<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997 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 (IRS 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 May 1, 1997, there were 98,366,628 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> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of March 31, 1997 and December 31, 1996......... 2
Consolidated Statement of Operations for the three months ended
March 31, 1997 and 1996...................................................... 3
Consolidated Statement of Cash Flows for the three months ended
March 31, 1997 and 1996...................................................... 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...................................................................... 17
SIGNATURES....................................................................................... 18
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Properties.............................. $1,253,754 $1,235,440
Less accumulated depreciation........... (215,488) (211,338)
------------ ------------
1,038,266 1,024,102
Other assets and deferred charges........ 48,906 50,547
Notes receivable......................... 12,009 11,924
Accounts receivable, less allowance...... 11,616 12,965
Cash and cash equivalents................ 14,587 23,580
------------ ------------
Total..................... $1,125,384 $1,123,118
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt.................. $ 510,285 $ 496,742
Accounts payable and accrued expenses.... 41,384 54,178
Deferred credits and other liabilities... 37,468 43,007
Deferred income taxes.................... 109,708 106,738
------------ ------------
Total liabilities.............. 698,845 700,665
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' equity
Preferred stock..................... 161,432 274,428
Common stock - 89,546,160 and
77,028,099 shares issued at
March 31, 1997 and
December 31, 1996 ................ 895 770
Paid-in capital.................... 309,557 197,709
Accumulated deficit................ (45,345) (50,454)
------------ ------------
Total stockholders' equity...... 426,539 422,453
------------ ------------
Total..................... $1,125,384 $1,123,118
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
--------- --------
(UNAUDITED)
INCOME-PRODUCING PROPERTIES
Rental revenue........................................... $ 30,805 $ 28,034
Property operating costs................................. (9,056) (8,987)
Equity in earnings of joint ventures..................... 1,983 1,473
--------- --------
23,732 20,520
--------- --------
DEVELOPMENT ACTIVITIES AND FEE SERVICES
Gain on development property sales....................... 484 --
Development and management fee income, net............... 719 403
Equity in earnings of joint ventures..................... 58 (83)
Land holding costs, net.................................. (173) (1,060)
--------- --------
1,088 (740)
--------- --------
Interest expense................................................ (9,794) (10,939)
Depreciation and amortization................................... (7,476) (7,672)
General and administrative expense.............................. (2,615) (2,060)
Gain on non-strategic land and other asset sales................ 3,640 3,087
Litigation and environmental, net............................... 42 900
Other, net...................................................... -- (201)
--------- --------
EARNINGS BEFORE INCOME TAXES.................................... 8,617 2,895
--------- --------
Income tax expense
Current.................................................. (537) (6)
Deferred................................................. (2,971) (1,175)
--------- --------
(3,508) (1,181)
--------- --------
NET EARNINGS............................................. 5,109 1,714
Preferred stock dividends........................... (1,353) (5,953)
--------- --------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS.... $ 3,756 $ (4,239)
========= ========
Net earnings (loss) per share of common stock............ $0.05 $(0.06)
========= ========
Average number of c ommon shares outstanding............. 79,776 73,254
========= ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<S> <C> <C>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:............. (UNAUDITED)
Net earnings................................. $ 5,109 $ 1,714
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization........... 7,476 7,672
Deferred income taxes................... 2,971 1,175
Amortization of deferred loan
fees and other costs .................. 711 788
Equity in earnings of joint
ventures .............................. (2,041) (1,390)
Operating distributions from
joint ventures ........................ 1,423 --
Cost of non-strategic land
and development properties sold ....... 4,170 2,165
Gain on sales of other assets........... (1,600) --
Expenditures for development
properties ............................ (7,792) --
Other, net.............................. 358 1,588
Change in operating assets and
liabilities............................ (5,182) 162
-------- --------
Net cash provided by operating
activities ...................................... 5,603 13,874
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (23,114) (6,247)
Tenant improvements.......................... (483) (809)
Net proceeds from sale of other
assets...................................... 2,623 --
-------- --------
Net cash used in investing activities............. (20,974) (7,056)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings................................... 30,061 3,894
Repayment of borrowings...................... (16,518) (8,943)
Dividends paid............................... (4,603) (5,953)
Redemption of preferred stock................ (395) --
Distributions to minority partners........... (2,893) --
Proceeds from issuance of common
stock ...................................... 726 15
-------- --------
Net cash provided by (used in)
financing activities ............................ 6,378 (10,987)
-------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ..................................... (8,993) (4,169)
Cash and cash equivalents at beginning
of period ....................................... 23,580 27,743
-------- --------
Cash and cash equivalents at end of period........ $ 14,587 $ 23,574
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest (net of amount
capitalized) .......................... $ 9,202 $ 10,101
Income taxes............................ $ 15 $ 225
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Catellus Development Corporation (the Company) is a diversified real estate
operating company that manages and develops real estate for its own account and
others. The Company's portfolio of industrial, residential, retail and office
projects, undeveloped land and joint venture interests are located in major
markets in California and 10 other states.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1996 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. Certain
prior period financial data has been reclassified to conform with the current
period presentation.
NOTE 3. EARNINGS PER SHARE
Net earnings (loss) per share of common stock is computed by dividing net
earnings (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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" (Statement 128).
Statement 128 is effective for financial statements issued after December 15,
1997 and simplifies the current standards for computing earnings per share. The
Company anticipates that adoption of Statement 128 will not result in
disclosures that are materially different than those contained in this quarterly
report. The Company plans to adopt Statement 128 in the fourth quarter of 1997.
NOTE 4. MORTGAGE AND OTHER DEBT
Mortgage and other debt at March 31, 1997 and December 31, 1996 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
First mortgage loan - Prudential............. $256,900 $259,063
Secured revolving credit line................ 127,100 118,600
First mortgage loans......................... 66,910 67,249
Assessment district bonds.................... 20,909 21,012
Residential construction loans............... 15,169 10,105
Term loan - secured.......................... 9,000 9,000
Construction loans - secured................. 7,612 5,028
Secured promissory note...................... 6,160 6,160
Other loans.................................. 525 525
----------- ------------
Total mortgage and other debt........... $510,285 $496,742
=========== ========
Due in one year.............................. $ 25,987 $ 24,221
=========== ========
</TABLE>
5
<PAGE>
Interest costs relating to mortgage and other debt for the three months
ended March 31, 1997 and 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Total interest incurred............. $ 11,274 $ 11,204
Interest capitalized................ (1,480) (265)
------------- ------------
Interest expensed.............. $ 9,794 $ 10,939
============= ============
</TABLE>
NOTE 5. PROPERTIES
Net book value by property type at March 31, 1997 and December 31,
1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Income producing properties:
Industrial buildings..................... $ 315,290 $ 291,608
Office buildings......................... 104,404 108,184
Retail buildings......................... 83,605 86,070
Land development......................... 329,396 323,134
Land leases.............................. 8,320 6,627
------------- ------------
841,015 815,623
------------- ------------
Land holdings:
Developable properties................... 189,308 200,624
Natural resources........................ 2,549 2,299
Properties held for sale................. 37,068 37,223
------------- ------------
228,925 240,146
------------- ------------
Other (including proportionate share of
joint venture's net deficits of $41,300
and $41,058)................................. (31,674) (31,667)
------------- ------------
$1,038,266 $1,024,102
============= ============
</TABLE>
NOTE 6. COMMITMENTS AND 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, 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 liability may arise from the ownership, or previous
ownership, of real properties 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
because of 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 that of responsible
parties, and the extent to which such costs are recoverable from insurance.
6
<PAGE>
At March 31, 1997, management estimates that future costs for remediation
of identified or suspected environmental contamination on operating properties
and properties previously sold approximate $13.4 million, and has provided a
reserve for that amount. It is anticipated that such costs will be incurred over
the next ten years with a substantial portion incurred over the next five years.
Management also estimates that similar costs relating to the Company's
properties to be developed or sold may range from $14 million to $38.6 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. The
Company's 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 each property extensively on a regular basis. Also, 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.
NOTE 7. PREFERRED STOCK CONVERSION/REDEMPTION
In December 1996, the Company called for redemption of approximately $25
million of its $3.75 Series A Cumulative Convertible Preferred Stock (Series A
Preferred Stock). In January 1997, of the 475,000 preferred shares called,
471,730 shares were converted into 2,603,168 common shares and 3,270 shares were
redeemed at $52.625 per share plus accrued and unpaid dividends at a cost of
approximately $175,000.
On February 5, 1997, the Company called for redemption of approximately $90
million of its Series A Preferred Stock. On March 24, 1997, of the 1,720,000
preferred shares called, 1,715,837 shares were converted into 9,469,015 common
shares and the remaining shares were redeemed at $52.25 per share plus accrued
and unpaid dividends at a cost of approximately $220,000.
NOTE 8. SUBSEQUENT EVENTS
On March 24, 1997, the Company called for redemption of the remaining
outstanding 250,000 shares, or approximately $13 million, of its Series A
Preferred Stock and 1,470,000 shares, or approximately $75 million, of its
$3.625 Series B Cumulative Convertible Exchangeable Preferred Stock (Series B
Preferred Stock). On May 1, 1997, 99.7% of the Series A Preferred Stock shares
were converted into 1,376,742 shares of common stock and the remaining shares
were redeemed at $52.25 per share plus accrued and unpaid dividends at a cost of
approximately $45,000; additionally, 99.7% of the Series B Preferred Stock
shares were converted into 7,474,377 shares of common stock and the remaining
shares were redeemed at $52.54 per share plus accrued and unpaid dividends at a
cost of approximately $268,000.
On May 1, 1997, the Company called for redemption of the remaining
outstanding 1,520,000 shares, or approximately $80 million, of its Series B
Preferred Stock. The redemption date on this call is June 19, 1997.
7
<PAGE>
ITEM 2. 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 1996 Form 10-K.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 1997 and 1996
- --------------------------------------------------------
Income-Producing Properties
- ---------------------------
Rental revenue and property operating costs for the Company's
income-producing properties are summarized below:
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996 Difference
---- ---- ----------
(in thousands)
REVENUES
--------
Industrial buildings .................... $15,591 $13,319 $ 2,272
Office buildings ........................ 7,075 7,202 (127)
Retail buildings ........................ 3,456 3,111 345
Land development ........................ 2,767 2,454 313
Land leases ............................. 1,916 1,948 (32)
------- ------- -------
$30,805 $28,034 $ 2,771
======= ======= =======
PROPERTY OPERATING COSTS
------------------------
Industrial buildings .................... $ 3,267 $ 3,082 $ 185
Office buildings ........................ 2,879 2,852 27
Retail buildings ........................ 957 1,020 (63)
Land development ........................ 1,719 1,660 59
Land leases ............................. 234 373 (139)
------- ------- -------
$ 9,056 $ 8,987 $ 69
======= ======= =======
8
<PAGE>
Building square footage owned, leased, and percentage of occupancy for
industrial, office, retail, and land development are as follows:
MARCH 31,
---------
1997 1996
---- ----
(in thousands, except
percentages)
Industrial buildings
Square feet owned ............ 12,821 11,424
Square feet leased ........... 12,370 11,158
Percent leased ............... 96.5% 97.7%
Office buildings
Square feet owned ............ 1,683 1,682
Square feet leased ........... 1,477 1,519
Percent leased ............... 87.8% 90.3%
Retail buildings
Square feet owned ............ 928 928
Square feet leased ........... 837 865
Percent leased ............... 90.2% 93.2%
Land development
Square feet owned ............ 1,143 1,240
Square feet leased ........... 1,124 1,133
Percent leased ............... 98.3% 91.4%
Total
Square feet owned ............ 16,575 15,274
Square feet leased ........... 15,808 14,675
Percent leased ............... 95.4% 96.1%
Of the increase in revenue from industrial buildings, approximately $1.5
million was attributable to base rent for nine new buildings totaling
approximately 1.4 million square feet that were added to the portfolio during
the last twelve months, approximately $.5 million was attributable to higher
tenant pass-through charges associated with the new construction and higher
operating costs, and approximately $.3 million was a result of increases in
rental rates under existing leases. Property operating costs for the industrial
portfolio increased by approximately $.2 million primarily because of the
increase in property taxes associated with the new buildings.
Rental revenue for the Company's office portfolio declined in the first
three months of 1997, compared to the first three months of 1996, primarily
because of a decline in occupancy. The decline in occupancy was partially offset
by higher rental rates in the first three months of 1997 compared to the first
three months of 1996 because of an increase in market rents.
Rental revenue for the Company's retail portfolio increased approximately
$.3 million because of an increase in tenant pass-through charges. The decrease
in property operating costs for the retail buildings was primarily due to a
reduction in property assessments at the East Baybridge shopping center.
The increase in revenue and costs from land development resulted from
higher occupancies at these properties.
9
<PAGE>
The decrease in revenues and expenses from land leases between the first
three months of 1996 and the first three months of 1997 is primarily because of
the sale of a land lease in mid-1996.
Income-producing joint venture earnings increased by $.5 million because of
higher room rates and revenues in a hotel joint venture, higher occupancy in an
office building joint venture, and lower interest expense in an apartment
building joint venture.
Development Activities and Fee Services
- ---------------------------------------
The increase in development property sales in the first three months of
1997 compared to the first three months of 1996 is attributable to the fact that
there were no sales of development property in the first quarter of 1996.
The activity in the Company's sales of development property is summarized
as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996 Difference
---- ---- ----------
(in thousands)
Sales ....................... $ 3,652 $ -- $ 3,652
Cost of sales ............... 3,168 -- 3,168
------- ------ -------
Gain ................... $ 484 $ -- $ 484
======= ====== =======
Following is a summary of development property sales under contract but not
closed:
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(in thousands)
Commercial ....................... $ 13,157 $ --
======== =======
Residential ......................
Joint venture (A)(1) ....... $ 33,540 $ 343
======== =======
Managed (A)(2) ............. $ 16,052 $ 8,667
======== =======
(A) The amounts shown are 100% of the gross sales price.
(1) The Company is entitled to receive 50% of the net profits from these joint
ventures
(2) The Company receives a fee based on the sales of these units, which
averages 5% of revenues
Development and management fee income (net) increased by $.3 million. This
increase was primarily from an increase in management fees from management
contracts signed in January 1996, and higher development fees from the
Metropolitan Water District construction project offset by lower residential
joint venture management fees.
Equity in earnings of development joint ventures increased by $141,000 in
the first three months of 1997 compared to the first three months of 1996. The
increase is primarily attributable to the acquisition of The Akins
10
<PAGE>
Company, now called Catellus Residential Group ("CRG") in March 1996. No equity
in earnings of development joint ventures was recorded for CRG in the first
quarter of 1996.
The reduction in losses from land holding costs, (net) is primarily
attributable to a reduction in property taxes of "for sale properties" as a
result of property sales, and property tax refunds. Additional factors were a
reduction in operating and maintenance costs and overhead costs.
Other Items on the Statement of Operations
- ------------------------------------------
Interest expense was $1.1 million lower in the first three months of 1997
compared to the first three months of 1996 primarily as a result of the increase
in capitalized interest.
Following is a summary of interest costs:
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---- ----
(in thousands)
Total interest costs ............. $ 11,274 $ 11,204
Interest capitalized.............. (1,480) (265)
-------- --------
9,794 10,939
Interest expensed ................ (190) (409)
-------- --------
Interest income .................. $ 9,604 $ 10,530
======== ========
General and administrative expense increased by $.6 million primarily
because of higher staffing levels associated with increased operating and
development activities.
The increase from 1996 to 1997 in the Company's gain on sales of
non-strategic land and other assets is summarized as follows
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996 Difference
---- ---- ----------
(in thousands)
Sales ..................... $ 7,481 $ 6,220 $ 1,261
Cost of sales ............. 3,841 3,133 708
------- ------- -------
Gain ................. $ 3,640 $ 3,087 $ 553
======= ======= =======
Following is a summary of non-strategic land and other asset sales under
contract but not closed:
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
(in thousands)
Non-strategic land and other assets ........ $ 33,691 $ 6,089
======== =======
Litigation and environmental, (net) decreased $.9 million between 1997 and
1996. The income in 1996 represented proceeds resulting from the settlement of
litigation in an environmental matter in favor of the Company. No similar
recoveries were made in 1997.
11
<PAGE>
Other, net increased by $.2 million as a result of a combination of
factors, the most significant of which was an increase in insurance recoveries
offset by lower interest income.
Variability in results
- ----------------------
The timing of development sales and non-strategic asset sales have resulted
in significant variability in the Company's historic operating results,
particularly on a quarterly basis. Many of the Company's projects require a
lengthy process to complete the development cycle before they are sold. Asset
sales are generally subject to lengthy negotiations and contingencies that need
to be resolved prior to closing. These factors tend to "bunch" income in
particular periods rather than a more even pattern throughout a year. In
addition, gross margins vary significantly as the mix of properties varies. The
cost basis of the properties sold varies because a) a number of properties have
been owned for many decades; b) some properties were acquired within the last
ten to fifteen years; and c) properties are owned in various geographical
locations.
Preferred Stock
- ---------------
The Company completed a series of preferred stock calls during 1996 and the
first three months of 1997. The result has been a significant reduction in the
dividend requirement between the first three months of 1997 compared to the
first three months of 1996. The following is a summary of the calls completed
and issued in 1997:
- - In December 1996, the Company called for redemption of
approximately $25 million of its $3.75 Cumulative Convertible Series A
Preferred Stock (Series A Preferred Stock). In January 1997, of the 475,000
preferred shares called, 471,730 shares were converted into 2,603,168 common
shares and 3,270 shares were redeemed at $52.625 per share plus accrued and
unpaid dividends at a cost of approximately $175,000.
- - On February 5, 1997, the Company called for redemption of approximately $90
million of its Series A Preferred Stock. On March 24, 1997, of the 1,720,000
preferred shares called, 1,715,837 shares were converted into 9,469,015 common
shares and the remaining shares were redeemed at $52.25 per share plus accrued
and unpaid dividends at a cost of approximately $220,000.
- - On March 24, 1997, the Company called for redemption of the remaining
outstanding 250,000 shares, or approximately $13 million, of its Series A
Preferred Stock and 1,470,000 shares, or approximately $75 million, of its
$3.625 Series B Cumulative Convertible Exchangeable Preferred Stock (Series B
Preferred Stock). The redemption date was May 1, 1997. The results were the
conversion of 99.7% of the Series A Preferred Stock shares into 1,376,742
shares of common stock and the redemption of the remaining shares at $52.25
per share plus accrued and unpaid dividends at a cost of approximately
$45,000; additionally, 99.7% of the Series B Preferred Stock shares were
converted into 7,474,377 shares of common stock and the remaining shares were
redeemed at $52.54 per share plus accrued and unpaid dividends at a cost of
approximately $268,000.
- - On May 1, 1997, the Company called for redemption of the remaining outstanding
1,520,000 shares, or approximately $80 million, of its Series B Preferred
Stock. The redemption date on this call is June 19, 1997.
Upon completion of the May 1, 1997 call, the Company will have no remaining
outstanding preferred stock and, accordingly, will have eliminated its preferred
dividend requirement.
Earnings Before Depreciation and Deferred Taxes
- -----------------------------------------------
The Company uses a supplemental performance measure along with net earnings
(loss) to report its operating results. This measure, Earnings Before
Depreciation and Deferred Taxes (EBDDT), is not a measure of operating results
or cash flows from operating activities as defined by generally accepted
accounting principles. Additionally, EBDDT is not necessarily indicative of cash
available to fund cash needs and should not be considered as an alternative to
cash flows as a measure of liquidity. However, the Company believes that EBDDT
12
<PAGE>
provides relevant information about its operations and is necessary, along with
net earnings (loss), for an understanding of its operating results.
Depreciation, amortization and deferred income taxes are excluded from
EBDDT as they represent non-cash charges. Gains on the sale of non-strategic
land and other assets represent non-operating, unusual and/or nonrecurring items
and are therefore excluded from EBDDT. EBDDT is reconciled to net earnings
(loss) in the quarter to quarter comparison of Earnings Before Depreciation and
Deferred Taxes from Operations and Net Earnings (Loss) as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 3,756 $ (4,239)
Depreciation and amortization .................. 7,476 7,672
Deferred income taxes .......................... 2,971 1,175
Gain on non-strategic land and other asset sales (3,640) (3,087)
-------- --------
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES ..... $ 10,563 $ 1,521
======== ========
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES
PER SHARE OF COMMON STOCK ...................... $ 0.13 $ 0.02
======== ========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ............................. $ 79,776 $ 73,254
======== ========
</TABLE>
The increase in EBDDT in the first three months of 1997 compared to the
first three months of 1996 was primarily due to improved results from the
Company's income-producing properties and the reduction in preferred stock
dividends as a result of the redemption and conversion of preferred shares to
common shares.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities
- -----------------------------------
Cash provided by operating activities reflected in the statement of cash
flows in the first three months of 1997 and 1996 were $5.6 million and $13.9
million, respectively. The lower level in 1997 was primarily attributable to
higher capital expenditures for residential development property.
Cash flow from investing activities
- -----------------------------------
Net cash flow used in investing activities reflected in the statement of
cash flows increased $13.9 million from 1996 to 1997. The increase in 1997 is
primarily attributable to an increase in capital expenditures. Capital
expenditures totaling $23.1 million and $6.2 million in the first three months
of 1997 and 1996 include capitalized interest and property taxes totaling $3.6
million and $1.9 million, respectively. Net cash used in investing activities
included the following capital expenditures:
13
<PAGE>
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---- ----
(in thousands)
Construction and building improvements ........ $ 15,136 $ 5,371
Acquisitions .................................. -- --
Predevelopment ................................ 1,976 663
Infrastructure and other ...................... 2,280 (1,640)
Capitalized interest and property taxes ....... 3,722 1,853
-------- -------
$ 23,114 $ 6,247
======== =======
Industrial development activity is summarized below:
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
---- ----
(in square feet)
Construction and completion
Under construction, beginning of period .... 2,286,961 641,128
Construction starts ........................ 43,000 345,397
Completion ................................. (308,761) --
--------- -------
Under construction, end of period .......... 2,021,200 986,525
========= =======
Predevelopment relates to entitlements of the major mixed-use projects
which are primarily Mission Bay and Pacific Commons in Fremont. Significant
developments during the first quarter include:
- In March 1997 the University of California Board of Regents entered
into an agreement to negotiate exclusively with the Company for a
two-month period to locate the proposed expansion of the University of
California at San Francisco (UCSF) in Mission Bay. The negotiations are
ongoing for a conditional agreement with UCSF regarding a transfer of
land to the University for a new campus.
- The Company is continuing its discussions with the City of Fremont and
various federal, state and local agencies to address the impact of the
approved Pacific Commons development on wetlands and special status
species. It is anticipated that a determination of the amount of
property available for development in 1997 (and the associated
mitigation requirements) will be reached in the next few months.
Discussions to determine the mitigation requirements for the remainder
of the property are ongoing; however, it is too early in the process to
estimate accurately the time required to reach agreement on the
mitigation package or the impact on the development of the remainder of
the property.
Cash flow from financing activities
- -----------------------------------
Net cash provided by financing activities reflected in the statement of
cash flows for the first three months of 1997 was $6.4 million compared to $11.0
million in cash used in financing activities for the first three months of 1996.
The amount for 1997 is primarily from net borrowings of $13.5 million offset by
$4.6 million of preferred stock dividends paid and $2.9 million in contributions
to joint ventures. The 1996 amount reflects borrowing and repayment activity
relating to operating properties (including principal amortization) and
preferred stock dividends paid.
As of March 31, 1997, the Company had total outstanding debt of $510.3
million, of which 69.4% was non-recourse to the Company and secured by certain
property of the Company, 30.5% was recourse to the
14
<PAGE>
Company and also secured by certain property, and 0.1% was unsecured. During the
next twelve months, $26.0 million of debt matures, consisting of construction
financing, term loans or first mortgage loans. All maturing debt is expected to
be repaid upon sale of the property securing it, extended, refinanced or repaid.
Capital commitments
- -------------------
As of March 31, 1997, the Company had approximately $25 million in capital
expenditure commitments. These commitments are primarily to fund the
construction of industrial development projects, predevelopment costs and
re-leasing costs. See comments below regarding the sources of funding for
capital requirements.
Cash balances, available borrowings and capital resources
- ---------------------------------------------------------
As of March 31, 1997, cash and cash equivalents totaled $14.6 million. In
addition, the Company had available $112.9 million under its secured revolving
credit facilities, $1.9 million under its development construction facilities,
$20.1 million under its residential construction facilities, and a commitment
for a $25 million unsecured line of credit.
The Company's short- and long-term liquidity and capital resources
requirements will essentially be provided from three sources: ongoing operating
income from rental properties, proceeds from development, non-strategic and
other asset sales, and fee services income. As noted above, a secured revolving
line of credit, an unsecured line of credit, a construction line of credit, and
residential construction loan facilities are available to the Company for
meeting liquidity requirements. Additionally, the Company will use third-party
borrowing for development projects to the extent practical.
ENVIRONMENTAL MATTERS
Many of the Company's properties are in urban and industrial areas and may
have been leased to or previously owned by commercial and industrial tenants
that 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. Such costs incurred in connection with operating properties and
properties previously sold are expensed. As of March 31, 1997, management has
provided a reserve of $13.4 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.
Environmental costs incurred for properties to be sold are deferred and
will be charged to cost of sales when the properties are sold. Such costs
relating to undeveloped properties are capitalized as part of development costs.
At March 31, 1997, the Company's estimate of its potential liability for
identified environmental costs relating to properties to be developed or sold
ranged from $14 million to $38.6 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 1997 and 1996 totaled $.2 million and $.3 million, respectively.
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.
15
<PAGE>
RISK FACTORS
It is the Company's belief that this quarterly report on Form 10-Q may
contain statements which, to the extent that they are not recitations of
historical fact, may 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. Any forward-looking statements in this document are intended to
be subject to the safe harbor protection provided by Section 27A and 21E.
Factors that most typically affect the Company's operating results and financial
condition include (i) changes in general economic conditions in regions in which
the Company's projects are located, (ii) supply and demand for office,
industrial, and residential space, (iii) the delay in receipt of or the denial
of government approvals and entitlements for development projects, (iv) other
public and private development activity in the areas in which the Company owns
property, (v) land and building material costs, (vi) the availability and cost
of project financing, (vii) competition from other property owners, (viii)
liability for environmental remediation at the Company's properties, (ix) the
Company's ability to increase development fees, (x) the Company's ability to
sell non-strategic assets, (xi) changes in the capital markets affecting the
ability of the Company to minimize its interest and preferred dividends, (xii)
the Company's ability to control the timing of the recognition of deferred tax
liability, (xiii) the impact of discretionary government actions, (xiv) the
exposure of the Company's assets to natural occurrences, such as earthquakes,
tornadoes, and similar events, and (xv) changes in the legal and regulatory
environment, including the tax treatment of the Company's activities and assets.
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, 1996, Note 6 to the Consolidated Financial Statements
included in this Form 10-Q and Note 15 to the Consolidated Financial Statements
included in the Company's Form 10-K for the year ended December 31, 1996. The
Company cautions that the foregoing list of risk factors is not exclusive.
Further, the Company does not undertake to update any forward-looking statements
that may be made from time to time by or on behalf of the Company.
16
<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
(a) EXHIBITS
Exhibit No. 27 Financial Data Schedule
17
<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: By: /s/ Stephen P. Wallace
------------------ ------------------------
Stephen P. Wallace
Senior Vice President and
Chief Financial Officer
Date: By: /s/ Paul A. Lockie
------------------ --------------------
Paul A. Lockie
Vice President and Controller
18
<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
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,587
<SECURITIES> 0
<RECEIVABLES> 25,875
<ALLOWANCES> 2,250
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,253,754
<DEPRECIATION> 215,488
<TOTAL-ASSETS> 1,125,384
<CURRENT-LIABILITIES> 0
<BONDS> 510,285
0
161,432
<COMMON> 895
<OTHER-SE> 264,212
<TOTAL-LIABILITY-AND-EQUITY> 1,125,384
<SALES> 11,133
<TOTAL-REVENUES> 45,866
<CGS> 7,009
<TOTAL-COSTS> 27,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 88
<INTEREST-EXPENSE> 9,794
<INCOME-PRETAX> 8,617
<INCOME-TAX> 3,508
<INCOME-CONTINUING> 5,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,109
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
