Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) 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 0-1743
The Rouse Company
(Exact name of registrant as specified in its charter)
Maryland 52-0735512
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 992-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of the issuer's common stock as
of October 31, 1995:
Common Stock, $0.01 par value 47,921,499
Title of Class Number of Shares
Part I. Financial Information
Item 1. Financial Statements:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1995 and 1994
(Unaudited, in thousands except per share amounts, note 1)
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
Revenues:
Operating properties:
Retail centers $123,202 $123,108 $360,502 $356,554
Office, mixed-use and other 36,959 37,561 109,432 109,578
160,161 160,669 469,934 466,132
Land sales 8,519 11,273 23,550 30,777
Corporate interest income 485 708 1,832 1,937
169,165 172,650 495,316 498,846
Operating expenses, exclusive of
provision for bad debts,
depreciation and amortization:
Operating properties:
Retail centers 62,456 63,110 183,042 188,032
Office, mixed-use and other 17,160 18,148 52,006 54,372
79,616 81,258 235,048 242,404
Land sales 4,542 5,683 12,573 16,878
Development 605 2,211 4,110 5,088
Corporate 1,452 1,705 5,972 5,596
86,215 90,857 257,703 269,966
Interest expense:
Operating properties:
Retail centers 32,863 33,012 95,326 95,720
Office, mixed-use and other 17,272 17,245 51,745 50,406
50,135 50,257 147,071 146,126
Land sales 1,263 1,131 3,798 3,684
Development 88 123 271 371
Corporate 2,294 3,020 7,837 8,572
53,780 54,531 158,977 158,753
Provision for (recovery of)
bad debts (236) 1,507 1,229 2,704
Depreciation and amortization 18,026 18,441 54,874 56,086
157,785 165,336 472,783 487,509
Gain (loss) on dispositions of
assets and other provisions,
net (note 5) (5,638) -- (14,118) (5,406)
The accompanying notes are an integral part of these statements.
1
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations, continued
Three and Nine Months Ended September 30, 1995 and 1994
(Unaudited, in thousands except per share amounts, note 1)
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
Earnings before income
taxes and extraordinary losses $ 5,742 $ 7,314 $ 8,415 $ 5,931
Income tax provision:
Current - primarily state 184 47 429 308
Deferred 2,389 3,121 4,047 3,468
2,573 3,168 4,476 3,776
Earnings before
extraordinary losses 3,169 4,146 3,939 2,155
Extraordinary losses from early
extinguishments of debt, net
of related income tax benefits (137) -- (7,354) (2,763)
Net earnings (loss) $ 3,032 $ 4,146 $ (3,415) $ (608)
Net earnings (loss) applicable
to common shareholders $ (628) $ 876 $(14,396) $(10,419)
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK AFTER PROVISION
FOR DIVIDENDS ON PREFERRED STOCK:
Earnings (loss) before
extraordinary losses $ (.01) $ .02 $ (.15) $ (.16)
Extraordinary losses -- -- (.15) (.06)
$ (.01) $ .02 $ (.30) $ (.22)
DIVIDENDS PER SHARE:
Common stock $ .20 $ .17 $ .60 $ .51
Preferred stock $ .81 $ .81 $ 2.43 $ 2.43
The accompanying notes are an integral part of these statements.
2
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(Unaudited, in thousands, note 1)
September 30, December 31,
1995 1994
Assets:
Property (note 2):
Operating properties:
Property and deferred costs of projects $2,925,528 $2,937,565
Less accumulated depreciation
and amortization 489,392 490,158
2,436,136 2,447,407
Properties in development 48,195 65,348
Properties held for development and sale 238,104 141,102
Total property 2,722,435 2,653,857
Prepaid expenses, deferred charges
and other assets 95,977 104,254
Accounts and notes receivable 79,485 78,202
Investments in marketable securities 5,537 30,149
Cash and cash equivalents 26,203 49,398
Total $2,929,637 $2,915,860
The accompanying notes are an integral part of these statements.
3
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets, continued
September 30, 1995 and December 31, 1994
(Unaudited, in thousands, note 1)
September 30, December 31,
1995 1994
Liabilities:
Debt (note 3):
Property debt not carrying a Parent
Company guarantee of repayment $2,028,654 $1,998,445
Parent Company debt and debt carrying a
Parent Company guarantee of repayment:
Property debt 154,419 223,731
Convertible subordinated debentures 130,000 130,000
Other debt 246,500 120,700
530,919 474,431
Total debt 2,559,573 2,472,876
Obligations under capital leases 58,064 60,044
Accounts payable, accrued expenses
and other liabilities 174,833 205,317
Deferred income taxes 82,684 82,597
Shareholders' equity:
Series A Convertible Preferred stock
with a liquidation preference of
$225,250,450 in 1995 and $225,252,050
in 1994 (note 4) 45 45
Common stock of 1 cent par value per share;
250,000,000 shares authorized; 47,921,499
shares issued in 1995 and 47,571,046
shares issued in 1994 479 476
Additional paid-in capital 309,231 306,674
Accumulated deficit (255,272) (212,169)
Total shareholders' equity 54,483 95,026
Total $2,929,637 $2,915,860
The accompanying notes are an integral part of these statements.
4
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1994
(Unaudited, in thousands, note 1)
1995 1994
Cash flows from operating activities:
Rents and other revenues received $ 463,544 $ 459,941
Proceeds from land sales 23,715 31,391
Interest received 7,599 7,844
Land development expenditures (13,248) (13,054)
Operating expenditures:
Operating properties (229,114) (231,899)
Land sales, development and corporate (14,104) (8,797)
Interest paid:
Operating properties (156,688) (151,774)
Land sales, development and corporate (12,179) (14,644)
Net cash provided by operating activities 69,525 79,008
Cash flows from investing activities:
Expenditures for properties in development
and improvements to existing properties
funded by debt (52,711) (51,489)
Expenditures for property acquisitions (27,767) (93,885)
Expenditures for improvements to
existing properties funded by cash
provided by operating activities:
Tenant leasing and remerchandising (6,696) (6,277)
Building and equipment (2,711) (3,954)
Purchases of marketable securities (4,626) (54,917)
Proceeds from redemptions or sales of
marketable securities 29,238 64,343
Other 1,186 2,907
Net cash used in investing activities (64,087) (143,272)
Cash flows from financing activities:
Proceeds from issuance of property debt 170,643 338,227
Repayments of property debt:
Scheduled principal payments (27,268) (31,961)
Other payments (251,327) (216,548)
Proceeds from issuance of other debt 124,947 --
Repayments of other debt (8,079) (14,629)
Proceeds from exercise of stock options 2,138 67
Dividends paid (39,687) (34,070)
Net cash (used in) provided by financing
activities (28,633) 41,086
Net decrease in cash and cash equivalents (23,195) (23,178)
Cash and cash equivalents at beginning of period 49,398 73,556
Cash and cash equivalents at end of period $ 26,203 $ 50,378
The accompanying notes are an integral part of these statements.
5
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Nine Months Ended September 30, 1995 and 1994
(Unaudited, in thousands, note 1)
1995 1994
Reconciliation of net loss to net cash
provided by operating activities:
Net loss $ (3,415) $ (608)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 54,874 56,086
(Gain) loss on dispositions of assets
and other provisions, net 14,118 5,406
Deferred income tax provision 4,047 3,468
Extraordinary losses, net of related income
tax benefits 7,354 2,763
Additions to pre-construction reserve 1,800 2,800
Provision for bad debts 1,229 2,704
(Increase) decrease in operating assets and
liabilities, net (10,482) 6,389
Net cash provided by operating activities $ 69,525 $ 79,008
Schedule of Non-Cash Investing and Financing
Activities:
Mortgage debt extinguished on dispositions
of interests in properties $(20,779) $(14,988)
Mortgage debt assumed on acquisitions of
interests in properties 6,175 --
Value of non-cash consideration given in
connection with acquisitions of interests
in properties 79,811 --
The accompanying notes are an integral part of these statements.
6
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1995
(1) Principles of statement presentation
The unaudited consolidated financial statements include all
adjustments which are necessary, in the opinion of management, to
fairly reflect the Company's financial position and results of
operations. All such adjustments are of a normal recurring nature.
The statements have been prepared using the accounting policies
described in the 1994 Annual Report to Shareholders.
In its annual reports, the Company has included certain supplementary
current value basis financial information with the historical cost
basis financial statements. The current value basis presentation has
been and will continue to be an integral part of the Company's formal
year-end reporting, but will not be included in quarterly reports to
shareholders. Therefore, all of the financial information contained
herein is based on the historical cost basis as required by generally
accepted accounting principles.
(2) Property
Properties in development include construction and development in
progress and pre-construction costs, net. The construction and
development in progress accounts include land and land improvements
of $12,678,000 at September 30, 1995.
Changes in pre-construction costs, net, for the nine months ended
September 30, 1995 are summarized as follows (in thousands):
Balance at beginning of period, before
pre-construction reserve $ 20,633
Costs incurred 9,230
Costs transferred to construction and development
in progress (7,405)
Costs transferred to operating properties (1,036)
Costs of unsuccessful projects written off (2,351)
19,071
Less pre-construction reserve 13,558
Balance at end of period, net $ 5,513
At September 30, 1995 properties held for development and sale
included net investments of $102,573,000 in several retail center
and other properties that are being marketed for sale.
7
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(3) Debt
Debt at September 30, 1995 and December 31, 1994 is summarized as
follows (in thousands):
September 30, 1995 December 31, 1994
Due in Due in
Total one year Total one year
Mortgages and bonds $2,050,106 $113,183 $2,063,978 $117,511
Convertible sub-
ordinated debentures 130,000 -- 130,000 --
Other loans 379,467 8,119 278,898 10,744
Total $2,559,573 $121,302 $2,472,876 $128,255
In February 1995, the Company registered $150,000,000 of unsecured
notes for issuance to the public from time to time through February
1997. As of September 30, 1995, the Company had issued $100,300,000
of these unsecured notes with a weighted average interest rate of
7.6% and a weighted average maturity of 6.8 years.
The amounts due in one year reflect the terms of existing loan
agreements except where refinancing commitments from outside lenders
have been obtained. In these instances, maturities are determined
based on the terms of the refinancing commitments.
Approximately $71,790,000 of the debt maturing in one year at
September 30, 1995 relates to a retail center mortgage due in
February 1996. The Company expects to refinance this mortgage on a
long-term basis at or prior to its scheduled maturity.
(4) Series A Convertible Preferred stock
The Company has authorized issuance of 50,000,000 shares of Preferred
stock of 1 cent par value per share of which 4,505,168 shares have
been classified as Series A Convertible Preferred. At September 30,
1995 and December 31, 1994, there were 4,505,009 and 4,505,041 shares
outstanding, respectively.
(5) Gain (loss) on dispositions of assets and other provisions, net
The net loss in 1995 relates primarily to provisions for losses on
several retail center properties the Company has decided to sell and
is actively marketing ($16,058,000). These provisions for losses
were recognized based on the estimated fair values of the individual
properties less costs to sell. These losses were partially offset by
a gain related to the disposition of an interest in a retail center
property ($1,940,000).
8
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, (Unaudited), continued
(5) Gain (loss) on dispositions of assets and other provisions, net
(continued)
The net loss in 1994 relates primarily to provisions for losses on
investments in two operating properties ($7,728,000) and damages to a
retail property as a result of an earthquake ($446,000). The
provisions for losses were recognized based on management's
determination that the Company would not continue to support the
projects under the existing arrangements with lenders and/or partners
and that it was unlikely that the Company would recover all of its
investments in these projects based on forecasts of future cash
flows. These losses were partially offset by a gain related to the
disposition of an interest in a property the Company continues to
manage ($2,768,000).
(6) Contingencies
On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"),
a former tenant at the Riverwalk Shopping Center in New Orleans,
Louisiana ("Riverwalk"), which is owned and operated by New Orleans
Riverwalk Associates, an affiliate of the Company ("NORA"), filed
suit in the Civil District Court of Orleans Parish, Louisiana against
NORA, the Company, two Company affiliates, and a partner of NORA
(collectively, "Defendants"). Plaintiff alleges that Defendants
breached Plaintiff's lease agreement with NORA for the operation of a
restaurant at Riverwalk and that as a result of these breaches it
suffered losses and could not pay the rentals due under the lease
agreement, as a result of which the lease and its tenancy were
terminated by NORA. Plaintiff sought damages of approximately
$600,000 for these alleged breaches and $33,000,000 for alleged lost
future profits which it claimed it would have earned had its lease
not been terminated. The Defendants filed answers denying the claims
of Plaintiff, asserting other defenses and raising a counterclaim.
The case was tried before a jury and, on October 28, 1993, the jury
returned a verdict against Defendants upon which judgment was entered
by the trial court on January 7, 1994, in the total net amount of
approximately $9,128,000 (which included a net award for lost future
profits of approximately $8,640,000) plus interest from the date the
suit was filed and attorneys' fees in an amount to be determined. On
May 6, 1994, the trial court denied all post-trial motions of both
Plaintiff and Defendants and entered an amended judgment in which it
awarded Plaintiff $450,000 in attorneys' fees and awarded Defendants
$25,000 in attorneys' fees. Defendants believe that the verdict and
judgment as entered to date are contrary to the facts and applicable
law. On May 23, 1994, Defendants appealed this judgment to the
Louisiana Court of Appeals, Fourth Circuit. Briefs have been filed,
and oral argument was held on March 8, 1995. A decision is expected
in the fourth quarter of 1995. Defendants intend to vigorously
pursue their rights of appeal. An estimate of the ultimate possible
9
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, (Unaudited), continued
(6) Contingencies (continued)
loss in the case cannot be made at this time, although a reasonably
possible range of loss could be as high as the full amount of the
damages awarded in the case, together with interest accrued and
attorneys' fees awarded.
The Company and certain of its subsidiaries are defendants in various
other litigation matters arising in the ordinary course of business,
some of which involve claims for damages that are substantial in
amount. Some of these litigation matters are covered by insurance.
In the opinion of management, adequate provisions (less than
$1,500,000 in the aggregate) have been made for losses with respect
to all litigation matters (including with respect to the above-
described suit), where appropriate, and the ultimate resolution of
all such litigation matters is not likely to have a material effect
on the consolidated financial position of the Company. Due to the
Company's modest and fluctuating net earnings (loss), it is not
possible to predict whether the resolution of these matters is likely
to have a material effect on the Company's consolidated net earnings
(loss), and it is, therefore, possible that the resolution of these
matters could have such a material effect in any future quarter or
annual fiscal period.
10
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
The following discussion and analysis covers any material changes in
financial condition since December 31, 1995 and any material changes in
the results of operations for the three and nine months ended September
30, 1995 as compared to the same periods in 1994. This discussion and
analysis should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in
the 1994 Annual Report to Shareholders.
Operating Results:
Operating properties:
Revenues from retail centers increased $94,000 and $3,948,000 while total
operating and interest expenses decreased $2,121,000 and $7,143,000 for
the three and nine months ended September 30, 1995 as compared to the
same periods in 1994. The increases in revenues are attributable to the
operations of expansions opened in August 1994 and March 1995, higher
effective rents on re-leased space, and, for the nine month period,
increased tenant lease cancellation payments. These increases have been
partially offset by the effects of slightly lower occupancy levels, lower
recoveries of operating expenses, as discussed below, the dispositions of
properties in the first quarter of 1994 and second quarter of 1995, and
for the three month period, decreased tenant lease cancellation payments.
The decreases in expenses are attributable to the aforementioned property
dispositions, lower recoverable expenses as a result of operating expense
reduction efforts and milder winter conditions experienced in the
Northeast, lower bad debt expenses due to recoveries of amounts
previously reserved and lower interest expense due to debt restructurings
and refinancings completed in 1994 or early 1995. These decreases were
partially offset by an increase in expenses associated with the
operations of the expansions referred to above.
Revenues from office, mixed-use and other properties decreased $602,000 and
$146,000 and total operating and interest expenses decreased $1,801,000
and $1,955,000 for the three and nine months ended September 30, 1995 as
compared to the same periods in 1994. The decreases in revenues are
attributable primarily to dispositions of properties in the third quarter
of 1994 and the second quarter of 1995, lower recoveries of operating
expenses and, for the three month period, decreased tenant lease
cancellation payments. These decreases have been partially offset by
higher occupancy at certain hotel and office properties in Columbia and
for the nine month period, increased tenant lease cancellation payments.
The decreases in total operating and interest expenses are attributable
primarily to the aforementioned property dispositions, lower bad debt
expenses due to recoveries of amounts previously reserved, lower
operating expenses at certain projects and lower depreciation expense as
the Company discontinued depreciating an industrial building it intends
to sell. These decreases are partially offset by expenses at two
industrial buildings in Columbia which opened in the second quarter of
1994 and higher interest expense on a mixed-use project. Interest on
this project loan was lower in the first quarter of 1994 because the
Company exercised an option in the loan agreement to make a specified
11
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
payment and reduce the effective interest rate on the loan retroactive to
the beginning of its term. The payment was less than the interest
previously accrued, and the difference was recorded as a reduction to
interest expense in the quarter.
Land sales:
Revenues from land sales decreased $2,754,000 and $7,227,000 and total
costs and expenses decreased $1,009,000 and $4,191,000 for the three and
nine months ended September 30, 1995, as compared to the same periods in
1994. The decreases in revenues relate to lower sales of land for
commercial/other uses in Columbia. The decreases in costs and expenses
are attributable primarily to decreased costs of sales due to lower sales
revenues.
Development:
These costs consist primarily of additions to the pre-construction reserve
and new business costs. The pre-construction reserve is maintained to
provide for costs of projects which may not go forward to completion.
New business costs relate primarily to the initial evaluation of
acquisition and development opportunities. These costs decreased
$1,606,000 and $978,000 for the three and nine months ended September 30,
1995 as compared to the same periods in 1994. The decreases are due
primarily to reduced provisions required for projects in the pre-
construction stage due to progress made in the development process,
particularly in the third quarter of 1995.
Corporate:
Corporate interest costs were $3,275,000 and $3,754,000 for the three
months ended September 30, 1995 and 1994, respectively, and $10,479,000
and $10,322,000 for the nine months ended September 30, 1995 and 1994,
respectively. Of such amounts, $981,000 and $734,000 were capitalized
during the three months ended September 30, 1995 and 1994, respectively,
and $2,642,000 and $1,750,000 were capitalized during the nine months
ended September 30, 1995 and 1994, respectively, on funds invested in
development projects. The decrease in corporate interest costs for the
three month period is due to a lower level of debt used for corporate
purposes.
Gain (loss) on dispositions of assets and other provisions, net
The net loss in 1995 relates primarily to provisions for losses on several
retail center properties the Company has decided to sell and is actively
marketing ($16,058,000). These provisions for losses were recognized
based on the estimated fair values of the individual properties less
costs to sell. These losses were partially offset by a gain related to
the disposition of an interest in a retail center property ($1,940,000).
The net loss in 1994 relates primarily to provisions for losses on
investments in two operating properties ($7,728,000) and damages to a
retail property as a result of an earthquake ($446,000). The provisions
12
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
for losses were recognized based on management's determination that the
Company would not continue to support the projects under the existing
arrangements with lenders and/or partners and that it was unlikely that the
Company would recover all of its investments in these projects based on
forecasts of future cash flows. These losses were partially offset by a
gain related to the disposition of an interest in a property the Company
continues to manage ($2,768,000).
Financial Condition and Liquidity:
Shareholders' equity decreased $40,543,000 from $95,026,000 at December 31,
1994 to $54,483,000 at September 30, 1995. The decrease was due
principally to the payment of regular quarterly dividends on the
Company's common and Preferred stocks, and to a lesser extent, the
Company's net loss for the nine months ended September 30, 1995.
The Company had cash and cash equivalents and investments in marketable
securities totaling $31,740,000 and $79,547,000 at September 30, 1995 and
December 31, 1994, respectively, including $640,000 and $2,001,000,
respectively, restricted for use in the development of certain
properties.
In February 1995, the Company registered $150,000,000 of unsecured notes
for issuance to the public from time to time through February 1997. The
notes can be issued, subject to market conditions, for varying terms of
nine months or longer at fixed or floating rates based upon market
indices at the time of issuance. Proceeds of these notes have been or
will be used primarily to repay higher rate or recourse indebtedness of
the Company. As of September 30, 1995, the Company had issued
$100,300,000 of notes, the proceeds of which were used to repay higher
rate and/or recourse indebtedness.
The Company has lines of credit of $158,920,000 of which $119,920,000 was
available at September 30, 1995. These lines of credit may be used to
provide corporate liquidity, fund property acquisition costs and finance
other corporate needs, subject to lenders' approvals. They may also be
utilized to pay some portion of existing debt, including maturities in
1995 and 1996. As of September 30, 1995, debt due in one year was
$121,302,000. Approximately $71,790,000 of this debt relates to a retail
center mortgage due in February 1996. The Company expects to refinance
this mortgage on a long-term basis at or prior to its scheduled maturity.
The Company continues to actively evaluate new sources of capital and is
confident that it will be able to make these payments, arrange to
refinance these maturities prior to their scheduled repayment dates, or
take advantage of new sources of capital without necessitating property
sales.
Net cash provided by operating activities was $69,525,000 and $79,008,000
for the nine months ended September 30, 1995 and 1994, respectively. The
factors discussed previously under the operating results of the four
major business segments, particularly lower land sale revenues, and, in
1995, funding of certain pension obligations affected the level of net
cash provided by operating activities.
13
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued:
Net cash used in investing activities was $64,087,000 and $143,272,000 for
the nine months ended September 30, 1995 and 1994, respectively. The
decrease in net cash used of $79,165,000 occurred because of the higher
level of property acquisition expenditures incurred in 1994 ($66,118,000)
and because net sales and redemptions of marketable securities (primarily
short-term U. S. Treasury securities) increased $15,185,000 in 1995. The
property acquisitions in 1995 consist of the purchases of partnership
interests in three retail centers. The property acquisitions in 1994
consisted primarily of the purchase of land underlying a retail center
together with the related equity interest of the former lessor.
Net cash used in financing activities was $28,633,000 for the nine months
ended September 30, 1995 while net cash provided by financing activities
was $41,086,000 for the nine months ended September 30, 1994. Net cash
used in financing activities in 1995 is attributable primarily to
scheduled principal payments on property debt and the payment of
dividends, partially offset by the issuance of other debt and property
debt to partially fund the property acquisitions described above. Net
cash provided by financing activities in 1994 was attributable primarily
to the issuance of property debt to fund the property acquisition
described above partially offset by scheduled principal payments on
property debt and the payment of dividends.
New Accounting Standards:
Statement of Financial Accounting Standards No. 116, "Accounting for the
Contributions Received and Contributions Made" (SFAS No. 116), was issued
by the Financial Accounting Standards Board in June 1993. SFAS No. 116
was adopted by the Company effective January 1, 1995, and adoption has
not had a material effect on the financial position or results of
operations of the Company.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (SFAS No. 121), was issued by the Financial Accounting Standards
Board in March 1995. SFAS No. 121 will be effective with respect to the
Company in 1996, and adoption is not expected to have a material effect
on the financial position or results of operations of the Company.
14
Part II. Other Information
Item 1. Legal Proceedings
On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a
former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana
("Riverwalk"), which is owned and operated by New Orleans Riverwalk
Associates, an affiliate of the Company ("NORA"), filed suit in the Civil
District Court of Orleans Parish, Louisiana against NORA, the Company,
two Company affiliates - Rouse-New Orleans, Inc. and New Orleans
Riverwalk Limited Partnership - and Connecticut General Life Insurance
Company, which is a general partner of NORA (collectively, "Defendants").
Plaintiff alleges that Defendants breached Plaintiff's lease agreement
with NORA for the operation of a restaurant at Riverwalk by (i) failing
to prevent the leased premises from flooding, (ii) refusing to permit
entertainment on the leased premises, (iii) interfering with the
operation of air conditioning equipment on the leased premises and (iv)
failing to provide adequate security. Plaintiff claims that as a result
of these breaches it suffered losses and could not pay the rentals due
under the lease agreement, as a result of which the lease and its tenancy
were terminated by NORA. Plaintiff seeks damages of approximately
$600,000 for these alleged breaches. In addition, on September 3, 1992,
Plaintiff claimed $33,000,000 for alleged lost future profits which it
claimed it would have earned had its lease not been terminated. All
Defendants filed answers denying the claims of Plaintiff and asserting
other defenses. NORA also asserted a counterclaim against Plaintiff and
its guarantors, Robert Guastella and Charles Kovacs, for past due rentals
and other charges in the approximate amount of $300,000 plus interest and
attorneys' fees as provided for in the lease agreement. The case was
tried before a jury and, on October 28, 1993, the jury returned a verdict
against Defendants upon which judgment was entered by the trial court on
January 7, 1994, in the total net amount of approximately $9,128,000
(which included a net award for lost future profits of approximately
$8,640,000) plus interest from the date the suit was filed and attorneys'
fees in an amount to be determined. On May 6, 1994, the trial court
denied all post-trial motions of both Plaintiff and Defendants, including
Defendants' Motions for Judgment Notwithstanding the Verdict, Remittitur
and/or New Trial. The trial court also entered an amended judgment in
which it awarded Plaintiff $450,000 in attorneys' fees and awarded
Defendants $25,000 in attorneys' fees. Defendants believe that the
verdict and judgment as entered to date are contrary to the facts and
applicable law. On May 23, 1994, Defendants appealed this judgment to
the Louisiana Court of Appeals, Fourth Circuit. Briefs have been filed,
and oral argument was held on March 8, 1995. Defendants intend to
vigorously pursue their rights of appeal. For additional information
about this suit, see Note 6 - Contingencies to the Consolidated Financial
Statements (unaudited).
15
Part II. Other Information
The following items have been omitted as inapplicable or not required under
the applicable instructions:
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K
None.
16
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ROUSE COMPANY
Principal Financial Officer:
Date: November 7, 1995 By /s/Jeffrey H. Donahue
Jeffrey H. Donahue
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer:
Date: November 7, 1995 By /s/George L. Yungmann
George L. Yungmann
Senior Vice President and
Controller
17
Exhibit Index
Exhibit Number Description
11 Statement re Computation of per
share earnings (loss)
18
Exhibit 11
THE ROUSE COMPANY AND SUBSIDIARIES
Computation of Fully Diluted Earnings (Loss) Per Share
(Unaudited, in thousands except per share amounts)
Three months Nine months
ended September 30, ended September 30,
1995 1994 1995 1994
Earnings before extraordinary
losses $ 3,169 $ 4,146 $ 3,939 $ 2,155
Add after-tax interest expense
applicable to convertible
subordinated debentures 1,215 1,215 3,644 3,644
Earnings before extra-
ordinary losses, as adjusted 4,384 5,361 7,583 5,799
Extraordinary losses (137) -- (7,354) (2,763)
Net earnings, as adjusted $ 4,247 $ 5,361 $ 229 $ 3,036
Shares:
Weighted average number of
common shares outstanding 47,868 47,565 47,779 47,563
Assuming conversion of
convertible Preferred stock 10,600 9,470 10,600 9,470
Assuming conversion of convertible
subordinated debentures 4,542 4,542 4,542 4,542
Assuming exercise of options and
warrants reduced by the number
of shares which could have been
purchased with the proceeds
from the exercise of such
options 376 186 376 173
Weighted average number of shares
outstanding, as adjusted 63,386 61,763 63,297 61,748
Earnings per common share
assuming full dilution:
Earnings before extraordinary
losses, as adjusted $ .07 $ .09 $ .12 $ .09
Extraordinary losses -- -- (.12) (.04)
Net earnings, adjusted $ .07 $ .09 $ -- $ .05
This calculation is submitted in accordance with Regulation S-K item 601
(b) (11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule is included to comply with the requirements of
Item 601 (c) (2) of Regulations S-K and S-B. This schedule contains summary
financial information extracted from Form 10-Q for the quarterly period ended
September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> $ 26,203
<SECURITIES> $ 5,537
<RECEIVABLES> $ 102,713
<ALLOWANCES> $ (23,138)
<INVENTORY> 0
<CURRENT-ASSETS> $ 145,101<F1>
<PP&E> $ 3,211,827
<DEPRECIATION> $ (489,392)
<TOTAL-ASSETS> $ 2,929,637
<CURRENT-LIABILITIES> $ 296,135<F2>
<BONDS> $ 2,559,573
<COMMON> $ 479
0
$ 45
<OTHER-SE> $ 53,959
<TOTAL-LIABILITY-AND-EQUITY> $ 2,929,637
<SALES> $ 495,316
<TOTAL-REVENUES> $ 495,316
<CGS> 0
<TOTAL-COSTS> $ 312,577
<OTHER-EXPENSES> $ 14,118
<LOSS-PROVISION> $ 1,229
<INTEREST-EXPENSE> $ 158,753
<INCOME-PRETAX> $ 8,415
<INCOME-TAX> $ 4,476
<INCOME-CONTINUING> $ 3,939
<DISCONTINUED> 0
<EXTRAORDINARY> $ (7,354)
<CHANGES> 0
<NET-INCOME> $ (3,415)
<EPS-PRIMARY> $ (.30)
<EPS-DILUTED> $ .00
<FN>
<F1>Current assets include cash, unrestricted marketable securities, current
portion of accounts and notes receivable and prepaid expenses and deposits.
<F2>Cuurent liabilities include the current portion of long-term debt and accounts
payable, accrued expenses and other liabilities.
</FN>
</TABLE>
