<PAGE>
================================================================================
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, 1995 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, 1995, there were 72,967,236 issued and outstanding shares
of the registrant's common stock, $.01 par value per share.
================================================================================
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - Historical Cost Basis
at September 30, 1995 and December 31, 1994.................... 2
Consolidated Statement of Income - Historical Cost Basis
for the three months and nine months ended September 30, 1995
and 1994....................................................... 3
Condensed Consolidated Statement of Cash Flows -
Historical Cost Basis for the nine months ended
September 30, 1995 and 1994.................................... 4
Notes to Condensed Consolidated Financial Statements............. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
PART II. OTHER INFORMATION...................................... 15
SIGNATURES....................................................... 16
</TABLE>
1
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET - HISTORICAL COST BASIS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Properties............................................ $1,291,548 $1,248,398
Less accumulated depreciation......................... (179,861) (161,279)
---------- ----------
1,111,687 1,087,119
Other assets and deferred charges..................... 45,901 49,584
Notes receivable...................................... 7,532 7,961
Accounts receivable, less allowances.................. 12,024 10,712
Cash and investments.................................. 41,890 51,987
---------- ----------
Total.............................................. $1,219,034 $1,207,363
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt............................... $ 539,775 $ 530,641
Accounts payable and accrued expenses................. 39,149 38,876
Deferred credits and other liabilities................ 27,372 25,495
Deferred income taxes................................. 119,651 112,662
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 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..................................... 220,338 220,338
Accumulated deficit................................. (50,481) (43,879)
---------- ----------
Total stockholders' equity.......................... 493,087 499,689
---------- ----------
Total.............................................. $1,219,034 $1,207,363
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
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,
------------------- --------------------
1995 1994 1995 1994
------- ------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Rental................................. $26,961 $25,035 $ 80,069 $ 76,540
Interest income........................ 753 888 2,904 2,712
Equity in earnings of joint ventures... 565 527 4,917 6,763
Other -- net........................... 1,152 1,010 2,753 6,398
------- ------- -------- --------
29,431 27,460 90,643 92,413
------- ------- -------- --------
COSTS AND EXPENSES
Operating and maintenance.............. 6,485 6,988 19,022 20,971
Depreciation........................... 6,158 6,362 18,760 19,390
General and administrative............. 2,794 3,617 8,900 10,901
Taxes other than income................ 4,631 4,422 14,463 13,686
------- ------- -------- --------
20,068 21,389 61,145 64,948
------- ------- -------- --------
OPERATING INCOME 9,363 6,071 29,498 27,465
Interest............................... (6,414) (5,499) (19,554) (18,002)
Gain on property sales................. 1,712 7,291 8,937 12,432
------- ------- -------- --------
INCOME BEFORE TAXES.................... 4,661 7,863 18,881 21,895
Income taxes........................... 1,905 2,828 7,624 8,793
------- ------- -------- --------
NET INCOME............................. $ 2,756 $ 5,035 $ 11,257 $ 13,102
Preferred stock dividends............ 5,953 5,953 17,859 17,859
------- ------- -------- --------
Net loss applicable to common
stockholders........................ $(3,197) $ (918) $ (6,602) $ (4,757)
======= ======= ======== ========
Net loss per share of common stock... $ (0.04) $ (0.01) $ (0.09) $ (0.07)
======= ======= ======== ========
Average number of common shares...... 72,967 72,967 72,967 72,967
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - HISTORICAL COST BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 11,257 $ 13,102
Non-cash items included in net income:
Depreciation............................................... 18,760 19,390
Deferred income taxes...................................... 6,989 8,366
Amortization of deferred loan fees and other costs......... 1,812 2,166
Equity in earnings of joint ventures....................... (4,917) (6,763)
Cost of land sold.......................................... 3,063 10,347
Gain on sale of income producing properties................ - (3,201)
Other--net................................................. 3,727 3,023
Changes in operating assets and liabilities.................. 1,403 (2,748)
-------- ---------
Net cash provided by operating activities..................... 42,094 43,682
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (44,541) (58,953)
Net proceeds from sale of income producing properties........ - 28,192
Distributions from/contributions to joint ventures, net...... 4,000 955
Reduction in short-term investments and
restricted cash............................................. 35,067 -
-------- ---------
Net cash used for investing activities........................ (5,474) (29,806)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................... 61,120 322,890
Repayment of borrowings...................................... (54,911) (451,760)
Dividends paid............................................... (17,859) (18,191)
Stock issuance costs......................................... - (55)
Investment in restricted cash for future reduction of debt... - 67,410
Redemption premium on early retirement of debt............... - (10,000)
-------- ---------
Net cash used for financing activities........................ (11,650) (89,706)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 24,970 (75,830)
Cash and cash equivalents at beginning of period.............. 16,920 146,604
-------- ---------
Cash and cash equivalents at end of period.................... $ 41,890 $ 70,774
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)....................... $ 17,294 $ 17,027
Income taxes............................................... $ 245 $ 18
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1. DESCRIPTION OF BUSINESS
Headquartered in San Francisco, Catellus Development Corporation (the
Company) is an owner, developer and manager of industrial, retail and office
projects. These properties and the Company's other land holdings and joint
venture interests are located in major markets in California and 10 other
states. The Company develops and manages its operating properties which consist
primarily of industrial facilities and a limited number of office and retail
buildings located in California, Arizona, Illinois and Texas. The Company has
substantial undeveloped land holdings primarily in California, Texas, Arizona,
Illinois and New Mexico.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying condensed consolidated financial statements should be read
in conjunction with the Company's 1994 Annual Report on Form 10-K (Form 10-K) as
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. 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 assumed
conversion of the Series A and Series B preferred stock would be anti-dilutive
for all relevant periods.
NOTE 4. RESTRUCTURING OPERATIONS
In November 1994, the Company announced a major restructuring to refocus
the Company and to improve the Company's long-term cash position. This
restructuring, which is being implemented in 1995, resulted in a $3.1 million
non-recurring operating expense in the fourth quarter of 1994. Costs associated
with the restructuring included $1.9 million related to employee termination
benefits, $.8 million related to lease cancellation fees and costs attributable
to permanently idle leased facilities, and $.4 million for the consolidation of
operations. Substantially all of the restructuring charges will result in cash
outlays. As of September 30, 1995, $2.6 million of the restructuring charges
had been paid.
5
<PAGE>
NOTE 5. MORTGAGE AND OTHER DEBT
Mortgage and other debt at September 30, 1995 and December 31, 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
First mortgage loan - Prudential $269,201 $274,776
First mortgage loans 114,315 115,193
Term loan - unsecured 22,000 22,000
Construction loans - secured 35,381 29,425
Intermediate term loans - secured 71,800 64,378
Other loans 3,233 377
Assessment district bonds 23,845 24,492
-------- --------
Total mortgage and other debt $539,775 $530,641
======== ========
Due in one year $115,110 $ 78,102
======== ========
</TABLE>
Interest costs relating to mortgage and other debt for the three and nine
months ended September 30, 1995 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expensed $ 6,414 $ 5,499 $19,554 $18,002
Interest capitalized 5,937 6,509 17,309 18,384
------- ------- ------- -------
Total interest cost $12,351 $12,008 $36,863 $36,386
======= ======= ======= =======
</TABLE>
NOTE 6. PROPERTY
Property and capitalized property costs at September 30, 1995 and December
31, 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- -------------
<S> <C> <C>
Operating properties:
Buildings $ 459,412 $ 441,364
Land and improvements 156,600 102,177
Other land and improvements 376,471 426,762
Construction in progress 37,616 40,488
Capitalized interest and property taxes 266,641 248,138
Other (including proportionate share of joint
ventures' net deficits of $39,400 and $40,317) (5,192) (10,531)
---------- ----------
1,291,548 1,248,398
Less accumulated depreciation (179,861) (161,279)
---------- ----------
$1,111,687 $1,087,119
========== ==========
</TABLE>
6
<PAGE>
NOTE 7. INCOME TAXES
The Company's effective tax rate for the nine months ended September 30,
1995 was 40.4%, a 4.7% increase over the Company's 35.7% rate for 1994 due to
the effect of state income taxes.
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.
Inherent in the operations of the real estate business is the possibility
that environmental pollution conditions may relate to properties owned or
previously owned. The Company may be required in the future to take action to
correct or reduce the environmental effects of prior disposal or release of
hazardous substances by third parties, the Company, or its corporate
predecessors. Future environmental costs are 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 operating
properties and properties previously sold are expensed. At September 30, 1995,
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 $2.8 to $26.1 million. It is anticipated that such costs will
be incurred over the next ten years. At September 30, 1995 and December 31,
1994, the Company had a reserve of $9.1 million and $8.4 million for such costs.
Management also estimates that similar costs relating to the Company's
undeveloped properties may range from $17.3 million to $59.7 million. These
amounts generally will be capitalized as components of development costs when
incurred, which is anticipated to be over a period of twenty years.
7
<PAGE>
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.
OVERVIEW
Historically, the aggregate costs associated with pre-development,
operating and holding the Company's substantial real estate assets have exceeded
the revenue from property operations, development and other recurring sources.
In order to correct this situation the Company, in November 1994, implemented
significant staff reductions and reorganized to focus on increasing recurring
revenue from operations.
During 1995, the Company began the process of substantially increasing its
asset sales activity, with the primary focus being its non-strategic land
assets. Proceeds will be applied to a combination of debt reduction and
reinvestment in activities that could generate recurring earnings. The
Company's goal, by using sale proceeds in this manner and combined with improved
operating performance of its existing business, is to achieve an operating
surplus.
The Company's goal is to generate $200 million in sales of non-strategic
land assets over the next 30 months, including $100 million by the end of 1996.
As of September 30, 1995, the Company had a backlog of contracted but not closed
sale transactions of approximately $50 million. The largest single transaction
is the sale of 50 acres in Santa Fe, New Mexico, which is expected to generate
$21 million in revenue.
In addition to the land sales program, the Company will be completing an
analysis of its income properties, with the goal of identifying properties which
do not meet the Company's long term objectives. Once identified, the assets
will be offered for sale and the proceeds used for additional debt reduction and
reinvestment.
The review of all of the Company's major development projects continues.
The decision to change the plans for a golf course residential community in
Fremont to a commercial project is now being implemented. Sixty-nine acres of
industrial zoned land in Union City are being transformed into a residential
community. Development plans for Santa Fe, New Mexico were abandoned and the
property is being sold to the City. The entitlement process for Los Angeles
Union Station is nearing completion with the close of the comment period for the
EIR. The entitlements for Mission Bay are not consistent with current market
conditions. Evaluation of this project will continue in the fourth quarter and,
if necessary, the development plans and carrying values will be appropriately
modified.
Management believes the 1994 workforce reductions when combined with other
cost-reduction measures, will result in projected annual savings of
approximately $10 million. These restructuring activities resulted in a $3.1
million non-recurring operating expense in 1994 and have begun to produce
savings in 1995. Overhead has been reduced by $7.4 million in the first nine
months of 1995 compared to 1994. General and administrative costs declined by $2
million during that period, overhead costs associated with operating the
portfolio declined by $2.6 million and overhead costs associated with property
sales declined by $1.2 million. In addition, the Company has benefitted from a
$1.6 million reduction in the cash cost of the Company's development program.
LIQUIDITY AND CAPITAL RESOURCES
In the following table, cash flow from operating activities, as presented
under generally accepted accounting principles, is adjusted (a) to remove the
impact of property sales, (b) to include certain fixed charges associated with
8
<PAGE>
the Company's operations, (c) to include distributions from joint ventures and
(d) to include net cash expended for capital improvements to the Company's
properties. This results in an amount representing cash flow before sales and
after fixed charges and capital expenditures. The Company believes that the
presentation of the data set forth in the table below provides a meaningful
summary of its cash flows.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES PER
STATEMENT OF CASH FLOWS................................. $ 42,094 $ 43,682
Cash provided by land sales............................ (11,964) (17,627)
Interest paid (net of amount capitalized).............. 17,294 17,027
Expenditures for tenant improvements................... (2,541) (2,497)
Distributions from (contributions to) joint ventures... 4,000 955
Capitalized property taxes............................. (1,858) (1,857)
-------- --------
Adjusted cash from operations........................... 47,025 39,683
-------- --------
Fixed charges
Interest paid - gross.................................. (34,602) (35,411)
Preferred stock dividends.............................. (17,859) (18,191)
Debt amortization...................................... (7,171) (5,425)
-------- --------
Total fixed charges..................................... (59,632) (59,027)
-------- --------
Capital expenditures
Cash expenditures...................................... (22,834) (36,215)
Development borrowing.................................. 12,729 19,276
-------- --------
Net capital expenditures................................ (10,105) (16,939)
-------- --------
CASH FLOW BEFORE SALES AND AFTER FIXED CHARGES
AND CAPITAL EXPENDITURES................................ $(22,712) $(36,283)
======== ========
</TABLE>
The Company has in the past relied primarily on proceeds from property
sales to meet the cash flow shortfalls in the table above. Remaining cash
shortfall amounts have been met through the use of available cash. Shortfall
amounts also could have been reduced by limiting capital expenditures, and such
a strategy could be employed in the future if necessary.
Cash flow from operating activities
Cash provided by operating activities reflected in the statement of cash
flows in the first nine months of 1995 and 1994 was $42.1 million and $43.7
million. The decrease in 1995 is primarily attributable to lower cash generated
from land sales, the payment of restructuring costs and lower receipts from
environmental settlements in 1995 due to the favorable settlement of several
environmental litigation matters in 1994. This was partially offset by higher
income from operating properties and lower general and administrative costs.
Cash generated from sales of land was $12 million and $17.6 million in the
first nine months of 1995 and 1994. Cash generated from rental operations
increased principally because of new buildings added to the portfolio, higher
average rental rates and lower overhead costs associated with operating the
portfolio. At September 30, 1995, the Company's total building portfolio for all
product types was 94.6% leased compared to 96.8% at September 30, 1994 and 95.0%
at December 31, 1994.
9
<PAGE>
Cash flow from investing activities
Net cash flow from investing activities reflected in the statement of cash
flows increased $24.3 million from 1994 to 1995. The change in 1995 is primarily
attributable to the conversion of short-term commercial paper and government
securities into cash and cash equivalents and a decrease in capital
expenditures. Capital expenditures totalling $44.5 million and $59 million in
the first nine months of 1995 and 1994 include capitalized interest and property
taxes totalling $19.2 million and $20.2 million. Cash flow from investing
activities in 1994 also included $28.2 million of proceeds from the sale of
income producing properties. As of September 30, 1995, the Company has 318,000
square feet of new development under construction and 576,000 square feet with
binding leases prior to construction compared to 114,000 square feet under
construction and 337,000 square feet with binding leases prior to construction
at September 30, 1994.
Cash flow from financing activities
Net cash used by financing activities reflected in the statement of cash
flows for the first nine months of 1995 was $11.7 million compared to $89.7
million for the 1994 period. These amounts reflect borrowing and repayment
activity relating to operating properties (including principal amortization),
capital expenditures and general corporate purposes. The 1994 amounts primarily
reflect the refinancing of the Prudential mortgage loan, as described below.
In January 1995, the Company entered into an $85 million revolving
construction line of credit and in July 1995 increased the revolving
construction line an additional $15 million. The credit facility renews and
increases a $75.5 million credit line. In July 1995, the Company entered into
another $25 million revolving construction line of credit. The credit facility
will be used to fund new Company developments in twelve states in the Southwest
and Southeast.
In April 1995, the Company renewed its unsecured, revolving working capital
line of credit which was due to expire on April 30, 1995. Upon renewal, the
working capital facility was reduced to $62.5 million from $75 million and the
revolving period was extended to December 31, 1995. As part of the renewal, the
Company also amended the amortization schedule of its unsecured term loan. Of
the $22 million outstanding, $10 million is now due in December 1995 and $12
million is due in December 1996. Previously the entire $22 million balance was
due in December 1996. The Company's liquidity consists of $41.9 million in cash
and $62.5 million in working capital line availability.
In May 1995, the Company closed a $47 million secured term loan to
refinance properties which were previously financed by loans which matured
during the second quarter of 1995. In November 1995, the Company closed a $33
million secured term loan which refinanced an existing maturing construction
loan and reimbursed the Company for previously expended costs.
At September 30, 1995, the Company had total outstanding debt of $539.8
million, of which 73% was non-recourse to the Company and secured by the
underlying property, 22% was recourse to the Company and also secured by
underlying property, and 5% was unsecured. During the next twelve months,
$115.1 million of debt matures which consists of construction financing, term
loans or first mortgage loans, which are expected to be extended, refinanced and
converted into permanent loans or repaid. Of this debt, $19.6 million was
refinanced in November 1995.
Refinancing of Prudential Mortgage loan
In February 1994, the Company refinanced its $388.2 million mortgage loan
from The Prudential Insurance Company of America 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 from the loan. In connection
10
<PAGE>
with this refinancing, the Company also paid down $10 million of another
mortgage loan with 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.
Cash balances and available borrowings
At September 30, 1995, cash and cash equivalents totalled $41.9 million.
In addition, the Company had available $86.5 million under its construction
facilities $.5 million under its secured term loan facilities, and $62.5 million
under its unsecured revolving facility.
RESULTS OF OPERATIONS
(in thousands)
The table below identifies the components of gross profit on property sales
and income from operating properties.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PROPERTY SALES
Sales
Land........................................ $ 3,349 $ 17,237 $ 15,070 $ 29,633
Building.................................... 0 16,150 0 21,330
--------- --------- --------- ---------
3,349 33,387 15,070 50,963
Cost of sales................................. 1,637 26,096 6,133 38,531
--------- --------- --------- ---------
Gain on sales................................. $ 1,712 $ 7,291 $ 8,937 $ 12,432
========= ========= ========= =========
OPERATING PROPERTIES
Rentals........................................ $ 26,961 $ 25,035 $ 80,069 $ 76,540
Expenses
Operating and maintenance..................... 6,485 6,988 19,022 20,971
Taxes other than income....................... 4,631 4,422 14,463 13,686
--------- --------- --------- ---------
11,116 11,410 33,485 34,657
--------- --------- --------- ---------
Income from operating properties............... $ 15,845 $ 13,625 $ 46,584 $ 41,883
========= ========= ========= =========
SUPPLEMENTAL INFORMATION
OPERATIONS
- ----------
Rental revenue
Buildings..................................... $ 24,080 $ 22,152 $ 71,020 $ 65,732
Properties sold or held for sale.............. 379 371 1,461 2,474
Ground leases and others...................... 2,502 2,512 7,588 8,334
--------- --------- --------- ---------
Total....................................... $ 26,961 $ 25,035 $ 80,069 $ 76,540
========= ========= ========= =========
Average rentals (per square foot, per quarter) $ 1.81 $ 1.70 $ 1.82 $ 1.71
========= ========= ========= =========
Square feet owned, end of period (in thousands) 14,099 13,495
========= =========
Occupancy percentage, end of period 94.6% 96.8%
========= =========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
1995 1994 1995 1994
--------- --------- --------- --------
<S> <C> <C> <C> <C>
DEVELOPMENT (SQUARE FEET)
- -------------------------
Construction and completion
Under construction, beginning of period.... 568,000 575,000 337,000 576,000
Construction starts........................ 200,000 - 468,000 44,000
Completion................................. (450,000) (461,000) (487,000) (506,000)
--------- --------- --------- --------
Under construction, end of period.......... 318,000 114,000 318,000 114,000
========= ========= ========= ========
Development under contract, not started 576,000 337,000
========= =========
Backlog - sales under contract
------------------------------
Land $ 50,122 $ 3,056
Building - -
--------- ---------
Total $ 50,122 $ 3,056
========= =========
</TABLE>
Comparison of nine months ended September 30, 1995 and 1994
The Company had income before taxes of $18.9 million for the first nine
months of 1995, a decline of $3 million from 1994. The decline in 1995 was
primarily due to a $3.5 million reduction in the gain on property sales and a
$1.6 million increase in interest expense, offset by a $2 million increase in
operating income. After adjusting 1994 for a non recurring $3.3 million
environmental settlement and $2.9 million in gains on joint venture land sales,
operating income was $8.2 million greater in 1995.
The decrease in gross profit from property sales, shown in the table above,
resulted from a lower level of sales, net of a lower cost basis of properties
sold in 1995. The 1994 sales included several income producing properties, one
of which generated a $3 million loss. Sales will continue to fluctuate from
period to period. Gross profit will also vary depending on the cost basis of
properties sold.
Income from operating properties, shown in the table above, increased $4.7
million over 1994. Of this increase, $3.9 million was due to new buildings
completed over the last twelve months, and lower overhead costs of $1.8 million
as a result of the Company's restructuring initiated in late 1994. In addition,
existing buildings contributed $1.1 million through increases in average rental
rates and lower legal expenses and lease commissions. Partially offsetting these
improvements was increased property taxes due to reassessment of one of the
Company's office buildings resulting in a one-time charge of $.9 million.
Increased income from operating properties more than compensated for the $1.1
million earnings loss from buildings sold in 1994.
At September 30, 1995, the Company's total operating portfolio was 94.6%
leased compared to 96.8% at September 30, 1994. During the last twelve months,
the Company added 601,000 square feet of new buildings. The Company currently
has 318,000 square feet under construction compared to 114,000 square feet at
September 30, 1994 and at September 30, 1995 an additional 576,000 square feet
under development contracts not yet started.
Joint venture earnings decreased in the nine months of 1995 primarily as a
result of lower property sales of $2.9 million by one joint venture partially
offset by improved operating results from the hotel operations of another joint
venture. Other revenue was higher in 1994 due to the favorable settlement of
several environmental litigation matters in 1994.
12
<PAGE>
Comparison of three months ended September 30, 1995 and 1994
The Company had third quarter 1995 net income before taxes of $4.7 million,
a decline of $3.2 million from the third quarter of 1994. The 1995 decline was
primarily due to a $5.6 million reduction in the gain from property sales and a
$.9 million increase in interest expense, partially offset by a $3.3 million
improvement in operating income.
The decrease in gross profit from property sales, shown in the table above,
resulted from a significantly lower level of sales, net of a lower cost basis of
properties sold in 1995. The 1994 sales included several income producing
properties. Sales will continue to fluctuate from quarter to quarter. Gross
profit will also vary depending on the cost basis of properties sold.
Income from operating properties, shown in the table above, increased $2.2
million over the 1994 third quarter. Of this increase, $1.2 million was due to
new buildings completed over the last twelve months, other existing buildings
increased $.7 million through increases in average rental rates and higher
recollectible expenses and lower overhead costs of $.4 million as a result of
the Company's restructuring initiated in late 1994. During the last twelve
months, the Company added 601,000 square feet of new buildings.
Overhead has been reduced by $1.9 million in the third quarter of 1995.
General and administrative costs declined by $.8 million, overhead costs
associated with operating the portfolio declined by $.6 million and overhead
costs associated with property sales declined by $.3 million. In addition, the
restructuring resulted in a $.2 million reduction in the cash cost of the
Company's development program.
ENVIRONMENTAL MATTERS
Many of the Company's properties are in urban and industrial areas and may
have been leased to commercial and industrial tenants who may have discharged
hazardous materials. The Company incurs on-going 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 operating properties and properties previously sold are
expensed. Costs relating to undeveloped land 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 1995 and 1994 totalled $2.3 million and $3.5 million;
for the third quarter of 1995 and 1994, such costs charged to operations
totalled $.7 million and $1.0 million. Environmental costs capitalized for the
first nine months of 1995 and 1994 totalled $1 million and $.7 million.
At September 30, 1995, the Company's estimate of its potential liability
for identified environmental costs ranged from $2.8 million to $26.1 million for
properties for which costs would be charged to operations. These costs are
expected to be incurred over an estimated ten-year period, with a substantial
portion incurred over the next five years. At September 30, 1995, the Company's
estimate of its potential liability for identified environmental costs relating
to developable properties ranged from $17.3 million to $59.7 million. These
costs generally will be capitalized as they are incurred, over the course of the
estimated development period of approximately 20 years.
The Company maintains a reserve for known, probable costs of
environmental remediation to be incurred in connection with operating properties
and properties previously sold. See Note 8 to the Condensed Consolidated
Financial Statements.
13
<PAGE>
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.
14
<PAGE>
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
15
<PAGE>
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
Date November 13, 1995 By /s/ Stephen P. Wallace
----------------- -----------------------------
Stephen P. Wallace
Senior Vice President and
Chief Financial Officer
Date November 13, 1995 By /s/ David M. Perna
----------------- -----------------------------
David M. Perna
Controller
16
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(Article 5 of Regulation S-X)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HISTORICAL COST BASIS CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 41,890
<SECURITIES> 0
<RECEIVABLES> 21,765
<ALLOWANCES> 2,210
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,291,548
<DEPRECIATION> 179,861
<TOTAL-ASSETS> 1,219,034
<CURRENT-LIABILITIES> 0
<BONDS> 539,775
<COMMON> 730
0
322,500
<OTHER-SE> 169,857
<TOTAL-LIABILITY-AND-EQUITY> 1,219,034
<SALES> 15,070
<TOTAL-REVENUES> 105,713
<CGS> 6,133
<TOTAL-COSTS> 67,278
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 378
<INTEREST-EXPENSE> 19,554
<INCOME-PRETAX> 18,881
<INCOME-TAX> 7,624
<INCOME-CONTINUING> 11,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,257
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
