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 June 30, 1998
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 August 7, 1998:
Common Stock, $0.01 par value 68,503,581
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 Six Months Ended June 30, 1998 and 1997
(Unaudited, in thousands except per share amounts, note 1)
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
Revenues:
Retail centers $113,634 $119,098 $222,149 $236,405
Office, mixed-use and other 40,555 54,379 79,996 106,131
Land sales operations 1,394 64,395 31,630 101,989
Corporate interest income 498 1,730 1,468 2,819
Total revenues 156,081 239,602 335,243 447,344
Operating expenses, exclusive of
provision for bad debts,
depreciation and amortization:
Retail centers 56,512 60,290 111,121 120,130
Office, mixed-use and other 17,167 26,271 34,069 52,138
Land sales operations 82 50,347 23,164 78,223
Development 938 1,329 4,504 2,452
Corporate 4,473 3,907 8,571 7,200
79,172 142,144 181,429 260,143
Interest expense:
Retail centers 30,192 31,225 60,166 62,883
Office, mixed-use and other 15,790 20,246 33,345 40,818
Land sales operations 264 977 531 1,908
Corporate (1,173) 198 (3,383) 1,359
45,073 52,646 90,659 106,968
Provision for bad debts 936 681 1,790 1,578
Depreciation and amortization 17,409 20,309 36,199 40,431
Total expenses 142,590 215,780 310,077 409,120
13,491 23,822 25,166 38,224
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 Statements of Operations, continued
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited, in thousands except per share amounts, note 1)
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
Equity in earnings (loss) of
unconsolidated real estate
ventures (note 3) $ 15,632 $ (936) $ 36,660 $ 950
Gain (loss) on dispositions of
assets and other provisions,
net (note 5) 234 (10,051) 2,169 (10,051)
Earnings before income taxes,
extraordinary items and
cumulative effect of change
in accounting principle 29,357 12,835 63,995 29,123
Income taxes (note 2):
Current 93 951 199 1,106
Deferred --- 8,759 --- 16,482
93 9,710 199 17,588
Earnings before extraordinary
items and cumulative effect
of change in accounting
principle 29,264 3,125 63,796 11,535
Extraordinary gain (loss) from
extinguishment of debt,
net (note 6) 7,491 (10,086) 6,575 (12,215)
Cumulative effect at
January 1, 1998 of change
in accounting for participating
mortgages (note 7) --- --- (4,629) ---
Net earnings (loss) $ 36,755 $ (6,961) $ 65,742 $ (680)
Net earnings (loss) applicable
to common shareholders $ 33,717 $ (9,999) $ 59,666 $ (4,918)
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 Statements of Operations, continued
Three and Six Months Ended June 30, 1998 and 1997
(Unaudited, in thousands except per share amounts, note 1)
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK (Note 8):
Basic:
Earnings before extra-
ordinary items $ .39 $ --- $ .86 $ .11
Extraordinary gain (loss) .11 (.15) .10 (.18)
Cumulative effect of change
in accounting principle --- --- (.07) ---
Total $ .50 $ (.15) $ .89 $ (.07)
Diluted:
Earnings before extra-
ordinary items $ .38 $ --- $ .84 $ .10
Extraordinary gain (loss) .11 (.15) .09 (.18)
Cumulative effect of change
in accounting principle --- --- (.06) ---
Total $ .49 $ (.15) $ .87 $ (.08)
DIVIDENDS PER SHARE:
Common stock $ .28 $ .25 $ .56 $ .50
Preferred stock $ .75 $ .75 $ 1.50 $ 1.05
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 Balance Sheets
June 30, 1998 and December 31, 1997
(in thousands, note 1)
June 30, December 31,
1998 1997
(Unaudited)
Assets:
Property:
Operating properties:
Property and deferred costs
of projects $3,291,729 $3,079,962
Less accumulated depreciation
and amortization 551,648 515,229
2,740,081 2,564,733
Properties in development 170,696 232,349
Properties held for sale 1,000 20,052
Total property 2,911,777 2,817,134
Investments in and advances to unconsolidated
real estate ventures (note 3) 286,431 338,692
Prepaid expenses, receivables under finance
leases and other assets 225,797 228,956
Accounts and notes receivable 95,920 114,300
Investments in marketable securities 3,866 3,586
Cash and cash equivalents 39,647 87,100
Total $3,563,438 $3,589,768
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 Balance Sheets, continued
June 30, 1998 and December 31, 1997
(in thousands, note 1)
June 30, December 31,
1998 1997
Liabilities: (Unaudited)
Debt (note 4):
Property debt not carrying a Parent
Company guarantee of repayment $2,022,387 $2,085,456
Parent Company debt and debt carrying a
Parent Company guarantee of repayment:
Property debt 150,975 158,093
Convertible subordinated debentures 128,540 130,000
Other debt 243,200 256,000
522,715 544,093
Total debt 2,545,102 2,629,549
Obligations under capital leases 54,866 54,591
Accounts payable, accrued expenses
and other liabilities 322,295 302,613
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 41 41
Common stock of 1 cent par value per share;
250,000,000 shares authorized; 67,434,520
shares issued in 1998 and 66,910,901
shares issued in 1997 674 669
Additional paid-in capital 703,406 686,976
Accumulated deficit (200,446) (222,171)
Total shareholders' equity 503,675 465,515
Total $3,563,438 $3,589,768
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
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
(Unaudited, in thousands, note 1)
1998 1997
Cash flows from operating activities:
Rents and other revenues received $299,606 $347,423
Proceeds from land sales 55,830 79,901
Interest received 6,530 7,050
Land development expenditures --- (63,293)
Operating expenditures (153,308) (184,317)
Interest paid (91,798) (111,000)
Distributions from unconsolidated
majority financial interest ventures 37,824 ---
Net cash provided by operating activities 154,684 75,764
Cash flows from investing activities:
Expenditures for properties in development
and improvements to existing properties
funded by debt (161,162) (112,690)
Expenditures for improvements to existing
properties funded by cash provided by
operating activities:
Tenant leasing and remerchandising (3,735) (4,960)
Building and equipment (5,826) (18,271)
Payments received on loans and advances to
unconsolidated majority financial interest
ventures 55,077 ---
Proceeds from sales of operating properties
and other investments 30,938 5,770
Other (2,164) (629)
Net cash used by investing activities (86,872) (130,780)
Cash flows from financing activities:
Proceeds from issuance of property debt 108,126 274,259
Repayments of property debt:
Scheduled principal payments (21,542) (23,097)
Other payments (166,503) (329,629)
Proceeds from issuance of other debt 197,004 15,000
Repayments of other debt (184,250) (39,200)
Proceeds from issuance of Series B Preferred
stock --- 196,898
Proceeds from issuance of common stock 43,414 ---
Purchases of common stock (47,687) (16,079)
Proceeds from exercise of stock options 192 1,488
Dividends paid (44,019) (37,641)
Other --- (302)
Net cash provided (used) by financing
activities (115,265) 41,697
Net decrease in cash and cash equivalents (47,453) (13,319)
Cash and cash equivalents at beginning of period 87,100 43,766
Cash and cash equivalents at end of period $ 39,647 $ 30,447
The accompanying notes are an integral part of these statements.
7
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Six Months Ended June 30, 1998 and 1997
(Unaudited, in thousands, note 1)
1998 1997
Reconciliation of net earnings (loss) to net cash
provided by operating activities:
Net earnings (loss) $ 65,742 (680)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 36,199 40,431
(Gain) loss on dispositions of assets
and other provisions, net (2,169) 10,051
Deferred income taxes -- 16,482
Extraordinary (gain) loss, net (6,575) 12,215
Cumulative effect of change in accounting
principle 4,629 --
Additions to preconstruction reserve 3,845 1,200
Provision for bad debts 1,790 1,578
Decrease (increase) in operating assets
and liabilities, net 51,223 (5,513)
Net cash provided by operating activities $ 154,684 $ 75,764
Schedule of Noncash Investing and Financing
Activities:
Common stock issued pursuant to Contingent
Stock Agreement $ 15,754 $ 17,313
Common stock issued upon conversion of
convertible subordinated debentures 1,460 --
Debt assumed by purchasers of land 2 10,953
The accompanying notes are an integral part of these statements.
8
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1998
(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 1997 Annual
Report to Shareholders, except that, effective January 1, 1998, the
Company adopted the American Institute of Certified Public Accountants
Statement of Position 97-1 "Accounting by Participating Mortgage Loan
Borrowers" (see note 7).
Certain amounts have been reclassified to conform to the current
presentation.
(2) Tax status
Effective January 1, 1998, the Company determined that it would elect to
be taxed as a real estate investment trust (REIT) pursuant to the
Internal Revenue Code, as amended. In general, a corporation that
distributes at least 95% of its REIT taxable income to shareholders in
any taxable year and complies with certain other requirements (relating
primarily to the nature of its assets and the sources of its revenues)
is not subject to federal income taxation to the extent of the income
which it distributes. Management believes the Company met the
qualifications for REIT status as of June 30, 1998, intends for it to
continue to meet the qualifications in the future and does not expect
that the Company will be liable for income taxes or taxes on "built-in
gains" on its assets at the Federal level or in most states in which it
operates in 1998 and future years. Accordingly, the provision for
income taxes for the three and six months ended June 30, 1998 relates
only to certain state income taxes.
9
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(3) Unconsolidated real estate ventures
Investments in and advances to unconsolidated real estate ventures at
June 30, 1998 and December 31, 1997 are summarized, based on the
level of the Company's financial interest, as follows (in thousands)
June 30, December 31,
1998 1997
Majority interest ventures $ 217,597 $ 259,320
Joint interest and control ventures 355 3,412
Minority interest ventures 68,479 75,960
Total $ 286,431 $ 338,692
The equity in earnings of unconsolidated real estate ventures for the
three and six months ended June 30, 1998 and 1997 is summarized, based
on the level of the Company's financial interest, as follows (in
thousands):
Three months Six months
ended June 30 ended June 30
1998 1997 1998 1997
Majority interest ventures $ 13,333 $ -- $ 31,962 $ --
Minority interest ventures 2,299 (936) 4,698 950
Total $ 15,632 $ (936) $ 36,660 $ 950
10
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(3) Unconsolidated real estate ventures, continued
The condensed, combined balance sheets of the ventures in which the
Company holds majority financial interests at June 30, 1998 and
December 31, 1997 are summarized as follows (in thousands):
June 30, December 31,
1998 1997
Assets:
Operating properties, net $ 211,066 $ 211,385
Properties in development 43,576 23,144
Properties held for sale -- 46,289
Land held for development and sale 221,101 233,406
Investment land 39,982 34,947
Other 141,622 145,045
Total $ 657,347 $ 694,216
Liabilities and shareholders' deficit:
Mortgages payable and other long-term debt $ 285,295 $ 280,595
Other liabilities 93,389 89,710
Loans and advances from The Rouse Company 335,568 405,871
Shareholders' deficit (56,905) (81,960)
Total $ 657,347 $ 694,216
11
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(3) Unconsolidated real estate ventures, continued
The condensed combined statements of operations of the ventures in
which the Company holds a majority financial interest for the three
and six months ended June 30, 1998 are summarized as follows (in
thousands):
Three months Six months
ended ended
June 30, 1998 June 30, 1998
Revenues $ 63,728 $ 160,887
Operating expenses (36,208) (90,452)
Interest expense, including interest
on loans from the Company of $24,058
for the six months and $16,023 for
the three months (22,793) (37,849)
Depreciation and amortization (2,529) (5,054)
Equity in earnings (loss) of
unconsolidated real estate ventures (432) 849
Gain on dispositions of assets 3,407 15,846
Income taxes, including a deferred tax
provision of $17,953 for the six months
and $2,660 for the three months (2,909) (18,247)
Extraordinary loss, net -- (925)
Net earnings $ 2,264 $ 25,055
The Company's share of the net earnings before extraordinary loss of the
ventures is summarized as follows (in thousands):
Three months Six months
ended ended
June 30, 1998 June 30, 1998
Share of net earnings based on
ownership interest $ 2,241 $ 24,804
Share of extraordinary loss -- 916
Participation by others in the Company's
share of earnings of majority financial
interest ventures (7,558) (15,039)
Interest on loans and advances, net 16,023 24,058
Eliminations and other, net 2,627 (2,777)
$ 13,333 $ 31,962
12
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(4) Debt
Debt at June 30, 1998 and December 31, 1997 is summarized as follows
(in thousands):
June 30, 1998 December 31, 1997
Due in Due in
Total one year Total one year
Mortgages and bonds $2,072,807 $ 41,499 $2,159,418 $ 48,019
Convertible subordi-
nated debentures 128,540 -- 130,000 --
Medium-term notes 97,500 6,000 110,300 12,800
Credit line borrowings 25,000 -- -- --
Other loans 221,255 26,653 229,831 9,319
Total $2,545,102 $ 74,152 $2,629,549 $ 70,138
The amounts due in one year reflect the terms of existing loan agree-
ments except where refinancing commitments from outside lenders have
been obtained. In these instances, maturities are determined based
on the terms of the refinancing commitments.
In July 1998, the Company obtained an $800 million unsecured line of
credit facility to replace a $250 million revolving line of credit
facility. The new facility is structured as a $350 million 364 day
bridge loan facility and a $450 million three-year revolving line of
credit. Repayment of any borrowings under the new facility is
guaranteed by certain of the Company's majority financial interest
ventures.
(5) Gain (loss) on dispositions of assets and other provisions, net
The gain for the three and six months ended June 30, 1998 relates
primarily to a reduced provision for loss on a retail center which the
Company sold in April 1998, and a partial recovery of a loss
previously recognized on a litigation matter in the first quarter.
These items were partially offset by losses on the sale of a hotel and
an office building in the first quarter. In addition, the Company
realized a gain on the sale of an office building in the second
quarter.
The loss for the three and six months ended June 30, 1997 relates
primarily to additional provisions for losses on several retail
centers the Company was holding for sale.
13
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(6) Extraordinary gain (loss), net
The gain for the three and six months ended June 30, 1998 resulted from
debt extinguished in connection with the transfer of title to a
property to the related mortgage lender in the second quarter of 1998
($14,875,000). This gain was partially offset by losses on
extinguishment of other debt prior to scheduled maturity ($7,384,000).
One of the losses was incurred by a majority financial interest
venture. The debt was related to a hotel property which the venture
sold, and a portion of the proceeds of the sale were used to repay the
debt. The loss related to the majority financial interest venture is
net of related taxes.
The loss in the three and six months ended June 30, 1997, resulted from
losses of $15,517,000 and $18,792,000, respectively, net of related
income tax benefits of $5,431,000 and $6,577,000, respectively, on
extinguishment of debt prior to scheduled maturity.
(7) Cumulative effect of change in accounting for participating mortgages
Effective January 1, 1998, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position 97-1
"Accounting by Participating Mortgage Loan Borrowers." This Statement
prescribes borrowers' accounting for participating mortgage loans and
requires, among other things, that borrowers recognize liabilities for
the estimated fair value of lenders' participations in the
appreciation in value (if any) of mortgaged real estate projects and
record such participations as interest over the term of the related
loans. The Company recognized the cumulative effect of initially
adopting the Statement in its statement of operations for the six
months ended June 30, 1998. The cumulative effect of this accounting
change at January 1, 1998 was to reduce net earnings by approximately
$4,629,000 ($.07 per share basic and $.06 per share diluted). The
effect of this change excluding the cumulative effect of initial
adoption was not material (approximately $.01 per share basic and $.01
per share diluted for the six months ended June 30, 1998). Ongoing
application of the Statement will result in changes in interest
expense and liabilities to lenders reported in the financial
statements; however, because of the unpredictability of the timing and
magnitude of changes in property values, it is not possible to
estimate the timing, amount or direction of these changes.
14
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(8) Earnings per share
Information relating to the calculation of earnings per share of common
stock for the three and six months ended June 30, 1998 and 1997 is
summarized as follows (in thousands):
Three months ended Six months ended
June 30, 1998 June 30, 1998
Basic Diluted Basic Diluted
Earnings before extraordinary
losses and cumulative effect
of change in accounting
principle $ 29,264 $ 29,264 $ 63,796 $ 63,796
Dividends on Preferred
stock (3,038) (3,038) (6,076) (6,076)
Dividends on unvested
common stock awards (134) (58) (268) (192)
Interest on convertible
subordinated debentures -- -- -- 3,659
Adjusted earnings before
extraordinary losses
and cumulative effect
of change in accounting
principle used in EPS
computation $ 26,092 $ 26,168 $ 57,452 $ 61,187
Weighted-average shares
outstanding 67,291 67,291 66,978 66,978
Dilutive securities:
Convertible subordinated
debentures -- -- -- 4,515
Convertible Preferred stock -- -- -- --
Options, warrants and
unvested common stock
awards -- 1,247 -- 1,227
Adjusted weighted-average
shares used in EPS
computation 67,291 68,538 66,978 72,720
Effects of potentially dilutive securities are presented only in periods
in which they are dilutive.
15
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(8) Earnings per share, continued
Three months ended Six months ended
June 30, 1997 June 30, 1997
Basic Diluted Basic Diluted
Earnings before extraordinary
losses and cumulative effect
of change in accounting
principle $ 3,125 $ 3,125 $ 11,535 $ 11,535
Dividends on Preferred
stock (3,038) (3,038) (4,238) (4,238)
Dividends on unvested
common stock awards (162) (162) (324) (261)
Interest on convertible
subordinated debentures -- -- -- --
Adjusted earnings (loss)
before extraordinary
losses and cumulative
effect of change in
accounting principle
used in EPS computation $ (75) $ (75) $ 6,973 $ 7,036
Weighted-average shares
outstanding 66,138 66,138 66,162 66,162
Dilutive securities:
Convertible subordinated
debentures -- -- -- --
Convertible Preferred stock -- -- -- --
Options, warrants and
unvested common stock
awards -- -- -- 1,211
Adjusted weighted-average
shares used in EPS
computation 66,138 66,138 66,162 67,373
Effects of potentially dilutive securities are presented only in periods
in which they are dilutive.
16
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(9) 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 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 resolution of these
matters could have such an effect in any future quarter or year.
(10) Property acquisitions
On April 6, 1998, the Company and Westfield America, Inc. entered into
an agreement to purchase a portfolio of interests in retail centers
from TrizecHahn Centers Inc. Under terms of the agreement as amended
and subject to certain terms and conditions, the Company will
purchase interests in eight retail centers for approximately $1.3
billion. On July 31, 1998, the Company purchased ownership interests
in two of the retail centers for approximately $445 million,
including debt assumed of approximately $193 million. The Company
used available cash and borrowings of $210 million under its new line
of credit facility to fund the net purchase price of the retail
centers. The remaining retail center acquisitions are expected to
close in a series of transactions in the third and fourth quarters of
1998.
On June 30, 1998, the Company entered into an agreement to acquire all
of the income producing properties (office and industrial buildings)
and certain other assets of Rouse-Teachers Properties, Inc., an
entity in which the Company currently holds a 5% ownership interest.
The purchase price will be approximately $364 million, including
property debt assumed of approximately $103 million. The acquisition
is expected to close in the fourth quarter of 1998.
17
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(11) Shelf registration statement
At June 30, 1998, the Company had a shelf registration statement for
future sale of up to an aggregate of $2.25 billion (based on the
public offering price) of common stock, Preferred stock and debt
securities.
18
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, 1997 and any material changes in
the results of operations for the three and six months ended June 30, 1998
as compared to the same periods in 1997. 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 1997
Annual Report to Shareholders.
General:
The Company's primary objective is to own and operate premier properties -
shopping centers, office and industrial buildings and major mixed-use
projects - in major markets across the United States. In order to achieve
this objective, management is actively evaluating opportunities to acquire
properties owned by others that may have future prospects consistent with
the Company's long-term investment criteria and is continually evaluating
the future outlook for properties in the Company's portfolio. This includes
considering opportunities to expand and/or renovate the properties and
assessing whether particular properties are meeting or have the potential
to meet the Company's investment criteria. The Company plans to continue
making substantial investments to expand and/or renovate leasable mall space
and/or add new department stores to its existing properties to meet its
objective. The Company has sold a number of properties over the last
several years and intends to continue to dispose of properties that are not
meeting and/or are not considered to have the potential to continue to meet
its investment criteria. 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:
As indicated in the 1997 Annual Report to Shareholders, the discussion of
operating results focuses on the Company's business segments as management
believes that segment analysis provides the most effective means of
understanding the business. For purposes of comparability, the analyses
of operating results for the segments present the revenues and expenses
of the Company and consolidated subsidiaries and the Company's share of
revenues and expenses (including the other owner's share of funds from
operations) of real estate ventures in which the Company holds substan-
tially all (at least 98%) of the financial interest but does not own a
majority voting interest.
19
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
These ventures were initiated on December 31, 1997 when certain wholly
owned subsidiaries issued 91% of their voting stock to The Rouse Company
incentive Compensation Statutory Trust, an entity which is neither owned
nor controlled by the Company. The ventures are accounted for using the
equity method in 1998 while the subsidiaries were consolidated in 1997.
Operating Properties - Retail Centers:
Operating results of retail properties are summarized as follows (in
millions):
Three months ended June 30,
1998 1997
Consoli- Majority Minority
dated Interest Interest
Properties Ventures Ventures Total Total
Revenues $ 113.6 $ 13.6 $ 2.4 $129.6 $121.0*
Operating expenses, exclusive
of depreciation and
amortization 56.5 7.3 -- 63.8 60.6
Interest expense 30.2 3.1 -- 33.3 31.2
Provision for bad debts .9 -- -- .9 .8
26.0 3.2 2.4 31.6 28.4
Depreciation and amortization 10.7 1.1 .6 12.4 12.3*
Operating income $ 15.3 $ 2.1 $ 1.8 $ 19.2 $ 16.1
Six months ended June 30,
1998 1997
Consoli- Majority Minority
dated Interest Interest
Properties Ventures Ventures Total Total
Revenues $ 222.1 $ 26.9 $ 5.3 $254.3 $240.6*
Operating expenses, exclusive
of depreciation and
amortization 111.1 14.2 -- 125.3 120.4
Interest expense 60.2 6.2 -- 66.4 62.9
Provision for bad debts 1.7 -- -- 1.7 2.3
49.1 6.5 5.3 60.9 55.0
Depreciation and amortization 22.8 2.2 1.2 26.2 24.7*
Operating income $ 26.3 $ 4.3 $ 4.1 $ 34.7 $ 30.3
* The Company's share of earnings before depreciation and deferred taxes and
depreciation and amortization of real estate ventures in which it holds a
minority financial interest are included in revenues and depreciation and
amortization, respectively, in the summary of operating results for 1997.
20
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Operating Properties - Retail Centers, (continued):
Revenues from retail centers increased $8.6 million and $13.7 million for the
three and six months ended June 30, 1998, respectively, while total
operating and interest expenses increased $5.5 million and $9.3 million,
respectively, compared to the same periods in 1997. The increases in
revenues and expenses were attributable primarily to effects of higher
average occupancy (91.2% and 91.0% for the three and six months ended June
30, 1998, respectively, compared to 90.0% and 89.4% for the same periods in
1997), the operations of a property acquired in December 1997, the opening
of a retail center expansion in the third quarter of 1997, and the openings
of three retail centers, two in the fourth quarter of 1997 and one in the
first quarter of 1998. These increases were partially offset by the
effects of the disposition of interests in seven retail centers in the
third and fourth quarters of 1997 and second quarter of 1998.
Operating Properties - Office, Mixed-Use and Other Properties:
Operating results of office, mixed-use and other properties are summarized as
follows (in millions):
Three months ended June 30,
1998 1997
Consoli- Majority Minority
dated Interest Interest
Properties Ventures Ventures Total Total
Revenues $ 40.6 $ 11.5 $ .4 $ 52.5 $ 54.6*
Operating expenses, exclusive
of provision for bad debts,
depreciation and amortization 17.2 8.4 -- 25.6 26.2
Interest expense 15.8 2.4 -- 18.2 20.2
Provision for bad debts -- -- -- -- (.1)
7.6 .7 .4 8.7 8.3
Depreciation and amortization 6.7 1.4 .2 8.3 8.5*
Operating income (loss) $ .9 $ (.7) $ .2 $ .4 $ (.2)
21
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Operating Properties - Office, Mixed-Use and Other Properties (continued):
Six months ended June 30,
1998 1997
Consoli- Majority Minority
dated Interest Interest
Properties Ventures Ventures Total Total
Revenues $ 80.0 $ 27.3 $ .7 $108.0 $106.7*
Operating expenses, exclusive
of provision for bad debts,
depreciation and amortization 34.1 18.3 -- 52.4 52.1
Interest expense 33.3 5.5 -- 38.8 40.8
Provision for bad debts .1 -- -- .1 (.7)
12.5 3.5 .7 16.7 14.5
Depreciation and amortization 13.3 2.8 .4 16.5 16.7*
Operating income (loss) $ (.8) $ .7 $ .3 $ .2 $(2.2)
* The Company's share of earnings before depreciation and deferred taxes and
depreciation and amortization of real estate ventures in which it holds a
minority financial interest are included in revenues and depreciation and
amortization, respectively, in the summary of operating results for 1997.
Revenues from office, mixed-use and other properties decreased $2.1 million
and increased $1.3 million for the three and six months ended June 30, 1998,
respectively, while total operating and interest expenses decreased $2.7
million and $1.1 million, respectively, compared to the same periods in
1997. The changes in revenues and expenses are primarily attributable to
the disposition of two hotel properties in March 1998 and two office
buildings in October 1997 and March 1998, offset by the openings of new
office projects in Las Vegas and higher average occupancy levels (93.5% for
the six months ended June 30, 1998 compared to 91.9% for the same period in
1997). In addition, the decrease in expenses for the six months is net of
a higher provision for bad debts as the first quarter of 1997 included the
recovery of a note receivable previously reserved (approximately $800,000).
Land Sales Operations:
Land sales operations relate primarily to the communities of Columbia,
Maryland and Summerlin, Nevada. Generally, revenues and operating income
from land sales are affected by such factors as the availability to
purchasers of construction and permanent mortgage financing at acceptable
interest rates, consumer and business confidence, availability of saleable
land for particular uses and management's decisions to sell, develop or
retain land.
22
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Land Sales Operations, (continued):
Operating results of land sales operations are summarized as follows (in
millions):
Three months ended June 30,
1998 1997
Majority
Consolidated Interest
Properties Ventures Total Total
Hughes Operations:
Revenues $ 1.4 $28.9 $ 30.3 $ 56.3
Operating costs and
expenses -- 23.5 23.5 46.0
Interest expense -- -- -- .1
Operating income $ 1.4 $ 5.4 $ 6.8 $ 10.2
Columbia and other:
Revenues $ -- $ 9.4 $ 9.4 $ 8.1
Operating costs and
expenses -- 5.1 5.1 4.4
Interest expense .3 .9 1.2 .8
Operating income (loss) $ (.3) $ 3.4 $ 3.1 $ 2.9
Total:
Revenues $ 1.4 $38.3 $ 39.7 $ 64.4
Operating costs and
expenses -- 28.6 28.6 50.4
Interest expense .3 .9 1.2 .9
Operating income $ 1.1 $ 8.8 $ 9.9 $ 13.1
23
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Land Sales Operations, (continued):
Six months ended June 30,
1998 1997
Consoli- Majority
dated Interest Elimi-
Properties Ventures nations Total Total
Hughes Operations:
Revenues $ 31.6 $ 74.0 $ (7.6) $ 98.0 $ 84.6
Operating costs and
expenses 23.2 57.9 (3.3) 77.8 69.0
Interest expense -- -- -- -- .1
Operating income $ 8.4 $ 16.1 $ (4.3) $ 20.2 $ 15.5
Columbia and other:
Revenues $ -- $ 32.3 $ -- $ 32.3 $ 17.4
Operating costs and
expenses -- 15.7 -- 15.7 9.2
Interest expense .5 1.7 -- 2.2 1.8
Operating income (loss) $ (.5) $ 14.9 $ -- $ 14.4 $ 6.4
Total:
Revenues $ 31.6 $106.3 $ (7.6) $130.3 $102.0
Operating costs and
expenses 23.2 73.6 (3.3) 93.5 78.2
Interest expense .5 1.7 -- 2.2 1.9
Operating income $ 7.9 $ 31.0 $ (4.3) $ 34.6 $ 21.9
Revenues from land sales operations in the Hughes Operations decreased $26.0
million and increased $13.4 million for the three and six months ended June
30, 1998, respectively, while related costs and expenses decreased $22.6
million and increased $8.7 million, respectively, compared to the same
periods in 1997. The decrease in revenues for the three months relates
primarily to a reduction in sales of Summerlin ($16.6 million) and other
Nevada land. The decrease in costs and expenses relates primarily to the
lower level of land sales. The increase in revenues for the six months
relates to the sale of the remaining land at a master planned office park in
Los Angeles ($28.5 million) partially offset by lower sales of Summerlin
($7.6 million) and other Nevada land. The increase in costs and expenses
was due to the same factors.
24
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Land Sales Operations, (continued):
Revenues from land sales operations in Columbia increased $1.3 and $14.9
million for the three and six months ended June 30, 1998, respectively,
while related costs and expenses increased $1.1 and $6.9 million,
respectively, compared to the same periods in 1997. The increases in
revenues were due primarily to higher levels of sales for residential,
commercial and other uses. The increases in costs and expenses were also
due primarily to the higher levels of sales.
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. The expenses decreased $.4
million and increased $2.1 million for the three and six months ended June
30, 1998, respectively, compared to the same periods in 1997. The increase
in expenses in the six months is a result of increased additions to the
preconstruction reserve and increased costs associated with acquisition
efforts.
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 conver-
tible 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 $.8 million and $3.4 million for the three and six months
ended June 30, 1998, as compared to the same periods in 1997. The decreases
in these costs are attributable primarily to higher levels of corporate
funds invested in development projects and allocated to other segments.
Corporate revenue consists primarily of corporate interest income on cash
invested and notes receivable. The decrease in revenue of $1.2 and $1.3
million for the three and six months ended June 30, 1998, respectively,
relates primarily to lower interest income on cash invested.
25
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:
The gain for the three and six months ended June 30, 1998 relates primarily to
a reduced provision for loss on a retail center which the Company sold in
April 1998, and a partial recovery of a loss previously recognized on a
litigation matter in the first quarter. These items were partially offset
by losses on the sale of a hotel and an office building in the first
quarter. In addition, the Company realized a gain on the sale of an office
building in the second quarter.
The loss for the three and six months ended June 30, 1997 relates primarily
to additional provisions for losses on several retail centers the Company
was holding for sale.
Extraordinary gain (loss), net:
The gain for the three and six months ended June 30, 1998 resulted from
debt extinguished in connection with the transfer of title to a property to
the related mortgage lender in the second quarter of 1998 ($14,875,000).
This gain was partially offset by losses on extinguishment of other debt
prior to scheduled maturity ($7,384,000). One of the losses was incurred by
a majority financial interest venture. The debt was related to a hotel
property which the venture sold, and a portion of the proceeds of the sale
were used to repay the debt. The loss related to the majority financial
interest venture is net of related taxes.
The loss for the three and six months ended June 30, 1997, resulted from
losses of $15,517,000 and $18,792,000, respectively, net of related income
tax benefits of $5,431,000 and $6,577,000, respectively, on extinguishment
of debt prior to scheduled maturity.
Cumulative effect of change in accounting for participating mortgages:
Effective January 1, 1998, the Company adopted the American Institute
of Certified Public Accountants' Statement of Position 97-1
"Accounting by Participating Mortgage Loan Borrowers." This Statement
prescribes borrowers' accounting for participating mortgage loans and
requires, among other things, that borrowers recognize liabilities for
the estimated fair value of lenders' participations in the
appreciation in value (if any) of mortgaged real estate projects and
record such participations as interest over the term of the related
loans. The Company recognized the cumulative effect of initially
adopting the Statement in its statement of operations for the six
months ended June 30, 1998. The cumulative effect of this accounting
change at January 1, 1998 was to reduce net earnings by approximately
$4,629,000 ($.07 per share basic and $.06 per share diluted). The effect
of this change excluding the cumulative effect of initial adoption was not
material
26
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Cumulative effect of change in accounting for participating mortgages
(continued):
(approximately $.01 per share basic and $.01 per share diluted for the six
months ended June 30, 1998). Ongoing application of the Statement will
result in changes in interest expense and liabilities to lenders reported in
the financial statements; however, because of the unpredictability of the
timing and magnitude of changes in property values, it is not possible to
estimate the timing, amount or direction of these changes.
Net earnings:
Net earnings for the three and six months ended June 30, 1998 and 1997 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, extraordinary gain (loss), net and the
cumulative effect of change in accounting for participating mortgages. In
periods prior to the Company's decision to elect to be taxed as a REIT,
net earnings (loss) was also affected to a much greater extent by income
taxes. The Company's effective tax rate (based on earnings before income
taxes and extraordinary losses) was 76% and 60% for the three and six
months ended June 30, 1997, respectively. The effective rate reflected the
effects of 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 $38,160,000 from December 31, 1997 to June
30, 1998. The increase was primarily attributable to the issuance of
common stock and net earnings for the six months ended June 30, 1998,
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 $43,513,000 at June 30, 1998, including $3,866,000 of
investments held for restricted uses.
In July 1998, the Company obtained an $800 million unsecured line of credit
facility to replace a $250 million revolving line of credit facility. The
new facility is structured as a $350 million 364 day bridge loan facility to
fund acquisitions and a $450 million three-year revolving line of credit.
Repayment of any borrowings under the new facility is guaranteed by certain
of the Company's majority interest ventures. The revolving line of credit
may be used for various purposes, including project development costs,
property acquisitions, liquidity and other corporate needs. It may also be
utilized to pay some portion of existing debt, including maturities in 1998.
At June 30, 1998, the Company had outstanding borrowings of $25 million
under the line of credit.
27
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):
As of June 30, 1998, debt due in one year was $74,152,000, including balloon
maturities of $32,900,000. The Company is continually evaluating sources
of capital, and management believes there are satisfactory sources avail-
able, including approximately $2.25 billion under its universal shelf
registration statement and $800 million under its credit facility.
Management may, however, decide to fund certain requirements with proceeds
from sales or exchanges of interests in properties.
Net cash provided by operating activities was $154,684,000 and $75,764,000
for the six months ended June 30, 1998 and 1997, respectively. The increase
in net cash provided of $78,920,000 was due primarily to the factors
discussed previously under the operating results of the four major business
segments. The level of net cash provided by operating activities is also
affected by the timing of receipt of revenues and payment of operating and
interest expenses.
Net cash used in investing activities was $86,872,000 and $130,780,000 for
the six months ended June 30, 1998 and 1997, respectively. The decrease
in net cash used of $43,908,000 was due primarily to cash received on payment
of loans to majority financial interest ventures and higher proceeds from
sales of properties partially offset by increases in expenditures for
properties under development.
Net cash used in financing activities was $115,265,000 and net cash provided
by financing activities was $41,697,000 for the six months ended June 30,
1998 and 1997, respectively. Cash flows from financing activities for 1997
included the proceeds from the public offering of Series B Convertible
Preferred stock of 196.9 million. Cash flows from financing activities for
1998 include the proceeds from issuance of Common stock of $43.4 million.
Property acquisitions:
On April 6, 1998, the Company and Westfield America, Inc. entered into an
agreement to purchase a portfolio of interests in retail centers from
TrizecHahn Centers Inc. The agreement, as amended, provides for the Company
to purchase interests in eight retail centers for approximately $1.3
billion. The agreement is subject to the satisfaction of certain conditions
and includes a provision for the substitution of, or increase or decrease in
the number of, centers to be acquired. The Company plans to fund the
purchase price by assuming existing property debt of approximately $292
million, borrowing approximately $390 million in the form of mortgage debt
on the properties, borrowing on its $800 million credit facility, and,
depending upon market conditions, issuing common stock, Preferred stock,
debt securities and/or other securities under its universal shelf or other
registration statements. The Company may also fund a portion of the
purchase price with the proceeds from sales of interests in properties,
28
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Property acquisitions (continued):
including those acquired in this transaction, or the exchange of interests
in properties. On July 31, 1998 the Company purchased two of the property
interests for a purchase price of approximately $445 million, including
approximately $193 million of assumed property debt. The remainder of the
purchase price was provided by available cash balances and approximately
$210 million of borrowings from the aforementioned $800 million credit
facility. Acquisitions of the remaining property interests are expected to
close in the third and fourth quarters of 1998.
On June 30, 1998, the Company entered into an agreement to acquire all of the
income-producing properties (office and industrial buildings) and certain
other assets of Rouse-Teachers Properties, Inc., an entity in which the
Company currently holds a 5% ownership interest. The purchase price will
be approximately $364 million, including property debt assumed of
approximately $103 million. The acquisition is expected to close in the
fourth quarter of 1998. The Company expects to fund the net purchase price
by issuing approximately $100 million in common stock and $108 million in
notes to the seller, and paying approximately $53 million in cash. The
Company expects to fund the cash payment with proceeds from the sales of
certain of the acquired properties. The acquisition is expected to close
in the fourth quarter of 1998.
Year 2000 issue:
The year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition,
the year 2000 issue relates to whether non-Information Technology (IT)
systems that depend on embedded computer technology will recognize the year
2000. Systems that do not properly recognize such information could
generate erroenous information or fail.
In 1996, the Company adopted a plan to replace virtually all of its management
information and accounting systems. This plan was adopted in the context of
the Company's long-term Information Systems strategy. In accordance with
this plan, all mission-critical IT systems are being replaced with systems
that are year 2000 compliant. The Company has already implemented new
financial accounting, payroll and leasing management systems that are year
2000 compliant. Also, the Company is in the process of implementing new
property management and human resource systems (both of which are expected
to become operational on or before January 1, 1999) which will be year 2000
compliant. In addition, as a result of the Company's normal upgrade and
replacement process, all network and desktop equipment meet the requirements
for year 2000. As a result, the Company expects that the costs to
specifically remediate year 2000 IT issues will be minimal. For non-IT
systems, the Company has completed a comprehensive review of computer
29
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Year 2000 issue, continued:
hardware and software in mechanical systems and has developed a program to
repair or replace non-IT systems that are not year 2000 compliant. It is
anticipated that the program will be completed in the third quarter of 1999.
Costs to specifically remediate non-IT systems (e.g., escalators, elevators,
heating, ventilating and cooling systems, etc.) that are non-compliant are
not expected to be material. Management does not believe that the year 2000
issue will pose significant problems in its IT or non-IT systems, or that
resolution of any potential problems with respect to these systems will have
a material effect on the Company's financial condition or results of
operations.
It is very difficult to identify "the most reasonably likely worst-case
scenario" at this time. The Company's exposure is widely spread, with no
known major direct exposure. The Company believes that the most likely
worst-case exposure is at the indirect level, involving vendors, suppliers
and tenants. For example, the Company believes there could be failure in
the information systems of certain tenants that may delay the payment of
rents. While it is not possible at this time to determine the likely impact
of these potential problems, the Company will continue to evaluate these
areas and develop contingency plans, as appropriate.
Recent accounting pronouncements:
In March 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on Issue 97-11 relating to the
accounting for internal staff costs associated with acquisitions of
operating properties. The consensus requires that these costs be expensed
(for transactions occurring after March 19, 1998) similar to the accounting
for such costs in business combination transactions. As the Company
previously followed a practice of capitalizing certain internal staff costs
relating to acquisitions of operating properties, this consensus results in
a change in accounting policy; however, the change has not had and is not
expected to have a material effect on net earnings (loss).
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activity," (Statement 133) which is required to be
adopted by the Company no later than January 1, 2000. The Company's
derivative instruments consist primarily of interest rate swap, cap and
lock agreements related to specific debt financings. While the Company has
not completed its analysis of Statement 133 and has not made a decision
regarding the timing of adoption, it does not believe that adoption will
have a material effect on its financial position and results of operations
based on of its current use of derivative instruments.
30
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:
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,
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) risks associated with the Company's
qualification and operation as a REIT; (2) real estate investment risks;
(3) development risks; (4) illiquidity of real estate investments; (5)
dependence on rental income from real property; (6) effect of uninsured
loss; (7) lack of geographical diversification; (8) possible environmental
liabilities; (9) difficulties of compliance with the Americans with
Disabilities Act; (10) competition; (11) changes in the economic climate and
(12) certain matters relating to Nevada properties; (13) changes in tax laws
or regulations. 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, 1997.
31
Part II. Other Information.
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
N/A
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
Current Report on Form 8-K filed August 13, 1998
disclosing acquisition of assets.
32
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: August 14, 1998 By /s/Jeffrey H. Donahue
Jeffrey H. Donahue
Senior Vice President and
Chief Financial Officer
Principal Accounting Officer:
Date: August 14, 1998 By /s/George L. Yungmann
George L. Yungmann
Senior Vice President and
Controller
33
Exhibit Index
Exhibit Number Description
2 Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
34
Exhibit 2. Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession.
Asset Purchase Agreement, dated as of April 6, 1998, between TrizecHahn Centers
Inc., and The Rouse Company and Westfield America, Inc., is incorporated by
reference from the Company's Current Report on Form 8-K filed August 13,
1998.
<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
June 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> $ 39,647
<SECURITIES> $ 3,866
<RECEIVABLES> $ 116,854
<ALLOWANCES> $ (20,934)
<INVENTORY> 0
<CURRENT-ASSETS> $ 155,128<F1>
<PP&E> $ 3,463,425
<DEPRECIATION> $ (551,648)
<TOTAL-ASSETS> $ 3,563,428
<CURRENT-LIABILITIES> $ 394,665<F2>
<BONDS> $ 2,545,102
<COMMON> $ 674
0
$ 41
<OTHER-SE> $502,960
<TOTAL-LIABILITY-AND-EQUITY> $ 3,563,428
<SALES> $ 335,243
<TOTAL-REVENUES> $ 335,243
<CGS> 0
<TOTAL-COSTS> $ 217,628
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 1,790
<INTEREST-EXPENSE> $ 90,659
<INCOME-PRETAX> $ 63,995
<INCOME-TAX> $ 199
<INCOME-CONTINUING> $ 61,127
<DISCONTINUED> 2,169
<EXTRAORDINARY> $ 6,575
<CHANGES> $ (4,629)
<NET-INCOME> $ 65,742
<EPS-PRIMARY> $ (.89)
<EPS-DILUTED> $ (.87)
<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>
<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
June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 30,447
<SECURITIES> $ 9,117
<RECEIVABLES> $ 110,551
<ALLOWANCES> $ (20,358)
<INVENTORY> 0
<CURRENT-ASSETS> $ 160,201<F1>
<PP&E> $ 3,967,085
<DEPRECIATION> $ (567,129)
<TOTAL-ASSETS> $ 3,715,659
<CURRENT-LIABILITIES> $ 400,053<F2>
<BONDS> $ 2,740,500
<COMMON> $ 668
0
$ 41
<OTHER-SE> $ 337,740
<TOTAL-LIABILITY-AND-EQUITY> $ 3,715,659
<SALES> $ 447,344
<TOTAL-REVENUES> $ 447,344
<CGS> 0
<TOTAL-COSTS> $ 300,574
<OTHER-EXPENSES> $ 0
<LOSS-PROVISION> $ 1,578
<INTEREST-EXPENSE> $ 106,968
<INCOME-PRETAX> $ 29,123
<INCOME-TAX> $ 17,588
<INCOME-CONTINUING> $ 21,586
<DISCONTINUED> $(10,051)
<EXTRAORDINARY> $(12,215)
<CHANGES> 0
<NET-INCOME> $ (680)
<EPS-PRIMARY> $ (.07)
<EPS-DILUTED> $ (.08)
<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>
