<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 MARCH 31, 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 April 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>
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet - Historical Cost Basis
at March 31, 1995 and December 31, 1994................... 2
Consolidated Statement of Income - Historical Cost Basis
for the three months ended March 31, 1995 and 1994....... 3
Condensed Consolidated Statement of Cash Flows -
Historical Cost Basis for the three months ended
March 31, 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...................... 9
PART II. OTHER INFORMATION................................................ 14
SIGNATURES................................................................. 15
</TABLE>
1
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET - HISTORICAL COST BASIS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Properties.......................................... $1,262,406 $1,248,398
Less accumulated depreciation....................... (167,655) (161,279)
---------- ----------
1,094,751 1,087,119
Other assets and deferred charges................... 51,273 49,584
Notes receivable.................................... 8,133 7,961
Accounts receivable, less allowances................ 13,498 10,712
Short-term investments.............................. 9,796 32,645
Restricted cash and investments..................... - 2,422
Cash and cash equivalents........................... 38,040 16,920
---------- ----------
Total............................................. $1,215,491 $1,207,363
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt............................. $ 529,951 $ 530,641
Accounts payable and accrued expenses............... 43,002 38,876
Deferred credits and other liabilities.............. 27,506 25,495
Deferred income taxes............................... 115,938 112,662
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................................ (44,474) (43,879)
---------- ----------
Total stockholders' equity......................... 499,094 499,689
---------- ----------
Total.............................................. $1,215,491 $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
MARCH 31,
---------------------
1995 1994
------ -------
(Unaudited)
<S> <C> <C>
REVENUE
Property sales................................. $ 8,215 $ 2,304
Rentals........................................ 26,634 25,408
Interest income................................ 1,312 1,108
Equity in earnings of joint ventures........... 1,943 1,209
Other -- net................................... 681 3,987
------- -------
38,785 34,016
------- -------
COSTS AND EXPENSES
Cost of property sold.......................... 2,623 2,106
Operating and maintenance...................... 6,290 7,437
Depreciation................................... 6,409 6,518
General and administrative..................... 3,489 4,157
Taxes other than income........................ 4,575 4,764
Interest....................................... 6,453 6,483
------- -------
29,839 31,465
------- -------
INCOME BEFORE TAXES............................ 8,946 2,551
Income taxes................................... 3,588 1,082
------- -------
NET INCOME..................................... $ 5,358 $ 1,469
Preferred stock dividends.................... 5,953 5,953
------- -------
Net loss applicable to common stockholders... $ (595) $(4,484)
======= =======
Net loss per share of common stock........... $ (0.01) $ (0.06)
======= =======
Average number of common shares.............. 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>
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1994
-------- ---------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 5,358 $ 1,469
Non-cash items included in net income:
Depreciation............................................... 6,409 6,518
Deferred income taxes...................................... 3,276 637
Amortization of deferred loan fees and other costs......... 642 604
Equity in earnings of joint ventures....................... (1,943) (1,209)
Cost of land sold.......................................... 530 1,372
Other--net................................................. 1,082 643
Changes in operating assets and liabilities.................. (993) 4,183
-------- ---------
Net cash provided by operating activities..................... 14,361 14,217
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................... (13,332) (18,682)
Distributions from/contributions to joint ventures, net...... 1,463 (928)
Reduction in short-term investments and
restricted cash............................................. 25,271 -
-------- ---------
Net cash provided by (used for) investing activities.......... 13,402 (19,610)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................... 1,603 293,172
Repayment of borrowings...................................... (2,293) (410,036)
Dividends paid............................................... (5,953) (6,285)
Stock issuance costs......................................... - (3)
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........................ (6,643) (65,742)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 21,120 (71,135)
Cash and cash equivalents at beginning of period.............. 16,920 146,604
-------- ---------
Cash and cash equivalents at end of period.................... $ 38,040 $ 75,469
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)....................... $ 5,744 $ 6,552
Income taxes............................................... $ - $ 8
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 11 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. 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 (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. 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, 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 common 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>
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 with Prudential (Note 6). 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 common 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 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 are being used to repay
debt that matures 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 assumed
conversion of the Series A and Series B preferred stock would be anti-dilutive
for all relevant periods.
NOTE 5. RESTRUCTURING OPERATIONS
In September 1994, the Company began a major redesign of its organization
and operations. This effort has resulted in a substantial reduction in
staffing. The Company reduced its workforce by over 40% (89 employees) between
September 15, 1994 and February 28, 1995.
In November 1994, the Company announced a major restructuring which
consisted of three initiatives: reorganization, decentralization and a focus on
recurring revenue to improve the Company's long-term cash position. The
November 1994 restructuring resulted in a workforce reduction of 76 employees
(from 209 to 133) out of the total staffing reduction noted above. 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 March 31, 1995, $2.3 million of the restructuring charges had
been paid.
6
<PAGE>
NOTE 6. MORTGAGE AND OTHER DEBT
Mortgage and other debt at March 31, 1995 and December 31, 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
First mortgage loan - Prudential $272,957 $274,776
First mortgage loans 114,905 115,193
Term loan - unsecured 22,000 22,000
Construction loans - secured 31,028 29,425
Intermediate term loans - secured 64,378 64,378
Other mortgage loans 354 377
Assessment district bonds 24,329 24,492
-------- --------
Total mortgage and other debt $529,951 $530,641
======== ========
Due in one year $129,176 $ 78,102
======== ========
</TABLE>
The Company refinanced its $388.2 million first mortgage loan with The
Prudential Insurance Company of America (Prudential) on February 18, 1994 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 loan underwriting standards and $27.2 million was
paid to release selected properties from 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.
In January 1995, the Company entered into an $85 million revolving
construction line of credit. This credit facility renews and increases a $75.5
million credit line. A new feature enables the Company to use the funds to
develop projects on either owned land or land to be acquired from third parties.
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. 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.
Interest costs relating to mortgage and other debt for the three months
ended March 31, 1995 and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Interest expensed $ 6,453 $ 6,483
Interest capitalized 5,761 5,864
------- -------
Total interest cost $12,214 $12,347
======= =======
</TABLE>
7
<PAGE>
NOTE 7. PROPERTY
Property and capitalized property costs at March 31, 1995 and December 31,
1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ -------------
<S> <C> <C>
Operating properties:
Buildings $ 443,322 $ 441,364
Land and improvements 145,516 102,177
Other land and improvements 382,987 426,762
Construction in progress 45,410 40,488
Capitalized interest and property taxes 254,112 248,138
Other (including proportionate share of joint
ventures' net deficits of $39,837 and $40,317) (8,941) (10,531)
---------- ----------
1,262,406 1,248,398
Less accumulated depreciation (167,655) (161,279)
---------- ----------
$1,094,751 $1,087,119
========== ==========
</TABLE>
NOTE 8. INCOME TAXES
The Company's effective tax rate for the three months ended March 31, 1995
was 40.1%, a 4.4% increase over the Company's 35.7% rate for fiscal 1994 due to
the effect of state income taxes.
NOTE 9. 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 March 31, 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 $3 to $25.9 million. It is anticipated that such costs will be
incurred over the next ten years. At March 31, 1995 and December 31, 1994, the
Company had a reserve of $8.6 million and $8.4 million for such costs.
Management also estimates that similar costs relating to the Company's
undeveloped properties may range from $17.8 million to $62.5 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.
8
<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.
CATELLUS' STRATEGIES
In September 1994, the Company began a major redesign of its
organization and operations. This effort has resulted in a substantial
reduction in staffing. The Company reduced its workforce by over 40% (89
employees) between September 15, 1994 and February 28, 1995. In November 1994,
the Company announced a major restructuring. This restructuring involved staff
reductions, decentralization along product groups, and a focus on generating
recurring revenue rather than selling assets to balance cash flows.
The November 1994 restructuring resulted in a workforce reduction of 76
employees (from 209 to 133) out of the total staffing reduction noted above.
Management believes these reductions, when combined with cost savings from
moving the corporate headquarters to a smaller, less expensive facility and
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. Substantially all of the
restructuring charges will result in cash outlays. In the fourth quarter of
1994 and the first quarter of 1995, $.7 million and $1.6 million of the
restructuring charges were paid, with the remaining $.8 million to be paid over
the following six months.
The restructuring initiated in late 1994 has begun to produce savings in
1995-- approximately $3 million in the first quarter. As a result of the
restructuring, general and administrative costs declined by $.7 million,
overhead costs associated with operating the portfolio declined by $1 million
and overhead costs associated with property sales declined by $.5 million. In
addition, the restructuring resulted in a $.8 million reduction in the cash cost
of the Company's development program.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the aggregate costs associated with pre-development,
operating and holding the Company's substantial real estate assets and paying
preferred stock dividends have exceeded the revenue from property operations,
development and other recurring sources. 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 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 helpful summary of its cash flows.
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES PER
STATEMENT OF CASH FLOWS................................. $14,361 $ 14,217
Cash provided by land sales............................ (1,205) (1,846)
Capitalized interest and property taxes................ (6,389) (6,504)
Preferred stock dividends.............................. (5,953) (6,285)
Debt amortization payments............................. (2,293) (390)
Distributions from (contributions to) joint ventures... 1,463 (928)
Capital expenditures:
Cash expenditures..................................... (6,943) (12,178)
Development borrowings................................ 1,603 4,148
------- --------
CASH FLOW BEFORE SALES AND AFTER FIXED CHARGES
AND CAPITAL EXPENDITURES................................ $(5,356) $ (9,766)
======= ========
</TABLE>
The Company has 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 use of available cash.
In order to meet future cash flow requirements, the Company intends to
shift its focus from the sale of assets to generating recurring revenue. This
can be accomplished in a variety of ways, including exchanging non-revenue-
producing assets for those which produce revenue; entering into long-term land
leases of developable land rather than selling land; maximizing interim uses of
land; generating additional development and management fee income; and
increasing the net cash flow from existing income producing properties. A
combination of these activities and the reduction of overhead costs
(approximately $10 million) expected to be realized in connection with the
reorganization described above can lead the Company to a position where the need
to sell property to meet cash flow requirements will be reduced over time. The
Company currently anticipates net cash flow from property sales in the range of
$25 to $50 million during 1995 in order to meet expected cash flow needs.
Historically, shortfall amounts could have been reduced by limiting capital
expenditures, and such a strategy could be employed in the future if necessary.
In addition, as the Company puts into place its programs to reduce reliance on
sales to meet cash flow needs, the capital resources available to the Company
include over $200 million in non-strategic assets available for sale, as well as
cash balances and working capital line availability.
Cash flow from operating activities
- -----------------------------------
Cash provided by operating activities reflected in the statement of cash
flows in the first quarter of 1995 and 1994 was $14.4 million and $14.2 million.
The increase in 1995 is primarily attributable to a decrease in interest costs
from refinancing of the Company's debt and principal paydowns in 1994, higher
income from operating properties and lower general and administrative costs.
This was partially offset by 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 litigation matters in 1994.
Cash generated from sales of land was $1.2 million and $1.8 million in the
first quarter of 1995 and 1994. Cash generated from rental operations increased
principally because of new buildings and lower overhead costs associated with
operating the portfolio. At March 31, 1995, the Company's total building
portfolio for all product
10
<PAGE>
types was 93.6% leased compared to 94.4% at March 31, 1994 and 94.8% at December
31, 1994. The decrease in leased space from December 31, 1994 is largely due to
the March 31 vacancy of a building in Southern California and the January 31
vacancy of a building in Phoenix; both of these are in improving leasing
markets. Cash flow from occupancy of new buildings and higher average rental
rates more than compensated for the lower occupancy at the end of the quarter.
Cash flow from investing activities
- -----------------------------------
Net cash flow from investing activities reflected in the statement of cash
flows increased $33.0 million from 1994 to 1995. The increase 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. Net cash used for investing activities included capital
expenditures totalling $13.3 million and $18.7 million in the first quarter of
1995 and 1994; such amounts include capitalized interest and property taxes
totalling $6.4 million and $6.5 million, respectively.
Cash flow from financing activities
- -----------------------------------
Net cash used by financing activities reflected in the statement of cash
flows for the first three months of 1995 was $6.6 million compared to $65.7
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. The credit facility renews and increases a $75.5 million credit
line. A new feature enables the Company to use the funds to develop projects on
either owned land or land to be acquired from third parties.
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. 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 remains
strong with $47.8 million in cash and investments and, after renewal, $62
million in working capital line availability; the Company continues to maintain
excellent relationships with its lenders.
At March 31, 1995, the Company had total outstanding debt of $530 million,
of which 75% was non-recourse to the Company and secured by the underlying
property only, 21% was recourse to the Company and also secured by underlying
property, and 4% was unsecured. During the next twelve months, $129.2 million
of debt matures; 58% of this amount is construction financing or intermediate
term loans, which are expected to be extended, refinanced and converted into
permanent loans or repaid.
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 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.
11
<PAGE>
Cash balances and available borrowings
- --------------------------------------
At March 31, 1995, cash and short-term investments totalled $47.8 million.
In addition, the Company had available $78.1 million under its construction
facilities, $1.1 million under its secured term loan facilities, and $74.5
million under its unsecured revolving facility ($62 million after renewal).
RESULTS OF OPERATIONS
(in thousands)
The table below identifies the components of gross profit on property sales
and income from operating properties. Operating properties include not only
income producing properties, but also holding costs on undeveloped land.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
PROPERTY SALES
Sales............................ $ 8,215 $ 2,304
Cost of sales.................... 2,623 2,106
------- -------
Gross profit on sales............ $ 5,592 $ 198
======= =======
OPERATING PROPERTIES
Rentals.......................... $26,634 $25,408
Expenses
Operating and maintenance...... 6,290 7,437
Taxes other than income........ 4,575 4,764
------- -------
10,865 12,201
------- -------
Income from operating properties. $15,769 $13,207
======= =======
</TABLE>
Comparison of three months ended March 31, 1995 and 1994
--------------------------------------------------------
The Company had first quarter 1995 net income of $5.4 million, an
improvement of $3.9 million over the $1.5 million in the first quarter of 1994.
Income before taxes was $8.9 million compared to $2.6 million for the first
quarter of 1994. The 1995 improvement was due to higher gross profit from
property sales, increased income from operating properties, improved results
from the Company's joint ventures and reduced general and administrative
expenses.
The increase in gross profit from property sales, shown in the table above,
resulted from both higher sales and lower cost basis in properties sold.
Income from operating properties, shown in the table above, increased 19.4%
over the 1994 first quarter. This increase in operating income was due to new
buildings completed over the last twelve months, lower overhead costs as a
result of the Company's restructuring initiated in late 1994, and an increase of
4.9% for existing buildings due primarily to increases in average rental rates.
Also, the 1994 first quarter results included $.5 million of operating income
from buildings sold in 1994 and whose operating income is therefore not
reflected in 1995 results.
The restructuring initiated in late 1994 has begun to produce savings--
approximately $3 million in the first quarter of 1995. As a result of the
restructuring, general and administrative costs declined by $.7 million,
overhead costs associated with operating the portfolio declined by $1 million
and overhead costs associated with property sales
12
<PAGE>
declined by $.5 million. In addition, the restructuring resulted in a $.8
million reduction in the cash cost of the Company's development program.
Equity in earnings of joint ventures increased in the first quarter of 1995
primarily as a result of improved operating results from the hotel operations of
one joint venture. Other revenue was higher in 1994 due to the favorable
settlement of several environmental litigation matters in 1994.
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 three months of 1995 and 1994 totalled $1 million and $1.5 million.
Environmental costs capitalized for the first three months of 1995 and 1994
totalled $.4 million and $.2 million.
At March 31, 1995, the Company's estimate of its potential liability for
identified environmental costs ranged from $3 million to $25.9 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
incurred over the next five years. At March 31, 1995, the Company's estimate of
its potential liability for identified environmental costs relating to
developable properties ranged from $17.8 million to $62.5 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 9 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>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
City of Richmond, et al. vs. United States of America, et al. (United States
- -------------------------------------------------------------
District Court, Northern District of California; filed August 1989) In April
1995, the Company reached agreement with the plaintiffs to settle all claims and
causes of action by payment to the plaintiffs of $3.25 million. This payment
will be made in installments, the first payment to be made within 30 days of
execution of the settlement agreement, and the final payment to be made on or
before July 15, 1997. All payments made after July 15, 1995 will bear interest
at the rate of 8% per year, from July 15, 1995.
The plaintiffs and the Company agreed to execute mutual releases covering
all past and future causes of action relating to environmental response costs,
damages and liabilities, losses and expenses of any kind, including a release
with respect to unknown claims (California Civil Code (S) 1542 release), with
respect to the property formerly known as Shipyard Number 2 ("Property"). The
parties agreed that they would jointly move the court for a good faith
determination of their settlement. The settlement does not affect claims
against any person who is not a party to the agreement, except that the
plaintiffs agreed to release all claims against James L. Ferry & Son, Inc.
("Ferry") and all post-World War II tenants on the Property other than Ford
Motor Company and related Ford entities, and to discuss further the application
of this release to a former tenant of the Property. The plaintiffs and the
Company agreed to bear their own costs of litigation, including attorneys' fees
and expert witness fees.
The Company is continuing to pursue its contribution and indemnity claims
against Kaiser Aluminum & Chemical Corporation and Ferry. Trial before the
court has recently concluded; a decision on the Company's claims against Kaiser
and Ferry is expected within the next several weeks. The Company is continuing
discussions with its insurers to recover certain costs. In April 1995, $98,500
was recovered from an insurer bringing the total amount recovered to date from
such insurers to approximately $1.5 million. It is not clear at this time how
much additional money will be obtained from the insurers, Kaiser or Ferry.
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>
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 May 12, 1995 By /s/ Nelson C. Rising
------------------------------- -------------------------------
Nelson C. Rising
President and Chief Executive
Officer
Date May 12, 1995 By /s/ Douglas B. Stimpson
------------------------------- -------------------------------
Douglas B. Stimpson
Vice President Finance
Date May 12, 1995 By /s/ David M. Perna
------------------------------- -------------------------------
David M. Perna
Controller
15
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 38,040
<SECURITIES> 0
<RECEIVABLES> 23,620
<ALLOWANCES> 1,989
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,262,406
<DEPRECIATION> 167,655
<TOTAL-ASSETS> 1,215,491
<CURRENT-LIABILITIES> 0
<BONDS> 529,951
<COMMON> 730
0
322,500
<OTHER-SE> 175,864
<TOTAL-LIABILITY-AND-EQUITY> 1,215,491
<SALES> 8,215
<TOTAL-REVENUES> 38,785
<CGS> 2,623
<TOTAL-COSTS> 23,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 126
<INTEREST-EXPENSE> 6,453
<INCOME-PRETAX> 8,946
<INCOME-TAX> 3,588
<INCOME-CONTINUING> 5,358
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,358
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
