<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1994 Commission file number 0-18694
CATELLUS DEVELOPMENT
CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2953477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Mission Street,
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(415) 974-4500
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 ___
As of October 15, 1994, there were 72,967,236 issued and outstanding
shares of the registrant's common stock, $.01 par value per share.
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<PAGE> 2
CATELLUS DEVELOPMENT CORPORATION
INDEX
<TABLE>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet - Historical Cost Basis
at September 30, 1994 and December 31, 1993 . . . . . 2
Consolidated Statement of Income - Historical
Cost Basis for the three months and nine months
ended September 30, 1994 and 1993 . . . . . . . . . . 3
Condensed Consolidated Statement of Cash Flows -
Historical Cost Basis for the nine months ended
September 30, 1994 and 1993 . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial Statements . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
1
<PAGE> 3
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET - HISTORICAL COST BASIS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Developable properties . . . . . . . . . . . . . $ 621,013 $ 592,497
Income producing properties . . . . . . . . . . . 553,534 552,387
Surplus developable properties . . . . . . . . . 71,172 75,078
Agricultural and other properties . . . . . . . . 12,882 12,198
Less accumulated depreciation . . . . . . . . . . (154,861) (140,328)
----------- ----------
1,103,740 1,091,832
Other assets and deferred charges . . . . . . . . 51,988 51,207
Notes receivable . . . . . . . . . . . . . . . . 8,742 9,579
Accounts receivable, less allowances . . . . . . . 9,494 7,195
Restricted cash and investments . . . . . . . . . - 67,410
Cash and cash equivalents . . . . . . . . . . . . 70,774 146,604
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . $ 1,244,738 $ 1,373,827
=========== ===========
Liabilities and stockholders' equity
Mortgage and other debt . . . . . . . . . . . . $ 535,492 $ 663,764
Accounts payable and accrued expenses . . . . . . 40,257 47,585
Deferred credits and other liabilities . . . . . 25,102 22,200
Deferred income taxes . . . . . . . . . . . . . . 122,695 114,329
Stockholders' equity
Preferred stock - $0.01 par value;
50,000,000 shares authorized; 3,449,999
$3.75 Series A cumulative convertible
shares and 3,000,000 $3.625 Series B
cumulative convertible exchangeable shares
shares outstanding . . . . . . . . . . . . . . 322,500 322,500
Common stock - $0.01 par value;
150,000,000 shares authorized; 72,967,236
shares outstanding . . . . . . . . . . . . . 730 730
Paid-in capital . . . . . . . . . . . . . . . . 244,151 244,151
Accumulated deficit . . . . . . . . . . . . . . (46,189) (41,432)
----------- -----------
Total stockholders' equity . . . . . 521,192 525,949
----------- -----------
Total . . . . . . . . . . . . . . $ 1,244,738 $ 1,373,827
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF INCOME - HISTORICAL COST BASIS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ----------------------
1994 1993 1994 1993
--------- -------- -------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Property sales . . . . . $33,387 $ 4,800 $ 50,963 $ 17,897
Rental
Commercial and industrial 24,810 26,688 75,870 79,741
Agricultural and other 225 491 670 997
Interest income . . . . . 888 902 2,712 2,664
Equity in earnings (losses) of
joint ventures . . . . 527 (748) 6,763 800
Other -- net . . . . . . 1,010 1,830 6,398 3,237
------- -------- -------- --------
60,847 33,963 143,376 105,336
------- -------- -------- --------
Costs and expenses
Cost of property sold . . 26,096 4,373 38,531 10,979
Operating and maintenance 6,988 7,466 20,971 22,610
Depreciation . . . . . . 6,362 7,001 19,390 20,554
General and administrative 3,617 2,663 10,901 8,657
Taxes other than income . 4,422 4,836 13,686 14,996
Interest . . . . . . . . 5,499 11,393 18,002 33,349
------- -------- -------- --------
52,984 37,732 121,481 111,145
------- -------- -------- -------
Non-recurring expenses
Reserve for litigation costs - (8,300) - (8,300)
Conversion of debenture - - - (29,552)
------- -------- -------- -------
- (8,300) - (37,852)
------- -------- -------- -------
Income (loss) before taxes 7,863 (12,069) 21,895 (43,661)
Income taxes (benefit) . . 2,828 (1,925) 8,793 (4,129)
------- -------- -------- ------
Net income (loss) . . . . . $ 5,035 $(10,144) $ 13,102 $(39,532)
Preferred stock dividends 5,953 3,235 17,859 9,847
------- -------- -------- --------
Net loss applicable to
common stockholders $ (918) $(13,379) $ (4,757) $(49,379)
======= ======== ======== =======
Net loss per share of
common stock . . . . . $ (.01) $ (.18) $ (.07) $ (.70)
======= ======== ======== ========
Average number of
common shares 72,967 72,967 72,967 70,115
======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
CATELLUS DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - HISTORICAL COST BASIS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1994 1993
-------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . $ 13,102 $(39,532)
Non-cash items included in net income (loss):
Non-recurring expense related to conversion of debenture - 29,552
Non-recurring expense related to litigation costs - 8,300
Depreciation . . . . . . . . . . . . . . . 19,390 20,554
Deferred income taxes . . . . . . . . . . 8,366 (4,129)
Interest accrued on convertible debenture - 1,665
Amortization of deferred loan fees and other costs 2,166 3,722
Equity in earnings of joint ventures . . . (6,763) (800)
Cost of land sold . . . . . . . . . . . . 10,347 5,366
Gain on sale of income producing properties (3,201) (366)
Other--net . . . . . . . . . . . . . . . . 3,023 3,412
Changes in operating assets and liabilities (2,748) (1,283)
-------- --------
Net cash provided by operating activities . . 43,682 26,461
-------- --------
Cash flows from investing activities:
Capital expenditures for developable and
income producing properties . . . . . . . (58,953) (44,068)
Net proceeds from sale of income producing properties 27,818 1,404
Distributions from/contributions to joint ventures, net 955 505
Changes in notes receivables, net . . . . . 374 50
-------- --------
Net cash used for investing activities . . . (29,806) (42,109)
-------- --------
Cash flows from financing activities:
Borrowings . . . . . . . . . . . . . . . . 322,890 10,064
Repayment of borrowings . . . . . . . . . . (451,760) (75,303)
Dividends paid . . . . . . . . . . . . . . (18,191) (6,612)
Proceeds from issuance of preferred stock . - 172,500
Stock issuance costs . . . . . . . . . . . (55) (7,538)
Investment in restricted cash for future reduction of debt 67,410 (50,543)
Redemption premium on early retirement of debt (10,000) -
------- -------
Net cash provided by (used for) financing activities (89,706) 42,568
------- ------
Net increase (decrease) in cash and cash equivalents (75,830) 26,920
Cash and cash equivalents at beginning of period 146,604 14,730
-------- --------
Cash and cash equivalents at end of period . $ 70,774 $ 41,650
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) . . . $ 17,027 $ 27,508
Income taxes . . . . . . . . . . . . . . . $ 18 $ 38
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
NOTE 1. DESCRIPTION OF BUSINESS
Catellus Development Corporation (the Company) is a diversified real
estate company which owns substantial property interests, principally in
California and in 10 other states in the West, Southwest and Midwest. The
Company develops and manages its income producing properties which consist
primarily of industrial facilities and a limited number of office and retail
buildings located in California, Illinois and Texas. The Company has
substantial undeveloped land holdings primarily in California, Texas, New
Mexico and Utah.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying condensed consolidated financial statements should be
read in conjunction with the Company's 1993 Annual Report on Form 10-K (the
Form 10-K) filed with the Securities and Exchange Commission. In the opinion
of management, the accompanying financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows
for the interim periods.
The Form 10-K includes a supplemental current value basis balance sheet
in addition to historical cost basis financial statements. The current value
basis balance sheet will continue to be an integral part of the Company's
annual report to stockholders. However, the extensive market research,
financial analysis and testing of results required to produce reliable current
value information make it impractical to report this information on an interim
basis.
NOTE 3. CAPITAL STRUCTURE
Prior to December 29, 1989, the Company was wholly owned by Santa Fe
Pacific Corporation (SFP). On December 29, 1989, the Company issued 19.9% of
its common stock to Bay Area Real Estate Investment Associates L.P. (BAREIA)
for $398 million cash. In connection with the stock issuance, BAREIA also
purchased from the Company, at par, a $75 million convertible debenture (the
Debenture). BAREIA is a California limited partnership whose general partner
is JMB/Bay Area Partners and whose limited partner is the California Public
Employees Retirement System. On December 4, 1990, SFP distributed, in the
form of a stock dividend, its remaining 80.1% interest in the Company to its
stockholders.
On February 11, 1993, BAREIA converted the Debenture (which then had an
accreted value of $111.4 million) into common stock with a value of $141
million. This is treated as a non-cash item in the statement of cash flows.
After the conversion, BAREIA owned 40.7% of the outstanding common stock. At
that time, the Company incurred a non-recurring, non-cash expense of $29.6
million ($28.3 million, net of income tax benefit), representing the excess of
the value of the common stock issued over the accreted value of the Debenture
at the date of conversion. Concurrently with the conversion of the Debenture,
the Company issued 3,449,999 shares (of a total 3,500,000 authorized) of $3.75
Series A Cumulative Convertible Preferred Stock (Series A preferred stock) for
$172.5 million, of which BAREIA purchased 1,405,702 shares (approximately
40.7% of the total). The Series A preferred stock has an annual dividend of
$3.75 per share, a stated value of $50 per share and a liquidation preference
of $50 per share plus accrued and unpaid dividends. It is convertible into
common stock at a price of $9.06 per share, subject to adjustment in certain
events. It is also redeemable, at the option of the Company, at any time
after February 16, 1996, at $52.625 per share and thereafter at prices
declining to $50 per share on or after February 16, 2003.
5
<PAGE> 7
The net proceeds of the Series A preferred stock issuance were used to
repay $69 million of the working capital facility and to invest $50 million in
securities to be held for the benefit of The Prudential Insurance Company of
America (Prudential) and committed to the paydown and refinancing of the
Company's $388.2 million first mortgage loan from Prudential (Note 5). The
balance of the proceeds were invested in short-term marketable securities.
On November 4, 1993, the Company sold, in a private placement,
3,000,000 shares (of a total 4,600,000 authorized) of $3.625 Series B
Cumulative Convertible Exchangeable Preferred Stock (Series B preferred stock)
for $150 million. The Series B preferred stock has an annual dividend of
$3.625 per share, a stated value of $50 per share and a liquidation preference
of $50 per share plus accrued and unpaid dividends. It is convertible into
the Company's common stock at a price of $9.80 per share, subject to
adjustment in certain events. The Series B preferred stock is exchangeable,
at the Company's option, at any time after November 15, 1995, into 7.25%
Convertible Subordinated Debentures due November 15, 2018, at a rate of $50
principal amount of debentures for each share of Series B preferred stock. It
is also redeemable, at the option of the Company, at any time after November
15, 1996, at $52.5375 per share and thereafter at prices declining to $50 per
share on or after November 15, 2003. The proceeds of the Series B preferred
stock issuance have been and will be used to repay debt that matures in 1994
through 1997 and for general corporate purposes.
NOTE 4. EARNINGS PER SHARE
Net income (loss) per share of common stock is computed by dividing net
income (loss), after reduction for preferred stock dividends, by the weighted
average number of shares of common stock outstanding during the period. Fully
diluted earnings per share amounts have not been presented because conversion
of the Series A and Series B preferred stock would be anti-dilutive during the
periods presented.
NOTE 5. MORTGAGE AND OTHER DEBT
Mortgage and other debt at September 30, 1994 and December 31, 1993 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---------------- -------------
<S> <C> <C>
First mortgage loan - Prudential $276,555 $388,150
First mortgage loans 115,470 118,457
Term loan - unsecured 22,000 22,000
Construction loans - secured 32,944 46,968
Intermediate term loans - secured 63,141 69,045
Other mortgage loans 399 463
Assessment district bonds 24,983 18,681
-------- --------
Total mortgage and other debt $535,492 $663,764
======== ========
Due in one year $ 68,210 $313,427
======== ========
</TABLE>
The Company refinanced its $388.2 million loan from Prudential on
February 18, 1994 into a $280 million mortgage loan due March 1, 2004 and
bearing an average interest rate of 8.71%. The new loan reflects a paydown of
$108.2 million, of which $81 million was required to meet current loan
underwriting standards and $27.2 million was paid to release selected
properties as security for the loan. In connection with this refinancing, the
Company recorded an extraordinary expense in the fourth quarter of 1993 of
$11.9 million ($7.4 million, net of income tax benefits). This extraordinary
expense consisted primarily of a redemption premium paid to Prudential and the
write-off of deferred financing costs associated with the $388.2 million loan.
6
<PAGE> 8
The revolving period of the Company's $75 million construction facility
expired on March 31, 1994. The Company is in discussions with the lender and
anticipates that this facility will be renewed. During the past six months,
the Company has financed current construction projects through individual
construction loans. If the construction facility is not renewed, the Company
expects that it would finance future construction projects through individual
construction loans, available cash or other means.
Interest costs relating to mortgage and other debt for the three and
nine months ended September 30, 1994 and 1993 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------- -------------------------------
1994 1993 1994 1993
------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expensed $ 5,499 $11,393 $18,002 $33,349
Interest capitalized 6,509 5,841 18,384 19,493
------ ------ ------- -------
Total interest cost $12,008 $17,234 $36,386 $52,842
======= ======= ======= =======
</TABLE>
NOTE 6. PROPERTY
Property and capitalized property costs at September 30, 1994 and
December 31, 1993 consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Land and improvements $ 537,023 $ 525,843
Buildings 425,034 440,583
Construction in progress 61,604 45,715
Capitalized interest and property taxes 242,133 225,660
Other (including proportionate share of joint
ventures' net deficits of $30,395 and $38,372) (7,193) (5,641)
---------- ----------
1,258,601 1,232,160
Less accumulated depreciation (154,861) (140,328)
---------- -----------
$1,103,740 $1,091,832
========== ==========
</TABLE>
NOTE 7. INCOME TAXES
The Company's effective tax rate for the nine months ended September 30,
1994 was 40.2%. The effective tax rate for fiscal 1993, before the non-
recurring expense related to conversion of the Debenture (Note 3) and before
the effect of the 1% increase in the federal corporate tax rate, was 37.5%.
Income taxes in 1993 reflect a tax benefit of $1.3 million for tax deductions
related to the $29.6 million non-recurring expense. The Company also
increased its tax expense and related deferred tax liability by $3 million in
1993 as a result of legislation increasing the corporate federal tax rate from
34% to 35%.
NOTE 8. CONTINGENCIES
The Company is a party to a number of legal actions arising in the
ordinary course of business. While the Company cannot predict with certainty
the final outcome of these proceedings, considering the substantial legal
defenses available, management believes that none of these actions, when
finally resolved, will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
7
<PAGE> 9
Inherent in the operations of the real estate business is the
possibility that environmental pollution conditions may exist on or relate to
properties owned or previously owned. The Company may be required in the
future to take action to correct or reduce the effects on the environment of
prior disposal or release of hazardous substances by third parties, the
Company, or its corporate predecessors. The amount of such future cost is
difficult to estimate due to such factors as the unknown magnitude of possible
contamination, the unknown timing and extent of the corrective actions which
may be required, the determination of the Company's liability in proportion to
other responsible parties, and the extent to which such costs are recoverable
from insurance.
Costs of environmental remediation incurred in connection with income
producing properties and properties sold are expensed. At September 30, 1994,
management estimates that future costs for remediation of identified or
suspected environmental contamination which will be treated as an expense may
be in the range of $2 to $27 million. It is anticipated that such costs will
be incurred over the next ten years. At September 30, 1994, and December 31,
1993, the Company had a reserve of $6.3 million and $5.6 million for such
costs. Management also estimates that similar costs relating to the Company's
developable properties may range from $18 to $63 million. These amounts
generally will be capitalized as components of development costs when
incurred. It is anticipated that environmental remediation costs related to
property developments will be incurred over a period of twenty years.
NOTE 9. SUBSEQUENT EVENT
On November 2, 1994, the Company announced a major reorganization of its
organization and operations. The fourth quarter 1994 results are expected to
reflect a one-time charge for estimated costs associated with the
restructuring in the range of $3.5 to $4.5 million.
8
<PAGE> 10
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Form 10-K.
Catellus' Strategies
The Company's key strategies are to convert its land portfolio into
operating properties and cash and to generate cash flow from its existing income
producing properties.
The Company has limited speculative development, focusing instead
on build-to-suit opportunities, with nearly 100% of construction starts in 1993
and 1994 being build-to-suits. While the Company expects its current focus
on build- to-suit projects to continue for the near term, it may
consider speculative development if market conditions warrant.
On November 2, 1994, the Company announced that it is undertaking a
major re-design of its organization and operations. This will include a
substantial reduction in staffing, decentralization of operations, and
implementation of new procedures, including a new information system. The
reorganization plan will be implemented within 90 days and is expected to
result in annual savings of approximately $10 million. As part of its
reorganization plan, the Company intends to de-emphasize the sale of assets
and focus on the generation of increased earnings from its real estate
portfolio.
Liquidity and Capital Resources
Operating activities
Cash provided by operating activities, including funds generated by
operating properties and sales of land, was $43.7 million in the first nine
months of 1994, or $17.2 million more than in 1993. This increase was
primarily attributable to lower interest paid, the proceeds of two favorable
environmental litigation settlements and increased property sales. Cash
provided by operating properties decreased slightly, primarily due to the
negative impact of sales of several income producing properties in late 1993.
Excluding the properties sold, cash provided by operating properties increased
approximately 2% over 1993. At September 30, 1994, the Company's total
building portfolio was 96.6% leased, compared to 90.8% at September 30, 1993.
Property sales have consisted principally of surplus properties and
selected income producing and developable properties. However, the tightness
of the credit markets has resulted in lower sales of surplus land because
of the difficulty potential buyers are having in obtaining financing for
land acquisitions. As a result, the Company has increased sales of income
producing and developable properties. The level of sales and revenue generated
by property sales fluctuates from period to period and cannot be predicted with
certainty. The Company currently expects property sales of approximately $55
million for 1994. As a result of the Company's intent to de-emphasize the sale
of assets referred to above, asset sales in 1995 are projected to be between
$25-$50 million.
9
<PAGE> 11
Investing activities
The Company invested $59 million to develop its land and income
producing properties in the first nine months of 1994. These funds were
used for building construction and improvements, as well as entitlement
efforts and pre-construction activities, and were financed through borrowings
from construction facilities, property sales and funds generated from
operations. Fixed commitments for all capital expenditures, primarily for
entitlements and construction of infrastructure and buildings, totalled
approximately $29 million at September 30, 1994. The majority of this amount
relates to building construction at two large projects in Emeryville/Oakland
and Fremont, California.
Financing activities
On February 18, 1994, the Company refinanced its $388.2 million
mortgage loan from Prudential with a $280 million mortgage loan due March
1, 2004 and bearing an average interest rate of 8.71%. The new loan reflects
a paydown of $108.2 million, of which $81 million was required to meet
current loan underwriting standards and $27.2 million was paid to
release selected properties as security for the loan. In connection with this
refinancing, the Company also paid down $10 million of another mortgage loan
from Prudential due January 1, 1996. Additionally, the Company recorded
an extraordinary expense in 1993 of $11.9 million which consisted of a
redemption premium paid to Prudential and the write-off of deferred financing
costs associated with the $388.2 million loan. The reduced interest
resulting from the above debt paydowns, as well as other debt paydowns in
1993 and 1994, was offset by the increased dividend requirements from the
Series A and B preferred stock offerings in 1993.
During the first nine months of 1994, the Company also closed $9 million
of mortgage loans and a $12.2 million secured term loan, for previously
financed projects. Proceeds from these loans were used to repay construction
loans. The Company also closed construction loans totalling $2.2 million.
The revolving period of the Company's $75 million construction facility
expired on March 31, 1994. The Company is in discussions with the lender and
anticipates that this facility will be renewed. During the past six months,
the Company has financed current construction projects through individual
construction loans. If the construction facility is not renewed, the Company
expects that it would finance future construction projects through individual
construction loans, available cash or other means.
The Company's working capital facility expires on December 31, 1994. The
Company currently is in discussions with its lenders regarding the annual
renewal of the facility and believes it will be able to maintain, on acceptable
terms, the financing required for its operations. If the facility is not
renewed, the Company will be able to borrow up to $66 million and the facility
would convert to a three-year secured term loan.
Debt and cash balances
At September 30, 1994, the Company had total outstanding debt of $535.5
million, of which 74% was non-recourse to the Company and secured by the
underlying property only. During the next twelve months, $68.2 million of
debt matures; 86% of this amount is construction financing or intermediate
term loans, which are expected to be extended, refinanced and converted into
permanent loans or repaid.
At September 30, 1994, cash and cash equivalents totalled $70.8 million.
In addition, the Company had available $11.4 million under its construction
facilities, $1.1 million under its secured term loan facilities, and $71.6
million under its unsecured revolving facility.
10
<PAGE> 12
<TABLE>
<CAPTION>
Results of Operations
(in thousands) Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Property sales
Sales . . . . . . . . . . . $33,387 $ 4,800 $50,963 $17,897
Cost of sales . . . . . . . 26,096 4,373 38,531 10,979
-------- --------- --------- -------
Gross profit on sales . . $ 7,921 $ 427 $12,432 $ 6,918
======= ======= ======= =======
Operating properties (including
land)
Rentals
Commercial and industrial $24,810 $26,688 $75,870 $79,741
Agricultural and other . . 225 491 670 997
------- ------- ------- -------
25,035 27,179 76,540 80,738
------- ------- ------- -------
Expenses
Operating and maintenance 6,988 7,466 20,971 22,610
Taxes other than income . 4,422 4,836 13,686 14,996
------- ------- ------- -------
11,410 12,302 34,657 37,606
------ ------- ------- -------
Income from operating properties $13,625 $14,877 $41,883 $43,132
======= ======= ======= =======
</TABLE>
Comparison of nine months ended September 30, 1994 and 1993
The Company had net income of $13.1 million, (or a net loss of $.07 per
common share after preferred stock dividends of $17.9 million), for the first
nine months of 1994. This compared to a net loss of $39.5 million, (or $.70
per common share after preferred stock dividends of $9.8 million), for the
first nine months of 1993. Before the $37.9 million non-recurring expenses in
1993, the Company had a net loss of $6.1 million for the first nine months of
1993. Income before taxes was $21.9 million in 1994 compared to a loss of
$5.8 million (before the non-recurring expenses) in 1993. The increase in
1994 resulted from a significant decrease in interest expense, improved
operating results from the Company's joint ventures, higher gross profit from
property sales and the favorable settlement of two environmental litigation
matters, partially offset by higher general and administrative costs and lower
income from operating properties.
The increase in gross profit from property sales is due to a
higher level of sales partially offset by an average higher cost basis in
properties sold. Sales in 1994 included two properties sold at losses totalling
$4 million. Property sales and related gross profit will continue to fluctuate
from period to period, reflecting general market conditions and the Company's
intent and ability to sell property when it can obtain attractive prices.
Income from operating properties declined 2.9% primarily as the result
of sales of several income producing properties in late 1993 and in 1994, and
the contribution of an operating property to a joint venture in the first
quarter of 1994. Excluding the negative impact of these sales and the
contribution, income from rental operations increased 7% over 1993 due to both
higher rental revenue and lower expenses. The majority of the growth in
rental revenue came from new buildings completed over the past twelve months.
The remainder was attributable to higher occupancy and regular rent
increases in existing leases. Operating and maintenance expenses were lower
primarily because
11
<PAGE> 13
several of the Company's lease obligations expired, and because of lower
environmental costs. Taxes other than income declined due mainly to property
tax reductions caused by reassessments and properties sold.
Equity in earnings of joint ventures increased significantly in 1994
as a result of property sales by a joint venture. Also, the Company
suspended the recording of losses for one joint venture, Pacific Design
Center, in the third quarter of 1993 when the Company's interest in cumulative
losses of that joint venture exceeded its interest in cumulative earnings.
The Company's other joint ventures, as a group, showed improvement in
operating results compared to 1993. Other revenue was notably higher
because of the favorable settlement of two environmental litigation matters
and higher developers' fees. The increase in general and administrative
expenses was caused by executive severance and search costs, as well as higher
use of outside professional services. Interest expense decreased as a
result of the 1993 conversion of the 13.5% convertible debenture, lower
principal balances caused by repayments and refinancings and lower
amortization of loan fees and debt issuance costs.
The fourth quarter 1994 results will reflect a one-time charge against
earnings for costs associated with the restructuring of the Company referred to
earlier, including the costs of a severence program, outplacement services
and other expenses, currently estimated to be in the range of $3.5 to $4.5
million.
Comparison of three months ended September 30, 1994 and 1993
The Company had net income of $5 million, (or a net loss of $.01 per
common share after preferred stock dividends of $6 million), for the third
quarter of 1994. This compared to a net loss of $10.1 million, (or $.18 per
common share after preferred stock dividends of $3.2 million), for the third
quarter of 1993. Before the $8.3 million non-recurring expense in 1993, the
Company had a net loss of $5 million for the third quarter. Income before
taxes was $7.9 million in 1994 compared to a loss of $3.8 million (before the
non-recurring expense) in 1993. The increase in 1994 resulted from a
significant decrease in interest expense, higher gross profit from property
sales and improved operating results from the Company's joint ventures,
partially offset by lower income from operating properties.
The increase in gross profit from property sales was due to
significantly higher sales and an average lower cost basis in properties
sold. Cost of sales in 1993 also reflects a $1.8 million charge for the
expected loss on a sale that closed in the fourth quarter of 1993. Property
sales and related gross profit will continue to fluctuate from period to
period, reflecting general market conditions and the Company's intent and
ability to sell property when it can obtain attractive prices.
Income from operating properties decreased 8.4% as a result of the
sales of several income producing properties in late 1993 and in 1994,
and the contribution of an operating property to a joint venture in the first
quarter of 1994. Excluding the negative impact of these sales and the
contribution, income from rental operations increased 1.7% over 1993 due
mainly to rents from new buildings and lower operating and maintenance
expenses; partially offset by lower property tax recoveries. Operating and
maintenance expense declined because several of the Company's lease obligations
expired, and because of lower environmental costs. Taxes other than income
dropped slightly due mainly to property tax reductions caused by reassessments
and properties sold.
Equity in earnings of joint ventures increased in 1994 due mainly
to improved operating results from the hotel operations of a joint venture,
and also to the Company's above mentioned suspension of the recording of
losses for the Pacific Design Center joint venture. The increase in general
and administrative expenses was primarily caused by higher use of
outside legal and other professional services and higher directors' fees,
related to planning for the reorganization referred to earlier. Interest
expense declined as a result of lower debt levels. Other revenue was lower
because of a sub-lease buyout and a fire insurance settlement in 1993.
12
<PAGE> 14
Environmental Matters
Many of the Company's properties are in urban and industrial areas, and
many properties may have been leased to commercial and industrial tenants who
may have discharged hazardous materials. The Company incurs ongoing
environmental remediation costs, including clean-up costs, consulting fees for
environmental studies and investigations, monitoring costs, and legal costs
relating to clean-up, litigation defense and the pursuit of responsible third
parties. Costs incurred in connection with income producing properties and
properties previously sold are expensed. Costs relating to undeveloped
properties are capitalized as part of development costs. As with other
capital expenditures, these costs will be incurred as development proceeds.
Environmental costs charged to operations for the first nine months of 1994
and 1993 totalled $3.5 million and $4 million; for the third quarter of 1994
and 1993, such costs charged to operations totalled $1 million and $1.9
million. Environmental costs capitalized for the first nine months of 1994
and 1993 totalled $.7 million and $.4 million; for the third quarter of 1994
and 1993, such capitalized costs totalled $.1 million and $.2 million.
At September 30, 1994, the Company's estimate of its potential liability
for identified environmental costs ranged from $2 million to $27 million for
properties where costs would be charged to operations. These costs are
expected to be incurred over an estimated ten-year period, with a substantial
portion expected to be incurred over the next five years. At September 30,
1994, the Company's estimate of its potential liability for identified
environmental costs relating to developable properties ranged from $18 million
to $63 million. These costs generally will be capitalized as they are
incurred over the course of the development period, estimated to be
approximately twenty years.
The Company maintains a reserve for known, probable costs of
environmental remediation to be incurred with respect to income producing
properties and properties previously sold. See Note 8 to the Condensed
Consolidated Financial Statements.
While the Company or outside consultants have evaluated the
environmental liabilities associated with most of the Company's properties,
any evaluation necessarily is based upon then prevailing law and identified
site conditions. The Company monitors its exposure to environmental costs on
a regular basis. Although an unexpected event could have a material impact on
the results of operations for any period, the Company does not believe that
such costs for identified liabilities will have a material adverse effect on
its financial condition.
13
<PAGE> 15
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
None.
Item 4.Submission of Matters to a Vote of Security Holders
None.
Item 6.Exhibits and Reports on Form 8-K
Exhibit No. 27 Financial Data Schedule
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Catellus
Development Corporation has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CATELLUS DEVELOPMENT CORPORATION
<TABLE>
<S> <C> <C>
Date November 11, 1994 By /s/ Nelson C. Rising
------------------------------------ ------------------------------
Nelson C. Rising
President and Chief Executive Officer
Date November 11, 1994 By /s/ David M. Perna
------------------------------------ ------------------------------
David M. Perna
Controller
</TABLE>
15
<PAGE> 17
CATELLUS DEVELOPMENT CORPORATION
Exhibit Index
<TABLE>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
(Article 5 of Regulation S-X)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 70,774
<SECURITIES> 0
<RECEIVABLES> 20,132
<ALLOWANCES> (1,896)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,258,601
<DEPRECIATION> (154,861)
<TOTAL-ASSETS> 1,244,738
<CURRENT-LIABILITIES> 0
<BONDS> 535,492
<COMMON> 730
0
322,500
<OTHER-SE> 197,962
<TOTAL-LIABILITY-AND-EQUITY> 1,244,738
<SALES> 50,963
<TOTAL-REVENUES> 143,376
<CGS> 38,531
<TOTAL-COSTS> 103,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (376)
<INTEREST-EXPENSE> 18,002
<INCOME-PRETAX> 21,895
<INCOME-TAX> 8,793
<INCOME-CONTINUING> 13,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,102
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
