<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: JANUARY 15, 1998
Date of Earliest Event Reported: DECEMBER 31, 1997
THE ROUSE COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
MARYLAND 0-1743 52-0735512
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
</TABLE>
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
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 31, 1997, certain subsidiaries of The Rouse Company sold 91% of
their voting common stock to The Rouse Company Incentive Compensation Statutory
Trust (the "Trust") for a total aggregate consideration of $1,400,000. The
Company retained the remaining voting stock of these companies and holds shares
of nonvoting common and/or preferred stock and, in certain cases, mortgage loans
receivable which, taken together, comprise substantially all (at least 98%) of
the financial interest in such companies. The sale price of each subsidiary was
equal to 1% of the fair value of the assets of the subsidiary after deducting
the fair value of any preferred stock, mortgage loans payable and other
liabilities.
The primary assets of the subsidiaries are (i) undeveloped land in
Summerlin, a large-scale, master-planned community in Las Vegas, Nevada and
other investment land in Las Vegas, (ii) undeveloped land in and around
Columbia, Maryland, a large-scale, master-planned community, (iii) investments
in other subsidiaries that are primarily involved in the operation of buildings
in the Columbia project and land development in and around Las Vegas and (iv)
management agreements relating to retail, office and other properties. See also
note 2 to the Pro Forma Condensed Consolidated Balance Sheet and Statements of
Operations (Unaudited) in Item 7(b).
The Trustees of the Trust are two independent directors of the Company and
a Senior Vice President of the Company (who also is the Trustee of The Rouse
Company Pension Plan Trust and The Rouse Company Savings Plan Trust). The
beneficiaries of the Trust with respect to distributions of net income are those
employees of the Company who are eligible to receive annual cash incentive
compensation, including all officers of the Company. Upon termination of the
Trust, the residual assets of the Trust, if any, are to be distributed to The
Rouse Company Foundation, a charitable tax exempt foundation, or another
organization that qualifies under Section 501(c)(3) of the Internal Revenue Code
of 1986.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements are based upon the consolidated financial statements of the Company,
adjusted to give effect to the sale of 91% of the voting common stock of certain
subsidiary companies on December 31, 1997. These sales were part of the
Company's plan to qualify to be taxed as a real estate investment trust
effective January 1, 1998. The Company retained the remaining voting common
stock of the companies and holds shares of nonvoting common stock and/or
preferred stock of these entities and, in certain cases, mortgage loans
receivable from them which, taken together, comprise substantially all (at least
98%) of the financial interest in them. These accompanying pro forma condensed
financial statements reflect how the consolidated balance sheet of the Company
might have appeared at September 30, 1997 if the sales had occurred as of that
date and how the consolidated statements of operations of the Company for the
nine months ended September 30, 1997 and the year ended December 31, 1996 might
have appeared if the sales had occurred on December 31, 1996 and 1995,
respectively. These unaudited pro forma condensed consolidated financial
statements are not necessarily indicative of the results of operations or
financial position of the Company that would have occurred had the sales
occurred at the beginning of the periods presented or on the date indicated, nor
are they necessarily indicative of the future results or financial position of
the Company.
These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
of the Company included in its Form 10-K for the year ended December 31, 1996
and the unaudited condensed consolidated financial statements included in its
Form 10-Q for the nine months ended September 30, 1997. The unaudited pro forma
adjustments are based on this financial information and certain other
assumptions included in the notes to the unaudited pro forma condensed
consolidated financial statements.
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THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
September 30, 1997
(Unaudited)
(In thousands)
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<CAPTION>
The Rouse The Rouse
Company Company
and Pro Forma and
Subsidiaries Adjustments Subsidiaries
Assets (Historical) (Note 3) (As adjusted)
------------ ------------ --------------
<S> <C> <C> <C>
Property
Operating properties, net............................ $2,895,024 $ (253,109) (a) $2,561,973
(79,942) (b)
Properties in development............................ 211,340 (19,766) (a) 191,574
Properties held for sale............................. 74,368 -- 74,368
Investment land and land held for
development and sale............................. 273,477 (273,477) (a) --
---------- ---------- ----------
Total property.................................... 3,454,209 (626,294) 2,827,915
Equity in and advances to unconsolidated
real estate ventures................................. -- 377,535 (a) 486,311
108,776 (b)
Prepaid expenses, deferred charges and other assets....... 197,370 (40,375) (a) 128,161
(28,834) (b)
Accounts and notes receivable............................. 133,683 (99,431) (a) 34,252
Investments in marketable securities...................... 3,491 -- 3,491
Cash and cash equivalents................................. 31,513 2,931 (a) 34,444
---------- ---------- ----------
Total............................................. $3,820,266 $ (305,692) $3,514,574
========== ========== ==========
Liabilities and Shareholders' Equity
Debt...................................................... $2,779,794 $ (214,260) (a) $2,565,534
Other liabilities......................................... 406,335 (91,432) (a) 314,903
Deferred income taxes..................................... 160,489 (160,489) (c) --
Company obligated mandatorily redeemable preferred
securities of a trust holding solely Parent Company
subordinated debt securities......................... 137,500 -- 137,500
Shareholders' equity...................................... 336,148 160,489 (c) 496,637
---------- ---------- ----------
Total............................................. $3,820,266 $ (305,692) $3,514,574
========== ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Year ended December 31, 1996
(Unaudited)
(In thousands, except per share data)
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<CAPTION>
The Rouse The Rouse
Company Company
and Pro Forma and
Subsidiaries Adjustments Subsidiaries
(Historical) (Note 3) (As adjusted)
------------ ------------ --------------
<S> <C> <C> <C>
Revenues............................................... $831,917 $(243,661) (a) $578,980
(9,276) (b)
Operating expenses, exclusive of provision
for bad debts, depreciation and
amortization...................................... 468,366 (163,779) (a) 304,587
Interest expense....................................... 220,381 (23,852) (a) 196,529
Provision for bad debts................................ 3,688 97 (a) 3,785
Depreciation and amortization.......................... 79,990 (12,453) (a) 64,961
(2,576) (b)
Equity in earnings of unconsolidated
real estate ventures.............................. -- 31,859 (a) 38,559
6,700 (b)
Gain (loss) on dispositions of assets and
other provisions, net............................. (15,887) (672) (a) (16,559)
-------- --------- --------
Earnings from continuing operations before
income taxes...................................... 43,605 (12,487) 31,118
Income taxes........................................... 25,719 (25,599) (c) 120
-------- --------- --------
Earnings from continuing operations.................... $ 17,886 $ 13,112 $ 30,998
======== ========= ========
Earnings from continuing operations per
share of common stock after provision for
dividends on Preferred stock...................... $ .14 $ .37
======== ========
Weighted average number of common
shares outstanding................................ 55,572 55,572
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Nine months ended September 30, 1997
(Unaudited)
(In thousands, except per share data)
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<CAPTION>
The Rouse The Rouse
Company Company
and Pro Forma and
Subsidiaries Adjustments Subsidiaries
(Historical) (Note 3) (Pro Forma)
------------ ------------ --------------
<S> <C> <C> <C>
Revenues.................................................. $688,083 $(238,840) (a) $443,053
(6,190) (b)
Operating expenses, exclusive of provision
for bad debts, depreciation and
amortization......................................... 394,548 (163,095) (a) 231,453
Interest expense.......................................... 157,162 (15,820) (a) 141,342
Provision for bad debts................................... 3,432 468 (a) 3,900
Depreciation and amortization............................. 63,455 (10,136) (a) 51,332
(1,987) (b)
Equity in earnings of unconsolidated
real estate ventures................................. -- 33,873 (a) 38,076
4,203 (b)
Gain (loss) on dispositions of assets and
other provisions, net................................ (11,044) -- (11,044)
-------- --------- --------
Earnings from continuing operations before
income taxes......................................... 58,442 (16,384) 42,058
Income taxes.............................................. 30,636 (30,199) (c) 437
-------- --------- --------
Earnings from continuing operations....................... $ 27,806 $ 13,815 $ 41,621
======== ========= ========
Earnings from continuing operations per
share of common stock after provision for
dividends on Preferred stock......................... $ .31 $ .51
======== ========
Weighted average number of common
shares outstanding................................... 66,715 66,715
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AND
STATEMENTS OF OPERATIONS
September 30, 1997
(Unaudited)
(1) ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST AND RELATED MATTERS
In December 1997, the Company determined that it would elect to be taxed
as a real estate investment trust (REIT) effective January 1, 1998. On December
31, 1997, as part of its plan to meet the qualifications for REIT status, the
Company sold 91% of the voting common stock of certain subsidiary companies to
The Rouse Company Incentive Compensation Statutory Trust (the "Trust"), an
entity which is neither owned nor controlled by the Company, for an aggregate
consideration of $1,400,000. The Company retained the remaining voting stock of
the companies and holds shares of nonvoting common and/or preferred stock and,
in certain cases, mortgage loans receivable from the companies which, taken
together, comprise substantially all (at least 98%) of the financial interest in
them.
As a result of its disposition of the majority voting interest in the
companies, the Company will use the equity method to account for its investment
in them effective December 31, 1997, and, accordingly, their assets,
liabilities, revenues and expenses will no longer be consolidated in the
Company's financial statements as of that date. Due to the significance of its
continuing financial interest in the companies, the Company recognized no gain
or loss for financial reporting purposes on the sales of stock.
The Company believes that it met the qualifications for REIT status as of
December 31, 1997, and it intends to continue to meet the qualifications in the
future and to distribute at least 100% of its REIT taxable income (determined by
taking into account any net operating loss deduction) to stockholders in 1998
and subsequent years. Accordingly, management does not believe that the Company
will be liable for payment of income taxes (except, possibly, in certain
states) in those periods. The Company also intends to elect to be subject to
the "built-in gain" rules under which taxes may be payable at the time and to
the extent the net unrealized gains on its assets at the date of conversion to
REIT status are recognized in taxable dispositions of such assets in the ten
year period following conversion. Due to the availability of the Company's net
operating loss carryforward (which was approximately $281,000,000 at December
31, 1997) to offset any recognized built-in gains and the potential for making
nontaxable dispositions, if necessary (e.g., like-kind exchanges of
properties), management does not believe that the Company will be liable for
payment of taxes on built-in gains during the ten year period. Based on these
considerations, the Company concluded that the deferred tax assets and
liabilities it had recorded at December 31, 1997, should be eliminated. The
elimination of the net deferred tax liabilities at that date will be recorded as
a reduction of deferred income taxes for 1997; however, the reduction relating
to prior years' net deferred income tax liability is not included in the pro
forma condensed consolidated statements of operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996.
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THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AND
STATEMENTS OF OPERATIONS
(Unaudited)
(2) DESCRIPTION OF ASSETS AND OPERATIONS OF THE SUBSIDIARY COMPANIES
A summary of the principal assets and operations of the subsidiary
companies is as follows:
a) Ownership and management of 14 office and industrial buildings, 12
community retail centers, a hotel and a major regional retail center
located in Columbia, Maryland.
b) Ownership and development of approximately 1,600 acres of saleable land
for residential and commercial uses in and around Columbia, Maryland, a
master planned community.
c) Ownership and development of approximately 10,400 acres of saleable
land for residential and commercial uses primarily in Summerlin,
Nevada, a master planned community, and Las Vegas, Nevada.
d) Ownership of management contracts for approximately 28 retail centers
and 71 office buildings.
e) Ownership interests in various other operating property and land
partnerships.
(3) ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND
STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1997 and condensed consolidated statements of operations for
the nine months ended September 30, 1997 and the year ended December 31, 1996
reflect certain adjustments which are explained below. These adjustments are
required to give effect to the matters described in note 1 and to reclassify
certain amounts to conform to the Company's revised financial statement
presentation. Explanations of the adjustments are as follows:
a) To eliminate the assets, liabilities, revenues and expenses of the
subsidiary companies sold and to record the Company's investments in
the preferred and common stocks and advances to the subsidiary
companies and its equity in their net earnings.
b) To reclassify investments in and advances to other unconsolidated real
estate ventures and related revenues and expenses to conform to the
revised financial statement presentation.
c) To eliminate deferred tax assets and liabilities and deferred income
tax expenses for 1997 and 1996 as a result of the Company's election to
be taxed as a real estate investment trust.
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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 hereunto duly authorized.
THE ROUSE COMPANY
January 15, 1998 By: /s/ Jeffrey H. Donahue
----------------------
Jeffrey H. Donahue
Senior Vice President and
Chief Financial Officer
