full consolidation method of accounting from equity method due to the acquisition of a partner’s interest in Village Center apartment community in the Residential Group during the three months ended April 30, 2008.
	(4)		Finalization of the preliminary purchase price allocation during the three months ended April 30, 2008 for Commerce Court and Colorado Studios, two office buildings in the Commercial Group.
	(5)		Commercial Group and Residential Group outlots reclassified prior to sale from projects under development or completed rental properties to land held for sale.
	(6)		Increase or decrease in construction payables included in accounts payable and accrued expenses.
	(7)		Capitalization of stock-based compensation granted to employees directly involved with the acquisition, development and construction of real estate.

The accompanying notes are an integral part of these consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries

(Unaudited)

A. Accounting Policies

Basis of Presentation

The interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and related notes included in the Company’s annual report on Form 10-K for the year ended January 31, 2009, including the Report of Independent Registered Public Accounting Firm. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments considered necessary for a fair statement of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Effective February 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. APB 14-1, “Accounting for Convertible Debt Instruments That May be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). This standard required the Company to adjust the prior year financial statements to show retrospective application upon adoption.

Adoption of FSP APB 14-1

FSP APB 14-1 requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. This statement changed the accounting treatment for the Company’s 3.625% Puttable Equity-Linked Senior Notes (“the Notes”) due October 2011, which were issued in October 2006. FSP APB 14-1 requires the initial debt proceeds from the sale of a company’s convertible debt instrument to be allocated between a liability component and an equity component. This allocation is based upon what the assumed interest rate would have been on the date of issuance if the Company had issued similar nonconvertible debt. The resulting debt discount will be amortized over the debt instrument’s expected life as additional non-cash interest expense. Due to the increase in interest expense, the Company recorded additional capitalized interest based on its qualifying expenditures on its development projects. Deferred financing costs decreased related to the reallocation of the original issuance costs between the debt instrument and equity component and the gain recognized from the purchase of $15,000,000, in principal, of the Notes during the three months ended October 31, 2008 was adjusted to reflect the requirements of gain recognition under FSP APB 14-1 (refer to Note D – Senior and Subordinate Debt).

The following tables reflect the Company’s as reported amounts along with the as adjusted amounts as a result of the retrospective adoption of FSP APB 14-1:

		January 31, 2009
		As				APB 14-1				As
		Reported				Adjustments				Adjusted
		(in thousands)
Consolidated Balance Sheet
Real estate, net		$	9,212,834			$	16,468			$	9,229,302
Other assets			936,902				(631	)			936,271
Senior and subordinated debt			870,410				(24,346	)			846,064
Deferred income taxes			439,282				16,054				455,336
Additional paid-in capital			241,539				26,257				267,796
Retained earnings			645,852				(2,128	)			643,724
		Three Months Ended April 30, 2008
		As				APB 14-1				As
		Reported				Adjustments				Adjusted
		(in thousands, except per share data)
Consolidated Statement of Operations (1)
Depreciation and amortization		$	65,961			$	45			$	66,006
Interest expense, net of capitalized interest			82,299				174				82,473
Deferred income tax benefit			(20,124	)			(86	)			(20,210	)
Loss from continuing operations			(39,963	)			(133	)			(40,096	)
Net loss attributable to Forest City Enterprises, Inc.			(40,269	)			(133	)			(40,402	)
Net loss attributable to Forest City Enterprises, Inc. per share - basic and diluted			(0.39	)			0.00				(0.39	)

(1)

Adjusted to reflect the impact of discontinued operations in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) (refer to Note I).

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

Noncontrolling Interest

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). A noncontrolling interest, previously referred to as minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The objective of this statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. The Company adopted SFAS No. 160 on February 1, 2009 and adjusted its January 31, 2009 Consolidated Balance Sheet to reflect noncontrolling interest as a component of total equity. Included in the balance sheet reclass was $58,247,000 of accumulated deficit noncontrolling interest resulting from deficit restoration obligations of noncontrolling partners, previously recorded as a component of investments in and advances to affiliates. In addition, the Company reclassed noncontrolling interest on its Consolidated Statement of Operations for the three months ended April 30, 2008.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. Some of the critical estimates made by the Company include, but are not limited to, estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, impairment of real estate, other-than-temporary impairments on its equity method investments and the computation of expected losses on Variable Interest Entities (“VIEs”). As a result of the nature of estimates made by the Company, actual results could differ.

Reclassification

Certain prior year amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year’s presentation.

Restricted Cash

Restricted cash represents legally restricted deposits with financial institutions for taxes and insurance, security deposits, capital replacement, improvement and operating reserves, bond funds, development escrows, construction escrows and collateral on total rate of return swaps, as well as certain restricted deposits with qualified intermediaries related to like-kind exchanges.

Capitalized Software Costs

Costs related to software developed or obtained for internal use are capitalized pursuant to Statement of Position No. 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” and amortized using the straight-line method over their estimated useful life, which is primarily three years. The Company capitalizes significant costs incurred in the acquisition or development of software for internal use, including the costs of the software, materials, consultants, interest and payroll and payroll-related costs for employees directly involved in developing internal-use computer software once final selection of the software is made. Costs incurred prior to the final selection of software, costs not qualifying for capitalization and routine maintenance costs are charged to expense as incurred.

At April 30 and January 31, 2009, the Company has capitalized software costs of $13,919,000 and $16,997,000, respectively, net of accumulated amortization of $26,205,000 and $23,302,000, respectively. Total amortization of capitalized software costs amounted to $3,156,000 and $3,016,000 for the three months ended April 30, 2009 and 2008, respectively.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

Military Housing Fee Revenues

Revenues for development fees related to the Company’s military housing projects are earned based on a contractual percentage of the actual development costs incurred by the military housing projects and are recognized on a monthly basis as the costs are incurred. The Company also recognizes additional development incentive fees based upon successful completion of certain criteria, such as incentives to realize development cost savings, encourage small and local business participation, comply with specified safety standards and other project management incentives as specified in the development agreements. Revenues of $2,868,000 and $22,464,000 were recognized during the three months ended April 30, 2009 and 2008, respectively, related to base development and development incentive fees, which were recorded in revenues from real estate operations in the Consolidated Statements of Operations.

Revenues related to construction management fees are earned based on the cost of each military housing construction contract. The Company also recognized certain construction incentive fees based upon successful completion of certain criteria as set forth in the construction contracts. Revenues of $2,850,000 and $3,262,000 were recognized during the three months ended April 30, 2009 and 2008, respectively, related to the base construction and incentive fees, which were recorded in revenues from real estate operations in the Consolidated Statements of Operations.

Property management and asset management fee revenues are earned based on a contractual percentage of the annual net rental income and annual operating income, respectively, that is generated by the military housing privatization projects as defined in the agreements. The Company also recognizes certain property management incentive fees based upon successful completion of certain criteria as set forth in the property management agreements. Property management and asset management fees of $4,042,000 and $3,467,000 were recognized during the three months ended April 30, 2009 and 2008, respectively, which were recorded in revenues from real estate operations in the Consolidated Statements of Operations.

Historic and New Market Tax Credit Entities

The Company has certain investments in properties that have received, or the Company believes are entitled to receive, historic rehabilitation tax credits on qualifying expenditures under Internal Revenue Code (“IRC”) section 47 and new market tax credits on qualifying investments in designated community development entities (“CDEs”) under IRC section 45D, as well as various state credit programs. The Company typically enters into these investments with sophisticated financial investors. In exchange for the financial investor’s initial contribution into the investment, the financial investor is entitled to substantially all of the benefits derived from the tax credit, but generally has no material interest in the underlying economics of the property. Typically, these arrangements have put/call provisions (which range up to 7 years) whereby the Company may be obligated (or entitled) to repurchase the financial investor’s interest. The Company has consolidated each of these properties in its consolidated financial statements, and has reflected these investor contributions as accounts payable and accrued expenses in its Consolidated Balance Sheets.

The Company guarantees the financial investor that in the event of a subsequent recapture by a taxing authority due to the Company’s noncompliance with applicable tax credit guidelines that it will indemnify the financial investor for any recaptured tax credits. The Company initially records a liability for the cash received from the financial investor. The Company generally records income upon completion and certification of the qualifying development expenditures for historic tax credits and upon certification of the qualifying investments in designated CDEs for new market tax credits resulting in an adjustment of the liability at each balance sheet date to the amount that would be paid to the financial investor based upon the tax credit compliance regulations, which range from 0 to 7 years. During the three months ended April 30, 2009 and 2008, the Company recognized income related to tax credits of $3,155,000 and $1,491,000, respectively, which were recorded in interest and other income in its Consolidated Statements of Operations.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

Termination Benefits

During the three months ended April 30, 2009 and the three months ended January 31, 2009, management initiated involuntary employee separations in various areas of the Company’s workforce to reduce costs, which was communicated to all employees. The Company provided outplacement services to all terminated employees and severance payments based on years of service and certain other defined criteria. In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, the Company recorded a pre-tax charge for total estimated termination costs (outplacement and severance) of $8,720,000 during the three months ended April 30, 2009 and $8,651,000 during the three months ended January 31, 2009, which is included in operating expenses in the Consolidated Statements of Operations. The expense is included in the Corporate Activities segment. The Company made payments of $5,291,000 related to the termination costs recorded during the three months ended January 31, 2009. The following table summarizes the activity in the accrued severance balance for termination costs:

		Total
		(in thousands)
Accrued severance balance at February 1, 2009		$	3,360
Termination benefits expense			8,720
Cumulative payments			(3,122	)
Accrued severance balance at April 30, 2009		$	8,958

Accumulated Other Comprehensive Loss

Net unrealized gains or losses on securities are included in accumulated other comprehensive income (loss) (“OCI”) and represent the difference between the market value of investments in unaffiliated companies that are available-for-sale at the balance sheet date and the Company’s cost. Another component of accumulated OCI is foreign currency translation adjustments related to the Company’s London, England operations whose functional currency is the British pound. The assets and liabilities related to these operations are translated into U.S. dollars at current exchange rates; revenues and expenses are translated at average exchange rates. Also included in accumulated OCI is the Company’s portion of the unrealized gains and losses on the effective portions of derivative instruments designated and qualifying as cash flow hedges. The following table summarizes the components of accumulated OCI included within the Company’s Consolidated Balance Sheets.

		April 30, 2009				January 31, 2009
		(in thousands)
Unrealized losses on securities		$	23			$	170
Unrealized losses on foreign currency translation			2,029				2,258
Unrealized losses on interest rate contracts			170,297				174,838
			172,349				177,266
Noncontrolling interest and income tax benefit			(67,736	)			(69,745	)
Accumulated Other Comprehensive Loss		$	104,613			$	107,521

Accounting for Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), with the intent to provide users of financial statements with an enhanced understanding of how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows. These disclosure requirements include a tabular summary of the fair values of derivative instruments and their gains and losses, disclosure of derivative features that are credit risk related to provide more information regarding an entity’s liquidity and cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted the financial statement disclosures required by SFAS No. 161 on February 1, 2009.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

Risk Management Objective of Using Derivatives

The Company maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned decreases in earnings and cash flows that may be caused by interest rate volatility. Derivative instruments that are used as part of the Company’s strategy include interest rate swaps and option contracts that have indices related to the pricing of specific balance sheet liabilities. The Company enters into interest rate swaps to convert certain floating-rate debt to fixed-rate long-term debt, and vice-versa, depending on market conditions or forward starting swaps to hedge the changes in benchmark interest rates on forecasted financings. Option products utilized include interest rate caps, floors, interest rate swaptions and Treasury options. The use of these option products is consistent with the Company’s risk management objective to reduce or eliminate exposure to variability in future cash flows primarily attributable to changes in benchmark rates relating to forecasted financings, and the variability in cash flows attributable to increases relating to interest payments on its floating-rate debt. The caps and floors have typical durations ranging from one to three years while the Treasury options are for periods of five to ten years. The Company also enters into interest rate swap agreements for hedging purposes for periods that are generally one to ten years. The Company does not have any Treasury options outstanding at April 30, 2009.

Derivatives are reported in the Consolidated Balance Sheets at their fair value. On the date that the Company enters into a derivative contract, it typically designates the derivative as a hedge of a forecasted transaction or the variability of cash flows that are to be paid in connection with a recognized or forecasted liability (a “cash flow hedge”), or to convert certain fixed-rate long-term debt to variable-rate debt (a “fair value hedge”). The effective portion of the change in fair value of a derivative that is designated and qualifies as a cash flow hedge is recorded in OCI until the hedged transaction affects earnings. The ineffective portion of all hedges is immediately recognized in the Consolidated Statements of Operations. Nondesignated hedges are either specifically nondesignated by management or do not meet the strict hedge accounting requirements of SFAS No. 133. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to earnings in the Consolidated Statements of Operations.

The Company has entered into forward swaps to protect itself against fluctuations in the swap rate at terms ranging between five to ten years associated with forecasted fixed rate borrowings. At the time the Company secures and locks an interest rate on an anticipated financing, it intends to simultaneously terminate the forward hedge associated with that financing. At April 30, 2009, the Company had one forward swap designated and qualified as a cash flow hedge under SFAS No. 133 with a notional amount of $69,325,000 related to a fully consolidated property that expires during the current year ending January 31, 2010. The Company’s portion of unrealized loss on the effective portion of this hedge has been recorded in accumulated OCI. To the extent effective, amounts recorded in accumulated OCI will be amortized as either an increase or decrease to interest expense in the same periods as the interest payments on the financing.

The net losses of derivatives recorded in accumulated OCI are expected to be reclassified into earnings in the same period in which the hedged forecasted transactions affect earnings. As of April 30, 2009, the Company expects that within the next twelve months it will reclassify amounts recorded in accumulated OCI into earnings as interest expense of approximately $29,088,000, net of tax. However, the actual amount reclassified could vary due to future changes in fair value of these derivatives.

Fair Value Hedges of Interest Rate Risk

From time to time, the Company and/or certain of its joint ventures (the “Joint Ventures”) enter into total rate of return swaps (“TRS”) on various tax-exempt fixed-rate borrowings generally held by the Company and/or within the Joint Ventures. The TRS convert these borrowings from a fixed rate to a variable rate and provide an efficient financing product to lower the cost of capital. In exchange for a fixed rate, the TRS require that the Company and/or the Joint Ventures pay a variable rate, generally equivalent to the Security Industry and Financial Markets Association (“SIFMA”) rate. At April 30, 2009, the SIFMA rate is 0.63%. Additionally, the Company and/or the Joint Ventures have guaranteed the fair value of the underlying borrowing. Any fluctuation in the value of the guarantee would be offset by the fluctuation in the value of the underlying borrowing, resulting in no financial impact to the Company and/or the Joint Ventures. At April 30, 2009, the aggregate notional amount of TRS that are designated as fair value hedging instruments under SFAS No. 133, in which the Company and/or the consolidated Joint Ventures have an interest, is $516,195,000 (which includes the TRS on the $20,400,000 redevelopment bonds (refer to Note D – Senior and Subordinated Debt)). The Company believes the economic return and related risk associated with a TRS is generally comparable to that of nonrecourse variable-rate mortgage debt. The underlying TRS borrowings are subject to a fair value adjustment (refer to Note F – Fair Value Measurements).

Nondesignated Hedges of Interest Rate Risk

At April 30, 2009, the Company had one other forward swap outstanding with a notional amount of $120,000,000 that expires during the current year ending January 31, 2010 and does not qualify as a cash flow hedge under the provisions of SFAS No. 133 because it relates to an unconsolidated property. The change in fair value of this swap is marked to market through earnings on a quarterly basis. For the three months ended April 30, 2009 and 2008, the Company recorded $655,000 and $12,000, respectively, as a reduction of interest expense related to this forward swap in its Consolidated Statements of Operations. During the year ended January 31, 2009, the Company purchased an interest rate floor in order to mitigate the interest rate risk on this forward swap should interest rates fall below a certain level.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

The following table presents the fair values and location in the consolidated balance sheet of all derivative instruments as of April 30, 2009:

		Fair Value of Derivative Instruments
		April 30, 2009
										Liability Derivatives
		Asset Derivatives								(included in Accounts Payable
		(included in Other Assets)								and Accrued Expenses)
		Current								Current
		Notional				Fair Value				Notional				Fair Value
		(in thousands)
Derivatives Designated as Hedging Instruments Under SFAS No. 133:
Interest rate caps, floors and swaptions		$	567,333			$	1,185			$	-			$	-
Interest rate swap agreements			-				-				1,219,417				140,612	(1)
TRS			-				-				516,195				51,221
Total derivatives designated as hedging instruments under SFAS No. 133		$	567,333			$	1,185			$	1,735,612			$	191,833
Derivatives Not Designated as Hedging Instruments Under SFAS No. 133:
Interest rate caps, floors and swaptions		$	1,447,813			$	702	(2)		$	-			$	-
Interest rate swap agreements			21,176				2,441				120,000				24,601
TRS			55,755				1,280				40,559				12,670
Total derivatives not designated as hedging instruments under SFAS No. 133		$	1,524,744			$	4,423			$	160,559			$	37,271

	(1)		$983 of the fair value applies to $300,000 of notional excluded from the associated current notional amount that is covered by other interest rate swaps for the three months ended April 30, 2009. These swaps are active as of April 30, 2009; however, their effective periods are subsequent to this date.
	(2)		$197 of the fair value applies to $1,247,334 of notional excluded from the associated current notional amount that is covered by other interest rate caps for the three months ended April 30, 2009. These caps are active as of April 30, 2009; however, their effective periods are subsequent to this date.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

The following table presents the impact of gains and losses related to derivative instruments designated as cash flow hedges included in the accumulated OCI section of the Consolidated Balance Sheets, and in equity in loss of unconsolidated entities and interest expense in the Consolidated Statements of Operations for the three months ended April 30, 2009:

						Loss Reclassified from
						Accumulated OCI
						(Effective Portion)
												Loss Recognized in
												Interest Expense on
Derivatives Designated as Hedging		Loss				Location on						Derivatives (Ineffective
Instruments Under SFAS No. 133		Recognized				Consolidated						Portion and Amounts
Cash Flow Hedging		in OCI				Statements of						Excluded from
Relationships(1)		(Effective Portion)				Operations		Amount				Effectiveness Testing)
			(in thousands)
Interest rate caps, floors and swaptions		$	(135	)		Interest expense		$	(115	)		$	-
Treasury options			-			Interest expense			(140	)			-
Treasury options			-			Equity in loss of unconsolidated entities			(41	)			-
Interest rate swap agreements			(7,913	)		Interest expense			(12,293	)			(82	)
Total		$	(8,048	)				$	(12,589	)		$	(82	)

(1)

Gains and losses on terminated hedges included in accumulated OCI are being reclassified into interest expense over the original life of the hedged transactions as the transactions are still more likely than not to occur and would not be reflected in the previous table related to the fair value of designated derivatives (see Note F – Fair Value Measurements).

The following table presents the impact of gains and losses related to derivative instruments designated as fair value hedges included in interest expense in the Consolidated Statements of Operations for the three months ended April 30, 2009:

Derivatives Designated as Hedging
Instruments Under SFAS No. 133		Gain
Fair Value Hedging Relationships		Recognized(1)
	(in thousands)
TRS		$	8,119

(1)

The loss recognized in interest expense in the Consolidated Statements of Operations from the change in fair value of the underlying TRS borrowings for the three months ended April 30, 2009 was $8,119, offsetting the gain recognized on the TRS. (see Note F – Fair Value Measurements).

The following table presents the impact of gains and losses related to derivative instruments not designated as hedging instruments included in interest expense in the Consolidated Statements of Operations for the three months ended April 30, 2009:

Derivatives Not Designated as
Hedging Instruments Under		Gain (Loss)
SFAS No. 133		Recognized
	(in thousands)
Interest rate caps, floors and swaptions		$	(730	)
Interest rate swap agreements			716
TRS			(2,857	)
Total		$	(2,871	)

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

Credit-risk-related Contingent Features

The principal credit risk to the Company through its interest rate risk management strategy is the potential inability of the financial institution from which the derivative financial instruments were purchased to cover all of its obligations. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company’s risk of loss approximates the fair value of the derivative. To mitigate this exposure, the Company generally purchases its derivative financial instruments from either the institution that holds the debt or from institutions with a minimum A- credit rating.

The Company has agreements with its derivative counterparties that contain a provision, under which the derivative counterparty could terminate the derivative obligations if the Company defaults on its obligations under the bank revolving credit facility and designated conditions have passed. In instances where subsidiaries of the Company have derivative obligations that are secured by a mortgage, the derivative obligations could be terminated if the indebtedness between the two parties is terminated, either by loan payoff or default of the indebtedness. In addition, one of the Company’s derivative contracts provides that if the Company’s credit rating were to fall below certain levels, it may trigger additional collateral to be posted with the counterparty up to the full amount of the liability position of the derivative contracts. Also, certain subsidiaries of the Company have agreements with certain of its derivative counterparties that contain provisions whereby the subsidiaries of the Company must maintain certain minimum financial ratios.

As of April 30, 2009, the aggregate fair value of all derivative instruments in a liability position, which excludes any adjustment for nonperformance risk is $251,612,000, for which the Company had posted collateral of $90,483,000. If all credit risk contingent features underlying these agreements had been triggered on April 30, 2009, due to the payoff of related debt obligations by termination of default, the Company would have been required to post collateral of the full amount of the liability position referred to above, or $251,612,000.

Variable Interest Entities

In accordance with FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” (“FIN No. 46 (R)”), the Company consolidates a variable interest entity (“VIE”) in which it has a variable interest (or a combination of variable interests) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, based on an assessment performed at the time the Company becomes involved with the entity. VIEs are entities in which the equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. The Company reconsiders this assessment only if the entity’s governing documents or the contractual arrangements among the parties involved change in a manner that changes the characteristics or adequacy of the entity’s equity investment at risk, some or all of the equity investment is returned to the investors and other parties become exposed to expected losses of the entity, the entity undertakes additional activities or acquires additional assets beyond those that were anticipated at inception or at the last reconsideration date that increase its expected losses, or the entity receives an additional equity investment that is at risk, or curtails or modifies its activities in a way that decreases its expected losses. The Company may be subject to additional losses to the extent of any financial support that it voluntarily provides in the future. Additionally, if different estimates are applied in determining future cash flows, and how the cash flows are funded, it may have otherwise concluded on the consolidation method of an entity.

The determination of the consolidation method for each entity can change as reconsideration events occur. Expected results after the formation of an entity can vary, which could cause a change in the allocation to the partners. In addition, if the Company sells a property, sell its interest in a joint venture or enters into a new joint venture, the number of VIEs it is involved with could vary between quarters.

As of April 30, 2009, the Company determined that it was the primary beneficiary under FIN No. 46 (R) of 35 VIEs representing 23 properties (21 VIEs representing 10 properties in the Residential Group, 12 VIEs representing 11 properties in the Commercial Group and 2 VIEs/properties in the Land Development Group). The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of April 30, 2009, the Company held variable interests in 41 VIEs for which it is not the primary beneficiary. The maximum exposure to loss as a result of its involvement with these unconsolidated VIEs is limited to the Company’s recorded investments in those VIEs totaling approximately $99,000,000 at April 30, 2009. The Company’s VIEs consist of joint ventures that are engaged, directly or indirectly, in the ownership, development and management of office buildings, regional malls, specialty retail centers, apartment communities, military housing, supported-living communities, land development and The Nets.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

The carrying value of real estate, nonrecourse mortgage debt and noncontrolling interest of VIEs for which the Company is the primary beneficiary are as follows:

		April 30, 2009				January 31, 2009
		(in thousands)
Real estate, net		$	1,703,000			$	1,602,000
Nonrecourse mortgage debt		$	1,528,000			$	1,237,000
Noncontrolling interest		$	79,000			$	63,000

In addition to the VIEs described above, the Company has also determined that it is the primary beneficiary of a VIE which holds collateralized borrowings of $29,000,000 (see Note D - Senior and Subordinated Debt) as of April 30, 2009.

New Accounting Standards

In addition to FSP APB 14-1, SFAS No. 160 and SFAS No. 161 noted above, the following accounting standards were also adopted on February 1, 2009:

SFAS No. 157 “Fair Value Measurements” (“SFAS No. 157”) defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about the use of fair value measurements. SFAS No. 157 does not require new fair value measurements, but applies to accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued two Staff Positions on SFAS No. 157: (1) FSP No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”) and (2) FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-1 excludes SFAS No. 13, “Accounting for Leases” (“SFAS No. 13”) and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13 from SFAS No. 157’s scope. FSP FAS 157-2 delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company adopted this statement for its financial assets and liabilities on February 1, 2008 (see Note J - Fair Value Measurements) and for its nonfinancial assets and liabilities on February 1, 2009.

In October 2008, FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS No. 157-3”), which clarifies the application of SFAS No. 157. FSP FAS No. 157-3 provides guidance in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of this standard as of October 31, 2008 did not have a material impact on the Company’s consolidated financial statements.

In November 2008, the FASB issued EITF No. 08-6, “Equity Method Accounting Considerations” (“EITF 08-6”), which clarifies accounting and impairment considerations involving equity method investments after the effective date of both SFAS 141 (R) and SFAS 160. EITF 08-6 provides clarification of how business combination and noncontrolling interest accounting will impact equity method investments. EITF 08-6 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning on or after December 15, 2008 and early adoption is prohibited. The adoption of EITF No. 08-6 on February 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). This new standard requires that nonvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents be treated as participating securities in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 will be applied retrospectively to all periods presented for fiscal years beginning after December 15, 2008. The adoption of FSP EITF 03-6-1 on February 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). Paragraph 11(a) of SFAS No. 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to the Company’s own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS No. 133 paragraph 11(a) scope exception. EITF 07-5 is effective for the first annual reporting period beginning after December 15, 2008. The adoption of EITF 07-5 by the Company on February 1, 2009 did not have a material impact on its consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

A. Accounting Policies (continued)

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. This FSP allows the Company to use its historical experience in renewing or extending the useful life of intangible assets. This FSP is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and shall be applied prospectively to intangible assets acquired after the effective date. The adoption of this FSP on February 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) provides greater consistency in the accounting and financial reporting of business combinations. SFAS No. 141(R) requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose the nature and financial effect of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. In February 2009, the FASB voted to issue FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies” (“FSP FAS 141(R)-1”). FSP FAS 141(R)-1 amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under SFAS No. 141(R). FSP FAS 141(R)-1 requires that such contingencies be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, companies would typically account for the acquired contingencies in accordance with SFAS No. 5, “Accounting for Contingencies”. The adoption of SFAS No. 141(R) and FSP FAS 141(R)-1 on February 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

The following new accounting standards will be adopted on their respective required effective date:

In April 2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”) 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP No. SFAS 107-1 and APB 28-1”). FSP No. SFAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” and APB No. 28, “Interim Financial Reporting” to require disclosure about the fair value of financial instruments at interim reporting periods. The statement is effective for interim reporting periods ending after June 15, 2009. The Company does not expect adoption of FSP No. SFAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statement disclosures.

In April 2009, FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS No. 157-4”), which further clarifies the application of SFAS No. 157 and of FSP FAS No. 157-3. FSP FAS No. 157-4 provides additional guidance in determining the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased. The statement is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The Company does not expect adoption of FSP FAS No. 157-4 to have a material impact on its consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”), which is intended to improve financial reporting by identifying a consistent framework or hierarchy for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s (“SEC”) approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not expect adoption of SFAS No. 162 to have a material impact on its consolidated financial statements.

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

B. Investments in and Advances to Affiliates

Included in investments in and advances to affiliates are unconsolidated investments in entities that the Company does not control and/or is not deemed to be the primary beneficiary, and which are accounted for under the equity method of accounting, as well as advances to partners and other affiliates.

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

		April 30,				January 31,
		2009				2009
						(As Adjusted)
		(in thousands)
Members’ and partners’ equity, as below		$	467,261			$	488,197
Equity of other members and partners			413,736				427,976
Company’s investment in partnerships			53,525				60,221
Advances to and on behalf of other affiliates			187,051				168,774
Total Investments in and Advances to Affiliates		$	240,576			$	228,995
Summarized financial information for the equity method investments is as follows:
		(Combined 100%)
		April 30,				January 31,
		2009				2009
		(in thousands)
Balance Sheet:
Completed rental properties		$	4,042,109			$	3,967,896
Projects under development			967,196				931,411
Land held for development or sale			281,283				278,438
Total Real Estate			5,290,588				5,177,745
Less accumulated depreciation			(706,732	)			(680,013	)
Real Estate, net			4,583,856				4,497,732
Restricted cash - military housing bond funds			713,091				795,616
Other restricted cash			213,313				207,507
Other assets			371,564				375,465
Total Assets		$	5,881,824			$	5,876,320
Mortgage debt, nonrecourse		$	4,600,811			$	4,571,375
Other liabilities			813,752				816,748
Members’ and partners’ equity			467,261				488,197
Total Liabilities and Members’/Partners’ Equity		$	5,881,824			$	5,876,320

Forest City Enterprises, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

B. Investments in and Advances to Affiliates (continued)

		(Combined 100%)
		Three Months Ended April 30,
		2009				2008
		(in thousands)
Operations:
Revenues		$	244,714			$	240,838
Operating expenses			(164,530	)			(168,886	)
Interest expense			(58,585	)			(59,533	)
Impairment of unconsolidated entities (1)			(11,300	)			-
Depreciation and amortization			(49,906	)			(48,219	)
Interest and other income			5,210				17,364
Loss from continuing operations			(34,397	)			(18,436	)
Discontinued operations:
Gain on disposition of rental properties (2)			-				3,070
Operating earnings (loss) from rental properties			-				(18	)
Discontinued operations subtotal			-				3,052
Net loss (pre-tax)		$	(34,397	)		$	(15,384	)
Company’s portion of net loss (pre-tax)		$	(15,866	)		$	(9,647	)

(1)

The following table shows the detail of the impairment of unconsolidated entities:

						Three Months Ended April 30,
						2009				2008
						(in thousands)
Classic Residence by Hyatt (Supported-Living Apartments)		(Yonkers, New York)				$	4,892			$	-
Apartment Communities:
Millender Center		(Detroit, Michigan)					4,252				-
Metropolitan Lofts		(Los Angeles, California)					1,039				-
Residences at University Park		(Cambridge, Massachusetts)					855				-
Two land development projects							262				-
Total impairment of unconsolidated entities						$	11,300			$	-
Company’s portion of impairment of unconsolidated entities						$	9,560			$	-

(2)

Upon disposition, investments accounted for on the equity method are not classified as discontinued operations under the provisions of SFAS No. 144; therefore, gains or losses on the sale of equity method properties are reported in continuing operations when sold. The following table shows the detail of gain on disposition of rental properties that were held by equity method investments, which is included in equity in earnings (loss) of unconsolidated entities in the Consolidated Statements of Operations.

						Three Months Ended April 30,
						2009				2008
One International Place (Office Building)		(Cleveland, Ohio)				$	-			$	3,070
Company’s portion of gain on disposition of equity method rental properties						$	-			$	881