UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from. . . . . . . . . . . . to. . . . . . . . . . . . Commission file number 1-13274 Cali Realty Corporation - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 22-3305147 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 11 Commerce Drive, Cranford, New Jersey 07016-3501 - ------------------------------------------------------------------------------- (Address of principal executive office) (Zip Code) (908) 272-8000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 twelve (12) months (or such shorter period that the Registrant was required to file such report) YES X NO____ and (2) has been subject to such filing requirements for the past ninety (90) days YES X NO____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. There were 49,664,622 shares of $.01 par value common stock outstanding at October 31, 1997. CALI REALTY CORPORATION Form 10-Q INDEX Part I Financial Information Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996................................. Consolidated Statements of Operations for the three and nine month periods ended September 30, 1997 and 1996.. Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1997.................. Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996.............. Notes to Consolidated Financial Statements.............. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... Part II Other Information and Signatures Item 6. Exhibits................................................ Signatures.............................................. 2 CALI REALTY CORPORATION Part I - Financial Information Item I: Financial Statements The accompanying unaudited consolidated balance sheets, statements of operations, of stockholders' equity, and of cash flows and related notes, have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods. The aforementioned financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The results of operations for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period. 3 CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- September 30, December 31, ASSETS 1997 1996 Rental property ------------- ------------ Land $ 141,604 $ 98,127 Buildings and improvements 1,258,895 718,466 Tenant improvements 41,490 35,626 Furniture, fixtures and equipment 2,101 1,133 - -------------------------------------------------------------------------------- 1,444,090 853,352 Less - accumulated depreciation and amortization (92,549) (68,610) - -------------------------------------------------------------------------------- Total rental property 1,351,541 784,742 Cash and cash equivalents (includes $201,269 in Overnight Investments at December 31, 1996) 3,409 204,807 Unbilled rents receivable 25,617 19,705 Deferred charges and other assets, net of accumulated amortization 18,571 11,840 Restricted cash 5,154 3,160 Accounts receivable, net of allowance for doubtful accounts of $505 and $189 5,637 2,074 Mortgage note receivable 7,250 -- - -------------------------------------------------------------------------------- Total assets $1,417,179 $1,026,328 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Mortgages and loans payable $ 593,058 $ 268,010 Dividends and distributions payable 20,377 17,554 Accounts payable and accrued expenses 15,578 5,068 Rents received in advance and security deposits 17,088 6,025 Accrued interest payable 2,081 1,328 - -------------------------------------------------------------------------------- Total liabilities 648,182 297,985 - -------------------------------------------------------------------------------- Minority interest of unitholders in Operating Partnership 70,479 26,964 - -------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity: Preferred stock, 5,000,000 shares authorized, none issued Common stock, $.01 par value, 190,000,000 shares authorized, 36,662,322 and 36,318,937 shares outstanding 366 363 Additional paid-in capital 723,617 714,052 Distributions in excess of net earnings (15,560) (13,036) Unamortized stock compensation (9,905) -- - -------------------------------------------------------------------------------- Total stockholders' equity 698,518 701,379 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,417,179 $1,026,328 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. 4 CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- REVENUES - -------- Base rents $ 52,148 $ 18,438 $ 145,328 $ 51,713 Escalations and recoveries from tenants 8,185 3,414 22,464 9,646 Parking and other 1,648 538 5,245 1,453 Interest income 628 128 2,268 282 - ------------------------------------------------------------------------------------------------------------ Total revenues 62,609 22,518 175,305 63,094 - ------------------------------------------------------------------------------------------------------------ EXPENSES - -------- Real estate taxes 6,584 2,188 18,513 6,342 Utilities 5,061 2,222 13,001 5,965 Operating services 7,283 2,625 21,056 7,952 General and administrative 3,675 1,371 10,601 3,427 Depreciation and amortization 9,339 3,469 25,631 9,850 Interest expense 10,694 2,999 28,398 9,093 - ------------------------------------------------------------------------------------------------------------ Total expenses 42,636 14,874 117,200 42,629 - ------------------------------------------------------------------------------------------------------------ Income before gain on sale of rental property, minority interest and extraordinary items 19,973 7,644 58,105 20,465 Gain on sale of rental property -- -- -- 5,658 - ------------------------------------------------------------------------------------------------------------ Income before minority interest and extraordinary items 19,973 7,644 58,105 26,123 Minority interest 2,015 1,045 5,663 3,866 - ------------------------------------------------------------------------------------------------------------ Income before extraordinary items 17,958 6,599 52,442 22,257 Extraordinary items-loss on early retirement of debt (net of minority interest's share of $402 in 1997 and $86 in 1996) 3,583 -- 3,583 475 - ------------------------------------------------------------------------------------------------------------ Net income $ 14,375 $ 6,599 $ 48,859 $ 21,782 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Net income per common share: - ---------------------------- Income before extraordinary items $ 0.49 $ 0.39 $ 1.44 $ 1.41 Extraordinary items-loss on early retirement of debt (0.10) -- (0.10) (.03) - ------------------------------------------------------------------------------------------------------------ Net income $ 0.39 $ 0.39 $ 1.34 $ 1.38 - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ Dividends declared per common share $ 0.50 $ 0.45 $ 1.40 $ 1.30 - ------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 36,457 17,045 36,469 15,803 - ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 5 CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Retained Earnings Additional (Distributions Unamortized Total Common Stock Paid-in in Excess of Stock Stockholders' Shares Par Value Capital Net Earnings) Compensation Equity ------ --------- ---------- -------------- ------------ ------------- BALANCE AT JANUARY 1, 1997 36,319 $ 363 $ 714,052 $(13,036) -- $ 701,379 Net income -- -- -- 48,859 -- 48,859 Dividends -- -- -- (51,383) -- (51,383) Issuance of Stock Award Rights and Stock Purchase Rights 351 4 11,514 -- $(11,518) -- Amortization of Stock Compensation -- -- -- -- 1,613 1,613 Repurchase of Common Stock (152) (2) (4,678) -- -- (4,680) Conversion of Units to shares of Common Stock 1 -- 17 -- -- 17 Proceeds from exercise of stock options 143 1 2,712 -- -- 2,713 - --------------------------------------------------------------------------------------------------------------------------- BALANCE AT SEPTEMBER 30, 1997 36,662 $ 366 $ 723,617 $(15,560) $(9,905) $ 698,518 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 6 CALI REALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Nine Months Ended September 30, CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 - ------------------------------------ -------- ---------- Net income $ 48,859 $ 21,782 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization 25,631 9,850 Minority interest 5,663 3,866 Amortization of Stock Compensation 1,613 -- Gain on sale of rental property -- (5,658) Extraordinary items-loss on early retirement of debt, net 3,583 475 Changes in operating assets and liabilities: Increase in unbilled rents receivable (5,912) (233) Increase in deferred charges and other assets, net (10,491) (2,762) Increase in accounts receivable, net (3,563) (31) Increase in accounts payable and accrued expenses 10,510 247 Increase in rents received in advance and security deposits 6,306 705 Increase (decrease) in accrued interest payable 753 (280) - --------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 82,952 $ 27,961 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Additions to rental property $ (357,043) $ (60,836) Issuance of mortgage note receivable (11,600) -- Proceeds from sale of rental property -- 10,324 Decrease in restricted cash 2,763 579 - --------------------------------------------------------------------------------------------- Net cash used in investing activities $ (365,880) $ (49,933) - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Proceeds from mortgages and loans payable $ 410,080 $ 125,900 Repayments of mortgages and loans payable (270,693) (148,508) Debt prepayment premiums and other costs (1,812) (312) Proceeds from Common Stock offering -- 76,830 Proceeds from exercise of stock options 2,713 260 Repurchase of Common Stock (4,680) -- Payment of dividends and distributions (54,078) (22,814) - --------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 81,530 $ 31,356 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents $ (201,398) $ 9,384 Cash and cash equivalents, beginning of period 204,807 967 - --------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 3,409 $ 10,351 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 7 CALI REALTY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1. ORGANIZATION, ACQUISITIONS/TRANSACTIONS AND BASIS OF PRESENTATION Organization Cali Realty Corporation and subsidiaries (the "Company"), a Maryland corporation, is a fully-integrated, self-administered, self-managed real estate investment trust ("REIT") providing leasing, management, acquisition, development, construction and tenant-related services for its properties. As of September 30, 1997, the Company owned and operated 132 properties (the "Properties") aggregating 12.2 million square feet, consisting of 120 office and office/flex buildings totaling approximately 11.8 million square feet, six industrial/warehouse buildings totaling approximately 400,000 square feet, two multi-family residential complexes consisting of 453 units, two stand-alone retail properties and two land leases. The Properties are located in New Jersey, New York, Pennsylvania and Connecticut. The Company was incorporated on May 24, 1994 and commenced operations on August 31, 1994. On August 31, 1994, the Company completed an initial public offering ("IPO") and effected a business combination with the Cali Group (not a legal entity). The Company raised its initial capital through the IPO issuing 10,500,000 shares of common stock, and used the proceeds to acquire a majority interest in Cali Realty, L.P. (the "Operating Partnership") and related entities, which are the successors to the operations of the Cali Group. Acquisitions/Transactions From 1994 through 1996, following the Company's IPO, the Company acquired 44 office and office/flex properties totaling 4.9 million square feet for approximately $610,000. The acquired properties are all located in New Jersey, New York and Pennsylvania. On January 28, 1997, the Company acquired 1345 Campus Parkway ("1345 Campus"), a 76,300 square foot office/flex property, located in Wall Township, Monmouth County, New Jersey, for approximately $6,800 in cash, made available from the Company's cash reserves. The property is located in the same office park in which the Company previously acquired two office properties and four office/flex properties in November 1995. On January 31, 1997, the Company acquired 65 properties ("RM Properties") of Robert Martin Company, LLC and affiliates ("RM") for a total cost of approximately $450,000. The cost of the transaction (the "RM Transaction") was financed through the assumption of $185,283 of mortgage indebtedness ("TIAA Mortgage"), approximately $220,000 in cash, substantially all of which was obtained from the Company's cash reserves, and the issuance of 1,401,225 Units in the Operating Partnership. The RM Properties consist primarily of 54 office and office/flex properties aggregating approximately 3.7 million square feet and six industrial/warehouse properties aggregating approximately 400,000 square feet. The RM Properties are located primarily in established business parks in Westchester County, New York and Fairfield County, Connecticut. The Company has agreed not to sell certain of the RM Properties for a period of seven years without the consent of the RM principals, except for sales made under certain circumstances and/or conditions. In connection with the RM Transaction, the Company was granted a three-year option to acquire a 115,000 square foot office property and an 84,000 square foot office/flex property (the "Option Properties") for an aggregate minimum price of $19,000 and has granted RM the right to put such properties to the Company between a range of an aggregate purchase price of $11,600 to $21,300, under certain conditions. The purchase prices, under the agreement, are subject to adjustment based on different formulas and are payable in cash or Units. 8 In connection with the RM Transaction, the Company provided an $11,600 mortgage loan ("Mortgage Note Receivable") secured by the Option Properties (see Note 5). As part of the RM Transaction, Brad W. Berger, formerly President and Chief Executive Officer of RM, and Timothy M. Jones, formerly Chief Operating Officer of RM, joined the Company as Executive Vice Presidents under three-year employment agreements. The agreements provided, among other things, that both Berger and Jones be issued warrants to purchase 170,000 shares of the Company's common stock at a price of $33 per share, which vest equally over a three-year period and expire on January 31, 2007. On May 8, 1997, the Company acquired four buildings in the Westlakes Office Park ("Westlakes"), a suburban office complex located in Berwyn, Chester County, Pennsylvania, totaling approximately 444,000 square feet. The properties were acquired for approximately $74,700, which was made available primarily from drawing on one of the Company's credit facilities. On July 21, 1997, the Company acquired two vacant office buildings in the Moorestown Corporate Center, a suburban office complex located in Moorestown, Burlington County, New Jersey. The properties, each consisting of 74,000 square feet, were acquired for approximately $10,200, which was made available from drawing on one of the Company's credit facilities. On August 1, 1997, the Company acquired 1000 Bridgeport Avenue ("Shelton Place"), a 133,000 square-foot office building located in Shelton, Fairfield County, Connecticut. The property was acquired for approximately $15,787, which was made available from drawing on one of the Company's credit facilities. On August 15, 1997, the Company acquired one of the Option Properties, 200 Corporate Boulevard South ("200 Corporate"), an 84,000 square-foot office/flex building located in Yonkers, Westchester County, New York. The property was acquired for approximately $8,078 through the exercise of a purchase option obtained in connection with the RM Transaction. The acquisition cost, net of the mortgage prepayment described below, was financed from the Company's cash reserves. In conjunction with the acquisition of 200 Corporate, the sellers of the property, certain RM principals, prepaid $4,350 of the $11,600 Mortgage Note Receivable between the Company and such RM principals (See Note 5). On September 3, 1997, the Company acquired Three Independence Way ("Three Independence"), a 111,300 square foot suburban office property located in South Brunswick, Middlesex County, New Jersey, for approximately $13,400. The funds were made available from drawing on one of the Company's credit facilities. As of October 31, 1997, the Company's portfolio consists of 132 properties aggregating approximately 12.2 million square feet, consisting primarily of office, office/flex and industrial/warehouse buildings, located in New Jersey, New York, Pennsylvania and Connecticut. On September 18, 1997, the Company entered into a Contribution and Exchange Agreement (the "Agreement") with certain contributing partnerships and other entities affiliated with The Mack Company and Patriot American Office Group (collectively, "The Mack Group"). The Agreement, as amended, provides for, among other things, the Company to acquire 54 office properties, aggregating approximately 9.2 million square feet, (the "Mack Properties") for a total cost of approximately $1,200,000. According to terms of the Agreement, the cost of the transaction (the "Mack Transaction") will be financed through: (i) the assumption of an aggregate of $299,737 in mortgage financing (the "Mack Assumed Debt"); (ii) approximately $469,000 in cash, (using excess proceeds from its October 1997 common stock offering, see Note 11, as well as drawing on the Company's revolving credit facilities); (iii) the issuance of 3,972,318 common units ("Common Units") in the Operating Partnership; (iv) the issuance of 250,256 preferred units ("Preferred Units") in the Operating Partnership convertible into Common Units; and (v) the issuance of two million warrants ("Warrants") to purchase Common Units. A portion of the Common Units may be contingent, non-participating, Common Units, (the "Contingent Units"), which will convert, in whole or in part, into ordinary Common Units upon the satisfaction within two years from the consummation of the transactions contemplated by the Agreement of certain conditions relating to the Mack Properties. Until such conversion, such Contingent Units shall not be entitled to any economic, voting or other rights associated with the participating Common Units. 9 Following completion of the Mack Transaction, the Company's portfolio will consist of 186 properties, primarily office and office/flex buildings, aggregating approximately 21.5 million square feet, located in ten states. Pursuant to the Agreement, the Cali Realty Corporation name will be changed, subject to shareholder approval, to Mack-Cali Realty Corporation, and the name of the Operating Partnership will be changed from Cali Realty, L.P. to Mack-Cali Realty, L.P. If shareholder approval is not obtained, the Company will operate under its new name pursuant to a fictitious name certificate, and continue to obtain shareholder approval in the future. With the completion of the Transaction, the composition of the Company's 13-member Board of Directors will also change. The Mack Group will be permitted to name three designees to the Board, who will be: William Mack, currently Senior Managing Partner of the Mack Company, Mitchell Hersh, currently Partner and Chief Operating Officer of the Mack Company, and Earle Mack, all of whom will be considered "inside" members of the Board because of their relationship with the Company's management. The other inside members of the Board will be John J. Cali, who will remain as Chairman of the Board, Thomas A. Rizk, and Robert Weinberg. The remaining seven independent directors will include three current independent Board members: Brendan Byrne, Irvin Reid and Alan Philibosian; with four new independent members to be selected by Mack and reasonably approved by the Company. It is anticipated that these four new independent members will be Paul A. Nussbaum, Vincent Tese, Jeffrey B. Lane and Martin D. Gruss. In accordance with the Agreement, Thomas A. Rizk will remain Chief Executive Officer and will resign as President of the Company, with Mitchell Hersh being appointed President and Chief Operating Officer. The Company's other existing officers will retain their current positions and responsibilities, except that Brant Cali will resign as Chief Operating Officer and John R. Cali will resign as Chief Administrative Officer. Brant Cali and John R. Cali will remain as officers of the Company as Executive Vice Presidents. Additionally, the Agreement calls for the Company to enter into non-competition agreements with each of William, Earle, David and Frederic Mack, which will restrict the business dealings of such individuals relative to their involvement in commercial real estate activities to those specified in the Agreement. The agreements are to have a term of the later of (a) three years from the completion of the Mack Transaction, or (b) the occurrence of specified circumstances including, but not limited to, the removal of William, Earle, David or Frederic Mack, respectively, from the Company's Board of Directors and a decrease in certain ownership levels. On or before December 12, 1997, the Company may terminate the Agreement for any reason. During the period beginning October 28, 1997 through December 12, 1997, the Mack Group may terminate the Agreement under certain situations and conditions relative to material adverse changes in the activities and stock price of the Company during that period. The completion of the Mack Transaction is subject to certain conditions, including approval by the Company's stockholders. There can be no assurance that the Mack Transaction will be consummated or that the Agreement will not be modified or amended. Subject to the foregoing, the Company expects the Mack Transaction to be completed in or about December 1997. Basis of Presentation The accompanying consolidated financial statements include all accounts of the Company and its majority-owned subsidiaries, which consist principally of the Operating Partnership. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 10 2. SIGNIFICANT ACCOUNTING POLICIES Rental Property Rental properties are stated at cost less accumulated depreciation. Costs include interest, property taxes, insurance and other project costs incurred during the period of construction. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements 5 to 40 years ----------------------------------------------------------------------- Tenant improvements The shorter of the term of the related lease or useful life ----------------------------------------------------------------------- Furniture, fixtures and equipment 5 to 10 years ----------------------------------------------------------------------- On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties may be impaired. A property's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property are less than the carrying value of the property. Management does not believe that the value of any of its real estate properties are impaired. Cash and Cash Equivalents All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. At December 31, 1996, cash and cash equivalents included investments in overnight reverse repurchase agreements ("Overnight Investments") totaling $201,269. Investments in Overnight Investments are subject to the risks that the counter-party will default and the collateral will decline in market value. The Overnight Investments held by the Company at December 31, 1996 matured on January 2, 1997. The entire balance, including interest income earned, was realized by the Company and ultimately used in the funding of the RM Transaction on January 31, 1997. Deferred Financing Costs Costs incurred in obtaining financing are capitalized and amortized on a straight-line basis, which approximates the effective interest method, over the term of the related indebtedness. Amortization of such costs are recorded in interest expense and were $171 and $278 for the three month periods ended September 30, 1997 and 1996, respectively, and $723 and $805 for the nine month periods ended September 30, 1997 and 1996, respectively. Deferred Leasing Costs Costs incurred in connection with leases are capitalized and amortized on a straight-line basis over the terms of the related leases. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease. Revenue Recognition The Company recognizes base rental revenue on a straight-line basis over the terms of the respective leases. Unbilled rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with the lease agreements. Parking revenue includes income from parking spaces leased to tenants. Rental income on residential property under operating leases having terms generally of one year or less is recognized when earned. 11 Income and Other Taxes The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (the "Code"). As a REIT, the Company will not be subject to federal income tax to the extent it distributes at least 95 percent of its REIT taxable income to its shareholders. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates. The Company may be subject to certain state and local taxes. Interest Rate Swap Agreements The Company enters into interest rate swap agreements which are designated as a means of managing interest rate exposure on its variable rate debt. The differential paid or received under these agreements is recognized in interest expense. Earnings Per Share Net income per common share is computed in accordance with APB Opinion No.15, "Earnings per Share," and uses the weighted average common shares outstanding during the period. The weighted average shares outstanding during the three month periods ended September 30, 1997 and 1996 were 36,457,234 and 17,045,063, respectively, and for the nine month periods ended September 30, 1997 and 1996 were 36,468,974 and 15,802,573, respectively. Dividends and Distributions Payable The dividends and distributions payable at September 30, 1997 represents dividends payable to shareholders of record on October 3, 1997 (36,664,322 shares) and distributions payable to minority interest unitholders (4,090,170 Units) on that same date. The third quarter dividends and distributions of $0.50 per share and per Unit were approved by the Board of Directors on September 15, 1997 and were paid on October 17, 1997. Extraordinary Items Extraordinary items represent the effect resulting from the early settlement of certain debt obligations, net of write-off's of related deferred financing costs, prepayment penalties, yield maintenance payments and other related items. Underwriting Commissions and Offering Costs Underwriting commissions and offering costs incurred in connection with the Company's stock offerings are reflected as a reduction of additional paid-in-capital. Stock Options The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. The Company's policy is to grant options with an exercise price equal to the quoted closing market price of the Company's stock on the business day preceding the grant date. Accordingly, no compensation cost has been recognized for the Company's stock option plans. See Note 11 for discussion of stock compensation. Reclassifications Certain reclassifications have been made to prior period balances in order to conform with current period presentation. 12 3. DEFERRED CHARGES AND OTHER ASSETS September 30, December 31, 1997 1996 ---- ---- Deferred leasing costs $ 17,611 $ 14,031 Deferred financing costs 3,559 5,390 - -------------------------------------------------------------------------------- 21,170 19,421 Accumulated amortization (8,667) (8,994) - -------------------------------------------------------------------------------- Deferred charges, net 12,503 10,427 Prepaid expenses and other assets 6,068 1,413 - -------------------------------------------------------------------------------- Total deferred charges and other assets, net $18,571 $ 11,840 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4. RESTRICTED CASH Restricted cash includes security deposits for all of the Company's residential properties and certain commercial properties, and escrow and reserve funds for debt service, real estate taxes, property insurance, capital improvements, tenant improvements, and leasing costs established pursuant to certain mortgage financing arrangements, and is comprised of the following: September 30, December 31, 1997 1996 ---- ---- Escrow and other reserve funds -- $ 2,814 Security deposits $ 5,154 346 - -------------------------------------------------------------------------------- Total restricted cash $ 5,154 $ 3,160 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 5. MORTGAGE NOTE RECEIVABLE In connection with the RM Transaction on January 31, 1997, the Company provided an $11,600 non-recourse mortgage loan to entities controlled by the RM principals, bearing interest at an annual rate of 450 basis points over the one-month London Inter-Bank Offered Rate (LIBOR). The Mortgage Note Receivable, which is secured by the Option Properties and guaranteed by certain of the RM principals, matures on February 1, 2000. In addition, the Company received a three percent origination fee with the Mortgage Note Receivable. In conjunction with the acquisition of 200 Corporate, one of the Option Properties, on August 15, 1997, the sellers of the property, certain RM principals, prepaid $4,350 of the Mortgage Note Receivable, leaving a remaining principal balance of $7,250. The Company also received a prepayment fee of $163. 6. MORTGAGES AND LOANS PAYABLE September 30, December 31, 1997 1996 ---- ---- TIAA Mortgage $ 185,283 -- Harborside Mortgages 150,000 $ 150,000 Mortgage Financing -- 64,508 Fair Lawn Mortgage 18,140 18,445 First Prudential Facility -- 6,000 Bank Facility -- 23,805 Unsecured Facility 230,000 -- Second Prudential Facility 4,005 -- Contingent Obligation 5,630 5,252 - -------------------------------------------------------------------------------- Total mortgages and loans payable $ 593,058 $268,010 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 13 TIAA Mortgage In connection with the RM Transaction, on January 31, 1997, the Company assumed a $185,283 non-recourse mortgage loan with Teachers Insurance and Annuity Association of America ("TIAA"), with interest only payable monthly at a fixed annual rate of 7.18 percent (the "TIAA Mortgage"). The TIAA Mortgage is secured and cross-collateralized by 43 of the RM Properties and matures on December 31, 2003. The Company, at its option, may convert the TIAA Mortgage to unsecured debt upon achievement by the Company of an investment credit rating of Baa3/BBB- or better. The TIAA Mortgage is prepayable in whole or in part subject to certain provisions, including yield maintenance. Harborside Mortgages In connection with the acquisition of Harborside Financial Center ("Harborside"), on November 4, 1996, the Company assumed existing mortgage debt and was provided seller-financed mortgage debt aggregating $150,000. The existing financing, with a principal balance of $105,465 at September 30, 1997, bears interest at a fixed rate of 7.32 percent for a term of approximately nine years. The seller-provided financing, with a principal balance of $44,535 at September 30, 1997, also has a term of nine years and initially bears interest at a rate of 6.99 percent. The interest rate on the seller-provided financing will be reset at the end of the third and sixth loan years based on the yield of the three-year treasury obligation at that time, with spreads of 110 basis points in years four through six and 130 basis points in years seven through maturity. Mortgage Financing Concurrent with the IPO, the Company's initial operating subsidiaries, which own the Company's remaining initial 11 office properties and the initial multi-family residential property, (collectively the "Initial Properties"), issued five-year mortgage notes with an aggregate principal balance of $144,500 secured and cross-collateralized by the Initial Properties to an affiliate ("PSI") of Prudential Securities Inc. PSI then issued commercial mortgage pay-through bonds ("Bonds") collateralized by the mortgage notes. Bonds with an aggregate principal balance of $70,000 were purchased by unrelated third parties. Bonds with an aggregate principal balance of $74,500 were purchased by the Company. As a result, the Company's initial mortgage financing was $70,000 (the "Mortgage Financing"). Approximately $38,000 of the $70,000 was guaranteed under certain conditions by certain partners of the Cali Group partnerships which owned the Initial Properties. The Mortgage Financing required monthly payments of interest only, with all principal and any accrued but unpaid interest due in August 1999. $46,000 of the $70,000 Mortgage Financing bore interest at a net cost to the Company equal to a fixed rate of 8.02 percent per annum and the remaining $24,000 bore interest at a net cost to the Company equal to a floating rate of 100 basis points over one-month LIBOR (5.65625 percent at September 30, 1997) with a lifetime interest rate cap of 11.6 percent. Pursuant to the terms of the Mortgage Financing, the Company was required to escrow $143 per month for tenant improvements and leasing commissions and $53 per month for capital improvements. On March 12, 1996, the Company prepaid $5,492 ($1,687 -- fixed rate debt, $3,805 -- floating rate debt) of the Mortgage Financing, resulting in outstanding balances of $44,313 for the 8.02 percent fixed rate debt and $20,195 for the floating rate debt. On August 12, 1997, the Company prepaid in full the remaining balance and retired the Mortgage Financing from funds made available primarily from drawing on the Unsecured Facility (see below). On account of prepayment fees, loan origination fees, legal fees and other costs incurred in the retirement of the Mortgage Financing, an extraordinary loss of $3,583, net of minority interest's share of the loss ($402) was recorded for the three and nine months ended September 30, 1997. Fair Lawn Mortgage In connection with the acquisition of an office building in Fair Lawn, New Jersey on March 3, 1995, the Company assumed an $18,764 non-recourse mortgage loan ("Fair Lawn Mortgage") collateralized by the property, bearing interest at a fixed rate of 8.25 percent per annum. The loan required payment of interest only through March 15, 1996 and requires payment of principal and interest thereafter, on a 20-year amortization schedule, with the remaining principal balance due October 1, 2003. For the nine months ended September 30, 1997, the Company paid $305 for amortization of principal on the Fair Lawn Mortgage. First Prudential Facility The Company has a $70,000 revolving credit facility (the "First Prudential Facility") with Prudential Securities Credit Corp. ("PSC"), which may be used to fund acquisitions and new development projects and for general working capital 14 purposes, including capital expenditures and tenant improvements. In connection with the Mortgage Financing, the Company obtained a $6,005 letter of credit (the "Letter of Credit"), secured by the First Prudential Facility, to meet certain tenant improvement and capital expenditure reserve requirements. The First Prudential Facility bore interest at a floating rate equal to 150 basis points over one-month LIBOR for January 1, 1996 through August 31, 1996. Effective September 1, 1996, the interest rate was reduced to a floating rate equal to 125 basis points over one-month LIBOR. The First Prudential Facility was a recourse liability of the Operating Partnership and was secured by a pledge of the $74,500 Bonds held by the Company. In conjunction with obtaining the Unsecured Facility (see below), the Company repaid in full and terminated the First Prudential Facility on August 7, 1997. Additionally, the Letter of Credit was canceled in conjunction with prepayment of the Mortgage Financing on August 12, 1997. Bank Facility On February 1, 1996, the Company obtained a credit facility (the "Bank Facility") secured by certain of its properties in the amount of $75,000 from two participating banks. The Bank Facility had a three-year term and bore interest at 150 basis points over one-month LIBOR. The terms of the Bank Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The Bank Facility also required a fee equal to one quarter of one percent of the unused balance payable quarterly in arrears. In conjunction with obtaining the Unsecured Facility (see below), the Company repaid in full and terminated the Bank Facility on August 7, 1997. Second Prudential Facility On November 4, 1996, the Company obtained a revolving credit facility ("Second Prudential Facility") from PSC totaling $80,000 which bears interest at 125 basis points over one-month LIBOR, and matures on January 15, 1998. The Second Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Second Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements. Additionally, on August 12, 1997, the Second Prudential Facility was amended increasing the total commitment from $80,000 to $100,000 and extending the maturity date to August 31, 1998. On October 10, 1997, the Company repaid the $4,005 remaining outstanding balance under the Second Prudential Facility from the Company's cash reserves. Unsecured Facility On August 6, 1997, the Company obtained an unsecured revolving credit facility (the "Unsecured Facility") in the amount of $400,000 from a group of 13 lender banks. The Unsecured Facility has a three-year term and currently bears interest at 125 basis points over one-month LIBOR. Based upon the Company's achievement of an investment grade long-term unsecured debt rating, the interest rate will be reduced, on a sliding scale, and a competitive bid option will become available. The terms of the Unsecured Facility include certain restrictions and covenants which limit, among other things, dividend payments and additional indebtedness and which require compliance with specified financial ratios and other financial measurements. The Unsecured Facility also requires a fee on the unused balance payable quarterly in arrears, at a rate ranging from one-eighth of one percent to one-quarter of one percent of such balance, depending on the level of borrowings outstanding in relation to the total facility commitment. The lending group for the Unsecured Facility includes: Fleet National Bank, The Chase Manhattan Bank, and Bankers Trust Company, as agents; PNC Bank, N.A., Bank of America National Trust and Savings Association, Commerzbank, and First National Bank of Chicago, as co-agents; and Keybank, Summit Bank, Crestar Bank, Mellon Bank, N.A., Signet Bank, and Kredeitbank NV. In conjunction with the Company obtaining the Unsecured Facility, the Company drew funds on the new facility to repay in full and terminate both the First Prudential Facility and the Bank Facility. On October 15, 1997, the Company repaid $160,000 of the outstanding balance on the Unsecured Facility in proceeds received from the Company's common stock offering completed on such date (See Note 11). 15 Contingent Obligation As part of the Harborside acquisition, the Company agreed to make payments (with an estimated net present value of approximately $5,252 at acquisition date) to the seller for development rights ("Contingent Obligation") if and when the Company commences construction on the acquired site during the next several years. However, the agreement provides, among other things, that even if the Company does not commence construction, the seller may nevertheless require the Company to acquire these rights during the six-month period after the end of the sixth year. After such period, the seller's option lapses, but any development in years 7 through 30 will require a payment, on an increasing scale, for the development rights. For the nine months ended September 30, 1997, interest imputed on the Contingent Obligation was capitalized, thereby increasing the balance of the Contingent Obligation to $5,630 as of September 30, 1997. Interest Rate Swap Agreements On May 24, 1995, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement fixes the Company's one-month LIBOR base to a fixed 6.285 percent per annum on a notional amount of $24,000 through August 1999. On January 23, 1996, the Company entered into another interest rate swap agreement with a commercial bank. This swap agreement has a three-year term and a notional amount of $26,000, which fixes the Company's one-month LIBOR base to 5.265 percent. The Company is exposed to credit loss in the event of non-performance by the other parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by either counterparty. Cash Paid for Interest Cash paid for interest for the nine month periods ended September 30, 1997 and 1996 was $26,922 and $8,665, respectively. 7. MINORITY INTEREST Certain individuals and entities own Units in the Operating Partnership. A Unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the Operating Partnership. Minority interest in the accompanying consolidated financial statements relates to Units held by parties other than the Company. Units are redeemable by the unitholders at their option, subject to certain restrictions, on the basis of one Unit for either one share of common stock or cash equal to the fair market value of a share at the time of the redemption. The Company has the option to deliver shares of common stock in exchange for all or any portion of the cash requested. When a unitholder redeems a Unit, minority interest is reduced and the Company's investment in the Operating Partnership is increased. On January 31, 1997, 1,401,225 Units were issued in connection with the RM Transaction. As of September 30, 1997 and December 31, 1996, the minority interest unitholders owned 10.0 and 6.9 percent of the Operating Partnership, respectively. 8. EMPLOYEE BENEFIT PLAN All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a Section 401(k) plan (the "Plan") as defined by the Code. The Plan allows eligible employees to defer up to 15 percent of their annual compensation. The amounts contributed by employees are immediately vested and non-forfeitable. The Company, at management's discretion, may match employee contributions. No employer contributions have been made to date. 16 9. COMMITMENTS AND CONTINGENCIES Tax Abatement Agreements Grove Street Property Pursuant to an agreement with the City of Jersey City, New Jersey, as amended, expiring in 2004, the Company is required to make payments in lieu of property taxes ("PILOT") on its property at 95 Christopher Columbus Drive, Jersey City, Hudson County, New Jersey. Such PILOT, as defined, is $1,267 per annum through May 31, 1999 and $1,584 per annum through May 31, 2004. Harborside Financial Center Property Pursuant to a separate agreement with the City of Jersey City, New Jersey obtained by the former owner of the Harborside property in 1988 and assumed by the Company as part of the acquisition of the property on November 4, 1996, the Company is required to make PILOT payments on its Harborside property. The agreement, which commenced in 1990, are for a term of 15 years. Such PILOT is equal to two percent of Total Project Costs, as defined, in year one and increases by $75 per annum through year fifteen. Total Project Costs, as defined, are $148,712. 10. TENANT LEASES The Properties are leased to tenants under operating leases with various expiration dates through 2020. Substantially all of the leases provide for annual base rents plus recoveries and escalation charges based upon the tenant's proportionate share of and/or increases in real estate taxes and certain operating costs, as defined, and the pass through of charges for electrical usage. 11. STOCKHOLDERS' EQUITY To maintain its qualification as a REIT, not more than 50 percent in value of the outstanding shares of the Company may be owned, directly or indirectly, by five or fewer individuals (defined to include certain entities), applying certain constructive ownership rules. To help ensure that the Company will not fail this test, the Company's Articles of Incorporation provide for, among other things, certain restrictions on the transfer of the common stock to prevent further concentration of stock ownership. Moreover, to evidence compliance with these requirements, the Company must maintain records that disclose the actual ownership of its outstanding common stock and will demand written statements each year from the holders of record of designated percentages of its common stock requesting the disclosure of the beneficial owners of such common stock. On May 13, 1996, the stockholders approved an increase in the authorized shares of common stock in the Company from 25,000,000 to 95,000,000. On July 29, 1996, the Company filed a shelf registration statement with the SEC for an aggregate amount of $500,000 in equity securities of the Company. The registration statement was declared effective by the SEC on August 2, 1996. On August 13, 1996, the Company sold 3,450,000 shares of its common stock through a public stock offering (the "August 1996 Offering"), which included an exercise of the underwriters over-allotment option of 450,000 shares. Net proceeds from the August 1996 Offering (after offering costs) were approximately $76,830. The offering was conducted using one underwriter and the shares were issued from the Company's $250,000 shelf registration statement (File No. 33-96538). Pursuant to the Company's $500,000 shelf registration statement, on November 22, 1996, the Company completed an underwritten public offer and sale of 17,537,500 shares of its common stock using several different underwriters to underwrite such public offer and sale (which included an exercise of the underwriters' over-allotment option of 2,287,500 shares). The Company received approximately $441,215 in net proceeds (after offering costs) from the 17 offering, and used such funds to effect certain of the Company's property acquisitions in November and December 1996, pay down outstanding borrowings on its revolving credit facilities, and investing the excess funds in Overnight Investments. On December 31, 1996, the Company filed a shelf registration statement with the SEC for an aggregate amount of $1,000,000 in equity securities of the Company. The registration statement was declared effective by the SEC on January 7, 1997. On May 15, 1997, the stockholders approved an increase in the authorized shares of common stock in the Company from 95,000,000 to 190,000,000. Pursuant to the Company's $1,000,000 shelf registration statement, on October 15, 1997, the Company completed an underwritten public offer and sale of 13,000,000 shares of its common stock using several different underwriters to underwrite such public offer and sale. The Company received approximately $489,000 in net proceeds (after offering costs) from the offering. The Company used $160,000 of such proceeds to repay outstanding borrowings on its Unsecured Facility and anticipates using the remainder of the proceeds to fund a portion of the purchase price of the Mack Transaction, for other potential acquisitions, and for general corporate purposes. Stock Option Plans In 1994, and as afterwards amended, the Company established the Cali Employee Stock Option Plan ("Employee Plan") and the Cali Director Stock Option Plan ("Director Plan") under which a total of 2,980,188 (subject to adjustment) of the Company's shares of common stock have been reserved for issuance (2,780,188 shares under the Employee Plan and 200,000 shares under the Director Plan). Stock options granted under the Employee Plan in 1994 and 1995 become exercisable over a three-year period and those options granted under the Employee Plan in 1996 and 1997 become exercisable over a five-year period. All stock options granted under the Director Plan become exercisable in one year. All options were granted at the fair market value at the dates of grant and have terms of ten years. 18 Information regarding the Company's stock option plans is summarized below: Employee Director Shares under option: Plan Plan ---------------------------------------- -------- -------- Granted on August 31, 1994 at $15.25-$17.25 per share 600,000 25,000 --------------------------------------------------------------------- Outstanding at December 31, 1994 $15.25 - $17.25 per share 600,000 25,000 Granted at $17.25-$19.875 per share 220,200 10,000 Less - Lapsed or canceled (3,588) -- --------------------------------------------------------------------- Outstanding at December 31, 1995 $15.25 - $19.875 per share 816,612 35,000 Granted at $21.50-$26.25 per share 795,700 14,000 Less - Lapsed or canceled (7,164) -- Exercised at $17.25 per share (116,041) (10,000) --------------------------------------------------------------------- Outstanding at December 31, 1996 $15.25 - $26.25 per share 1,489,107 39,000 Granted at $33.00 per share -- 5,000 Granted at $33.875 per share -- 5,000 Granted at $30.75 per share 171,460 -- Granted at $30.25 per share 148,000 -- Granted at $37.0625 per share 170,720 -- Less - Lapsed or canceled (27,553) -- Exercised at $17.25 - $25.25 per share (143,315) -- --------------------------------------------------------------------- Outstanding at September 30, 1997 $15.25 - $33.875 per share 1,808,419 49,000 --------------------------------------------------------------------- --------------------------------------------------------------------- Exercisable at September 30, 1997 641,254 39,000 --------------------------------------------------------------------- Available for grant at December 31, 1996 175,040 51,000 Available for grant at September 30, 1997 712,413 141,000 --------------------------------------------------------------------- Stock Compensation In January 1997, the Company entered into employment contracts with seven of its key executives which provide for, among other things, compensation in the form of stock awards (the "Stock Award Rights") and Company-financed stock purchase rights (the "Stock Purchase Rights"), and associated tax obligation payments. In connection with the Stock Award Rights, the executives will receive 199,070 shares of the Company's common stock vesting over a five-year period contingent on the Company meeting certain performance objectives. Additionally, pursuant to the terms of the Stock Purchase Rights, the Company provided fixed rate, non-prepayable loans, aggregating $4,750, to such executives to finance their purchase of 152,000 shares of the Company's common stock, which the Company has agreed to forgive ratably over five years. Such loans were for amounts equal to the fair market value of the associated shares at the date of grant. Subsequently, from April 18, 1997 through April 24, 1997, the Company purchased, for constructive retirement, 152,000 shares of its outstanding common stock for $4,680. The excess of the purchase price over par value was recorded as a reduction to additional paid-in capital. Concurrent with this purchase, the Company sold to the Operating Partnership 152,000 Units for $4,680. The value of the Stock Award Rights at September 30, 1997, net of amounts recognized as compensation expense, is recorded as unamortized stock compensation and shown as a separate component of stockholders' equity. Unamortized stock compensation for the Stock Award Rights is amortized to expense as certain performance objectives are reached. Additionally, the balance of the loans related to the Stock Purchase Rights at the grant date, net of amounts recognized as compensation expense, is recorded as unamortized stock compensation and shown as a separate component of stockholders' equity. Unamortized stock compensation is amortized to expense ratably over the five-year vesting period. 19 Included in general and administrative expense for the three and nine month periods ended September 30, 1997 is $778 and $2,257, respectively, relating to the Stock Award Rights and Stock Purchase Rights. 12. IMPACT OF RECENTLY - ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," ("FASB No. 128") which will be effective for periods ending after December 15, 1997. Earlier application is not permitted. FASB No. 128 requires a dual presentation of basic and diluted earnings per share ("EPS") on the face of the income statement for all companies with complex capital structures even where the effect of such dilution is not material. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The Company will adopt FASB No. 128 in its December 31, 1997 financial statements and will restate all prior period EPS information. The Company will continue to account for EPS under APB No. 15 until that time. The following pro forma information presents the Company's results for the periods indicated in accordance with FASB No. 128. For the three month period ended September 30, 1997: Pro Forma Pro Forma Basic EPS Diluted EPS ------------- ----------- Net income (in $000's) $ 14,375 $ 14,375 Add: Net income attributable to potentially dilutive securities -- 1,613 ------------- ----------- $ 14,375 $ 15,988 ------------- ----------- ------------- ----------- Weighted average shares 36,457,234 41,183,798 ------------- ----------- Per Share $ 0.39 $ 0.39 ------------- ----------- ------------- ----------- The following schedule reconciles the shares used in the pro forma basic EPS calculation to the shares used in the pro forma diluted EPS calculation. Pro Forma Basic EPS Shares: 36,457,234 Add: Stock Options 636,394 Add: Operating Partnership Units 4,090,170 ---------- Pro Forma Diluted EPS Shares: 41,183,798 ---------- ---------- 20 For the nine month period ended September 30, 1997: Pro Forma Pro Forma Basic EPS Diluted EPS ----------- ----------- Net income (in $000's) $ 48,859 $ 48,859 Add: Net income attributable to potentially dilutive securities -- 5,261 ----------- ----------- $ 48,859 $ 54,120 ----------- ----------- ----------- ----------- Weighted average shares 36,468,974 41,068,405 ----------- ----------- Per Share $ 1.34 $ 1.32 ----------- ----------- ----------- ----------- The following schedule reconciles the shares used in the pro forma basic EPS calculation to the shares used in the pro forma diluted EPS calculation. Pro Forma Basic EPS Shares: 36,468,974 Add: Stock Options 662,722 Add: Operating Partnership Units 3,936,709 ---------- Pro Forma Diluted EPS Shares: 41,068,405 ---------- ---------- In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FASB No. 130"), which establishes standards for reporting and display of comprehensive income and its components. This statement requires a separate statement to report the components of comprehensive income for each period reported. The provisions of this statement are effective for fiscal years beginning after December 15, 1997. Management believes that they currently do not have items that would require presentation in a separate statement of comprehensive income. In June 1997, the FASB also issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, ("FASB No. 131"), which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and require that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. 13. PRO FORMA FINANCIAL INFORMATION The following pro forma financial information for the three and nine month periods ended September 30, 1997 and 1996 are presented as if the acquisitions and common stock offerings in 1996, the January 1997 RM Transaction, and the 1997 acquisitions of 1345 Campus, Westlakes, Shelton Place, 200 Corporate and Three Independence Way had all occurred on January 1, 1996. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. 21 This pro forma financial information is not necessarily indicative of what the actual results of operations of the Company would have been assuming such transactions had been completed as of January 1, 1996, nor do they represent the results of operations of future periods. Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues $63,226 $57,234 $187,423 $176,319 Operating and other expenses 19,122 18,536 56,676 55,213 General and administrative 3,687 3,602 11,344 9,596 Depreciation and amortization 9,436 9,054 27,601 26,505 Interest expense 9,772 9,841 29,534 29,508 ------- ------- -------- -------- Income before minority interest 21,209 16,201 62,268 55,497 Minority interest 2,140 1,649 6,280 5,661 ------- ------- -------- -------- Net income $19,069 $14,552 $ 55,988 $ 49,836 ------- ------- -------- -------- ------- ------- -------- -------- Net income per common share $ 0.52 $ 0.40 $ 1.54 $ 1.38 ------- ------- -------- -------- 22 CALI REALTY CORPORATION AND SUBSIDIARIES Item 2: M A N A G E M E N T' S D I S C U S S I O N A N D A N A L Y S I S O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S The following discussion should be read in conjunction with the Consolidated Financial Statements of Cali Realty Corporation and the notes thereto. The following comparisons for the three and nine month periods ended September 30, 1997 ("1997"), as compared to the three and nine month periods ended September 30, 1996 ("1996") make reference to the following: (i) the effect of the "Pre-Acquisition Properties," which represents all properties owned by the Company at June 30, 1996 (for the three-month period comparisons), and which represents all properties owned by the Company at December 31, 1995 (for the nine-month period comparisons), (ii) the effect of the "Acquired Properties," which represents all properties acquired by the Company from July 1, 1996 through September 30, 1997, excluding RM (for the three-month period comparisons), and represents all properties acquired by the Company from January 1, 1996 through September 30, 1997, excluding RM (for the nine-month period comparisons), (iii) the effect of the "Disposition," which refers to the Company's sale of its Essex Road property on March 20, 1996, and (iv) the effect of the acquisition of the RM Properties on January 31, 1997. Three Months Ended September 30, 1997 Compared to Three Months Ended September 30, 1996 Total revenues increased $40.1 million, or 178.0 percent, for the three months ended September 30, 1997 over the same period in 1996. Base rents increased $33.7 million, or 182.8 percent, of which an increase of $17.7 million, or 95.9 percent, was attributable to the Acquired Properties, an increase of $15.9 million, or 86.6 percent, due to the RM Properties, and an increase of $0.1 million, or 0.3 percent, due to occupancy changes at the Pre-Acquisition Properties. Escalations and recoveries increased $4.8 million, or 139.7 percent, of which an increase of $3.2 million, or 92.6 percent, was attributable to the Acquired Properties, an increase of $1.3 million, or 38.0 percent, due to the RM Properties, and an increase of $0.3 million, or 9.1 percent, due to occupancy changes at the Pre-Acquisition Properties. Total expenses for the three months ended September 30, 1997 increased $27.8 million, or 186.6 percent, as compared to the same period in 1996. Real estate taxes increased $4.4 million, or 200.9 percent, for 1997 over 1996, of which an increase of $1.8 million, or 82.9 percent, was attributable to the Acquired Properties, an increase of $2.5 million, or 111.7 percent, due to the RM Properties, and an increase of $0.1 million, or 6.3 percent, attributable to the Pre-Acquisition Properties. Additionally, operating services increased $4.7 million, or 177.4 percent, and utilities increased $2.8 million, or 127.8 percent, for 1997 over 1996. The aggregate increase in operating services and utilities of $7.5 million, or 154.7 percent, consists of $4.0 million, or 81.7 percent, attributable to the Acquired Properties, an increase of $3.6 million, or 75.2 percent, due to the RM Properties, offset by a decrease of $0.1 million, or 2.2 percent, attributable to the Pre-Acquisition Properties. General and administrative expense increased $2.3 million, or 168.1 percent, of which $0.7 million, or 49.5 percent, is attributable to additional costs related to the RM Properties and $1.6 million, or 118.6 percent, is due primarily to an increase in payroll and related costs as a result of the Company's expansion in late 1996 and early 1997. Depreciation and amortization increased $5.9 million, or 169.2 percent, for 1997 over 1996, of which $2.9 million, or 84.2 percent, relates to depreciation on the Acquired Properties, an increase of $2.8 million, or 79.9 percent, attributable to the RM Properties, and an increase of $0.2 million, or 5.1 percent, due to the Pre-Acquisition Properties. Interest expense increased $7.7 million, or 256.6 percent, for 1997 over 1996, of which $3.3 million, or 110.9 percent, was attributable to the TIAA Mortgage, $2.7 million, or 90.9 percent, due to the Harborside Mortgages, and an increase of $3.7 million, or 121.5 percent, due to net additional drawings from the Company's credit facilities as a result of Company acquisitions, as well as changes in LIBOR, offset by a decrease of $2.0 million, or 66.7 percent, due to the August 1997 prepayment of the Mortgage Financing. 23 Income before gain on sale of rental property, minority interest, and extraordinary items increased to $20.0 million in 1997 from $7.7 million in 1996. The increase of $12.3 million was due to the factors discussed above. Net income increased $7.8 million for the three months ended September 30, 1997 from $6.6 million in 1996 to $14.4 million in 1997, as a result of the increase in income before gain on sale of rental property, minority interest and extraordinary items of $12.3 million, offset by the recognition in 1997 of an extraordinary loss of $3.6 million (net of minority interest), and an increase in minority interest of $0.9 million in 1997 from 1996. Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30, 1996 Total revenues increased $112.2 million, or 177.8 percent, for the nine months ended September 30, 1997 over the same period in 1996. Base rents increased $93.6 million, or 181.0 percent, of which an increase of $50.5 million, or 97.6 percent, was attributable to the Acquired Properties, an increase of $42.3 million, or 81.9 percent, due to the RM Properties, and an increase of $1.1 million, or 2.0 percent, due to occupancy changes at the Pre-Acquisition Properties, offset by a decrease of $0.3 million or 0.5 percent, as a result of the Disposition. Escalations and recoveries increased $12.8 million, or 132.9 percent, of which an increase of $9.0 million, or 93.5 percent, was attributable to the Acquired Properties, an increase of $3.4 million, or 35.2 percent, due to the RM Properties, and an increase of $0.4 million, or 4.2 percent, due to occupancy changes at the Pre-Acquisition Properties. Total expenses for the nine months ended September 30, 1997 increased $74.6 million, or 174.9 percent, as compared to the same period in 1996. Real estate taxes increased $12.2 million, or 191.9 percent, for 1997 over 1996, of which an increase of $5.3 million, or 83.8 percent, was attributable to the Acquired Properties, an increase of $6.6 million, or 103.8 percent, due to the RM Properties, and an increase of $0.4 million, or 5.1 percent, attributable to the Pre-Acquisition Properties, offset by a decrease of $0.1 million, or 0.8 percent, as a result of the Disposition. Additionally, operating services increased $13.1 million, or 164.8 percent, and utilities increased $7.0 million, or 118.0 percent, for 1997 over 1996. The aggregate increase in operating services and utilities of $20.1 million, or 144.7 percent, consists of $11.4 million, or 81.9 percent, attributable to the Acquired Properties, and an increase of $9.4 million, or 67.6 percent, due to the RM Properties, offset by a decrease of $0.2 million, or 1.2 percent, as a result of the Disposition, and a decrease of $0.5 million, or 3.6 percent, attributable to the Pre-Acquisition Properties. General and administrative expense increased $7.2 million, or 209.3 percent, of which $1.9 million, or 55.0 percent, is attributable to additional costs related to the RM Properties and $5.3 million, or 154.3 percent, due primarily to an increase in payroll and related costs as a result of the Company's expansion in late 1996 and early 1997. Depreciation and amortization increased $15.8 million, or 160.2 percent, for 1997 over 1996, of which $8.2 million, or 83.6 percent, relates to depreciation on the Acquired Properties, an increase of $7.2 million, or 72.7 percent, attributable to the RM Properties, and an increase of $0.5 million, or 4.7 percent, due to the Pre-Acquisition Properties, offset by a decrease of $0.1 million, or 0.8 percent, related to the Disposition. Interest expense increased $19.3 million, or 212.3 percent, for 1997 over 1996, of which $8.8 million, or 97.5 percent, was attributable to the TIAA Mortgage, $8.2 million, or 89.7 percent, due to the Harborside Mortgages, and an increase of $4.5 million, or 48.8 percent, due to net additional drawings from the Company's credit facilities as a result of Company acquisitions as well as changes in LIBOR, offset by a decrease of $0.1 million, or 0.6 percent, related to the March 1996 partial prepayment of the Mortgage Financing, and a decrease of $2.1 million, or 23.1 percent, due to the August 1997 prepayment of the Mortgage Financing. Income before gain on sale of rental property, minority interest, and extraordinary items increased to $58.1 million in 1997 from $20.5 million in 1996. The increase of $37.6 million was due to the factors discussed above. Net income increased $27.1 million for the nine months ended September 30, 1997 from $21.8 million in 1996 to $48.9 million in 1997, as a result of the increase in income before gain on sale of rental property, minority interest and extraordinary items of $37.6 million and the recognition in 1996 of an extraordinary loss of $0.5 million (net of minority interest), offset by the recognition in 1997 of an extraordinary loss of $3.6 million (net of minority interest), the gain on sale of rental property of $5.7 million recognized in 1996, and an increase in minority interest of $1.7 million in 1997 over 1996. 24 Liquidity and Capital Resources Statement of Cash Flows During the nine months ended September 30, 1997, the Company generated $82.9 million in cash flows from operating activities, and together with $410.1 million in borrowings from the Company's credit facilities, $2.7 million of proceeds from stock options exercised, $201.4 million from the Company's cash reserves, and $2.8 million from restricted cash, used an aggregate of $699.9 million to (i) purchase 75 rental properties and other tenant improvements and building improvements for $357.0 million, (ii) pay $11.6 million for a Mortgage Note Receivable, (iii) pay quarterly dividends and distributions of $54.1 million, (iv) pay the amortization on mortgage principal of $0.3 million, (v) repay outstanding borrowings on its credit facilities by $270.4 million, (vi) repurchase 152,000 shares of the Company's common stock for $4.7 million, and (vii) pay debt prepayment and other costs of $1.8 million. Capitalization On January 23, 1996, the Company entered into an interest rate swap agreement with a commercial bank. The swap agreement has a three-year term and a notional amount of $26 million, which fixes the Company's one-month LIBOR base to 5.265 percent. On February 1, 1996, the Company obtained a credit facility (the "Bank Facility") secured by certain of its properties in the amount of $75 million from two participating banks. The Bank Facility had a three-year term and bore interest at 150 basis points over one-month LIBOR. The terms of the Bank Facility included certain restrictions and covenants which limited, among other things, dividend payments and additional indebtedness and which required compliance with specified financial ratios and other financial measurements. The Bank Facility also required a fee equal to one quarter of one percent of the unused balance payable quarterly in arrears. In conjunction with obtaining the Unsecured Facility, the Company repaid in full and terminated the Bank Facility on August 7, 1997. On July 29, 1996, the Company filed a shelf registration statement (File No. 333-09081) with the Securities and Exchanges Commission ("SEC") for an aggregate amount of $500 million in equity securities of the Company. The registration statement was declared effective by the SEC on August 2, 1996. On August 13, 1996, the Company sold 3,450,000 shares of its common stock through a public stock offering (the "August 1996 Offering"), which included an exercise of the underwriters' over-allotment option of 450,000 shares. Net proceeds from the August 1996 Offering (after offering costs) were approximately $76.8 million. The offering was conducted using one underwriter and the shares were issued from the Company's $250 million shelf registration statement (File No. 33-96538). On November 4, 1996, the Company obtained a revolving credit facility ("Second Prudential Facility") from PSC totaling $80 million which bears interest at 125 basis points over one-month LIBOR, and matures on January 15, 1998. The Second Prudential Facility is a recourse liability of the Operating Partnership and is secured by the Company's equity interest in Harborside. The terms of the Second Prudential Facility include certain restrictions and covenants that limit, among other things, dividend payments and additional indebtedness and that require compliance with specified financial ratios and other financial measurements. On August 7, 1997, the Company repaid in full the outstanding balance under the Second Prudential Facility with funds drawn from the Unsecured Facility. Additionally, on August 12, 1997, the Second Prudential Facility was amended increasing the total commitment from $80 million to $100 million and extending the maturity date to August 31, 1998. In addition, on November 4, 1996, the Company assumed existing debt and was provided seller-financed mortgage debt aggregating $150 million (as more fully described in Note 6). Pursuant to the Company's $500 million shelf registration statement (File No. 333-09081), on November 22, 1996, the Company completed an underwritten public offer and sale of 17,537,500 shares of its common stock using several different underwriters to underwrite such public offer and sale (which included an exercise of the underwriters' over-allotment option of 2,287,500 shares). The Company received approximately $441.2 million in net proceeds (after offering costs) from the offering, and used such funds to acquire certain of the Company's property acquisitions in 25 November and December 1996, pay down outstanding borrowings on its revolving credit facilities, and investing the excess funds in Overnight Investments. On December 31, 1996, the Company filed a shelf registration statement with the SEC for an aggregate amount of $1 billion in equity securities of the Company. The registration statement was declared effective by the SEC on January 7, 1997. On May 15, 1997, the stockholders approved an increase in the authorized shares of common stock in the Company from 95 million to 190 million. In connection with the RM Transaction on January 31, 1997, the Company assumed a $185.3 million non-recourse mortgage loan with TIAA (as more fully described in Note 6). From April 18, 1997 through April 24, 1997, the Company purchased, for constructive retirement, 152,000 shares of its outstanding common stock for $4.7 million. Concurrent with this purchase, the Company sold to the Operating Partnership 152,000 Units for $4.7 million. On August 6, 1997, the Company obtained an unsecured revolving credit facility (the "Unsecured Facility") in the amount of $400 million from a group of 13 lender banks. The Unsecured Facility has a three-year term and currently bears interest at 125 basis over one-month LIBOR. Based upon the Company's achievement of an investment grade long-term unsecured debt rating, the interest rate will be reduced, on a sliding scale, and a competitive bid option will become available. The lending group for the Unsecured Facility includes: Fleet National Bank, The Chase Manhattan Bank, and Bankers Trust Company, as agents; PNC Bank, N.A., Bank of America National Trust and Savings Association, Commerzbank, and First National Bank of Chicago, as co-agents; and Keybank, Summit Bank, Crestar Bank, Mellon Bank, N.A., Signet Bank, and Kredeitbank NV. In conjunction with the Company obtaining the Unsecured Facility, the Company drew funds on the new facility to repay in full and terminate both the First Prudential Facility and the Bank Facility. The Company drew an additional $70 million to repay in full the outstanding balance under the Second Prudential Facility. As of August 12, 1997, the Company's two remaining revolving credit facilities consist of the Unsecured Facility and the Second Prudential Facility. On August 12, 1997, the Company prepaid in full and retired the secured Mortgage Financing from funds made available primarily from drawing on the Unsecured Facility. Following this secured debt prepayment, the Company has four secured mortgage debt instruments remaining; the $185.3 million TIAA Mortgage, the two mortgages comprising the $150 million in Harborside Mortgages, and the $18.2 million Fair Lawn Mortgage. As of October 31, 1997, the Company has 85 unencumbered properties totaling 7.2 million square feet, representing 58 percent of the Company's portfolio. On September 18, 1997, the Company entered into a Contribution and Exchange Agreement (the "Agreement") with certain contributing partnerships and other entities affiliated with The Mack Company and Patriot American Office Group (collectively, "The Mack Group"). The Agreement provides for, among other things, the Company to acquire 54 office properties, aggregating approximately 9.2 million square feet, (the "Mack Properties") for a total cost of approximately $1.2 billion. According to terms of the Agreement, the cost of the transaction (the "Mack Transaction") will be financed through: (i) the assumption of an aggregate of $299.7 million in mortgage financing (the "Mack Assumed Debt"); (ii) approximately $469.0 million in cash (using excess proceeds from its October 1997 common stock offering, see Note 11, as well as drawing on the Company's revolving credit facilities); (iii) the issuance of 3,972,318 Common Units in the Operating Partnership, a portion of which may be Contingent Units; (iv) 26 the issuance of 250,256 Preferred Units in the Operating Partnership convertible into Common Units; and (v) the issuance of two million Warrants to purchase Common Units. Pursuant to the Company's $1 billion shelf registration statement, on October 15, 1997, the Company completed an underwritten public offer and sale of 13 million shares of its common stock using several different underwriters to underwrite such public offer and sale. The Company received approximately $489 million in net proceeds (after offering costs) from the offering, the Company used $160 million of such proceeds to repay outstanding borrowings on its Unsecured Facility, while the Company anticipates using the remainder of the proceeds to fund a portion of the purchase price of the Mack Transaction, for other potential acquisitions, and for general corporate purposes. Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures. Management believes that the Company will have access to the capital resources necessary to expand and develop its business. To the extent that the Company's cash flow from operating activities is insufficient to finance its non-recurring capital expenditures such as property acquisition costs and other capital expenditures, the Company expects to finance such activities through borrowings under its credit facilities and other debt and equity financing. The Company expects to meet its short-term liquidity requirements generally through its working capital and net cash provided by operating activities, along with the Second Prudential Facility and the Unsecured Facility. The Company is frequently examining potential property acquisitions and, at any one given time, one or more of such acquisitions may be under consideration. Accordingly, being able to fund property acquisitions is a major part of the Company's financing requirements. The Company expects to meet its financing requirements through funds generated from operating activities, long-term or short term borrowings (including draws on the Company's credit facilities) and the issuance of debt securities or additional equity securities. In addition, the Company anticipates utilizing the Second Prudential Facility and the Unsecured Facility primarily to fund property acquisition activities. The Company does not intend to reserve funds to retire the existing TIAA Mortgage and Harborside Mortgages, indebtedness under the credit facilities or other mortgages and loans payable upon maturity. Instead, the Company will seek to refinance such debt at maturity or retire such debt through the issuance of additional equity securities. The Company anticipates that its available cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and other sources, will be adequate to meet the Company's capital and liquidity needs both in the short and long-term. However, if these sources of funds are insufficient or unavailable, the Company's ability to make the expected distribution discussed below may be adversely affected. To maintain its qualification as a REIT, the Company must make annual distributions to its stockholders of at least 95 percent of its REIT taxable income, excluding the dividends paid deduction and net capital gains. Moreover, the Company intends to continue to make regular quarterly distributions to its stockholders which, based upon current policy, in the aggregate would equal approximately $99.3 million on an annualized basis. However, any such distribution, whether for federal income tax purposes or otherwise, would only be paid out of available cash after meeting both operating requirements and scheduled debt service on mortgages and loans payable and required annual capital expenditure reserves pursuant to its mortgage indenture. Funds from Operations The Company considers Funds from Operations, after adjustment for straight-lining of rents, one measure of REIT performance. Funds from Operations is defined as net income (loss) before minority interest of unitholders, computed in accordance with Generally Accepted Accounting Principles, excluding gains (or losses) from debt restructuring and sales of property, plus real estate-related depreciation and amortization. Funds from Operations should not be considered as an alternative to net income as an indication of the Company's performance or to cash flows as a measure of liquidity. 27 Funds from Operations for the three and nine month periods ended September 30, 1997 and 1996, as calculated in accordance with the National Association of Real Estate Investment Trusts' definition published in March 1995, are summarized in the following table (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------- ------- ------- ------- Income before gain on sale of rental property, minority interest, and extraordinary item $19,973 $ 7,644 $58,105 $20,465 Add: Real estate-related depreciation and amortization 9,327 3,456 25,592 9,811 ------- ------- ------- ------- Funds from Operations 29,300 11,100 83,697 30,276 Deduct: Rental income adjustment for straight-lining of rents (1,969) (29) (5,913) (233) ------- ------- ------- ------- Funds from Operations after adjustment for straight-lining of rents $27,331 $11,071 $77,784 $30,043 ------- ------- ------- ------- ------- ------- ------- ------- Weighted average shares outstanding(1) 40,547 19,744 40,406 18,519 ------- ------- ------- ------- (1) Assumes redemption of all Units, calculated on a weighted average basis, for shares of Common stock in the Company. Inflation The Company's leases with the majority of its tenants provide for recoveries and escalation charges based upon the tenant's proportionate share of and/or increases in real estate taxes and certain operating costs, which reduce the Company's exposure to increases in operating costs resulting from inflation. 28 CALI REALTY CORPORATION Part II -- Other Information Item 6 - Exhibits The following exhibit is filed herewith: Exhibit 10.99 Purchase and Sale Agreement between Shelton Place Limited Partnership, as Seller, and Cali Realty Acquisition Corporation, as Purchaser, dated July 23, 1997. Exhibit 27 Financial Data Schedule 29 CALI REALTY CORPORATION 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. Cali Realty Corporation (Registrant) Date: November 7, 1997 /s/ Thomas A. Rizk ------------------------------- Thomas A. Rizk President and Chief Executive Officer (signing on behalf of the Registrant) Date: November 7, 1997 /s/ Barry Lefkowitz ------------------------------- Barry Lefkowitz Chief Financial Officer 30