<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal quarter ended September 30, 2000 Commission file number 0-18694
</TABLE>
CATELLUS DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2953477
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
</TABLE>
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 November 8, 2000, there were 106,082,594 issued and outstanding shares
of the Registrant's Common Stock.
================================================================================
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheet as of September 30, 2000, and December 31, 1999 ............ 2
Consolidated Statement of Operations for the three months and nine months ended
September 30, 2000 and 1999 .......................................................... 3
Consolidated Statement of Cash Flows for the nine months ended
September 30, 2000 and 1999 .......................................................... 4
Notes to Consolidated Financial Statements ............................................ 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............................ 29
PART II. OTHER INFORMATION ........................................................................... 30
SIGNATURES ............................................................................................ 31
EXHIBIT INDEX ......................................................................................... 32
</TABLE>
1
<PAGE>
PART I
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Assets
Properties............................................................................ $1,968,327 $1,944,017
Less accumulated depreciation......................................................... (309,577) (294,846)
---------- ----------
1,658,750 1,649,171
Other assets and deferred charges, net................................................ 98,434 93,021
Notes receivable, less allowance...................................................... 28,791 32,890
Accounts receivable, less allowance................................................... 16,238 24,820
Restricted cash and investments....................................................... 86,389 19,565
Cash and cash equivalents............................................................. 115,389 35,410
---------- ----------
Total......................................................................... $2,003,991 $1,854,877
=========== ==========
Liabilities and stockholders' equity
Mortgage and other debt............................................................... $ 924,167 $ 875,564
Accounts payable and accrued expenses................................................. 76,291 92,791
Deferred credits and other liabilities................................................ 46,848 58,751
Deferred income taxes................................................................. 235,587 185,592
---------- ----------
Total liabilities................................................................ 1,282,893 1,212,698
---------- ----------
Commitments and contingencies (Note 8)
Minority interests.................................................................... 52,854 51,207
---------- ----------
Stockholders' equity
Common stock, 108,056 and 107,185 shares issued and 106,059 and 107,185
shares outstanding at September 30, 2000 and December 31, 1999, respectively...... 1,081 1,072
Paid-in capital..................................................................... 493,017 483,503
Treasury stock, at cost (1,997 shares at September 30, 2000)........................ (28,660) --
Accumulated earnings................................................................ 202,806 106,397
---------- ----------
Total stockholders' equity....................................................... 668,244 590,972
---------- ----------
Total......................................................................... $2,003,991 $1,854,877
========== ==========
</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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Rental properties
Rental revenue.......................................................... $ 52,523 $ 43,081 $ 153,179 $ 125,851
Property operating costs................................................ (14,251) (11,897) (40,640) (34,655)
Equity in earnings of operating joint ventures, net..................... 1,324 1,517 7,913 8,106
--------- -------- --------- ---------
39,596 32,701 120,452 99,302
--------- -------- --------- ---------
Property sales and fee services
Sales revenue........................................................... 213,190 98,123 396,189 242,217
Cost of sales........................................................... (172,512) (77,013) (292,894) (189,230)
--------- -------- --------- ---------
Gain on property sales............................................... 40,678 21,110 103,295 52,987
Management and development fees......................................... 2,749 3,936 9,342 10,611
Equity in earnings of development joint ventures, net................... 9,238 3,239 12,084 7,658
Selling, general and administrative expenses............................ (14,249) (5,564) (33,581) (17,038)
Other, net.............................................................. (3,043) (1,840) (7,963) 7
--------- -------- --------- ---------
35,373 20,881 83,177 54,225
--------- -------- --------- ---------
Interest expense.......................................................... (12,957) (10,404) (33,529) (29,450)
Depreciation and amortization............................................. (11,661) (10,039) (33,910) (28,623)
Corporate administrative costs............................................ (3,656) (3,727) (11,376) (11,321)
Gain on non-strategic asset sales......................................... 18,662 2,529 46,131 6,419
Other, net................................................................ (743) 116 (1,495) (1,229)
--------- -------- --------- ---------
Income before minority interests and income taxes....................... 64,614 32,057 169,450 89,323
Minority interests........................................................ (5,294) 45 (8,768) 54
--------- -------- --------- ---------
Income before income taxes.............................................. 59,320 32,102 160,682 89,377
--------- -------- --------- ---------
Income tax expense
Current................................................................. (2,378) (2,054) (12,255) (11,264)
Deferred................................................................ (21,338) (10,922) (52,018) (24,800)
--------- -------- --------- ---------
(23,716) (12,976) (64,273) (36,064)
--------- -------- --------- ---------
Net income.............................................................. $ 35,604 $ 19,126 $ 96,409 $ 53,313
========= ======== ========= =========
Net income per share
Basic................................................................ $ 0.34 $ 0.18 $ 0.90 $ 0.50
========= ======== ========= =========
Assuming dilution.................................................... $ 0.33 $ 0.18 $ 0.89 $ 0.49
========= ======== ========= =========
Average number of common shares outstanding - basic..................... 106,039 107,085 106,723 106,964
========= ======== ========= =========
Average number of common shares outstanding - diluted................... 109,398 109,266 108,884 109,261
========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $ 96,409 $ 53,313
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................................. 33,910 28,623
Deferred income taxes.......................................................... 52,018 24,800
Amortization of deferred loan fees and other costs............................. 4,822 3,344
Equity in earnings of joint ventures........................................... (19,997) (15,764)
Operating distributions from joint ventures.................................... 8,167 32,512
Gain on sales of investment properties......................................... (20,614) (10,270)
Cost of development properties and non-strategic assets sold................... 270,236 158,449
Capital expenditures for development properties................................ (132,358) (183,396)
Other property acquisitions.................................................... -- (289)
Other, net..................................................................... 5,866 (864)
Change in operating assets and liabilities...................................... (9,763) 7,671
--------- ---------
Net cash provided by operating activities......................................... 288,696 98,129
--------- ---------
Cash flows from investing activities:
Proceeds from sales of investment properties.................................... 34,680 13,926
Property acquisitions........................................................... (34,969) (50,290)
Capital expenditures for investment properties.................................. (164,301) (148,257)
Tenant improvements............................................................. (4,824) (1,851)
Distributions from joint ventures............................................... 15,600 --
Contributions to joint ventures................................................. (6,699) (10,496)
Restricted cash................................................................. (66,824) 6,658
--------- ---------
Net cash used in investing activities............................................. (227,337) (190,310)
--------- ---------
Cash flows from financing activities:
Borrowings...................................................................... 291,935 229,969
Repayment of borrowings......................................................... (245,034) (193,582)
Contributions from (distributions to) minority partners, net.................... (7,121) 46,900
Repurchase of common stock...................................................... (28,660) --
Proceeds from issuance of common stock.......................................... 7,500 2,269
--------- ---------
Net cash provided by financing activities......................................... 18,620 85,556
--------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 79,979 (6,625)
Cash and cash equivalents at beginning of period.................................. 35,410 52,975
--------- ---------
Cash and cash equivalents at end of period........................................ $ 115,389 $ 46,350
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)........................................... $ 27,733 $ 25,628
Income taxes................................................................... $ 18,049 $ 10,118
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
Catellus Development Corporation, together with its consolidated
subsidiaries (the "Company"), is a diversified real estate operating company
with a large portfolio of rental properties and developable land that manages
and develops real estate for its own account and that of others. Interests of
third parties in entities controlled and consolidated by the Company are
separately reflected as minority interests in the accompanying balance sheet.
The Company's development portfolio of industrial, residential, retail, office,
and other projects (owned directly or through joint ventures) is located mainly
in major markets in California, Illinois, Texas, Colorado, and Oregon.
Additional projects are located in Arizona and Oklahoma. The Company's rental
properties consist primarily of industrial facilities, along with a number of
office and retail buildings, located primarily in the same states plus Ohio and
Kentucky.
These consolidated statements include the assets and liabilities of
Catellus Development Corporation and its consolidated subsidiaries, whether
wholly or partially owned, and whether directly or indirectly owned, by Catellus
Development Corporation, each of which is a separate legal entity. In the
absence of specific contractual arrangements, none of the assets of any of the
subsidiary entities would be available to satisfy the liabilities of Catellus
Development Corporation or any other of these entities.
NOTE 2. INTERIM FINANCIAL DATA
The accompanying consolidated financial statements should be read in
conjunction with the Company's 1999 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 necessary to present
fairly the financial position, results of operations, and cash flows for the
interim periods presented. Certain prior period financial data have been
reclassified to conform to the current period presentation.
In October, 1999, the Company's Board of Directors authorized a share
repurchase program for up to $50 million of the outstanding common stock. Share
purchases under the program may be made on the open market or in privately
negotiated transactions. The program was authorized for a period of one
year, and therefore will expire in October, 2000. As of September 30, 2000, the
Company had repurchased 1,997,300 shares at a cost of $28.7 million. The
Company's repurchases are reflected as treasury stock utilizing the cost method
of accounting and are presented as a reduction to consolidated stockholders'
equity.
NOTE 3. RESTRICTED CASH AND INVESTMENTS
Of the total restricted cash and investments of $86.4 million at September
30, 2000, $79.2 million represents proceeds from property sales being held in
separate cash accounts at trust companies in order to preserve the Company's
options of reinvesting the proceeds on a tax-deferred basis. In addition,
restricted investments of $7.2 million at September 30, 2000 represent
certificates of deposits used to guarantee lease performance for certain
properties that secure debt.
5
<PAGE>
NOTE 4. INCOME PER SHARE
Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock and equivalents
outstanding during the period (see table below for effect of dilutive
securities).
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
---------- ---------- -------------- --------- ---------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income........................................... $35,604 106,039 $0.34 $19,126 107,085 $0.18
===== =====
Net effect of dilutive securities: stock options..... -- 3,359 -- 2,181
------- ------- ------- -------
Net income assuming dilution......................... $35,604 109,398 $0.33 $19,126 109,266 $0.18
======= ======= ===== ======= ======= =====
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
---------- ---------- -------------- --------- ---------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net income........................................... $96,409 106,723 $0.90 $53,313 106,964 $0.50
===== =====
Net effect of dilutive securities: stock options..... -- 2,161 -- 2,297
------- ------- ------- -------
Net income assuming dilution......................... $96,409 108,884 $0.89 $53,313 109,261 $0.49
======= ======= ===== ======= ======= =====
</TABLE>
NOTE 5. MORTGAGE AND OTHER DEBT
Mortgage and other debt at September 30, 2000, and December 31, 1999, are
summarized as follows:
<TABLE>
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
<S> <C> <C>
First mortgage loans.................................................... $623,581 $589,056
Term loan-secured....................................................... 122,116 12,612
Acquisition secured promissory notes.................................... 43,850 44,022
Construction and acquisition loans-secured/(1)/......................... 63,902 83,266
Assessment district bonds............................................... 25,144 24,845
Secured promissory notes................................................ 21,360 21,360
Industrial capital lease................................................ 14,985 6,852
Other loans............................................................. 9,229 9,416
Secured revolving credit line........................................... -- 48,135
Unsecured revolving credit lines/(1)/................................... -- 36,000
-------- --------
Total mortgage and other debt.......................................... $924,167 $875,564
======== ========
Due within one year..................................................... $ 34,633 $132,317
======== ========
</TABLE>
In September 2000, the Company closed a $157.9 million variable rate (LIBOR
plus 1.8%) secured term loan, maturing in September 2005. At September 30, 2000,
$109.6 million was drawn and the Company expects the remaining $48.3 million to
be funded upon the satisfaction of certain conditions. It is anticipated that a
majority of these funds will be funded in the fourth quarter, 2000.
/(1)/ In July, 2000, a total of approximately $68 million of debt was paid from
the initial cash proceeds from the sale of the home building assets of
the Company (see Note 9).
6
<PAGE>
In July and August 2000, the Company closed three variable rate (LIBOR plus
2.0%) secured construction loans with a total capacity of $30.8 million,
maturing at various dates from May through August 2002. These loans had
outstanding balances of $22.2 million at September 30, 2000.
In October 2000, the Company closed a $168.7 million variable rate (LIBOR
plus 2.0%) secured term loan, maturing in October 2002. At closing, $121.6
million was funded; the Company expects the remaining $47.1 million to be funded
upon the satisfaction of certain conditions.
Interest costs relating to mortgage and other debt for the three-month and
nine-month periods ended September 30, 2000 and 1999, are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------- -------------- ------------ -------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Total interest incurred.................................. $16,422 $16,777 $ 48,743 $ 48,176
Interest capitalized..................................... (3,465) (6,373) (15,214) (18,726)
------- ------- -------- --------
Interest expensed...................................... $12,957 $10,404 $ 33,529 $ 29,450
======= ======= ======== ========
</TABLE>
7
<PAGE>
NOTE 6. PROPERTIES
Book value by property type at September 30, 2000 and December 31, 1999,
consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(In thousands)
<S> <C> <C>
Rental properties:
Industrial buildings.................................................... $ 799,700 $ 739,158
Office buildings........................................................ 203,919 200,760
Retail buildings........................................................ 93,844 92,946
Land and land leases/(1)/............................................... 54,097 64,071
Investment in operating joint ventures.................................. (16,660) (2,916)
---------- ----------
1,134,900 1,094,019
---------- ----------
Developable properties:
Commercial.............................................................. 200,359 193,520
Residential (see Note 9)................................................ 45,496 116,118
Urban development....................................................... 343,092 323,859
Investment in development joint ventures................................ 73,764 47,925
---------- ----------
662,711 681,422
---------- ----------
Work-in-process:
Commercial.............................................................. 76,978 52,207
Commercial--capital lease............................................... 50,680 13,038
Residential (see Note 9)................................................ 7,144 65,154
---------- ----------
134,802 130,399
---------- ----------
Resources.................................................................. 2,719 4,952
Other...................................................................... 33,195 33,225
---------- ----------
Gross book value........................................................... 1,968,327 1,944,017
Accumulated depreciation................................................... (309,577) (294,846)
---------- ----------
Net book value............................................................. $1,658,750 $1,649,171
========== ==========
</TABLE>
/(1)/ This category includes $25.8 million of land which the Company intends to
sell.
8
<PAGE>
NOTE 7. SEGMENT REPORTING
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting which disaggregates its
business by type. The Company has four reportable segments: Commercial,
Residential, Urban Development, and Corporate. The Commercial segment leases and
manages the company-owned commercial buildings and land leases, develops real
estate for the Company's own account or for third parties, and acquires and
sells developable land and commercial buildings. The Residential segment is
involved in community development, project management and, historically, home
building activities (see additional discussion regarding the sale of the home
building assets at Note 9, Sale of Home Building Assets). The Urban Development
segment entitles and develops major mixed-use development sites, which include
development for residential, office, retail, and entertainment purposes. The
Corporate segment consists of administrative and other services.
Inter-segment gains and losses are not recognized. Debt and interest-
bearing assets are allocated to segments based upon the grouping of the
underlying assets. All other assets and liabilities are specifically identified.
The Company uses a supplemental performance measure, Earnings Before
Depreciation and Deferred Taxes ("EBDDT"), along with net income, to report
operating results. EBDDT is not a measure of operating results or cash flows
from operating activities as defined by generally accepted accounting
principles. Further, 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. The Company believes that EBDDT provides relevant
information about operations and is useful, along with net income, for an
understanding of the Company's operating results.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization, and deferred income taxes are added back to net
income as they represent non-cash charges. Since depreciation expense is added
back to net income in arriving at EBDDT, the portion of gain on property sales
attributable to depreciation recapture is excluded from EBDDT. In addition,
gains on the sale of non-strategic assets and extraordinary items, including
their current tax effect, represent unusual and/or non-recurring items and are
excluded from the EBDDT calculation. A reconciliation from EBDDT to net income
is also provided.
9
<PAGE>
Financial data by reportable segment is as follows:
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- ----------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended September 30, 2000
Rental properties:
Rental revenue....................................... $ 49,050 $ -- /(1)/ $ 3,473 $ -- $ 52,523
Property operating costs............................. (12,267) -- /(1)/ (1,984) -- (14,251)
Equity in earnings of operating joint ventures,
net................................................. 1,324 -- -- -- 1,324
-------- --------- ------- ----------- ---------
38,107 -- 1,489 -- 39,596
-------- --------- ------- ----------- ---------
Property sales and fee services:
Sales revenue........................................ 30,468 182,722 -- -- 213,190
Cost of sales........................................ (17,752) (154,760) -- -- (172,512)
-------- --------- ------- ----------- ---------
Gain on property sales............................. 12,716 27,962 -- -- 40,678
Management and development fees...................... 2,647 89 13 -- 2,749
Equity in earnings of development joint
ventures, net....................................... -- 9,238 -- -- 9,238
Selling, general and administrative expenses......... (3,730) (9,981) (538) -- (14,249)
Other................................................ 1,318 (4,426) 65 -- (3,043)
-------- --------- ------- ----------- ---------
12,951 22,882 (460) -- 35,373
-------- --------- ------- ----------- ---------
Interest expense..................................... (12,113) (581) (136) (127) (12,957)
Corporate administrative costs....................... -- -- -- (3,656) (3,656)
Minority interests................................... (1,551) (3,743) -- -- (5,294)
Other................................................ -- -- -- (743) (743)
Depreciation recapture............................... (4,289) -- -- -- (4,289)
-------- --------- ------- ----------- ---------
Pre-tax EBDDT...................................... $ 33,105 $ 18,558 $ 893 $ (4,526) 48,030
======== ========= ======= ===========
Current taxes........................................ (2,378)
---------
EBDDT................................................ 45,652
Depreciation and amortization........................ (11,661)
Deferred taxes....................................... (21,338)
Gain on non-strategic asset sales.................... 18,662
Depreciation recapture............................... 4,289
---------
Net Income......................................... $ 35,604
=========
</TABLE>
/(1)/ Certain asset management responsibilities have been transferred to the
commercial segment during the quarter and the corresponding results are
now classified under "Commercial."
10
<PAGE>
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
------------ ------------- ------------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Three Months Ended September 30, 1999
Rental properties:
Rental revenue....................................... $ 39,760 $ 85 $ 3,236 $ -- $ 43,081
Property operating costs............................. (10,110) -- (1,787) -- (11,897)
Equity in earnings of operating joint ventures,
net................................................. 1,517 -- -- -- 1,517
-------- -------- ------- ----------- --------
31,167 85 1,449 -- 32,701
-------- -------- ------- ----------- --------
Property sales and fee services:
Sales revenue........................................ 46,918 51,205 -- -- 98,123
Cost of sales........................................ (36,615) (40,398) -- -- (77,013)
-------- -------- ------- ----------- --------
Gain on property sales............................. 10,303 10,807 -- -- 21,110
Management and development fees...................... 2,970 440 526 -- 3,936
Equity in earnings of development joint
ventures, net....................................... -- 3,239 -- -- 3,239
Selling, general and administrative expenses......... (2,108) (3,249) (207) -- (5,564)
Other................................................ 94 (1,888) (46) -- (1,840)
-------- -------- ------- ----------- --------
11,259 9,349 273 -- 20,881
-------- -------- ------- ----------- --------
Interest expense..................................... (11,574) (30) (241) 1,441 (10,404)
Corporate administrative costs....................... -- -- -- (3,727) (3,727)
Minority interests................................... -- 45 -- -- 45
Other................................................ -- -- -- 116 116
Depreciation recapture............................... (4,290) -- -- -- (4,290)
-------- -------- ------- ----------- --------
Pre-tax EBDDT...................................... $ 26,562 $ 9,449 $ 1,481 $ (2,170) 35,322
======== ======== ======= ===========
Current taxes........................................ (2,054)
--------
EBDDT................................................ 33,268
Depreciation and amortization........................ (10,039)
Deferred taxes....................................... (10,922)
Gain on non-strategic asset sales.................... 2,529
Depreciation recapture............................... 4,290
--------
Net Income......................................... $ 19,126
========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
----------- ----------- ----------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 2000
Rental properties:
Rental revenue....................................... $142,115 $ 187 (1) $10,877 $ -- $ 153,179
Property operating costs............................. (35,160) (5) (1) (5,475) -- (40,640)
Equity in earnings of operating joint ventures,
net................................................. 7,913 -- -- -- 7,913
-------- --------- ------- --------- ---------
114,868 182 5,402 -- 120,452
-------- --------- ------- --------- ---------
Property sales and fee services:
Sales revenue........................................ 120,970 275,219 -- -- 396,189
Cost of sales........................................ (67,465) (225,429) -- -- (292,894)
-------- --------- ------- --------- ---------
Gain on property sales............................. 53,505 49,790 -- -- 103,295
Management and development fees...................... 8,154 557 631 -- 9,342
Equity in earnings of development joint
ventures, net....................................... 14 12,070 -- -- 12,084
Selling, general and administrative expenses......... (11,441) (20,555) (1,585) -- (33,581)
Other................................................ 3,174 (11,159) 22 -- (7,963)
-------- --------- ------- --------- ---------
53,406 30,703 (932) -- 83,177
-------- --------- ------- --------- ---------
Interest expense..................................... (33,891) (603) (890) 1,855 (33,529)
Corporate administrative costs....................... -- -- -- (11,376) (11,376)
Minority interests................................... (4,655) (4,113) -- -- (8,768)
Other................................................ -- -- -- (1,495) (1,495)
Depreciation recapture............................... (14,486) -- -- -- (14,486)
-------- --------- ------- --------- ---------
Pre-tax EBDDT...................................... $115,242 $ 26,169 $ 3,580 $(11,016) 133,975
======== ========= ======= =========
Current taxes........................................ (12,255)
---------
EBDDT................................................ 121,720
Depreciation and amortization........................ (33,910)
Deferred taxes....................................... (52,018)
Gain on non-strategic asset sales.................... 46,131
Depreciation recapture............................... 14,486
---------
Net Income......................................... $ 96,409
=========
</TABLE>
/(1)/ Certain asset management responsibilities have been transferred to the
commercial segment during the quarter and the corresponding results are
now classified under "Commercial."
12
<PAGE>
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
----------- ----------- ----------- --------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Rental properties:
Rental revenue....................................... $ 116,569 $ 250 $ 9,032 $ -- $ 125,851
Property operating costs............................. (29,656) -- (4,999) -- (34,655)
Equity in earnings of operating joint ventures,
net................................................. 8,106 -- -- -- 8,106
--------- -------- ------- ------------ ---------
95,019 250 4,033 -- 99,302
--------- -------- ------- ------------ ---------
Property sales and fee services:
Sales revenue........................................ 163,991 78,226 -- -- 242,217
Cost of sales........................................ (130,944) (58,286) -- -- (189,230)
--------- -------- ------- ------------ ---------
Gain on property sales............................. 33,047 19,940 -- -- 52,987
Management and development fees...................... 8,357 1,128 1,126 -- 10,611
Equity in earnings of development joint
ventures, net....................................... (23) 7,681 -- -- 7,658
Selling, general and administrative expenses......... (6,585) (10,103) (350) -- (17,038)
Other................................................ 1,579 (1,419) (153) -- 7
--------- -------- ------- ------------ ---------
36,375 17,227 623 -- 54,225
--------- -------- ------- ------------ ---------
Interest expense..................................... (33,349) (78) (623) 4,600 (29,450)
Corporate administrative costs....................... -- -- -- (11,321) (11,321)
Minority interests................................... -- 54 -- -- 54
Other................................................ -- -- -- (1,229) (1,229)
Depreciation recapture............................... (4,290) -- -- -- (4,290)
--------- -------- ------- ------------ ---------
Pre-tax EBDDT...................................... $ 93,755 $ 17,453 $ 4,033 $ (7,950) 107,291
========= ======== ======= ============
Current taxes........................................ (11,264)
---------
EBDDT................................................ 96,027
Depreciation and amortization........................ (28,623)
Deferred taxes....................................... (24,800)
Gain on non-strategic asset sales.................... 6,419
Depreciation recapture............................... 4,290
---------
Net Income......................................... $ 53,313
=========
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of legal actions arising in the ordinary
course of business. The Company cannot predict with certainty the final outcome
of these proceedings. Considering current insurance coverages and the
substantial legal defenses available, however, 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. Where appropriate, the Company has established reserves for potential
liabilities related to legal actions or threatened legal actions. These reserves
are necessarily based on estimates and probabilities of the occurrence of events
and therefore are subject to revision from time to time.
Some of the legal actions to which the Company is a party seek to restrain
actions related to the development process or challenge title to or possession
of the Company's properties. Typically, such actions, if successful, would not
result in significant financial liability for the Company but might instead
prevent the completion of the development process or the completion of the
development process as originally planned.
13
<PAGE>
Inherent in the operations of the real estate business is the possibility
that environmental liability may arise from the current or past ownership, or
current or past operation, of real properties. 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 potential liability in
proportion to that of other potentially responsible parties, and the extent to
which such costs are recoverable from insurance. Also, the Company does not
generally have access to properties sold in the past that could create
environmental liabilities.
At September 30, 2000, management estimates that future costs for
remediation of environmental contamination on operating properties and
properties previously sold approximate $9.9 million and has provided a reserve
for that amount. It is anticipated that such costs will be incurred over the
next several years. Management also estimates that similar costs relating to the
Company's properties to be developed or sold may range from $25.5 million to
$39.5 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 reviews which took place over
several years based upon then-prevailing law and identified site conditions.
Because of the breadth of its portfolio, and past sales, the Company is unable
to review each property extensively 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 and ability of other parties to pay some or all
of such costs.
In connection with the acquisition of property, an indirect subsidiary of
the Company has entered into an agreement with the California Department of
Toxic Substance Control to perform certain work to investigate and remedy
hazardous materials left behind by the previous operators of the site. The
Company has guaranteed completion of the work with a limited liability of $22
million. The Company has contracted for the completion of the work and obtained
insurance to cover various cost overruns.
As of September 30, 2000, the Company has outstanding standby letters of
credit and surety bonds in the amount of $127 million in favor of local
municipalities or financial institutions to guarantee performance on
construction of real property improvements or financial obligations.
Additionally, the Company guarantees 50% of a secured loan associated with a
joint venture investment; the outstanding balance of the loan was $21.4 million
as of September 30, 2000.
NOTE 9. SALE OF HOME BUILDING ASSETS
In July, 2000, the Company's residential subsidiary sold approximately 830
lots, with a book value of $125.8 million, to a newly formed limited liability
company managed by Brookfield Homes of California, Inc., for $139 million in
cash and a retained interest in the new company valued at $22.5 million.
Approximately $77 million of the initial cash proceeds were used for debt
repayment, closing costs and other expenses related to the sale of the home
building operations. The remaining proceeds were added to the Company's working
capital to be used for general corporate purposes. Under the agreement, the
Company's residential subsidiary will receive in cash approximately 55% of its
retained interest in early 2001 and anticipates receiving the balance plus 35%
of the associated profits in cash over the next 24 to 36 months as homes are
built and sold.
In the third quarter, the Company recorded a $14.4 million gain related to
this transaction and recognized an additional $2.0 million in equity earnings of
the limited liability company.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and EBDDT, as
defined, should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q. This
discussion and analysis covers each of our four business segments: commercial,
residential, urban development, and corporate. This EBDDT "by segment" analysis
is used in internal reporting to management and, we believe, provides the most
effective means of understanding the business. (For definition of EBDDT and
reconciliation from EBDDT to net income, see Note 7 of the accompanying
Consolidated Financial Statements.)
Summary EBDDT for the three months and nine months ended September 30, 2000 and
1999
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Commercial......................... $33,105 $26,562 $115,242 $ 93,755
Residential........................ 18,558 9,449 26,169 17,453
Urban Development.................. 893 1,481 3,580 4,033
Corporate.......................... (4,526) (2,170) (11,016) (7,950)
------- ------- -------- --------
Pre-tax EBDDT.................... 48,030 35,322 133,975 107,291
Current taxes...................... (2,378) (2,054) (12,255) (11,264)
------- ------- -------- --------
Total.............................. $45,652 $33,268 $121,720 $ 96,027
======= ======= ======== ========
</TABLE>
Commercial:
The Commercial segment acquires and develops suburban commercial business
parks for our own account and the account of others. EBDDT primarily consists of
rental income for buildings owned and sales gains from properties sold.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
-------- -------- ---------- -------- --------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental properties:
Rental revenue....................................... $ 49,050 $ 39,760 $ 9,290 $142,115 $ 116,569 $ 25,546
Property operating costs............................. (12,267) (10,110) (2,157) (35,160) (29,656) (5,504)
Equity in earnings of operating joint ventures,
net................................................. 1,324 1,517 (193) 7,913 8,106 (193)
-------- -------- -------- -------- --------- --------
38,107 31,167 6,940 114,868 95,019 19,849
-------- -------- -------- -------- --------- --------
Property sales and fee services:
Sales revenue........................................ 30,468 46,918 (16,450) 120,970 163,991 (43,021)
Cost of property sold/(1)/........................... (22,041) (40,905) 18,864 (81,951) (135,234) 53,283
-------- -------- -------- -------- --------- --------
Gain on property sales............................. 8,427 6,013 2,414 39,019 28,757 10,262
Management and development fees...................... 2,647 2,970 (323) 8,154 8,357 (203)
Equity in earnings of development joint ventures,
net................................................. -- -- -- 14 (23) 37
Selling, general and administrative expenses......... (3,730) (2,108) (1,622) (11,441) (6,585) (4,856)
Other................................................ 1,318 94 1,224 3,174 1,579 1,595
-------- -------- -------- -------- --------- --------
8,662 6,969 1,693 38,920 32,085 6,835
-------- -------- -------- -------- --------- --------
Interest expense..................................... (12,113) (11,574) (539) (33,891) (33,349) (542)
Minority interests................................... (1,551) -- (1,551) (4,655) -- (4,655)
-------- -------- -------- -------- --------- --------
Pre-tax EBDDT................................... $ 33,105 $ 26,562 $ 6,543 $115,242 $ 93,755 $ 21,487
======== ======== ======== ======== ========= ========
<CAPTION>
Rental Building Occupancy: September 30,
(In thousands and square feet, except percentages) 2000 1999
-------- --------
<S> <C> <C>
Owned................................................ 26,371 23,432
Occupied............................................. 25,491 21,392
Occupancy percentage................................. 96.7% 91.3%
</TABLE>
------------------
/(1)/ Included in cost of property sold for the three and nine months ended
September 30, 2000, is $4.3 million and $14.5 million, as compared to $4.3
million in the same periods in 1999 respectively, of depreciation
recapture, which is included in net income, but not EBDDT.
15
<PAGE>
Rental Revenue Less Property Operating Costs
Rental revenue less operating costs has increased $7.1 million and $20.0
million for the three and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999, mainly because of additions of buildings
and rental increases on Same Space, partially offset by properties sold. We
added a net 2.9 million square feet to our rental portfolio from October 1999 to
September 2000. Properties that were owned and operated for the entire current
period and the immediate preceding year are referred to as "Same Space." The
change in rental revenue less operating costs for the three and nine months
ended September 30, 2000 and 1999, is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
------- ------- ---------- -------- ------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental revenue less operating costs:
Same Space.......................................... $24,229 $22,671 $ 1,558 $ 71,853 $67,705 $ 4,148
Properties added to portfolio....................... 8,506 2,428 6,078 21,263 3,799 17,464
Properties sold from portfolio...................... 30 1,519 (1,489) 2,635 5,106 (2,471)
Land and land leases................................ 4,018 3,032 986 11,204 10,303 901
------- ------- ------- -------- ------- -------
$36,783 $29,650 $ 7,133 $106,955 $86,913 $20,042
======= ======= ======= ======== ======= =======
</TABLE>
Generally, because of the long-term nature of our leases, the low growth in
rental rates for our product, and the straight-line treatment of contractual
increases over the life of a lease, we do not expect substantial increases in
rental income from our existing rental portfolio. Rather, we expect growth in
overall portfolio rental income as new properties are added to our rental
portfolio over time.
Sales Revenue
Our commercial development business has increased gain from property sales
for the three and nine months ended September 30, 2000, over the same periods in
1999 (see construction activity chart for 2000 and 1999 at page 24). Gains on
property sales were $8.4 million and $39.0 million for the three and nine months
ended September 30, 2000, respectively, as compared to $6.0 million and $28.8
million, respectively, for the three and nine months ended September 30, 1999
(see discussion of Variability in Results at Page 22).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
-------- -------- ----------- -------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial sales:
Building sales:
Sales proceeds..................................... $ 13,349 $ 37,617 $(24,268) $ 72,542 $ 90,742 $(18,200)
Cost of sales...................................... (9,574) (32,220) 22,646 (50,464) (79,962) 29,498
-------- -------- -------- -------- -------- --------
Gain.............................................. 3,775 5,397 (1,622) 22,078 10,780 11,298
-------- -------- -------- -------- -------- --------
Land sales:
Sales proceeds..................................... 15,428 6,572 8,856 44,331 25,723 18,608
Cost of sales...................................... (11,193) (6,560) (4,633) (28,448) (18,745) (9,703)
-------- -------- -------- -------- -------- --------
Gain.............................................. 4,235 12 4,223 15,883 6,978 8,905
-------- -------- -------- -------- -------- --------
Other sales:
Sales proceeds..................................... 1,691 2,729 (1,038) 4,097 47,526 (43,429)
Cost of sales...................................... (1,274) (2,125) 851 (3,039) (36,527) 33,488
-------- -------- -------- -------- -------- --------
Gain.............................................. 417 604 (187) 1,058 10,999 (9,941)
-------- -------- -------- -------- -------- --------
Total gain on property sales.................... $ 8,427 $ 6,013 $ 2,414 $ 39,019 $ 28,757 $ 10,262
======== ======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
The commercial property sales for the three months ended September 30, 2000
and 1999 include the closings of the sale of 218,000 square feet and 609,000
square feet, respectively, of new commercial building space and associated land
plus improved land capable of supporting 2.6 million and 0.4 million square feet
of commercial development. For the nine months ended September 30, 2000 and
1999, commercial property sales include the sale closings of 1.2 million and 1.3
million square feet, respectively, of commercial building space plus improved
land capable of supporting 4.0 million and 2.1 million square feet of commercial
development.
"Other sales" in the table above includes a sale by one of our joint
ventures of an apartment project in San Diego, California, in 1999; there were
no property sales from our operating joint ventures in 2000. The 2000 "Other
sales" includes the sale of 662 acres of leased land as compared to 659 acres in
1999, that we had acquired during 1998.
Following is a summary of property sales under contract but not closed:
<TABLE>
<CAPTION>
September 30,
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Sales under contract, but not closed................................. $55,585 $69,553
======= =======
</TABLE>
Management and Development Fees
In past years, a major source of fee income was a contract to manage and
sell the non-railroad real estate assets of a major railroad company. As
anticipated, most of the railroad's inventory of managed assets has been sold in
accordance with the customer's goals. We decided not to pursue renewal of this
contract when it expires on December 31, 2000. Consequently, we expect that
management fees and the related selling, general and administrative expenses
will decline in 2001.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses of $1.6
million and $4.9 million for the three and nine months ended September 30, 2000,
respectively, as compared to the same periods in 1999, is primarily from the
additional staffing required to pursue new development activities, increased
sales activity, and financing activities.
Interest
Increase in interest incurred and capitalized in 2000 is due to higher
levels of development activity. The increase in interest expense is primarily
because of the completed buildings added to our portfolio. We anticipate
interest to increase as we closed a financing in late September 2000 and another
one in October 2000.
Following is a summary of interest incurred:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
------- ------- ---------- ------- ------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total interest incurred................................. $15,395 $13,808 $ 1,587 $43,103 $42,233 $ 870
Interest capitalized.................................... (3,282) (2,234) (1,048) (9,212) (8,884) (328)
------- ------- ------- ------- ------- -----
Interest expensed....................................... $12,113 $11,574 $ 539 $33,891 $33,349 $ 542
======= ======= ======= ======= ======= =====
Previously capitalized interest included in
cost of sales......................................... $ 1,220 $ 1,116 $ 104 $ 3,430 $ 4,398 $(968)
======= ======= ======= ======= ======= =====
</TABLE>
17
<PAGE>
Minority Interests
In June 1999, we formed a consolidated venture composed of a group of
operating properties and sold 10% of this consolidated venture's stock to a
minority investor.
Residential:
In the past, the Residential segment acquired and developed mainly single-
family residential property. Because of the sale of the majority of our home
building assets, as discussed below, prospectively this segment will concentrate
on land development of residential sites via direct investments and joint
ventures. EBDDT consists primarily of gains from sales of lots and completed
homes.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
--------- -------- ----------- --------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental properties income.............................. $ -- $ 85 $ (85) $ 182 $ 250 $ (68)
---------- -------- --------- --------- -------- ---------
Property sales and fee services:
Sales revenue......................................... 182,722 51,205 131,517 275,219 78,226 196,993
Cost of property sold................................. (154,760) (40,398) (114,362) (225,429) (58,286) (167,143)
--------- -------- --------- --------- -------- ---------
Gain on property sales............................. 27,962 10,807 17,155 49,790 19,940 29,850
Management and development fees....................... 89 440 (351) 557 1,128 (571)
Equity in earnings of development joint
ventures, net....................................... 9,238 3,239 5,999 12,070 7,681 4,389
Selling, general and administrative expenses.......... (9,981) (3,249) (6,732) (20,555) (10,103) (10,452)
Other................................................. (4,426) (1,888) (2,538) (11,159) (1,419) (9,740)
--------- -------- --------- --------- -------- ----------
22,882 9,349 13,533 30,703 17,227 13,476
--------- -------- --------- --------- -------- ----------
Interest expense...................................... (581) (30) (551) (603) (78) (525)
Minority interests.................................... (3,743) 45 (3,788) (4,113) 54 (4,167)
--------- -------- --------- --------- -------- ---------
Pre-tax EBDDT................................... $ 18,558 $ 9,449 $ 9,109 $ 26,169 $ 17,453 $ 8,716
========= ======== ========= ========= ======== =========
</TABLE>
In July, we sold a majority of our home building assets to a newly formed
limited liability company managed by Brookfield Homes of California, Inc. for
$139 million in cash and a retained interest in the new company (the
"LLC") valued at $22.5 million. Under the agreement, we will receive in cash
approximately 55% of our retained interest in early 2001. Of the $22.5 million
retained interest, we recognized $2.0 million as part of "Equity in Earnings
of Development Joint Ventures, Net" as of September 30, 2000. We expect to
recognize the remaining $20.5 million retained interest and 35% of our share of
profits from the LLC ratably as homes/lots are sold over the next 24 to 36
months. Consequently, no further earnings from home building activities are
expected beyond the third quarter of 2000, except those related to the new joint
venture as noted here.
Included in gain on property sales for the quarter is $14.4 million from
the sale of our home building assets to the LLC, as well as $10.2 million,
before deduction of approximately $4 million in minority interest, from the sale
of an 80-lot site, and $3.4 million resulting from the closings of 357 lots and
82 homes compared to the closings of 124 homes in 1999. For the nine months
ended September 30, 2000 gain on residential property sales resulted from the
closings of 296 homes and 395 lots, compared to the closings of 185 homes and 9
lots for the same period in 1999.
Equity in earnings of development joint ventures, net, increased $6.0
million and $4.4 million for the three and nine months ended September 30, 2000,
respectively, as compared to the same periods in 1999. The increases were
primarily due to increased sales volume at Serrano and Talega. The joint
ventures closed 798 lots and 1,209 lots for the periods three months ended and
nine months ended September 30, 2000, respectively, as compared to 234 lots and
9 homes for the three months ended September 30, 1999 and 765 lots and 29 homes
for the nine months ended September 30, 1999. The increase also includes $2.0
million from the "LLC" unit sales.
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
2000 1999 Difference 2000 1999 Difference
--------- --------- ---------- ---- ---- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
EQUITY IN EARNINGS OF DEVELOPMENT JOINT VENTURES:
Sales proceeds.......................................... $ 72,491 $ 32,072 $ 40,419 $121,468 $105,918 $ 15,550
Cost of sales........................................... (55,600) (25,092) (30,508) (92,267) (78,553) (13,714)
-------- -------- -------- ------- -------- --------
Gain................................................... 16,891 6,980 9,911 29,201 27,365 1,836
Minority interest and other.............................. (7,653) (3,741) (3,912) (17,131) (19,684) 2,553
-------- -------- -------- ------- -------- --------
Total equity in earnings of development joint
ventures................................................ $ 9,238 $ 3,239 $ 5,999 12,070 $ 7,681 $ 4,389
======== ======== ======== ======= ======== ========
</TABLE>
Following is a summary of property sales under contract but not closed
(deposits were collected from these contracts, and some deposits are non-
refundable; however, some of these sales under contracts may not close):
<TABLE>
<CAPTION>
September 30,
2000 1999
------- -------
(In thousands)
<S> <C> <C>
Owned projects and consolidated joint ventures:
Units/(1)/..................................... $14,541 $60,827
======= =======
Lots........................................... $ -- $ 6,370
======= =======
Unconsolidated joint venture projects/(1)/.......
Units.......................................... $ -- $ 7,592
======= =======
Lots........................................... $27,488 $ 9,866
======= =======
</TABLE>
------------------
/(1)/ The amounts shown are 100% of the gross sales price; we are entitled to
receive 25%-67% of the net profits from these joint ventures.
19
<PAGE>
Selling, General and Administrative Expenses
The increases in selling, general and administrative of $6.7 million and $10.5
million for the periods three and nine months ended September 30, 2000,
respectively, as compared to the same periods in 1999, are primarily
attributable to the $6.5 million associated with the sale of the home building
assets during the quarter and increases in selling activity. We expect selling,
general and administrative expenses to decrease in the next quarter because of
the completion of the sale of the home building assets.
Other
"Other" (expense) increased for the three and nine months ended September 30,
2000, as compared to the same periods in 1999, due to the $4.0 million and $11.0
million reserves provided for certain estimated losses related to cost overruns
on a fixed price contract for a development project during the three and nine
month periods ended September 30, 2000, respectively. Because the resolution of
costs is ongoing, the estimate of losses is subject to revision as we complete
performance. The factors listed in the Forward-Looking Information and Risk
Factors section, including particularly costs of materials and labor,
construction conditions, performance or nonperformance of obligations by third
parties, labor strikes, and construction delays, could affect the estimate.
Interest
Following is a summary of interest incurred:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
------ ------- ----------- ------- ------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total interest incurred................................ $ 763 $ 3,820 $(3,057) $ 6,489 $ 6,159 $ 330
Interest capitalized................................... (182) (3,790) 3,608 (5,886) (6,081) 195
------ ------- ------- ------- ------- ------
Interest expensed...................................... $ 581 $ 30 $ 551 $ 603 $ 78 $ 525
====== ======= ======= ======= ======= ======
Previously capitalized interest included
In cost of sales..................................... $1,414 $ 2,300 $ (886) $ 5,179 $ 3,130 $2,049
====== ======= ======= ======= ======= ======
</TABLE>
Interest incurred and capitalized decreased for the three months ended
September 30, 2000, primarily because of the sale of the home building assets,
as part of the proceeds was used to pay off certain existing debt (see Note 5).
Interest for the nine months ended September 30, 2000, approximated that of 1999
as the decrease in the 3rd quarter 2000 because of the sale of the home-building
assets is offset by the increase in interest due to higher development
activities over the same period in 1999.
Minority Interest
Minority interest for the three and nine months ended September 30, 2000,
as compared to the same periods in 1999 increased $3.8 million and $4.2 million,
respectively, primarily because of the sale of an 80-lot site in San Francisco
by a consolidated joint venture.
20
<PAGE>
Urban Development:
The Urban Development segment entitles and develops urban mixed-use sites in San
Francisco, Los Angeles, and San Diego. Currently, the majority of development
activities are at the Mission Bay project in San Francisco.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
------ ------- ----------- ------- ------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental properties:
Rental revenue ......................................... $ 3,473 $ 3,236 $ 237 $10,877 $ 9,032 $ 1,845
Property operating costs ............................... (1,984) (1,787) (197) (5,475) (4,999) (476)
------- ------- ------ ------- ------- -------
1,489 1,449 40 5,402 4,033 1,369
------- ------- ------ ------- ------- -------
Property sales and fee services:
Management and development fees......................... 13 526 (513) 631 1,126 (495)
Selling, general and administrative expenses............ (538) (207) (331) (1,585) (350) (1,235)
Other................................................... 65 (46) 111 22 (153) 175
------- ------- ------ ------- ------- -------
(460) 273 (733) (932) 623 (1,555)
------- ------- ------ ------- ------- -------
Interest expense.......................................... (136) (241) 105 (890) (623) (267)
------- ------- ------ ------- ------- -------
Pre-tax EBDDT.......................................... $ 893 $ 1,481 $ (588) $ 3,580 $ 4,033 $ (453)
======= ======= ====== ======= ======= =======
Rental Building Occupancy: September 30,
(In thousands and square feet, except percentages) 2000 1999
------- -------
Owned..................................................... 913 1,176
Occupied.................................................. 835 1,063
Occupancy percentage...................................... 91.5% 90.4%
</TABLE>
Rental Revenue less Property Operating Costs
The increases in rental revenue less property operating costs for the three
and nine months ended September 30, 2000, as compared to the same periods in
1999 are primarily because of higher parking related revenue at Mission Bay in
San Francisco and lower property taxes. Rental revenue less property operating
costs from this segment is generated primarily from interim income-producing
uses of properties intended for mixed-use development. Income provided from this
pool of interim rental uses will decrease as development occurs on these sites.
Future income from the Urban Development segment will be generated from
development activities and will include rental income and sales gains. We expect
such income to commence in late 2000 or early 2001.
Selling, General and Administrative Expenses
The increases of $0.3 million and $1.2 million for the three and nine month
periods ended September 30, 2000, respectively, as compared to the same periods
in 1999, are primarily attributable to changes in overall staffing and employee
related expenses. Selling, General and Administrative expenses are expected to
continue to increase as we anticipate business activities will increase in 2000
and thereafter.
Corporate:
Corporate items consist of certain interest and administrative costs
reduced by interest costs capitalized to other business segments.
21
<PAGE>
Interest
Corporate interest consists primarily of contra-interest expense, because
the Residential segment had qualifying assets which provided for the
capitalization of more interest than directly incurred by that segment. This
resulted in the capitalization of interest incurred by other segments. The
decrease of contra-interest expense in 2000 is primarily because of the sale of
our home building assets. However, we expect the contra-interest expense to
increase in 2001 because of the increase in business activities at our Mission
Bay project in San Francisco.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 Difference 2000 1999 Difference
------- ------- ---------- -------- -------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest (expense)/income............................... $ (127) $ 1,441 $(1,568) $ 1,855 $ 4,600 $(2,745)
Corporate administrative costs.......................... (3,656) (3,727) 71 (11,376) (11,321) (55)
Other................................................... (743) 116 (859) (1,495) (1,229) (266)
------- ------- ------- -------- -------- -------
Pre-tax EBDDT........................................ $(4,526) $(2,170) $(2,356) $(11,016) $ (7,950) $(3,066)
======= ======= ======= ======== ======== =======
</TABLE>
Corporate Administrative Costs
Corporate administrative costs consist primarily of general and
administrative expenses. General and administrative expenses for the three and
nine months ended September 30, 2000, approximated those of 1999.
Items Not Included in EBDDT by Segment
Gain (Loss) on Sales of Non-Strategic Assets
Gain (loss) on sales of non-strategic assets was $18.7 million and $2.5
million for the three months ended September 30, 2000 and 1999, respectively,
and $46.1 million and $6.4 million for the nine months ended September 30, 2000
and 1999, respectively. The increase is because of a major desert land sale
which generated a total of approximately $45 million in sales proceeds in 2000.
From 1995 through September 30, 2000, we sold almost $321 million of non-
strategic assets as part of a program of selling non-strategic assets, with the
proceeds used to pay down a portion of existing debt and fund new development.
With the closing in July 2000, this program is substantially complete. At
quarter end, the most significant remaining non-strategic asset is our desert
portfolio of approximately 363,000 acres.
Variability in Results
We expect the variability of our quarterly and annual EBDDT and net income
to continue. The timing of development sales and sales of non-strategic assets
have resulted in significant variability in our historic operating results,
particularly on a quarterly basis. Many of our projects require a lengthy
process to complete the development cycle before sale. Sales of real estate
assets are generally subject to lengthy negotiations and contingencies that need
to be resolved before closing. These factors tend to "bunch" income in
particular periods rather than producing 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 number of properties have
been owned for many years while some properties were acquired within the last
few years; because properties are owned in various geographical locations; and
because development projects have varying infrastructure and build-out periods.
22
<PAGE>
Liquidity and Capital Resources
Cash flows from operating activities
Cash provided by operating activities reflected in the statement of cash
flows for the nine months ended September 30, 2000 and 1999, was $288.7 million
and $98.1 million, respectively. The increase in 2000 consists primarily of an
increase of $174 million in proceeds from sales of development, non-strategic,
and other properties, a $21.4 million increase in rental properties results, and
a $51.3 million decrease in expenditures for development properties. These were
partially offset by $24.3 million lower operating distributions from joint
ventures, a $10.3 million increase in gain on sale of investment property, a
$4.1 million increase in equity in earnings of joint ventures, and a $17.4
million change in operating assets and liabilities.
Cash flows from investing activities
Net cash used in investing activities reflected in the statement of cash
flows for the nine months ended September 30, 2000 and 1999, was $227.3 million
and $190.3 million, respectively. The increase in 2000 consists primarily of an
increase of $73.5 million in restricted cash and an increase of $16.0 million in
capital expenditures for investment properties. These were offset by the $15.6
million in distributions from joint ventures, a decrease of $15.3 million in
property acquisitions, an increase of $20.8 million in net proceeds from sales
of other assets, and a decrease of $0.8 million in other investing activities.
23
<PAGE>
Capital expenditures reflected in the statement of cash flows include the
following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Capital Expenditures from Operating Activities /(1)/
Capital expenditures for residential and commercial development
properties.......................................................... $ 98,831 $133,316
Residential property acquisitions..................................... 26,464 36,945
Capitalized interest and property tax................................. 7,063 13,135
-------- --------
Capital expenditures for development properties..................... 132,358 183,396
Other property acquisition.......................................... -- 289
-------- --------
Capital expenditures in cash flows for operating activities......... 132,358 183,685
Seller-financed acquisitions.......................................... -- 7,127
-------- --------
Total capital expenditures in operating activities.................. 132,358 190,812
-------- --------
Capital Expenditures from Investing Activities/(2)/
Construction and building improvements................................ 65,998 74,721
Capital lease construction and building improvements.................. 46,314 21,761
Predevelopment........................................................ 8,430 9,241
Infrastructure and other.............................................. 32,245 31,828
Capitalized interest and property tax................................. 11,314 10,706
-------- --------
Capital expenditures for investment properties...................... 164,301 148,257
Commercial property acquisitions...................................... 34,969 50,290
Tenant improvements................................................... 4,824 1,851
-------- --------
Capital expenditures in investing activities........................ 204,094 200,398
Seller-financed acquisitions.......................................... 1,702 14,000
-------- --------
Total capital expenditures in investing activities.................... 205,796 214,398
-------- --------
Total capital expenditures......................................... $338,154 $405,210
======== ========
</TABLE>
------------------
/(1)/ This category includes capital expenditures for properties we intend to
build to sell.
/(2)/ This category includes capital expenditures for properties we intend to
hold for our own account.
Capital expenditures for development properties--This item relates to the
development of residential and commercial for-sale development properties. The
decrease from 1999 to 2000 is primarily because of the sale of the home building
assets.
Construction, capital lease construction and building improvements--This
item relates primarily to the development of new commercial properties held for
lease and improvements to existing buildings. This development activity is
summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In square feet) (In square feet)
<S> <C> <C> <C> <C>
Under construction, beginning of period 4,962,000 4,644,000 4,641,000 5,037,000
Construction starts 1,204,000 1,501,000 3,862,000 3,067,000
Completed--retained in portfolio (428,000) (1,809,000) (2,765,000) (2,760,000)
Completed--design/build or sold (80,000) (693,000) (80,000) (1,701,000)
----------- ---------- ----------- ----------
Under construction, end of period 5,658,000/(1)/ 3,643,000 5,658,000/(1)/ 3,643,000
=========== ========== =========== ==========
</TABLE>
------------------
/(1)/ This includes 945,000 square feet of development that we expect to sell
upon completion and 4,713,000 square feet that we expect to add to our
portfolio upon completion.
24
<PAGE>
Property Acquisitions--For the nine months ended September 30, 2000 and 1999,
we invested approximately $63.1 million and $108.7 million, respectively, in the
acquisition of new property, either directly or through joint ventures. These
acquisitions primarily included $32.0 million of commercial development land
which added approximately 778,000 square feet of potential industrial
development. Also included was $26.5 million in acquisitions of development
property in California, directly or through joint ventures, which will support
up to 479 homes/lots.
Infrastructure and other--These represent infrastructure costs incurred in
connection with our urban development and commercial development projects. These
costs primarily relate to projects at Woodridge, Illinois; Denver, Colorado;
Rancho Cucamonga, California; Fremont, California; and Mission Bay, San
Francisco, California.
Cash flows from financing activities
Net cash provided by financing activities reflected in the statement of
cash flows for the nine months ended September 30, 2000, as compared to the same
period in 1999, were $18.6 million and $85.6 million, respectively. The decrease
in 2000 is primarily attributable to a net decrease of $54.0 million in
contributions from minority partners, offset by an increase in net borrowing of
$10.5 million; and an increase of $5.2 million in proceeds from the issuance of
common stocks due to the exercise of stock options. Also contributing to the
decrease is $28.7 million expended for the purchase of 1,997,300 shares of our
stock through September 2000. In October 1999, the Board of Directors authorized
a share repurchase program for up to $50 million of the outstanding common
stock. The program was authorized for a period of one year, and therefore will
expire in October, 2000.
Capital commitments
As of September 30, 2000, we had outstanding standby letters of credit and
surety bonds in the amount of $127 million in favor of local municipalities or
financial institutions to guarantee performance on real property improvements or
financial obligations.
As of September 30, 2000, we had approximately $107.2 million in total
commitments for capital expenditures. These commitments are primarily for the
construction of industrial development projects, predevelopment costs, and re-
leasing costs.
Cash balances, available borrowings, and capital resources
As of September 30, 2000, we had a total liquidity of $363.5 million, of
which $86.4 million was restricted cash. The non-restricted liquidity of $277.1
million consists of $115.4 million in cash and cash equivalents, $150.0 million
under our credit facilities, and $11.7 million under our commercial construction
facilities.
Our short- and long-term liquidity and capital resources requirements will
be provided from three main sources: (1) ongoing income from rental properties,
(2) proceeds from sales of developed properties and land, and (3) additional
debt. As noted above, credit and construction loan facilities are available for
meeting liquidity requirements. Our ability to meet our mid- and long-term
capital requirements is dependent upon the ability to obtain additional
financing for new construction, acquisitions, and currently unencumbered
properties. Financing on favorable terms may not always be available.
25
<PAGE>
Debt covenants--Certain loan agreements contain restrictive financial
covenants, the most restrictive of which require our debt coverage ratio to be
at least 1.30:1, require stockholders' equity to be no less than $484.8 million,
and require that we maintain certain other specified financial ratios. We were
in compliance with all such covenants at September 30, 2000.
Environmental Matters
Many of our properties are in urban and industrial areas and may have been
leased to or previously owned by commercial and industrial companies that
discharged hazardous materials. We incur ongoing environmental remediation costs
and legal costs relating to cleanup, defense of litigation, and the pursuit of
responsible third parties. Costs incurred in connection with operating
properties and with properties previously sold are expensed. As of September 30,
2000, we have provided a reserve of $9.9 million for environmental costs
relating to such properties. These costs are expected to be incurred over the
next several years, with a substantial portion incurred over the next few years
(see Note 8 of the accompanying consolidated financial statements for further
discussion).
In connection with the acquisition of property, an indirect subsidiary of
the Company has entered into an agreement with the California Department of
Toxic Substance Control to perform certain work to investigate and remedy
hazardous materials left behind by the previous operators of the site. The
Company has guaranteed completion of the work with a limited liability of $22
million. The Company has contracted for the completion of the work and
obtained insurance to cover various cost overruns.
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 September 30, 2000,
our estimate of potential liability for identified environmental costs relating
to properties to be developed or sold ranged from $25.5 million to $39.5
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 nine months ended September 30, 2000
totaled $0.5 million.
We or outside consultants have evaluated the environmental liabilities
associated with most of the properties we currently own; however, any evaluation
necessarily is based upon then-prevailing law, identified site conditions, and
the use of sampling methodologies. Also, we do not generally have access to
properties sold in the past which could create environmental liabilities. We
monitor our 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, we do not believe that such costs for identified liabilities will
have a material adverse effect on our financial position, results of operations,
or cash flows.
Forward-Looking Information and Risk Factors
Except for historical matters, the matters discussed in this Form 10-Q are
forward-looking statements that involve risks and uncertainties. We have tried,
wherever practical, to identify these forward-looking statements by using words
like "anticipate," "believe," "estimate," "project," "expect," and similar
expressions. Forward-looking statements include, but are not limited to,
statements about plans; opportunities; negotiations; markets and economic
conditions; development, construction, and sales activities; availability of
financing; property values; litigation; and liabilities.
We caution our readers not to place undue reliance on these forward-looking
statements, which reflect our current beliefs and are based on information
currently available to us. We do not undertake any obligation to publicly
revise these forward-looking statements to reflect future events or changes in
circumstances.
26
<PAGE>
These forward-looking statements are subject to risks and uncertainties
that could cause our actual results, performance, or achievements to differ
materially from those expressed in or implied by these statements. In
particular, among the factors that could cause actual results to differ
materially are:
. Changes in the real estate market or in general economic conditions in
the areas in which we own property. The real estate industry is by nature
cyclical, and while recent years have seen strong growth in real estate
values, occupancy rates, and transaction activity, a downturn in the
industry may occur. Moreover, we expect that a significant portion of our
construction starts will be for speculative development, which puts more
of our development revenue at risk in a downturn in general economic
conditions. The Commercial Group anticipates substantial emphasis on
suburban office development and the Urban Development Group anticipates
substantial emphasis on multimedia, biotech, entertainment, retail, hotel
high-density residential, and urban office. All of these are product
types that are more complex than our industrial product.
. Product and geographical concentration. Our portfolio is largely
concentrated in industrial properties and may be vulnerable to a downturn
in that sector of the real estate industry. In addition, our business is
concentrated in the major metropolitan areas of California. For example,
a bigger downturn in the technology industry or in stock market values of
that industry, or in the San Francisco or Silicon Valley real estate
markets, could adversely affect our business in the affected areas. Also,
price competition from other markets could draw users out of San
Francisco and Silicon Valley, which could adversely affect our
business.
. Competition in the real estate industry. There is the potential for
overbuilding in the major metropolitan areas in which our properties are
concentrated, which could, in the long term, adversely affect the value
of our projects such as, for example, Mission Bay. The build-out of these
projects and the period of time in which tenants' options to purchase are
exercisable is likely to occur over a period of time that exceeds the
historically typical length of the real estate cycle. Consequently, at
the time of an economic downturn those projects may still include
significant undeveloped land, which may be more severely affected by a
downturn.
. Availability of financing to meet our capital needs, the variability of
interest rates, and our ability to use our collateral to secure loans.
The success of our large land development projects (such as Mission Bay,
Pacific Commons, and Stapleton Business Center) depends in part on
completing and financing their infrastructure in a timely and cost-
effective manner. Similarly, our ongoing development and land acquisition
activities will require significant capital. In addition, although much
of our financing is currently at favorable interest rates, we expect to
make substantial borrowings in the future at rates that may be
substantially higher than our current financings. Also, we expect to seek
substantial construction financing, which may be more difficult to obtain
than permanent financing because it is more difficult for the lender to
underwrite without an income stream in place. We may attempt to hedge our
exposure to interest rate change; nevertheless, it may not be possible to
implement hedging strategies, or the strategies, once implemented, might
not be successful.
. Delay in receipt of or denial of government approvals and entitlements
for development projects, other political and discretionary government
decisions affecting the use of or access to land, or legal challenges to
the issuance of approvals or entitlements. For example, our development
projects need project-specific approvals such as use permits, subdivision
maps, transportation management plans, and natural resource permits. In
some cases, the law permits private parties to challenge the grant of
those approvals. We may therefore be subject to litigation that seeks to
delay or prevent development of our projects, and this litigation could
be successful.
. Changes in tax laws and other circumstances that affect our ability to
control the timing and recognition of deferred tax liability. Changes in
the tax laws could affect the tax treatment of our subsidiaries and joint
ventures. In addition, the government could challenge the treatment of
transactions for tax purposes, and the result could increase our tax
liability, including interest and penalties, and could affect our
liquidity.
27
<PAGE>
. Exposure of our assets to damage from natural occurrences such as
earthquakes, and weather conditions that affect the progress of
construction. For example, our projects at Mission Bay, Pacific Commons,
and Los Angeles Union Station are all near major earthquake fault lines.
In addition, some projects are situated wholly or in part on filled land,
which may be particularly vulnerable to ground movement in an earthquake.
. Liability for environmental remediation at properties owned, managed, or
formerly owned or managed by us or our predecessors, and changes in
environmental laws and regulations. Many of our properties are in urban
or industrial areas or near existing or former rail lines and may have
been exposed to environmental contamination in the past. We could have
liability for remediation of environmental conditions on these
properties, even after we have sold them. Our subsidiaries also acquire
properties with known environmental problems. If our estimates of
remediation costs are wrong, or if the mechanisms we select to limit
liability, such as environmental insurance prove ineffective, we could
have unexpected liability.
. Failure to reach agreement with third parties (including municipal
authorities) on definitive terms or failure to close transactions. Our
pursuit of new projects may involve significant expenditures before
definitive agreements are signed or the transaction closes. Moreover,
transactions that are the subject of definitive agreements generally
include a variety of contingencies and conditions to the closing. The
failure of any of these contingencies and conditions may result in the
failure to close the transaction. If we do not sign a definitive
agreement for a project, or if the transaction does not close, our
expenditures may not be recoverable.
. Failure or inability of third parties to perform their obligations under
agreements.
. Increases in the cost of land and building materials. Rising real estate
prices and increasing levels of construction activity may lead to an
increase in our acquisition and construction costs, which may narrow or
eliminate our profit margins.
. Tight labor markets. Labor markets have grown increasingly tight with
unemployment at historically low levels, especially in California, and
this detracts from our ability to find, attract, retain, and replace
skilled professionals, and increases the cost of labor. As our level of
activity continues to grow, the success of those activities is dependent
on retaining key personnel and hiring new employees with appropriate
skills and experience. If we are unable to compete successfully to hire
and retain personnel, our plans could be affected.
. Limitations on or challenges to title to or possession of our properties,
including title inherited from our railroad predecessors. If challenges
are successful, we would be unable to complete planned sales, leases or
developments. Even if challenges are unsuccessful on the merits they
could delay development or cause us to incur additional costs.
. Risks related to the performance and financial strength of the co-owners
of our joint venture projects.
. Changes in policies and practices of organized labor groups who may work
on our projects.
28
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is interest rate risk. The majority of our
financial instruments are not considered market risk sensitive instruments, as
they are not subject to foreign exchange rate risk or commodity price risk. At
September 30, 2000, we did not have any outstanding interest-protection
contracts except for a contract we acquired in September 2000 relating to a new
financing; however, the protection commences in 2003. We intend continuously to
monitor and actively to manage interest costs on our variable rate debt and may
enter into interest-protection contracts based on market fluctuations.
At September 30, 2000, approximately 74.4% of our debt bore interest at
fixed rates with a weighted average maturity of approximately 7.8 years and a
weighted average effective interest of approximately 6.89%, which is below
market. Therefore, unless there were a drastic decrease in interest rates, the
fair value of our fixed-rate debt would not be adversely affected. The remainder
of our debt bears interest at variable rates with a weighted average maturity of
approximately 3.4 years and a weighted average effective interest rate of
approximately 8.97% at September 30, 2000. To the extent that we incur
additional variable rate indebtedness, our exposure to increases in interest
rates would increase. If effective interest rates increased 100 basis points,
the annual effect on our financial position and cash flow would be approximately
$2.4 million, based on the outstanding balance of our debt at September 30,
2000. We believe, however, that in no event would increases in interest expense
as a result of inflation significantly affect our financial position, results of
operations, or cash flow.
29
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None. See Note 8, "Commitments and Contingencies," for further
information.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
An Exhibit Index follows the signatures below.
(b) No reports on Form 8-K were filed during the quarter for which the
report is filed.
30
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange
Act of 1934, Catellus Development Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CATELLUS DEVELOPMENT CORPORATION
Date: November 14, 2000 By: /s/ C. William Hosler
------------------------- ---------------------------
C. William Hosler
Senior Vice President
Chief Financial Officer
Principal Financial Officer
Date: November 14, 2000 By: /s/ Paul A. Lockie
------------------------- ----------------------------
Paul A. Lockie
Vice President and Controller
Principal Accounting Officer
31
<PAGE>
EXHIBIT INDEX
3.1A Restated Certificate of Incorporation of the Registrant effective
December 4, 1990, is incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form 10 (Commission File No. 0-18694) as
filed with the Commission on July 18, 1990.
3.1B Amendment to Restated Certificate of Incorporation of the Registrant
effective July 13, 1993, is incorporated by reference to Exhibit 3.1B
to the Form 10-K for the year ended December 31, 1999.
3.2 Amended and Restated Bylaws of the Registrant is incorporated by
reference to Exhibit 3.2 to the Form 10-K for the year ended December
31, 1999.
4.1 Form of Certificate of Designations of Series A Junior Participating
Preferred Stock is incorporated by reference to Exhibit 4.1 to the
Form 8-K as filed with the Commission on December 28, 1999.
4.2 Amended and Restated Line of Credit Loan Agreement among Catellus
Development Corporation, Bank of America National Trust and Savings
Association as Arranger and Administrative Agent, The First National
Bank of Chicago as Documentation Agent, and The Other Financial
Institutions Party Hereto, dated as of October 28, 1998, is
incorporated by reference to Exhibit 4.2 to the Form 10-K for the year
ended December 31, 1998.
4.3 Loan Agreement by and between Catellus Finance 1, L.L.C. and
Prudential Mortgage Capital Company, Inc. dated as of October 26,
1998, is incorporated by reference to Exhibit 4.3 to the Form 10-K for
the year ended December 31, 1998.
10.1 Restated Tax Allocation and Indemnity Agreement dated December 29,
1989, among the Registrant and certain of its subsidiaries and Santa
Fe Pacific Corporation is incorporated by reference to Exhibit 10.6 to
the Registration Statement on Form 10 (Commission File No. 0-18694) as
filed with the Commission on July 18, 1990.
10.2 State Tax Allocation and Indemnity Agreement dated December 29, 1989,
among the Registrant and certain of its subsidiaries and Santa Fe
Pacific Corporation is incorporated by reference to Exhibit 10.7 to
the Registration Statement on Form 10 (Commission File No. 0-18694) as
filed with the Commission on July 18, 1990.
10.3A Registration Rights Agreement dated as of December 29, 1989, among the
Registrant, BAREIA, O&Y and Itel is incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form 10 (Commission File
No. 0-18694) as filed with the Commission on July 18, 1990.
10.3B First Amendment to Registration Rights Agreement among the Registrant,
BAREIA, O&Y and Itel is incorporated by reference to Exhibit 10.26 to
Amendment No. 2 to Form S-3 as filed with the Commission on February
4, 1993.
10.3C Letter Agreement dated November 14, 1995, between the Registrant and
California Public Employees' Retirement System is incorporated by
reference to Exhibit 10.4A to the Form 10-K for the year ended
December 31, 1995.
10.4 Registrant's Amended and Restated Executive Stock Option Plan is
incorporated by reference to Exhibit 10.8 to the Form 10-K for the
year ended December 31, 1997.
10.5 Registrant's Amended and Restated 1996 Performance Award Plan is
incorporated by reference to Exhibit 10.14 to the Form 10-Q for the
quarter ended March 31, 1999.
32
<PAGE>
10.6 Registrant's 2000 Performance Award Plan is incorporated by reference
to Appendix A to the Proxy Statement for the Registrant's 2000 Annual
meeting dated March 16, 2000.
10.7 Registrant's Deferred Compensation Plan is incorporated by reference
to Exhibit 10.21 to the Form 10-K for the year ended December 31,
1997.
10.8A Second Amended and Restated Employment Agreement dated as of October
1, 1999, between the Registrant and Nelson C. Rising is incorporated
by reference to Exhibit 10.7 to the Form 10-K for the year ended
December 31, 1999.
10.8B Employment Agreement dated July 24, 1995, between the Registrant and
Stephen P. Wallace is incorporated by reference to Exhibit 10.37 to
the Form 10-K for the year ended December 31, 1995.
10.9 Letter Agreement dated November 16, 1996, between the Registrant and
Steve Wallace is incorporated by reference to Exhibit 10.49 to the
Form 10-K for the year ended December 31, 1996.
10.10 Amended and Restated Employment Agreement dated September 16, 1997,
between the Registrant and Kathleen Smalley is incorporated by
reference to Exhibit 10.17 to the Form 10-K for the year ended
December 31, 1997.
10.11 Rights Agreement dated as of December 16, 1999, between the Registrant
and American Stock Transfer and Trust Company is incorporated by
reference to Exhibit 4.1 to the Form 8-K as filed with the Commission
on December 28, 1999.
27 Financial Data Schedule is attached.
The Registrant has omitted instruments with respect to long-term debt where the
total amount of the securities authorized thereunder does not exceed 10 percent
of the assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to furnish a copy of such instrument to the Commission
upon request.
33
