<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 JUNE 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 July 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.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet - Historical Cost Basis
at June 30, 1995 and December 31, 1994.......................... 2
Consolidated Statement of Income - Historical Cost Basis
for the three months and six months ended June 30, 1995
and 1994........................................................ 3
Condensed Consolidated Statement of Cash Flows -
Historical Cost Basis for the six months ended
June 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.................................................... 13
SIGNATURES..................................................................... 14
</TABLE>
1
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET - HISTORICAL COST BASIS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Properties........................................... $ 1,276,092 $ 1,248,398
Less accumulated depreciation........................ (173,846) (161,279)
----------- -----------
1,102,246 1,087,119
Other assets and deferred charges.................... 45,267 49,584
Notes receivable..................................... 7,967 7,961
Accounts receivable, less allowances................. 12,242 10,712
Short-term investments............................... -- 32,645
Restricted cash and investments...................... -- 2,422
Cash and cash equivalents............................ 38,998 16,920
----------- -----------
Total............................................. $ 1,206,720 $ 1,207,363
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt.............................. $ 531,386 $ 530,641
Accounts payable and accrued expenses................ 33,781 38,876
Deferred credits and other liabilities............... 27,416 25,495
Deferred income taxes................................ 117,854 112,662
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................................ (47,285) (43,879)
----------- -----------
Total stockholders' equity......................... 496,283 499,689
----------- -----------
Total............................................. $ 1,206,720 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ----------------------
1995 1994 1995 1994
-------- -------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Property sales................................ $ 3,506 $15,272 $11,721 $17,576
Rental........................................ 26,474 26,097 53,108 51,505
Interest income............................... 839 716 2,151 1,824
Equity in earnings of joint ventures.......... 2,409 5,027 4,352 6,236
Other -- net.................................. 920 1,401 1,601 5,388
------- ------- ------- -------
34,148 48,513 72,933 82,529
------- ------- ------- -------
COSTS AND EXPENSES
Cost of property sold......................... 1,873 10,329 4,496 12,435
Operating and maintenance..................... 6,247 6,546 12,537 13,983
Depreciation.................................. 6,193 6,510 12,602 13,028
General and administrative.................... 2,617 3,127 6,106 7,284
Taxes other than income....................... 5,257 4,500 9,832 9,264
Interest...................................... 6,687 6,020 13,140 12,503
------- ------- ------- -------
28,874 37,032 58,713 68,497
------- ------- ------- -------
INCOME BEFORE TAXES............................ 5,274 11,481 14,220 14,032
Income taxes................................... 2,131 4,883 5,719 5,965
------- ------- ------- -------
NET INCOME..................................... $ 3,143 $ 6,598 $ 8,501 $ 8,067
Preferred stock dividends.................... 5,953 5,953 11,906 11,906
------- ------- ------- -------
Net income (loss) applicable to common
stockholders................................ $(2,810) $ 645 $(3,405) $(3,839)
======= ======= ======= =======
Net income (loss) per share of common stock.. $ (0.04) $ 0.01 $ (0.05) $ (0.05)
======= ======= ======= =======
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>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 8,501 $ 8,067
Non-cash items included in net income:
Depreciation.............................................. 12,602 13,028
Deferred income taxes..................................... 5,192 3,592
Amortization of deferred loan fees and other costs........ 1,311 1,396
Equity in earnings of joint ventures...................... (4,352) (6,236)
Cost of land sold......................................... 1,869 3,671
Loss on sale of income producing properties............... -- 1,677
Other--net................................................ 2,294 2,012
Changes in operating assets and liabilities................ (1,599) 1,864
-------- ---------
Net cash provided by operating activities................... 25,818 29,071
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (27,359) (41,060)
Net proceeds from sale of income producing properties...... -- 5,236
Distributions from/contributions to joint ventures, net.... 2,638 (169)
Reduction in short-term investments and
restricted cash........................................... 35,067 --
-------- ---------
Net cash provided by (used for) investing activities........ 10,346 (35,993)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................................. 48,173 302,462
Repayment of borrowings.................................... (50,353) (423,629)
Dividends paid............................................. (11,906) (12,238)
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...................... (14,086) (76,050)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 22,078 (82,972)
Cash and cash equivalents at beginning of period............ 16,920 146,604
-------- ---------
Cash and cash equivalents at end of period.................. $ 38,998 $ 63,632
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)...................... $ 11,397 $ 12,596
Income taxes.............................................. $ 245 $ 16
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 which
consisted of three initiatives: reorganization, decentralization and a focus on
recurring revenue 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 June 30, 1995, $2.5 million of the restructuring charges had been
paid.
5
<PAGE>
NOTE 5. MORTGAGE AND OTHER DEBT
Mortgage and other debt at June 30, 1995 and December 31, 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
First mortgage loan -- Prudential $ 271,099 $ 274,776
First mortgage loans 114,615 115,193
Term loan -- unsecured 22,000 22,000
Construction loans -- secured 24,353 29,425
Intermediate term loans -- secured 71,800 64,378
Other loans 3,256 377
Assessment district bonds 24,263 24,492
--------- ---------
Total mortgage and other debt $ 531,386 $ 530,641
========= =========
Due in one year $ 96,952 $ 78,102
========= =========
</TABLE>
In January 1995, the Company entered into an $85 million revolving
construction line of credit and in July 1995 increased the construction line an
additional $15 million to a total of $100 million. This 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 to 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. 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.
In May 1995 the Company closed a $47 million secured term loan to refinance
properties which were previously financed by loans maturing during the second
quarter of 1995.
Interest costs relating to mortgage and other debt for the three and six
months ended June 30, 1995 and 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expensed $ 6,687 $ 6,020 $ 13,140 $ 12,503
Interest capitalized 5,611 6,011 11,372 11,875
-------- -------- -------- --------
Total interest cost $ 12,298 $ 12,031 $ 24,512 $ 24,378
======== ======== ======== ========
</TABLE>
6
<PAGE>
NOTE 6. PROPERTY
Property and capitalized property costs at June 30, 1995 and December 31,
1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------ -------------
<S> <C> <C>
Operating properties:
Buildings $ 446,560 $ 441,364
Land and improvements 155,116 102,177
Other land and improvements 376,654 426,762
Construction in progress 44,075 40,488
Capitalized interest and property taxes 260,255 248,138
Other (including proportionate share of joint
ventures' net deficits of $38,603 and $40,317) (6,568) (10,531)
---------- ----------
1,276,092 1,248,398
Less accumulated depreciation (173,846) (161,279)
---------- ----------
$1,102,246 $1,087,119
========== ==========
</TABLE>
NOTE 7. INCOME TAXES
The Company's effective tax rate for the six months ended June 30, 1995 was
40.2%, a 4.5% increase over the Company's 35.7% rate for fiscal 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 June 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 $2.9 to $26.1 million. It is anticipated that such costs will be
incurred over the next ten years. At June 30, 1995 and December 31, 1994, the
Company had a reserve of $8.8 million and $8.4 million for such costs.
Management also estimates that similar costs relating to the Company's
undeveloped properties may range from $17.6 million to $60.1 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.
CATELLUS' STRATEGIES
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 announced a major restructuring
in November, 1994. At that time the Company implemented significant staff
reductions and reorganized its operations along product groups. Future efforts
will include increased emphasis on the sale of non-strategic assets (primarily
land and certain income properties that do not fit the Company's long-term
goals) and the redeployment of the proceeds into activities that generate
recurring revenue and/or that reduce debt.
Management believes the workforce 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 and have begun to produce
savings in 1995. Overhead has been reduced by $5.5 million in the first six
months of 1995 compared to 1994. General and administrative costs declined by
$1.2 million, overhead costs associated with operating the portfolio declined by
$2 million and overhead costs associated with property sales declined by $.9
million. In addition, the Company has benefitted from a $1.4 million reduction
in the cash cost of the Company's development program.
In addition to the property sales necessary to fund the Company's current
operations, management has identified a substantial amount of non-strategic land
assets that it will attempt to liquidate over the intermediate term. These
assets represent properties that do not fit into the Company's long-term
development strategy or where the benefit of additional entitlements would not
justify the costs to hold the property. Proceeds will be redeployed into
properties or activities that generate recurring revenue or will be used to
reduce debt.
The Company can generate additional recurring revenue 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; increasing the net cash flow from existing income
producing properties and entering into joint ventures.
A combination of overhead reduction, the redeployment of proceeds from the
sale of non-strategic assets and the efforts to generate additional recurring
revenue can lead the Company to a position where the need to sell property to
meet cash flow requirements will be reduced over time. For 1995 the Company
continues to anticipate that property sales will be needed to meet expected cash
flow needs as discussed below.
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
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
8
<PAGE>
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.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1994
--------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES PER
STATEMENT OF CASH FLOWS................................ $ 25,818 $ 29,071
Cash provided by land sales........................... (8,825) (11,316)
Capitalized interest and property taxes............... (12,618) (13,155)
Preferred stock dividends............................. (11,906) (12,238)
Debt amortization payments............................ (4,530) (3,222)
Distributions from (contributions to) joint ventures.. 2,638 (169)
Capital expenditures:
Cash expenditures.................................... (14,741) (27,905)
Development borrowings............................... 1,701 13,111
CASH FLOW BEFORE SALES AND AFTER FIXED CHARGES -------- --------
AND CAPITAL EXPENDITURES............................... $(22,463) $(25,823)
======== ========
</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 half of 1995 and 1994 was $25.8 million and $29.1 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 litigation
matters in 1994. This was partially offset by a decrease in interest costs from
refinancing and principal paydowns of the Company's debt in 1994, higher income
from operating properties and lower general and administrative costs.
Cash generated from sales of land was $8.8 million and $11.3 million in the
first half of 1995 and 1994. Cash generated from rental operations increased
principally because of new buildings, higher occupancies in existing buildings,
higher average rental rates and lower overhead costs associated with operating
the portfolio. At June 30, 1995, the Company's total building portfolio for all
product types was 95% leased compared to 94.9% at June 30, 1994 and 94.8% at
December 31, 1994.
Cash flow from investing activities
Net cash flow from investing activities reflected in the statement of cash
flows increased $46.3 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. Capital expenditures totalling $27.4 million and $41.1 million in
the first six months of 1995 and 1994 include capitalized interest and property
taxes totalling $12.6 million and $13.2 million. 1994 also included $5.2 million
of proceeds from the sale
9
<PAGE>
of income producing properties. As of June 30, 1994, the Company has 568,000
square feet of new development under construction and 448,000 square feet with
binding leases prior to construction.
Cash flow from financing activities
Net cash used by financing activities reflected in the statement of cash
flows for the first six months of 1995 was $14.1 million compared to $76.1
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. 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
$39 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 maturing during the
second quarter of 1995.
At June 30, 1995, the Company had total outstanding debt of $531.4 million,
of which 74% was non-recourse to the Company and secured by the underlying
property, 21% was recourse to the Company and also secured by underlying
property, and 5% was unsecured. During the next twelve months, $97 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.
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.
Cash balances and available borrowings
At June 30, 1995, cash and cash equivalents totalled $39 million. In
addition, the Company had available $84.8 million under its construction
facilities (excluding an additional $40 million which became available in July
1995), $.5 million under its secured term loan facilities, and $62.5 million
under its unsecured revolving facility.
10
<PAGE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PROPERTY SALES
Sales........................... $ 3,506 $ 15,272 $ 11,721 $ 17,576
Cost of sales................... 1,873 10,329 4,496 12,435
-------- -------- -------- --------
Gross profit on sales........... $ 1,633 $ 4,943 $ 7,225 $ 5,141
======== ======== ======== ========
OPERATING PROPERTIES
Rentals......................... $ 26,474 $ 26,097 $ 53,108 $ 51,505
Expenses
Operating and maintenance..... 6,247 6,546 12,537 13,983
Taxes other than income....... 5,257 4,500 9,832 9,264
-------- -------- -------- --------
11,504 11,046 22,369 23,247
-------- -------- -------- --------
Income from operating properties $ 14,970 $ 15,051 $ 30,739 $ 28,258
======== ======== ======== ========
</TABLE>
Comparison of six months ended June 30, 1995 and 1994
The Company had net income of $8.5 million for the first half of 1995, an
improvement of $.4 million over 1994. Income before taxes was $14.2 million
compared to $14 million for the first half of 1994. In 1995, gross profit from
property sales increased, income from operating properties improved, and general
and administrative expenses declined. Offsetting these amounts were reduced
joint venture earnings and decreased miscellaneous revenues.
The increase in gross profit from property sales, shown in the table above,
resulted from lower cost basis of properties sold. The 1994 sales included
several income producing properties, one of which generated a $3 million loss.
Income from operating properties, shown in the table above, increased 8.8%
over the 1994 first half. This increase was due to new buildings completed over
the last twelve months, and lower overhead costs as a result of the Company's
restructuring initiated in late 1994. Partially offsetting these improvements
was a one-time $.9 million charge for property taxes in the second quarter of
1995 due to reassessment of one of the Company's office buildings. Other
existing buildings experienced higher occupancy and increases in average rental
rates. Increased income from the Company's operating properties more than
compensated for the $1 million earnings loss from properties sold in 1994.
The restructuring initiated in late 1994 has begun to produce savings in
1995. Overhead has been reduced by $5.5 million in the first six months of 1995
compared to 1994. General and administrative costs declined by $1.2 million,
overhead costs associated with operating the portfolio declined by $2 million
and overhead costs associated with property sales declined by $.9 million. In
addition, the Company benefitted from a $1.4 million reduction in the cash cost
of the Company's development program.
11
<PAGE>
Joint venture earnings decreased in the first half of 1995 primarily as a
result of lower property sales 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.
Comparison of three months ended June 30, 1995 and 1994
The Company had second quarter 1995 net income of $3.1 million, a decline
of $3.5 million from the second quarter of 1994. Income before taxes was $5.3
million compared to $11.5 million for the second quarter of 1994. The 1995
decline was due to lower gross profit from property sales and lower joint
venture earnings, which primarily represented a land sale by a joint venture in
1994. This was partially offset by reduced general and administrative expenses.
The decrease in gross profit from property sales, shown in the table above,
resulted from a lower level of sales. Sales will continue to fluctuate from
quarter to quarter.
Income from operating properties, shown in the table above, decreased
slightly from the 1994 second quarter. This occurred primarily because of the
one-time property tax charge described above.
Overhead has been reduced by $2.2 million in the second quarter of 1995.
General and administrative costs declined by $.5 million, overhead costs
associated with operating the portfolio declined by $.7 million and overhead
costs associated with property sales declined by $.4 million. In addition, the
restructuring resulted in a $.6 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 half of 1995 and 1994 totalled $1.6 million and $2.5 million; for the
second quarter of 1995 and 1994, such costs charged to operations totalled $.6
million and $1.0 million. Environmental costs capitalized for the first half of
1995 and 1994 totalled $.7 million and $.6 million.
At June 30, 1995, the Company's estimate of its potential liability for
identified environmental costs ranged from $2.9 million to $26.1 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 June 30, 1995, the Company's estimate of
its potential liability for identified environmental costs relating to
developable properties ranged from $17.6 million to $60.1 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.
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.
12
<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). On June 2,
1995, the Court issued an order awarding the plaintiffs $1,231,178.50 plus
interest on their claims against Kaiser Aluminum & Chemical Corporation
("Kaiser") for past costs and declared that Kaiser is liable to the plaintiffs
for 50% of certain future cleanup costs. The Court also awarded the Company
$113,243.40 plus interest and the attorneys' fees associated with its
contractual indemnity claim against Kaiser. The Court did not grant relief on
any other claim and no final judgment has yet been entered.
The Company has not yet decided whether to appeal the amount of the Court's
award on its indemnity claim against Kaiser and is attempting to negotiate a
settlement with Kaiser. It is not possible now to predict reliably what
additional amounts the Company may receive through these negotiations or on
appeal.
Efforts continue to be made to recover additional sums from other insurers,
including those who provided excess coverage and insurers who issued policies to
the Company's former tenants, which policies named the Company's predecessor as
an additional insured. As of July 31, 1995, the Company has received payments
and commitments from certain of such insurers totaling $2,412,882 plus 100% of
future litigation defense costs. It is not clear at this time whether or how
much additional monies will be obtained from other insurance carriers.
Negotiations are continuing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 31, 1995,
stockholders voted with respect to the election of directors. All nominees were
elected and the votes were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
----------- --------- ---------
<S> <C> <C> <C>
1. Election of Directors
Joseph F. Alibrandi 63,717,214 -- 313,661
Daryl J. Carter 63,698,099 -- 332,776
Darla Totusek Flanagan 63,720,608 -- 310,267
Christine Garvey 63,696,584 -- 334,291
Judd D. Malkin 63,730,288 -- 300,587
Nelson C. Rising 63,704,624 -- 326,251
Joseph R. Seiger 63,726,973 -- 303,902
Jacqueline R. Slater 63,721,840 -- 309,035
Thomas M. Steinberg 63,723,025 -- 307,850
Tom C. Stickel 63,722,983 -- 307,892
Beverly Benedict Thomas 63,690,328 -- 340,547
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. 27 Financial Data Schedule
13
<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 August 3, 1995 By /s/ Stephen P. Wallace
---------------------------- -----------------------------------
Stephen P. Wallace
Senior Vice President and
Chief Financial Officer
Date August 3, 1995 By /s/ David M. Perna
---------------------------- ------------------------------------
David M. Perna
Controller
14
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
(Article 5 of Regulation S-X)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE HISTORICAL COST BASIS CONSOLIDATD 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 38,998
<SECURITIES> 0
<RECEIVABLES> 22,293
<ALLOWANCES> 2,084
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,267,092
<DEPRECIATION> 173,846
<TOTAL-ASSETS> 1,206,720
<CURRENT-LIABILITIES> 0
<BONDS> 531,386
<COMMON> 730
0
322,500
<OTHER-SE> 173,053
<TOTAL-LIABILITY-AND-EQUITY> 1,206,720
<SALES> 11,721
<TOTAL-REVENUES> 72,933
<CGS> 4,496
<TOTAL-COSTS> 45,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 13,140
<INCOME-PRETAX> 14,220
<INCOME-TAX> 5,719
<INCOME-CONTINUING> 8,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,501
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
