<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, 1996 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, 1996, there were 74,498,921 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
Consolidated Balance Sheet at March 31, 1996 and December 31, 1995..... 2
Consolidated Statement of Operations for the three months ended
March 31, 1996 and 1995............................................. 3
Consolidated Statement of Cash Flows for the three months ended
March 31, 1996 and 1995............................................. 4
Notes to 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
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,201,695 $1,191,679
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . (191,244) (184,228)
---------- ----------
1,010,451 1,007,451
Other assets and deferred charges . . . . . . . . . . . . . . . . . . 46,802 44,530
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,695 7,550
Accounts receivable, less allowances . . . . . . . . . . . . . . . . . 10,642 10,330
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 23,574 27,743
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097,164 $1,097,604
========== ==========
Liabilities and stockholders' equity
Mortgage and other debt . . . . . . . . . . . . . . . . . . . . . . . . $ 491,131 $ 496,180
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 34,756 33,913
Deferred credits and other liabilities. . . . . . . . . . . . . . . . . 38,272 34,367
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 91,445 90,270
---------- ----------
Total liabilities . . . . . . . . . . . .. . . . . . . . . . . 655,604 654,730
---------- ----------
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . 322,500 322,500
Common stock - 74,498 and 74,495 shares issued at
March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . 745 745
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 198,410 196,510
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . (80,095) (76,881)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 441,560 442,874
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097,164 $1,097,604
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Rental revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,272 $ 26,898
-------- --------
Property operating costs . . . . . . . . . . . . . . . . . . . . . . . . . 11,285 8,892
-------- --------
Gain on sales of property . . . . . . . . . . . . . . . . . . . . . . . . 3,087 5,574
-------- --------
Other income (expense)
Equity in earnings of joint ventures . . . . . . . . . . . . . . . . . 1,390 1,943
Management and development fee income . . . . . . . . . . . . . . . . . 403 407
General and administrative expense . . . . . . . . . . . . . . . . . . (2,060) (3,869)
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . (10,530) (5,141)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . (7,672) (7,053)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 (921)
-------- --------
(18,179) (14,634)
-------- --------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . 2,895 8,946
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,181 3,588
-------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,714 5,358
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . 5,953 5,953
-------- --------
Net loss applicable to common stockholders . . . . . . . . . . . . . . $ (4,239) $ (595)
======== ========
Net loss per share of common stock . . . . . . . . . . . . . . . . . . $ (0.06) $ (0.01)
======== ========
Average number of common shares outstanding . . . . . . . . . . . . . . 74,497 74,495
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,714 $ 5,358
Non-cash items included in net income:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,672 7,053
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,175 3,276
Amortization of deferred loan fees and other costs . . . . . . . . . . . . . . . . 788 642
Equity in earnings of joint ventures . . . . . . . . . . . . . . . . . . . . . . . (1,390) (1,943)
Cost of land sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,165 530
Other--net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,588 1,082
Changes in operating assets and liabilities. . . . . . . . . . . . . . . . . . . . . . 162 (1,637)
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . 13,874 14,361
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,056) (13,332)
Distributions from/contributions to joint ventures, net . . . . . . . . . . . . . . . - 1,463
Reduction in short-term investments and
restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25,271
-------- --------
Net cash (used for) provided by investing activities . . . . . . . . . . . . . . . . . . . (7,056) 13,402
-------- --------
Cash flows from financing activities:
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,894 1,603
Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,943) (2,293)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,953) (5,953)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 15 -
-------- --------
Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (10,987) (6,643)
-------- --------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (4,169) 21,120
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . 27,743 16,920
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . $ 23,574 $ 38,040
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . . . . . . . $ 10,101 $ 5,744
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 225 $ -
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. DESCRIPTION OF BUSINESS
Headquartered in San Francisco, Catellus Development Corporation (the
Company) is a full service real estate company that manages and develops real
estate for its own account and others. The Company's portfolio of industrial,
retail and office projects, undeveloped land and joint venture interests are
located in major markets in California and 10 other states. The Company's
operating properties consist primarily of industrial facilities, along with a
number of office and retail buildings located in California, Arizona, Illinois,
Texas, Colorado and Oregon. The Company also has substantial undeveloped land
holdings primarily in these same states.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1995 Annual Report on 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.
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. Prior year shares outstanding have been adjusted for
the acquisition discussed at Note 4.
NOTE 4. ACQUISITION
In March 1996, the Company acquired The Akins Companies (Akins), a
residential real estate company involved in home building, community development
and project management services, primarily in Southern California. Akins was
acquired in exchange for 1,528,421 shares of the Company's common stock in a
transaction that qualifies for the pooling of interest method of accounting.
However, prior year financial statements have not been restated because Akins is
not material to the financial position, results of operations or cash flows of
the Company.
5
<PAGE>
NOTE 5. MORTGAGE AND OTHER DEBT
Mortgage and other debt at March 31, 1996 and December 31, 1995 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
First mortgage loan - Prudential $265,277 $267,260
First mortgage loans 70,455 70,770
Intermediate term loans - secured 71,800 71,800
Construction loans - secured 50,528 52,851
Assessment district bonds 23,146 23,283
Term loan - unsecured 7,000 7,000
Other loans 2,925 3,216
-------- --------
Total mortgage and other debt $491,131 $496,180
======== ========
Due in one year $ 82,727 $ 85,094
======== ========
</TABLE>
Interest costs relating to mortgage and other debt for the three
months ended March 31, 1996 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Gross interest incurred $11,204 $12,214
Interest capitalized (265) (5,761)
Interest income (409) (1,312)
------- --------
Interest expensed $10,530 $ 5,141
======= =======
</TABLE>
NOTE 6. PROPERTIES
Net book value by property type at March 31, 1996 and December 31,
1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
<S> <C> <C>
Income producing properties:
Industrial buildings $ 276,191 $ 279,838
Office buildings 112,022 113,095
Retail buildings 83,740 84,595
Land development 318,667 317,727
Land leases 10,063 10,069
---------- -----------
800,683 805,324
---------- -----------
Land holdings:
Developable properties 155,587 150,339
Natural resources 1,786 1,788
Properties held for sale 82,342 84,232
---------- -----------
239,715 236,359
---------- -----------
Other (including proportionate share of joint
venture's net deficits of $37,540 and $41,066) (29,947) (34,232)
---------- -----------
$1,010,451 $ 1,007,451
========== ===========
</TABLE>
6
<PAGE>
NOTE 7. INCOME TAXES
The Company's effective tax rate for the three months ended March 31,
1996 was 40.8%, a 0.7% increase over the Company's 40.1% rate for fiscal 1995
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, results of operations or cash flows 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,
1996, management estimates that future costs for remediation of identified or
suspected environmental contamination which will be treated as an expense will
be approximately $13.9 million, and has provided a reserve for that amount. It
is anticipated that such costs will be incurred over the next ten years.
Management also estimates that similar costs relating to the Company's
properties to be developed or sold may range from $18.3 million to $61.9
million. These amounts will be capitalized as components of development costs
when incurred, which is anticipated to be over a period of twenty years, or will
be deferred and charged to cost of sales when the properties are sold. These
estimates were developed based on extensive reviews which took place over
several years based upon then prevailing law and identified site conditions.
Because of the breadth of its portfolio, the Company is unable to review
extensively each property on a regular basis. Such estimates are not precise and
are always subject to the availability of further information about the
prevailing conditions at the site, the future requirements of regulatory
agencies and the availability of other parties to pay some or all of such costs.
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 of holding and operating the Company's real
estate assets and paying preferred stock dividends have exceeded revenue from
property operations, development and other recurring sources. In addition, the
Company's cash requirements have been increased by the funds necessary to
support the predevelopment and entitlement efforts for its major land
development projects. The resulting cash flow deficits have been funded by
borrowings, the issuance of preferred stock and the sale of sufficient assets to
meet the Company's overall cash requirements.
The Company's short term financial goal is to eliminate the cash flow deficits
resulting from interest and preferred stock dividends exceeding operating cash
flow by the fourth quarter of 1996. To do this, the Company has taken the
following steps:
. In October 1995, the Company began the process of substantially increasing
its asset sales activity, with the primary focus on its non-strategic land
assets. Sale proceeds will be applied to a combination of debt reduction,
in order to reduce interest costs, and reinvestment in activities that
could generate increased operating earnings. Sales totaling $6.2 million
closed in the first quarter of 1996 and the Company has now sold $53.3
million of non-strategic land in the six months following the announcement
of its goal. The Company expects to attain its goal to sell $100 million of
non-strategic land assets over a 15-month period ending December 31, 1996.
. During the first quarter of 1996, the Company reduced its total debt by a
net $5 million. This net reduction represents the difference between $8.9
million of principal reductions on existing borrowings and $3.9 million of
new borrowings which funded the construction of pre-leased industrial
buildings. It is expected that the debt service on the new borrowings will
be covered by the cash flow from the completed buildings; therefore, the
Company's future operations should be improved by the interest savings on
the $8.9 million of principal reductions.
. The Company continues to place a greater emphasis on increasing its
development and fee development businesses. During the first quarter of
1996, the Company commenced construction on approximately 345,000 square
feet of new development, and signed leases for new development totaling
300,000 square feet for which construction will commence in the second
quarter of 1996. The Company has established a goal of three million square
feet of construction starts and/or signed leases for new industrial space
by December 31, 1996. In March 1996, the Company acquired The Akins
Companies to better position itself to pursue existing residential
development opportunities on certain of its land holdings, as well as to
pursue fee development opportunities on land not currently owned by the
Company.
. The Company also continues to place a greater emphasis on increasing its
third party management business. In January 1996, the Company announced a
five-year contract to manage the non-railroad real estate assets for
the Burlington Northern Santa Fe Corporation.
. The Company has an ongoing strategy to undertake a review of its major land
development projects with the goal of increasing profitability, minimizing
up front capital requirements and shortening the time required to develop
the properties. As a result of this review, the decision was made to modify
certain of the entitlements,
8
<PAGE>
abandon others and sell one property that management believed could not be
developed in a reasonable time frame. It is management's expectation that
these decisions will both accelerate the time frame in which the projects
will be developed and minimize the up front cash requirements associated
with development.
The Company's long-term financial goal is to increase its return on
stockholder equity. In order to accomplish this, the Company will continue with
the revenue enhancement and cost reduction initiatives discussed above and will
seek opportunities to reduce its capital commitment to projects through joint
ventures, where the Company would seek financial partners to participate in some
of its more capital intensive businesses. In addition, as the Company completes
its disposition program of non-strategic land assets, it will evaluate
opportunities to increase stockholder returns through strategic reinvestment
and/or stock repurchases.
RESULTS OF OPERATIONS
The following table (in thousands) summarizes the Company's operating deficit
after adjustment for fixed charges, leasing costs and joint venture cash flow.
The Company believes that this presentation is meaningful in order to understand
its progress in achieving its near-term goal of eliminating operating cash flow
deficits by the fourth quarter of 1996.
<TABLE>
<CAPTION>
March 31,
-----------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Operating income before depreciation
Rental revenues $ 29,272 $ 26,898
Property operating costs (11,285) (8,892)
Equity in earnings of joint ventures 1,390 1,943
Management and development fee income 403 407
General and administrative expense (2,060) (3,869)
Gain on sale of development properties - -
-------- --------
17,720 16,487
-------- --------
Fixed charges - interest and dividends
Total interest costs, net of interest income (10,795) (10,902)
Preferred dividends (5,953) (5,953)
Add back non-cash components of interest expense 816 708
-------- --------
(15,932) (16,147)
-------- --------
Leasing costs
Depreciation on tenant improvements (1,854) (1,870)
Amortization of lease commissions (635) (646)
-------- --------
(2,489) (2,516)
-------- --------
Difference between earnings and net cash
distributions from joint ventures (1,390) (480)
-------- --------
Operating deficit after adjustment for fixed charges,
leasing costs and joint venture cash flow $ (2,091) $ (2,656)
======== ========
</TABLE>
9
<PAGE>
Comparison of three months ended March 31, 1996 and 1995
The Company had first quarter 1996 operating income before
depreciation of $17.7 million compared to $16.5 million for the first quarter of
1995. This improvement resulted primarily from increased rental revenue and
lower general and administrative expense, partially offset by higher property
operating costs.
The more significant changes in rental revenue and property operating
costs are summarized below ( in millions):
<TABLE>
<CAPTION>
Change
-----------------------
Rental Operating
revenue costs
-------- ---------
<S> <C> <C>
Industrial buildings $ 0.6 $ 0.6
Retail buildings 0.5 0.4
Office buildings (0.3) 0.3
Other income producing properties 1.8 1.2
Land holdings (0.2) (0.1)
----- -----
Total change $ 2.4 $ 2.4
===== =====
</TABLE>
The increase in revenue for industrial buildings was due to new
buildings completed in 1995 partially offset by lower rental rates on certain
lease rollovers. Operating costs for the industrial portfolio increased due to
higher maintenance and repairs. The increase in revenue and costs for retail
buildings was primarily due to the fact that the East Baybridge shopping center,
completed in late 1994, was more fully leased in the first quarter of 1996 than
in the first quarter of 1995. Rental revenue for the Company's office portfolio
decreased primarily due to the expiration of an above market lease in one
building. In addition, the Company's operating costs for its office portfolio
increased $.3 million due to increased property taxes primarily resulting from
the reassessment of a building.
The increase in revenue and costs from other income producing
properties resulted in a large part from the Company's December 31, 1995
announcement that it would discontinue the practice of capitalizing revenue and
operating costs (as well as interest expense) for Mission Bay and certain other
properties because the related entitlements are not complete and development has
not commenced.
The Company recognized $1.4 million in income from its joint ventures
in the first quarter of 1996, however, no cash distributions related to this
income were received during the quarter. It is expected that the primary joint
venture which generates income will be making a cash distribution in the second
quarter of 1996, pending the completion of a refinancing transaction. Joint
venture earnings decreased $.6 million from the first quarter of 1995. The
decrease consists principally of lower operating results from a hotel joint
venture due to a decrease in occupancy.
During 1995, the Company experienced significant staff reductions and
realignment of responsibilities. In connection with these changes, the Company
refined its overhead allocation to more closely align certain common costs with
the underlying activity. This had the result of increasing property operating
costs and reducing general and administrative expense in 1996 when compared to
1995.
Interest expense increased $4.5 million primarily as a result of
discontinuing the practice of capitalizing interest on Mission Bay and certain
other properties as described above. During the first quarter of 1995, the
Company capitalized $5.8 million of interest compared to $.3 million in the
first quarter of 1996. However, total interest incurred was $1 million lower in
the first quarter of 1996 compared to the same period in 1995 due to net debt
reduction in the first quarter of 1996 and in 1995.
The Company completed sales of non-strategic land assets totaling $6.2
million in the first quarter of 1996. The Company has now sold $53.3 million of
non-strategic land during the six months following the announcement of its goal
to sell $100 million of non-strategic land assets by December 31, 1996. In
addition, at the end of the first quarter of 1996 the Company had contracts
outstanding for the sale of an additional $30.4 million of non-strategic land
assets and $21.1 million of other assets.
10
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
Cash flow from operating activities
Cash provided by operating activities reflected in the statement of
cash flows in the first three months of 1996 and 1995 was $13.9 million and
$14.4 million. The decrease in 1996 is primarily attributable to the increase in
interest expense partially offset by higher cash generated from land sales and
lower general and administrative costs.
Cash paid for interest, net of amount capitalized, increased from $5.7
million for the three month period in 1995 to $10.1 million for 1996. This
resulted from the discontinuance of capitalizing interest on Mission Bay and
certain other projects as described above. Cash generated from sales of land was
$5.4 million and $1.2 million in the first three months of 1996 and 1995.
Cash flow from investing activities
Net cash flow from investing activities reflected in the statement of
cash flows decreased $20.5 million from 1995 to 1996. The decrease in 1996 is
primarily attributable to a decrease in capital expenditures of $6.3 million and
the fact that 1995 includes conversion of short-term commercial paper and
government securities into cash and cash equivalents of $25.3 million. Capital
expenditures totaling $7.1 million and $13.3 million in the first three months
of 1996 and 1995 include capitalized interest and property taxes totaling $.3
million and $6.4 million. As of March 31, 1996, the Company has 985,000 square
feet of new development under construction and 300,000 square feet under
contract, but not yet started.
Cash flow from financing activities
Net cash used by financing activities reflected in the statement of
cash flows for the first three months of 1996 was $11 million compared to $6.6
million for the 1995 period. This net increase of $4.4 million is the result of
principal reductions on existing borrowings above the recurring amortization
repayments in accordance with the corporate goal of reducing debt, offset by
borrowings attributable to increased development activity.
At March 31, 1996, the Company had total outstanding debt of $491.1
million, of which 72% was non-recourse to the Company and secured by the
underlying property, 26% was recourse to the Company and also secured by
underlying property, and 2% was unsecured. During the next twelve months, $82.7
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.
Cash balances and available borrowings
At March 31, 1996, cash and cash equivalents totaled $23.6 million. In
addition, the Company had available $82.5 million under its construction
facilities, $.5 million under its secured term loan facilities, and $48 million
under its unsecured revolving facility.
11
<PAGE>
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. At March 31, 1996, management has provided a reserve of $13.9
million for such costs. These costs are expected to be incurred over an
estimated ten-year period, with a substantial portion incurred over the next
five years.
Costs incurred for properties to be sold are deferred and will be
charged to cost of sales when the properties are sold. Costs relating to
undeveloped properties are capitalized as part of development costs. At March
31, 1996, the Company's estimate of its potential liability for identified
environmental costs relating to properties to be developed or sold ranged from
$18 million to $62 million. These costs generally will be capitalized as they
are incurred, over the course of the estimated development period of
approximately 20 years. Environmental costs capitalized for the first three
months of 1996 and 1995 totaled $.3 million and $.4 million.
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.
RISK FACTORS
This Quarterly Report on Form 10-Q contains statements which, to the
extent that they are not recitations of historical fact, constitute "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities and Exchange Act of 1934. All forward
looking statements involve risks and uncertainties. The forward looking
statements in this document are intended to be subject to the safe harbor
protection provided by Sections 27A and 21E. Factors that most typically impact
the Company's operating results include (i) changes in general economic
conditions in regions in which the Company's projects are located, (ii) the
availability and cost of capital and project financing, (iii) the receipt of
government approvals and entitlements for development projects, (iv) land and
building material costs, (v) supply and demand for office, industrial and
residential space, (vi) competition from other property managers, (vii)
liability for environmental remediation at the Company's properties, (viii)
ability to sell non-strategic land assets, and (ix) ability to increase
development fees. For discussions identifying other important factors that could
cause actual results to differ materially from those anticipated in the forward
looking statements, see the Company's Securities and Exchange Commission
filings; "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Form 10-Q, and the Company's Form 10-K for the
year ended December 31, 1995, and Note 8 to the Consolidated Financial
Statements included in Form 10-Q and Note 14 to the Consolidated Financial
Statements included in the Company's Form 10-K for the year ended December 31,
1995.
12
<PAGE>
ADDITIONAL INFORMATION
The Company believes that the following additional information is
helpful in understanding its property operations, development and sales
activities.
<TABLE>
<CAPTION>
As of or for the three months ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net operating income by Property Type (in thousands)
----------------------------------------------------
Income producing properties
Industrial buildings $ 10,237 $ 10,243
Office buildings 4,349 4,933
Retail buildings 2,091 2,053
Land development 794 341
Ground leases 1,575 1,380
-------- --------
19,046 18,950
-------- --------
Land holding costs
Developable properties (419) (70)
Natural resources (186) (283)
Properties held for sale (454) (591)
-------- --------
(1,059) (944)
-------- --------
Total $ 17,987 $ 18,006
======== ========
Building owned and leasing statistics
-------------------------------------
(at quarter-end)
----------------
(square feet in thousands)
Industrial buildings
Square feet owned 11,424 10,985
Square feet leased 11,158 10,306
Percent leased 97.7% 93.8%
Office buildings
Square feet owned 1,682 1,687
Square feet leased 1,519 1,546
Percent leased 90.3% 91.6%
Retail buildings
Square feet owned 928 840
Square feet leased 865 837
Percent leased 93.2% 99.6%
Land development*
Square feet owned 1,240 100
Square feet leased 1,133 100
Percent leased 91.4% 8.1%
Total
Square feet owned 15,274 13,612
Square feet leased 14,675 12,789
Percent leased 96.1% 94.0%
</TABLE>
*Increase due to inclusion of Mission Bay which was previously excluded due to
capitalization of revenue and expenses.
13
<PAGE>
<TABLE>
<CAPTION>
As of or for the three months ended
March 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Additional Information (continued)
Development (square feet in thousands)
Construction and completion
Under construction, beginning of period 640,028 337,136
Construction starts 345,397 267,718
Completion - -
------- -------
Under construction, end of period 985,425 604,854
======= =======
Development under contract, not started 302,000 -
======= =======
Sales (in thousands)
Closed sales
Non-strategic land $ 6,220 $ 8,215
Development properties - -
Buildings - -
Ground leases - -
-------- --------
Total $ 6,220 $ 8,215
======== ========
<CAPTION>
March 31, December 31,
Backlog - sales under contract 1996 1995
--------- ------------
<S> <C> <C>
Non-strategic land $ 30,376 $ 23,585
Developed properties 13,600 13,600
Ground leases 7,500 7,500
-------- --------
Total $ 51,476 $ 44,685
======== ========
Interest cost (in thousands)
Gross interest incurred $ 11,204 $ 12,214
Interest capitalized to construction (265) (5,761)
Interest income (409) (1,312)
-------- --------
Total expensed $ 10,530 $ 5,141
======== ========
</TABLE>
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 May 14, 1996 By /s/ Stephen P. Wallace
---------------------- -----------------------------
Stephen P. Wallace
Senior Vice President and
Chief Financial Officer
Date May 14, 1996 By /s/ Paul A. Lockie
---------------------- -----------------------------
Paul A. Lockie
Vice President and Controller
16
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(Article 5 of Regulation S-X)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 23,574
<SECURITIES> 0
<RECEIVABLES> 18,451
<ALLOWANCES> 2,114
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,201,695
<DEPRECIATION> 191,244
<TOTAL-ASSETS> 1,097,164
<CURRENT-LIABILITIES> 0
<BONDS> 491,131
0
322,500
<COMMON> 745
<OTHER-SE> 118,315
<TOTAL-LIABILITY-AND-EQUITY> 1,097,164
<SALES> 6,220
<TOTAL-REVENUES> 37,984
<CGS> 3,133
<TOTAL-COSTS> 24,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 351
<INTEREST-EXPENSE> 10,939
<INCOME-PRETAX> 2,895
<INCOME-TAX> 1,181
<INCOME-CONTINUING> 1,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,714
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
