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 December 31, 2014, as amended. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In management’s opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of financial position, results of operations and cash flows as of and for the periods presented have been included.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 include, but are not limited to, determination of the primary beneficiary of variable interest entities (“VIEs”), estimates of useful lives for long-lived assets, reserves for collection on accounts and notes receivable and other investments, the fair value estimate of redeemable noncontrolling interest, net gain on change in control of interests, impairment of real estate and other-than-temporary impairments on equity method investments. Actual results could differ from those estimates.

Planned REIT Conversion

On January 13, 2015, the Company announced its Board of Directors approved a plan to pursue conversion to real estate investment trust (“REIT”) status. On September 16, 2015, the Securities and Exchange Commission (the “SEC”) declared the Company’s wholly owned subsidiary, Forest City Realty Trust, Inc.’s registration statement on Form S-4 effective. On September 17, 2015, the Company filed with the SEC a definitive proxy statement and Forest City Realty Trust, Inc. filed a prospectus in connection with the Company’s plan to convert to REIT status. The Company’s special shareholder meeting to present proposals related to the Company’s conversion to REIT status was held on October 20, 2015. Each of the proposals presented to the shareholders received the required number of affirmative votes, and as a result, each proposal was approved by the shareholders. The Company expects to elect REIT status for its taxable year ended December 31, 2016, subject to business conditions, the completion of related preparatory work, obtaining necessary approvals and third-party consents.

Variable Interest Entities

As of September 30, 2015, the Company determined it was the primary beneficiary of 25 VIEs representing 21 consolidated properties. The creditors of the consolidated VIEs do not have recourse to the Company’s general credit. As of September 30, 2015, the Company determined it was not the primary beneficiary of 64 VIEs and accounts for these interests as equity method investments. The maximum exposure to loss of these unconsolidated VIEs is limited to $339,000,000, the Company’s investment balances as of September 30, 2015.

Investments in Unconsolidated Entities

The Company owns an equity interest in the Brooklyn Nets (the “Nets”), a member of the National Basketball Association (“NBA”), through the Company’s consolidated subsidiary Nets Sports & Entertainment (“NS&E”). NS&E owns 20% of the Nets and accounts for its interests in the Nets on the equity method of accounting.

In July 2013, the Company elected not to fund current or future capital calls related to this non-core investment and began investigating various disposition strategies. The Company’s election did not constitute a default under any agreements related to the Company’s investment in the Nets but did provide the right to the majority partner to dilute the Company’s ownership interest. In order to preserve the ownership interest while pursuing disposition strategies, the Company entered into a forbearance agreement with the majority partner of the Nets related to the 2013-2014 and 2014-2015 NBA basketball season capital calls. Based on the decision to no longer fund the equity method investment, the Company ceased recording the Company’s portion of the equity in earnings. The Company has been actively marketing its interest in the Nets but has yet to enter a definitive agreement to sell its ownership interests. On September 8, 2015, the forbearance agreement, as amended, expired and the Company made the strategic decision to fund the Company’s portion of the Nets capital calls, rather than have the Company’s ownership interests diluted. As a result, the Company’s portion of the net loss recorded during the nine months ended September 30, 2015 primarily represents losses related to its ownership interest in the Nets from the period the Company ceased funding to present. It is the Company’s intention to continue to market this equity method investment for sale.

For the nine months ended September 30, 2015, Brooklyn Basketball Holdings, LLC ("BBH"), the equity method subsidiary of NS&E that owns the Nets, was deemed a significant subsidiary. Summarized financial information for BBH is as follows:



	Nine Months Ended September 30,
	2015			2014
	(in thousands)
Operations:
Revenues	$	90,675		$	92,790
Operating expenses	(135,256		)	(180,482		)
Interest expense, net	(9,191		)	(9,209		)
Depreciation and amortization	(5,037		)	(5,754		)
Net loss (pre-tax)	$	(58,809	)	$	(102,655	)
Company's portion of net loss (pre-tax)	$	(38,435	)	$	(2,361	)

New Accounting Guidance

The following accounting pronouncements were adopted during the nine months ended September 30, 2015:

In January 2015, the FASB issued an amendment to the accounting guidance to eliminate the concept of extraordinary items from GAAP. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently has been retained and expanded to include items that are both unusual in nature and infrequently occurring. This guidance was early adopted effective January 1, 2015 and did not have a material impact on the Company’s consolidated financial statements.

The following new accounting pronouncements will be adopted on their respective effective dates:

In May 2014, the FASB issued an amendment to the accounting guidance for revenue from contracts with customers. The core principle of this guidance is an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance defines steps an entity should apply to achieve the core principle. This guidance is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within that annual period and allows for both retrospective and modified retrospective methods of adoption. Early adoption is permitted for annual periods beginning after December 15, 2016. The Company is currently in the process of determining the method of adoption and evaluating the impact of adopting this guidance on its consolidated financial statements.

In August 2014, the FASB issued an amendment to the accounting guidance on disclosure of uncertainties about an entity’s ability to continue as a going concern. This guidance requires management to assess the Company’s ability to continue as a going concern and to provide disclosures under certain circumstances. This guidance is effective for annual reporting periods ending after December 15, 2016 and interim reporting periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In February 2015, the FASB issued an amendment to the consolidation accounting guidance. This guidance changes the required analysis to determine whether certain types of legal entities should be consolidated. The amendment modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and may affect the consolidation analysis of entities involved in VIEs, particularly those having fee arrangements and related party relationships. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued an Accounting Standards Update to simplify the presentation of debt issuance costs. This guidance requires that third-party debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the debt. Debt issuance costs related to revolving lines of credit are not within the score of this new guidance. This guidance is effective for fiscal years, and for interim reporting periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

Related Party Transactions

The Company and certain of its affiliates entered into a Master Contribution and Sale Agreement (the “Master Contribution Agreement”) with Bruce C. Ratner (“Mr. Ratner”), Executive Vice President and Director, and certain entities and individuals affiliated with Mr. Ratner (the “BCR Entities”) in August 2006 to purchase their interests in a total of 30 retail, office and residential operating properties and service companies in the Greater New York City metropolitan area. The Company issued Class A Common Units (“Units”) in a jointly-owned, limited liability company in exchange for their interests. The Units may be exchanged for one of the following forms of consideration at the Company’s sole discretion: (i) an equal number of shares of the Company’s Class A common stock or, (ii) cash based on a formula using the average closing price of the Class A common stock at the time of conversion or, (iii) a combination of cash and shares of the Company’s Class A common stock. The Company has no rights to redeem or repurchase the Units. Pursuant to the Master Contribution Agreement, certain projects under development would remain owned jointly until each project was completed and achieved “stabilization.” Upon stabilization, each project would be valued and the Company, in its discretion, would choose among various ownership options for the project.

In September 2015, certain BCR Entities exchanged 1,032,402 of the Units. The Company issued 1,032,402 shares of its Class A common stock for the exchanged Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $52,663,000, an increase to Class A common stock of $344,000 and a combined increase to additional paid-in capital of $52,319,000, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the noncontrolling interest balance. At September 30, 2015 and December 31, 2014, 1,940,788 and 2,973,190 Units, respectively, were outstanding. The carrying value of the Units of $99,000,000 and $151,663,000 is included as noncontrolling interests at September 30, 2015 and December 31, 2014, respectively.

In June 2014, one of the BCR Entities exchanged 673,565 of the Units. The Company issued 673,565 shares of its Class A common stock for the exchanged Units. The Company accounted for the exchange as a purchase of noncontrolling interests, resulting in a reduction of noncontrolling interests of $34,358,000, an increase to Class A common stock of $224,000 and a combined increase to additional paid-in capital of $34,134,000, accounting for the fair value of common stock issued and the difference between the fair value of consideration exchanged and the noncontrolling interest balance. At September 30, 2014 and December 31, 2013, 2,973,190 and 3,646,755 Units, respectively, were outstanding.

Pursuant to the terms of the Master Contribution Agreement, in January 2014, the Company caused certain of its affiliates to acquire the BCR Entities’ interests in 8 Spruce Street, an apartment community in Manhattan, New York, DKLB BKLN, an apartment community in Brooklyn, New York, and East River Plaza, a specialty retail center in Manhattan, New York, for $14,286,000. Prior to the transaction, the Company accounted for the three projects using the equity method of accounting and subsequently accounts for the projects as equity method investments as the partners continue to have joint control.

As a result of the March 2014 disposal of Quartermaster Plaza, a specialty retail center in Philadelphia, Pennsylvania, the Company accrued $1,646,000 during the nine months ended September 30, 2014, related to a tax indemnity payment due to the BCR Entities, all of which was paid as of March 31, 2015.

Accumulated Other Comprehensive Loss

The following table summarizes the components of accumulated other comprehensive income (loss) (“accumulated OCI”):



	September 30, 2015			December 31, 2014
	(in thousands)
Unrealized losses on foreign currency translation	$	90		$	137
Unrealized losses on interest rate contracts ⁽¹⁾	81,602			96,084
	81,692			96,221
Income tax benefit	(31,651		)	(37,281		)
Noncontrolling interest	(82		)	(94		)
Accumulated Other Comprehensive Loss	$	49,959		$	58,846


(1)	Included in the amounts as of September 30, 2015 and December 31, 2014 are $58,223 and $73,536, respectively, of unrealized loss on an interest rate swap associated with the New York Times office building on its nonrecourse mortgage debt with a notional amount of $640,000. This swap effectively fixes the mortgage at an all-in lender interest rate of 6.40% and expires in September 2017.

The following table summarizes the changes, net of tax and noncontrolling interest, of accumulated OCI by component:



	Foreign Currency Translation			Interest Rate Contracts			Total
	(in thousands)
Nine Months Ended September 30, 2015
Balance, January 1, 2015	$	(84	)	$	(58,762	)	$	(58,846	)
Gain (loss) recognized in accumulated OCI	29			(9,524		)	(9,495		)
Loss reclassified from accumulated OCI	—			18,382			18,382
Total other comprehensive income	29			8,858			8,887
Balance, September 30, 2015	$	(55	)	$	(49,904	)	$	(49,959	)
Nine Months Ended September 30, 2014
Balance, January 1, 2014	$	(116	)	$	(76,466	)	$	(76,582	)
Gain (loss) recognized in accumulated OCI	48			(6,235		)	(6,187		)
Loss reclassified from accumulated OCI	—			21,461			21,461
Total other comprehensive income	48			15,226			15,274
Balance, September 30, 2014	$	(68	)	$	(61,240	)	$	(61,308	)

The following table summarizes losses reclassified from accumulated OCI and their location on the Consolidated Statements of Operations:



Accumulated OCI Components	Loss Reclassified from Accumulated OCI			Location on Consolidated Statements of Operations
	(in thousands)
Nine Months Ended September 30, 2015
Interest rate contracts	$	28,087		Interest expense
Interest rate contracts	(900		)	Net gain on change in control of interests
Interest rate contracts	2,852			Earnings (loss) from unconsolidated entities, gross of tax
	30,039			Total before income tax and noncontrolling interest
	(11,645		)	Income tax benefit
	(12		)	Noncontrolling interest
	$	18,382		Loss reclassified from accumulated OCI
Nine Months Ended September 30, 2014
Interest rate contracts	$	28,413		Interest expense
Interest rate contracts	3,666			Discontinued operations
Interest rate contracts	3,005			Earnings (loss) from unconsolidated entities, gross of tax
	35,084			Total before income tax and noncontrolling interest
	(13,597		)	Income tax benefit
	(26		)	Noncontrolling interest
	$	21,461		Loss reclassified from accumulated OCI

Supplemental Non-Cash Disclosures

The following table summarizes the impact to the applicable balance sheet line items as a result of various non-cash transactions. Non-cash transactions primarily include dispositions of operating properties whereby the nonrecourse mortgage debt is assumed by the buyer, acquisition of rental properties, exchanges of Units or senior notes for Class A common stock, changes in consolidation methods of fully consolidated properties and equity method investments due to the occurrence of triggering events including, but not limited to, disposition of a partial interest in rental properties or development projects or acquisition of a partner’s interest, change in construction payables and other capital expenditures, change in the fair market value of redeemable noncontrolling interest and capitalization of stock-based compensation granted to employees directly involved with the development and construction of real estate.



	Nine Months Ended September 30,
	2015			2014
	(in thousands)
Non-cash changes to balance sheet - Investing Activities
Projects under construction and development	$	84,971		$	(351,905	)
Completed rental properties	827,125			(136,008		)
Restricted cash	8,969			20
Notes and accounts receivable	—			2,728
Investments in and advances to affiliates - due to dispositions or change in control	71,438			97,154
Investments in and advances to affiliates - other activity	20,397			25,509
Total non-cash effect on investing activities	$	1,012,900		$	(362,502	)
Non-cash changes to balance sheet - Financing Activities
Accounts payable, accrued expenses and other liabilities	$	—		$	10,683
Nonrecourse mortgage debt and notes payable	448,741			(342,960		)
Convertible senior debt	(424,433		)	—
Class A common stock	7,000			225
Additional paid-in capital	473,614			34,741
Treasury stock	(6,503		)	—
Redeemable noncontrolling interest	—			28,390
Noncontrolling interest	(53,188		)	(73,535		)
Total non-cash effect on financing activities	$	445,231		$	(342,456	)