-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ql3fTeuEr9+hWjlRCHLbOHxbiUTsgIZz2TbrkBoNOHeV8uceTpm4SnFGYQ32ybFT ET7QBSOBjXT+h8H+/V3/yA== 0000085388-96-000003.txt : 19960517 0000085388-96-000003.hdr.sgml : 19960517 ACCESSION NUMBER: 0000085388-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROUSE COMPANY CENTRAL INDEX KEY: 0000085388 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 520735512 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11543 FILM NUMBER: 96567888 BUSINESS ADDRESS: STREET 1: 10275 LITTLE PATUXENT PKWY CITY: COLUMBIA STATE: MD ZIP: 21044-3456 BUSINESS PHONE: 4109926000 MAIL ADDRESS: STREET 1: 10275 LITTLE PATUXENT PARKWAY CITY: COLUMBIA STATE: MD ZIP: 21044 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY RESEARCH & DEVELOPMENT INC DATE OF NAME CHANGE: 19660913 10-Q 1 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 May 10, 1996: Common Stock, $0.01 par value 48,247,756 Title of Class Number of Shares Part I. Financial Information Item 1. Financial Statements: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended March 31, 1996 and 1995 (Unaudited, in thousands except per share amounts, note 1) Three months ended March 31, 1996 1995 Revenues: Operating properties: Retail centers $118,790 $115,763 Office, mixed-use and other 35,868 35,175 154,658 150,938 Land sales 17,661 10,791 Corporate interest income 829 786 173,148 162,515 Operating expenses, exclusive of provision for bad debts, depreciation and amortization: Operating properties: Retail centers 60,882 59,418 Office, mixed-use and other 17,267 17,354 78,149 76,772 Land sales 9,444 5,478 Development 1,215 1,904 Corporate 2,026 2,098 90,834 86,252 Interest expense: Operating properties: Retail centers 31,232 30,900 Office, mixed-use and other 17,071 17,311 48,303 48,211 Land sales 250 1,286 Development 75 94 Corporate 3,623 2,706 52,251 52,297 Provision for bad debts 621 760 Depreciation and amortization 18,284 18,552 161,990 157,861 Gain (loss) on dispositions of assets and other provisions, net (note 5) -- (4,856) The accompanying notes are an integral part of these statements. 1 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Statements of Operations, continued Three Months Ended March 31, 1996 and 1995 (Unaudited, in thousands except per share amounts, note 1) Three months ended March 31, 1996 1995 Earnings (loss) before income taxes and extraordinary losses $ 11,158 $ (202) Income taxes Current - primarily state 179 113 Deferred 4,236 318 4,415 431 Earnings (loss) before extraordinary losses 6,743 (633) Extraordinary losses from early extinguishments of debt, net of related income tax benefits (note 6) (1,315) (7,217) Net earnings (loss) $ 5,428 $ (7,850) Net earnings (loss) applicable to common shareholders $ 1,768 $(11,510) EARNINGS (LOSS) PER SHARE OF COMMON STOCK AFTER PROVISION FOR DIVIDENDS ON PREFERRED STOCK: Earnings (loss) before extraordinary losses $ .06 $ (.09) Extraordinary losses (.02) (.15) $ .04 $ (.24) DIVIDENDS PER SHARE: Common stock $ .22 $ .20 Preferred stock $ .81 $ .81 The accompanying notes are an integral part of these statements. 2 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Balance Sheets March 31, 1996 and December 31, 1995 (Unaudited, in thousands, note 1) March 31, December 31, 1996 1995 Assets: Property (note 2): Operating properties: Property and deferred costs of projects $3,004,748 $3,006,356 Less accumulated depreciation and amortization 533,566 519,319 2,471,182 2,487,037 Properties in development 66,234 56,151 Properties held for sale 16,743 22,602 Land held for development and sale 129,132 134,168 Total property 2,683,291 2,699,958 Prepaid expenses, deferred charges and other assets 148,985 151,068 Accounts and notes receivable 29,805 36,751 Investments in marketable securities 18,100 2,910 Cash and cash equivalents 34,779 94,922 Total $2,914,960 $2,985,609 The accompanying notes are an integral part of these statements. 3 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Balance Sheets, continued March 31, 1996 and December 31, 1995 (Unaudited, in thousands, note 1) March 31, December 31, 1996 1995 Liabilities: Debt (note 3): Property debt not carrying a Parent Company guarantee of repayment $1,935,185 $1,990,041 Parent Company debt and debt carrying a Parent Company guarantee of repayment: Property debt 148,305 138,488 Convertible subordinated debentures 130,000 130,000 Other debt 216,000 221,000 494,305 489,488 Total debt 2,429,490 2,479,529 Obligations under capital leases 58,245 58,786 Accounts payable, accrued expenses and other liabilities 169,613 185,561 Deferred income taxes 85,177 81,649 Company-obligated mandatorily redeemable preferred securities of a trust holding solely Parent Company subordinated debt securities 137,500 137,500 Shareholders' equity: Series A Convertible Preferred stock with a liquidation preference of $225,250 in 1996 and 1995 (note 4) 45 45 Common stock of 1 cent par value per share; 250,000,000 shares authorized; 48,257,756 shares issued in 1996 and 47,922,749 shares issued in 1995 482 479 Additional paid-in capital 311,138 309,943 Accumulated deficit (276,730) (267,883) Total shareholders' equity 34,935 42,584 Total $2,914,960 $2,985,609 The accompanying notes are an integral part of these statements. 4 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995 (Unaudited, in thousands, note 1) 1996 1995 Cash flows from operating activities: Rents and other revenues received $ 157,970 $ 155,469 Proceeds from land sales 17,509 10,897 Interest received 2,996 2,731 Land development expenditures (2,424) (3,590) Operating expenditures: Operating properties (78,138) (76,463) Land sales, development and corporate (6,692) (8,814) Interest paid: Operating properties (50,887) (54,198) Land sales, development and corporate (4,036) (4,279) Net cash provided by operating activities 36,298 21,753 Cash flows from investing activities: Expenditures for properties in development and improvements to existing properties funded by debt (19,188) (14,046) Expenditures for improvements to existing properties funded by cash provided by operating activities: Tenant leasing and remerchandising (2,842) (2,252) Building and equipment (1,190) (1,032) Proceeds from sales of operating properties 4,728 -- Purchases of marketable securities (1,459) (1,088) Proceeds from redemptions or sales of marketable securities 1,269 10,121 Other (10,283) (98) Net cash used in investing activities (28,965) (8,395) Cash flows from financing activities: Proceeds from issuance of property debt 71,560 115,301 Repayments of property debt: Scheduled principal payments (8,476) (8,913) Other payments (110,264) (157,305) Proceeds from issuance of other debt -- 45,000 Repayments of other debt (5,522) (5,538) Proceeds from exercise of stock options -- 390 Dividends paid (14,275) (13,220) Other (499) -- Net cash used in financing activities (67,476) (24,285) Net decrease in cash and cash equivalents (60,143) (10,927) Cash and cash equivalents at beginning of period 94,922 49,398 Cash and cash equivalents at end of period $ 34,779 $ 38,471 The accompanying notes are an integral part of these statements. 5 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows, continued Three Months Ended March 31, 1996 and 1995 (Unaudited, in thousands, note 1) 1996 1995 Reconciliation of net earnings (loss) to net cash provided by operating activities: Net earnings (loss) $ 5,428 $(7,850) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 18,284 18,552 (Gain) loss on dispositions of assets and other provisions, net -- 4,856 Deferred income taxes 4,236 318 Extraordinary losses, net of related income tax benefits 1,315 7,217 Additions to pre-construction reserve 1,000 1,000 Provision for bad debts 621 760 Decrease (increase) in operating assets and liabilities, net 5,414 (3,100) Net cash provided by operating activities $36,298 $21,753 Schedule of Non-Cash Investing and Financing Activities: Note received from sale of an operating property $ 1,440 $ -- The accompanying notes are an integral part of these statements. 6 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) March 31, 1996 (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 1995 Annual Report to Shareholders, except that effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Statement No. 121 establishes new standards for measurement and recognition of impairment of long-lived assets. Initial adoption had no effect on the financial position or results of operations reported by the Company. In its annual reports, the Company has included certain supplementary current value basis financial statements with the historical cost basis financial statements. The current value basis financial statements have been and will continue to be an integral part of the Company's formal, year-end reporting, but they are not included in quarterly reports to shareholders. Therefore, all of the financial information contained herein is based on the historical cost basis as required by generally accepted accounting principles. (2) Property Properties in development include construction and development in progress and pre-construction costs, net. The construction and development in progress accounts include land and land improvements of $17,823,000 at March 31, 1996. Changes in pre-construction costs, net, for the three months ended March 31, 1996 are summarized as follows (in thousands): Balance at beginning of period, before pre-construction reserve $ 21,463 Costs incurred 3,246 Costs transferred to construction and development in progress -- Costs transferred to operating properties (333) Costs of unsuccessful projects written off (33) 24,343 Less pre-construction reserve 16,346 Balance at end of period, net $ 7,997 7 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited), continued (3) Debt Debt at March 31, 1996 and December 31, 1995 is summarized as follows (in thousands): March 31, 1996 December 31, 1995 Due in Due in Total one year Total one year Mortgages and bonds $1,951,453 $ 37,608 $1,997,998 $102,428 Convertible sub- ordinated debentures 130,000 - 130,000 - Medium-term notes 95,300 5,000 100,300 5,000 Other loans 252,737 3,602 251,231 3,001 Total $2,429,490 $ 46,210 $2,479,529 $110,429 The amounts due in one year reflect the terms of existing loan agreements except where refinancing commitments from outside lenders have been obtained. In these instances, maturities are determined based on the terms of the refinancing commitments. (4) Series A Convertible Preferred stock The Company has authorized issuance of 50,000,000 shares of Preferred stock of 1 cent par value per share of which 4,505,168 shares have been classified as Series A Convertible Preferred. At March 31, 1996 and December 31, 1995, there were 4,505,006 and 4,505,009 shares outstanding, respectively. (5) Gain (loss) on dispositions of assets and other provisions, net The loss in 1995 relates to a retail center the Company decided to sell. This loss was recognized based on the estimated fair value of the property less costs to sell. (6) Extraordinary losses, net of related income tax benefits During the three months ended March 31, 1996 and 1995, the Company incurred extraordinary losses related to extinguishments of debt prior to scheduled maturity of $2,023,000 and $11,103,000, respectively, net of related income tax benefits of $708,000 and $3,886,000, respectively. 8 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, (Unaudited), continued (7) Contingencies On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana ("Riverwalk"), which is owned and operated by New Orleans Riverwalk Associates, an affiliate of the Company ("NORA"), filed suit in the Civil District Court of Orleans Parish, Louisiana against NORA, the Company, two Company affiliates and a partner of NORA (collectively, "Defendants"). Plaintiff alleges that Defendants breached Plaintiff's lease agreement with NORA for the operation of a restaurant at Riverwalk and that as a result of these breaches it suffered losses and could not pay the rentals due under the lease agreement, as a result of which the lease and its tenancy were terminated by NORA. Plaintiff sought damages of approximately $600,000 for these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed $33,000,000 for alleged lost future profits which it claimed it would have earned had its lease not been terminated. The Defendants filed answers denying the claims of Plaintiff and asserted other defenses. NORA also asserted a counterclaim against Plaintiff and its individual guarantors for past due rentals and other charges in the approximate amount of $300,000 plus interest and attorneys' fees as provided for in the lease agreement. The case was tried before a jury and, on October 28, 1993, the jury returned a verdict against Defendants upon which judgment was entered by the trial court on January 7, 1994, in the total net amount of approximately $9,128,000 (including a net award for lost future profits of approximately $8,640,000) plus interest and attorneys' fees. On May 6, 1994, the trial court denied all post-trial motions of both Plaintiff and Defendants. The trial court also entered an amended judgment in which it awarded the Plaintiff $450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees. On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of Appeal, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeal reduced the judgment by $240,000, but otherwise affirmed the damage award to Plaintiff. Defendants subsequently filed a motion for reconsideration with the Louisiana Court of Appeal, which was denied on December 19, 1995. On January 18, 1996, Defendants filed a petition requesting the Louisiana Supreme Court to consider a further appeal of this judgment. On April 8, 1996, the Louisiana Supreme Court granted Defendants' petition and it is expected that the appeal will be heard in the third quarter of 1996. The Company recorded in the fourth quarter of 1995 a pre-tax provision of $12,321,000, representing the full amount of the modified award (including attorneys' fees) plus interest, less pre-tax provisions previously recorded totaling $1,150,000. 9 Part I. Financial Information, continued Item 1. Financial Statements, continued: THE ROUSE COMPANY AND SUBSIDIARIES Notes to Consolidated Financial Statements, (Unaudited), continued (7) Contingencies (continued) The Company and certain of its subsidiaries are defendants in various other litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Some of these litigation matters are covered by insurance. In the opinion of management, adequate provision has been made for losses with respect to all litigation matters, where appropriate, and the ultimate resolution of all such litigation matters is not likely to have a material effect on the consolidated financial position of the Company. Due to the Company's modest and fluctuating net earnings (loss), it is not possible to predict whether the resolution of these matters is likely to have a material effect on the Company's consolidated net earnings (loss), and it is, therefore, possible that the resolution of these matters could have such a material effect in any future quarter or year. (8) Possible acquisition of The Hughes Corporation and related matters On February 22, 1996, the Company's Board of Directors approved the terms of agreements to acquire all of the issued and outstanding shares of common stock of The Hughes Corporation and the ownership interests of stockholders of The Hughes Corporation in an affiliated partnership (together "Hughes"). The agreements were executed on February 27, 1996 and the Company has filed a Form S-4 Registration Statement with the Securities and Exchange Commision to register the shares of the Company stock that may be issued at closing of the acquisition or subsequently. The acquisition will be accounted for using the purchase method and is expected to close in the second quarter of 1996. However, the transactions are conditional upon certain closing conditions including approval by the requisite vote of the holders of the common stock of The Hughes Corporation at a meeting to be held in June 1996. Accordingly, there can be no assurance that the transactions will be consummated. 10 Part I. Financial Information, continued Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: The following discussion and analysis covers any material changes in financial condition since December 31, 1995 and any material changes in the results of operations for the three months ended March 31, 1996 as compared to the same periods in 1995. 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 1995 Annual Report to Shareholders. Operating Results: Operating properties: Revenues from retail centers increased $3,027,000 and total operating and interest expenses increased $2,014,000 for the three months ended March 31, 1996 as compared to the same period in 1995. The increases in revenues are attributable primarily to the operations of two properties that the Company acquired interests in during the third quarter of 1995 and higher rents on re-leased space. These increases have been partially offset by slightly lower average occupancy levels (89.2% in 1996 compared to 90.6% in 1995). The increase in expenses for the three months ended March 31, 1996 is attributable to the operations of the acquired properties referred to above partially offset by lower interest expense due to refinancings of certain properties. Revenues from office, mixed-use and other properties increased $693,000 and total operating and interest expenses decreased $952,000 for the three months ended March 31, 1996 as compared to the same period in 1995. The increase in revenues is attributable to higher occupancy levels at certain office properties, primarily in Columbia, and higher lease termination payments due to tenant restructurings. These increases have been partially offset by lower revenues at a hotel property about to undergo a renovation. The decrease in expenses for the three months ended March 31, 1996 is attributable to lower bad debt expense due to the recovery of amounts previously reserved, lower operating expenses at the hotel property referred to above and lower interest expense due to debt repayments made in 1995. These decreases were partially offset by increased operating expenses associated with the higher occupancy levels referred to above. Land sales: Revenues from land sales increased $6,870,000 and total costs and expenses increased $2,930,000 for the three months ended March 31, 1996. The increase in revenues is attributable to higher levels of land sales in Columbia, particularly for commercial/other uses. The increase in costs and expenses is attributable to increased costs of sales due to higher sales revenues. 11 Part I. Financial Information, continued Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: Development: These costs consist primarily of additions to the pre-construction reserve and new business costs. The pre-construction reserve is maintained to provide for costs of projects which may not go forward to completion. New business costs relate primarily to the initial evaluation of acquisition and development opportunities. These costs decreased $708,000 for the three months ended March 31, 1996 as compared to the same period in 1995. The decrease is due primarily to reduced new business costs as the Company's focus on the acquisition of Hughes has preempted evaluation of other new opportunities. Corporate: Corporate interest costs were $4,338,000 and $3,581,000 for the three months ended March 31, 1996 and 1995, respectively. Of such amounts, $715,000 and $875,000 were capitalized during the three months ended March 31, 1996 and 1995, respectively on funds invested in development projects. The increase in corporate interest costs for the three month period is due to a higher level of debt used for corporate purposes. Gain (loss) on dispositions of assets and other provisions, net The loss in 1995 relates to a retail center the Company decided to sell. The loss was recognized based on the estimated fair value of the property less costs to sell. Extraordinary losses, net of related income tax benefits During the three months ended March 31, 1996 and 1995, the Company incurred extraordinary losses related to extinguishments of debt prior to scheduled maturity of $2,023,000 and $11,103,000, respectively, net of related income tax benefits of $708,000 and $3,886,000, respectively. 12 Part I. Financial Information, continued Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: Financial Condition and Liquidity: Shareholders' equity decreased by $7,649,000 from $42,584,000 at December 31, 1995 to $34,935,000 at March 31, 1996. The decrease was due principally to the payment of regular quarterly dividends on the Company's common and Preferred stocks partially offset by the Company's net earnings for the three months ended March 31, 1996. The Company had cash and cash equivalents and investments in marketable securities totaling $52,879,000 and $97,832,000 at March 31, 1996 and December 31, 1995, respectively, including $18,100,000 and $2,910,000, respectively, held for restricted uses. The Company has lines of credit of $158,920,000 of which $150,220,000 was available at March 31, 1996. These lines of credit may be used to provide corporate liquidity, fund property acquisition costs and finance other corporate needs, subject to lenders' approvals. They may also be utilized to pay some portion of existing debt, including maturities in 1996 and 1997. As of March 31, 1996, debt due in one year was $46,210,000. The Company continues to actively evaluate new sources of capital and is confident that it will be able to make these payments, arrange to refinance these maturities prior to their scheduled repayment dates, or take advantage of new sources of capital without necessitating property sales. Net cash provided by operating activities was $36,298,000 and $21,753,000 for the three months ended March 31, 1996 and 1995, respectively. The factors discussed previously under the operating results of the four major business segments, particularly higher land sale revenues, affected the level of net cash provided by operating activities. Net cash used in investing activities was $28,965,000 and $8,395,000 for the three months ended March 31, 1996 and 1995, respectively. The increase in net cash used of $20,570,000 was due primarily to higher development expenditures and an escrow deposit of $15,000,000 related to the acquisition of Hughes. 13 Part I. Financial Information, continued Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, continued: Net cash used in financing activities was $67,476,000 and $24,285,000 for the three months ended March 31, 1996 and 1995, respectively. The increase in net cash used of $43,191,000 is attributable primarily to the use of financing proceeds received in 1995 to repay certain higher rate property debt. 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) real estate investment risks; (2) development risks; (3) illiquidity of real estate investments; (4) dependence on rental income from real property; (5) effect of uninsured loss; (6) lack of geographical diversification; (7) possible environmental liabilities; (8) difficulties of compliance with the Americans with Disabilities Act; (9) competition; (10) changes in the economic climate; and (11) factors relating to the proposed Hughes acquisition. 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, 1995. 14 Part II. Other Information Item 1. Legal Proceedings On November 6, 1990, Robert P. Guastella Equities, Inc. ("Plaintiff"), a former tenant at the Riverwalk Shopping Center in New Orleans, Louisiana ("Riverwalk"), which is owned and operated by New Orleans Riverwalk Associates, an affiliate of the Company ("NORA"), filed suit in the Civil District Court of Orleans Parish, Louisiana against NORA, the Company, two Company affiliates - Rouse-New Orleans, Inc. and New Orleans Riverwalk Limited Partnership - and Connecticut General Life Insurance Company, which is a general partner of NORA (collectively, "Defendants"). Plaintiff alleged that Defendants breached Plaintiff's lease agreement with NORA for the operation of a restaurant at Riverwalk by (i) failing to prevent the leased premises from flooding, (ii) refusing to permit entertainment on the leased premises, (iii) interfering with the operation of air conditioning equipment on the leased premises and (iv) failing to provide adequate security. Plaintiff claimed that as a result of these breaches it suffered losses and could not pay the rentals due under the lease agreement, as a result of which the lease and its tenancy were terminated by NORA. Plaintiff sought damages of approximately $600,000 for these alleged breaches. In addition, on September 3, 1992, Plaintiff claimed $33,000,000 for alleged lost future profits which it claimed it would have earned had its lease not been terminated. All Defendants filed answers denying the claims of Plaintiff and asserted other defenses. NORA also asserted a counterclaim against Plaintiff and its guarantors, Robert Guastella and Charles Kovacs, for past due rentals and other charges in the approximate amount of $300,000 plus interest and attorneys' fees as provided for in the lease agreement. The case was tried before a jury and, on October 28, 1993, the jury returned a verdict against Defendants upon which judgment was entered by the trial court on January 7, 1994, in the total net amount of approximately $9,128,000 (which included a net award for lost future profits of approximately $8,640,000) plus interest from the date the suit was filed and attorneys' fees in an amount to be determined. On May 6, 1994, the trial court denied all post-trial motions of both Plaintiff and Defendants. The trial court also entered an amended judgment in which it awarded the Plaintiff $450,000 in attorneys' fees and awarded Defendants $25,000 in attorneys' fees. On May 23, 1994, Defendants appealed this judgment to the Louisiana Court of Appeal, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeal in a 2 to 1 decision reduced the judgment by $240,000, but otherwise affirmed the damage award to Plaintiff. Defendants subsequently filed a motion for reconsideration with the Louisiana Court of Appeal, which was denied on December 19, 1995, again in a 2 to 1 decision. On January 18, 1996, Defendants filed a petition requesting the Louisiana Supreme Court to consider a further appeal of this judgment. On April 8, 1996, the Louisiana Supreme Court granted Defendants' petition, and it is expected that the appeal will be heard in the third quarter of 1996. For additional information about this suit, see Note 7 - Contingencies - to the consolidated financial statements. 15 Part II. Other Information The following items have been omitted as inapplicable or not required under the applicable instructions: Item 2. Changes in Securities. Item 3. Defaults Upon Senior Securities. Item 4. Submission of Matters to a Vote of Security Holders. Item 5. Other Information. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Reference is made to the Exhibit Index. (b) Reports on Form 8-K None. 16 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ROUSE COMPANY Principal Financial Officer: Date: May 15, 1996 By /s/Jeffrey H. Donahue Jeffrey H. Donahue Senior Vice President and Chief Financial Officer Principal Accounting Officer: Date: May 15, 1996 By /s/George L. Yungmann George L. Yungmann Senior Vice President and Controller 17 Exhibit Index Exhibit Number Description 11 Statement re Computation of per share earnings (loss) 18 Exhibit 11 THE ROUSE COMPANY AND SUBSIDIARIES Computation of Fully Diluted Earnings (Loss) Per Share (Unaudited, in thousands except per share amounts) Three months ended March 31, 1996 1995 Earnings (loss) before extraordinary losses $ 6,743 $ (633) Add after-tax interest expense applicable to convertible subordinated debentures 1,215 1,215 Earnings before extraordinary losses, as adjusted 7,958 582 Extraordinary losses (1,315) (7,217) Net earnings (loss), as adjusted $ 6,643 $(6,635) Shares: Weighted average number of common shares outstanding 48,058 47,664 Assuming conversion ofconvertible Preferred stock 10,600 10,600 Assuming conversion of convertible subordinated debentures 4,542 4,542 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options 412 216 Weighted average number of shares outstanding, as adjusted 63,612 63,022 Earnings (loss) per common share assuming full dilution: Earnings before extraordinary losses, as adjusted $ .12 $ .01 Extraordinary losses (.02) (.12) Net earnings (loss), adjusted $ .10 $ (.11) This calculation is submitted in accordance with Regulation S-K item 601 (b) (11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. 19 EX-27 2
5 This financial data schedule is included to comply with the requirements of Item 601 (c) (2) of Regulations S-K and S-B. This schedule contains summary financial information extracted from Form 10-Q for the quarterly period ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 MAR-31-1996 $ 34,779 $ 18,100 $ 55,019 $ (25,214) 0 $ 92,425 $ 3,216,857 $ (533,566) $ 2,914,960 $ 100,171 $ 2,383,280 $ 482 0 $ 45 $ 34,408 $ 2,914,960 $ 173,148 $ 173,148 0 $ 161,990 $ 0 $ 621 $ 52,251 $ 11,158 $ 4,415 $ 6,743 0 $ (1,315) 0 $ 5,428 $ .04 $ .10 Current assets include cash, unrestricted marketable securities, current portion of accounts and notes receivable and prepaid expenses and deposits. Cuurent liabilities include the current portion of long-term debt and accounts payable, accrued expenses and other liabilities.
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