Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
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 November 7, 1997:
Common Stock, $0.01 par value 66,814,531
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, 1997 and 1996
(Unaudited, in thousands except per share amounts, note 1)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
Revenues:
Operating properties:
Retail centers $125,247 $127,894 $365,832 $369,650
Office, mixed-use and other 56,993 51,639 165,370 128,086
182,240 179,533 531,202 497,736
Land sales 51,076 47,384 153,065 79,847
Corporate interest income 997 758 3,816 2,290
234,313 227,675 688,083 579,873
Operating expenses, exclusive of
provision for bad debts,
depreciation and amortization:
Operating properties:
Retail centers 64,451 65,928 184,581 189,343
Office, mixed-use and other 28,382 24,346 82,162 60,624
92,833 90,274 266,743 249,967
Land sales 34,990 41,054 113,213 62,704
Development 1,815 2,019 4,267 3,716
Corporate 3,125 1.608 10,325 5,732
132,763 134,955 394,548 322,119
Interest expense:
Operating properties:
Retail centers 29,269 33,172 92,152 95,716
Office, mixed-use and other 20,568 21,248 61,386 55,514
49,837 54,420 153,538 151,230
Land sales 1,130 508 3,038 995
Development -- 95 -- 265
Corporate (773) 2,646 586 9,788
50,194 57,669 157,162 162,278
Provision for bad debts 1,854 362 3,432 1,484
Depreciation and amortization 21,721 23,212 63,455 60,296
206,532 216,198 618,597 546,177
Gain (loss) on disposition of
assets and other provisions,
net (note 5) 1,538 (6,060) (11,044) (6,355)
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, 1997 and 1996
(Unaudited, in thousands except per share amounts, note 1)
Three months Nine months
ended September 30, ended September 30,
1997 1996 1997 1996
Earnings before income taxes
and extraordinary losses $ 29,319 $ 5,417 $ 58,442 $ 27,341
Income taxes
Current 1,255 155 2,361 505
Deferred 11,793 7,718 28,275 16,241
13,048 7,873 30,636 16,746
Earnings(loss)before
extraordinary losses 16,271 (2,456) 27,806 10,595
Extraordinary losses from
extinguishments of debt,
net of related income tax
benefits (note 6) (107) (46) (12,322) (1,361)
Net earnings (loss) $ 16,164 $ (2,502) $ 15,484 $ 9,234
Net earnings (loss) applicable
to common shareholders $ 13,127 $ (5,714) $ 8,209 $ (1,299)
EARNINGS (LOSS)PER SHARE OF
COMMON STOCK AFTER PROVISION FOR
DIVIDENDS ON PREFERRED STOCK:
Earnings before
extraordinary losses $ .20 $ (.10) $ .31 $ --
Extraordinary losses -- -- (.18) (.03)
$ .20 $ (.10) $ .13 $ (.03)
DIVIDENDS PER SHARE:
Common stock $ .25 $ .22 $ .75 $ .66
Preferred stock $ .75 $ .81 $ 1.80 $ 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, 1997 and December 31, 1996
(Unaudited, in thousands, note 1)
September 30, December 31,
1997 1996
Assets:
Property (note 2):
Operating properties:
Property and deferred costs
of projects $3,483,984 $3,374,976
Less accumulated depreciation
and amortization 588,960 552,201
2,895,024 2,822,775
Properties in development 211,340 176,060
Properties held for sale (note 8) 74,368 73,080
Investment land and land held for
development and sale 273,477 244,117
Total property 3,454,209 3,316,032
Prepaid expenses, deferred charges
and other assets 197,370 187,689
Accounts and notes receivable 133,683 92,369
Investments in marketable securities 3,491 3,596
Cash and cash equivalents 31,513 43,766
Total $3,820,266 $3,643,452
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, 1997 and December 31, 1996
(Unaudited, in thousands, note 1)
September 30, December 31,
1997 1996
Liabilities:
Debt (note 3):
Property debt not carrying a Parent
Company guarantee of repayment $2,213,148 $2,290,406
Parent Company debt and debt carrying a
Parent Company guarantee of repayment:
Property debt 206,346 179,540
Convertible subordinated debentures 130,000 130,000
Other debt 230,300 235,300
566,646 544,840
Total debt 2,779,794 2,835,246
Obligations under capital leases 55,655 60,201
Accounts payable, accrued expenses
and other liabilities 350,680 298,562
Deferred income taxes 160,489 134,794
Company-obligated mandatorily redeemable
preferred securities of a trust holding
solely Parent Company subordinated debt
securities 137,500 137,500
Shareholders' equity:
Series B Convertible Preferred stock
with a liquidation preference of
$202,500 in 1997 (note 4) 41 --
Common stock of 1 cent par value per share;
250,000,000 shares authorized; 66,847,682
shares issued in 1997 and 66,742,871
shares issued in 1996 668 667
Additional paid-in capital 689,707 488,849
Accumulated deficit (354,268) (312,367)
Total shareholders' equity 336,148 177,149
Total $3,820,266 $3,643,452
The accompanying notes are an integral part of these statements.
4
Part 1. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Unaudited, in thousands, note 1)
1997 1996
Cash flows from operating activities:
Rents and other revenues received $ 520,522 $ 490,120
Proceeds from land sales 120,908 77,685
Interest received 10,238 8,556
Land development expenditures (83,089) (32,327)
Operating expenditures:
Operating properties (270,487) (265,727)
Land sales, development and corporate (16,731) (19,910)
Interest paid:
Operating properties (160,361) (154,416)
Land sales, development and corporate (701) (12,917)
Net cash provided by operating activities 120,299 91,064
Cash flows from investing activities:
Expenditures for properties in development
and improvements to existing properties
funded by debt (190,927) (67,024)
Expenditures for acquisition of The Hughes
Corporation (net of acquired cash) -- (35,872)
Expenditures for property acquisitions -- (2,724)
Expenditures for improvements to existing
properties funded by cash provided by
operating activities:
Tenant leasing and remerchandising (5,014) (5,482)
Building and equipment (6,493) (7,448)
Proceeds from sales of operating properties 5,770 6,299
Other 5,042 1,566
Net cash used in investing activities (191,622) (110,685)
Cash flows from financing activities:
Proceeds from issuance of property debt 337,648 172,476
Repayments of property debt:
Scheduled principal payments (35,033) (28,885)
Other payments (364,088) (182,407)
Proceeds from issuance of other debt 45,000 90,400
Repayments of other debt (44,358) (16,303)
Proceeds from issuance of Preferred stock 196,826 --
Purchases of Common stock (21,201) (5,247)
Proceeds from exercise of stock options 1,963 599
Dividends paid (57,385) (46,233)
Other (302) (1,938)
Net cash provided by (used in) financing
activities 59,070 (17,538)
Net decrease in cash and cash equivalents (12,253) (37,159)
Cash and cash equivalents at beginning of period 43,766 94,922
Cash and cash equivalents at end of period $ 31,513 $ 57,763
The accompanying notes are an integral part of these statements.
5
Part 1. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Nine Months Ended September 30, 1997 and 1996
(Unaudited, in thousands, note 1)
1997 1996
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 15,484 $ 9,234
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 63,455 60,296
(Gain) loss on dispositions of assets
and other provisions, net 11,044 6,355
Deferred income taxes 28,275 16,241
Extraordinary losses, net of related income
tax benefits 12,322 1,361
Additions to preconstruction reserve 2,400 2,200
Provision for bad debts 3,432 1,484
Increase in operating assets and
liabilities, net (16,113) (6,107)
Net cash provided by operating activities $120,299 $ 91,064
Schedule of Noncash Investing and Financing
Activities:
Common stock issued pursuant to Contingent
Stock Agreement $ 23,313 $ 5,025
Debt and other liabilities assumed in acquisition
The Hughes Corporation, net -- 334,155
Debt assumed by purchasers of land 16,675 10,412
Common stock issued in acquisition of
The Hughes Corporation -- 178,086
Mortgage debt assumed on acquisitions of
interests in properties -- 21,090
Notes received from sales of operating properties -- 8,440
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, 1997
(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 1996 Annual Report to Shareholders.
In its annual reports, the Company has included certain supplementary
current value basis financial statements with the historical cost
basis financial statements. The current value basis financial
statements are not presented as part of the Company's 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 preconstruction costs, net. The construction and
development in progress accounts include land and land improvements of
$50,848,000 at September 30, 1997.
Changes in preconstruction costs, net, for the nine months ended
September 30, 1997 are summarized as follows (in thousands):
Balance at beginning of period, before
preconstruction reserve $22,158
Costs incurred 24,721
Costs transferred to construction and
development in progress (16,035)
Costs transferred to operating properties (5,167)
Costs of unsuccessful projects written off (75)
25,602
Less preconstruction reserve 18,642
Balance at end of period, net $ 6,960
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, 1997 and December 31, 1996 is summarized as
follows (in thousands):
September 30, 1997 December 31, 1996
Due in Due in
Total one year Total one year
Mortgages and bonds $2,206,794 $ 77,850 $2,279,971 $114,831
Convertible subordi-
nated debentures 130,000 - 130,000 -
Medium-term notes 110,300 12,800 115,300 5,000
Credit line borrowings 71,000 - 64,000 -
Other loans 261,700 15,306 245,975 4,694
Total $2,779,794 $105,956 $2,835,246 $124,525
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.
(4) Series B Convertible Preferred stock
The Company has registered to sell up to an aggregate of
$500,000,000 (based on the public offering price) of common stock,
Preferred stock and debt securities. The stock and debt may be
issued from time to time at prices, in amounts and on terms to be
determined at the time of offering. In the first quarter of 1997,
the Company issued 4,050,000 shares of the Series B Convertible
Preferred stock pursuant to this registration.
(5) Gain (loss) on dispositions of assets and other provisions, net
The loss in 1997 relates primarily to additional provisions for losses
on several retail centers the Company is holding for sale. These
additional provisions were recognized based upon the updated
estimated fair values of the properties less costs to sell. These
losses were partially offset by gains on dispositions of three office
buildings ($1,455,000).
The losses in 1996 relate to provisions for losses on two retail
centers the Company decided to sell partially offset by a gain from
the reversal of a portion of a provision for a litigation matter
settled in the third quarter 1996.
8
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(6) Extraordinary losses, net of related income tax benefits
During the nine months ended September 30, 1997 and 1996, the Company
incurred extraordinary losses related to extinguishments of debt prior
to scheduled maturity of $18,957,000 and $2,094,000, respectively, net
of related income tax benefits of $6,635,000 and $733,000,
respectively. The sources of funds used to pay the debt and fund the
prepayment penalties were provided primarily by refinancings of
properties.
(7) Contingencies
The Company and certain of its subsidiaries are defendants in various
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 provision has been made for losses with
respect to all litigation matters, 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, 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,
and it is, therefore, possible that resolution of these matters could
have a material effect in any future quarter or year.
(8) Subsequent Events
Subsequent to September 30, 1997, the Company sold three buildings with
a total carrying value of $49,481,000. The Company recognized a net
gain of approximately $1,000,000 on these sales.
9
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
THE ROUSE COMPANY AND SUBSIDIARIES
The following discussion and analysis covers any material changes in
financial condition since December 31, 1996 and any material changes in
the results of operations for the three and nine months ended September
30, 1997 as compared to the same periods in 1996. 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
1996 Annual Report to Shareholders.
General:
On June 12, 1996, the Company purchased all of the outstanding equity
interests in The Hughes Corporation and its affiliated partnership, Howard
Hughes Properties, Limited Partnership (together, Hughes). The assets of
Hughes consist primarily of a regional shopping center and a large-scale,
master-planned community (Summerlin) in Las Vegas, Nevada, and four large-
scale, master-planned business parks and various other properties in
Nevada and Southern California.
Management is continually reviewing and evaluating the portfolio of
properties to identify expansion, renovation and/or remerchandising
opportunities and properties that may not have future prospects consistent
with the Company's long term objectives. The Company will continue to
dispose of properties that are not meeting and/or are not considered to
have the potential to meet its long term objectives, particularly smaller
properties in smaller market areas. While disposition decisions may cause
the Company to recognize gains or losses that could have material effects
on reported net earnings (loss) in future quarters or fiscal years, they
are not anticipated to have a material effect on the overall consolidated
financial position of the Company.
Operating Results:
Operating Properties:
Revenues from retail centers decreased $2,647,000 and $3,818,000 for the
three and nine months ended September 30, 1997, while total operating and
interest expenses decreased $4,490,000 and $6,105,000, as compared to the
same periods in 1996. The decreases in revenues and expenses for the
periods were attributable primarily to the effects of lower average
occupancy, (as a result of ongoing retail center renovations and
expansions and high vacancy rates at centers in the process of
disposition), dispositions of interests in properties (two in the first
quarter of 1996 and one in the fourth quarter of 1996) and lower tenant
lease termination payments. The decrease in interest expense for the
three month period is also due to the early extinguishment of a mortgage
payable. These decreases were partially offset by increases in revenues
10
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Operating Properties (continued):
and expenses attributable primarily to acquisitions of interests in two
properties, (one in connection with the acquisition of Hughes in the
second quarter of 1996 and one in the third quarter of 1996).
Revenues from office, mixed-use and other properties increased $5,354,000
and $37,284,000 and total operating and interest expenses increased
$2,887,000 and $30,503,000 for the three and nine months ended September
30, 1997, as compared to the same periods in 1996. The increases in
revenues and expenses were attributable primarily to the acquisition of
Hughes, openings of new projects in Las Vegas and higher occupancy levels,
especially at certain hotel properties. The increase in expenses for the
nine month period was partially offset by lower bad debts due to the
recovery of a note receivable (approximately $800,000) previously reserved
and the sale of an unoccupied industrial building in the second quarter of
1996.
Land sales:
Revenues from land sales increased $3,692,000 and $73,218,000 for the three
and nine months ended September 30, 1997, as compared to the same periods
in 1996 and related costs and expenses decreased $5,494,000 for the three
months ended September 30, 1997 and increased $52,732,000 for the nine
months ended September 30, 1997 as compared to the same periods in 1996.
Revenues from sales of land at the Hughes division decreased $7,522,000
and related costs and expenses decreased $10,361,000 for the three months
ended September 30, 1997 as compared to the same period in 1996. The
decrease in revenues is attributable primarily to a difference in the
timing of land sales in 1997 as compared to 1996. The decrease in costs
and expenses is attributable primarily to higher costs of sales in 1996.
Cost of sales, as a percentage of revenues, was higher in 1996 as the land
sold consisted primarily of inventory on which development was completed
or in progress at the date of acquisition. Cost of sales has declined in
subsequent periods as the inventory of land on which development was
completed or in progress at the date of acquisition has been depleted.
Revenues from sales of land at the Hughes division increased $70,154,000 and
costs and expenses increased $51,841,000 for the nine months ended
September 30, 1997 as compared to the same period in 1996. These
increases are attributable primarily to a full nine months of operations
during 1997.
Revenues from sales of land in Columbia increased $11,214,000 and $3,064,000
and related costs and expenses increased $4,867,000 and $891,000 for the
three and nine months ended September 30, 1997, respectively, as compared
to the same periods in 1996. These increases are due primarily to higher
levels of sales for residential uses.
11
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued):
Development:
Development expenses consist primarily of additions to the preconstruction
reserve and new business costs. The preconstruction 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 potential
acquisition and development opportunities. These costs decreased $299,000
for the three months ended September 30, 1997 and increased $286,000 for
the nine months ended September 30, 1997, as compared to the same periods
in 1996. The decrease for the three months ended September 30, 1997 is
attributable primarily to lower interest expense partially offset by
higher new business costs. The increase for the nine months ended
September 30, 1997 is attributable primarily to increases in the
preconstruction reserve and new business costs, partially offset by lower
interest expense.
Corporate:
Corporate expenses consist of certain interest and operating expenses
reduced by costs capitalized or allocated to other segments. Interest is
capitalized on corporate funds invested in projects under development, and
interest on the proceeds of corporate borrowings and distributions on the
Company-obligated mandatorily redeemable preferred securities which are
used for other segments are allocated to those segments. Accordingly,
corporate interest expense consists primarily of interest on the
convertible subordinated debentures, the unsecured 8.5% notes, the medium
term notes, and unallocated proceeds from refinancings of certain
properties, net of interest capitalized on development projects or
allocated to other segments, and corporate operating expenses consist
primarily of general and administrative costs and distributions on the
redeemable preferred securities, net of distributions allocated to other
segments. These costs decreased $2,270,000 and $4,996,000 for the three
and nine months ended September 30, 1997, respectively, as compared to the
same periods in 1996. The decreases in these costs are attributable
primarily to higher levels of corporate funds invested in development
projects.
Gain (loss) on dispositions of assets and other provisions, net:
The loss in 1997 relates primarily to additional provisions for losses on
several retail centers the Company is holding for sale. These additional
provisions were recognized based upon the updated estimated fair values of
the properties less costs to sell. These losses were partially offset by
gains on dispositions of three office buildings ($1,455,000).
12
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued)
Gain (loss) on dispositions of assets and other provisions, net (continued)
The losses in 1996 relate to provisions for losses on two retail centers the
Company decided to sell partially offset by a gain from the reversal of a
portion of a provision for a litigation matter settled in the third
quarter 1996.
Extraordinary losses, net of related income tax benefits:
During the nine months ended September 30, 1997 and 1996,the
Company incurred extraordinary losses related to extinguishments of debt
prior to scheduled maturity of $18,957,000 and $2,094,000, respectively,
net of related income tax benefits of $6,635,000 and $733,000,
respectively. The sources of funds used to pay the debt and fund the
prepayment penalties were provided primarily by refinancings of
properties. The benefit of these payments will be reflected as improved
operating results over the remaining terms of the refinanced loans.
Net Earnings (Loss):
Net earnings (loss) for the three and nine months ended September 30, 1997
and 1996 were affected by unusual and/or nonrecurring items. The most
significant of these are the items discussed above in gain (loss) on
dispositions of assets and other provisions, net, and extraordinary losses
net of related income tax benefits. Net earnings (loss) was also affected
by income taxes. The Company's effective tax rates (based on earnings
before income taxes and extraordinary losses) were 45% and 52%,
respectively, for the three and nine months ended September 30, 1997, and
145% and 61%, respectively, for the three and nine months ended September
30, 1996. The effective rates reflect permanent differences, primarily
the distributions payable to the former Hughes owners (or their
successors) under the Contingent Stock Agreement which are not fully
deductible for income tax purposes.
Financial Condition and Liquidity:
Shareholders' equity increased by $158,999,000 from $177,149,000 at
December 31, 1996 to $336,148,000 at September 30, 1997. The increase was
primarily attributable to the issuance of the Series B Convertible
Preferred Stock (as discussed in note 4 to the consolidated financial
statements) and the net earnings for the nine months ended September 30,
1997. These increases were partially offset by the payment of regular
quarterly dividends on the Company's common and Preferred stocks.
The Company had cash and cash equivalents and investments in marketable
securities totaling $35,004,000 and $47,362,000 at September 30, 1997 and
December 31, 1996, respectively, including $3,491,000 and $3,596,000 of
investments, respectively, held for restricted uses.
13
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued)
Financial Condition and Liquidity(continued):
The Company and certain of its subsidiaries have available lines of credit
from banks and other lenders aggregating $248,120,000, including
outstanding borrowings of $71,000,000 at September 30, 1997. These credit
lines may be used for various purposes, including land and project
development costs, property acquisitions, liquidity and other corporate
needs, subject to specific use limitations and/or lender approvals in
certain cases. They may also be utilized to pay some portion of existing
debt, including maturities in 1997 and 1998. As of September 30, 1997,
debt due in one year was $105,956,000 including balloon maturities of
$59,147,000. The balloon maturities at September 30, 1997 include
$11,168,000 related to an office building that was sold in October 1997.
The Company is continually evaluating sources of capital, and management
believes there are satisfactory sources available for all requirements
without necessitating property sales.
Net cash provided by operating activities was $120,299,000 and $91,064,000
for the nine months ended September 30, 1997 and 1996, respectively. The
increase in net cash provided of $29,235,000 was due primarily to the
factors discussed previously under the operating results of the four major
business segments.
Net cash used in investing activities was $191,622,000 and $110,685,000 for
the nine months ended September 30, 1997 and 1996, respectively. The
increase in net cash used of $80,937,000 was due primarily to increases in
expenditures for properties under development, partially offset by lower
acquisition-related expenditures.
Net cash provided by financing activities was $59,070,000 and net cash used
in financing activities was $17,538,000 for the nine months ended
September 30, 1997 and 1996, respectively. Cash flows from financing
activities for 1997 included the proceeds from the public offering of
Series B Convertible Preferred stock. There was no similar transaction in
the 1996 period. The effect of the issuance of the Series B Convertible
Preferred stock was offset partially by increased net repayments of
property and other debt, purchases of common stock and increased
dividends.
Information relating to forward-looking statements:
This report on Form 10-Q of the Company includes forward-looking statements
which reflect the Company's current views with respect to future events
and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including those identified below,
which could cause actual results to differ materially from historical
results or those anticipated. The words "believe," "expect," "anticipate"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
14
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued)
Information relating to forward-looking statements (continued):
which speak only as of their dates. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. The following
factors could cause actual results to differ materially from historical
results or those anticipated: (1) real estate investment risks; (2)
development risks; (3) illiquidity of real estate investments; (4)
dependence on rental income from real property; (5) effect of uninsured
loss; (6) lack of geographical diversification; (7) possible environmental
liabilities; (8) difficulties of compliance with the Americans with
Disabilities Act; (9) competition; (10) changes in the economic climate
and (11) certain matters relating to Nevada properties. For a more
detailed discussion of these factors, see Exhibit 99.2 of the Company's
Form 10-K for the fiscal year ended December 31, 1996.
15
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
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 14,1997 By /s/Jeffrey H. Donahue
Jeffrey H. Donahue
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer:
Date:November 14,1997 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,
1997 1996 1997 1996
Earnings(loss)before
extraordinary losses $16,271 $(2,456) $27,806 $10,595
Add after-tax interest expense
applicable to convertible
subordinated debentures 1,215 1,215 3,644 3,644
Earnings(loss)before extra-
ordinary losses, as adjusted 17,486 (1,241) 31,450 14,239
Extraordinary losses, net (107) (46) (12,322) (1,361)
Net earnings (loss), as adjusted $17,379 $(1,287) $19,128 $12,878
Shares:
Weighted average number of
common shares outstanding 66,715 57,292 66,654 51,760
Assuming conversion of
convertible Preferred stock 5,310 9,395 4,240 10,172
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 977 800 1,009 800
Weighted average number of shares
outstanding, as adjusted 77,544 72,029 76,445 67,274
Earnings (loss) per common share
assuming full dilution:
Earnings (loss) before extraordinary
losses, as adjusted $ .22 $ (.02) $ .41 $ .21
Extraordinary losses -- -- (.16) (.02)
Net earnings (loss), adjusted $ .22 $ (.02) $ .25 $ .19
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, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $ 31,513
<SECURITIES> $ 3,491
<RECEIVABLES> $ 155,841
<ALLOWANCES> $ (22,158)
<INVENTORY> 0
<CURRENT-ASSETS> $ 208,808<F1>
<PP&E> $ 4,043,169
<DEPRECIATION> $ (588,960)
<TOTAL-ASSETS> $ 3,820,266
<CURRENT-LIABILITIES> $ 456,916<F2>
<BONDS> $ 2,779,794
<COMMON> $ 668
0
$ 41
<OTHER-SE> $ 335,439
<TOTAL-LIABILITY-AND-EQUITY> $ 3,820,266
<SALES> $ 688,083
<TOTAL-REVENUES> $ 688,083
<CGS> 0
<TOTAL-COSTS> $ 458,003
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 3,432
<INTEREST-EXPENSE> $ 157,162
<INCOME-PRETAX> $ 58,442
<INCOME-TAX> $ 30,636
<INCOME-CONTINUING> $ 69,486
<DISCONTINUED> $ (11,044)
<EXTRAORDINARY> $ (12,322)
<CHANGES> 0
<NET-INCOME> $ 15,484
<EPS-PRIMARY> $ .13
<EPS-DILUTED> $ .25
<FN>
<F1>Current assets include cash, unrestricted marketable securities, current
portion of accounts and notes receivable and prepaid expenses and deposits.
<F2>Current liabilities include the current portion of long-term debt and
accounts payable, accrued expenses and other liabilities.
</FN>
</TABLE>
