<PAGE>
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, 1999
------------------------
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 1, 1999:
Common Stock, $0.01 par value 71,965,836
- ----------------------------- ------------------------------
Title of Class Number of Shares
<PAGE>
Part I. Financial Information
Item 1. Financial Statements:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands except per share amounts, note 1)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Retail centers $ 122,513 $ 123,018 $ 370,899 $ 345,167
Office, mixed-use and other 53,167 39,426 156,561 118,116
Land sales operations 397 1,126 4,181 32,756
Corporate investment income
(loss), net (433) 438 646 1,906
-------------- --------------- -------------- --------------
Total revenues 175,644 164,008 532,287 497,945
-------------- --------------- -------------- --------------
Operating expenses, exclusive of provision for
bad debts, depreciation and amortization:
Retail centers 57,209 58,197 171,618 169,318
Office, mixed-use and other 22,284 15,736 61,328 48,499
Land sales operations 30 524 3,550 23,688
Development 1,009 (1,052) 24 3,452
Corporate 2,721 3,780 10,889 12,351
-------------- --------------- -------------- --------------
83,253 77,185 247,409 257,308
-------------- --------------- -------------- --------------
Interest expense:
Retail centers 35,711 32,855 110,961 93,021
Office, mixed-use and other 21,833 16,546 65,443 49,891
Land sales operations 208 182 643 713
Corporate 2,370 2,634 6,533 8,330
-------------- --------------- -------------- --------------
60,122 52,217 183,580 151,955
-------------- --------------- -------------- --------------
Provision for bad debts 1,974 1,926 6,350 3,716
Depreciation and amortization 23,834 20,514 73,913 56,713
-------------- --------------- -------------- --------------
Total expenses 169,183 151,842 511,252 469,692
-------------- --------------- -------------- --------------
Earnings before equity in
earnings of unconsolidated
real estate ventures and
income taxes 6,461 12,166 21,035 28,253
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income, continued
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands except per share amounts, note 1)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Equity in earnings of
unconsolidated real estate
ventures (note 3) $ 20,281 $ 16,772 $ 62,028 $ 62,511
Current income taxes (108) (37) (265) (236)
----------- ---------- ----------- ----------
Earnings before gain (loss) on
dispositions of assets and
other provisions, net,
extraordinary items and
cumulative effect of change
in accounting principle 26,634 28,901 82,798 90,528
Gain (loss) on dispositions of
assets and other provisions,
net (note 6) 23 (7,389) 1,747 (5,220)
----------- ---------- ----------- ----------
Earnings before extraordinary
items and cumulative effect
of change in accounting
principle 26,657 21,512 84,545 85,308
Extraordinary gain (loss),
net (note 7) (3) (1,901) (913) 4,674
Cumulative effect at
January 1, 1998 of change
in accounting for participating
mortgages --- --- --- (4,629)
----------- ---------- ---------- ----------
Net earnings 26,654 19,611 83,632 85,353
Other items of comprehensive
income (loss) - minimum pension
liability adjustment (334) --- (1,002) ---
----------- ---------- ---------- ----------
Comprehensive income $ 26,320 $ 19,611 $ 82,630 $ 85,353
=========== ========== ========== ==========
Net earnings applicable
to common shareholders $ 23,616 $ 16,573 $ 74,518 $ 76,239
=========== ========== ========== ==========
</TABLE>
3
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income, continued
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands except per share amounts, note 1)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ----------- --------- ----------
EARNINGS PER SHARE OF
COMMON STOCK (note 8):
<S> <C> <C> <C> <C>
Basic:
Earnings before extra-
ordinary items $ .33 $ .27 $ 1.04 $ 1.12
Extraordinary gain (loss) --- (.03) (.01) .07
Cumulative effect of change
in accounting principle --- --- --- (.07)
---------- ----------- --------- ----------
Total $ .33 $ .24 $ 1.03 $ 1.12
========== =========== ========= ==========
Diluted:
Earnings before extra-
ordinary items $ .32 $ .27 $ 1.03 $ 1.11
Extraordinary gain (loss) --- (.03) (.01) .07
Cumulative effect of change
in accounting principle --- --- --- (.07)
---------- ----------- --------- ----------
Total $ .32 $ .24 $ 1.02 $ 1.11
========== =========== ========= ==========
DIVIDENDS PER SHARE:
Common stock $ .30 $ .28 $ .90 $ .84
========== =========== ========= ==========
Preferred stock $ .75 $ .75 $ 2.25 $ 2.25
========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
(in thousands, except share data, note 1)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
<S> <C> <C>
Assets:
Property:
Operating properties:
Property and deferred costs
of projects $3,828,711 $4,718,727
Less accumulated depreciation
and amortization 570,329 578,311
---------- ----------
3,258,382 4,140,416
Properties in development 243,363 167,360
Properties held for sale 74,724 165,894
---------- ----------
Total property 3,576,469 4,473,670
Investments in and advances to unconsolidated
real estate ventures (note 3) 533,840 322,066
Prepaid expenses, receivables under finance
leases and other assets 243,474 241,040
Accounts and notes receivable 70,666 75,917
Investments in marketable securities 4,574 4,256
Cash and cash equivalents 32,135 37,694
---------- ----------
Total $4,461,158 $5,154,643
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets, continued
September 30, 1999 and December 31, 1998
(in thousands, except share data, note 1)
<TABLE>
September 30, December 31,
1999 1998
(Unaudited)
------------ ------------
<S> <C> <C>
Liabilities:
Debt (note 4):
Property debt not carrying a Parent
Company guarantee of repayment $ 2,512,960 $ 2,865,119
Parent Company debt and debt carrying a
Parent Company guarantee of repayment:
Property debt 161,566 161,986
Convertible subordinated debentures --- 128,515
Other debt 693,500 903,200
------------ ------------
855,066 1,193,701
------------ ------------
Total debt 3,368,026 4,058,820
------------ ------------
Accounts payable, accrued expenses
and other liabilities 312,377 329,932
Company-obligated mandatorily redeemable
preferred securities of a trust holding
solely Parent Company subordinated debt
securities 136,965 136,965
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; 72,275,834
shares issued in 1999 and 72,225,223
shares issued in 1998 722 723
Additional paid-in capital 842,800 836,508
Accumulated deficit (196,945) (206,520)
Accumulated other comprehensive income (loss) (2,828) (1,826)
------------ ------------
Net shareholders' equity 643,790 628,926
------------ ------------
Total $ 4,461,158 $ 5,154,643
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands, note 1)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Rents and other revenues received $ 526,424 $ 453,676
Proceeds from land sales and on notes receivable
from land sales 24,016 72,007
Interest received 12,563 8,014
Operating expenditures (258,638) (234,550)
Interest paid (184,977) (131,804)
Dividends, interest and other operating
distributions received from unconsolidated
majority financial interest ventures 35,975 48,036
--------- ---------
Net cash provided by operating activities 155,363 215,379
--------- ---------
Cash flows from investing activities:
Expenditures for properties in development
and improvements to existing properties
funded by debt (155,371) (237,077)
Expenditures for property acquisitions --- (251,106)
Expenditures for improvements to existing
properties funded by cash provided by
operating activities:
Tenant leasing and remerchandising (1,677) (5,272)
Building and equipment (13,777) (8,306)
Payments received on loans (advances made) to
unconsolidated majority financial interest
ventures (44,133) 27,914
Proceeds from sales of operating properties
and other investments 126,875 34,141
Other (8,818) 5,683
--------- ---------
Net cash used by investing activities (96,901) (434,023)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of property debt 233,062 232,121
Repayments of property debt:
Scheduled principal payments (36,717) (34,306)
Other payments (80,853) (167,491)
Proceeds from issuance of other debt 200,248 455,971
Repayments of other debt (268,323) (218,422)
Proceeds from issuance of common stock --- 43,429
Purchases of Company common stock (31,016) (65,819)
Dividends paid (74,053) (66,006)
Other (6,369) (5,831)
--------- ---------
Net cash provided (used) by financing
activities (64,021) 173,646
--------- ---------
Net decrease in cash and cash equivalents (5,559) (44,998)
Cash and cash equivalents at beginning of period 37,694 87,100
--------- ---------
Cash and cash equivalents at end of period $ 32,135 $ 42,102
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows, continued
Nine Months Ended September 30, 1999 and 1998
(Unaudited, in thousands, note 1)
<TABLE>
<CAPTION>
1999 1998
-------- --------
Reconciliation of net earnings to net cash
provided by operating activities:
<S> <C> <C>
Net earnings $ 83,632 $ 85,353
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 73,913 56,713
(Gain) loss on dispositions of assets
and other provisions, net (1,747) 5,220
Undistributed earnings of majority
financial interest ventures (33,236) (26,549)
Extraordinary (gain) loss, net 913 (4,674)
Cumulative effect of change in accounting
principle --- 4,629
Provision for bad debts 6,350 3,716
Participation expense pursuant to
Contingent Stock Agreement 20,984 37,651
Decrease in operating assets and
liabilities, net 4,554 48,646
-------- --------
Net cash provided by operating activities $155,363 $215,379
======== ========
Schedule of Noncash Investing and Financing
Activities:
Common stock issued pursuant to Contingent
Stock Agreement $ 34,491 $ 65,023
Property and other assets contributed to an
unconsolidated real estate venture 701,105 ---
Mortgage debt, other debt and other liabilities
related to property and other assets
contributed to an unconsolidated real
estate venture 432,525 ---
Other debt repaid in the formation of an
unconsolidated real estate venture 271,233 ---
Capital lease obligations incurred 1,589 ---
Mortgage debt assumed by purchaser of
a property 40,000 192,618
Common stock issued upon conversion of
convertible subordinated debentures --- 1,484
Termination of capital lease obligation --- 46,387
======== ========
</TABLE>
8
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1999
(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 1998
Annual Report to Shareholders.
Certain amounts have been reclassified to conform to the current
presentation.
(2) Tax status
- --------------
The Company determined that it would elect to be taxed as a real estate
investment trust (REIT) effective January 1, 1998 pursuant to the
Internal Revenue Code, as amended. Management believes the Company
met the qualifications for REIT status as of September 30, 1999, and
intends for it to continue to meet the qualifications in the future.
Accordingly, management does not expect that the Company will be
liable for significant income taxes at the Federal level or in most
states in which it operates in 1999 and future years.
In connection with its election to be taxed as a REIT, the Company
elected to be subject to the "built-in gain" rules. Under these
rules, taxes will be payable to the extent that the net unrealized
gains on the Company's assets (calculated as of the date of
conversion to REIT status) are recognized in taxable dispositions
during the ten-year period following the conversion. At September 30,
1999, these net unrealized gains were approximately $2,200,000,000
and the Company's regular tax net operating loss carryforward was
sufficient to offset built-in gains on assets the Company has
identified for disposition. Therefore, no net deferred tax liability
for built-in gain taxes has been recognized. It may however, be
necessary to recognize a liability for such taxes in the future if
management's plans and intentions with respect to asset dispositions,
or the related tax laws, change.
9
<PAGE>
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
September 30, 1999 and December 31, 1998 are summarized, based on the
level of the Company's financial interest, as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Majority financial interest ventures $ 354,784 $ 270,085
Joint interest and control ventures --- 1,140
Minority interest ventures 179,056 50,841
---------- ----------
Total $ 533,840 $ 322,066
========== ==========
</TABLE>
The equity in earnings of unconsolidated real estate ventures for the
three and nine months ended September 30, 1999 and 1998 is summarized,
based on the level of the Company's financial interest, as follows (in
thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Majority financial interest ventures $ 15,187 $ 14,525 $ 49,309 $ 55,566
Minority interest ventures 5,094 2,247 12,719 6,945
-------- -------- -------- ---------
Total $ 20,281 $ 16,772 $ 62,028 $ 62,511
======== ======== ======== =========
</TABLE>
10
<PAGE>
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 September 30, 1999 and
December 31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Assets:
Operating properties, net $ 345,669 $ 244,470
Properties in development 31,869 66,442
Land held for development and sale 219,773 236,999
Investment land 36,144 41,156
Investments in and advances to
unconsolidated real estate ventures 124,300 32,586
Advances to the Company 2,802 112,310
Prepaid expenses, receivables under
finance leases and other assets 35,677 31,453
Deferred tax asset 37,046 53,662
Accounts and notes receivable 82,473 74,736
Cash and cash equivalents 3,680 ---
---------- -----------
Total $ 919,433 $ 893,814
========== ===========
Liabilities and shareholders' deficit:
Loans and advances from the Company $ 524,990 $ 488,363
Mortgages payable and other long-term debt 335,213 332,945
Other liabilities 78,708 116,244
Redeemable Series A Preferred stock 50,000 50,000
Shareholders' deficit (69,478) (93,738)
---------- -----------
Total $ 919,433 $ 893,814
========== ===========
</TABLE>
11
<PAGE>
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 nine
months ended September 30, 1999 and 1998 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
--------------------- -----------------------
1999 1998 1999 1998
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues, excluding interest
on advances to the Company $ 73,580 $ 59,621 $ 226,688 $ 212,883
Interest income on advances
to the Company --- --- 2,577 ---
Operating expenses (42,790) (37,576) (133,702) (124,718)
Interest expense, excluding
interest on borrowings from
the Company (2,064) (1,809) (7,501) (6,521)
Interest expense on borrowings
from the Company (10,881) (14,899) (40,175) (48,036)
Depreciation and amortization (2,960) (2,489) (8,923) (7,543)
Equity in earnings of
unconsolidated real estate
ventures 750 13 1,462 862
Gain (loss) on dispositions of
assets and other provisions, net 1,633 (123) 2,515 15,723
Income taxes (6,840) (1,358) (18,681) (18,095)
Extraordinary loss, net --- --- --- (925)
--------- ---------- ---------- ---------
Net earnings $ 10,428 $ 1,380 $ 24,260 $ 23,630
========= ========== ========== =========
</TABLE>
12
<PAGE>
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 Company's share of the earnings before extraordinary items of the
ventures for the three and nine months ended September 30, 1999 and
1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- ----------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Share of net earnings based
on ownership interest $ 10,347 $ 1,366 $ 24,018 $ 23,394
Share of extraordinary loss --- --- --- 916
Participation by others in
the Company's share of
earnings (8,497) (3,980) (19,902) (19,019)
Interest on loans to and
advances from the ventures,
net 10,881 14,899 37,598 48,036
Eliminations and other, net 2,456 2,240 7,595 2,239
-------- -------- --------- ---------
$ 15,187 $ 14,525 $ 49,309 $ 55,566
======== ======== ========= =========
</TABLE>
(4) Debt
- -----------
Debt at September 30, 1999 and December 31, 1998 is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
Due in Due in
Total one year Total one year
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Mortgages and bonds $ 2,555,541 $ 70,706 $ 2,948,324 $ 159,171
Convertible subordi-
nated debentures --- --- 128,515 ---
Medium-term notes 91,500 10,000 97,500 6,000
Credit line borrowings 224,000 --- 602,000 304,000
Unsecured corporate
notes 378,000 --- 178,000 ---
Other loans 118,985 902 104,481 27,294
------------ --------- ------------ ---------
Total $ 3,368,026 $ 81,608 $ 4,058,820 $ 496,465
============ ========= ============ =========
</TABLE>
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.
13
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(5) Segment information
- -----------------------
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement establishes standards for reporting
financial information about operating segments and provides for a
"management approach" to identifying the reportable segments in place
of the industry segment approach used previously.
The Company has five reportable segments: retail centers, office,
mixed-use and other properties, land sales operations, development and
corporate. Segment operating results are measured and assessed based on
a performance measure referred to as Funds from Operations (FFO). The
Company defines FFO as net earnings (computed in accordance with
generally accepted accounting principles), excluding cumulative effects
of changes in accounting principles, extraordinary or unusual items,
gains or losses from sales of properties, depreciation and amortization
and deferred income taxes. Additionally, equity in earnings of
unconsolidated ventures and minority interests have been adjusted to
reflect FFO on the same basis. The method used by the Company to
compute FFO may differ from methods used by other REITs. FFO is not a
measure of operating results or cash flows from operating activities as
measured by generally accepted accounting principles. It is not
necessarily indicative of cash available to fund cash needs and should
not be considered an alternative to cash flows as a measure of
liquidity.
The accounting policies of the segments are the same as those of the
Company, except that real estate ventures in which the Company holds
substantially all (at least 98%) of the financial interest but does not
own a majority voting interest (majority financial interest ventures)
are accounted for on a consolidated basis, rather than using the equity
method. Additionally, the Company's share of FFO of unconsolidated
real estate ventures in which it holds a minority interest is included
in revenues.
14
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(5) Segment Information, continued
- ----------------------------------
Funds from Operations for the segments for the three and nine months
ended September 30, 1999 and 1998 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Office, Mixed- Land
Retail Use and Other Sales
Centers Properties Operations Development Corporate Total
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
September 30, 1999
- ------------------
Revenues $ 143,780 $ 63,528 $ 47,798 $ --- $ (127) $ 254,979
Operating expenses* 67,801 28,998 35,804 648 3,518 136,769
Interest expense 39,510 23,971 880 --- (2,175) 62,186
----------- ----------- ------------ ----------- ----------- -----------
FFO $ 36,469 $ 10,559 $ 11,114 $ (648) $ (1,470) $ 56,024
=========== =========== ============ ========= ========== ===========
Three months ended
September 30, 1998
- ------------------
Revenues $ 141,245 $ 49,441 $ 35,641 $ --- $ 585 $ 226,912
Operating expenses* 68,529 22,813 26,849 (1,052) 5,552 122,691
Interest expense 35,786 18,473 941 --- (1,174) 54,026
----------- ----------- ------------ ----------- ----------- -----------
FFO $ 36,930 $ 8,155 $ 7,851 $ 1,052 $ (3,793) $ 50,195
=========== =========== ============ ========== ========== ===========
Nine months ended
September 30, 1999
- ------------------
Revenues $ 431,637 $ 188,944 $ 152,576 $ --- $ 1,336 $ 774,493
Operating expenses* 203,267 81,926 109,252 1,949 14,145 410,539
Interest expense 122,066 71,728 2,619 --- (5,332) 191,081
----------- ----------- ------------ ----------- ----------- -----------
FFO $ 106,304 $ 35,290 $ 40,705 $ (1,949) $ (7,477) $ 172,873
=========== =========== ============ ========== ========== ===========
Nine months ended
September 30, 1998
- ------------------
Revenues $ 395,579 $ 156,101 $ 165,993 $ --- $ 2,668 $ 720,341
Operating expenses* 195,592 73,921 120,328 3,452 14,398 407,691
Interest expense 102,197 57,292 3,240 --- (4,253) 158,476
----------- ----------- ------------ ----------- ----------- -----------
FFO $ 97,790 $ 24,888 $ 42,425 $ (3,452) $ (7,477) $ 154,174
=========== =========== ============ ========== ========== ===========
</TABLE>
* Operating expenses in this table exclude depreciation and amortization.
15
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(5) Segment Information, continued
- ----------------------------------
Reconciliations of total revenues and expenses reported above to the
related amounts in the consolidated financial statements and of FFO
reported above to earnings before extraordinary items and cumulative
effect of change in accounting principle in the consolidated financial
statements for the three months ended September 30, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months
ended September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Total reported above $ 254,979 $ 226,912
Revenues of majority financial interest
ventures excluding interest on advances
to the Company (73,580) (59,621)
Revenues representing the Company's share of
FFO of minority financial interest ventures (5,608) (3,131)
Other (147) (152)
------------ ------------
Total in consolidated financial statements $ 175,644 $ 164,008
============ ============
Operating expenses, exclusive of depreciation
and amortization:
Total reported above $ 136,769 $ 122,691
Operating expenses of majority financial
interest ventures (42,790) (37,576)
Current income taxes applicable to operations (108) (37)
Current income taxes of majority financial
interest ventures 28 (1,875)
Provision for bad debts (1,974) (1,926)
Participation by others in the Company's share of
earnings of majority financial interest ventures (8,497) (3,980)
Other (175) (112)
------------ ------------
Total in consolidated financial statements $ 83,253 $ 77,185
============ ============
Interest expense:
Total reported above $ 62,186 $ 54,026
Interest expense of majority financial
interest ventures excluding interest on
borrowings from the Company (2,064) (1,809)
------------ ------------
Total in consolidated financial statements $ 60,122 $ 52,217
============ ============
Operating results:
FFO reported above $ 56,024 $ 50,195
Depreciation and amortization (23,834) (20,514)
Gain (loss) on dispositions of assets and other
provisions, net 23 (7,389)
Share of depreciation and amortization, gain (loss)
on disposition of assets and deferred income
taxes of unconsolidated real estate ventures, net (5,556) (780)
------------- ------------
Earnings before extraordinary items and cumulative
effect of change in accounting principle in
consolidated financial statements $ 26,657 $ 21,512
============ ============
</TABLE>
16
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
(5) Segment Information, continued
- ----------------------------------
Reconciliations of total revenues and expenses reported above to the
related amounts in the consolidated financial statements and of FFO
reported above to earnings before extraordinary items and cumulative
effect of change in accounting principle in the consolidated financial
statements for the nine months ended September 30, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Nine months
ended September 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Total reported above $ 774,493 $ 720,341
Revenues of majority financial interest
ventures excluding interest on advances
to the Company (226,688) (212,883)
Revenues representing the Company's share of
FFO of minority financial interest ventures (15,098) (9,061)
Other (420) (452)
------------ ------------
Total in consolidated financial statements $ 532,287 $ 497,945
============ ============
Operating expenses, exclusive of depreciation
and amortization:
Total reported above $ 410,539 $ 407,691
Operating expenses of majority financial
interest ventures (133,702) (124,718)
Current income taxes applicable to operations (265) (236)
Current income taxes of majority financial
interest ventures (2,440) (2,169)
Provision for bad debts (6,350) (3,716)
Participation by others in the Company's
share of earnings of majority financial
interest ventures (19,902) (19,019)
Other (471) (525)
------------ ------------
Total in consolidated financial statements $ 247,409 $ 257,308
============ ============
Interest expense:
Total reported above $ 191,081 $ 158,476
Interest expense of majority financial
interest ventures excluding interest on
borrowings from the Company (7,501) (6,521)
------------ ------------
Total in consolidated financial statements $ 183,580 $ 151,955
============ ============
Operating results:
FFO reported above $ 172,873 $ 154,174
Depreciation and amortization (73,913) (56,713)
Gain (loss) on dispositions of assets and other
provisions, net 1,747 (5,220)
Depreciation and amortization, gain (loss) on
disposition of assets and deferred income
taxes of unconsolidated real estate ventures, net (16,162) (6,933)
------------ ------------
Earnings before extraordinary items and
cumulative effect of change in
accounting principle in consolidated
financial statements $ 84,545 $ 85,308
============ ============
</TABLE>
17
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(5) Segment Information, continued
- ----------------------------------
The assets by segment at September 30, 1999 and December 31, 1998 are as
follows (in thousands):
September 30, December 31,
1999 1998
------------ -------------
Retail centers $ 2,906,358 $ 3,636,874
Office, mixed-use and other
properties 1,501,816 1,417,622
Land sales operations 425,331 438,805
Development 21,577 61,166
Corporate 36,771 57,933
------------ -------------
Total $ 4,891,853 $ 5,612,400
============ =============
Total segment assets exceeds total assets reported in the financial
statements primarily because of the consolidation of the majority
financial interest ventures for segment reporting purposes.
(6) Gain (loss) on dispositions of assets and other provisions, net
- -------------------------------------------------------------------
Gain (loss) on dispositions of assets and other provisions, net, is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------------------ -------------------------------
1999 1998 1999 1998
--------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net gain (loss) on operating
properties $ 23 $ (7,358) $ 7,476 $ (5,824)
Termination benefits
related to corporate
realignment --- --- (6,248) ---
Other, net --- (30) 519 604
--------- ------------ ----------- ------------
$ 23 $ (7,389) $ 1,747 $ (5,220)
========= ============ =========== ============
</TABLE>
The net gain on operating properties in 1999 relates primarily to a gain
on the sale of a property in the second quarter of 1999. The net loss
in 1998 relates primarily to a loss on a disposal of a retail property
in the third quarter of 1998 partially offset by a reduced provision
for a loss recorded in the first quarter, relating to a retail center
sold in April 1998.
18
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(6) Gain on dispositions of assets and other provisions, net, continued
- -----------------------------------------------------------------------
During the second quarter of 1999, the Company announced and initiated
the consolidation of its Retail Operations and Office and Mixed-Use
Operations divisions into a single Property Operations Division. In
addition, the Company integrated certain operating, administrative and
support functions of the Hughes Division into its Columbia
headquarters. The costs relating to these organizational changes of
$6.2 million represent primarily severance and other benefits to
terminated employees.
(7) Extraordinary gain(loss), net
- ------------------------------------
The extraordinary loss for the nine months ended September 30, 1999
relates to a loss on the extinguishment of the convertible
subordinated debentures prior to their scheduled maturity.
The gain for the nine months ended September 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 ($14.8
million). This gain was partially offset by losses on extinguishments
of other debt prior to scheduled maturities. The loss for the three
months ended September 30, 1998 resulted from extinguishment of debt
prior to its scheduled maturity. One of the losses in the nine months
ended September 30, 1998 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 was used to repay the
debt. The loss related to the majority financial interest venture is
net of related income taxes.
19
<PAGE>
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 calculations of earnings per share (EPS)
of common stock for the three months ended September 30, 1999 and 1998 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before extra-
ordinary items and
cumulative effect of
change in accounting
principle $26,657 $26,657 $21,512 $21,512
Dividends on Preferred
stock (3,038) (3,038) (3,038) (3,038)
Dividends on unvested
common stock awards
and other (115) (305) (114) (60)
------- ------- ------- -------
Adjusted earnings before
extraordinary items
and cumulative effect
of change in accounting
principle used in EPS
computation $23,504 $23,314 $18,360 $18,414
======= ======= ======= =======
Weighted-average shares
outstanding 71,979 71,979 68,323 68,323
Dilutive securities:
Options, warrants,
unvested common stock
awards and other --- 608 --- 922
------- ------- ------- -------
Adjusted weighted-average
shares used in EPS
computation 71,979 72,587 68,323 69,245
======= ======= ======= =======
</TABLE>
20
<PAGE>
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
-----------------------------
Information relating to the calculations of EPS of common stock for
the nine months ended September 30, 1999 and 1998 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings before extra-
ordinary items and
cumulative effect of
change in accounting
principle $ 84,545 $ 84,545 $ 85,308 $ 85,308
Dividends on Preferred
stock (9,114) (9,114) (9,114) (9,114)
Dividends on unvested
common stock awards
and other (353) (627) (382) (252)
------- ------- ------- -------
Adjusted earnings before
extraordinary items
and cumulative effect
of change in accounting
principle used in EPS
computation $ 75,078 $ 74,804 $ 75,812 $ 75,942
======= ======= ======= ======
Weighted-average shares
outstanding 71,868 71,868 67,437 67,437
Dilutive securities:
Options, warrants,
unvested common stock
awards and other --- 594 --- 1,125
------- ------- ------- ------
Adjusted weighted-average
shares used in EPS
computation 71,868 72,462 67,437 68,562
======= ======= ======= ======
</TABLE>
Effects of potentially dilutive securities are presented only in periods in
which they are dilutive.
21
<PAGE>
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, dispositions and related matters
-------------------------------------------------------
In 1998, the Company completed several property acquisitions, including the
purchase of interests in seven retail centers from TrizecHahn Centers Inc.
(Trizec) In February 1999, the Company contributed its ownership interests
in four of the acquired centers (Bridgewater Commons, Fashion Place Mall,
Park Meadows and Towson Town Center) to a joint venture (the "Four State
Venture") in which it retained a 35% ownership interest. Another venturer
contributed approximately $271 million in cash to the Four State Venture
and received a 65% ownership interest. Four State Venture used the
contributed cash to repay approximately $271 million of Company borrowings
under its bridge loan credit facility. The fair value of the consideration
received in the formation of the joint venture was considered in the
Company's allocation of the initial acquisition costs of all of the
property interests acquired from Trizec. Accordingly, no gain or loss was
recognized on the sale. The Company's 35% ownership interest in the Four
State Venture related to these property interests, except for its interest
in Fashion Place Mall, is accounted for using the equity method.
The Four State Venture agreement provides for the purchase, at the option of
the Company or the other venturer and subject to certain terms and
conditions, of the other venturer's interest in the Four State Venture
related to Fashion Place Mall at a specified amount. Accordingly, the
transaction related to Fashion Place Mall was accounted for as a financing.
If the option is exercised, the
22
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(10) Property acquisitions, dispositions and related matters, continued
------------------------------------------------------------------
purchase price can be paid, at the option of the Company, in cash or in
common stock of the Company.
In June 1999, the Company sold its interest in Valley Fair Mall to Westfield
America, Inc. for approximately $147 million. The Company acquired the
property in July 1998 from TrizecHahn Centers Inc. for approximately the
same cost with the intention to sell it and, accordingly, recognized no
gain or loss on the sale. In June 1999, the Company also disposed of its
ownership interest in an operating property located in Los Angeles,
California.
In September 1999, the Company announced that it was considering selling
interests in certain operating properties and land parcels and using the
proceeds to repay debt and repurchase (subject to certain price
restrictions) up to $250 million of the Company's common stock. Management
subsequently identified the properties the Company may want to sell
(mostly office and industrial buildings in the Baltimore-Washington
corridor and certain business parks in Las Vegas) and is currently
developing disposition plans.
(11) Shelf registration statement
----------------------------
At September 30, 1999, the Company had a shelf registration statement for
future sale of up to an aggregate of $1.9 billion (based on the public
offering price) of common stock, Preferred stock and debt securities. On
May 4, 1999, the Company issued $200 million of unsecured 8% notes, due in
April 2009, under this registration statement. The Company used the net
proceeds of approximately $198 million to repay the convertible
subordinated debentures and certain other debt.
(12) Subsequent events
-----------------
In October 1999, the Company sold its interest in Santa Monica Place, a
retail center, for proceeds of approximately $125 million. The carrying
value of the property at September 30, 1999 was approximately $65 million
and, accordingly, the Company will recognize a gain on this property
disposition of approximately $60 million in the fourth quarter of 1999.
23
<PAGE>
Part I. Financial Information, continued
Item 1. Financial Statements, continued:
THE ROUSE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited), continued
(12) Subsequent events, continued
----------------------------
Also in October 1999, the Company adopted a voluntary early retirement
program pursuant to which employees who meet certain criteria are
eligible to participate. Eligible employees must decide whether to accept
early retirement by November 19, 1999. If all eligible employees elect to
participate in the program, the Company will recognize a provision of
approximately $2.5 million in the fourth quarter of 1999.
24
<PAGE>
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, 1998 and any material changes in the
results of operations for the three and nine months ended September 30, 1999
as compared to the same periods in 1998. 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 1998 Annual Report to
Shareholders.
General:
- -------
Through its subsidiaries and affiliates, the Company acquires, develops and
manages a diversified portfolio of retail centers and office, industrial,
mixed-use and other properties (office/mixed-use properties) located
throughout the United States and develops and sells land for residential,
commercial and other uses, primarily in Columbia, Maryland and Summerlin,
Nevada.
One of the Company's primary objectives is to own and operate premier properties
- shopping centers, geographically concentrated groups of 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 and/or other
anchor tenants to its existing properties to meet its objective. The Company
is also continually evaluating opportunities for new operating properties
and/or land development projects it believes have future prospects consistent
with its objectives. 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. In September, 1999 the Company announced that it was
considering selling interests in certain office and industrial properties and
land parcels, and using the proceeds to repay debt and repurchase (subject to
certain price restrictions) up to $250 million of the Company's common stock.
Management subsequently identified the properties the Company may want to sell
(mostly office and industrial buildings in the Baltimore-Washington corridor
and certain business parks in Las Vegas) and is currently developing
disposition plans.
25
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
General, continued:
- ------------------
The Company may also selectively dispose of properties for other reasons. These
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 and taken together with the use of sales proceeds, may have a
material effect on the overall consolidated financial position of the Company.
Portfolio changes:
- -----------------
In 1998, the Company completed several transactions designed to upgrade the
overall quality of its portfolio of operating properties. In the third and
fourth quarters, the Company purchased ownership interests in eight retail
centers, including the interests of partners in two centers (The Fashion Show
and Governor's Square) in which the Company now holds 100% ownership
interests. In February 1999, the Company contributed its ownership interests
in four of the acquired centers (Bridgewater Commons, Fashion Place Mall, Park
Meadows and Towson Town Center) to a joint venture in which it retained a 35%
ownership interest. The Company acquired the other two ownership interests
with the intent to sell them. One of these (Valley Fair Mall) was sold in June
1999. Also in 1998, the Company disposed of four retail centers (Eastfield
Mall and Salem Mall in the second quarter, and Greengate Mall and St. Louis
Union Station in the third quarter) and its 5% ownership interest in six
retail centers (five in the second quarter and one in the fourth quarter.) In
the fourth quarter of 1998, the Company acquired the portfolio of office and
industrial properties and salable land of an entity in which the Company
previously held a 5% ownership interest. The acquired assets consisted of 64
buildings (excluding three which were subsequently sold) and approximately 100
acres of land. Substantially all of the acquired assets are in the Baltimore-
Washington metropolitan area. These properties may be sold pursuant to the
disposition plans currently in development as described above. The Company
and its affiliates disposed of their interests in two hotels and certain
industrial buildings in Baltimore and Columbia and their office properties in
Los Angeles in the first quarter of 1998. In June 1999, the Company sold its
ownership interest in an operating property located in Los Angeles,
California. In October 1999, the Company sold its ownership interest in Santa
Monica Place, a retail center.
26
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Portfolio changes, continued:
- ----------------------------
The Company and its affiliates also completed certain development projects to
enhance the quality of its portfolio. A new regional shopping center opened in
Orlando, Florida in the first quarter of 1998, and two community retail
centers opened in the Summerlin/Las Vegas area in the second quarter of 1998.
Expansions of nine retail centers opened in 1998 (three in the first quarter
and six in the fourth quarter), and three community retail centers in Columbia
were substantially redeveloped. Six office and industrial buildings opened in
Las Vegas and Summerlin in 1998, and Arizona Center, in Phoenix was expanded
in the first quarter of 1998 to include a 90,000 square foot cinema. Four
office and industrial buildings opened in Las Vegas and Summerlin in the
second quarter of 1999. An affiliate of the Company opened a new 100,000
square foot office building in Columbia's town center in January 1999 and the
expansion of The Mall in Columbia in September 1999.
Operating results:
- -----------------
As indicated in the 1998 Annual Report to Shareholders, the discussion of
operating results covers each of the Company's business segments as management
believes that a segment analysis provides the most effective means of
understanding the business. Note 5 to the consolidated financial statements
included in this Form 10-Q should be referred to when reading this discussion
and analysis. As discussed in note 5, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. As required by the Statement,
segment operating data are reported using the accounting policies followed by
the Company for internal reporting to management. These policies are the same
as those followed for external reporting, except that majority financial
interest ventures (real estate ventures in which the Company holds
substantially all (at least 98%) of the financial interests, but does not own
a majority voting interest) are reported on a consolidated basis rather than
using the equity method; the Company's share of FFO of unconsolidated real
estate ventures in which it holds a minority interest is included in revenues;
and the Company's share of depreciation and amortization expense of
unconsolidated real estate ventures in which it holds a minority interest is
included in depreciation and amortization expense. Also, gains (losses) on
dispositions of assets and other provisions, net in this discussion and
analysis includes the Company's share of those items recorded by the majority
financial interest ventures. These differences affect only the reported
revenue, operating and interest expenses and depreciation and amortization
expense of the segments and
27
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Operating results, continued:
- ----------------------------
and elements of gains (losses) on dispositions of assets and other provisions,
net, and have no effect on the reported net earnings of the Company. Revenues
and operating and interest expenses reported for the segments are reconciled
to the related amounts reported in the consolidated financial statements in
note 5.
Operating Results - Retail Centers:
- ----------------------------------
Operating results of retail properties are summarized as follows (in millions):
<TABLE>
<CAPTION>
Three Nine
months ended months ended
September 30, September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $143.8 $141.2 $431.6 $395.6
Operating expenses, exclusive
of depreciation and
amortization 67.8 68.5 203.2 195.6
Interest expense 39.5 35.8 122.1 102.2
------ ----- ------ ------
36.5 36.9 106.3 97.8
Depreciation and amortization,
including unconsolidated real
estate ventures 15.8 15.4 53.2 41.7
------ ----- ------ ------
Operating income (loss) $ 20.7 $ 21.5 $ 53.1 $ 56.1
====== ===== ====== ======
</TABLE>
Revenues from retail centers increased $2.6 and $36.0 for the three and nine
months ended September 30, 1999, respectively, compared to the same periods in
1998. The increases in revenues were attributable primarily to effects of the
aforementioned acquisitions (approximately $2.9 and $26.2 for the three and
nine months ended September 30, 1999, respectively) and project openings and
expansions (approximately $2.2 and $14.9 for the three and nine months ended
September 30, 1999, respectively), and higher average occupancy levels at
comparable properties (94.7% in 1999 compared to 92.0% in 1998). These
increases were partially offset by the aforementioned dispositions
(approximately $6.4 and $17.3 for the three and nine months ended September
30, 1999, respectively).
Total operating and interest expenses for retail centers increased $3.0 and
$27.5 for the three and nine months ended September 30, 1999, respectively,
compared to the same periods in 1998. The increases in operating and interest
expenses were attributable primarily to the aforementioned acquisitions
(approximately $1.4 and $21.1 for the three and nine months ended September
30, 1999, respectively), project openings and expansions (approximately $4.4
and $16.4 for the three and nine months ended September 30, 1999,
respectively) and, in the nine month period higher levels of bad
28
<PAGE>
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:
debt expense at certain other properties, primarily those experiencing some
construction related operating disruptions. These increases were partially
offset by the aforementioned dispositions (approximately $3.9 and $16.0 for
the three and nine months ended September 30, 1999, respectively).
Depreciation and amortization expense increased $.4 and $11.5 for the three
and nine months ended September 30, 1999, respectively, compared to the same
periods in 1998. The changes were attributable primarily to the portfolio
changes described above.
Operating Properties - Office, Mixed-Use and Other Properties:
Operating results of office, mixed-use and other properties are summarized
as follows (in millions):
<TABLE>
<CAPTION>
Three Nine
months ended months ended
September 30, September 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 63.5 $ 49.4 $ 188.9 $ 156.1
Operating expenses, exclusive of
depreciation and amortization 29.0 22.8 81.9 73.9
Interest expense 24.0 18.5 71.7 57.3
----- ----- ------ ------
10.5 8.1 35.3 24.9
Depreciation and amortization, including
unconsolidated real estate ventures 11.5 8.4 32.2 24.9
----- ----- ------ ------
Operating income (loss) $ (1.0) $ (.3) $ 3.1 $ 0.0
===== ===== ====== ======
</TABLE>
Revenues from office, mixed-use and other properties increased $14.1 and $32.8
for the three and nine months ended September 30, 1999, respectively, compared
to the same periods in 1998. The increases in revenues were attributable
primarily to the aforementioned acquisition (approximately $10.1 and $30.6 for
the three and nine months ended September 30, 1999, respectively) and project
openings and expansion (approximately $2.4 and $6.7 for the three and nine
months ended September 30, 1999, respectively). These increases were partially
offset by the dispositions of properties in 1998 and 1999 (approximately $.3
and $6.7 for the three and nine months ended September 30, 1999,
respectively).
Total operating and interest expenses for office, mixed-use and other properties
increased $11.7 and $22.4 for the three and nine months ended September 30,
1999, respectively, compared to the same periods in 1998. The increases in
operating and interest expenses were attributable primarily to the
aforementioned acquisition (approximately $8.6 and $25.9 for three three and
nine months ended September 30, 1999, respectively) and project openings and
expansion (approximately $2.0 and $5.2 for the
29
<PAGE>
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:
three and nine months ended September 30, 1999, respectively). These increases
were partially offset by the aforementioned dispositions (approximately $.2
and $6.0 for the three and nine months ended September 30, 1999, respectively)
and lower interest expense related to the refinancing of a mixed-use property.
Depreciation and amortization expense increased $3.1 and $7.3 for the three
and nine months ended September 30, 1999, respectively, compared to the same
periods in 1998. The increases were attributable primarily to the portfolio
changes described above.
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.
Operating results of land sales operations are summarized as follows (in
millions):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Hughes Operations:
Revenues $ 33.7 $ 27.3 $ 93.9 $ 125.4
Operating costs and expenses 27.6 21.8 76.4 99.6
----- ----- ------ ------
Operating income $ 6.1 $ 5.5 $ 17.5 $ 25.8
===== ===== ====== ======
Columbia and other:
Revenues $ 14.1 $ 8.3 $ 58.7 $ 40.6
Operating costs and expenses 8.2 5.0 32.9 20.7
Interest expense .9 .9 2.6 3.3
----- ----- ------ ------
Operating income $ 5.0 $ 2.4 $ 23.2 $ 16.6
===== ===== ====== ======
Total:
Revenues $ 47.8 $ 35.6 $ 152.6 $ 166.0
Operating costs and expenses 35.8 26.8 109.3 120.3
Interest expense .9 .9 2.6 3.3
----- ----- ------ ------
Operating income $ 11.1 $ 7.9 $ 40.7 $ 42.4
===== ===== ====== ======
</TABLE>
30
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Revenues from Hughes land sales operations increased $6.4 for the three months
ended September 30, 1999 and decreased $31.5 for the nine months ended
September 30, 1999, while related costs and expenses increased $5.8 and
decreased $23.2, respectively, compared to the same periods in 1998. The
increases in revenues and related costs and expenses for the three months are
due to higher levels of sales of investment land. The decreases in revenues
and related costs and expenses for the nine months relate primarily to a
reduction in sales of business park land, particularly in Los Angeles. The
Company sold all of the land in its Los Angeles business park in the first
quarter of 1998.
Revenues from land sales operations in Columbia increased $5.8 and $18.1 for the
three and nine months ended September 30, 1999, respectively, while related
costs and expenses increased $3.2 and $11.5, respectively, compared to the
same periods in 1998. The increases in revenues and related costs and expenses
for the three and nine month periods were due primarily to higher levels of
sales for commercial uses.
Development:
Development expenses consist primarily of additions to the preconstruction
reserves and new business costs. The preconstruction reserves are maintained
to provide for costs of projects which may not go forward to completion. The
amounts and timing of the changes in preconstruction reserves and their
effects on development expenses are related to the level and timing of
spending on specific projects and the achievement of certain development
milestones that increase the likelihood of specific project completion. New
business costs relate to the evaluation of potential regional retail center
sites, acquisition and disposition opportunities and alternative revenue
sources. The expenses increased $1.7 million and decreased $1.5 million,
respectively, for the three and nine months ended September 30, 1999,
respectively, compared to the same periods in 1998. The decreases in expenses
in the nine month period are a result of projects progressing to further
stages of development and the recovery of certain costs previously expensed.
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.
31
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Corporate, continued:
Accordingly, corporate interest expense consists primarily of interest on the
convertible subordinated debentures which were retired in the second quarter
1999, the unsecured 8% notes issued in the second quarter 1999, 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, current federal income taxes
and distributions on the redeemable preferred securities, net of distributions
allocated to other segments. These costs decreased $3.0 million and $1.3
million for the three and nine months ended September 30, 1999, respectively,
as compared to the same periods in 1998. The decreases in the three and nine
month periods were primarily attributable to lower income taxes incurred by
certain majority financial interest ventures.
Corporate investment income (loss), net consists primarily of corporate interest
income on cash invested and notes receivable and gains (losses) on marketable
securities held by the Company.
Gain (loss) on dispositions of assets and other provisions, net:
Gain (loss) on dispositions of assets and other provisions, net, including the
Company's share of those recorded by the majority financial interest ventures,
is summarized as follows(in millions):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
-------------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net gain (loss) on operating properties $ 1.6 $ (7.6) $ 10.2 $ 10.6
Termination benefits related
to corporate realignment --- --- (6.2) ---
Other, net --- --- .5 .6
--------- --------- --------- ---------
$ 1.6 $ (7.6) $ 4.5 $ 11.2
========= ========= ========= =========
</TABLE>
The net gain on operating properties in the nine months ended September 30, 1999
relates primarily to a gain on the sale of a property in the second quarter of
1999 and to a net gain recorded by a majority financial interest venture on an
office property sold in the third quarter of 1999. The net gain in the nine
months ended September 30, 1998 relates primarily to a reduced provision for a
loss on a retail center sold in April 1998 and to
32
<PAGE>
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:
a net gain recorded by a majority financial interest venture related to the
sale of a hotel property partially offset by a loss on disposal of a retail
property in the third quarter 1998.
During the second quarter of 1999, the Company announced and initiated the
consolidation of its Retail Operations and Office and Mixed-Use Operations
divisions into a single Property Operations Division. In addition, the Company
integrated certain operating, administrative and support functions of the
Hughes Division into its Columbia headquarters. The costs relating to these
organizational changes of $6.2 million represent primarily severance and other
benefits to terminated employees.
Extraordinary gain(loss), net:
The extraordinary loss for the nine months ended September 30, 1999 relates to a
loss on the extinguishment of the convertible subordinated debentures prior to
their scheduled maturity.
The gain for the nine months ended September 30, 1998 resulted from
debt extinguishment in connection with the transfer of title to a property to
the related mortgage lender in the second quarter of 1998 ($14.8 million).
This gain was partially offset by losses on extinguishment of other debt prior
to scheduled maturities. The loss for the three months ended September 30,
1998 resulted from extinguishment of debt prior to its scheduled maturity. One
of the losses in the nine months ended September 30, 1998 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 income taxes.
Net earnings:
Net earnings for the three and nine months ended September 30, 1999 and 1998
were affected by unusual and/or nonrecurring items, as well as property
acquisitions and dispositions. The most significant of these are the items set
forth in the above discussion. Also, in 1998, the net earnings was affected by
the cumulative effect of a change in accounting for participating mortgages.
33
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Financial condition and liquidity:
Shareholders' equity increased by $14.9 million from December 31, 1998 to
September 30, 1999. The increase was primarily attributable to net earnings
for the nine months ended September 30, 1999 and issuance of common stock
pursuant to the Contingent Stock Agreement, partially offset by the payment of
regular quarterly dividends on the Company's common and Preferred stocks and
purchases of common stock.
The Company had cash and cash equivalents and investments in marketable
securities totaling $36.7 million at September 30, 1999, including $4.6
million of investments held for restricted uses.
In July 1998, the Company obtained an $800 million unsecured line of credit
facility from a group of lenders to replace a $250 million revolving line of
credit facility. The facility was structured as a $350 million 364 day bridge
loan facility to fund specific property acquisitions made in the third and
fourth quarters of 1998, and a $450 million three-year revolving line of
credit. The bridge loan facility was fully repaid and has expired. Repayment
of borrowings under the revolving line of credit is guaranteed by certain of
the Company's majority financial 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
used to pay some portion of existing debt. At September 30, 1999, the Company
had outstanding borrowings of $224 million under the line of credit.
As of September 30, 1999, debt due in one year was $82 million, including
balloon payments due in the first nine months of 2000 of $29 million. These
balloon payments are expected to be paid at or before the scheduled maturity
dates of the related loans from the proceeds of property refinancings, credit
facility borrowings, proceeds of the sales of property interests held for
sale, proceeds from the sales of other properties discussed below or other
available corporate funds. The Company had remaining availability under its
revolving credit facility of $226 million at September 30, 1999. The Company
is continually evaluating sources of capital, and management believes there
are satisfactory sources available for all requirements without necessitating
sales of operating properties. The Company may, however, selectively dispose
of operating properties or groups of operating properties when it believes it
is prudent to do so.
34
<PAGE>
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:
In September 1999, the Company announced that it was considering selling
interests in certain office and industrial properties and land parcels and
using the proceeds to repay debt and repurchase (subject to certain price
restrictions) up to $250 million of the Company's common stock.
Managementsubsequently identified the properties the Company may want to sell
(mostly office and industrial buildings in the Baltimore-Washington corridor
and certain business parks in Las Vegas) and is currently developing
disposition plans.
In October 1999, the Company sold its interest in Santa Monica Place, a retail
center, for proceeds of approximately $125 million. The carrying value of the
property at September 30, 1999 was approximately $65 million and, accordingly,
the Company will recognize a gain on this property disposition of
approximately $60 million in the fourth quarter of 1999.
The Company has a shelf registration statement for the sale of up to an
aggregate of approximately $2.25 billion (based on the public offering price)
of common stock, Preferred stock and debt securities. On May 4, 1999, the
Company issued $200 million of unsecured 8% notes, due in April 2009, under
this registration statement. The Company used the net proceeds of
approximately $198 million to repay the convertible subordinated debentures
and certain other debt. At September 30, 1999, the Company had issued
approximately $358 million of common stock and debt securities (including the
unsecured notes referred to above) under the shelf registration statement,
with a remaining availability of approximately $1.9 billion. Also, under an
effective registration statement the Company may issue additional medium-term
notes of up to $29.7 million.
Net cash provided by operating activities was $155.4 million and $215.4 million
for the nine months ended September 30, 1999 and 1998, respectively. The level
of cash flows provided by operating activities is affected by the timing of
receipts of rents and other revenues and payment of operating and interest
expenses. The decrease in net cash provided of $60 million was due primarily
to lower proceeds from land sales and on notes receivable from land sales that
the Company financed prior to 1998, and lower operating distributions from
unconsolidated majority financial interest ventures. The level of cash
provided by operating distributions from unconsolidated majority financial
interest ventures is affected by the timing of receipt of their land sales
revenues, payment of operating and interest expenses and other sources and
uses of cash. Other changes in net cash provided by operating activities were
due to the factors discussed previously under the operating results of the
four major business segments.
35
<PAGE>
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:
Net cash used in investing activities was $96.9 million and $434.0 million for
the nine months ended September 30, 1999 and 1998, respectively. The decrease
in net cash used of $337.1 million was due primarily to a decrease in
expenditures for property acquisitions (primarily Park Meadows Mall and Valley
Fair Mall in 1998) higher proceeds from sales of interests in properties
(primarily Valley Fair Mall) and a decrease in expenditures for properties in
development partially offset by higher net advances made to majority financial
interest ventures.
Net cash used by financing activities was $64.0 million for the nine months
ended September 30, 1999, and net cash provided by financing activities was
$173.6 million for the nine months ended September 30, 1998. The increase in
net cash used of $237.6 million was due primarily to lower proceeds from the
issuance of other debt (credit line draws in 1998 used for property
acquisitions) and by higher net repayments of other debt, primarily with
proceeds from the sale of operating properties.
Year 2000 issue:
The year 2000 (Y2K) 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
Y2K 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 erroneous data
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 rather than to
specifically address Y2K issues. In accordance with this plan, all mission-
critical IT systems have been replaced with systems that have been certified
by the vendors as Y2K compliant. To date, the Company has implemented new
financial accounting, accounts payable, property management, human resources,
payroll and leasing systems. The Company completed testing of all new mission-
critical systems in the second quarter and has addressed all Y2K compliance
issues identified during testing. In addition, in connection with the
Company's normal upgrade and replacement process, all new network and desktop
equipment meet the requirements for Y2K. The hardware and software that
supports the Company's local and wide area networks have been tested. All
network components identified as not Y2K compliant have been replaced or
upgraded with hardware or software that is Y2K compliant. The cost to
specifically remediate Y2K issues has not been material.
36
<PAGE>
Part I. Financial Information, continued
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (continued):
Year 2000 issue, continued:
For non-IT systems, the Company has completed a comprehensive review of computer
hardware and software in mechanical systems and has developed a program to
repair or replace non-IT systems that are not year 2000 compliant. The program
was substantially 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 exceed $1 million. 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.
The Company has also performed a review of the Y2K disclosures of certain of its
major tenants, anchor stores, suppliers and major financial institutions. The
disclosures did not indicate any specific Y2K issues with respect to these
parties and generally indicated that they are satisfied with respect to the
readiness of their internal IT systems. However, these parties indicated
uncertainty with respect to the readiness of their vendors, customers,
suppliers and various other third parties. The Company will continue to
monitor these disclosures and make contingency plans where appropriate. The
Company has developed a contingency plan to respond to any temporary
disruption of service from its financial institutions.
It is very difficult to identify "the most reasonably likely worst-case
scenario." 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. Although the
Company is not currently aware of any specific Y2K issues of third parties,
and believes that its internal Y2K issues have been adequately addressed,
there can be no assurance that the Company has adequately assessed or
identified all aspects of its business which may be affected by Y2K issues,
and that Y2K issues including those that may affect its vendors, suppliers and
tenants, will not have a material adverse effect on the Company's financial
condition or results of operations.
37
<PAGE>
Part I. Financial Information, continued
Item 3. Quantitative and Qualitative Disclosures about Market Risk:
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; (14) risk relating to Year 2000 issues. 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, 1998.
Market risk information:
The market risk associated with financial instruments and derivative financial
and commodity instruments is the risk of loss from adverse changes in market
prices or rates. The Company's market risk arises primarily from interest rate
risk relating to variable rate borrowings used to maintain liquidity (e.g.,
revolving credit facility advances) or finance project acquisition or
development costs (e.g., construction loan advances). The Company's interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows. In order to achieve this objective, the Company
relies primarily on long-term, fixed rate, nonrecourse loans from
institutional lenders to finance its operating properties. In addition, long-
term, fixed rate financing is typically arranged concurrently with or shortly
after a variable rate project acquisition or construction loan is negotiated.
The Company also makes limited use of interest rate exchange agreements,
including interest rate swaps and caps, to mitigate its interest rate risk on
variable rate debt. The Company does not enter into interest rate exchange
agreements for speculative purposes and the fair value of these and other
derivative financial instruments is insignificant at September 30, 1999.
38
<PAGE>
Part I. Financial Information, continued
Item 3. Quantitative and Qualitative Disclosures about Market Risk:
Market risk information, continued:
The Company's interest rate risk is monitored closely by management. The table
below presents the principal amounts due and weighted-average interest rates
applicable to principal amounts outstanding at the end of each year. This
information may be used to evaluate the expected cash flows of the Company
under debt and related agreements and its sensitivity to interest rate
changes. The information relating to debt maturities (in millions) is based on
expected maturity dates which consider anticipated refinancing or other
transactions.
<TABLE>
<CAPTION>
Remaining
<S> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total
----- ----- ----- ----- ----- ---------- ------
Fixed rate debt $ 31 $ 56 $ 201 $ 87 $ 403 $1,965 $2,743
Average interest rate 7.8% 7.8% 7.9% 7.9% 7.9% 7.9% 7.8%
Variable rate LIBOR debt $ 0 $ 106 $ 104 $ 362 $ 2 $ 51 $ 625
Average interest rate 6.4% 6.3% 6.3% 6.6% 6.6% 6.6% 6.4%
</TABLE>
At September 30, 1999, the Company had interest rate cap agreements which
effectively limit the average interest rate on all of the variable rate LIBOR
debt maturing in 2002 to 9.0%.
As the table incorporates only those exposures that exist as of September 30,
1999, it does not consider exposures or positions which could arise after that
date. As a result, the Company's ultimate realized gain or loss with respect
to interest rate fluctuations will depend on the exposures that arise after
September 30, 1999, the Company's hedging strategies during that period and
interest rates.
39
<PAGE>
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.
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
40
<PAGE>
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.
on behalf of
THE ROUSE COMPANY and as
Principal Financial Officer:
Date: November 15, 1999 By /s/ Jeffrey H. Donahue
----------------- ----------------------
Jeffrey H. Donahue
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
Date: November 15, 1999 By /s/ Melanie M. Lundquist
----------------- ------------------------
Melanie M. Lundquist
Vice President and
Corporate Controller
41
<PAGE>
Exhibit Index
Exhibit Number Description
- -------------- -----------
10 Material Contracts
10.1 The Rouse Company 1999 Stock Incentive Plan
10.2 Letter Agreement, dated July 12, 1999,
between The Rouse Company and
Anthony W. Deering
27 Financial Data Schedule
42
<PAGE>
EXHIBIT 10.1
THE ROUSE COMPANY
1999 STOCK INCENTIVE PLAN
Purpose
The purpose of The Rouse Company 1999 Stock Incentive Plan (the "Plan") is
to advance the interests of The Rouse Company (together with all present and
future subsidiaries and affiliates which meet the definition of "subsidiary"
contained in Section 424(f) of the Internal Revenue Code of 1986 (the "Code"),
or any successor provision thereto, and all Non-REIT Subsidiaries, as defined in
The Rouse Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, and their subsidiaries and affiliates, referred to
collectively as the "Company") and its stockholders by affording its directors,
officers and other employees, upon whose judgment, initiative and efforts the
Company is largely dependent for the successful conduct of its business, with
the additional incentives arising from increased opportunity for equity
ownership in the Company. Awards granted under the Plan may consist of options,
stock appreciation rights ("Rights") or stock awards. Awards may be granted
separately or in tandem with any other type of award.
ARTICLE I
Administration
(a) The administrator of the Plan or any portion of the Plan (the
"Administrator") shall be the Board of Directors or such committee or committees
(referred to individually and in the aggregate as the "Committee") of not less
than one director as may be appointed by the Board of Directors from time to
time to administer all or certain portions of the Plan. The Administrator of
the awards under the Plan initially shall be the Personnel Committee of the
Board of Directors (the "Personnel Committee"), provided, however, that the
Chief Executive Officer of the Company, serving as a one-person Committee of the
Board of Directors, is authorized to make awards under Articles IV and V of the
Plan with respect to an aggregate of up to 50,000 shares of Common Stock (as
defined below) per year.
(b) Subject to the express provisions of the Plan, the Administrator
shall have the authority:
(1) to determine the individuals to whom and the time or times at
which awards under the Plan shall be made, the number of shares to be covered by
each award and all other terms and conditions of the awards;
(2) to interpret the Plan and to prescribe, amend and rescind rules
and regulations relating to it;
(3) to determine the terms and provisions of the respective
documents evidencing awards under the Plan (which need not be identical);
(4) except as provided in Article VII, to determine, for purposes
of the Plan, the fair market value (the "Fair Market Value") at any time of a
share of the Company's common stock (the "Common Stock"), such determination of
Fair Market Value to be in accordance with such standard as the Administrator by
rule of general application or specific determination
<PAGE>
selects as reasonably representative of the fair market value of the Common
Stock, but in no case less than par value. The Fair Market Value may, but need
not, be equal to the last sale price, regular way, for Common Stock for the
business day immediately preceding the date the option is granted or the
determination otherwise is made, as reported on the New York Stock Exchange
composite tape or, if the Company's Common Stock is not traded on the New York
Stock Exchange, on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") National Market System, or the exchange on which the
Company's Common Stock is principally traded or, if no such sale price is
reported for such day, the first preceding business day for which a sale price
for Common Stock is reported;
(5) to accelerate the time in which such award may be exercised, to
waive, in whole or in part, any restriction with respect to such award,
including with respect to any option or Right issued under the Plan, any
restriction with respect to the exercisability of such award, and to amend or
modify any award in any manner not inconsistent with the terms of the Plan at
the time of such amendment or modification, provided that no such modification
or amendment may materially adversely affect the terms of any award without the
consent of the holder thereof;
(6) to offer to an award holder the opportunity, at such time and
on such terms and conditions as the Administrator prescribes, to surrender his
or her award to the Company for cancellation and to receive in consideration
therefore or in lieu thereof, other awards, cash, securities of the Company or a
combination thereof, as the Administrator determines; and
(7) to make all other determinations and to take all other actions
deemed necessary or advisable for the administration of the Plan.
(c) The Committee shall select one of its members as its chairman and
shall hold its meetings at such times and places as it deems advisable,
including by telephone. A majority of its members shall constitute a quorum. All
decisions of the Committee shall be made by a majority of those present, whether
in person or by telephone. Any action required or permitted to be taken at any
meeting of the Committee may be taken without a meeting if a written consent to
such action is signed by all members of the Committee and such written consent
is filed with the minutes of the proceedings of the Committee. The effective
date of any decision shall be the actual date of the decision, unless the
Committee establishes a different effective date, which may be either before or
after the actual date of the decision. The Committee may appoint a secretary
(who may, but need not be a member of the Committee), shall keep minutes of its
meetings, and shall make such rules and regulations for the conduct of its
business as it deems advisable, including changes to the rules and regulations
set forth above.
(d) No member of the Board of Directors or the Committee shall be liable
for any action or determination made under the Plan in good faith, nor for any
matter as to which the Company's charter limits the liability of directors.
Such members shall be entitled to indemnification and reimbursement in the
manner provided in the Company's charter or bylaws and under any directors' and
officers' liability insurance coverage that is in effect from time to time.
-2-
<PAGE>
ARTICLE II
Participation in the Plan
(a) Except as provided in Article VII, participation in the Plan shall be
limited to officers and other employees of the Company.
(b) Directors who are not employees of the Company shall be eligible to
participate in the Plan as provided in Article VII.
ARTICLE III
Common Stock Subject to the Plan
(a) Subject to the provisions of Sections (b), (c) and (d) of this
Article, the maximum number of shares of Common Stock that may be issued under
the Plan shall be 7,000,000 shares. The total number of shares of Common Stock
subject to issuance under the Plan, and any balance remaining unoptioned or
unawarded, shall be reserved for those purposes during the life of the Plan.
(b) Except with respect to option grants under Article VII, the exercise
or purchase price for any award shall be payable (i) in U.S. dollars in cash or
by wire transfer, check, bank draft or money order payable to the Company, (ii)
in the discretion of the Administrator, through the delivery of Common Stock or
other securities issued by the Company with a Fair Market Value on the date the
award is exercised or purchased equal to the total amount due, (iii) by a
combination of the methods described in (i) and (ii), or (iv) through such other
means as may be acceptable to the Administrator. No shares shall be delivered
until full payment of any amount due has been made to the Company. A holder of
an award shall have none of the rights of a stockholder until the shares are
issued to him.
(c) Unless the Administrator expressly determines otherwise, if the
capital stock of the Company changes as a result of stock dividends, stock
splits, split-ups, recapitalization or the like, proportionate adjustments shall
automatically be made in the maximum number of shares of Common Stock authorized
for awards under Section (a) of this Article, the number and kind of shares
reserved for awards under the Plan, the number, kind and price of shares covered
by outstanding awards, and the minimum number of shares as to which options and
Rights shall be exercisable at any one time. Fractional shares resulting from
any such adjustment shall be eliminated. Unless the Administrator expressly
determines otherwise, any adjustments under this Section (c) shall be effective
on the effective date of the event giving rise to such adjustment.
(d) If the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of shares or other securities or
property (including cash) of the Company or of another corporation for any
reason, including by reason of reorganization, merger, sale or transfer of all
or substantially all of the Company's assets to another corporation, or exchange
of shares or consolidation, the Administrator shall make appropriate adjustments
in the number and kind of shares, other securities or property for which awards
may be granted under the Plan, including the number and kind of shares to be
covered by options granted
-3-
<PAGE>
pursuant to Article VII. In addition, the Administrator shall make appropriate
adjustments in the number, kind and price of shares, other securities or
property as to which outstanding awards shall be exercisable or payable. If any
event giving rise to an adjustment involves an election afforded stockholders to
receive cash or some security or other property, then such adjustment shall be
made as if only cash were available to stockholders; the amount of cash used in
determining the appropriate adjustment shall be the amount of cash per share
provided by such election or such higher per share amount, if any, as the
Administrator determines to be the fair market value of the security or other
property available to stockholders pursuant to the election. Unless the
Administrator expressly determines otherwise, any adjustment or determination
made by the Administrator under this Section (d) shall be effective on the
effective date of the event giving rise to such adjustment or determination and
shall be conclusive when made by the Administrator.
(e) If for any reason an award or portion of an award expires or is
terminated, surrendered for any reason, canceled, forfeited or paid in cash, the
number of shares of Common Stock covered by the award or portion of the award
shall be restored to the number of shares available for awards under the Plan as
if the award or portion of the award had never been issued. If the exercise
price or the amount of taxes due with respect to any award or portion of an
award is paid by the holder thereof in shares of Common Stock or by the
withholding of shares of Common Stock issued or issuable in connection with such
award, then the number of such shares received or withheld by the Company shall
be restored to the number of shares available for awards under the Plan.
ARTICLE IV
Options
The Administrator in its discretion may grant options to any individual who
is eligible to participate in the Plan on such terms and conditions as it shall,
in its discretion, deem advisable. Options granted under this Article IV may be
either (i) options not intended to qualify under Section 422 of the Code or (ii)
if permitted by the Code, incentive stock options intended to qualify under
Section 422 of the Code. Unless the Administrator, in its sole discretion,
provides otherwise, the terms and conditions of option grants to employees shall
include the following:
(a) An option shall not be exercisable in whole or in part for at least
one month from the date of grant.
(b) The option exercise price per share shall be the Fair Market Value of
a share of Common Stock.
(c) An option shall vest in its entirety upon the employee's death,
disability, retirement from the Company after attaining age 62 (the normal
retirement age under the Company's Pension Plan) or termination of employment
under circumstances specified by the Administrator (which may include a
discharge without good cause, including a change of control of the Company).
-4-
<PAGE>
(d) An option generally shall be exercisable for not more than 10 years
from the date of grant and shall be subject to earlier termination as provided
in the Plan or under the terms of the option grant as established by the
Administrator. An option generally shall be exercisable for the full term
specified in the grant, except that an option shall be exercisable for only one
year following a voluntary termination of employment other than at normal
retirement or a termination of employment due to a discharge without good cause
other than as a result of a reduction in force. If an employee's employment is
terminated for cause, all unexercised rights under his or her option or options
shall expire on the date of such termination.
(e) An option may be exercised from time to time during the option period
in whole or in part, but not as to less than 10 shares at any one time. An
employee shall exercise an option in whole or in part by giving written notice
to the Secretary of the Company of his or her intention to purchase such shares,
specifying the number of shares and the date that the purchase is to occur.
ARTICLE V
Stock Appreciation Rights
The Administrator, in its sole discretion, may grant Rights to any employee
who is eligible to participate in the Plan. A grant of Rights shall be
evidenced by documentation containing such terms and conditions as the
Administrator shall establish, including the following unless the Administrator,
in its sole discretion, provides otherwise:
(a) A Right may relate to a specific option or portion of an option and
may be granted to the option holder at any time prior to the exercise of such
option. The Administrator may fix such waiting periods and exercise dates for
Rights as it deems appropriate, provided that generally no Right shall be
exercisable prior to six months from the date of the grant of the Right or after
the expiration of any option to which it relates.
(b) A Right shall entitle the holder to receive a payment having an
aggregate value equal to the product of (i) the excess of (A) the Fair Market
Value on the exercise date of one share of Common Stock over (B) the Fair Market
Value on the grant date of one share of Common Stock, times (ii) the number of
shares specified by the Right, or portion thereof, which is exercised. Payment
by the Company of the amount receivable upon any exercise of a Right may be made
by the delivery of Common Stock or cash, or any combination of Common Stock and
cash, as determined in the sole discretion of the Administrator. If upon
settlement of the exercise of a Right the holder is to receive payment in shares
of Common Stock, the number of shares shall be determined by dividing the amount
of such payment by the Fair Market Value of a share of Common Stock on the
exercise date. No fractional shares shall be used for such payment and the
Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.
(c) A Right may be exercised by giving written notice to the Secretary of
the Company. As soon as practicable following receipt of such notice, the
Company shall, without transfer or issue tax, deliver to the person exercising
the Right a certificate or certificates for
-5-
<PAGE>
such shares or, when so directed by the Administrator, make the required cash
payment, or both. The date the Company receives written notice of an exercise is
the exercise date.
ARTICLE VI
Stock Awards
(a) The Administrator, at any time and from time to time, may authorize
the issuance of Common Stock for past services rendered and at no cost, or for
such payment as the Administrator shall determine, to any employee who is
eligible to participate in the Plan. An award of Common Stock may be denominated
in shares of Common Stock or stock-equivalent units, and may be paid in Common
Stock, in cash, or in a combination of Common Stock and cash.
(b) Stock awards may be granted in lieu of a cash bonus or any other
compensation otherwise payable to an employee, either at the election of the
Administrator or, under rules approved by the Administrator, at the election of
an employee entitled to participate in the Plan.
(c) The Administrator, in its sole discretion, shall establish the terms
and conditions of all stock awards, including the employees who shall be granted
stock awards, the timing of each grant, the circumstances under which an award
may be forfeited, canceled or terminated, and whether Common Stock issued
pursuant to an award will be restricted or unrestricted. The Administrator may
permit an individual to have the Company retain or accept a sufficient number of
shares of Common Stock in connection with the receipt of a stock award, the
lapse of restrictions with respect to a stock award, the payment of a stock
award, the sale of Common Stock or the receipt or forgiveness of a loan relating
to a stock award, to satisfy the Company's tax withholding obligations or an
employee's tax liabilities with respect to such transactions.
ARTICLE VII
Option Grants to Non-Employee Directors
(a) Each director who is not an employee of the Company ("Non-Employee
Director") who is first elected to the Board of Directors after the effective
date of this Plan shall be granted an option to purchase 5,000 shares of Common
Stock on the date of his or her election. In addition, each Non-Employee
Director shall be granted an option to purchase 1,000 shares of Common Stock on
each date on which he or she is re-elected as a Non-Employee Director.
(b) The Administrator shall establish the terms and conditions of each
option granted under this Article VII, including the following:
(1) Except as provided in clause (iii) below, an option shall not
be exercisable in whole or in part until one month after the date of the grant.
(2) The option exercise price per share shall be the Fair Market
Value of a share of Common Stock, which, solely for purposes of this Article
VII, shall be equal to the last
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<PAGE>
sale price, regular way, for Common Stock for the business day immediately
preceding the date such option is granted as reported on the New York Stock
Exchange composite tape or, if the Company's Common Stock is not traded on the
New York Stock Exchange, on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") National Market System, or the exchange on which
the Company's Common Stock is principally traded, or, if no sale price is
reported for such day, the first preceding business day for which a sale price
for Common Stock is reported.
(3) An option shall vest in its entirety upon the option holder's
death, disability or attainment of age 70 (the mandatory retirement age for
directors of the Company) or upon a change of control of the Company.
(4) An option generally shall be exercisable for not more than 10
years from the date of grant.
(5) When an option becomes exercisable, it may be exercised from
time to time during the option period in whole or in part, but not as to less
than 10 shares at any one time. An option holder shall exercise an option in
whole or in part by giving written notice to the Secretary of the Company of his
or her intention to purchase such shares, specifying the number of shares and
the date that the purchase is to occur.
(6) The option exercise price shall be payable (i) in U.S. dollars
in cash or by wire transfer, check, bank draft or money order payable to the
Company, (ii) through the delivery of Common Stock or other securities issued by
the Company with a Fair Market Value, determined, to the extent possible, in a
manner consistent with Section (b)(2) above, equal to the total amount due, or
(iii) by a combination of the methods described in (i) and (ii).
ARTICLE VIII
Amendment and Discontinuance
The Administrator may amend, modify or discontinue the Plan or waive any of
its provisions, except that no such amendment, modification, waiver or
discontinuance shall revoke or alter the terms of any valid award previously
granted in accordance with the Plan without the consent of the award holder.
ARTICLE IX
Loan Authorization
The Administrator may authorize the Company to grant loans or to guarantee
loans from a third party to employees who are holders of awards in conjunction
with such awards, upon such terms as the Administrator, in its sole discretion,
deems appropriate.
-7-
<PAGE>
ARTICLE X
Miscellaneous
(a) The proceeds from the sale of Common Stock pursuant to the Plan shall
be used by the Company for its general corporate purposes.
(b) A holder of an award shall have none of the rights of a stockholder
until the shares are issued to him.
ARTICLE XI
Effective Date and Term of Plan
The effective date of the Plan shall be June 3, 1999. The term of the Plan
shall be 10 years, and the Plan will terminate on June 3, 2009, unless sooner
terminated by the Administrator.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer and its corporate seal to be hereunto affixed effective
this 3rd day of June, 1999.
ATTEST: THE ROUSE COMPANY
_____________________________ By: ____________________________
David R. Schwiesow Anthony W. Deering
Assistant Secretary Chairman of the Board,
President and
Chief Executive Officer
-8-
<PAGE>
EXHIBIT 10.2
July 12, 1999
Mr. Anthony W. Deering
Chairman and Chief Executive Officer
The Rouse Company
10275 Little Patuxent Parkway
Columbia, MD 21044
Dear Mr. Deering:
As authorized by the Board of Directors, your special retention
contract arrangement, effective September 24, 1998 (the "Agreement"), is
modified as follows:
1. The second sentence of Section 4.3 of the Agreement is amended by
deleting the word "and" at the end of clause (f), replacing the period at the
end of clause (g) with a semicolon, and adding the following at the end:
"(h) the Company shall:
(A) contribute, within 30 calendar days after the Date of
Termination, under Section 3 of the SERP an amount equal to
the sum of (1) three times the maximum amount that could be
contributed by the Company under Section 3(a)(i) of the
SERP for a full calendar year based on the Executive's
Compensation (as defined in The Rouse Company Savings Plan)
computed for the 12 months immediately preceding such Date
of Termination, and (2) one times such maximum amount
multiplied by a fraction, the numerator of which is the
number of days transpired in the year of termination prior
to and including the Date of Termination and the
denominator of which is 365; and
(B) accrue an additional benefit under Section 2 of the SERP
equal to the amount by which the accrued benefit, as of the
Date of Termination, of the Executive would be increased if
the Executive were (1) credited, for all purposes under the
SERP and the Pension Plan (as defined in the SERP), with
three additional years of service credit based on the
Executive's Cash Compensation (as defined in the Pension
Plan) computed for the 12 months immediately preceding such
Date of Termination and (2) deemed, for all purposes under
the SERP and the Pension Plan, to be three years older in
age, provided, however, that in
1
<PAGE>
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July 12, 1999
no event shall the Executive's total accrued benefit under
the SERP and the Pension Plan be less than the amount
provided under the Retirement Supplement referenced in
clause (e) above;
(i) to the extent such benefit is greater than the benefit provided
in clause (f) above, for three years after the Executive's Date
of Termination, or such longer period as may be provided by the
terms of the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or the
persons who from time to time thereafter are Dependents at least
equal to those which would have been provided to them in
accordance with the Welfare Benefit Plans if the Executive's
employment had not been terminated or, if more favorable to the
Executive and the Dependents, as in effect generally at any time
thereafter. "Welfare Benefit Plans" are welfare benefit plans
and programs generally applicable to full-time officers or
employees of the Company on a date that is six months prior to
the date a Change of Control occurred, including, without
limitation, medical, disability insurance (group and
individual), disability, leaves of absence, group life, split
dollar life, accidental death and travel accident insurance
plans and programs;
(j) all outstanding options and restricted shares granted to the
Executive to purchase Common Shares under the Incentive Plans or
under any other option or equity incentive plan shall, to the
extent not vested in accordance with the terms of the applicable
agreement, become immediately fully vested and, in the case of
options, shall remain exercisable until the end of the original
term of such option without regard to the Executive's
termination of employment;
(k) the Company will continue to pay any premiums due on any
individual insurance policies in effect on the life of the
Executive for three years following the Date of Termination,
after which time the Company shall distribute such policy to the
Executive without requiring the Executive to repay any premiums
paid by the Company;
(l) notwithstanding any provisions to the contrary with respect to
the Gross-Up Payment or under any loan agreement between the
Company and the Executive, any obligation of the Executive to
the Company to repay the Gross-Up Payment or any loan or other
indebtedness shall be forgiven;
(m) the Company will transfer any car made available to the
Executive for his use by the Company to the Executive for no
consideration, provided that the Executive pays any and all
transfer taxes and agrees to be
2
<PAGE>
Page 3
July 12, 1999
solely responsible for insurance and the cost of insurance
after the date of transfer; and
(n) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive all Other Benefits
to the extent accrued on the Date of Termination and not
specifically provided for in this sentence. "Other Benefits"
means any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement
of the Company, including earned but unpaid and stock and
similar compensation, that is in effect on the date that is six
months prior to the date a Change of Control occurred."
2. The cross reference in clause (c) in Section 4.3 of the
Agreement to Section 4.2 is amended to refer to Section 4.1.
3. Clause (d) in the definition of "Good Reason" in Section 4.3 of
the Agreement is amended in its entirety to read as follows:
"(d) the Company fails to comply with any of the provisions of this
Agreement, other than an isolated, insubstantial and inadvertent
failure that both (1) did not occur in bad faith and (2) was remedied
by the Company promptly after receipt of notice thereof from the
Executive."
To acknowledge your agreement to the above amendments to the
Agreement, please sign and date the original of this letter.
Sincerely yours,
THE ROUSE COMPANY
By_____________________________
Mathias J. DeVito
Chairman, Executive Committee
of the Board of Directors
The undersigned agrees to the
above amendments to the Agreement.
Signature:_________________________
Date:______________________________
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This financial data schedule is submitted in accordance with Regulation S-K item
601(c)(2). This schedule contains summary financial information extracted from
Form 10-Q for the quarterly period ended September 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 32,135
<SECURITIES> 4,574
<RECEIVABLES> 94,666
<ALLOWANCES> 24,000
<INVENTORY> 0
<CURRENT-ASSETS> 129,751<F1>
<PP&E> 4,146,798
<DEPRECIATION> 570,329
<TOTAL-ASSETS> 4,461,158
<CURRENT-LIABILITIES> 383,485<F2>
<BONDS> 3,368,026
0
41
<COMMON> 722
<OTHER-SE> 643,027
<TOTAL-LIABILITY-AND-EQUITY> 4,461,158
<SALES> 532,287
<TOTAL-REVENUES> 532,287
<CGS> 0
<TOTAL-COSTS> 321,322
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,350
<INTEREST-EXPENSE> 183,580
<INCOME-PRETAX> 84,810
<INCOME-TAX> 265
<INCOME-CONTINUING> 82,798
<DISCONTINUED> (1,747)
<EXTRAORDINARY> 913
<CHANGES> 0
<NET-INCOME> 83,632
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.02
<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>
