<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal year ended December 31, 1999 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
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on which
Title of each class registered
------------------- ------------------------------
<S> <C>
Common Stock, $.01 par value per New York and Chicago Stock Exchanges,
share and Pacific Exchange
Preferred Share Purchase Rights New York and Chicago Stock Exchanges,
and Pacific Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $1.402 billion on March 16, 2000.
As of March 16, 2000, there were 106,872,000 issued and outstanding shares
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders are incorporated by reference in Part III.
- -------------------------------------------------------------------------------
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<PAGE>
PART I
Item 1. Business
Catellus Development Corporation (the "Company") is a diversified real
estate development company with a large portfolio of developable land and
rental properties. We have three primary lines of business: (1) Catellus
Commercial Group, which acquires and develops suburban commercial business
parks for our own account and the account of others; (2) Catellus Residential
Group, which primarily acquires and develops single-family residential
property; and (3) Catellus Urban Development Group, which entitles and
develops urban mixed-use sites in San Francisco, Los Angeles, and San Diego.
We have one of the largest portfolios of developable land in the western
United States, capable of supporting up to an estimated 42.9 million square
feet of commercial development and 16,393 units of residential development.
Approximately 80% of the total commercial development potential and 71% of the
potential residential lots/units are entitled. We also own 24.7 million square
feet of rental buildings. Approximately 76% of our rental properties and 70%
of the total commercial development potential by square footage are located in
seven sub-markets in California: Silicon Valley, San Francisco, San
Francisco's East Bay Area, Los Angeles, Orange County, Inland Empire (San
Bernardino and Riverside counties), and San Diego. Approximately 98% of the
residential units are located in California with approximately 67% in Northern
California and 31% in Southern California.
The chart below summarizes the estimated development potential of our land
holdings as of December 31, 1999:
Development Potential of Land Inventory
<TABLE>
<CAPTION>
Commercial Residential Hotel
---------------- -------------- ------
(in square feet) (lots or units) (rooms)
<S> <C> <C> <C>
Catellus Commercial Group
Land............................ 19,320,000 --
Pacific Commons
(Fremont, California).......... 7,480,000 --
Catellus Residential Group
Land............................ -- 11,378
Catellus Urban Development Group
Mission Bay (San Francisco,
California).................... 6,369,000 4,555 500
Union Station (Los Angeles,
California).................... 6,500,000 --
Santa Fe Depot (San Diego,
California).................... 3,300,000 460
---------- ------ ---
Total............................ 42,969,000 16,393 500
========== ====== ===
Entitled......................... 34,793,000 11,639 500
Entitlements/Approvals In
Progress........................ 8,176,000 4,754
</TABLE>
The following table shows by net book value the Company's developable
properties.
<TABLE>
<CAPTION>
Catellus Net Book Value
-------------------------------
December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Catellus Commercial Group .................. $ 178,523 $ 169,145 $ 142,801
Catellus Residential Group.................. 163,610 132,660 86,481
Catellus Urban Development Group............ 323,858 294,084 260,004
Other....................................... 15,431 20,531 47,983
--------- --------- ---------
Subtotal.................................. 681,422 616,420 537,269
Accumulated depreciation.................... (14,077) (13,250) (10,978)
--------- --------- ---------
Total..................................... $ 667,345 $ 603,170 $ 526,291
========= ========= =========
</TABLE>
2
<PAGE>
We believe that our diversification among real estate business activities,
product types, and capabilities, and between rental properties and developable
land assets, differentiates us from other public real estate companies.
Moreover, we are a traditional corporation rather than a real estate investment
trust ("REIT"); thus, we may reinvest our earnings without the minimum dividend
requirements of a REIT, have greater flexibility to pursue new opportunities
without the need to raise additional equity capital as frequently as a REIT,
and are not limited by tax law, as are REITS, in the range of business
activities in which we may engage.
Our company was originally formed to conduct the non-railroad real estate
activities of the Santa Fe Pacific Corporation and was spun off to stockholders
in 1990. Our railroad heritage has given us a diverse base of developable
properties located near transportation corridors in major urban areas. Over
time, these properties have proven suitable for a variety of product types
(industrial, retail, office, and residential), with the larger land sites most
suitable for large-scale mixed-use projects.
Our principal office is located at 201 Mission Street, San Francisco,
California 94105; our telephone number at that location is (415) 974-4500; and
our website address is www.catellus.com.
Catellus Commercial Group
Catellus Commercial Group ("CCG") develops, invests in, and manages suburban
commercial business parks and buildings. It is organized into four divisions:
(1) commercial development provides development services for our own account or
for third parties, and acquires and sells development properties and commercial
buildings, (2) asset management provides leasing and management services for
our buildings and leased land and to third parties, (3) corporate services
provides land management services for third parties and certain owned
properties, and (4) other land holdings provides management and disposition
services primarily for our desert and non-strategic land portfolio.
Following is a more detailed discussion of the activities of these four
divisions.
Commercial Development
Our commercial development activities include (1) the acquisition of
commercial land sites, (2) the construction of buildings, on owned land, for
pre-arranged sale to users (build-to-sell), (3) the construction of pre-leased
buildings (build-to-suit) and speculative buildings to be added to the
Company's rental portfolio, (4) the construction of buildings for pre-arranged
sales to investors (pre-sale), and (5) the sale of land to third parties for
their own development. In certain instances, we have generated development and
management fees from design-build services, construction management services,
and property management.
In 1999, we commenced construction on 5.4 million square feet of new
commercial development and completed approximately 5.8 million square feet of
construction. Of the completed development, 4.2 million square feet were added
to the rental property portfolio and the remainder was sold.
The following table summarizes CCG's commercial development activities during
the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(in square feet)
<S> <C> <C> <C>
Under construction, beginning of
period......................... 5,036,500 3,774,000 2,286,961
Construction starts............. 5,371,000 4,927,500 3,885,000
Completed--retained in
portfolio...................... (4,166,500) (1,989,000) (2,089,200)
Completed--sold................. (1,600,000) (1,676,000) (308,761)
---------- ---------- ----------
Under construction, end of
period......................... 4,641,000(/1/) 5,036,500 3,774,000
========== ========== ==========
</TABLE>
- --------
(/1/)Includes 872,000 square feet of development that will be sold on
completion and 3,769,000 square feet that will be added to our portfolio
upon completion.
3
<PAGE>
Sales. The following table summarizes CCG's sales of property in the periods
presented:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998 1997
--------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales................................... $ 171,039 $ 89,459 $ 37,339
Cost of Sales........................... (136,280) (67,445) (27,519)
--------- -------- --------
Gain.................................. $ 34,759(/1/) $ 22,014 $ 9,820
========= ======== ========
</TABLE>
- --------
(/1/)Excludes depreciation recapture of $4,354 in 1999.
In 1999, we invested approximately $67.5 million in the acquisition of land
for development and completed buildings. These acquisitions added
approximately 2.8 million square feet of potential industrial development and
four buildings totaling 1.3 million square feet of rentable commercial space.
We also secured an option to purchase additional land capable of supporting up
to 1.1 million square feet of development located in Glenview, Illinois.
Developable Land Inventory
CCG's existing developable land portfolio, once entitled and approved, can
support an estimated 26.8 million square feet of new development
(approximately 18.4 million square feet of which is entitled and approved).
4
<PAGE>
The following table summarizes CCG's commercial development land inventory
activity by location as of and for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Potential Potential
Development Development
Space Transfers and Land Space
City 12/31/98 Adjustments(/1/) Acquisitions Sales Development 12/31/99
- ---- ----------- ---------------- ------------ ------ ----------- -----------
(square feet in thousands)
<S> <C> <C> <C> <C> <C> <C>
Southern California
City of Industry....... 33 -- -- -- -- 33
La Mirada (held in
joint venture)........ 45 -- -- (45) -- --
Los Angeles............ 250 -- -- (250) -- --
Rancho Cucamonga....... 2,362 35 -- -- (1,005) 1,392
Mira Loma.............. 963 -- -- (312) (651) --
Ontario................ 3,353 1,006 -- (710) (744) 2,905
Santa Fe Springs....... 39 -- -- (39) -- --
Anaheim................ -- 166 -- (88) -- 78
------ ----- ----- ------ ------ ------
Subtotal Southern
California............. 7,045 1,207 -- (1,444) (2,400) 4,408
------ ----- ----- ------ ------ ------
Northern California
Richmond............... 669 38 -- (400) -- 307
Fremont................ 951 6,630 -- -- (100) 7,481
Union City............. 481 -- -- -- -- 481
Stockton............... 550 (136) -- -- (130) 284
Oakland................ 275 (26) -- -- (176) 73
Manteca................ -- -- 1,558 -- (552) 1,006
------ ----- ----- ------ ------ ------
Subtotal Northern
California............. 2,926 6,506 1,558 (400) (958) 9,632
------ ----- ----- ------ ------ ------
Total in California..... 9,971 7,713 1,558 (1,844) (3,358) 14,040
------ ----- ----- ------ ------ ------
Illinois
Woodridge.............. 4,027 (707) -- (459) (409) 2,452
Romeoville............. 1,472 (93) -- -- (400) 979
Texas
Coppell................ 2,125 (320) -- -- (80) 1,725
Garland................ 948 35 -- -- -- 983
Grand Prairie.......... -- -- 1,181 -- (1,181) --
Houston................ 514 (12) -- -- -- 502
Other
Denver, CO............. 2,796 127 -- (688) (505) 1,730
Westminster, CO........ -- (57) 1,000 -- -- 943
Louisville, KY......... -- -- 165 -- (165) --
Oklahoma City, OK...... 1,235 -- -- -- -- 1,235
Portland, OR........... 3,255 170 -- (315) (899) 2,211
------ ----- ----- ------ ------ ------
Total Outside of
California............. 16,372 (857) 2,346 (1,462) (3,639) 12,760
------ ----- ----- ------ ------ ------
Total................... 26,343 6,856 3,904 (3,306) (6,997) 26,800
====== ===== ===== ====== ====== ======
Entitled................ 18,374
Entitlements/approvals
in progress............ 8,426
</TABLE>
- --------
(/1/)Includes revisions to estimates of potential development or building
size, or transfers of property between commercial development and other
categories of property.
Entitlement depends on discretionary government decisions as well as the
results of a variety of predevelopment studies undertaken at various points in
the planning of a project. We have 8.4 million square feet of potential
development space for which entitlements or approvals are in progress. The
entitlements or approvals sought may not be received, or if received, may not
permit timely development in light of market conditions.
The largest single project for the commercial development group is Pacific
Commons in Fremont, California, which is one of the largest planned business
parks in Silicon Valley. It consists of 840 gross acres, of
5
<PAGE>
which approximately 325 net acres are planned for development, and it is
adjacent to Interstate 880 sixteen miles north of San Jose.
We received the necessary entitlements from the City of Fremont for 1.2
million square feet of development and subsequently developed, constructed,
sold or leased approximately 775,000 square feet of R&D, light industrial, and
warehouse properties.
Additional federal and state species and habitat clearances were necessary
to perfect the remaining 7.1 million square feet of entitlements, including
the undeveloped 425,000-square-foot portion of the 1.2 million-square-foot
development area described above. The final step in obtaining these clearances
was the completion of the U.S. Army Corps of Engineers Section 404 permit
process in the fourth quarter of 1999, with the City of Fremont as our co-
applicant. We are currently processing approvals with the City for amendments
to the existing Development Agreement, to reflect the adjustments to the
development footprint required by our joint application in the Section 404
permit process. We expect the Development Agreement amendment will be
completed during the second quarter of 2000, but there can be no assurance
that this will occur.
Asset Management
The asset management group manages 24.7 million square feet of industrial,
office and retail properties, land leases, and interests in several joint
ventures. It also provides asset management services to third parties.
Rental Properties
The following table provides information on CCG's rental properties:
<TABLE>
<CAPTION>
Number of Property Operating
Buildings Square Feet Owned Income(/1/)
-------------- -------------------- --------------------------
December 31, December 31, Year Ended December 31,
-------------- -------------------- --------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ------ ------ ------ -------- -------- --------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asset Management
Industrial buildings... 200 187 176 22,240 17,010 14,326 $ 76,958 $ 62,432 $ 52,652
Office buildings....... 24 26 25 1,622 1,719 1,620 19,043 18,365 16,960
Retail buildings....... 20 24 24 881 928 928 9,512 9,127 9,341
Land and other
leases................ -- -- -- -- -- -- 7,290 6,825 6,903
Equity in earnings of
operating joint
ventures.............. -- -- -- -- -- -- 10,668 9,368 7,436
--- --- --- ------ ------ ------ -------- -------- --------
Subtotal............. 244 237 225 24,743 19,657 16,874 123,471 106,117 93,292
Corporate Services
Land and other leases
...................... 6,636 4,493 --
Other land holdings
Land and other
leases................ 21 21 21
--- --- --- ------ ------ ------ -------- -------- --------
Total CCG............... 244 237 225 24,743 19,657 16,874 $130,128 $110,631 $ 93,313
=== === === ====== ====== ====== ======== ======== ========
</TABLE>
- --------
(/1/)Property operating income represents rental revenue less property
operating costs.
6
<PAGE>
Leasing. The following table summarizes leasing statistics for CCG's rental
properties:
<TABLE>
<CAPTION>
As of December 31,
----------------------
1999 1998 1997
------ ------ ------
(square feet in
thousands)
<S> <C> <C> <C>
Industrial Buildings
Square feet owned................................ 22,240 17,010 14,326
Square feet leased............................... 20,824 16,200 14,061
Percent leased................................... 93.6% 95.2% 98.2%
Office Buildings
Square feet owned................................ 1,622 1,719 1,620
Square feet leased............................... 1,508 1,624 1,547
Percent leased................................... 93.0% 94.5% 95.5%
Retail Buildings
Square feet owned................................ 881 928 928
Square feet leased............................... 827 836 870
Percent leased................................... 93.9% 90.1% 93.8%
Total
Square feet owned................................ 24,743 19,657 16,874
Square feet leased............................... 23,159 18,660 16,478
Percent leased................................... 93.6% 94.9% 97.7%
</TABLE>
Lease Expirations. The following table summarizes the lease expirations in
CCG's rental property portfolio as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 Thereafter
----- ----- ----- ----- ----- ----- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 14.5% 13.4% 11.6% 11.8% 15.0% 5.8% 3.2% 3.5% 2.7% 18.6%
Square feet (in
thousands)............. 3,358 3,096 2,697 2,724 3,470 1,340 739 804 621 4,310
</TABLE>
Approximately 905,000 square feet of month-to-month leases are shown as
expiring in 2000.
Industrial Building Portfolio
At December 31, 1999, our portfolio of industrial rental properties included
200 buildings aggregating 22.2 million square feet that were 93.6% leased. At
December 31, 1999, we also had 4.6 million square feet under construction, of
which approximately 3.8 million square feet are expected to be added to our
portfolio.
The following table summarizes CCG's industrial buildings by region as of or
for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Property
Number Operating Operating
of Buildings Square Feet Revenues Costs Income
------------ ----------- -------- --------- ---------
(in thousands, except for number of buildings)
<S> <C> <C> <C> <C> <C>
Southern California..... 124 9,451 $ 51,123 $ 10,237 $ 40,886
Northern California..... 33 4,515 23,468 3,923 19,545
Illinois................ 13 3,327 9,991 2,713 7,278
Arizona. ............... 12 1,195 5,313 1,968 3,345
Texas................... 6 1,315 4,363 857 3,506
Colorado ............... 2 455 1,296 529 767
Ohio.................... 3 965 933 100 833
Oklahoma and Kansas..... 3 402 876 236 640
Oregon.................. 3 448 211 117 94
Kentucky................ 1 167 80 16 64
--- ------ -------- -------- --------
Total................. 200 22,240 $ 97,654 $ 20,696 $ 76,958
=== ====== ======== ======== ========
</TABLE>
7
<PAGE>
The following table summarizes the lease expirations in the industrial
portfolio as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 Thereafter
----- ----- ----- ----- ----- ----- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 14.7% 13.6% 11.2% 11.4% 15.0% 6.3% 3.3% 3.3% 2.6% 18.6%
Square feet (in
thousands)............. 3,067 2,827 2,324 2,384 3,126 1,312 694 677 543 3,870
</TABLE>
Of the 3,067,000 square feet of leased industrial space that is scheduled to
expire in 2000, 58% is located in Southern California, 17% is in Northern
California, and the balance is spread throughout the other regions.
Approximately 270,000 square feet of month-to-month leases are shown as
expiring in 2000.
In 1999, 5.1 million square feet of industrial buildings were added to the
portfolio. Of this total, we constructed and completed 4.2 million square
feet, we acquired 1.3 million square feet, and we sold 0.4 million square
feet.
Office Building Portfolio
At December 31, 1999, our portfolio of office rental properties included 24
buildings aggregating approximately 1.6 million square feet that were 93%
leased.
The following table summarizes CCG's office buildings by region as of or for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Property
Number Operating Operating
of Buildings Square Feet Revenues Costs Income
------------ ----------- -------- --------- ---------
(in thousands, except for number of buildings)
<S> <C> <C> <C> <C> <C>
Northern California .... 10 526 $ 11,481 $ 4,011 $ 7,470
Southern California .... 11 572 9,180 3,740 5,440
Illinois................ 2 467 11,521 5,849 5,672
Oregon.................. 1 57 714 336 378
Texas................... -- -- 135 52 83
--- ----- -------- -------- --------
Totals................ 24 1,622 $ 33,031 $ 13,988 $ 19,043
=== ===== ======== ======== ========
</TABLE>
The following table summarizes the lease expirations in CCG's office
portfolio as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 13.0% 11.3% 23.2% 18.5% 16.1% 0.5% 2.3% 8.4% 2.3% 4.4%
Square feet (in
thousands)............. 197 171 350 279 242 7 35 127 34 66
</TABLE>
Of the 197,000 square feet of leased office space that is scheduled to
expire in 2000, 58% is located in Southern California, 22% is in Northern
California, and the balance is spread throughout two other states.
Approximately 42,000 square feet of month-to-month leases are shown as
expiring in 2000.
Retail Building Portfolio
At December 31, 1999, our portfolio of retail rental properties included 20
buildings aggregating 880,822 square feet that were 93.9% leased. Our retail
properties are located primarily in Northern and Southern California, with
additional projects in Colorado and Oregon.
8
<PAGE>
The following table summarizes CCG's retail portfolio by region as of or for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Property
Number Operating Operating
of Buildings Square Feet Revenues Costs Income
------------ ----------- -------- --------- ---------
(in thousands, except for number of buildings)
<S> <C> <C> <C> <C> <C>
Northern California .... 8 461 $ 7,723 $ 2,094 $ 5,629
Southern California .... 9 283 4,022 1,119 2,903
Colorado................ 1 100 1,358 655 703
Oregon.................. 2 37 472 195 277
--- --- -------- ------- -------
Totals................ 20 881 $ 13,575 $ 4,063 $ 9,512
=== === ======== ======= =======
</TABLE>
The following table summarizes the lease expirations in CCG's retail
portfolio as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 2005 2006 2007 2008 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent................. 11.4% 11.8% 2.9% 7.4% 12.3% 2.5% 1.4% 0.0% 5.2% 45.2%
Square feet (in
thousands)............. 95 98 24 61 101 21 11 0 43 373
</TABLE>
Of the 95,000 square feet of leased retail space that is scheduled to expire
in 2000, 56% is located in Southern California, 17% is in Oregon, and the
balance is spread throughout two other states. Approximately 24,700 square
feet of month-to-month leases are shown as expiring in 2000.
Land and Leases Portfolio
The following table summarizes CCG's portfolio of land subject to leases by
region for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Property
Operating Operating
Revenues Costs Income
-------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Southern California........................... $ 6,051 $ 407 $ 5,644
Northern California .......................... 331 75 256
Other states ................................. 1,541 151 1,390
------- ----- -------
Totals...................................... $ 7,923 $ 633 $ 7,290
======= ===== =======
</TABLE>
9
<PAGE>
Operating Joint Venture Portfolio
During the year the commercial group had direct or indirect equity interests
in five joint ventures that owned rental properties. These joint ventures
provided cash distributions to the Company of $12.4 million for the year ended
December 31, 1999, and earnings of $10.7 million for the same period. As of
December 31, 1999, we owned joint venture interests in the following operating
properties, except for both the apartment joint venture and the design center
whose assets were either sold or transferred (as noted) during the year. (Note
that the term "joint venture" as used herein means that two or more parties
own an interest and not that a joint venture is the legal form of
organization.)
<TABLE>
<CAPTION>
Equity in Earnings
------------------------
Year Ended December 31,
No. of Ownership ------------------------
Ventures Size Interest 1999 1998 1997
-------- ----------------- --------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Hotel(/1/).............. 2 2,000 rooms 25-50% $ 10,567 $ 9,072 $ 7,321
Office.................. 1 205,000 sq. ft. 67% 67 137 73
Apartments(/2/)......... 1 387 units 50% 34 159 42
Design Center(/3/)...... 1 1,200,000 sq. ft. 74% -- -- --
--- -------- ------- -------
Total................. 5 $ 10,668 $ 9,368 $ 7,436
=== ======== ======= =======
</TABLE>
- --------
(/1/)Excludes a hotel parking lot joint venture, which does not own rental
properties.
(/2/)Sold in February 1999.
(/3/)The primary asset in this joint venture was transferred to a third party
in October 1999.
Corporate Services
A subsidiary, Catellus Management Corporation ("CMC"), provides acquisition,
disposition, leasing, permit management, and inventory services for the
railroad industry's non-railroad real estate assets. CMC currently manages
approximately 9,700 leases located in 27 states and Canada and 123,000
permits, easements, or licenses for third parties. CMC uses a proprietary
management system that tracks title and leases and provides site plan mapping
and imaging data for each of the properties under management. Over the past
two years, a major source of fee income was a contract to manage and sell the
non-railroad assets of a major railroad company. As anticipated, most of the
inventory of managed assets for the railroad has been sold in accordance with
the customer's goals and it is expected that future management fees will
decrease.
Additionally, in 1998, CMC invested a total of $50.5 million ($40.1 million
of which was seller-financed) in the acquisition of land and other interests
in real property with the intention to sell the majority of these assets. CMC
manages the disposition and leasing for these owned leases. Property operating
income from these leases was $6.6 million in 1999, $4.5 million in 1998, and
none in 1997.
10
<PAGE>
The following table summarizes the management and development fees earned by
CMC for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Management and development fees................. $ 10,523 $ 12,845 $ 12,170
</TABLE>
The following table summarizes the sales of CMC-owned properties for the
periods presented.
<TABLE>
<CAPTION>
Year Ended December
31,
----------------------
1999 1998 1997
-------- -------- ----
(in thousands)
<S> <C> <C> <C>
Sales............................................... $ 14,053 $ 11,636 $--
Cost of Sales....................................... 10,529 8,238 --
-------- -------- ----
Gain.............................................. $ 3,524 $ 3,398 $--
======== ======== ====
</TABLE>
Other Land Holdings
As of December 31, 1999, we owned approximately 782,000 acres of land in the
Southern California desert. The ownership of these desert properties is the
result of historical land grants to the railroad predecessors of our Company.
Because of its location, lack of contiguity among parcels, and other factors,
much of this land is not currently suitable for traditional development
activities. We therefore made an assessment of the portfolio to explore the
potential for agricultural, mineral, water, telecommunication, energy, and
waste management uses for this property. We have concluded from this
assessment that the land, although valuable, does not fit within our overall
corporate strategy.
In February 1999, we signed an agreement with The Wildlands Conservancy
("TWC"), a non-profit conservation group, to convey 437,000 acres of desert
holdings and 20,000 acres of severed mineral rights for a total cash
consideration of up to $54.6 million. Since that time, the total purchase
price for that land has been reduced to $48.6 million as a result of
negotiations over the amount of federal funding. This transaction was
partially completed in January 2000 with the conveyance of approximately
225,000 acres for $25 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Gain on Non-Strategic Asset Sales" of this Form 10-K for more
information regarding this transaction.
We will continue to pursue additional sale, lease, or exchange opportunities
involving public and private buyers, as well as other arrangements to maximize
the value of this land. These arrangements are complicated and therefore may
take a significant amount of time to complete.
In addition to our portfolio of desert properties, we have other properties
we consider non-strategic that are for sale. The number of properties in this
category has declined substantially since 1995 as a result of sales activity.
Sales. The following table summarizes the sales of non-strategic properties
for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales........................................... $ 10,275 $ 43,349 $ 31,122
Cost of Sales................................... 3,581 41,010 26,149
-------- -------- --------
Gain.......................................... $ 6,694 $ 2,339 $ 4,973
======== ======== ========
</TABLE>
11
<PAGE>
Catellus Residential Group
The Catellus Residential Group (CRG) acquires and develops single-family
residential property. Property is either acquired directly or is part of a
joint venture with a third party. This group has historically consisted of
three lines of business:
. Community Development, which identifies and develops (through
entitlement, infrastructure, and subdivision), large-scale residential
communities in prime housing markets, selling finished lots to
homebuilders (including our merchant housing group);
. Merchant Housing, which designs, builds, and markets a variety of for-
sale products, from entry-level to estate homes; and
. Public and Private Ventures, which develops and markets affordable
rental and for-sale housing, primarily within high-density urban areas,
as well as institutional housing such as faculty and student housing for
universities. Additionally, the group has pursued federal government
contracts to provide military housing.
Recently, a consolidation in the homebuilding industry has resulted in a
focus by national homebuilders on high-volume, lower-margin activities that
are not part of our corporate strategy. As a result, we are exploring the sale
of the merchant housing division of our residential business.
Separately, we have also determined that the activities explored by the
Public and Private Ventures (PPV) group does not warrant the continuation of a
separate group, and we have changed our organization accordingly.
Responsibility for a majority of the ongoing projects in this area are being
assumed by the community development division. The PPV group had not yet
contributed significant earnings to the Company since its formation in 1996,
therefore we do not expect this change to have a significant financial effect
on the overall business.
Consistent with the succession plan that was adopted when The Akins
Companies were acquired, Bruce Akins and Carl Akins, who are currently
president and chairman of Catellus Residential Group, respectively, will leave
the company at the end of March to pursue other opportunities.
12
<PAGE>
The following table summarizes CRG's residential development land inventory
activity in 1999:
<TABLE>
<CAPTION>
1999 Activity
------------------------------------------------------------------------------------
Total Lots/ Home Lot Plotting Ownership or
Homes 1/1/99 Controlled Acq. Closings Closings Changes 12/31/99 Controlled Interest
------------ ---------- ---- -------- -------- -------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Community Development
Northern California
Tracy 2,400 -- -- -- -- -- 2,400 100%
Hercules (1) 1,000 -- -- -- -- (187) 813 100%
Serrano--Sacramento 3,725 -- -- -- (635) -- 3,090 67%
Southern California
Lakeside--Buena Park 38 -- -- -- (38) -- -- 100%
Talega--San Clemente 4,360 -- -- -- (162) (868) 3,330 30%
Chino Hills (1) 215 -- -- -- -- (155) 60 100%
Summerlane--Huntington
Beach 175 (175) 175 -- (83) -- 92 100%
Texas
Oakcliff 285 -- -- -- -- -- 285 100%
------ ---- --- ---- ---- ------ ------
Subtotal Community
Development 12,198 (175) 175 -- (918) (1,210) 10,070
------ ---- --- ---- ---- ------ ------
Merchant Housing
Northern California
Rosewalk--Union City 62 -- -- (52) -- -- 10 100%
Brittany Hills--
Martinez 99 -- -- (42) -- -- 57 100%
Shriners--San Francisco 82 (82) 82 -- -- -- 82 80%
Reimal Site--Gilroy 110 -- -- -- -- -- 110 100%
Southern California
Ridgemoor--Rowland
Heights 29 -- -- (29) -- -- -- 100%
Vidorra--Tustin 7 -- -- (7) -- -- -- 100%
Cypress I--Irvine 73 -- -- (63) -- -- 10 100%
Cypress I I-- Irvine -- 52 20 -- -- -- 72 100%
Regatta--Long Beach 15 -- -- (15) -- -- -- 100%
Cantamar--Carlsbad 96 -- -- (57) -- -- 39 100%
Westbluffs--Playa del
Rey 118 -- -- -- -- (6) 112 100%
Windsong--Buena Park 94 -- -- (64) -- -- 30 100%
Citrus-Tesoro--La
Quinta 63 -- -- (16) -- -- 47 60%
Citrus-- Mandarina--La
Quinta 56 -- -- (12) -- -- 44 60%
Summerlane--Huntington
Beach 138 (138) 138 -- 0 -- 138 100%
Terra Linda--San
Clemente 68 (68) 68 -- -- -- 68 100%
San Rafael--San
Clemente 80 (80) 80 -- -- -- 80 100%
Aliso Viejo--Aliso
Viejo -- -- 73 -- -- 1 74 100%
7th St.-Union City -- -- -- -- -- 59 59 100%
------ ---- --- ---- ---- ------ ------
Subtotal Merchant
Housing 1,190 (316) 461 (357) 0 54 1,032
------ ---- --- ---- ---- ------ ------
Public/Private Ventures
Southern California
Miraflores, La Quinta 86 -- -- -- -- -- 86 100%
Oxnard, California -- -- 190 -- -- -- 190 50%
------ ---- --- ---- ---- ------ ------
Subtotal Public /
Private Ventures 86 -- 190 -- -- -- 276
------ ---- --- ---- ---- ------ ------
Total Residential
Properties........... 13,474 (491) 826 (357) (918) (1,156) 11,378
====== ==== === ==== ==== ====== ======
Entitled 6,624
Entitlements/approvals
in process 4,754
</TABLE>
- -------
(1) Represents properties which the Company does not currently own but which
it has entered into contractual relationships to acquire, such as letters
of intent, purchase agreements with customary conditions precedent, option
agreements, and other similar arrangements. Each of these acquisitions is
contingent on the occurrence of future events or the satisfaction of
specified conditions.
13
<PAGE>
The following is a brief summary of two of our significant residential
projects.
Talega -- San Clemente, California. In 1997, we acquired a one-third
interest in a joint venture project, a 3,470-acre, 4,965-lot residential and
land development site in the Talega Valley in San Clemente, California. Plans
for this masterplanned project include a variety of attached and detached
homes; an 18-hole championship golf course; a seniors community; an elementary
school; community parks; and an 82-acre, 1.5 million-square-foot mixed-use
commercial area. In 1999, 162 lots were sold at the site. A total of 767 lots
have been sold in the project since the acquisition of our interest in the
project.
Serrano -- El Dorado Hills, California. In 1998, we acquired a two-thirds
interest in a 3,500-acre, 4,000-lot masterplanned community in El Dorado
Hills, California, which is located 30 miles east of Sacramento, California. A
significant amount of infrastructure was in place and approximately 800 lots
were sold or developed prior to the acquisition of our interest in the
project. Plans for the project include a variety of detached homes; an 18-hole
executive golf course; a private 18-hole Championship Golf Course and Country
Club; elementary, intermediate, and high schools; and a neighborhood retail
commercial area. In 1999, 635 lots were sold at the site. A total of 840 lots
have been sold in the project since the acquisition of our interest.
Sales. The following table summarizes CRG's sales of residential development
property, which include lots and housing units. The sales shown below are for
properties which we own and consolidated joint ventures, for the periods
presented:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998 1997
--------- --------- --------
(in thousands)
<S> <C> <C> <C>
Sales......................................... $ 161,913 $ 105,346 $ 82,632
Cost of Sales................................. 121,107 79,220 66,588
--------- --------- --------
Gain........................................ $ 40,806 $ 26,126 $ 16,044
========= ========= ========
</TABLE>
Unconsolidated Joint Venture Sales. We also participate in joint venture
projects in which we do not own a controlling interest and for which we
recognize income using the equity method. The following table summarizes sales
of residential development property in these unconsolidated joint venture
projects.
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Sales........................................ $115,225 $89,961 $47,390
Cost of Sales................................ 86,918 73,120 39,558
-------- ------- -------
Gain....................................... 28,307 16,841 7,832
Venture partners' interest................... (18,132) (11,510) (6,617)
-------- ------- -------
Equity in earnings of unconsolidated joint
ventures.................................. $ 10,175 $ 5,331 $ 1,215
======== ======= =======
</TABLE>
14
<PAGE>
Catellus Urban Development Group
The Catellus Urban Development Group (CUG) develops large urban mixed-use
projects. Its current portfolio consists of three major mixed-use development
sites that include planned development for residential, office, biotech,
retail, entertainment, and hotel purposes. The chart below summarizes the
estimated development potential of CUG's current land holdings as of December
31, 1999:
CUG's Potential Development Land Inventory
<TABLE>
<CAPTION>
Commercial Residential Hotel
---------- --------------- ------
(lots or units) (rooms)
<S> <C> <C> <C>
Mission Bay (San Francisco, California)..... 6,369,000 4,555 500
Union Station (Los Angeles, California)..... 6,500,000 -- --
Santa Fe Depot (San Diego, California)...... 3,300,000 460 --
---------- ----- ---
Total....................................... 16,169,000 5,015 500
========== ===== ===
Entitled ................................... 16,169,000 5,015 500
</TABLE>
Following is a summary of these major urban mixed-use projects:
Mission Bay, San Francisco, California. We own approximately 154 acres of
property in San Francisco (the "City") adjacent to downtown, which is part of
an approximately 300-acre mixed-use development project known as Mission Bay.
The balance of the project is primarily owned by the City, the Port of San
Francisco, and the University of California San Francisco ("UCSF"). The
current proposed development for Mission Bay includes up to:
<TABLE>
<CAPTION>
Company Owned by
Owned Others Total
--------- --------- ---------
<S> <C> <C> <C>
Residential Units:
Market Rate....................................... 4,300 -- 4,300
Affordable........................................ 255 1,445 1,700
--------- --------- ---------
Total Residential................................. 4,555 1,445 6,000
========= ========= =========
Commercial (gross square feet):
R&D, Biotech, and Office.......................... 5,557,000 -- 5,557,000
Retail and Entertainment.......................... 812,000 -- 812,000
UCSF Campus....................................... -- 2,650,000 2,650,000
--------- --------- ---------
Total Commercial.................................. 6,369,000 2,650,000 9,019,000
========= ========= =========
Hotel:
Rooms............................................. 500 -- 500
========= ========= =========
</TABLE>
In the years leading up to 1999, we obtained entitlement and redevelopment
plans for Mission Bay, and, in July 1999, we closed land transfers among the
City of San Francisco, the Port of San Francisco, the California State Lands
Commission, UCSF, and us to result in the ownership described above in a
developable configuration. The Company also received regulatory permits from
the U.S. Army Corps of Engineers and the California Regional Water Quality
Control Board in early 2000. Additional permits and approvals are required for
the development of individual projects at Mission Bay, including, for office
projects, allocation ("Proposition M Allocation") of square footage from a
limited allotment of office space permitted to be developed in the City at any
given time.
The following highlights activity in Mission Bay. Because these processes
require participation of a number of parties and agencies, schedules are
subject to change.
15
<PAGE>
Mission Bay North, the 65-acre portion of Mission Bay north of Mission
Creek, is being developed adjacent to the newly completed Pacific Bell Park
(home of the San Francisco Giants). A tentative subdivision map for the first
major phase, describing our initial development plan for approximately 250
residential units and 80,000 square feet of commercial space and a 100-unit
Redevelopment Agency affordable housing project, was approved in May 1999. An
agreement has been executed with AvalonBay Communities for development of the
initial 250 residential units, scheduled to break ground in the fourth quarter
of 2000. A second major phase application was filed in November 1999 for
development of approximately 550 residential units, approximately 185,000
square feet of commercial space, and accompanying parking. We are currently
engaged in the design of this project, with ground-breaking projected for
early 2001.
Mission Bay South, the 238-acre portion of Mission Bay south of Mission
Creek, will be developed around the new 2.65 million-square-foot
biotech/research expansion campus for UCSF. In accordance with agreements
among the Company, the Regents of the University of California, and the City
to locate the UCSF expansion campus on a portion of Mission Bay South. We
donated approximately 18 acres and agreed to donate approximately 11 acres in
the future for the campus, and the City of San Francisco contributed an
additional 13.3 acres. The Campus itself will be developed by developers
(which may include the Company) selected by UCSF. UCSF broke ground on its
first building, a 400,000-square-foot research facility, in October 1999.
Design is now under way for the next two UCSF buildings. We received a
Proposition M Allocation from the City in early March 2000 for development for
an initial 290,000-square-foot commercial building, the first phase in the
development of our 5.56 million-square-foot R&D, biotech, and office campus.
Union Station, Los Angeles, California. We currently own approximately 43
acres surrounding and including the historic Los Angeles Union Station.
Located in downtown Los Angeles, Union Station is a transportation hub of the
region, with Amtrak rail service, commuter rail lines serving the surrounding
five-county region (Metrolink), and Los Angeles' growing subway and surface
light rail systems.
In 1996, the City of Los Angeles awarded us an entitlement package
permitting seven million square feet of office development with the
flexibility to substitute other uses such as hotel, sports and entertainment
facilities, and housing. As part of this development, in 1996, we sold a 4.2-
acre portion to the Los Angeles Metropolitan Water District and entered into a
design-build contract to build its new headquarters facility. The sale
generated proceeds of $13.2 million and a commission to build the facility for
a fee. We completed construction of the 500,000-square-foot, 12-story
headquarters facility in 1998, with occupancy completed in 1999. In addition
to a major phase and project approval from the Redevelopment Agency, we also
completed in 1999 a revised development plan intended to maximize the
potential of the site given current and projected market conditions.
Santa Fe Depot, San Diego, California. We own approximately 15 acres near
the waterfront in downtown San Diego, California, including the Santa Fe Depot
train station. The site is served daily by Amtrak, a commuter rail line
(Coaster), and San Diego's expanding trolley system. In accordance with a
Development Agreement executed with the City in 1993, the site is currently
entitled for a mixture of office, hotel, retail, and housing development.
During 1999 we revised the plan to respond better to recovering markets in San
Diego. Subsequently, we entered into an agreement to sell to Bosa Development
a 1.5-acre site for development of approximately 225 condominium units. We
have prepared plans for an initial office development project, pending market
response.
Fleet Industrial Supply Center, Alameda Annex and Alameda Naval Air Station,
East Housing, Alameda, California. In February 1998, we were selected by the
City Council of the City of Alameda, California, as the master developer for
the now closed 145-acre U.S. Navy Fleet Industrial Supply Center, Alameda
Annex ("FISC") in Alameda, California. In July 1998, the City of Alameda added
the adjacent 70-acre portion of the former Naval Air Station Alameda ("NAS
Alameda") known as East Housing ("East Housing"). We are negotiating the
acquisition and development of the two sites through an Exclusive Negotiating
Agreement which has been extended by the City of Alameda to June 29, 2000.
The site is located near Interstate 880 on an island in San Francisco Bay
adjacent to downtown Oakland. The combined 215-acre FISC/East Housing
development project represents the first phase of redevelopment of
16
<PAGE>
the 1,734 acres of dry land at the closed NAS Alameda and FISC. The entire
area has been designated as a redevelopment area. A Community Re-Use Plan for
conversion of the base over the next 20 to 30 years was approved by the City
Council in January 1996.
The current Company proposal is generally consistent with the Community Re-
Use Plan and includes residential and business park uses for the FISC/East
Housing site. The residential component of the proposal includes approximately
500 single-family homes. The City of Alameda Housing Authority plans to build
39 multi-family units on 2.5 acres. Fifteen percent of the 539 residential
units will be affordable housing units. The business park development proposal
includes up to 1.3 million square feet of office and research and development
space. Additional uses include an elementary school, public parks, and
waterfront open spaces.
The FISC site is being transferred under special legislation to the City of
Alameda by the Navy for one dollar. The NAS Alameda transfer qualifies under
recently passed federal legislation as an Economic Development Conveyance
between the City and the Navy. Environmental remediation on the site is
expected to be handled by the Navy after the property is transferred through
an "Early Transfer" process. Transfer of the land to the City of Alameda is
expected by the second quarter of 2000. Certification of a basewide
environmental impact statement by the Navy and a basewide environmental impact
report by the City to allow the transfer and acceptance of the land has been
completed. During the exclusive negotiating period, the Company and the
Alameda Community Improvement Commission will attempt to negotiate a
Disposition and Development Agreement ("DDA"). To be effective, the DDA
requires the certification of a project environmental impact report. These
documents and other approvals from the City and other agencies will be
required before development can commence. It is possible that these
negotiations may not culminate in an agreement with the City of Alameda, that
the conditions for the transfer of the property by the Navy may not be
satisfied, or that the conditions for other necessary approvals may not be
satisfied.
Land Development Portfolio
As of December 31, 1999, CUG's interim-use land development portfolio
included 19 buildings aggregating approximately 1,153,000 square feet. At
December 31, 1999, the portfolio was 84.0% leased. This portfolio represents
interim rental uses of properties intended for mixed-use development. It is
expected that the level of income generated from this category of properties
will decline as development of the mixed-use projects occurs over the next
several years.
The following table summarizes CUG's interim-use land development portfolio
by region as of or for the year ended December 31, 1999:
<TABLE>
<CAPTION>
Property Property
Number of Square Operating Operating
Buildings Feet Revenues Costs Income
--------- ------ -------- --------- ---------
(in thousands, except for number of
buildings)
<S> <C> <C> <C> <C> <C>
Northern California .............. 14 1,020 $ 7,072 $3,434 $3,638
Southern California .............. 5 133 4,843 2,927 1,916
--- ----- ------- ------ ------
Totals............................ 19 1,153 $11,915 $6,361 $5,554
=== ===== ======= ====== ======
</TABLE>
Other Items
Brownfields Development
In 1997, we formed a wholly owned subsidiary, Catellus RVL, Inc. ("RVL"), to
make investments in companies formed for the purpose of acquiring properties
requiring environmental remediation, performing the necessary remediation, and
reselling the remediated properties. RVL expects to make these investments
only after investigation designed to characterize the environmental problems
and quantify the costs of remediation, and after obtaining insurance, if
appropriate, for overruns in the remediation budget. Between formation and
17
<PAGE>
December 31, 1999, we contributed $19.1 million in cash and property with a
book value of approximately $1.0 million to RVL.
In September 1997, Hercules, LLC, a subsidiary of RVL, acquired the Pacific
Refinery at Hercules, California. We have entered into an agreement to provide
entitlement services to Hercules, LLC, in return for an option to buy the
property once defined remediation work is completed. Among the factors that
could affect the success of this project are (1) the ability of the managing
member of the limited liability company to manage the business successfully;
(2) the accurate characterization of environmental problems; and (3) the
availability of insurance adequate to cover remediation budget overruns.
Environmental Matters
For information about environmental matters in this report, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Form 10-K.
Competition
The real estate industry is generally fragmented and characterized by
significant competition. Numerous developers, owners of industrial, office,
and retail properties, and managers compete with us in seeking properties for
acquisition, development and management opportunities, tenants, and purchasers
for homes, and for non-strategic assets. There are competitors in each area in
which we operate that have greater capital resources than we. There can be no
assurance that the existence of such competition will not have a material
adverse effect on our business, operations, and cash flow.
Employees, Contractors, and Consultants
At December 31, 1999, we had 455 employees in our consolidated company. We
engage third parties to manage multi-tenant properties and properties in
locations that are not in close proximity to our regional or field offices. In
addition, we engage outside consultants such as architects and design firms in
connection with our pre-development activities. We also employ third-party
contractors on development projects for infrastructure and building
construction and retain consultants to assist us in a variety of areas at the
project level and at the corporate level.
Increasingly, organized labor is seeking to influence the entitlement
process for some of our properties in Northern California in order to obtain
site labor agreements for construction of these projects.
Stock Repurchase Program
On October 29, 1999, our Board of Directors authorized a share repurchase
program for up to $50 million of our outstanding common stock. The timing of
purchases, if any, under the program will be at the discretion of management.
Purchases may be made on the open market or in privately negotiated
transactions. The program has been authorized for a period of one year. We did
not repurchase any shares under this program from its inception through March
5, 2000. From March 6, 2000, through March 16, 2000, we repurchased 614,700
shares of our common stock under this program.
Shareholder Rights Plan and Bylaw Amendments
In December 1999, the Company authorized the issuance of 2,000,000 shares of
Series A Junior Participating Preferred Stock in connection with the adoption
of a shareholder rights plan. This series of preferred stock has a quarterly
dividend of the greater of $1.00 or 100 times the dividend paid on our common
stock, and it has a voting right of 100 votes per share. No shares of this
series of preferred stock have been issued. Also in connection with the
shareholder rights plan adopted in December 1999, the Company's Board of
Directors declared a dividend of one right to purchase 1/100th of a share of
Series A Junior Participating Preferred Stock
18
<PAGE>
for each share of common stock. This right becomes exercisable on the
occurrence of certain events, and it also may entitle the holder to purchase
shares of common stock at one-half its market price on the occurrence of
certain events.
Item 2. Properties
Our real estate projects are generally described in Item 1 above, which
descriptions are incorporated in this Item by reference. Our principal
executive office is located in San Francisco, California, and we have regional
or field offices in eleven other locations in the United States. We believe
that our property and equipment are generally well maintained, in good
condition, and adequate for our present needs.
Item 3. Legal Proceedings
We, our subsidiaries, and other related companies are named defendants in
many lawsuits arising from normal business activities, are named parties in
certain governmental proceedings (including environmental actions), and are
the subject of various environmental remediation orders of local governmental
agencies arising in the ordinary course of business. Although the outcome of
these lawsuits or other proceedings against us and the cost of compliance with
any governmental order cannot be predicted with certainty, management does not
expect any of these matters to have a material adverse effect on our business,
financial condition, or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1999.
19
<PAGE>
Executive Officers of the Company
The executive officers of the Company are listed below. There were no family
relationships among any executive officers and directors of the Company. All
officers serve at the pleasure of the Board of Directors of the Company,
subject to compliance with various employment agreements to which the Company
and the officers are parties.
Executive Officers
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Nelson C. Rising........ 58 President, Chief Executive Officer, and Director
Stephen P. Wallace...... 45 Executive Vice President and Chief Operating Officer
C. William Hosler....... 36 Senior Vice President and Chief Financial Officer
Kathleen Smalley........ 42 Senior Vice President, Corporate Operations, and General Counsel
Paul A. Lockie.......... 41 Vice President and Controller
Jaime Gertmenian........ 33 Vice President, Human Resources and Administration
</TABLE>
Additional information concerning the business background of each executive
officer of the Company is set forth below.
MR. RISING has served as President and Chief Executive Officer and a
Director of the Company since September 1994. For more than five years prior
to joining the Company, Mr. Rising was a Senior Partner with Maguire Thomas
Partners, a Los Angeles-based commercial developer.
MR. WALLACE was elected as Executive Vice President and Chief Operating
Officer in May 1998. Before this appointment, Mr. Wallace had served as Senior
Vice President and Chief Financial Officer since July 1995. From 1993 to 1995,
Mr. Wallace served as Senior Vice President and Chief Financial Officer at
Castle & Cooke Homes, Inc.
MR. HOSLER joined the Company as Senior Vice President and Chief Financial
Officer in July 1999. From January 1998 to March 1999, Mr. Hosler served as
the Chief Financial Officer for Capital Company of America, LLC. From 1995 to
1998, Mr. Hosler served as the Chief Financial Officer for Morgan Stanley &
Co.--Morgan Stanley Real Estate Funds.
MS. SMALLEY was elected Senior Vice President, Corporate Operations, and
General Counsel in May 1998. Before this appointment, Ms. Smalley had served
as Senior Vice President, General Counsel, and Secretary since January 1997.
For more than five years before joining the Company, Ms. Smalley was General
Counsel and Investment Manager of Crow Family Holdings ("CFH"), an investment
management company that manages assets, including real estate and related
businesses, throughout the United States and abroad. During 1995-1996 and
1998-1999, Ms. Smalley held an appointment to Harvard Law School where she
lectured in real estate transactions.
CFH, during Ms. Smalley's employment, managed investments in thousands of
entities holding real estate. In connection with her duties as General Counsel
and Investment Manager for CFH, Ms. Smalley managed both legal functions and a
number of special assignments. Among those special assignments was the
management of the bankruptcy of approximately 55 affiliated entities in two
jointly administered proceedings. Ms. Smalley was not involved in the
ownership or management (other than as described here) of the properties owned
by the affected debtors before the debt-restructuring negotiations and related
filing of bankruptcy petitions. In addition, there were approximately 35 other
entities affiliated with CFH that filed for protection under federal
bankruptcy laws. In connection with her employment by CFH, Ms. Smalley served
as an officer of the direct or indirect general partner of some of these
entities.
20
<PAGE>
MR. LOCKIE joined the Company as Vice President and Controller in February
1996. Before joining the Company, Mr. Lockie served as the Chief Financial
Officer for Kimball Small Properties, Inc. ("KSP"), a San Jose, California,
real estate development and management company, since 1987.
Mr. Lockie, in connection with his duties as Chief Financial Officer for
KSP, also served as Chief Financial Officer of several companies affiliated
with KSP, including Techmart Properties, Inc., the indirect general partner of
a real estate partnership that filed for protection under federal bankruptcy
laws in September 1992. In September 1995, a final decree was entered closing
the case.
MS. GERTMENIAN has been with the Company since October 1995, and currently
serves as Vice President of Human Resources and Administration. For four years
prior to joining the Company, Ms. Gertmenian served as the Division
Administrative Manager for CB Commercial Real Estate Group, a national real
estate services firm.
21
<PAGE>
Part II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
The Company's common stock commenced trading on December 5, 1990, and is
listed on the New York Stock Exchange, the Pacific Exchange, and the Chicago
Stock Exchange under the symbol "CDX." The following table sets forth for the
periods indicated the high and low sale prices of the Company's common stock
as reported by Bloomberg Financial Markets:
<TABLE>
<CAPTION>
Common Stock Price
---------------------
High Low
---------- ----------
<S> <C> <C>
Year ended December 31, 1998
First Quarter...................................... $ 20 1/4 $ 17 3/8
Second Quarter..................................... 19 17 1/16
Third Quarter...................................... 18 1/8 11 15/16
Fourth Quarter..................................... 14 13/16 10 1/2
Year ended December 31, 1999
First Quarter...................................... 16 13 1/4
Second Quarter..................................... 16 1/4 13
Third Quarter...................................... 16 11 3/4
Fourth Quarter..................................... 13 1/2 10 3/4
</TABLE>
The Company has never declared or paid any cash dividends on its common
stock. The Company intends to retain any earnings to support operations and to
finance development projects and does not intend to pay cash dividends on the
common stock in the foreseeable future.
On March 16, 2000, there were approximately 26,800 holders of record of the
Company's common stock.
22
<PAGE>
Item 6. Selected Financial Data
The following income statement and selected balance sheet data with respect
to each of the years in the five-year period ended December 31, 1999, have
been derived from our annual Consolidated Financial Statements. The operating
data have been derived from our underlying financial and management records
and are unaudited. This information should be read in conjunction with the
Consolidated Financial Statements and related Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Form 10-K for a discussion of results of operations for 1999, 1998, and
1997.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Rental properties
Rental revenue.............. $172,295 $149,319 $128,897 $115,815 $102,563
Property operating costs.... (46,754) (41,777) (37,653) (31,185) (27,290)
Equity in earnings of
operating joint ventures,
net........................ 10,668 9,368 7,436 5,993 5,826
-------- -------- -------- -------- --------
136,209 116,910 98,680 90,623 81,099
-------- -------- -------- -------- --------
Property sales and fee
services
Sales revenue............... 347,005 206,441 119,971 35,753 3,224
Cost of sales............... (263,562) (154,903) (94,107) (8,981) (2,236)
-------- -------- -------- -------- --------
Gain on property sales...... 83,443 51,538 25,864 26,772 988
Management and development
fees....................... 14,968 16,792 15,895 8,462 4,564
Equity in earnings of
development joint ventures,
net........................ 10,152 6,627 2,123 757 1,208
Selling, general and
administrative expenses.... (27,342) (22,232) (19,528) (8,559) (2,381)
Other....................... (5,475) (662) (2,814) (15,034) (6,462)
-------- -------- -------- -------- --------
75,746 52,063 21,540 12,398 (2,083)
-------- -------- -------- -------- --------
Interest expense............. (39,374) (37,384) (39,988) (42,521) (25,757)
Depreciation and
amortization................ (39,214) (34,054) (31,245) (30,561) (27,990)
Corporate administrative
costs....................... (14,760) (15,303) (9,463) (7,972) (11,764)
Gain on non-strategic asset
sales....................... 6,803 18,929 5,029 24,405 32,789
Adjustment to carrying value
of property (1)............. -- -- -- -- (102,400)
Litigation and environmental
costs, net.................. -- -- -- 1,093 (961)
Other, net................... (4,253) (184) 1,176 (3,334) 2,547
-------- -------- -------- -------- --------
Income (loss) before minority
interests, income taxes and
extraordinary items......... 121,157 100,977 45,729 44,131 (54,520)
Minority interests........... (3,247) (674) (3,145) (1,193) --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
items....................... 117,910 100,303 42,584 42,938 (54,520)
Income tax (expense)
benefit..................... (47,690) (40,400) (17,343) (17,537) 21,518
-------- -------- -------- -------- --------
Income (loss) before
extraordinary items......... 70,220 59,903 25,241 25,401 (33,002)
Extraordinary items (2)...... 26,652 (25,165) -- -- --
-------- -------- -------- -------- --------
Net income (loss)........... 96,872 34,738 25,241 25,401 (33,002)
Preferred stock dividends... -- -- (1,353) (22,173) (23,813)
Premium on redemption of
preferred stock............ -- -- -- (1,334) --
-------- -------- -------- -------- --------
Net income (loss) applicable
to common stockholders..... $ 96,872 $ 34,738 $ 23,888 $ 1,894 $(56,815)
======== ======== ======== ======== ========
Net income (loss) per share
of common stock--assuming
dilution:
Before extraordinary items.. $ 0.64 $ 0.55 $ 0.24 $ 0.03 $ (0.78)
Extraordinary items (2)..... 0.25 (0.23) -- -- --
-------- -------- -------- -------- --------
Net income (loss) per share
after extraordinary items--
assuming dilution.......... $ 0.89 $ 0.32 $ 0.24 $ 0.03 $ (0.78)
======== ======== ======== ======== ========
Average number of common
shares outstanding--
assuming dilution.......... 109,146 109,420 100,768 75,835 72,967
======== ======== ======== ======== ========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended or as of December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C>
Other Operating Data:
EBDDT (3)............... $ 128,628 $ 103,394 $ 62,771 $ 25,852 $ 18,254
EBITDA (4).............. $ 207,643 $ 177,806 $ 117,163 $ 117,152 $ 101,781
Buildings owned (square
feet).................. 24,743 19,657 16,874 15,217 14,068
Leased percentage....... 93.6% 94.9% 97.7% 96.5% 95.1%
Annual fixed charges
(5).................... $ 75,024 $ 65,432 $ 55,672 $ 73,282 $ 80,656
Debt and preferred stock
to total market
capitalization (6)..... 38.93% 36.36% 21.00% 46.81% 65.63%
Capital investments
(7).................... $ 540,024 $ 459,783 $ 257,984 $ 115,338 $ 68,523
Fixed charge coverage
ratio (8).............. 2.77 2.72 2.10 1.60 1.26
<CAPTION>
December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total properties, net
(9).................... $1,649,171 $1,402,096 $1,122,975 $1,024,102 $1,007,451
Total assets............ $1,854,877 $1,625,540 $1,241,019 $1,123,118 $1,097,604
Mortgage and other
debt................... $ 875,564 $ 873,207 $ 568,699 $ 496,742 $ 496,180
Preferred stock......... $ -- $ -- $ -- $ 274,428 $ 322,500
Total stockholders'
equity................. $ 590,972 $ 490,229 $ 451,899 $ 422,453 $ 442,874
Other Data:
Total market
capitalization (10).... $2,249,000 $2,402,000 $2,699,000 $1,647,000 $1,247,000
</TABLE>
- --------
(1) The Company took charges of $102.4 million in 1995 to adjust the carrying
value of certain properties. The 1995 charges included $84.8 million
resulting from the Company's decision to terminate the 1991 Development
Agreement for its Mission Bay project in San Francisco.
(2) Net income in 1999 reflects extraordinary income of $26.7 million, net of
income tax expense, relating to the partnership owning the Pacific Design
Center transferring its primary asset to a third party. Net income in
1998 reflects extraordinary expense of $25.2 million, net of income tax
benefit, relating to yield maintenance payments and a write-off of
unamortized loan issuance costs associated with certain refinancings in
1998.
(3) We use a supplemental performance measure called Earnings Before
Depreciation and Deferred Taxes ("EBDDT"), along with net income (loss),
to report our 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. We
believe, however, that EBDDT provides relevant information about our
operations and is useful, along with net income (loss), for an
understanding of our operating results.
EBDDT is calculated by making various adjustments to net income (loss).
Depreciation, amortization, and deferred income taxes are added back to
net income as they represent non-cash charges. Since depreciation expense
is excluded from EBDDT, the portion of property sales gain attributable
to depreciation recapture is excluded from EBDDT. In addition, gains on
the sale of non-strategic assets, adjustments to the carrying value of
property, premium on the redemption of preferred stock, and extraordinary
items, including their current tax effect, represent unusual and/or non-
recurring items and are excluded from the EBDDT calculation.
(4) Represents earnings before interest, taxes, depreciation and
amortization, adjustments to the carrying value of property, capitalized
interest in cost of sales, extraordinary items, preferred stock
dividends, and premium on the redemption of preferred stock.
(5) Represents total interest incurred, less non-cash interest incurred (see
Note 3 to our Consolidated Financial Statements), principal amortization,
and preferred stock dividends.
(6) Represents the ratio of total debt plus the face value of preferred stock
to equity market capitalization (based on the number of common shares
outstanding at the end of the period indicated and the closing stock
price for each respective period) plus total debt and preferred stock.
(7) Represents expenditures for commercial and residential development for
projects to be developed and sold or held for rental. See "Managements
Discussion and Analysis of Financial Condition and Results of
Operations--Cash Flows From Investing Activities" in this Form 10-K.
(8) Represents the ratio of EBITDA to fixed charges.
(9) "Total properties, net" reflects the historical value of the properties
at acquisition plus subsequent capital expenditures. When we were formed
to conduct the non-railroad real estate activities of Santa Fe Pacific
Corporation ("Santa Fe") and spun off to its stockholders in 1990 (the
"Spin Off"), the historical cost of land and income-producing properties
previously owned by Santa Fe was not increased from historical cost. We
believe that a significant portion of the Company's real estate value
resides in land and rental properties owned by Santa Fe prior to the Spin
Off. Therefore, we believe that the reported value of properties is not a
representative measure of the liquidation value or financing capacity of
the Company.
(10) Represents the number of common shares outstanding multiplied by the
closing stock price at the end of the period indicated plus preferred
stock and total debt.
24
<PAGE>
PART II
Item 7. 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-K. 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 14 of the
accompanying Consolidated Financial Statements.)
Summary EBDDT for the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Total
Urban Pre-Tax Current
Year Ended December 31, Commercial Residential Development Corporate EBDDT Tax EBDDT
----------------------- ---------- ----------- ----------- --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1999.................... $124,049 $27,823 $6,494 $(12,399) $145,967 $(17,339) $128,628
1998.................... $100,015 $21,651 $4,757 $(10,995) $115,428 $(12,034) $103,394
1997.................... $ 67,590 $ 6,742 $2,443 $ (9,328) $ 67,447 $ (4,676) $ 62,771
</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 property operating income for buildings owned and sales gains from
properties sold.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
--------- -------- -------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Rental properties:
Rental revenue.......... $ 159,843 $136,816 $117,963 $ 23,027 $ 18,853
Property operating
costs.................. (40,383) (35,553) (32,086) (4,830) (3,467)
Equity in earnings of
operating joint
ventures, net.......... 10,668 9,368 7,436 1,300 1,932
--------- -------- -------- -------- --------
130,128 110,631 93,313 19,497 17,318
--------- -------- -------- -------- --------
Property sales and fee
services:
Sales revenue........... 185,092 101,095 37,339 83,997 63,756
Cost of property
sold(1)................ (146,809) (75,683) (27,519) (71,126) (48,164)
--------- -------- -------- -------- --------
Gain on property
sales................ 38,283 25,412 9,820 12,871 15,592
Management and
development fees....... 11,464 13,641 12,540 (2,177) 1,101
Equity in earnings of
development joint
ventures, net.......... (23) 1,296 908 (1,319) 388
Selling, general and
administrative
expenses............... (9,280) (8,704) (8,173) (576) (531)
Other................... 1,822 (2,233) (1,734) 4,055 (499)
--------- -------- -------- -------- --------
42,266 29,412 13,361 12,854 16,051
--------- -------- -------- -------- --------
Interest expense........ (45,083) (40,028) (39,084) (5,055) (944)
Minority interests...... (3,262) -- -- (3,262) --
--------- -------- -------- -------- --------
Pre-tax EBDDT....... $ 124,049 $100,015 $ 67,590 $ 24,034 $ 32,425
========= ======== ======== ======== ========
Rental Building
Occupancy:
(in thousands and square
feet, except
percentages)
Owned................... 24,743 19,657 16,874
Occupied................ 23,159 18,660 16,478
Occupancy percentage.... 93.6% 94.9% 97.7%
</TABLE>
- --------
(1) Included in 1999 cost of property sold is $4.35 million of depreciation
recapture, which is included in net income, but not EBDDT.
25
<PAGE>
Rental Revenue less Property Operating Costs
Rental revenue less operating costs has increased over the past three years
mainly because of additions of buildings, land and land leases, and rental
increases on Same Space partially offset by properties sold. We added a net
5.1 million square feet in 1999, 2.8 million square feet in 1998, and 1.7
million square feet in 1997 to our rental portfolio. Properties that were
owned and operated for the entire "current" year and the immediate preceding
year are referred to as "Same Space". The rental revenue less operating costs
for 1999, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
----------------- Difference ---------------- Difference
1999 1998 1999/1998 1998 1997 1998/1997
-------- -------- ---------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Rental revenue less
operating costs:
Same space.............. $ 89,162 $ 85,910 $ 3,252 $ 76,821 $73,544 $ 3,277
Properties added to
portfolio.............. 15,794 2,369 13,425 12,821 3,468 9,353
Properties sold from
portfolio.............. 617 1,639 (1,022) 276 1,946 (1,670)
Land and land leases.... 13,887 11,345 2,542 11,345 6,919 4,426
-------- -------- ------- -------- ------- -------
$119,460 $101,263 $18,197 $101,263 $85,877 $15,386
======== ======== ======= ======== ======= =======
</TABLE>
An increase of $2.5 million in 1999 was primarily from the addition of land
leases to the portfolio. A majority of these leases were acquired during 1998.
Because of the long-term nature of our leases and the historically low
growth in rental rates for our product, 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 add to our rental
portfolio over time.
The decrease in 1999 overall occupancy percentage in the portfolio as
compared to 1998 is primarily due to nine of the net twenty buildings that
were added to the portfolio in 1999. At December 31, 1999, we added twenty-one
newly constructed buildings to the portfolio. These twenty-one new buildings
were about 79% leased.
The increases in property operating costs of $4.8 million and $3.5 million
in 1999 and 1998, respectively, were primarily because of repairs and
maintenance and property taxes for the existing properties and property taxes
related to the new additions to the portfolio.
Equity in Earnings of Operating Joint Ventures
Equity in earnings of operating joint ventures, net, increased by $1.3
million and $1.9 million in 1999 and 1998, respectively, because of higher
occupancies and room rates in the hotels owned by the joint ventures.
26
<PAGE>
Sales Revenue
Our commercial development business has increased gain from property sales
over the past three years (see construction activity chart for 1999 and 1998
at page 36). Gain on property sales was $38.3 million in 1999, $25.4 million
in 1998, and $9.8 million in 1997 summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
------- ------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial sales:
Building sales:
Sales proceeds............. $96,744 $44,364 $25,420 $52,380 $18,944
Cost of sales.............. 80,772 38,426 22,469 42,346 15,957
------- ------- ------- ------- -------
Gain..................... 15,972 5,938 2,951 10,034 2,987
------- ------- ------- ------- -------
Land sales:
Sales proceeds............. 34,596 37,116 11,919 (2,520) 25,197
Cost of sales.............. 24,990 27,007 5,050 (2,017) 21,957
------- ------- ------- ------- -------
Gain..................... 9,606 10,109 6,869 (503) 3,240
------- ------- ------- ------- -------
Other sales:
Sales proceeds............. 53,752 19,615 -- 34,137 19,615
Cost of sales.............. 41,047 10,250 -- 30,797 10,250
------- ------- ------- ------- -------
Gain..................... 12,705 9,365 -- 3,340 9,365
------- ------- ------- ------- -------
Total gain on property
sales................. $38,283 $25,412 $ 9,820 $12,871 $15,592
======= ======= ======= ======= =======
</TABLE>
The 1999 commercial property sales include the closings of the sale of 1.3
million square feet of new industrial building space, 171.7 acres of improved
land capable of supporting 3.3 million square feet of commercial development,
and 0.4 million square feet of existing operating properties. The 1998
commercial sales include the closing of 1.3 million square feet of building
space and 176.0 acres of land capable of supporting 3.2 million square feet of
commercial development, as compared to the closing of 0.6 million square feet
of building space and 34.7 acres of land capable of supporting 0.7 million
square feet of commercial development in 1997.
"Other sales" in the table above include a sale by one of our joint ventures
of an apartment project in San Diego, California in 1999 and a sale of a
project by a joint venture in Texas in 1998; there were no property sales from
our operating joint ventures in 1997. The 1999 and 1998 "Other sales" also
include the sales of 1,514 acres and 388 acres, respectively, of land leases
that we had acquired during 1998.
Following is a summary of property sales under contract but not closed:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998 1997
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Sales under contract, but not closed................. $75,647 $83,456 $7,091
======= ======= ======
</TABLE>
Management and Development Fees
Over the previous two 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 and it is expected that
future management fees will decrease. Management and development fees
decreased by $2.2 million in 1999 as compared to 1998. There was an increase
of $1.1 million in 1998 as compared to 1997 primarily because of a management
contract with a Canadian railroad company.
27
<PAGE>
Selling, General and Administrative Expenses
The increases in selling, general and administrative of $0.6 million and
$0.5 million in 1999 and 1998, respectively, are primarily from the additional
staffing required to pursue new development activities, expenses incurred on
lost opportunities, and financing activities.
Other
Other increased by $4.1 million in 1999 compared to 1998 primarily because
of interest income from restricted cash generated by tax-deferred exchanges,
and decreased by $0.5 million in 1998 compared to 1997 primarily because
several short-term land leases were terminated in late 1997.
Interest
Interest expense increased approximately $5.1 million in 1999 and $0.9
million in 1998 primarily because of buildings added to our portfolio.
Increases in interest capitalized in 1999 and 1998 are due to higher levels of
development activity.
Following is a summary of interest incurred:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
-------- ------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total interest incurred.. $ 55,801 $49,613 $42,517 $ 6,188 $ 7,096
Interest capitalized..... (10,718) (9,585) (3,433) (1,133) (6,152)
-------- ------- ------- ------- -------
Interest expensed........ $ 45,083 $40,028 $39,084 $ 5,055 $ 944
======== ======= ======= ======= =======
Interest included in cost
of sales................ $ 5,127 $ 2,872 $ 1,711 $ 2,255 $ 1,161
======== ======= ======= ======= =======
</TABLE>
Minority Interests
In 1999, we formed a consolidated venture and sold 10% of this consolidated
venture's stock to a minority investor.
28
<PAGE>
Residential:
The Residential segment primarily acquires and develops single-family
residential property. EBDDT primarily consists of gains from sales of lots and
completed homes.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
Difference Difference
1999 1998 1997 1999/1998 1998/1997
--------- -------- -------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Rental properties
income................. $ 339 $ 641 $ -- $ (302) $ 641
--------- -------- -------- -------- --------
Property sales and fee
services:
Sales revenue........... 161,913 105,346 82,632 56,567 22,714
Cost of property sold... (121,107) (79,220) (66,588) (41,887) (12,632)
--------- -------- -------- -------- --------
Gain on property
sales................ 40,806 26,126 16,044 14,680 10,082
Management and
development fees....... 892 1,310 2,256 (418) (946)
Equity in earnings of
development joint
ventures, net.......... 10,175 5,331 1,215 4,844 4,116
Selling, general and
administrative
expenses............... (17,237) (12,875) (9,392) (4,362) (3,483)
Other................... (7,133) 1,713 (236) (8,846) 1,949
--------- -------- -------- -------- --------
27,503 21,605 9,887 5,898 11,718
--------- -------- -------- -------- --------
Interest expense........ (34) 79 -- (113) 79
Minority interests...... 15 (674) (3,145) 689 2,471
--------- -------- -------- -------- --------
Pre-tax EBDDT....... $ 27,823 $ 21,651 $ 6,742 $ 6,172 $ 14,909
========= ======== ======== ======== ========
</TABLE>
Our Residential segment has increased gain from property sales over the past
three years. Gain on residential property sales in 1999 resulted from the
closings of 328 homes and 121 lots, compared to the closings of 244 homes and
45 lots in 1998, and 98 homes and 176 lots in 1997. The increase in gain in
1999 was primarily attributable to the higher sales volume. The increase in
gain in 1998 was attributable to higher sales volume and profit margins.
29
<PAGE>
Equity in earnings of development joint ventures, net, increased by $4.8
million and $4.1 million in 1999 and 1998, respectively. The 1999 increase was
primarily because of the increased margins at a residential joint venture
project in El Dorado County near Sacramento, California. The joint ventures
closed 797 lots and 29 homes in 1999 as compared to 810 lots and 87 homes in
1998. The 1998 increase was primarily because of the commencement of lot sales
at a major residential joint venture project in San Clemente, California.
<TABLE>
<CAPTION>
December 31,
----------------------------
Difference Difference
1999 1998 1997 1999/1998 1998/1997
-------- -------- -------- ---------- ----------
(In thousands)
PROPERTY SALES:
<S> <C> <C> <C> <C> <C>
Wholly Owned
Homes:
Sales proceeds......... $118,749 $ 84,377 $ -- $ 34,372 $ 84,377
Cost of sales.......... (90,866) (65,175) -- (25,691) (65,175)
-------- -------- -------- -------- --------
Gain.................. 27,883 19,202 -- 8,681 19,202
-------- -------- -------- -------- --------
Lots:
Sales proceeds......... 28,505 8,992 20,640 19,513 (11,648)
Cost of sales.......... (16,347) (3,917) (14,107) (12,430) 10,190
-------- -------- -------- -------- --------
Gain.................. 12,158 5,075 6,533 7,083 (1,458)
-------- -------- -------- -------- --------
Joint Ventures--
Consolidated
Homes:
Sales proceeds......... 14,659 11,977 61,992 2,682 (50,015)
Cost of sales.......... (13,894) (10,128) (52,481) (3,766) 42,353
-------- -------- -------- -------- --------
Gain.................. 765 1,849 9,511 (1,084) (7,662)
-------- -------- -------- -------- --------
Total gain on property
sales.................. $ 40,806 $ 26,126 $ 16,044 $ 14,680 $ 10,082
======== ======== ======== ======== ========
EQUITY IN EARNINGS OF DEVELOPMENT JOINT VENTURES:
Homes:
Sales proceeds......... $ 16,179 $ 40,292 $ 47,390 $(24,113) $ (7,098)
Cost of sales.......... (11,906) (31,882) (39,558) 19,976 7,676
-------- -------- -------- -------- --------
Gain.................. 4,273 8,410 7,832 (4,137) 578
-------- -------- -------- -------- --------
Lots:
Sales proceeds......... 99,046 49,669 -- 49,377 49,669
Cost of sales.......... (75,012) (41,238) -- (33,774) (41,238)
-------- -------- -------- -------- --------
Gain.................. 24,034 8,431 -- 15,603 8,431
-------- -------- -------- -------- --------
Gain from development
joint ventures......... 28,307 16,841 7,832 11,466 9,009
Less: ventures partners'
interest............... (18,132) (11,510) (6,617) (6,622) (4,893)
-------- -------- -------- -------- --------
Total equity in earnings
of development joint
ventures............... $ 10,175 $ 5,331 $ 1,215 $ 4,844 $ 4,116
======== ======== ======== ======== ========
Following is a summary of property sales under contract but not closed:
<CAPTION>
December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Owned projects and
consolidated joint
ventures
Units................. $ 54,782 $ 21,077 $ 20,355
======== ======== ========
Lots.................. $ 16,195 $ 8,348 $ --
======== ======== ========
Joint venture
projects(1)............ $ 7,638 $ 12,064 $ 3,636
======== ======== ========
</TABLE>
- --------
(1) The amounts shown are 100% of the gross sales price; we are entitled to
receive from 25% to 67% of the net profits from these joint ventures.
30
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expense increases of $4.4 million in
1999 and $3.5 million in 1998 were primarily attributable both to an increase
in selling activity and to an increase in staff as a result of significant
growth of the business.
Other
The increase in "other" expense in 1999 is primarily attributable to a $6.7
million reserve provided for certain estimated losses related to one of our
fee development projects in 1999. (See Note 7 in the accompanying Consolidated
Financial Statements.) The decrease in 1998 is primarily attributable to the
recognition of profits from certain deferred lots sales.
Interest
Following is a summary of interest incurred:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
-------- ------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total interest incurred.. $ 13,160 $ 9,678 $ 1,345 $ 3,482 $ 8,333
Interest capitalized..... (13,126) (9,757) (1,345) (3,369) (8,412)
-------- ------- ------- ------- -------
Interest expensed........ $ 34 $ (79) $ -- $ 113 $ (79)
======== ======= ======= ======= =======
Interest included in cost
of sales................ $ 6,650 $ 3,203 $ 1,635 $ 3,447 $ 1,568
======== ======= ======= ======= =======
</TABLE>
The increase in interest incurred was offset by an increase in capitalized
interest related to higher development activity. During 1999, the Residential
segment started construction on 473 residential units, as compared to 334
units in 1998 and 106 units in 1997 from its owned and consolidated joint
venture projects.
Minority Interests
Minority interests expense decreased $0.7 million and $2.5 million in 1999
and 1998, respectively. The decreases are due to a decrease in sales from
consolidated joint ventures.
31
<PAGE>
Urban Development:
The Urban Development segment entitles and develops urban mixed-use sites in
San Francisco, Los Angeles, and San Diego.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
------- ------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Rental properties:
Rental revenue.......... $12,113 $11,862 $10,934 $ 251 $ 928
Property operating
costs.................. (6,371) (6,224) (5,567) (147) (657)
------- ------- ------- ------ ------
5,742 5,638 5,367 104 271
------- ------- ------- ------ ------
Property sales and fee
services:
Management and
development fees....... 2,612 1,841 1,099 771 742
Selling, general and
administrative
expenses............... (825) (653) (1,963) (172) 1,310
Other................... (164) (142) (41) (22) (101)
------- ------- ------- ------ ------
1,623 1,046 (905) 577 1,951
------- ------- ------- ------ ------
Interest expense.......... (871) (1,927) (2,019) 1,056 92
------- ------- ------- ------ ------
Pre-tax EBDDT........... $ 6,494 $ 4,757 $ 2,443 $1,737 $2,314
======= ======= ======= ====== ======
Rental Building Occupancy:
(in thousands and square
feet, except percentages)
Owned..................... 1,152 1,220 1,220
Occupied.................. 969 1,081 981
Occupancy percentage...... 84.1% 88.6% 80.4%
</TABLE>
Rental Revenue less Property Operating Costs
Rental revenue less property operating costs from this segment is primarily
generated 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.
Management and Development Fees
Management and development fees increased $0.8 million and $0.7 million in
1999 and 1998, respectively. These increases are primarily attributable to a
higher level of development management activities.
Selling, General and Administrative Expenses
The increase of $0.2 million in 1999 and the decrease of $1.3 million in
1998 are primarily attributable to changes in overall staffing.
32
<PAGE>
Corporate:
Corporate items consist of certain interest and administrative costs reduced
by costs capitalized or allocated to other business segments.
Interest
Corporate interest consists primarily of contra-interest expense resulting
from the fact that the Residential segment had qualifying assets which
provided for the capitalization of more interest than directly incurred by the
Residential segment. This resulted in the capitalization of interest incurred
by other segments.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------- Difference Difference
1999 1998 1997 1999/1998 1998/1997
-------- -------- ------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest expense........ $ 6,614 $ 4,492 $ 1,115 $ 2,122 $ 3,377
Corporate administrative
costs.................. (14,760) (15,303) (9,463) 543 (5,840)
Other................... (4,253) (184) (980) (4,069) 796
-------- -------- ------- ------- -------
Pre-tax EBDDT......... $(12,399) $(10,995) $(9,328) $(1,404) $(1,667)
======== ======== ======= ======= =======
</TABLE>
Corporate Administrative Costs
Corporate administrative costs consist primarily of general and
administrative expenses. General and administrative expenses in 1999
approximated that of 1998, but there was an increase of $5.8 million in 1998
as compared to 1997 primarily because of the increase in our overall
activities.
Other
The increase in "other" in 1999 is primarily attributable to the increased
use of consultants.
Items not Included in EBDDT by Segment
Gain on Non-Strategic Asset Sales
Gain on sales of non-strategic assets was $6.8 million, $18.9 million and
$5.0 million for 1999, 1998 and 1997, respectively.
From 1995 through 1999, we sold $270 million of non-strategic assets as part
of a program of selling non-strategic assets, with the proceeds intended to
pay down a portion of existing debt and fund new development. During 1998 and
1997, we recorded a write-down of $9.0 million and $8.6 million, respectively,
to cost of sales related to non-strategic assets. There was no such write-down
in 1999. At year end, the most significant remaining non-strategic asset is
our desert and agricultural portfolio of approximately 782,000 acres.
In early 1999, we signed an agreement with The Wildlands Conservancy
("TWC"), a non-profit conservation group, to convey 437,000 acres of desert
land for a total cash consideration of $54.6 million to be paid by TWC and the
federal government, subject to funding by the government. Since that time, the
total purchase price for that land has been reduced to $48.6 million as a
result of negotiations over the amount of Federal funding. We recently granted
TWC an option to purchase an additional 42,900 acres of desert land for $4.8
million if the sale of 437,000 acres is closed by January 2001. Proceeds for
the 479,900 acres would be $53.4 million.
The first phase of the TWC transaction, approximately 225,000 acres, closed
on January 18, 2000. See Note 10 of the accompanying Consolidated Financial
Statements. The total sales price was $25 million, consisting of TWC's initial
$5 million deposit plus an additional $10 million from TWC and $10 million
appropriated by Congress for the Bureau of Land Management ("BLM"). Based on
the appraised value of the property, we are entitled to a tax deduction for
the discounted sales price of this land of $8.8 million.
33
<PAGE>
$23.6 million is needed to close the remaining portion of the initial TWC
transaction. TWC is exploring both federal and private funding to complete
this transaction.
We recently exchanged 12,000 acres of our desert land in the Black Mountain
Wilderness near Barstow for 4,150 acres of desert land owned by the BLM of
equal value, $3.7 million. We plan to exchange up to an additional 100,500
acres of our land (in at least two separate exchanges) for 17,385 acres of BLM
land of equal value in order to consolidate our remaining desert land
holdings.
Extraordinary Income/Expense
In October of 1999, the partnership owning the Pacific Design Center
transferred its primary asset to a third party. This transaction resulted in
the recognition of a $26.7 million extraordinary gain, net of tax expense of
$17.8 million, resulting from a negative investment/capital account due to
prior cash distributions by the partnership.
During 1998, we closed a major refinancing of existing debt. The refinancing
resulted in recognition of a $25.2 million extraordinary charge, net of tax
benefit of $16.8 million, related to yield maintenance payments and a write-
off of unamortized loan issuance costs.
Preferred Stock Dividends
Preferred stock dividends declined by $1.4 million in 1998 compared to 1997
as a result of preferred stock calls. With the completion of the preferred
stock calls in June 1997, the Company had no remaining outstanding preferred
stock.
On December 16, 1999, our Board of Directors adopted a Shareholder Rights
Plan. The Board of Directors also declared a dividend of our preferred share
purchase right for each share of common stock par value $0.01 per share
outstanding at the close of business on January 11, 2000. A Form 8-K filed on
December 28, 1999.
Variability in Results
Although we have a large portfolio of rental properties that provides
relatively stable operating results, our earnings from period to period will
be affected by the nature and timing of acquisitions and sales of property and
sales of non-strategic assets. Many of our projects require a lengthy process
to complete the development cycle before they are sold. Also, sales of assets
are difficult to predict and are generally subject to lengthy negotiations and
contingencies that need to be resolved before closing. These factors may tend
to "bunch" income in particular periods rather than producing a more even
pattern throughout the year. In addition, gross margins may vary significantly
as the mix of property varies. The cost basis of the properties sold varies
because (i) properties have been owned for varying periods of time; (ii)
properties are owned in various geographical locations; and (iii) development
projects have varying infrastructure costs and build-out periods.
Liquidity and Capital Resources
Cash flows from operating activities
Cash provided by operating activities reflected in the statement of cash
flows for the years ended December 31, 1999, 1998 and 1997 was $183.9 million,
$120.7 million and $84.2 million, respectively. The change is primarily
attributable to sales of development and other properties, and rental revenue.
Sales of development and other properties generated sales revenue of $347.0
million, $206.4 million and $120.0 million, and our rental property generated
rental revenue of $172.3 million, $149.3 million, and $128.9 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Sales of non-
strategic assets were $10.6 million, $80.0 million and $31.1 million for the
years ended December 31, 1999, 1998 and 1997, respectively. Cash generated
from rental properties increased principally because of the addition of new
buildings. These increases are offset by an increase in capital expenditures
which are discussed in the schedule of capital expenditures in the following
discussion of Cash flows from investing activities.
34
<PAGE>
Cash flows from investing activities
Net cash used in investing activities reflected in the statement of cash
flows for the years ended December 31, 1999, 1998, and 1997 was $238.4
million, $275.3 million, and $156.5 million, respectively. The decrease in
1999 consists primarily of a decrease of $79.0 million in short-term
investments and restricted cash, a $9.0 million increase in net proceeds from
sales of other assets offset by an increase of $46.8 million in capital
expenditures, and a $4.3 million increase in contributions to joint ventures.
The increase between 1998 and 1997 is primarily because of a $59.6 million
increase in capital expenditures and $22.0 million increase in property
acquisitions. Additionally, the 1998 increase is due to a $49.3 million
increase in short-term investments and restricted cash; included in this
amount is $8.8 million of proceeds from property sales that is being held in
separate accounts in order to preserve the Company's options of reinvesting
the proceeds on a tax-deferred basis.
Capital expenditures reflected in the statement of cash flows include the
following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Capital Expenditures From Operating Activities
and Non-Cash Acquisitions(1)
Capital expenditures for residential and
commercial development properties.............. $179,479 $151,898 $ 47,139
Property acquisitions........................... 35,620 24,061 44,500
Capitalized interest and property tax........... 14,266 9,213 2,732
-------- -------- --------
Capital expenditures in cash flows for operating
activities..................................... 229,365 185,172 94,371
Other acquisitions.............................. 289 10,394 --
Seller-financed acquisitions.................... 26,707 41,378 22,415
-------- -------- --------
Total capital expenditures in operating
activities................................... 256,361 236,944 116,786
-------- -------- --------
Capital Expenditures From Investing Activities
and Non-Cash Acquisitions(2)
Construction and building improvements.......... 117,311 121,060 68,199
Capital lease construction and building
improvements................................... 13,619 -- --
Predevelopment.................................. 19,406 17,063 17,410
Infrastructure and other........................ 48,935 16,912 15,516
Capitalized interest and property tax........... 13,040 12,070 4,271
-------- -------- --------
Capital expenditures for investment properties.. 212,311 167,105 105,396
Commercial property acquisitions................ 52,051 52,110 30,105
Tenant improvements............................. 5,301 3,624 5,697
-------- -------- --------
Capital expenditures in investing activities.... 269,663 222,839 141,198
Seller-financed acquisition..................... 14,000 -- --
-------- -------- --------
Total capital expenditures in investing
activities................................... 283,663 222,839 141,198
-------- -------- --------
Total capital expenditures.................... $540,024 $459,783 $257,984
======== ======== ========
</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.
35
<PAGE>
Capital expenditures for residential and commercial development properties--
this item relates to the development of residential and commercial for-sale
development properties. The increases from 1998 to 1999 and from 1997 to 1998
are primarily because of the increase in both residential and commercial for-
sale development activity.
For the year ended December 31, 1999, we started construction on 473
residential units and completed 377 units compared to 334 starts and 247
completions during 1998, and 106 starts and 125 completions during 1997, from
our owned and consolidated joint venture projects.
Construction and building improvements--this item relates primarily to
development of new commercial properties held for lease and improvements to
existing buildings. This development activity is summarized below:
<TABLE>
<CAPTION>
Year ended December
31,
-------------------------
1999 1998
---------- ----------
(In square feet)
<S> <C> <C>
Under construction,
beginning of period.... 5,036,500 3,774,000
Construction starts..... 5,371,000 4,927,500
Completed--retained in
portfolio.............. (4,166,500) (1,989,000)
Completed--design/build
or sold................ (1,600,000) (1,676,000)
---------- ----------
Under construction, end
of period.............. 4,641,000 (1) 5,036,500
========== ==========
</TABLE>
- --------
(1) This includes 872,000 square feet of development that will be sold upon
completion and 3,769,000 square feet that will be added to our portfolio
upon completion.
Property Acquisitions--We invested approximately $128.7 million in 1999 and
$127.9 million in 1998 in the acquisition of new property directly or through
joint ventures.
. Residential Acquisitions--In 1999, we invested approximately $61.2
million in the acquisition of residential development property, in
California, directly or through joint ventures. These acquisitions will
support up to 860 homes, of which 563 were previously controlled in
prior years.
. Commercial Acquisitions--In 1999 we invested approximately $67.5 million
in the acquisitions of land for development and of completed buildings.
Our commercial development business acquired developable land capable of
supporting up to approximately 2.8 million square feet of development;
we also secured an option to purchase additional land capable of
supporting up to another 1.1 million square feet of development. We also
acquired four buildings in 1999 that added 1.3 million square feet of
rental space to the commercial portfolio.
Predevelopment--relates to amounts incurred in obtaining entitlements for
our urban development projects and commercial development projects, primarily
the Mission Bay project in San Francisco, California, and the Pacific Commons
project in Fremont, California.
Infrastructure and other--primarily represents infrastructure costs incurred
in connection with our urban development and commercial development projects.
The increase in 1999 compared to 1998 primarily relates to the Woodridge,
Illinois; Denver, Colorado; Portland, Oregon; and Mission Bay, San Francisco,
California projects.
Capitalized interest and property taxes--represents interest and property
taxes capitalized as part of our development projects. The increase in 1999
compared to 1998, as well as the increase in 1998 from 1997, is because of the
significant increase in construction activity, as noted above.
36
<PAGE>
Cash flows from financing activities
Net cash provided by financing activities reflected in the statement of cash
flows decreased by $153.4 million in 1999, but increased by $124.2 million in
1998. The decrease in 1999 is primarily attributable to a net pay-down of
$12.8 million in borrowing as compared to a net borrowing of $255.8 million in
1998. The increase in 1998 over 1997 is primarily because of a $181.5 million
increase in net borrowings used to finance development projects offset by a
$36.0 million redemption premium on early retirement of debt and $26.1 million
in financing costs in 1998.
Capital commitments
As of December 31, 1999, we had outstanding standby letters of credit and
surety bonds in the amount of $118.6 million in favor of local municipalities
or financial institutions to guarantee performance on real property
improvements or financial obligations.
As of December 31, 1999, we had approximately $69.3 million in total
commitments for capital expenditures. These commitments are primarily to fund
the construction of industrial development projects, predevelopment costs and
re-leasing costs.
Cash balances, available borrowings and capital resources
As of December 31, 1999, we had a total liquidity of $278.2 million, of
which $19.6 million is restricted cash. The non-restricted liquidity of $258.6
million consists of $35.4 million in cash and cash equivalents, and
$209.3 million under our credit facilities and $13.9 million under our
commercial construction facilities.
The Company's short- and long-term liquidity and capital resources
requirements will primarily be provided from three sources: (1) ongoing income
from rental properties, (2) proceeds from sales of developed properties, land
and non-strategic assets, and (3) additional debt. As noted above, revolving
lines of 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. There is
no assurance that this financing can be obtained.
Debt covenants--Certain loan agreements contain restrictive financial
covenants, the most restrictive of which require our debt coverage ratio to be
at least 1.60:1, require stockholders' equity to be no less than
$458.8 million, and require that we maintain certain other specified financial
ratios. We were in compliance with all such covenants at December 31, 1999.
Income taxes--At December 31, 1999, our deferred tax liability consisted of
deferred tax assets totaling $112.8 million and deferred tax liabilities of
$298.4 million. Deferred tax assets included $8.2 million relating to tax
credit carryforwards for alternative minimum tax, which are not subject to
expiration. Our other deferred tax assets of $104.6 million relate primarily
to differences between book and tax basis of properties. These deferred tax
assets are not subject to expiration and would likely be realized at the time
of taxable dispositions of the properties. Deferred tax liabilities in excess
of deferred tax assets are often associated with the same property, with the
result that the deferred tax asset would likely be realized in a taxable
disposition, without regard to other taxable income. We believe it is more
likely than not that we would realize the benefit of its deferred tax assets,
and that no valuation allowance is required. In making this determination, we
considered: the nature of its deferred tax assets (and liabilities); the
historical levels of taxable income; the significant unrealized appreciation
of its properties; and its ability in many cases to control the timing of
property sales in order to assure that deferred tax assets will be offset by
deferred tax liabilities or realized appreciation.
We believe we will use the tax credit carryforwards to reduce tax payments
for 2000. The ultimate amount of federal tax payments, if any, would depend on
our taxable income.
37
<PAGE>
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 clean up, 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
December 31, 1999, management has provided a reserve of $8.5 million for
identified environmental costs relating to such properties. These costs are
expected to be incurred over several years, with a substantial portion
incurred over the next few years (see Note 15 of the accompanying consolidated
financial statements for further discussions).
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 December 31, 1999,
our estimate of potential liability for identified environmental costs
relating to properties to be developed or sold ranged from $10.6 million to
$24.7 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 during 1999 totaled $1.3 million.
While we or outside consultants have evaluated the environmental liabilities
associated with most of the properties we currently own, 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.
Year 2000 Readiness
In 1999 we completed an extensive program to assess the potential effects of
the Year 2000 problem (the inability of some hardware and software to
distinguish the year 2000 from the year 1900). The program, which addressed
the preparedness of our internal information systems, embedded technology in
its operating portfolio and readiness of significant third parties, resulted
in our action to fix certain negligible problems. We spent approximately
$800,000 on this program, which included $22,000 on actions to solve problems
discovered relating to building operating systems, and anticipate incurring no
additional costs.
38
<PAGE>
Forward-Looking Information and Risk Factors
Except for historical matters, the matters discussed in this annual report
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; markets and economic conditions;
development, construction and sales activities; availability of financing; and
property values.
We caution that these forward-looking statements reflect our current beliefs
and are based on information currently available to us. Accordingly, these
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, or in the retail business market
. Competition in the real estate industry
. Availability of financing to meet our capital needs, the variability of
interest rates, and our ability to use our collateral to secure loans
. Delay in receipt of or denial of government approvals and entitlements
for development projects, and other political and discretionary
government decisions affecting the use of or access to land
. Changes in tax laws and other circumstances that affect our ability to
control the timing and recognition of deferred tax liability
. Exposure of our assets to damage from natural occurrences such as
earthquakes, and weather conditions that affect the progress of
construction
. Liability for environmental remediation at properties owned or formerly
owned by us or our predecessors
. Changes in the cost of land and building materials
. Our ability to recruit and retain or replace key personnel
. Limitations on or challenges to title to our properties
. Risks related to the performance, interests, and financial strength of
our joint venture projects
. Changes in policies and practices of organized labor
39
<PAGE>
Item 7a. 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
December 31, 1999, we did not have any outstanding interest-protection
contracts. 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 December 31, 1999, approximately 74.6% of our debt bore interest at fixed
rates with a weighted average maturity of approximately 8.5 years and a
weighted average effective interest of approximately 6.87%, 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 1.7 years and a weighted average effective interest
rate of approximately 9.55% at December 31, 1999. To the extent that we incur
additional variable rate indebtedness, our exposure to increases in interest
rates in an inflationary period would increase. If effective interest rates
increased 100 basis points, the annual effect on our financial position and
cash flow would be approximately $2.2 million, based on the outstanding
balance of our debt at December 31, 1999. 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.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedules required under Regulation S-X
promulgated under the Securities Act of 1933 are identified in Item 14 and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
40
<PAGE>
PART III
Except for the information relating to the executive officers of the Company
set forth in Part I of this Annual Report on Form 10-K, the information
required by the following items in this Part III is hereby incorporated by
reference to the relevant sections contained in the Company's definitive Proxy
Statement ("2000 Proxy Statement") which will be filed with the Securities and
Exchange Commission in connection with the 1999 Annual Meeting of
Stockholders.
Item 10. Directors and Executive Officers of the Registrant
The information in the section captioned "Election of Directors" in the 1999
Proxy Statement is incorporated herein by reference. Information concerning
executive officers required by this Item 10 is located under Part I, Item 4
and pages 19 and 20 of this Form 10-K.
The information in the section captioned "Section 16(a) Beneficial Ownership
Reporting Compliance" in the 1999 Proxy Statement is incorporated herein by
reference.
Item 11. Executive Compensation
The information in the sections captioned "Election of Directors--Directors'
Compensation," "Employment Agreements" and "Compensation of Executive
Officers" in the 2000 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information in the sections captioned "Security Ownership of Directors
and Executive Officers" and "Security Ownership of Certain Beneficial Owners"
in the 2000 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information in the section captioned "Certain Relationships and Related
Transactions" in the 1999 Proxy Statement is incorporated herein by reference.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (a)(2) Financial Statements and Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedules at F-1
herein.
All other Schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits
See Index to Exhibits on Pages E-1, E-2, and E-3.
(b) Reports on Form 8-K
On December 28, 1999, the Company filed a Current Report on Form 8-K
disclosing the adoption by the Company's Board of Directors on December 16,
1999, of (i) a Shareholder Rights Plan and (ii) amendments to the Company's
Bylaws.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of 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
By /s/ Nelson C. Rising
-----------------------------------
Nelson C. Rising
President and Chief Executive
Officer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Catellus
Development Corporation and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Nelson C. Rising President, Chief Executive March 30, 2000
____________________________________ Officer and Director
Nelson C. Rising (Principal Executive
Officer)
/s/ C. William Hosler Senior Vice President, Chief March 30, 2000
____________________________________ Financial Officer
C. William Hosler (Principal Financial
Officer)
/s/ Paul A. Lockie Vice President and March 30, 2000
____________________________________ Controller (Principal
Paul A. Lockie Accounting Officer)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 30, 2000
____________________________________
Joseph F. Alibrandi
* Director March 30, 2000
____________________________________
Stephen F. Bollenbach
* Director March 30, 2000
____________________________________
Daryl J. Carter
* Director March 30, 2000
____________________________________
Richard D. Farman
* Director March 30, 2000
____________________________________
Christine Garvey
* Chairman of the Board, March 30, 2000
____________________________________ Director
William M. Kahane
* Director March 30, 2000
____________________________________
Leslie D. Michelson
* Director March 30, 2000
____________________________________
Jacqueline R. Slater
* Director March 30, 2000
____________________________________
Thomas M. Steinberg
* Director March 30, 2000
____________________________________
Beverly Benedict Thomas
</TABLE>
*By: /s/ Paul A. Lockie
-----------------------------
Paul A. Lockie
Attorney-in-Fact
March 30, 2000
44
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Report of Independent Accountants dated February 4, 2000................. F-2
Consolidated Balance Sheet at December 31, 1999 and 1998................. F-3
Consolidated Statement of Operations for the years ended December 31, F-4
1999, 1998, and 1997....................................................
Consolidated Statement of Stockholders' Equity for the years ended F-5
December 31, 1999, 1998, and 1997.......................................
Consolidated Statement of Cash Flows for the years ended December 31, F-6
1999, 1998, and 1997....................................................
Notes to Consolidated Financial Statements............................... F-7
Summarized Quarterly Results (Unaudited)................................. F-29
Index to Exhibits
Exhibits................................................................. E-1
Financial Statement Schedules
Report of Independent Accountants dated February 4, 2000................. S-1
Schedule II--Valuation and Qualifying Accounts........................... S-2
Schedule III--Real Estate and Accumulated Depreciation................... S-3
Attachment A to Schedule III............................................. S-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Catellus Development Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Catellus Development Corporation and its subsidiaries at December 31, 1999 and
1998 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 4, 2000
F-2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Properties........................................... $ 1,944,017 $ 1,667,573
Less accumulated depreciation........................ (294,846) (265,077)
----------- -----------
1,649,171 1,402,496
Other assets and deferred charges, net............... 93,021 80,240
Notes receivable, less allowance..................... 32,890 15,275
Accounts receivable, less allowance.................. 24,820 25,270
Restricted cash and investments...................... 19,565 49,284
Cash and cash equivalents............................ 35,410 52,975
----------- -----------
Total............................................ $ 1,854,877 $ 1,625,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage and other debt.............................. $ 875,564 $ 873,207
Accounts payable and accrued expenses................ 92,791 81,951
Deferred credits and other liabilities............... 58,751 40,608
Deferred income taxes................................ 185,592 138,533
----------- -----------
Total liabilities................................ 1,212,698 1,134,299
----------- -----------
Commitments and contingencies (Note 15)
Minority interests................................... 51,207 1,012
----------- -----------
Stockholders' equity
Preferred stock.................................... -- --
Common stock, 107,185 and 106,808 shares
outstanding at December 31, 1999 and 1998......... 1,072 1,068
Paid-in capital.................................... 483,503 479,636
Accumulated earnings............................... 106,397 9,525
----------- -----------
Total stockholders' equity....................... 590,972 490,229
----------- -----------
Total............................................ $ 1,854,877 $ 1,625,540
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Rental properties
Rental revenue.............................. $ 172,295 $ 149,319 $ 128,897
Property operating costs.................... (46,754) (41,777) (37,653)
Equity in earnings of operating joint
ventures, net.............................. 10,668 9,368 7,436
--------- --------- ---------
136,209 116,910 98,680
--------- --------- ---------
Property sales and fee services
Sales revenue............................... 347,005 206,441 119,971
Cost of sales............................... (263,562) (154,903) (94,107)
--------- --------- ---------
Gain on property sales..................... 83,443 51,538 25,864
Management and development fees............. 14,968 16,792 15,895
Equity in earnings of development joint
ventures, net.............................. 10,152 6,627 2,123
Selling, general and administrative
expenses................................... (27,342) (22,232) (19,528)
Other....................................... (5,475) (662) (2,814)
--------- --------- ---------
75,746 52,063 21,540
--------- --------- ---------
Interest expense.............................. (39,374) (37,384) (39,988)
Depreciation and amortization................. (39,214) (34,054) (31,245)
Corporate administrative costs................ (14,760) (15,303) (9,463)
Gain on non-strategic asset sales............. 6,803 18,929 5,029
Other, net.................................... (4,253) (184) 1,176
--------- --------- ---------
Income before minority interests, income
taxes and extraordinary items.............. 121,157 100,977 45,729
Minority interests............................ (3,247) (674) (3,145)
--------- --------- ---------
Income before income taxes and extraordinary
items...................................... 117,910 100,303 42,584
--------- --------- ---------
Income tax expense
Current..................................... (17,339) (12,034) (4,676)
Deferred.................................... (30,351) (28,366) (12,667)
--------- --------- ---------
(47,690) (40,400) (17,343)
--------- --------- ---------
Income before extraordinary items........... 70,220 59,903 25,241
Extraordinary income related to a joint
venture's asset transfer to a third party,
net of income tax expense.................... 26,652 -- --
Extraordinary expense related to early
retirement of debt, net of income tax
benefit...................................... -- (25,165) --
--------- --------- ---------
Net income.................................. 96,872 34,738 25,241
Preferred stock dividends..................... -- -- (1,353)
--------- --------- ---------
Net income applicable to common
stockholders............................... $ 96,872 $ 34,738 $ 23,888
========= ========= =========
Net income per share before extraordinary
items
Basic...................................... $ 0.66 $ 0.56 $ 0.24
========= ========= =========
Assuming dilution.......................... $ 0.64 $ 0.55 $ 0.24
========= ========= =========
Net income (loss) per share--extraordinary
items
Basic...................................... $ 0.25 $ (0.23) $ --
========= ========= =========
Assuming dilution.......................... $ 0.25 $ (0.23) $ --
========= ========= =========
Net income per share after extraordinary
items
Basic...................................... $ 0.91 $ 0.33 $ 0.24
========= ========= =========
Assuming dilution.......................... $ 0.89 $ 0.32 $ 0.24
========= ========= =========
Average number of common shares
outstanding--basic......................... 107,011 106,689 97,601
========= ========= =========
Average number of common shares
outstanding--diluted....................... 109,146 109,420 100,768
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Accumulated
----------------- -------------- Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
------ --------- ------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 5,489 $ 274,428 77,028 $ 770 $197,709 $(50,454)
Redemption of Series A
preferred stock...... (8) (395) -- -- (69) --
Conversion of Series A
preferred stock...... (2,481) (124,033) 13,696 137 123,896 --
Conversion of Series B
preferred stock...... (3,000) (150,000) 15,306 153 149,847 --
Series B preferred
stock dividends...... -- -- -- -- (1,353) --
Exercise of stock
options and other ... -- -- 473 5 6,017 --
Net income............ -- -- -- -- -- 25,241
------ --------- ------- ------ -------- --------
Balance at December 31,
1997................... -- -- 106,503 1,065 476,047 (25,213)
Exercise of stock
options and other ... -- -- 305 3 3,589 --
Net income............ -- -- -- -- -- 34,738
------ --------- ------- ------ -------- --------
Balance at December 31,
1998................... -- -- 106,808 1,068 479,636 9,525
Exercise of stock
options and other ... -- -- 377 4 3,867 --
Net income............ -- -- -- -- -- 96,872
------ --------- ------- ------ -------- --------
Balance at December 31,
1999................... -- $ -- 107,185 $1,072 $483,503 $106,397
====== ========= ======= ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 96,872 $ 34,738 $ 25,241
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary income related to a joint
venture's asset transfer to a third party,
before income tax expense.................. (44,020) -- --
Extraordinary expense related to early
retirement of debt, before income tax
benefit.................................... -- 41,942 --
Depreciation and amortization............... 39,214 34,054 31,245
Deferred income taxes....................... 48,119 22,075 12,667
Amortization of deferred loan fees and other
costs...................................... 4,575 2,826 2,959
Equity in earnings of joint ventures ....... (20,820) (15,995) (9,559)
Operating distributions from joint
ventures................................... 46,811 16,723 12,129
Cost of properties and non-strategic assets
sold....................................... 236,421 191,604 111,509
Expenditures for development properties..... (229,365) (185,172) (94,371)
Other property acquisitions................. (289) (10,394) --
Other, net.................................. (8,482) (6,246) 1,911
Change in assets and liabilities:
Accounts and notes receivable............... (10,133) 3,122 (26,713)
Other assets and deferred charges .......... (11,901) (16,536) (1,110)
Accounts payable and accrued expenses....... 18,718 1,404 15,482
Other....................................... 18,144 6,561 2,779
--------- --------- ---------
Net cash provided by operating activities..... 183,864 120,706 84,169
--------- --------- ---------
Cash flows from investing activities:
Property acquisitions........................ (52,051) (52,110) (30,105)
Capital expenditures......................... (212,311) (167,105) (105,396)
Tenant improvements.......................... (5,301) (3,624) (5,697)
Net proceeds from sale of other assets....... 13,926 4,886 2,623
Contributions to joint ventures.............. (12,370) (8,105) (17,966)
Short-term investments and restricted cash... 29,719 (49,284) --
--------- --------- ---------
Net cash used in investing activities......... (238,388) (275,342) (156,541)
--------- --------- ---------
Cash flows from financing activities:
Borrowings................................... 295,628 971,121 181,680
Repayment of borrowings...................... (308,426) (715,369) (107,467)
Redemption premium on early retirement of
debt........................................ -- (36,041) --
Payment on settlement of Treasury-lock
contracts and financing fees................ -- (26,080) --
Preferred stock dividends paid............... -- -- (5,975)
Redemption of preferred stock................ -- -- (471)
Contributions from/distributions to minority
partners, net............................... 46,947 (5,650) (5,167)
Proceeds from issuance of common stock....... 2,810 2,336 3,486
--------- --------- ---------
Net cash provided by financing activities .... 36,959 190,317 66,086
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents ................................. (17,565) 35,681 (6,286)
Cash and cash equivalents at beginning of
year......................................... 52,975 17,294 23,580
--------- --------- ---------
Cash and cash equivalents at end of year ..... $ 35,410 $ 52,975 $ 17,294
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (net of amount capitalized) ...... $ 34,400 $ 32,625 $ 36,717
Income taxes............................... $ 13,154 $ 6,302 $ 1,338
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are separately reflected as minority interests in the
accompanying balance sheet. The Company's development portfolio of industrial,
residential, retail, office, and joint venture projects is primarily located
in major markets in California, Illinois, Texas, Colorado, Oregon and also
Arizona, Ohio, Kentucky, 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. The Company also has other
land holdings primarily in these same states.
Note 2. Summary of Significant Accounting Policies
Principles of consolidation--The accompanying consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiaries
and investees over 50% owned which are controlled by the Company. All other
investees are accounted for using the equity method.
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
these entities would be available to satisfy the liabilities of Catellus
Development Corporation or any other of these entities.
Revenue recognition--Rental revenue, in general, is recognized when due from
tenants; however, revenue from leases with rent concessions or fixed
escalations is recognized on a straight-line basis over the initial term of
the lease. Direct costs of negotiating and consummating a lease are deferred
and amortized over the initial term of the related lease.
The Company recognizes revenue from the sale of properties using the accrual
method. Sales not qualifying for full recognition at the time of sale are
accounted for under other appropriate deferral methods, including the
percentage-of-completion method. In certain cases, the Company retains the
right to repurchase property from the buyer at a specified price. Profit on
these sales is not recognized until the Company's right to repurchase expires.
In general, specific identification and relative sales value methods are used
to determine the cost of sales. Estimated future costs to be incurred by the
Company after completion of each sale are included in cost of sales.
Cash and cash equivalents and restricted cash and investments--The Company
considers all highly liquid investments with a maturity of three months or
less at time of purchase to be cash equivalents. Of the restricted cash and
investments totaling $19.6 million and $49.3 million at December 31, 1999 and
1998, respectively, $9.9 million and $8.8 million, respectively, represent
proceeds from development 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
$9.7 million at December 31, 1999 represent certificates of deposit used to
guarantee lease performance and $40.5 million at December 31, 1998 represent
certificates of deposit used to guarantee completion of building construction
and lease performance for certain properties securing mortgage debt.
Interest rate protection contracts ("Treasury-lock contracts")--The Company
has from time to time entered into an interest rate protection agreement to
lock its interest rate when negotiating fixed rate financing agreements.
Amounts paid or received are capitalized and amortized as a component of
interest expense using the effective interest method over the term of the
associated mortgage debt agreement.
F-7
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial instruments--The historical cost basis of the Company's notes
receivable is representative of fair value based on a comparison to year-end
interest rates for receivables of comparable risks and maturities. Variable
rate debt has carrying values which approximate estimated fair value while
first mortgage loans have an estimated aggregate fair value of $527.2 million
and remaining principal of $589.1 million based on a comparison to year-end
interest rates for debt with similar terms and remaining maturities.
Property and deferred costs--Real estate is stated at the lower of cost or
estimated fair value. For operating properties and properties held for long-
term investment, a write-down to estimated fair value is recognized when a
property's estimated undiscounted future cash flow, before interest charges,
is less than its book value. For properties held for sale, a write-down to
estimated fair value is recorded when the Company determines that the carrying
cost exceeds the estimated selling price, less cost to sell. This evaluation
is made by management on a property by property basis. The evaluation of fair
value and future cash flows from individual properties requires significant
judgment; it is reasonably possible that a change in estimate could occur.
The Company capitalizes construction and development costs. Costs associated
with financing or leasing projects are also capitalized and amortized over the
period benefited by those expenditures.
Depreciation is computed using the straight-line method. Buildings and
improvements are depreciated using lives of between 20 and 40 years. Tenant
improvements are depreciated over the primary terms of the leases (generally
3-15 years), while furniture and equipment are depreciated using lives ranging
between 3 and 10 years.
Maintenance and repair costs are charged to expense as incurred, while
significant improvements, replacements and major renovations are capitalized.
Notes receivable--Notes receivable are carried at the principal balance,
less estimated uncollectible amounts totaling $1.9 million at December 31,
1999 and 1998. Interest is recognized as earned; however, the Company
discontinues accruing interest when collection is considered doubtful. All
notes are secured by real property.
Allowance for uncollectible accounts--Accounts receivable are net of an
allowance for uncollectible accounts totaling $1.3 million at December 31,
1999 and 1998.
Environmental costs--The Company incurs ongoing environmental remediation
costs, including clean up costs, consulting fees for environmental studies and
investigations, monitoring costs, and legal costs relating to clean up,
litigation defense, and the pursuit of responsible third parties. Costs
incurred in connection with operating properties and properties previously
sold are expensed. Costs relating to undeveloped land are capitalized as part
of development costs. Costs incurred for properties to be sold are deferred
and charged to cost of sales when the properties are sold.
The Company maintains a reserve for estimated costs of environmental
remediation to be incurred in connection with operating properties and
properties previously sold. When there may be a legal requirement for
environmental remediation of developable land, the Company will accrue for the
estimated cost of remediation and capitalize that amount. Where there is no
legal requirement for remediation, costs will be capitalized, as incurred, as
part of the project costs.
Income taxes--Income taxes are recorded based on the future tax effects of
the difference between the tax and financial reporting bases of the Company's
assets and liabilities. In estimating future tax consequences, expected future
events are considered except for potential changes in income tax law or in
rates.
Income per share--Income per share of common stock applicable to common
stockholders is computed by dividing net income, before extraordinary items,
after reduction for preferred stock dividends, by the weighted
F-8
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
average number of shares of common stock and equivalents outstanding during
the period (see table below for effect of dilutive securities).
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- --------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
------- ------- --------- ------- ------- --------- ------- ------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before
extraordinary items.... $70,220 $59,903 $25,241
Less: preferred stock
dividends.............. -- -- (1,353)
------- ------- -------
Income applicable to
common stockholders.... 70,220 107,011 $0.66 59,903 106,689 $0.56 23,888 97,601 $0.24
===== ===== =====
Effect of dilutive
securities--stock
options................ -- 2,135 -- 2,731 -- 3,167
------- ------- ------- ------- ------- -------
Income applicable to
common stockholders
plus assumed conversion
of options............. $70,220 109,146 $0.64 $59,903 109,420 $0.55 $23,888 100,768 $0.24
======= ======= ===== ======= ======= ===== ======= ======= =====
</TABLE>
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported amounts
of revenue and expenses. Actual results could differ from those estimates.
Reclassifications--Certain prior year amounts have been reclassified to
conform with the current year financial statement presentation.
Minority interests--In 1999 the Company formed a consolidated venture and
sold 10% of this consolidated venture's stock to a minority investor.
New accounting standards--In the fourth quarter 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which changed the method of calculation and presentation of earnings
per share. This change did not have any impact on previously reported income
per share amounts for the year ended December 31, 1997.
During June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Segment Reporting",
which is effective for fiscal years beginning after December 15, 1997. SFAS
No. 131 establishes standards for determining an entity's operating segments
and the type and level of financial information to be disclosed. The Company
adopted this statement for the annual financial statements for the year ending
December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for years
beginning after June 15, 1999. The statement requires all derivatives to be
recorded on the balance sheet at fair value and establishes new accounting
treatment for the different types of transactions qualifying for hedge
accounting. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Investments and Hedging Activities--Deferral of the Effective Date
of SFAS No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133
until the first quarter of years beginning after June 15, 2000. The Company
plans to adopt SFAS No. 133 in the first quarter of 2001. Management does not
believe this new standard will significantly affect the financial position,
results of operations, or cash flows of the Company.
F-9
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Mortgage and Other Debt
Mortgage and other debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
First mortgage loan, interest at 6.01%, due at various dates
through November 11, 2008(a)............................... $368,034 $372,629
First mortgage loans, interest at 6.65% to 9.75%, due at
various dates through December 1, 2009(b).................. 221,022 184,551
Secured revolving credit line, interest variable (7.99% at
December 31, 1999), due November 1, 2000(c)................ 48,135 190,135
Construction loans, interest variable (7.38% to 8.05% at
December 31, 1999) due at various dates through May 26,
2002(d).................................................... 47,266 --
Acquisition loans, interest at 7.23%, due at various dates
through December 1, 2005(e)................................ 44,022 34,311
Unsecured revolving credit line (residential subsidiary),
interest variable (7.43% at December 31, 1999) due October
1, 2000(f)................................................. 36,000 24,700
Assessment district bonds, interest at 4.0% to 8.7%, due at
various dates through September 2, 2021(g)................. 24,845 19,585
Residential acquisition and construction loans, interest
variable (8.5% to 9.5% at December 31, 1999), due at
various dates through September 22, 2001(h)................ 36,000 3,975
Secured promissory notes, interest variable (9.5% to 10.5%
at December 31, 1999), due at various dates through October
22, 2003(i)................................................ 21,360 21,360
Term loan, secured, interest variable (7.81% at December 31,
1999), due August 1, 2002(j)............................... 12,612 12,778
Industrial capital leases, interest variable (7.92% at
December 31, 1999), due at various dates through April 30,
2002(k).................................................... 6,852 --
Other loans, interest at 5.33% to 6.7%, due at various dates
through October 15, 2025................................... 9,416 9,183
-------- --------
$875,564 $873,207
======== ========
</TABLE>
- --------
(a) In 1998, the Company closed a $373 million loan, which bears interest at
6.01% and is amortized over 30 years with a maturity of 10 years. The
Company repaid an existing first mortgage loan which had an average
interest rate of 8.71% and recognized a $25.2 million extraordinary
charge, net of tax benefit of $16.8 million, related to the early
retirement of this loan. In connection with this new loan, the Company
executed several Treasury-lock contracts for purposes of fixing the
interest rate on this new loan. The net payment upon liquidation of the
Treasury-lock contracts was approximately $16.9 million which, considered
with other financing costs, resulted in an effective interest rate of 6.6%
on the new loan.
This loan is collateralized by certain of the Company's operating
properties and by an assignment of rents generated by the underlying
properties. This loan has a yield maintenance premium if paid prior to
maturity.
(b) The first mortgage loans consist of $150.9 million bearing interest at
6.65% (6.82% effective rate when considering financing costs), maturing in
September 2006; $35.0 million bearing interest at 7.29% (7.42% effective
rate when considering financing costs) maturing at various dates from
September 2009 through December 2009; $21.6 million bearing interest at
9.75%, maturing October 2002; and $13.5 million bearing interest at 7.625%
to 9.5%, maturing at various dates from October 2002 through March 2009
from various lenders.
During 1999, the Company closed $35.0 million of new loans and met
collateral provisions for an additional $4.6 million of an existing loan.
The new loans amortize over 30 years with a maturity of 10 years.
F-10
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These first mortgage loans are collateralized by certain of the Company's
operating properties and by an assignment of rents generated by the
underlying properties. A majority of these loans have penalties if paid
prior to maturity.
(c) The Company's secured revolving credit line has a $265 million capacity
provided that additional collateral pool assets are provided. At December
31, 1999, the line's capacity was $242.8 million with $191.8 million
available for future borrowings. The credit line is collateralized by
certain of the Company's operating properties, an assignment of rents
generated by the underlying properties and certain land holdings.
(d) The Company's construction loans are used to finance industrial development
projects and are secured by the related land and improvements.
(e) In connection with acquisitions of land, land leases and other leases,
subsidiaries of the Company issued secured promissory notes, of which $30.0
million was outstanding at December 31, 1999. The Company intends to sell
these assets. Accordingly, these collaterized promissory notes are paid-
down on a pro-rata basis upon the sales of these assets. Another subsidiary
of the Company issued a $14 million secured promissory note for the
acquisition of development land. The note matures in September 2005 with
scheduled periodic payments which will release designated acreage from the
Deed of Trust. Acreage can be released sooner upon accelerated payments.
(f) The Company's residential subsidiary has an unsecured credit line with a
capacity up to $80 million. This credit line bears interest at Prime or
LIBOR + 1.5% and was 7.43% at December 31, 1999, and matures on October 1,
2000. At December 31, 1999, the line's capacity was $53.5 million with
$17.5 million available for future borrowings. On February 7, 2000, the
line's capacity was increased from $80 million to $100 million and its
maturity date extended to October 1, 2001.
(g) The assessment district bonds are issued through local municipalities to
fund the construction of public infrastructure and improvements which
benefit the Company's properties. These bonds are secured by certain of the
Company's properties.
(h) The Company's residential acquisition and construction loans are used to
finance development projects and are secured by the related land and
improvements.
(i) These promissory notes were used to finance land purchases for residential
development projects and are secured by deeds of trust.
(j) This secured term loan is collateralized by an operating property and by an
assignment of rents generated by the underlying property.
(k) Industrial capital leases represent the estimated present value of the
minimum lease payments.
Certain loan agreements contain restrictive financial covenants, the most
restrictive of which require a debt coverage ratio of at least 1.60:1, require
stockholders' equity to be no less than $458.8 million, and require that the
Company maintain certain other specified financial ratios. The Company was in
compliance with all such covenants at December 31, 1999.
The maturities of mortgage and other debt outstanding as of December 31, 1999
are summarized as follows (in thousands):
<TABLE>
<S> <C>
2000............................................................ $132,317
2001............................................................ 31,246
2002............................................................ 116,412
2003............................................................ 30,046
2004............................................................ 17,542
Thereafter...................................................... 548,001
--------
$875,564
========
</TABLE>
F-11
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest costs relating to mortgage and other debt are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Total interest incurred......................... $ 63,764 $ 58,630 $46,684
Interest capitalized............................ (24,390) (21,246) (6,696)
-------- -------- -------
Interest expensed............................... $ 39,374 $ 37,384 $39,988
======== ======== =======
Interest included in cost of sales.............. $ 11,777 $ 6,075 $ 3,346
======== ======== =======
</TABLE>
Note 4. Income Taxes
The income tax expense reflected in the consolidated statement of operations
differs from the amounts computed by applying the federal statutory rate of 35%
to income before income taxes and extraordinary items as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Federal income tax expense at statutory rate....... $41,269 $35,106 $14,904
Increase in taxes resulting from:
State income taxes, net of federal impact........ 6,251 5,203 2,345
Other............................................ 170 91 94
------- ------- -------
$47,690 $40,400 $17,343
======= ======= =======
</TABLE>
F-12
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities and for operating loss and tax credit carryforwards. Significant
components of the Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Involuntary conversions (condemnations) of property...... $ 90,341 $ 90,079
Capitalized interest, taxes, and overhead................ 92,907 94,629
Like-kind property exchanges............................. 58,889 35,729
Investments in partnerships.............................. 45,839 28,171
Income of subsidiary REIT................................ 8,264 --
Other.................................................... 2,198 2,317
-------- --------
298,438 250,925
-------- --------
Deferred tax assets:
Operating loss and tax credit carryforwards.............. 8,233 8,247
Intercompany transactions (prior to spin-off)............ 15,306 14,707
Capitalized rent......................................... 24,411 23,921
Adjustment to carrying value of property................. 41,455 40,843
Depreciation and amortization ........................... 14,312 12,541
Environmental reserve.................................... 4,161 4,590
Other.................................................... 4,968 7,543
-------- --------
112,846 112,392
Deferred tax assets valuation allowance.................. -- --
-------- --------
112,846 112,392
-------- --------
Net deferred tax liability............................. $185,592 $138,533
======== ========
</TABLE>
The Company has tax credit carryforwards of $8.2 million for alternative
minimum tax, which are not subject to expiration. All of the Company's net
operating loss carryforwards have been used prior to expiration.
The income tax benefit of $1.1 million and $1.2 million for the years ended
December 31, 1999 and 1998, respectively, associated with the exercise of
stock options is credited directly to paid-in capital on the accompanying
statement of stockholders' equity.
F-13
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Joint Venture Investments
The Company has investments in a variety of unconsolidated real estate joint
ventures that are involved in both operating properties and development of
various other projects. Note that the term "joint venture" as used herein
means that two or more parties own an interest and not that a joint venture is
the legal form of organization.
The Company's joint ventures include the following at December 31, 1999:
<TABLE>
<CAPTION>
Ownership
Operating Properties Percentage
- -------------------- ----------
<S> <C>
Hotel
International Rivercenter.... 25.16%
New Orleans Rivercenter...... 42.32%
Pacific Market Investment
Company..................... 50%
Office
Torrance Investment Company.. 66.67%
<CAPTION>
Ownership
Development Projects Percentage
- -------------------- ----------
<S> <C>
Residential Development
Ridgemoor Projects....... 25%
Talega Associates, LLC... 30%
Talega Village, LLC...... 50%
CRG Financial Services,
L.P. ................... 70%
Serrano Associates, LLC.. 67%
Hercules, LLC............ 50%
Commercial Development
Desman Road Partners..... 37.82%
</TABLE>
During 1999 the Company acquired the remaining 50% interest in its apartment
joint venture, JMB/Santa Fe Bayfront Venture, which subsequently sold the
apartment building, and the Company realized a pre-tax gain of $10.3 million.
In October of 1999, the partnership owning the Pacific Design Center
transferred its primary asset to a third party. This transaction resulted in
the Company recognizing a $26.7 million extraordinary gain, net of tax expense
of $17.8 million resulting from a negative investment/capital account due to
prior cash distributions by the partnership.
The Company guarantees a portion of the debt and interest of certain of its
joint ventures. At December 31, 1999, these guarantees totaled $47.7 million.
F-14
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The condensed combined balance sheets and statements of operations of these
unconsolidated joint ventures, along with the Company's proportionate share,
are summarized as follows:
<TABLE>
<CAPTION>
Proportionate
Combined Share
-------------------- -------------------
December 31, December 31,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Operating properties:
Property ................... $ 127,265 $ 220,538 $ 42,009 $ 104,155
Other....................... 13,041 23,597 4,369 12,157
Development projects:
Property ................... 257,111 215,393 118,619 121,804
Other ...................... 12,583 50,046 9,285 22,890
--------- --------- -------- ---------
Total .................... $ 410,000 $ 509,574 $174,282 $ 261,006
========= ========= ======== =========
Liabilities and venturers'
equity:
Operating properties:
Notes Payable............... $ 131,903 $ 415,814 $ 44,481 $ 159,145
Other ...................... 17,736 16,240 4,813 5,497
Development projects:
Notes Payable............... 173,620 132,938 72,476 72,770
Other....................... 18,282 24,362 7,503 9,721
--------- --------- -------- ---------
Total liabilities......... 341,541 589,354 129,273 247,133
--------- --------- -------- ---------
Venturers' equity/(deficit)
Operating properties ....... (9,333) (187,918) (2,916) (48,330)
Development projects........ 77,792 108,138 47,925 62,203
--------- --------- -------- ---------
68,459 (79,780) 45,009 13,873
--------- --------- -------- ---------
Total liabilities and
venturers' equity........ $ 410,000 $ 509,574 $174,282 $ 261,006
========= ========= ======== =========
</TABLE>
The Company's proportionate share of venturers' equity is an aggregate
amount for all ventures. Because the Company's ownership percentage differs
from venture to venture, varying distribution agreements, and certain ventures
have accumulated equity while others have accumulated deficits, the Company's
percentage of venturers' equity is not reflective of the Company's ownership
percentage of the ventures. The Company does not recognize its share of losses
generated by joint ventures in excess of its investment unless it is legally
committed or intends to fund deficits in the future.
F-15
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has contributed appreciated property to certain of its joint
venture investments. Although the properties are recorded by the venture at
fair value on the date of contribution, the related gains have been deferred in
the Company's financial statements and will be recognized when the properties
are sold by the joint ventures.
<TABLE>
<CAPTION>
Combined Proportionate Share
-------------------------- -----------------------
Year ended December 31,
--------------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Operating properties... $136,199 $148,669 $144,291 $40,502 $38,716 $37,622
Development projects... 117,839 101,765 52,545 53,611 38,472 13,556
-------- -------- -------- ------- ------- -------
254,038 250,434 196,836 94,113 77,188 51,178
-------- -------- -------- ------- ------- -------
Expenses:
Operating properties .. 98,929 128,145 127,746 29,834 29,348 30,186
Development projects .. 91,139 84,785 48,161 43,459 31,845 11,433
-------- -------- -------- ------- ------- -------
190,068 212,930 175,907 73,293 61,193 41,619
-------- -------- -------- ------- ------- -------
Net earnings before
income tax.............. $ 63,970 $ 37,504 $ 20,929 $20,820 $15,995 $ 9,559
======== ======== ======== ======= ======= =======
</TABLE>
F-16
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 6. Property
Book value by property type consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Rental properties:
Industrial buildings............................... $ 739,158 $ 547,903
Office buildings................................... 200,760 205,024
Retail buildings................................... 92,946 95,729
Land and land leases(1)............................ 64,071 65,245
Investment in operating joint ventures............. (2,916) (48,330)
---------- ----------
1,094,019 865,571
---------- ----------
Developable properties:
Industrial......................................... 178,089 167,188
Residential........................................ 116,118 72,413
Urban development ................................. 323,859 294,084
Retail, office and other........................... 15,431 20,532
Investment in development joint ventures........... 47,925 62,203
---------- ----------
681,422 616,420
---------- ----------
Work-in-process:
Industrial......................................... 52,207 103,456
Industrial--capital lease.......................... 13,038 8,284
Residential........................................ 65,154 34,350
---------- ----------
130,399 146,090
---------- ----------
Resources............................................ 4,952 6,445
Properties held for sale............................. 7,471 10,144
Other................................................ 25,754 22,903
---------- ----------
Gross book value..................................... 1,944,017 1,667,573
Accumulated depreciation............................. (294,846) (265,077)
---------- ----------
Net book value....................................... $1,649,171 $1,402,496
========== ==========
</TABLE>
- --------
(1) This category includes $28.8 million of land which the Company intends to
sell.
During 1998 and 1997, the Company recorded a write-down of $9.0 million and
$8.6 million, respectively, to cost of sales relating to non-strategic assets.
There were no such write-downs in 1999.
F-17
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7. Other Financial Statement Captions
Other Assets and Deferred Charges, Net
The Company's other assets and deferred charges consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred financing fees, net................................ $26,314 $26,479
Deferred lease commissions, net............................. 25,757 22,186
Straight-line rent.......................................... 13,433 11,988
Prepaid expenses ........................................... 10,336 6,293
Cash surrender value of life insurance ..................... 4,553 2,392
Other....................................................... 12,628 10,902
------- -------
$93,021 $80,240
======= =======
</TABLE>
Amortization of lease commissions was $3.9 million, $4.0 million, and $3.2
million for the years ended December 31, 1999, 1998, and 1997, respectively.
Amortization of deferred finance fees was $4.6 million, $2.8 million and $3.0
million for the years ended December 31, 1999, 1998, and 1997, respectively.
Accounts Payable and Accrued Expenses
The Company's accounts payable and accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Accrued construction costs.................................. $23,567 $31,161
Salaries, bonuses and deferred compensation................. 23,291 18,422
Property taxes.............................................. 12,401 9,176
Provision for estimated loss on fee development contract.... 6,700 --
Interest.................................................... 7,356 6,509
Income taxes................................................ 2,958 120
Other....................................................... 16,518 16,563
------- -------
$92,791 $81,951
======= =======
</TABLE>
During 1999 the Company recorded an estimated loss of $6.7 million related
to one residential fee development project.
F-18
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Credits and Other Liabilities
The Company's deferred credits and other liabilities consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred profits............................................ $25,167 $12,732
Environmental and legal reserve............................. 10,502 12,849
Sales deposits.............................................. 6,276 91
Security deposits........................................... 5,825 4,963
Rent deposits............................................... 3,708 2,900
Other....................................................... 7,273 7,073
------- -------
$58,751 $40,608
======= =======
</TABLE>
The environmental and legal reserve is more fully described in Note 15.
Deferred profits represent cash received by the Company in connection with
property sales transactions which do not meet the criteria for profit
recognition.
Note 8. Leases
The Company, as lessor, has entered into noncancelable operating leases
expiring at various dates through 2040. Rental revenue under these leases
totaled $168.4 million in 1999, $150.1 million in 1998, and $131.1 million in
1997. Included in this revenue are rentals contingent on lessees' operations
of $2.0 million in 1999, $2.6 million in 1998, and $3.0 million in 1997.
Future minimum rental revenue under existing noncancelable operating leases as
of December 31, 1999, is summarized as follows (in thousands):
<TABLE>
<S> <C>
2000.......................................................... $ 126,407
2001.......................................................... 110,666
2002.......................................................... 94,681
2003.......................................................... 77,662
2004.......................................................... 65,327
Thereafter.................................................... 629,943
----------
$1,104,686
==========
</TABLE>
The book value of the Company's properties under operating leases or held
for rent is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ---------
(In thousands)
<S> <C> <C> <C>
Buildings......................................... $ 797,088 $ 670,540
Land and improvements............................. 332,651 275,472
---------- ---------
1,129,739 946,012
Less accumulated depreciation..................... (275,873) (247,729)
---------- ---------
$ 853,866 $ 698,283
========== =========
</TABLE>
F-19
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company, as lessee, has entered into noncancelable operating leases
expiring at various dates through 2023. Rental expense under these leases
totaled $3.3 million in 1999, $3.0 million in 1998, and $2.5 million in 1997.
Future minimum lease payments as of December 31, 1999 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
2000............................................................. $ 2,725
2001............................................................. 2,033
2002............................................................. 1,393
2003............................................................. 1,185
2004............................................................. 1,068
Thereafter....................................................... 1,748
-------
$10,152
=======
</TABLE>
Note 9. Property Sales and Fee Services--Other
Other (expense) income is summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Land holding costs.............................. $(2,933) $(3,384) $(2,202)
Provision for estimated loss on fee development
contract....................................... (6,700) -- --
Abandoned project costs......................... (2,608) (2,475) (1,582)
Interest income................................. 6,910 1,239 404
Deferred revenue................................ -- 3,571 --
All other, net.................................. (144) 387 566
------- ------- -------
$(5,475) $ (662) $(2,814)
======= ======= =======
</TABLE>
Note 10. Non-Strategic Asset Sales
The Company's sales of non-strategic assets are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Sales................................................ $10,576 $80,041 $31,122
Cost of sales........................................ 3,773 61,112 26,093
------- ------- -------
Gain............................................... $ 6,803 $18,929 $ 5,029
======= ======= =======
</TABLE>
In January 2000, the Company closed the first phase of an agreement to sell
437,000 acres of desert holdings. Approximately 225,000 acres were conveyed
for $25 million resulting in a pre-tax gain of approximately $23.6 million.
F-20
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. Other, net
Other (expense) income is summarized as follows:
<TABLE>
<CAPTION>
Year ended December
31,
-----------------------
1999 1998 1997
------- ----- -------
<S> <C> <C> <C>
Consulting fees.................................... $(4,393) $(732) $ (600)
Cost of S-3 registration(1)........................ -- -- (1,000)
Environmental recovery, net........................ -- -- 2,551
Interest income.................................... 527 552 526
All other, net..................................... (387) (4) (301)
------- ----- -------
$(4,253) $(184) $ 1,176
======= ===== =======
</TABLE>
- --------
(1) In 1997, the Company registered shares issued to the California Public
Employees' Retirement System. As the Company did not receive any proceeds
from this offering, such costs were expensed in the fourth quarter 1997.
Note 12. Employee Benefit and Stock Option Plans
The Company has a profit sharing and savings plan for all employees. Funding
consists of employee contributions along with matching and discretionary
contributions by the Company. Total expense for the Company under this plan
was $1.1 million, $0.9 million, and $0.7 million in 1999, 1998, and 1997,
respectively.
The Company has various plans through which employees may purchase common
stock of the Company.
The Incentive Stock Compensation Plan (Substitute Plan) was adopted to
provide substitute awards to employees whose awards under certain plans of the
former parent company, Santa Fe Pacific Corporation (SFP), were forfeited as a
result of the Company's spin-off from SFP in 1990. The number of shares,
exercise price and expiration dates of these awards were set so the
participant retained the full unrealized potential value of the original SFP
grant. Options became exercisable after March 5, 1992 and expired from 1996
through 1999.
The Company also has four stock option plans under which certain committees
of the Board of Directors may grant options to purchase up to 8,750,000 shares
of common stock (Stock Option Plan, 1995 Stock Option Plan, Amended and
Restated Executive Stock Option Plan and Amended and Restated 1996 Performance
Award Plan). The exercise price of options granted under these plans is
generally the fair market value of the common stock on the date of grant.
Options are exercisable no earlier than six months from the date of grant.
They typically become exercisable in four annual installments commencing on
the first anniversary of the date of grant. There are other vesting schedules
and expiration periods for options granted under the plans, including options
that become exercisable in three annual installments commencing on the first
or third anniversary of the date of grant and some expire after five years. A
number of options granted in 1998 and earlier also require achievement of
stock price benchmarks before each annual installment becomes exercisable.
The Company also has various plans through which non-employee directors may
purchase common stock of the Company.
Under the Amended and Restated Executive Stock Option Plan, each non-
employee director was automatically granted an option, upon initial election
to the Board of Directors, to purchase 5,000 shares of common stock at a price
of 127.63% of the fair market value on the date of grant, increasing 5% on
each anniversary of the grant date commencing on the sixth anniversary. These
options are exercisable in installments on a cumulative basis at a rate of 20%
each year. After May 22, 1996, no further options may be granted to non-
employee directors under this plan.
F-21
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the Amended and Restated 1996 Performance Award Plan, each non-
employee director is automatically granted an option to purchase 5,000 shares
of common stock upon initial election to the Board of Directors and annually
thereafter during his or her term of service. The exercise price of these
options is the fair market value of the common stock on the date of grant.
Options granted under this Plan through 1998 are exercisable based upon stock
price performance benchmarks. Beginning with the options granted in 1999, the
options become exercisable in four annual installments.
In addition, under the Amended and Restated 1996 Performance Award Plan,
each non-employee director may elect to defer receipt of his or her annual
retainer fee, meeting fees, and chairman's retainer until termination of board
service or upon the occurrence of an earlier specified distribution date which
is at least three years after the election of deferral. On the distribution
date, the director will receive a number of shares of common stock calculated
by dividing the deferred compensation by 90% of the fair market value of the
common stock on the date of deferral.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (Statement 123) requires use of option valuation models
that were developed for use in valuing publicly traded stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and income per share is required
by Statement 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method. The weighted-average
fair value of options granted during 1999, 1998 and 1997 was $5.35, $6.26 and
$6.36, respectively. The fair value of options granted was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free
interest rates of 5.52%, 5.15%, and 6.22%; zero percent dividend yields;
volatility factors of the expected market price of the Company's common stock
of 30.0%, 31.4%, and 29.95%, and a weighted-average expected life of the
options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
(In thousands, except
income per share
information)
<S> <C> <C> <C>
Pro forma net income applicable to common
stockholders..................................... $92,333 $32,786 $21,120
======= ======= =======
Pro forma income per share--basic................. $ 0.86 $ 0.31 $ 0.22
======= ======= =======
Pro forma income per share--assuming dilution..... $ 0.85 $ 0.30 $ 0.21
======= ======= =======
</TABLE>
F-22
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information is
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
(In thousands, except exercise price information)
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 7,383 $10.49 6,522 $ 9.16 6,361 $ 8.13
Granted................. 827 $14.50 1,446 $15.98 778 $16.58
Exercised............... (373) $ 7.38 (305) $ 7.69 (473) $ 7.35
Expired................. (25) $16.19 (2) $14.71 -- --
Forfeited............... (479) $14.75 (278) $11.06 (144) $ 8.99
----- ----- -----
Outstanding--end of
year................... 7,333 $10.83 7,383 $10.49 6,522 $ 9.16
===== ===== =====
Exercisable at end of
year................... 4,369 $ 8.56 3,414 $ 8.05 2,129 $ 7.84
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 ranged from
$5.58 to $21.38. The weighted-average remaining contractual life of those
options is 6.6 years.
Note 13. Capital Stock
The Company has authorized the issuance of 150 million shares of $.01 par
value common stock. The Company has reserved 8,750,000 shares of common stock
pursuant to various compensation programs.
Prior to September 1996, the Company had outstanding 3,449,999 shares of
$3.75 Series A Cumulative Convertible Preferred Stock (Series A preferred
stock) and 3,000,000 shares of $3.625 Series B Cumulative Convertible
Exchangeable Preferred Stock (Series B preferred stock). The Series A
preferred stock had an annual dividend of $3.75 per share and a stated value
of $50 per share. The Series A preferred stock was convertible into common
stock at a price of $9.06 per common share and was also redeemable, at the
Company's option, at any time after February 16, 1996, at $52.625 per share.
The Series B preferred stock had an annual dividend of $3.625 per share and a
stated value of $50 per share. The Series B preferred stock was convertible
into common stock at a price of $9.80 per common share and was also
redeemable, at the Company's option, at any time after November 15, 1996, at
$52.5375 per share.
During 1996, the Company commenced a series of calls for redemption of its
outstanding preferred stock. As a result of these calls, during 1996, 453,326
Series A preferred shares were converted into 2,501,783 common shares and
508,113 Series A preferred shares were redeemed at a cost of approximately
$26.7 million. In 1997, 2,480,671 shares of Series A preferred stock and all
of the Series B preferred stock were converted into 29,001,469 shares of
common stock, with 7,889 shares of Series A preferred stock redeemed at a cost
of approximately $440,000. With the completion of these calls in June 1997,
the Company has no remaining outstanding preferred stock.
On October 29, 1999, the Company's Board of Directors authorized a share
repurchase program for up to $50 million of the outstanding common stock. The
timing of purchases, if any, under the program will be at the discretion of
the Company. Share purchases under the program may be made on the open market
or in privately negotiated transactions. The program has been authorized for a
period of one year.
In December 1999, the Company authorized the issuance of 2,000,000 shares of
Series A Junior Participating Preferred Stock in connection with the adoption
of a shareholder rights plan. This series of preferred stock has a quarterly
dividend of the greater of $1.00 or 100 times the dividend paid on our common
stock, and it has a voting right of 100 votes per share. No shares of this
series of preferred stock have been issued. Also in
F-23
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
connection with the shareholder rights plan adopted in December 1999, the
Company's Board of Directors declared a dividend of one right to purchase
1/100th of a share of Series A Junior Participating Preferred Stock for each
share of common stock. This right becomes exercisable on the occurrence of
certain events, and it also may entitle the holder to purchase shares of
common stock at one-half its market price on the occurrence of certain events.
Note 14. 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 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 home building, community development and project management activities. 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.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2). 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. Each segment has a
separate operating management structure.
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.
F-24
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
excluded from EBDDT, the portion of property sales gain 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.
Financial data by reportable segment is as follows:
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999
Rental properties:
Rental revenue.......... $ 159,843 $ 339 $ 12,113 $ -- $ 172,295
Property operating
costs.................. (40,383) -- (6,371) -- (46,754)
Equity in earnings of
operating joint
ventures, net.......... 10,668 -- -- -- 10,668
---------- --------- -------- -------- ----------
130,128 339 5,742 -- 136,209
---------- --------- -------- -------- ----------
Property sales and fee
services:
Sales revenue........... 185,092 161,913 -- -- 347,005
Cost of sales........... (142,455) (121,107) -- -- (263,562)
---------- --------- -------- -------- ----------
Gain on property sales.. 42,637 40,806 -- -- 83,443
Management and
development fees....... 11,464 892 2,612 -- 14,968
Equity in earnings of
development joint
ventures, net.......... (23) 10,175 -- -- 10,152
Selling, general and
administrative
expenses............... (9,280) (17,237) (825) -- (27,342)
Other................... 1,822 (7,133) (164) -- (5,475)
---------- --------- -------- -------- ----------
46,620 27,503 1,623 -- 75,746
---------- --------- -------- -------- ----------
Interest expense........ (45,083) (34) (871) 6,614 (39,374)
Corporate administrative
costs.................. -- -- -- (14,760) (14,760)
Minority interests...... (3,262) 15 -- -- (3,247)
Other................... -- -- -- (4,253) (4,253)
Depreciation recapture.. (4,354) -- -- -- (4,354)
---------- --------- -------- -------- ----------
Pre-tax EBDDT......... $ 124,049 $ 27,823 $ 6,494 $(12,399) 145,967
========== ========= ======== ========
Current taxes........... (17,339)
----------
EBDDT................... 128,628
Depreciation and
amortization........... (39,214)
Deferred taxes.......... (30,351)
Non-strategic asset
sales.................. 6,803
Depreciation recapture.. 4,354
Extraordinary gain, net
of tax................. 26,652
----------
Net Income............ $ 96,872
==========
Investments in equity
method subsidiaries.... $ (2,482) $ 47,491 $ -- $ -- $ 45,009
========== ========= ======== ======== ==========
Segment assets.......... $1,303,900 $ 285,400 $328,900 $(63,300) $1,854,900
========== ========= ======== ======== ==========
Expenditures for segment
assets................. $ 267,300 $ 202,200 $ 27,500 $ 2,300 $ 499,300
========== ========= ======== ======== ==========
</TABLE>
F-25
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1998
Rental properties:
Rental revenue.......... $ 136,816 $ 641 $ 11,862 $ -- $ 149,319
Property operating
costs.................. (35,553) -- (6,224) -- (41,777)
Equity in earnings of
operating joint
ventures, net.......... 9,368 -- -- -- 9,368
---------- -------- -------- -------- ----------
110,631 641 5,638 -- 116,910
---------- -------- -------- -------- ----------
Property sales and fee
services:
Sales revenue........... 101,095 105,346 -- -- 206,441
Cost of sales........... (75,683) (79,220) -- -- (154,903)
---------- -------- -------- -------- ----------
Gain on property sales.. 25,412 26,126 -- -- 51,538
Management and
development fees....... 13,641 1,310 1,841 -- 16,792
Equity in earnings of
development joint
ventures, net.......... 1,296 5,331 -- -- 6,627
Selling, general and
administrative
expenses............... (8,704) (12,875) (653) -- (22,232)
Other................... (2,233) 1,713 (142) -- (662)
---------- -------- -------- -------- ----------
29,412 21,605 1,046 -- 52,063
---------- -------- -------- -------- ----------
Interest expense........ (40,028) 79 (1,927) 4,492 (37,384)
Corporate administrative
costs.................. -- -- -- (15,303) (15,303)
Minority interests...... -- (674) -- -- (674)
Other................... -- -- -- (184) (184)
---------- -------- -------- -------- ----------
Pre-tax EBDDT......... $ 100,015 $ 21,651 $ 4,757 $(10,995) 115,428
========== ======== ======== ========
Current taxes........... (12,034)
----------
EBDDT................... 103,394
Depreciation and
amortization........... (34,054)
Deferred taxes.......... (28,366)
Non-strategic asset
sales.................. 18,929
Extraordinary expense,
net of tax............. (25,165)
----------
Net Income............ $ 34,738
==========
Investments in equity
method subsidiaries.... $ (2,354) $ 60,247 $(44,020) $ -- $ 13,873
========== ======== ======== ======== ==========
Segment assets.......... $1,135,100 $201,100 $248,800 $ 40,500 $1,625,500
========== ======== ======== ======== ==========
Expenditures for segment
assets................. $ 246,500 $144,200 $ 26,200 $ 1,500 $ 418,400
========== ======== ======== ======== ==========
</TABLE>
F-26
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1997
Rental properties:
Rental revenue.......... $117,963 $ -- $ 10,934 $ -- $ 128,897
Property operating
costs.................. (32,086) -- (5,567) -- (37,653)
Equity in earnings of
operating joint
ventures, net.......... 7,436 -- -- -- 7,436
-------- -------- -------- ------- ----------
93,313 -- 5,367 -- 98,680
-------- -------- -------- ------- ----------
Property sales and fee
services:
Sales revenue........... 37,339 82,632 -- -- 119,971
Cost of sales........... (27,519) (66,588) -- -- (94,107)
-------- -------- -------- ------- ----------
Gain on property sales.. 9,820 16,044 -- -- 25,864
Management and
development fees....... 12,540 2,256 1,099 -- 15,895
Equity in earnings of
development joint
ventures, net.......... 908 1,215 -- -- 2,123
Selling, general and
administrative
expenses............... (8,173) (9,392) (1,963) -- (19,528)
Other................... (1,734) (1,039) (41) -- (2,814)
-------- -------- -------- ------- ----------
13,361 9,084 (905) -- 21,540
-------- -------- -------- ------- ----------
Interest expense........ (39,084) -- (2,019) 1,115 (39,988)
Corporate administrative
costs.................. -- -- -- (9,463) (9,463)
Preferred stock
dividends.............. -- -- -- (1,353) (1,353)
Minority interests...... -- (3,145) -- -- (3,145)
Other................... -- 803 -- 373 1,176
-------- -------- -------- ------- ----------
Pre-tax EBDDT......... $ 67,590 $ 6,742 $ 2,443 $(9,328) 67,447
======== ======== ======== =======
Current taxes........... (4,676)
----------
EBDDT................... 62,771
Depreciation and
amortization........... (31,245)
Deferred taxes.......... (12,667)
Non-strategic asset
sales.................. 5,029
Preferred stock
dividends ............. 1,353
----------
Net Income............ $ 25,241
==========
Investments in equity
method subsidiaries.... $ (425) $ 17,981 $(44,020) $ -- $ (26,464)
======== ======== ======== ======= ==========
Segment assets.......... $874,400 $115,200 $213,400 $38,000 $1,241,000
======== ======== ======== ======= ==========
Expenditures for segment
assets................. $122,700 $ 94,100 $ 15,900 $ 2,900 $ 235,600
======== ======== ======== ======= ==========
</TABLE>
F-27
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15. Commitments and Contingencies
As of December 31, 1999, the Company has outstanding standby letters of
credit and surety bonds in the amount of $118.6 million in favor of local
municipalities or financial institutions to guarantee performance on real
property improvements or financial obligations.
The Company, as a partner in certain joint ventures, has made certain
financing guarantees (Note 5).
The Company is a party to a number of legal actions arising in the ordinary
course of business. While the Company cannot predict with certainty the final
outcome of these proceedings, considering current insurance coverages and the
substantial legal defenses available, management believes that none of these
actions, when finally resolved, will have a material adverse effect on the
consolidated financial position, results of operations, or cash flows of the
Company.
Inherent in the operations of the real estate business is the possibility
that environmental 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 liability in
proportion to that of other 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 which could create environmental
liabilities.
At December 31, 1999, management estimates that future costs for remediation
of identified or suspected environmental contamination on operating properties
and properties previously sold approximate $8.5 million, and has provided a
reserve for that amount. It is anticipated that such costs will be incurred
over the next ten years with a substantial portion incurred over the next five
years. Management also estimates that similar costs relating to the Company's
properties to be developed or sold may range from $10.6 million to $24.7
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.
F-28
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized Quarterly Results (Unaudited)
The Company's income and cash flow are determined to a large extent by
property sales. Sales and net income have fluctuated significantly from quarter
to quarter, as evidenced by the following summary of unaudited quarterly
consolidated results of operations. Property sales fluctuate from quarter to
quarter, reflecting general market conditions and the Company's intent to sell
property when it can obtain attractive prices. Cost of sales may also vary
widely because (i) properties have been owned for varying periods of time; (ii)
properties are owned in various geographical locations; and (iii) development
projects have varying infrastructure costs and build-out periods.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1999 1998
-------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
-------- -------- -------- -------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental properties:
Rental revenue ........ $ 41,479 $ 41,291 $ 43,081 $ 46,444 $35,481 $ 37,759 $ 37,138 $ 38,941
Property operating
costs................. (11,508) (11,250) (11,897) (12,099) (9,886) (9,939) (10,852) (11,100)
Property sales and fee
services:
Sales revenue.......... 73,639 70,455 98,123 104,788 18,212 19,726 62,208 106,295
Cost of sales.......... (55,722) (56,495) (77,013) (74,332) (8,646) (12,313) (52,564) (81,380)
Management and
development fees...... 2,836 3,839 3,936 4,357 2,979 4,717 5,245 3,851
Selling, general and
administrative
expenses.............. (5,560) (5,914) (5,564) (10,304) (4,727) (4,880) (3,269) (9,356)
Interest expense........ (9,406) (9,640) (10,404) (9,924) (9,562) (10,447) (9,043) (8,332)
Gain on non-strategic
asset sales............ 986 2,904 2,529 384 (53) 4,423 2,858 11,701
Corporate administrative
costs.................. (3,844) (3,750) (3,727) (3,439) (4,029) (3,830) (4,217) (3,227)
Depreciation and
amortization .......... (9,162) (9,422) (10,039) (10,591) (8,185) (8,586) (8,230) (9,053)
Income before
extraordinary items.... 16,380 17,807 19,126 16,907 7,913 11,743 14,702 25,545
Extraordinary items, net
....................... -- -- -- 26,652 -- -- (3,307) (21,858)
Net income ............. $ 16,380 $ 17,807 $ 19,126 $ 43,559 $ 7,913 $ 11,743 $ 11,395 $ 3,687
======== ======== ======== ======== ======= ======== ======== ========
Net income per common
share-- basic.......... $ 0.15 $ 0.17 $ 0.18 $ 0.41 $ 0.07 $ 0.11 $ 0.11 $ 0.03
======== ======== ======== ======== ======= ======== ======== ========
Net income per common
share-- assuming
dilution............... $ 0.15 $ 0.16 $ 0.18 $ 0.40 $ 0.07 $ 0.11 $ 0.10 $ 0.03
======== ======== ======== ======== ======= ======== ======== ========
EBDDT(/1/).............. $ 30,726 $ 32,033 $ 33,268 $ 32,601 $19,898 $ 21,706 $ 27,003 $ 34,787
======== ======== ======== ======== ======= ======== ======== ========
</TABLE>
- --------
(/1/)Refer to Note 14 for a definition of EBDDT.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
The Board of Directors
of Catellus Development Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 4, 2000, appearing on page F-2 of this Form 10-K of Catellus
Development Corporation, also included an audit of the Financial Statement
Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these
Financial Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
February 4, 2000
S-1
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged to Charged
Beginning Costs and to Other Balance at
of Year Expenses Accounts Deductions End of Year
---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997
Allowance for doubtful
accounts receivable.. $ 2,352 $ 359 $ 6 $ (636)(1) $ 2,081
Reserve for abandoned
projects............. 1,316 1,275 1,226 (1,422)(2) 2,395
Reserve for
environmental and
legal costs ......... 14,139 -- 574 (1,718)(3) 12,995
Year ended December 31,
1998
Allowance for doubtful
accounts receivable.. 2,081 90 -- (904)(1) 1,267
Allowance for doubtful
notes receivable..... -- 1,860 -- -- 1,860
Reserve for abandoned
projects............. 2,395 -- -- (2,088)(2) 307
Reserve for
environmental and
legal costs.......... 12,995 -- 24 (170)(3) 12,849
Year ended December 31,
1999
Allowance for doubtful
accounts receivable.. 1,267 404 -- (417)(1) 1,254
Allowance for doubtful
notes receivable..... 1,860 -- -- -- 1,860
Reserve for abandoned
projects............. 307 -- -- (307)(2) --
Reserve for
environmental and
legal costs.......... 12,849 -- -- (2,347)(3) 10,502
</TABLE>
- --------
Notes:
(1) Balances written off as uncollectible.
(2) Costs of unsuccessful projects written off.
(3) Environmental and legal costs incurred.
S-2
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to Gross Amount at Which Carried
Catellus Acquisition at Close of Period(1)(2)(3)
--------------------- --------------------- --------------------------------
Buildings & Carrying Buildings & Accumulated
Description Encumbrances Land Improvements Improvements Costs Land Improvements Total Depreciation
----------- ------------ -------- ------------ ------------ -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental
properties....... $682,625 $148,980 $ 84,527 $ 776,678 $ 86,750 $148,980 $ 947,955 $1,096,935 $264,213
-------- -------- -------- ---------- -------- -------- ---------- ---------- --------
Developable
properties
Mission Bay,
San Francisco,
CA.............. -- 80,587 3,952 53,179 43,623 80,587 100,754 181,341 3,568
Other properties
less than 5% of
total .......... 156,939 134,428 20,652 332,305 95,170 134,428 448,127 582,555 10,509
-------- -------- -------- ---------- -------- -------- ---------- ---------- --------
Total developable
properties....... 156,939 215,015 24,604 385,484 138,793 215,015 548,881 763,896 14,077
-------- -------- -------- ---------- -------- -------- ---------- ---------- --------
Other............ -- 9,747 1,585 830 261 9,747 2,676 12,423 1,656
-------- -------- -------- ---------- -------- -------- ---------- ---------- --------
Total............ $839,564 $373,742 $110,716 $1,162,992 $225,804 $373,742 $1,499,512 $1,873,254 $279,946
======== ======== ======== ========== ======== ======== ========== ========== ========
<CAPTION>
Life on
Which
Depreciation
in Latest
Date of Income
Completion of Date Statement is
Description Construction Acquired Computed
----------- ------------- -------- ------------
<S> <C> <C> <C>
Rental
properties....... N/A various (4)
Developable
properties
Mission Bay,
San Francisco,
CA.............. N/A various (4)
Other properties
less than 5% of
total .......... N/A various (4)
Total developable
properties.......
Other............ N/A various (4)
Total............
</TABLE>
- -----
(1) The aggregate cost for Federal income tax purpose is approximately
$1,464,254,000.
(2) See Attachment A to Schedule III for reconciliation of beginning of period
total to total at close of period.
(3) Excludes investments in joint ventures and furniture and equipment.
(4) Reference is made to Note 2 to the Consolidated Financial Statements for
information related to depreciation.
S-3
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
ATTACHMENT A TO SCHEDULE III
RECONCILIATION OF COST OF REAL ESTATE AT BEGINNING OF PERIOD
WITH TOTAL AT END OF PERIOD
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1.......................... $1,630,797 $1,364,324 $1,258,121
---------- ---------- ----------
Additions during period:
Acquisitions.............................. 103,113 126,634 30,105
Improvements.............................. 389,356 322,319 201,774
Reclassification from other accounts...... 505 7,855 965
---------- ---------- ----------
Total additions....................... 492,974 456,808 232,844
---------- ---------- ----------
Deductions during period:
Cost of real estate sold.................. 248,578 190,067 122,270
Other
Reclassification to personal property
and other accounts..................... 1,939 268 3,096
Increase reserve for abandoned
projects............................... -- -- 1,275
---------- ---------- ----------
Total deductions...................... 250,517 190,335 126,641
---------- ---------- ----------
Balance at December 31........................ $1,873,254 $1,630,797 $1,364,324
========== ========== ==========
</TABLE>
RECONCILIATION OF REAL ESTATE ACCUMULATED DEPRECIATION
AT BEGINNING OF PERIOD WITH TOTAL AT END OF PERIOD
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1................................. $252,332 $225,087 $202,352
-------- -------- --------
Additions during period:
Charged to expense............................... 32,890 28,029 26,349
-------- -------- --------
Deductions during period:
Cost of real estate sold......................... 4,773 734 3,488
Other............................................ 503 50 126
-------- -------- --------
Total deductions............................... 5,276 784 3,614
-------- -------- --------
Balance at December 31............................... $279,946 $252,332 $225,087
======== ======== ========
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1A Restated Certificate of Incorporation of the Registrant effective
December 4, 1990, is incorporated by reference to the exhibits 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 attached.
3.2 Amended and Restated Bylaws of the Registrant is attached.
4.1 Form of Certificate of Designations of Series A Junior Participating
Preferred Stock is incorporated by reference to the exhibits 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 the exhibits to the exhibits 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 28,
1998, is incorporated by reference to the exhibits 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 the exhibits
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 the exhibits 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 the
exhibits 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 the exhibits 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 the exhibits 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 the exhibits 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 the exhibits to the Form 10-Q for the
quarter ended March 31, 1999.
10.6 Registrant's Deferred Compensation Plan is incorporated by reference
to the exhibits to the Form 10-K for the year ended December 31,
1997.
10.7 Second Amended and Restated Employment Agreement dated as of October
1, 1999, between the Registrant and Nelson C. Rising is attached.
10.8A Employment Agreement dated July 24, 1995, between the Registrant and
Stephen P. Wallace is incorporated by reference to the exhibits to
the Form 10-K for the year ended December 31, 1995.
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.8B Letter Agreement dated November 16, 1996, between the Registrant and
Steve Wallace is incorporated by reference to the exhibits to the
Form 10-K for the year ended December 31, 1996.
10.9 Amended and Restated Employment Agreement dated September 16, 1997,
between the Registrant and Kathleen Smalley is incorporated by
reference to the exhibits to the Form 10-K for the year ended
December 31, 1997.
10.10 Rights Agreement dated as of December 16, 1999, between the Registrant
and American Stock Transfer and Trust Company is incorporated by
reference to the exhibits to the Form 8-K as filed with the
Commission on December 28, 1999.
21 Schedule of Subsidiaries and Joint Ventures of the Registrant is
attached.
23 Consent of Independent Accountants is attached.
24 Power of Attorney to sign this Form 10-K executed by Joseph F.
Alibrandi and a schedule of substantially identical powers of
attorney executed by other non-employee members of Board of Directors
is attached.
27 Financial Data Schedule is attached.
</TABLE>
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.
E-2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CATELLUS DEVELOPMENT CORPORATION
The undersigned corporation, in order to amend its Restated
Certificate of Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
Catellus Development Corporation
SECOND: The corporation hereby amends Article 4 of its Restated
Certificate of Incorporation as follows:
Article 4 of the Restated Certificate of Incorporation, relating to
---------
Capital Stock, is hereby amended by inserting the following as clause
(2) of paragraph (b)(ii) (preceding the "or" which appears between the
present clauses (1) and (2) and with the present clause (2) becoming
clause (3)):
, (2) as required by any national securities
exchange on which the Preferred Stock is or
may be listed for trading
THIRD: The amendment effected herein was authorized by the affirmative
vote of the holders of a majority of the outstanding shares
entitled to vote thereon at a meeting of stockholders pursuant to
Sections 222 and 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury this 18/th/ day
of May, 1993.
________________________________
Vernon B. Schwartz, President
Attest:
____________________________
Maureen Sullivan, Secretary
<PAGE>
AMENDED AND RESTATED BY-LAWS
of
CATELLUS DEVELOPMENT CORPORATION
1. MEETINGS OF STOCKHOLDERS.
------------------------
1.1. Annual Meeting. An annual meeting of the stockholders shall be
--------------
held at such time, date, and place within or without the State of Delaware as
the Board of Directors (the "Board") may fix for the purpose of electing
directors and transacting such other business as may come before the meeting.
1.2. Special Meetings. Special meetings of the stockholders may only
----------------
be called by resolution of the Board or by the chairman of the board or the
president, and not by the stockholders. Only business related to the purposes
set forth in the notice of the meeting may be transacted at a special meeting.
1.3. Place and Time of Meetings. Meetings of the stockholders may be
--------------------------
held in or outside Delaware at the place and time specified by the Board or the
directors or stockholders requesting the meeting.
1.4. Notice of Meetings; Waiver of Notice. Written notice of each
------------------------------------
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required
under Section 1.5 of these by-laws or by law. Each notice of a meeting shall be
given, in writing, personally, via facsimile or by mail, not less than 10 nor
more than 60 days before the meeting and shall state the time and place of the
meeting, and unless it is the annual meeting, shall state at whose direction or
request the meeting is called and the purposes for which it is called. Notice
shall be deemed duly given when (i) delivered personally, (ii) sent via
facsimile (with receipt confirmed) or (iii) mailed to a stockholder at his
address on the corporation's records. The attendance of any stockholder at a
meeting, without protesting at the beginning of the meeting that the meeting is
not lawfully called or convened, shall constitute a waiver of notice by him.
1.5. Quorum. At any meeting of stockholders, the presence in person
------
or by proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum a majority in voting interest of those present or, if no stockholders are
present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is
<PAGE>
present any action may be taken which might have been taken at the meeting as
originally called. No notice of an adjourned meeting need be given if the time
and place are announced at the meeting at which the adjournment is taken except
that, if adjournment is for more than thirty days or if, after the adjournment,
a new record date is fixed for the meeting, notice of the adjourned meeting
shall be given pursuant to Section 1.4.
1.6. Voting; Proxies. Each stockholder of record shall be entitled
---------------
to one vote for every share registered in his name. Corporate action to be
taken by stockholder vote, other than the election of directors, shall be
authorized by a majority of the votes cast at a meeting of stockholders, except
as otherwise provided by the corporation's Restated Certificate of Incorporation
or by law or by Section 1.8 of these by-laws. Directors shall be elected in
the manner provided in Section 2.1 of these by-laws. Voting, including
election of directors, need not be by written ballot unless requested by a
stockholder at the meeting or ordered by the chairman of the meeting. Each
stockholder entitled to vote at any meeting of stockholders or to express
consent or to dissent from corporate action in writing without a meeting may
authorize another person to act for him by proxy. Every proxy must be signed by
the stockholder or his attorney-in-fact. No proxy shall be valid after three
years from its date unless it provides otherwise.
1.7. List of Stockholders. Not less than 10 days prior to the date
--------------------
of any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
the meeting is to be held, if that place shall have been specified in the notice
of the meeting, or (b) if not so specified, at the place where the meeting is to
be held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8. Action by Consent Without a Meeting.
-----------------------------------
(a) Subject to compliance with the procedures set forth in this Section
1.8, any action required or permitted to be taken at any meeting of stockholders
may be taken without a meeting, and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Every written consent shall bear the date
of signature of each stockholder who signs the consent and no written consent
shall be effective to take the corporate action referred to therein unless,
within 60 days of the date the earliest dated written consent was received in
accordance with this Section 1.8, a written consent or consents signed by a
sufficient number of holders to take such action are delivered to the
Corporation in the manner prescribed in this Section 1.8. Every written consent
shall be revocable by the stockholder by written instrument of revocation
delivered to the corporation before the effective date of the
<PAGE>
action taken. Prompt notice of the taking of any such action shall be given to
those stockholders who did not consent in writing.
(b) So long as any of the corporation's securities are listed on the New
York Stock Exchange, action by the holders of any class of security so listed
may not be taken by consent in writing pursuant to this Section 1.8 except with
the prior approval of the New York Stock Exchange, and otherwise in accordance
with this Section 1.8. In order that the corporation may determine the
stockholders entitled to express consent to corporate action in writing without
a meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than 10 days after the date upon which
the resolution fixing the record date is adopted by the Board. Any stockholder
of record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the secretary of the corporation,
request the Board to fix a record date. The Board shall promptly, but in all
events within 10 days after the date, on which such a request is received, adopt
a resolution fixing the record date. If no record date has been fixed by the
Board within 10 days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation. If no record date has been fixed by the Board and prior action by
the Board is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board adopts
the resolution taking such prior action. Every signed written consent shall be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business or to any officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery shall be by hand or by certified or registered mail, return
receipt requested.
(c) Material soliciting the written consent of stockholders shall be sent
to each stockholder who would be entitled to vote on the action to be taken if
such action were being considered at a meeting of stockholders. Such
solicitation materials shall include the form of written consent, which shall
set forth the action to be taken, and shall otherwise comply with the proxy
statement disclosure standards then applicable to the corporation. The
solicitation materials shall be deemed duly given when (i) delivered personally,
(ii) sent via facsimile (with receipt confirmed) or (iii) mailed to a
stockholder at his address on the corporation's records. The solicitation
period, from the date the solicitation materials are first given to stockholders
until and including the date by which stockholders must return such written
consent, shall be not less than 30 days. Notwithstanding anything to the
contrary contained in these bylaws, no action to be taken by written consent may
be taken until the expiration of the solicitation period, whether or not the
requisite consents have been signed prior to such expiration.
(d) In the event of the delivery, in the manner provided by this Section
1.8, to the corporation of the requisite written consent or consents to take
corporate action and/or any related revocation or revocations, the corporation
shall engage nationally recognized independent inspectors of elections for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. For the purpose of permitting the inspectors to
perform such review, no action by written consent without a meeting shall be
effective until such date as the independent inspectors certify to the
corporation that the consents delivered to the corporation in accordance with
this Section 1.8 represent at least the minimum
<PAGE>
number of votes that would be necessary to take the corporation action. Nothing
contained in this paragraph shall in any way be construed to suggest or imply
that the Board or any stockholder shall not be entitled to contest the validity
of any consent or revocation thereof, whether before or after such certification
by the independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
1.9. Stockholder Nominations and Proposals.
-------------------------------------
(a) At an annual meeting of the stockholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement to the notice) given by or at the direction
of the Board in accordance with these Bylaws and presented at the meeting by a
shareholder, officer, or director, (ii) otherwise properly brought before the
meeting by the presiding officer or by or at the direction of a majority of the
Board, or (iii) otherwise properly requested to be brought before the meeting by
a stockholder of the Company in accordance with Section 1.9(b) below.
(b) For business to be properly requested by a stockholder to be
brought before an annual meeting, the stockholder must (i) be a stockholder of
the corporation of record at the time of the giving of notice for the annual
meeting provided for in these bylaws, (ii) be entitled to vote at the annual
meeting, (iii) have given timely notice of the business in writing to the
secretary of the corporation and (iv) present the matter at the meeting unless
it is presented on the stockholder's behalf by or at the direction of the Board.
A stockholder's notice to the secretary of the corporation must set forth as to
each matter the stockholder proposes to bring before the annual meeting: (A) a
description in reasonable detail of the business desired to be brought before
the annual meeting and the reasons for conducting the business at the annual
meeting, (B) the name and address, as they appear on the corporation's books, of
the stockholder proposing the business and of the beneficial owner, if any on
whose behalf the proposal is made, (C) the class and number of shares of the
corporation that are owned beneficially and of record by the stockholder
proposing the business and by the beneficial owner, if any, on whose behalf the
proposal is made, and (D) any material interest of the stockholder proposing the
business and of the beneficial owner, if any, on whose behalf the proposal is
made in the business. Notwithstanding the foregoing provisions, a stockholder
must also comply with all applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder with respect to
the matters set forth in this bylaw. Nothing in this bylaw will be deemed to
expand or diminish any rights of stockholders to request inclusion of proposals
in the Company's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended.
(c) Nominations of persons for election as directors of the
corporation may be made only at an annual meeting of stockholders (i) by or at
the direction of the Board or (ii) by any stockholder who is a stockholder of
record at the time of giving of
<PAGE>
notice provided for in these bylaws, who is entitled to vote for the election of
directors at the meeting, and who complies with the procedures set forth in this
bylaw. All nominations by stockholders must be made pursuant to timely notice in
proper written form to the secretary of the corporation.
(d) To be in proper written form, a stockholder's notice of
nomination must set forth (i) the name and address, as they appear on the
corporation's books, of the stockholder giving the notice and of the beneficial
owner, if any, on whose behalf the nomination is made; (ii) a representation
that the stockholder giving the notice is a holder of record of stock of the
corporation entitled to vote at the annual meeting and intends to appear in
person or by proxy at the annual meeting to nominate the person or persons
specified in the notice; (iii) the class and number of shares of stock of the
corporation owned beneficially and of record by the stockholder giving the
notice and by the beneficial owner, if any, on whose behalf the nomination is
made; (iv) a description of all arrangements or understandings between or among
any of (A) the stockholder giving the notice, (B) the beneficial owner on whose
behalf the notice is given, (C) each nominee, and (D) any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder giving the notice; (v) such other
information regarding each nominee proposed by the stockholder giving the notice
as would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission under the Securities
Exchange Act of 1934 had the nominee been nominated, or intended to be
nominated, by the Board; and (vi) the signed consent of each nominee to serve as
a director of the corporation if so elected. The presiding officer of any
annual meeting will, if the facts warrant, determine that a nomination was not
made in accordance with the procedures prescribed by this bylaw, and if he or
she should so determine, he or she will so declare to the meeting, and the
defective nomination will be disregarded. Notwithstanding the foregoing
provisions, a stockholder must also comply with all applicable requirement of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this bylaw.
(e) To be timely, a stockholder's notice under paragraphs (b) or (d)
above must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 calendar days before the annual
meeting; provided, however, that in the event public announcement of the date of
-----------------
the annual meeting is not made at least 75 calendar days before the date of the
annual meeting, notice by the stockholder to be timely must be received not
later than the close of business on the 10th calendar day following the day on
which public announcement is first made of the date of the annual meeting. For
purposes of this bylaw, "public announcement" means disclosure in a press
release reported by the Dow Jones News Service, Associated Press, or comparable
national news service or in a document publicly filed by the corporation with
the Securities Exchange Commission pursuant to Section 13, 14, or 15(d) of the
Securities Exchange Act of 1934, as amended, or furnished to stockholders.
<PAGE>
2. BOARD OF DIRECTORS.
------------------
2.1. Number, Qualification, Election and Term of Directors. The
-----------------------------------------------------
business of the corporation shall be managed by the Board, which shall consist
of eleven directors. The number of directors may only be changed by resolution
of a majority of the entire Board, and not by the stockholders, but no decrease
may shorten the term of any incumbent director. Directors shall be elected at
each annual meeting of stockholders by a plurality of the votes cast and shall
hold office until the next annual meeting of stockholders and until the election
and qualification of their respective successors, subject to the provisions of
Section 2.9. As used in these bylaws, the term "entire Board" means the total
number of directors which the corporation would have if there were no vacancies
on the Board.
2.2. Quorum and Manner of Acting. A majority of the entire Board
---------------------------
shall constitute a quorum for the transaction of business at any meeting, except
as provided in Section 2.10 of these by-laws. Action of the Board shall be
authorized by the vote of a majority of the directors present at the time of the
vote if there is a quorum, unless otherwise provided by law or these by-laws.
In the absence of a quorum a majority of the directors present may adjourn any
meeting from time to time until a quorum is present.
2.3. Place of Meetings. Meetings of the Board may be held in or
-----------------
outside Delaware.
2.4. Annual and Regular Meetings. Annual meetings of the Board, for
---------------------------
the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday,
the meeting shall be held on the next business day.
2.5. Special Meetings. Special meetings of the Board may be called
----------------
by the chairman of the board, the president or by a majority of the directors.
Only business related to the purposes set forth in the notice of meeting may be
transacted at a special meeting.
2.6. Notice of Meetings; Waiver of Notice. Notice of the time and
------------------------------------
place of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to the director at his or her
residence or usual place of business at least three days before the meeting or
by delivering notice to the director personally (including by telephone) or by
e-mail or facsimile at least one day before the meeting. Notice shall be deemed
duly given when (a) delivered personally, (b) sent by e-mail or facsimile (with
receipt confirmed) or (c) mailed to a director's residence or usual place of
business. Notice of a special meeting shall also state the purpose or purposes
for which
<PAGE>
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which the adjournment is taken.
2.7. Board or Committee Action Without a Meeting. Any action
-------------------------------------------
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting if all of the members of the Board or of the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents by the members of the Board or
the committee shall be filed with the minutes of the proceedings of the Board or
of the committee.
2.8. Participation in Board or Committee Meetings by Conference
----------------------------------------------------------
Telephone. Any or all members of the Board or of any committee of the Board may
- ---------
participate in a meeting of the Board or of the committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other. Participation by such means
shall constitute presence in person at the meeting.
2.9. Resignation and Removal of Directors. Any director may resign
------------------------------------
at any time by delivering his resignation in writing to the president or
secretary of the corporation, to take effect at the time specified in the
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Any or all of the directors may be
removed at any time, either with or without cause, by vote of the stockholders;
provided however, that a vote of a majority of the shares outstanding and
entitled to vote shall be required to effect any such removal without cause.
2.10. Vacancies. Any vacancy in the Board, including one created by
---------
an increase in the number of directors, may be filled for the unexpired term
only by a majority or greater vote of the remaining directors, though less than
a quorum, and not by the stockholders (other than at an annual meeting of
stockholders).
2.11. Compensation. Directors shall receive such compensation as the
------------
Board determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid
for serving the corporation, its affiliates or subsidiaries in other capacities.
2.12. Chairman of the Board. The chairman of the board shall be
---------------------
elected by the Board at the annual meeting of the Board. The chairman of the
board shall preside at all meetings of the Board and of the stockholders and
shall have such powers and duties as the Board assigns to the chairman. The
chairman shall hold office until the next annual meeting of the Board and until
the election of his successor; provided, however, that the chairman may resign
at anytime by delivering his resignation in writing to the president or
secretary of the Corporation, to take effect at the time specified in the
<PAGE>
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. The chairman may be removed by the
Board either with or without cause.
3. COMMITTEES.
----------
3.1. Committees of the Board. The Board, by resolution adopted by a
-----------------------
majority of the entire Board, may designate committees of one or more directors,
which shall serve at the Board's pleasure and have such powers and duties as the
Board determines. No director who is also an officer of the Corporation shall
be eligible to serve as a member of the Audit, Compensation and Benefits or
Corporate Governance Committee of the Board, or any committee performing a
similar function.
3.2. Rules Applicable to Committees. The Board may designate one or
------------------------------
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee may adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
--------
4.1. Number; Security. The executive officers of the corporation
----------------
shall be the president, one or more vice presidents (which may include one or
more executive or senior vice presidents, if the Board so determines), a
secretary and a treasurer. Any two or more offices may be held by the same
person. Unless otherwise required by law, the Board shall not be required to
fill a vacancy in an executive office. The Board may require any officer, agent
or employee to give security for the faithful performance of his duties.
4.2. Election; Term of Office. The executive officers of the
------------------------
corporation shall be elected annually by the Board and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor, subject to the provisions of Section 4.4.
4.3. Subordinate Officers. The Board or the president may appoint
--------------------
subordinate officers (including assistant secretaries and assistant treasurers),
agents or employees, each of whom shall hold office for such period and have
such powers and duties as the Board or the president determines. The Board may
delegate to any other executive officer or to any committee the power to appoint
and define the powers and duties of any subordinate officers, agents or
employees. The president or the chief financial officer may designate in
writing any employee with the position of "Director" to
<PAGE>
execute and deliver, and any other employee to attest, agreements, certificates
and other documents on behalf of the corporation in connection with any
transaction authorized by the Board of Directors, whether by specific resolution
or pursuant to a delegation of authority.
4.4. Resignation and Removal of Officers. Any officer may resign at
-----------------------------------
any time by delivering his resignation in writing to the president or secretary
of the corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any officer appointed by the Board or appointed
by an executive officer or by a committee may be removed by the Board either
with or without cause, and in the case of an officer appointed by an executive
officer or by a committee, by the officer or committee who appointed him or by
the president.
4.5. Vacancies. A vacancy in any office may be filled for the
---------
unexpired term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws
for election or appointment to the office.
4.6. President. The president shall be the chief executive officer
---------
of the corporation and shall, in the absence of the chairman of the board,
preside at all meetings of the Board and of the stockholders. Subject to the
control of the Board, he shall have general supervision over the business of the
corporation and shall have such other powers and duties as presidents of
corporations usually have or as the Board assigns to him.
4.7. Chief Operating Officer. The chief operating officer shall have
-----------------------
such powers and duties as the Board or the president may assign.
4.8. Vice President. Each vice president shall have such powers and
--------------
duties as the Board or the president assigns to him.
4.9. Treasurer. The treasurer shall be in charge of the
---------
corporation's books and accounts. Subject to the control of the Board, he shall
have such other powers and duties as the Board or the president assigns to him.
The Board may designate the treasurer or any other officer as the chief
financial officer of the corporation.
4.10. Secretary. The secretary shall be the secretary of, and keep
---------
the minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and apply it to any instrument requiring it. Subject to
the control of the Board, he shall have such powers and duties as the Board or
the president assigns to him. In the absence of the secretary from any meeting,
the minutes shall be kept by the person appointed for that purpose by the
presiding officer.
4.11. Salaries. The Board may fix the officers' salaries, if any, or
--------
it may authorize the president to fix the salary of any other officer.
<PAGE>
5. SHARES.
------
5.1. Certificates. The corporation's shares shall be represented by
------------
certificates in the form approved by the Board. Each certificate shall be
signed by the chairman of the board, the president or a vice president and by
the secretary or an assistant secretary, or the treasurer (or chief financial
officer) or an assistant treasurer, and shall be sealed with the corporation's
seal or a facsimile of the seal. Any or all of the signatures on the
certificate may be a facsimile.
5.2. Transfers. Shares shall be transferable only on the
---------
corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The Board may require satisfactory surety before issuing a new
certificate to replace a certificate claimed to have been lost or destroyed.
5.3. Determination of Stockholders of Record. The Board may fix, in
---------------------------------------
advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action.
6. INDEMNIFICATION AND INSURANCE.
-----------------------------
6.1 Right to Indemnification. Each person who was or is a
-------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the corporation shall
-----------------
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Article shall be a contract right and shall include
<PAGE>
the right to be paid by the corporation the expenses incurred in defending any
such proceeding in advance of its final disposition; provided, however, that, if
--------- --------
the Delaware General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of proceeding,
shall be made only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The corporation may, by action of
the Board, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
6.2 Right of Claimant to Bring Suit. If a claim under Section 6.1
--------------------------------
of this Article is not paid in full by the corporation within thirty days after
a written claim has been received by the corporation, the claimant may at any
time thereafter bring suit against the corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Delaware law for corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
6.3 Non-Exclusivity of Rights. The right to indemnification and the
--------------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
6.4 Insurance. The corporation may maintain insurance, at its
----------
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
<PAGE>
6.5 Expenses as a Witness. To the extent that any director, officer,
----------------------
employee or agent of the corporation is by reason of such position, or a
position with another entity at the request of the corporation, a witness in any
action, suit or proceeding, he or she shall be indemnified against all costs and
expenses actually and reasonably incurred by him or her or on his or her behalf
in connection therewith.
6.6 Indemnity Agreements. The corporation may enter into agreements
---------------------
with any director, officer, employee or agent of the corporation providing for
indemnification to the full extent permitted by Delaware law.
7. MISCELLANEOUS.
-------------
7.1. Seal. The Board shall adopt a corporate seal, which shall be in
----
the form of a circle and shall bear the corporation's name and the year and
state in which it was incorporated.
7.2. Fiscal Year. The Board may determine the corporation's fiscal
-----------
year. Until changed by the Board, the corporation's fiscal year shall be the
calendar year.
7.3. Voting of Shares in Other Corporations. Shares in other
--------------------------------------
corporations which are held by the corporation may be represented and voted by
the president or a vice president of this corporation or by proxy or proxies
appointed by one of them. The Board may, however, appoint some other person to
vote the shares.
7.4. Amendments. Bylaws may be amended, repealed or adopted by the
----------
stockholders or by a majority of the entire Board; provided however, that a vote
of a majority of the shares outstanding and entitled to vote shall be required
to effect any such amendment by the stockholders.
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
--------------------------------
Second Amended and Restated
Employment Agreement
with
Nelson C. Rising
Effective as of October 1, 1999
<PAGE>
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
------------------------------------------------
THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
made and entered into effective as of October 1, 1999 (the "Effective Date"), by
and between Nelson C. Rising (the "Executive") and Catellus Development
Corporation, a Delaware corporation having its principal executive offices in
San Francisco, California (the "Company");
WITNESSETH THAT:
WHEREAS, the Company and Executive are parties to that certain Amended and
Restated Employment Agreement (the "Prior Employment Agreement") as of November
29, 1995 under which the Executive has served the Company as President and Chief
Executive Officer of the Company; and
WHEREAS, the Company and the Executive desire to amend and restate the
prior Employment Agreement and desire that this Agreement set forth all of the
terms and conditions of the Executive's employment by the Company.
NOW, THEREFORE, in consideration of the mutual agreements set forth below,
the Executive and the Company hereby agree as follows:
1. Performance of Services. The Executive shall be employed by the
-----------------------
Company in accordance with the following:
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<PAGE>
(a) Position. Subject to the terms of this Agreement, the Company
--------
hereby agrees to employ the Executive as the President and Chief Executive
Officer of the Company and each of its principal Subsidiaries during the
Agreement Term (as such terms are defined below), and the Executive hereby
agrees to accept and remain in such employment during the Agreement Term. The
Company shall use its best efforts to cause the Executive to be appointed to the
office of the Chairman of the Board no later than at the first Board meeting
following the next annual meeting of stockholders. If appointed Chairman of the
Board, the Executive shall perform the duties of such office without additional
compensation and shall serve in such capacity at the pleasure of the Board.
During the Agreement Term, while the Executive is employed by the Company, the
Board shall use its best efforts to cause the Executive to continue to be
elected as a member of the Board.
(b) Commitment. At all times during the Agreement Term while the
----------
Executive is employed by the Company, the Executive shall devote his full time,
energies and talents to serving as President and Chief Executive Officer of the
Company (and in such other capacities as he may be requested to serve the
Company from time to time as provided herein). Notwithstanding the foregoing,
the Executive may devote reasonable time to activities other than those required
under this Agreement, including the supervision of his personal investments and
activities involving professional, charitable, educational, religious and
similar types of organizations, speaking engagements, membership on the boards
of directors of other organizations, and similar activities, to the extent that
such other activities do not in the judgment of the Board inhibit the
performance of the Executive's duties under this Agreement, or conflict with the
business of the Company or any Subsidiary; provided, however, that the Executive
shall not serve on the board of directors of any business, or hold any other
position with any business without the consent of the Board. The Company has
consented to the Executive retaining his ownership interest in Maguire/Thomas
Partners Master Investments, a California limited partnership, which holds
interests in various
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<PAGE>
Maguire/Thomas projects, and certain other business positions or interests, all
as described in two separate letters dated July 27, 1994 from Executive to the
Company.
(c) Authority. The Executive shall have the responsibility and
---------
authority for the overall conduct of the business of the Company and the
Subsidiaries, including responsibility for the management and operation of
those entities, and such additional responsibilities, powers and duties,
consistent with the foregoing, as the Board, and the respective boards of
directors of each of the Subsidiaries of which the Executive shall be an
officer, may from time to time prescribe. In the performance of his duties, the
Executive shall only be required to report to the Board as a whole and, with
respect to his positions as an officer of Subsidiaries of the Company, the
separate boards of directors of each such Subsidiary. The Executive shall
perform his duties faithfully and efficiently, subject to the overall policies
and directions of the Board and such other respective boards of directors. The
Company agrees that the duties which may be assigned to the Executive shall be
the usual and customary duties of the President and Chief Executive Officer of
the Company (and of such other offices which he may hold from time to time as
provided herein) and shall not be inconsistent with the provisions of the
charter documents of the Company or applicable law (both as in effect from time
to time). The Executive shall not, without his consent, be assigned tasks that
would be inconsistent with those of the offices held by him at any time. The
Executive shall have the corporate authority that shall reasonably be required
to enable the discharge of duties in any of the offices that he may hold from
time to time. The Executive, as President and Chief Executive Officer of the
Company, shall be the senior executive, "leader" and spokesperson for the
Company, and he will use his best efforts to work in "partnership" with the
Chairman of the Board, to the extent such office is held at any time by a person
other than the Executive.
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<PAGE>
(d) Annual Performance Review. The Board shall review the
-------------------------
performance by the Executive of his responsibilities as President and Chief
Executive Officer of the Company (and his performance in such other capacities
as he may serve the Company from time to time as provided herein) and as an
employee of the Company no less frequently than annually and shall communicate
the Board's assessment of such performance to the Executive by January 31 of
each year.
(e) Relocation. In connection with his employment hereunder, and
----------
subject to the following provisions of this paragraph 1(e), the Executive shall
not be required, without his prior written consent, to relocate the Company
headquarters or to be based anywhere other than within 50 miles from the site of
the current headquarters of the Company.
(f) Disability. The Executive shall not be required to perform
----------
services under this Agreement during any period that he is Disabled (as such
term is defined below).
(g) Agreement Term. For purposes of this Agreement, the term
--------------
"Agreement Term" means the period beginning on the Effective Date and ending on
December 31, 2004.
(h) Subsidiary. For purposes of this Agreement, the term
----------
"Subsidiary" means any corporation, partnership, limited liability company,
joint venture or other entity during any period in which more than a fifty
percent interest in such entity is owned, directly or indirectly, by the Company
(or a successor to the Company), except to the extent that the Company is
unable, whether by contractual restriction or otherwise, to exercise control
over any such entity.
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<PAGE>
2. Compensation. During the Agreement Term, while the Executive is
------------
employed by the Company, the Company shall compensate the Executive for his
services as follows:
(a) Salary. From and after (and with retroactive effect to) the
------
Effective Date, the Executive shall receive, in substantially equal monthly or
more frequent installments, a base salary of a minimum of $650,000 ("Salary")
per annum, which shall be increased by 5% effective January 1, 2001 and by 5%
more on each January 1 thereafter during the term of this Agreement.
(b) Bonus. The Executive shall be entitled to receive annual
bonuses from the Company with an annual maximum bonus opportunity of 200% of the
Executive's then Salary ("Maximum Bonus Potential"). On or before January 31 of
each year, commencing January 31, 2000, the Board shall establish performance
objectives for each year of the Agreement Term for the determination of the
Executive's bonus awards for such year, which objectives may (i) include both
individual and corporate objectives, (ii) include both qualitative and
quantitative standards, (iii) include standards based on the Company's financial
performance (which standards may be dependent upon the relative financial
performance of the Company as compared to a peer group of companies selected
from year to year by the Board), and (iv) be based on the objectives and
standards set forth in the Company's five year strategic plan or be based on
other objectives and standards. For the calendar year ending December 31, 1999,
the Executive shall be entitled to receive an annual bonus from the Company
pursuant to the bonus plan adopted by the Board for such calendar year pursuant
to the Prior Agreement; provided, however, that, instead of multiplying the
bonus percentage times the Executive's salary under the Prior Agreement, the
bonus shall be determined by multiplying the bonus percentage by the sum of (i)
75% of the Executive's salary under the Prior Agreement plus (ii) $162,500
(i.e., 25% of the Executive's initial Salary hereunder).
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<PAGE>
(c) Stock Options.
-------------
(i) New Stock Option Grant. The Company shall (A) seek
----------------------
stockholder approval at the next annual meeting of the Company's stockholders
(the "Next Annual Meeting") to increase the number of shares of Common Stock
issuable pursuant to the Company's existing Amended and Restated Executive Stock
Option Plan (the "Current Plan"), or (B) adopt, and seek stockholder approval at
the Next Annual Meeting of, a new equity incentive or stock option plan
substantially similar in its material terms to the Current Plan (a "New Plan"),
it being understood that the number of additional shares of Common Stock which
will be included in such increase in the number of shares of Stock issuable
under the Current Plan or the number of shares of Common Stock which will be
issuable under the New Plan, as the case may be, will be determined by the Board
at its next meeting in light of the Company's need to provide appropriate equity
incentives to its key employees as well as other appropriate considerations.
(The stockholder proposal to approve such increase in the number of shares
issuable under the Current Plan or to approve the New Plan is referred to herein
as the "Stockholder Proposal.") Promptly following such stockholder meeting, if
the Stockholder Proposal is approved by the stockholders of the Company and the
Executive continues to be employed by the Company as of the date of such
approval (it being understood and agreed that if the Executive is not an
employee of the Company as of such date for any reason, the Company shall have
no obligations under this Section 2(c)(i)), the Company shall grant to the
Executive a stock option under the Plan covering an aggregate of 1,000,000
shares of Common Stock which shall (i) have an exercise price equal to the fair
market value of the underlying Common Stock on the date of grant, (ii) vest in
five equal annual installments on each December 31, commencing December 31,
2000, such that such options will be fully vested as of December 31, 2004, (iii)
terminate to the extent not
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<PAGE>
exercised on or prior to December 31, 2005, (iv) be exercisable for a period of
90 days following the termination of the Executive's employment for any reason
(but only to the extent vested as of such termination date), provided, however,
that to the extent the Executive remains employed by the Company at least
through December 31, 2004, such stock option will be exercisable through their
expiration date (i.e., December 31, 2005) regardless of the date on which the
Executive terminates his employment and (v) otherwise conform to the
requirements of the Current Plan or the New Plan, as the case may be. If the
Stockholder Proposal is not approved by the stockholders of the Company at the
Next Annual Meeting and the Executive continues to be employed with the Company
as of the date of the Next Annual Meeting, the Company and the Executive will
work together in good faith to agree upon one or more other means to provide the
Executive with compensation and incentives substantially equivalent to the
compensation and incentives which would have been provided by such stock option.
(ii) Covenant to Take Actions to Permit Use of Deferred
--------------------------------------------------
Option Gain Method of Exercise. The Company shall take any and all actions
- ------------------------------
which may be necessary to permit the Executive to exercise the stock options
granted to the Executive prior to the Effective Date using the deferred option
gain method, pursuant to which the Executive will have the right to exercise
such stock options by delivering to the Company shares of the Company's Common
Stock owned by the Executive and electing to receive the shares issuable upon
such exercise of such options at a specified date in the future.
(d) Disability. The Executive shall receive from the Company
----------
disability income replacement coverage which will provide for replacement of
income, to the extent available at a commercially reasonable rate of premiums,
during any period in which the Executive is Disabled if the disability arose
during the Agreement Term and prior to the Executive's Date of Termination (as
such term is defined below). During any period while
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<PAGE>
the Executive is Disabled and is otherwise entitled to receive Salary under this
Agreement, any Salary payments to the Executive shall be reduced by the amount
of any benefits paid for the same period of time pursuant to such disability
income replacement coverage.
(e) Vacation. The Executive shall be entitled to four weeks paid
--------
vacation per year. The Executive shall be entitled to take such vacation at
such time or times (without regard to the accrual thereof) as he shall choose,
but for purposes of calculation of amounts payable pursuant to Section 4(a)(ii)
hereof, such vacation entitlement shall accrue solely in accordance with the
terms of the Company's vacation policy for executive officers generally as in
effect from time to time.
(f) Benefits and Perquisites. The Executive shall be entitled to
------------------------
receive benefits to such extent as, and on terms no less favorable to the
Executive than, those benefits provided by the Company from time to time to the
Company's other senior management employees and consistent with the memorandum
(the "Benefits Memorandum") attached hereto as Exhibit A. The Executive shall
also be entitled to receive the perquisites that are set forth in the Benefits
Memorandum.
(g) Expenses. The Executive shall be authorized to incur reasonable
--------
expenses for entertainment, travel, meals, lodging and similar items in the
conduct of the Company's business. The Company shall reimburse the Executive for
all reasonable expenses so incurred through the expiration of the Agreement
Term.
(h) Loan to the Executive. The Company shall, upon written request
---------------------
at any one time during the Agreement Term, make an unsecured, full recourse loan
of up to $1,000,000 to the Executive, which loan shall be evidenced by a
promissory note and other documentation reasonably acceptable to the Company
which shall contain provisions typical
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<PAGE>
for a loan between unrelated parties (e.g., acceleration upon payment default or
bankruptcy of the payor) and shall provide for (i) payment of interest annually
in arrears at the lowest Applicable Federal Rate (for a mid-term loan with
annual payments) in effect at the time such loan is made and (ii) equal annual
principal payments on the first, second and third anniversaries of the Date of
Termination.
(i) Supplemental Executive Retirement Plan. The Company shall take
--------------------------------------
all action necessary to implement a non-qualified, supplemental executive
retirement plan (a "SERP") having the terms and conditions set forth in Exhibit
B attached hereto.
3. Termination. The Executive's employment with the Company during the
-----------
Agreement Term may be terminated by the Company or the Executive without any
breach of this Agreement only under the circumstances described in the following
paragraphs 3(a) through 3(i):
(a) Death. The Executive's employment hereunder will terminate upon
-----
his death.
(b) Disability. The Company may terminate the Executive's employment
----------
with the Company during any period in which the Executive is Disabled. The
Executive shall be considered "Disabled" during any period in which (i) he has a
physical or mental disability which renders him incapable, after reasonable
accommodation, of performing his duties under this Agreement; (ii) such
disability is determined by the Board to be of a long-term nature; and (iii) the
Executive is eligible for income replacement benefits under the Company's long-
term disability plan during such period of disability. In the event of a
dispute as to whether the Executive is Disabled, the Company may refer such
dispute to a licensed practicing physician of the Company's choice for binding
resolution of such dispute,
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<PAGE>
and the Executive agrees to submit to such tests and examinations as such
physician shall deem appropriate.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder at any time for Cause. For purposes of this Agreement, the term
"Cause" shall mean:
(i) the willful and continued failure by the Executive
substantially to perform his material duties with the Company (other than any
such failure resulting from the Executive's being Disabled), after a written
demand for substantial performance of such duties is delivered to the Executive
by the Board, which demand identifies the manner in which the Board believes
that the Executive has not substantially performed his duties and the Executive
has been given a reasonable period of time (but in no event more than 60 days)
to correct his deficient performance; or (ii) the engaging by the Executive in
egregious misconduct involving serious moral turpitude to such an extent that,
in the reasonable judgment of the Board, such misconduct substantially impairs
the Executive's ability effectively to perform his duties with the Company. For
purposes of this Agreement, no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by the Executive
without reasonable belief that the Executive's action or omission was in the
best interest of the Company.
(d) Constructive Discharge. If the Company materially breaches its
----------------------
obligations to the Executive under this Agreement, and:
(i) the Executive provides written notice to the Company of the
occurrence of such breach, which identifies the manner in which the Executive
believes that the breach has occurred, and which is delivered to the Company
within a reasonable period
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<PAGE>
(but in no event more than 90 days) after the Executive has actual knowledge of
the events asserted to give rise to the breach; and
(ii) the Company fails to correct any such breach within a
reasonable period (but in no event more than 60 days) after receipt of the
notice described in paragraph (d)(i); then, for purposes of this Agreement, the
Executive shall be considered to have been dismissed by the Company for reasons
other than Cause. A material breach of this Agreement by the Company shall
include, without limitation:
(1) assigning duties to the Executive that are inconsistent
in any substantial respect with the position, authority, or responsibilities
associated with the position of President and Chief Executive Officer of the
Company or, after a Change of Control of the Company (as defined in paragraph
10(c) hereof) in which the Company is not the surviving entity, the Executive is
not permitted to serve as the chief executive officer and a member of the board
of directors of the successor entity to the Company;
(2) assigning additional duties to the Executive that
substantially impair his ability to function as President and Chief Executive
Officer of the Company;
(3) the failure by the Company to accord to the Executive
the title, authority and responsibilities of President and Chief Executive
Officer of the Company;
(4) the election to the office of Chairman of the Board of
the Company of a person other than the Executive who is a full-time employee of
the Company;
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<PAGE>
(5) the failure of the Executive to be elected a member of
the Board;
(6) a reduction by the Company in the Executive's Salary
from that provided for in Section 2(a) of this Agreement or a reduction in the
Maximum Bonus Potential provided for in Section 2(b) hereof, provided that
nothing herein shall limit or affect the Board's authority and discretion to
determine the actual bonus award earned by the Executive based upon the Board's
evaluation of the Executive's performance during the applicable year;
(7) a requirement for the relocation of the Executive
imposed by the Board in violation of this Agreement;
(8) the intentional failure of the Company, without the
Executive's consent, to pay to the Executive any portion of his Salary, earned
bonus or other current compensation (if any), or to pay to the Executive any
portion of any installment of deferred compensation under any deferred
compensation program of the Company, within 10 business days of the date such
compensation is due or to issue shares of common stock of the Company in
accordance with the terms of stock options granted to the Executive upon valid
exercise thereof;
(9) in the event that there is a successor to the Company,
the failure of the Company to obtain a satisfactory agreement from any such
successor to assume and to perform the obligations of the Company under this
Agreement; or
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<PAGE>
(10) the failure of the Company to fulfill any of its other
material obligations to the Executive under this Agreement.
(e) Termination by Executive. The Executive may terminate his
------------------------
employment thereunder at any time by giving the Company prior written Notice of
Termination (as defined in paragraph 3(h)), which Notice of Termination shall be
effective not less than 30 days after it is given to the Company, provided that
nothing in this Agreement shall require the Executive to specify a reason for
any such termination. However, to the extent that the procedures specified in
paragraph 3(d) are required, the procedures of this paragraph 3(e) may not be
used in lieu of the procedures required under paragraph 3(d).
(f) Mutual Agreement. This Agreement may be terminated at any time
----------------
by the mutual agreement of the parties. Any termination of the Executive's
employment by mutual agreement of the parties shall be memorialized in an
agreement reduced to writing and signed by the Executive and a duly appointed
officer of the Company.
(g) Termination by Company Without Cause. The Company may terminate
------------------------------------
the Executive's employment hereunder at any time for any reason and without
Cause, and the Company shall not be required to specify a reason for such
termination, provided that termination of the Executive's employment by the
Company shall be deemed to have occurred under this paragraph 3(g) only if it is
not for reasons described in paragraph 3(a), 3(b), 3(c), 3(d), 3(e) or 3(f).
(h) Notice of Termination. Any termination of the Executive's
---------------------
employment by the Company or the Executive (other than a termination pursuant to
paragraph 3(a) (relating to termination by death) or paragraph 3(f) (relating to
termination
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<PAGE>
by mutual agreement)) must be communicated by a written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" means a dated notice which (i) indicates the specific termination
provision in this Agreement relied on and (ii) sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination
of the Executive's employment under the provision so indicated.
(i) Date of Termination. For purposes of this Agreement, the "Date
-------------------
of Termination" means the last day the Executive is employed by the Company;
provided, that (i) the Executive's employment is terminated in accordance with
the foregoing provisions of this paragraph 3, and (ii) in the event of
termination for Cause as defined in paragraph 3(c)(ii) hereof such Date of
Termination shall not be less than two business days after the Executive has
received written notice of the intention to so terminate the Executive.
4. Rights Upon Termination. The Executive's right to payment and
-----------------------
benefits under this Agreement upon or for periods after his Date of Termination
shall be determined in accordance with the following provisions of this
paragraph 4:
(a) Basic Payments to Executive Upon Termination For Any Reason
-----------------------------------------------------------
Through the Date of Termination. If the Executive's Date of Termination occurs
- -------------------------------
during the Agreement Term for any reason, the Company shall pay to the
Executive:
(i) The Executive's Salary for the period through the Date of
Termination.
(ii) An amount in respect of unused vacation days as of the Date
of Termination, as determined in accordance with Company policy as in effect
from time to time.
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<PAGE>
(iii) Except in the case of termination pursuant to paragraph
3(c) (relating to termination of the Executive for Cause) or paragraph 3(e)
(relating to the Executive's resignation), a pro rata bonus payment, which shall
be an amount equal to the product of:
(A) the bonus the Executive would have received for the
Company's fiscal year which includes his Date of Termination (determined as
though he remained in the employ of the Company through the end of such year and
that the performance levels required for the award of a target bonus to the
Executive were met);
multiplied by
(B) a fraction, the numerator of which is the number of
days in the fiscal year which includes the Executive's Date of Termination, but
excluding the days following such Date of Termination, and the denominator of
which is 365.
(iv) Any other payments or benefits to be provided to the
Executive by the Company pursuant to any employee benefit plans or arrangements
adopted by the Company, to the extent such amounts are due from the Company.
Except as may otherwise be expressly provided to the contrary in this Agreement,
nothing in this Agreement shall be construed as requiring the Executive to be
treated as employed by the Company for purposes of any employee benefit plan or
arrangement following the Executive's Date of Termination.
(b) No Payment Obligations to the Executive After the Date of
---------------------------------------------------------
Termination in Certain Circumstances. If the Executive's Date of Termination
- ------------------------------------
occurs under
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<PAGE>
circumstances described in paragraph 3(c) (relating to termination of the
Executive for Cause), paragraph 3(e) (relating to the Executive's resignation)
or paragraph 3(f) (relating to termination by mutual agreement), or if the
Executive's employment with the Company terminates after the end of the
Agreement Term, then, except as otherwise expressly provided in this Agreement
or otherwise agreed in writing between the Executive and the Company, the
Company shall have no obligation to make payments under this Agreement for
periods after the Date of Termination.
(c) Payments to the Executive After Date of Termination in the Event
----------------------------------------------------------------
of Death, Disability, Constructive Discharge or Termination Without Cause. If
- --------------------------------------------------------------------------
the Date of Termination occurs under circumstances described in paragraph 3(a)
(relating to the Executive's death), paragraph 3(b) (relating to the Executive's
being Disabled), paragraph 3(d) (relating to Constructive Discharge) or
paragraph 3(g) (relating to termination by the Company without Cause), then, in
addition to the amounts payable in accordance with paragraph 4(a), (i) the
Executive shall receive from the Company for the period continuing through the
end of the Agreement Term, but not to exceed two years, an amount equal to the
product obtained by multiplying the average of the Executive's annual salary and
annual bonus for the prior three full calendar years (regardless of whether all
of such full calendar years occur in whole or in part during the Agreement Term)
times two and (ii) the stock options held by Executive shall become fully
vested. The Company's obligation to make payments under this paragraph 4(c)
shall cease immediately upon the breach by the Executive of the provisions of
paragraph 7 or paragraph 8.
(d) Payments in Lieu of Benefits Under Severance Agreements. Except
-------------------------------------------------------
as may be otherwise specifically provided in an amendment of this paragraph (d)
adopted in accordance with paragraph 13, payments under this paragraph 4 shall
be in lieu of any benefits that may be otherwise payable to or on behalf of the
Executive pursuant to the terms
16
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<PAGE>
of any severance pay arrangement of the Company or any Subsidiary or any other,
similar arrangement of the Company or any Subsidiary providing benefits upon
involuntary termination of employment.
5. Duties on Termination. Subject to the terms and conditions of this
---------------------
Agreement, during the period beginning on the date of delivery of a Notice of
Termination and ending on the Date of Termination, the Executive shall continue
to perform his duties as set forth in this Agreement, and shall also perform
such services for the Company as are necessary and appropriate for a smooth
transition to the Executive's successor, if any. Notwithstanding the foregoing
provisions of this paragraph 5, the Company may suspend the Executive from
performing his duties under this Agreement following (i) the delivery of a
Notice of Termination by the Executive providing for the resignation by the
Executive of his positions with the Company provided for herein, or (ii)
delivery by the Company of a Notice of Termination providing for the Executive's
termination of employment for any reason, or (iii) notification to the Executive
of the intention to terminate the Executive for Cause as defined in paragraph
3(c)(ii); provided, however, that during the period of suspension in any of the
foregoing cases (which shall in each such case end on the Date of Termination),
the Executive shall continue to be treated as employed by the Company for all
other purposes, and his rights to compensation or benefits shall not be reduced
by reason of the suspension.
6. Mitigation and Set-Off. The Executive shall not be required to
----------------------
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise. The Company shall not be entitled to set off
against the amounts payable to the Executive under this Agreement any amounts
owed to the Company by the Executive, any amounts earned by the Executive in
other employment after termination of his employment with the Company, or any
amounts which might have been earned by the Executive in other employment had he
sought such other employment.
17
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<PAGE>
7. Confidential Information. Except as may be required by the lawful
------------------------
order of a court or agency of competent jurisdiction, or except to the extent
that the Executive has express authorization from the Company, the Executive
agrees, both while he is employed by the Company and thereafter, to keep secret
and confidential all non-public information (including, without limitation,
information regarding litigation and pending litigation) concerning the Company
and the Subsidiaries which was acquired by or disclosed to the Executive during
the course of his employment with the Company, or during the course of his
consultation with the Company following his termination of employment
(regardless of whether consultation is pursuant to paragraph 9), and not to
disclose the same, either directly or indirectly, to any other person, firm or
business entity, or to use it in any way. The Executive agrees that, to the
extent that any court or agency seeks to have him disclose Confidential
Information, the Executive shall promptly inform the Company and shall take such
reasonable steps as are available to the Executive to prevent disclosure of such
Confidential Information until the Company has been informed of such requested
disclosure, and the Company has an opportunity to respond to such court or
agency; provided, that the Executive shall not be required hereby to do so if
and to the extent that the Executive would thereby incur personal financial or
other risk. To the extent that the Executive obtains information on behalf of
the Company or any of the Subsidiaries that may be subject to attorney-client
privilege as to the Company's or any Subsidiary's attorneys, the Executive shall
take reasonable steps to maintain the confidentiality of such information and to
preserve such privilege. Nothing in the foregoing provisions of this paragraph
7 shall be construed so as to prevent the Executive from using, in connection
with his employment for himself or an employer other than the Company or any of
the Subsidiaries, knowledge which was acquired by him during the course of his
employment with the Company and the Subsidiaries that is generally known to
persons of his experience in other companies in the same industry. Nothing in
this paragraph 7 or in paragraph 8 shall be construed as limiting the
Executive's
18
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<PAGE>
duty of loyalty to the Company while he is employed by the Company, or any other
duty he may otherwise have to the Company while he is employed by the Company or
thereafter.
8. Non-Disparagement. The Executive agrees that both while he is
-----------------
employed by the Company and after the Date of Termination he shall not make any
false, defamatory or disparaging statements about the Company, the Subsidiaries,
or the officers or directors of the Company or the Subsidiaries. Both while the
Executive is employed by the Company and after his Date of Termination, the
Company agrees, on behalf of itself and the Subsidiaries, that neither the
officers nor the directors of the Company or the Subsidiaries shall make any
false, defamatory or disparaging statements about the Executive.
9. Defense of Claims. The Executive agrees that, for the period
-----------------
beginning on the Effective Date and continuing after his Date of Termination,
the Executive will cooperate with the Company in defense of any claims that may
be made against the Company, and will cooperate with the Company in the
prosecution of any claims that may be made by the Company, to the extent that
such claims may relate to services performed by the Executive for the Company.
The Executive agrees promptly to inform the Company if he becomes aware of any
lawsuits involving such claims that may be filed against the Company. The
Company agrees to reimburse the Executive for all of the Executive's reasonable
out-of-pocket expenses associated with such cooperation, including travel
expenses. The Executive also agrees promptly to inform the Company if he is
asked to assist in any investigation of the Company (or its actions) that may
relate to services performed by the Executive for the Company, regardless of
whether a lawsuit has then been filed against the Company with respect to such
investigation.
19
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<PAGE>
10. Lump Sum Payment to Executive in the Event of a Change of Control. In
-----------------------------------------------------------------
the event that a Change of Control (as defined in paragraph 10(c) hereof) occurs
during the Agreement Term, while the Executive is employed by the Company:
(a) If, within twelve months after the occurrence of the Change of
Control, the Executive's employment by the Company or its successor is
terminated pursuant to paragraph 3(d) (relating to Constructive Discharge) or
paragraph 3(g) (relating to termination by the Company without Cause), then (i)
the Executive shall be entitled to receive from the Company or such successor,
in lieu of, and not in addition to, the amounts otherwise payable to the
Executive pursuant to paragraph 4(c) hereof, a lump sum payment in an amount
which is equal to three times the "base amount" in respect of the Executive as
defined in section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor to that provision and (ii) the stock options held by
Executive at that time shall become fully vested in such event.
(b) If any payments under this Agreement, after taking into account
all other payments to which the Executive is entitled from the Company, or any
affiliate thereof, are more likely than not to result in a loss of a deduction
to the Company by reason of Section 280G of the Code or any successor provision
to that section, such payments shall be reduced to the extent required to avoid
such loss of deduction. The Executive shall be entitled to select the order in
which payments are to be reduced in accordance with the preceding sentence. If
requested by the Company, the Executive shall provide complete compensation and
tax data on a timely basis to the Company and to an accounting or law firm
designated by the Company in order to enable the Company to determine the extent
to which payments from the Company and its affiliates may result in a loss of a
deduction. If the Executive incurs fees or costs in accumulating such
information, the Company shall reimburse the Executive for any reasonable fees
and expenses so incurred. If the Executive
20
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WMK LDM NCR
<PAGE>
and the Company disagree as to whether a payment under this Agreement is more
likely than not to result in the loss of a deduction, the matter shall be
resolved by an opinion of tax counsel chosen by the Company's independent
auditors. The Company shall pay the fees and expenses of such counsel, and shall
make available such information as may be reasonably requested by such counsel
to prepare the opinion. If, by reason of the limitations of this paragraph
10(b), the maximum amount payable to the Executive cannot be determined prior to
the due date for such payment, the Company shall pay on the due date the minimum
amount which it in good faith determines to be payable and shall pay the
remaining amount, with interest at a rate, compounded semi-annually, equal to
120% of the applicable Federal rate determined under section 1274(d) of the
Code, as soon as such remaining amount is determined in accordance with this
paragraph 10(b).
(c) A "Change of Control" of the Company shall be deemed to have
occurred upon the happening of any of the following events:
(1) the acquisition or holding, other than in or as a result of
a transaction approved by the Continuing Directors (as defined in paragraph (b)
below) of the Company, by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (an "Acquiror") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25% or more of the combined voting power of the then outstanding shares of
common stock and other stock of the Company entitled to vote generally in the
election of directors, but excluding for this purpose: (i) any such acquisition
(or holding) by (i) the California Public Employees' Retirement System
("CalPERS"), (ii) an Acquiror if CalPERS is the beneficial owner of shares
having a greater percentage of such combined voting power than the shares held
by such Acquiror, (iii) the Company or any of its Subsidiaries, or any employee
benefit plan (or related trust) of the Company or such Subsidiaries, or (iv) any
corporation with respect to which, following such
21
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WMK LDM NCR
<PAGE>
acquisition, more than 50% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the common stock and other voting securities of the
Company immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition, of the
then outstanding shares of common stock of the Company and of the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors;
(2) individuals who, as of the date hereof, constitute the Board (the
"Continuing Directors") cease for any reason to constitute at least a majority
of the Board, provided that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the persons then
comprising the Continuing Directors shall be considered a Continuing Director,
but excluding, for this purpose, any such individual whose initial election as a
member of the Board is in connection with an actual or threatened "election
contest" relating to the election of the directors of the Company (as such term
is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(3) approval by the Company's stockholders of (i) a reorganization,
merger or consolidation of the Company with respect to which in each case all or
substantially all of the individuals and entities who were the respective
beneficial owners of the common stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly and indirectly, more than 50% of, respectively, the
22
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<PAGE>
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, of the corporation or other entity resulting from such
reorganization, merger or consolidation, or (ii) of a complete liquidation or
dissolution of the Company, or (iii) the sale or other disposition of all or
substantially all of the assets of the Company.
11. Remedies. The Executive acknowledges that the Company would be
--------
irreparably injured by a violation of paragraph 7 or 8, and agrees that the
Company, in addition to any other remedies available to it for such breach or
threatened breach, shall be entitled to a preliminary injunction, temporary
restraining order, or other equivalent relief, restraining the Executive from
any actual or threatened breach of paragraph 7 or paragraph 8. If a bond is
required to be posted in order for the Company to secure an injunction or other
equitable remedy, the parties agree that said bond need not be more than a
nominal sum.
12. Nonalienation. The interests of the Executive under this Agreement
-------------
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.
13. Amendment; Other. This Agreement may be amended or cancelled only by
----------------
mutual agreement of the parties in writing and may be amended without the
consent of any other person. So long as the Executive lives, no person, other
than the parties hereto, shall have any rights under or interest in this
Agreement or the subject matter hereof. All judgments made and actions taken by
the parties to this Agreement shall be made or taken, as the case may be, in
good faith.
23
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<PAGE>
14. Applicable Law. The provisions of this Agreement shall be construed
--------------
in accordance with the laws of the State of California without regard to the
conflict of law provisions of any state.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement shall be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
16. Waiver of Breach. No waiver by any party hereto of a breach of any
----------------
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
shall operate or be construed as a waiver of any subsequent breach by such other
party or any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by
reason of such breach shall not deprive such party of the right to take action
at any time while such breach continues.
17. Successors. This Agreement shall be binding upon, and inure to the
----------
benefit of, the Company and its successors and assigns and upon any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Company's assets and business. The rights of
the Executive to receive payment of amounts of compensation provided for in this
Agreement shall inure to the benefit of, and may be enforced by, the Executive's
estate in the event of his death.
18. Notices. Notices and all other communications provided for in this
-------
Agreement shall be in writing and shall be delivered personally or sent by
registered or
24
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WMK LDM NCR
<PAGE>
certified mail, return receipt requested, postage prepaid, or sent by facsimile
or prepaid overnight courier to the parties at the addresses set forth below (or
at such other addresses as shall be specified by the parties by like notice).
Such notices, demands, claims and other communications shall be deemed given:
(i) in the case of delivery by overnight service with guaranteed next day
delivery, such next day or the day designated for delivery; (ii) in the case of
certified or registered U.S. mail, five days after depositing the U.S. mail; or
(iii) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise; provided,
however, that in no event shall any such communications be deemed to be given
later than the date they are actually received. Communications that are to be
delivered by the U.S. mail or by overnight service are to be delivered to the
addresses set forth below:
to the Company: Catellus Development Corporation
201 Mission Street, 3rd Floor
San Francisco, California 94105
Attention: General Counsel
to the Executive: Nelson C. Rising
435 Georgian Road
La Canada, California 91011
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
19. Arbitration of All Disputes. Any controversy or claim arising out of
---------------------------
or relating to this Agreement (or the breach thereof) shall be settled by
binding and non-appealable arbitration in San Francisco, California by an
arbitrator. The Executive and the
25
<PAGE>
Company shall initially confer and attempt to reach agreement on the individual
to be appointed as such arbitrator. If no agreement is reached, the parties
shall request from the San Francisco office of JAMS/Endispute, Inc. ("JAMS") a
list of five retired judges affiliated with JAMS. The Executive and the Company
shall each alternately strike names from such list until only one name remains
and such person shall thereby be selected as the arbitrator. Except as otherwise
provided for herein, such arbitration shall be conducted in conformity with the
procedures specified in the California Arbitration Act (Cal. C.C.P. (S)(S)1280et
seq.) The arbitrator shall not be authorized to award punitive damages with
respect to any claim, disputes or controversy. The parties intend that this
paragraph 19 shall be valid, binding, enforceable and irrevocable and shall
survive the termination of this Agreement and that any arbitration proceeding
hereunder shall be concluded within 60 days after the initiation thereof. The
Company and the Executive shall jointly so instruct the Arbitrator chosen to
arbitrate any dispute arising hereunder and agree that the criteria used by them
to select such arbitrator shall include his or her availability to act
expeditiously within not more than the 60-day period referred to herein. The
parties hereto agree that the final decisions of the arbitrator so chosen may be
enforced by a court of competent jurisdiction.
20. Costs of Enforcement. In the event any legal action is brought or
--------------------
that arbitration is commenced in connection with any dispute relating to the
rights and obligations of the parties hereunder the prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in such action or proceeding in addition to any other relief to which such party
may be entitled.
21. Survival of Agreement. Except as otherwise expressly provided in this
---------------------
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive's employment with the Company.
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<PAGE>
22. Title and Headings. Titles and headings in this Agreement are for
------------------
ease of reference and convenience only, and shall not be construed to affect the
meaning of any provision of this Agreement.
23. Enforceability. Except as otherwise noted herein, the enforceability
--------------
of this Agreement shall not cease or otherwise be adversely affected by the
termination of the Executive's employment with the Company.
24. Indemnity. To the fullest extent permitted by applicable law and the
---------
bylaws of the Company as from time to time in effect, the Company shall
indemnify the Executive and hold the Executive harmless against and from any
acts or decisions made in good faith while performing services for the Company,
and the Company shall use its best efforts to obtain coverage for the Executive
under any liability insurance policy or policies now in force or hereafter
obtained during the term of this Agreement. To the same extent, the Company
will, upon receipt of such undertaking from the Executive as may be required by
applicable law, pay as incurred all expenses, including reasonable attorneys'
fees and costs of court approved settlements, actually and reasonably incurred
by the Executive in connection with defense of or settlement of any action, suit
or proceeding and in connection with any appeal thereon, which has been brought
against the Executive by reason of the Executive's service as an officer or
agent of the Company or of a Subsidiary.
25. Acknowledgment by Executive. The Executive represents to the Company
---------------------------
that he is knowledgeable and sophisticated as to business matters, including the
subject matter of this Agreement, that he has read this Agreement and that he
understands its terms. The Executive acknowledges that, prior to assenting to
terms the terms of this Agreement, he has been given a reasonable time to review
it, to consult with counsel of his choice, and to negotiate at arm's-length with
the Company as to its contents. The Executive and the Company agree that the
language used in this Agreement is the language chosen by the
27
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<PAGE>
parties to express their mutual intent, and that no rule of strict construction
is to be applied against any party hereto.
25. Effect on Prior Agreement. Upon the execution of this Agreement, the
-------------------------
Prior Agreement shall be deemed terminated and of no further force or effect
(except to the extent contemplated by the final sentence of Section 2(b))
without any consequence to the Executive or the Company of any kind, and the
Prior Agreement shall be deemed superseded and replaced for all purposes by this
Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
all as of the Effective Date.
CATELLUS DEVELOPMENT
CORPORATION
By: /s/ William M. Kahane /s/ Nelson C. Rising
---------------------- ----------------------
William M. Kahane NELSON C. RISING
Chairman of the Board
Date of Execution: November 20,1999 Date of Execution: 11/24/99
---------------- -----------------
By: /s/ Leslie D. Michelson
-------------------------
Leslie D. Michelson
Chairman of the Compensation
Committee of the
Board of Directors
Date of Execution: 11/23/99
-----------------
28
<PAGE>
Exhibit A
Benefits Memorandum
-------------------
. Reimbursement of all business expenses consistent with the Company's
expense reimbursement policies and the Company's practices under the Prior
Agreement and in accordance with such policies as may be approved from time
to time by the Board
. Medical Insurance
. Choice of Prudential (Point of Service) or Prudential HMO
. Dental Insurance
. Phoenix Home Life
. Short-Term/Long-Term Disability Insurance
. Life Insurance
. $15 million of life insurance for Executive (Supplemental also
available for family members)
. Club Memberships - Monthly fees for membership in one golf club and three
luncheon clubs in California
<PAGE>
Exhibit B
Description of the SERP
The SERP shall provide that, upon the termination of the Executive's
employment for any reason (or, if the Executive continues to be employed by the
Company after the expiration of the Agreement Term, upon the expiration of the
Agreement Term), the Company will purchase an annuity structured to provide the
Executive with a retirement benefit as described below; provided, however, that
in no event shall the Company be obligated to pay more for such annuity than the
amount equal to $1,000,000 times the number of full calendar years during which
the Executive is employed by the Company during the Agreement Term. The annuity
to be purchased by the Company will be structured to (i) pay to the Executive,
during his lifetime, an amount equal to a percentage of the average total cash
compensation which he received for the three full calendar years completed prior
to the termination of his employment, which percentage shall be equal to 5%
times the number of full calendar years during which the Executive is employed
by the Company during the Agreement Term and (ii) pay to the Executive's wife
after the Executive's death, if she survives him, for her lifetime, an amount
equal to one-half of the annual amount which would have been payable to the
Executive. (In computing the Executive's cash compensation for any year, his
annual bonus for such year will be included in the compensation for the calendar
year for which such bonus was earned, regardless of when such bonus is actually
paid.)
By way of example, the SERP shall provide that, if the Executive were to
resign effective October 31, 2004 (i.e., after completing four full calendar
years of employment during the Agreement Term) the Company would be obligated to
purchase an annuity providing for annual payments equal to 20% (i.e., 4 x 5%) of
the average of the Executive's cash compensation for the calendar years 2001,
2002 and 2003 (including the respective annual bonuses earned for such years,
regardless of when such bonuses are paid), provided
<PAGE>
that such an annuity can be purchased for $4,000,000 or less. If such an annuity
cannot be purchased for $4,000,000 or less, the annuity would provide for the
maximum lifetime benefits to the Executive and his wife (in the relative amounts
and for the periods described above) which could be purchased for $4,000,000 and
the Executive and his wife would be entitled to receive only such benefits as
are provided pursuant to such annuity. As a further example, if the Executive
were to die in November 2002, the Company would required to purchase an annuity
providing for payments to the Executive's wife for her lifetime equal to 5% of
the average of the Executive's cash compensation for the calendar years 1999,
2000 and 2001 (i.e., the Executive would have been completed two full calendar
years of employment during the Agreement Term, the calendar years 2000 and 2001,
and thus be entitled to an annuity providing for payments equal to 10% of his
average cash compensation for 1999, 2000 and 2001, and the Executive's wife
would be entitled to receive payments equal to 50% of the Executive's payments).
In this example, to the extent such an annuity cannot be purchased for
$2,000,000 or less, an annuity providing for the largest fixed annual payments
to the Executive's wife during her lifetime as can be purchased for $2,000,000
would be purchased and the Executive's wife would be entitled to receive only
such payments.
The selection of the annuity product shall in all cases be made by the
Company, provided that the issuer of such annuity shall be a company with the
highest available credit rating. The foregoing notwithstanding, the Company
shall have the right to (i) purchase annuities prior to the termination of the
Executive's employment from time to time during the Agreement Term to fund all
or any part of the benefits described above, (ii) self-fund such benefits, or
(iii) otherwise provide for the funding of such benefits with other kinds of
insurance products or other financial instruments.
<PAGE>
CATELLUS DEVELOPMENT CORPORATION
SUBSIDIARIES AND JOINT VENTURES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Jurisdiction of Formation
Name of Entity and Type of Entity
- ---------------------------------------------------------------------------------------------------------
<S> <C>
ANT II, LLC (also doing business as ANT Properties II, L.L.C. Delaware limited liability company
and ANT II, L.L.C.)
- ---------------------------------------------------------------------------------------------------------
ANT, LLC (also doing business as ANT Properties, LLC and ANT, Delaware limited liability company
L.L.C.)
- ---------------------------------------------------------------------------------------------------------
Bridgecourt Partners California general partnership
- ---------------------------------------------------------------------------------------------------------
Carlsbad Laurel Tree Apartments, LP California limited partnership
- ---------------------------------------------------------------------------------------------------------
Catellus Commercial Group, LLC (formerly Catellus Tug, LLC) Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Construction Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Elmendorf LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Fiber Optics, LLC (also doing business as Catellus Delaware limited liability company
Fiber Optics, L.L.C.)
- ---------------------------------------------------------------------------------------------------------
Catellus Finance 1, L.L.C. Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Fort Carson, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Management Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Management Corporation of Canada Ltd. Yukon corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Mixed Use Construction, Inc. (formerly Westada Delaware corporation
Corporation)
- ---------------------------------------------------------------------------------------------------------
Catellus Mixed Use Group, LLC (formerly Catellus Mixed Use Land Delaware limited liability company
Development, LLC)
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Communities, Inc. California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Construction, Inc. Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Design Center, Inc. Delaware corporation
- ---------------------------------------------------------------------------------------------------------
CRG Financial Services, LP California limited partnership
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Group, Inc. California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Homes Corp. I California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Marbella, Inc. California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Meadowlark, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Ocean Ridge, Inc. Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Ridgemoor Homes, Inc. California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Ridgemoor, Inc. California corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Tustin II LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Vista Ladera L.L.C. Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Residential Westchester, L.L.C. Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus RVL, Inc. Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Union Station, Inc. Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Catellus Urban Development, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Westminster Company, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Catellus Westminster II, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Cato REIT, Co. (formerly Seabridge Properties, Inc., and Delaware corporation
formerly Chula Vista Bayfront Investment Company)
- ---------------------------------------------------------------------------------------------------------
Collinsville Property Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
CRG-CDI Oxnard LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Cuatro Catellus, LP California limited partnership
- ---------------------------------------------------------------------------------------------------------
Dallas International Ltd. Texas limited partnership
- ---------------------------------------------------------------------------------------------------------
Desert Housing LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Jurisdiction of Formation
Name of Entity and Type of Entity
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Design Center Services California general partnership
- ---------------------------------------------------------------------------------------------------------
Desman Road Partners California partnership
- ---------------------------------------------------------------------------------------------------------
East Baybridge Partners, L.P. California limited partnership
- ---------------------------------------------------------------------------------------------------------
GGF Holdings, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
GGF Property, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Gilman Property Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Golden Empire Investment Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Harbor Drive Company Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Hercules, LLC California limited liability company
- ---------------------------------------------------------------------------------------------------------
International Rivercenter Louisiana limited partnership
- ---------------------------------------------------------------------------------------------------------
New Orleans International Hotel Louisiana limited partnership
- ---------------------------------------------------------------------------------------------------------
New Orleans Rivercenter Louisiana general partnership
- ---------------------------------------------------------------------------------------------------------
Otterr Phins, Inc. Arizona corporation
- ---------------------------------------------------------------------------------------------------------
Pacific Design Center California general partnership
- ---------------------------------------------------------------------------------------------------------
Pacific Market Investment Company California general partnership
- ---------------------------------------------------------------------------------------------------------
Plato REIT, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Ridgemoor Partners, L.P. California limited partnership
- ---------------------------------------------------------------------------------------------------------
Riding/Catellus LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Riding-Catellus Golden Gate LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Santa Fe Bayfront Venture (formerly JMB/Santa Fe Bayfront California general partnership
Venture)
- ---------------------------------------------------------------------------------------------------------
Santa Fe Towers Land Company California corporation
- ---------------------------------------------------------------------------------------------------------
Sequoia Pacific Realco, L.P. California limited partnership
- ---------------------------------------------------------------------------------------------------------
Serrano Partners LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
SF Pacific Properties Inc. (also doing business as SF Pacific Delaware corporation
Utah Properties Inc.)
- ---------------------------------------------------------------------------------------------------------
Talega Associates, LLC Delaware limited liability company
- ---------------------------------------------------------------------------------------------------------
Talega Village LLC California limited liability company
- ---------------------------------------------------------------------------------------------------------
The South Portal Company Delaware corporation
- ---------------------------------------------------------------------------------------------------------
Thunderdome Co. (formerly Catellus Management Corporation of Delaware corporation
Canada (USA))
- ---------------------------------------------------------------------------------------------------------
Torrance Investment Company California partnership
- ---------------------------------------------------------------------------------------------------------
Union Station Partners California limited partnership
- ---------------------------------------------------------------------------------------------------------
Union Station Venture One Corporation Delaware corporation
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-8 of the Catellus
Development Corporation Amended and Restated Executive Stock Option Plan, the
Registration Statement on Form S-8 of the Catellus Development Corporation
Profit Sharing & Savings Plan & Trust, the Registration Statement on Form S-8 of
the Catellus Development Corporation Long Term Incentive Compensation Plan,
Stock Purchase Program, Incentive Stock Compensation Plan and Stock Option Plan,
the Registration Statement on Form S-8 of the Catellus Development Corporation
1995 Stock Option Plan and the Registration Statement on Form S-8 of the
Catellus Development Corporation 1996 Performance Award Plan (Nos. 33-58143, 33-
38827, 33-42124, 333-01215 and 333-04293, respectively) of our report dated
February 4, 2000, appearing on Page F-2 of this Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedules, which appears on page S-1 of this Form 10-K.
/s/PricewaterhouseCoopers
March 28, 2000
San Francisco, CA
<PAGE>
POWER OF ATTORNEY
The undersigned hereby authorizes Nelson C. Rising, Stephen P. Wallace,
Kathleen Smalley, C. William Hosler, and Paul A. Lockie, or any of them, with
full power of substitution, to sign on his or her behalf, in the capacity stated
below, the 1999 Annual Report on Form 10-K (the "10-K") of Catellus Development
Corporation and to file the 10-K, together with exhibits thereto, and any
amendment to the 10-K and other documents in connection therewith, with the
Securities and Exchange Commission.
Dated: March 15, 2000
/s/ Joseph F. Alibrandi
-----------------------
Joseph F. Alibrandi
Director
* * *
SCHEDULE OF POWERS OF ATTORNEY
There is omitted from this Form 10-K nine powers of attorney in a form
substantially identical to the preceding but executed by the following members
of the Board of Directors on the dates indicated:
Stephen F. Bollenbach March 24, 2000
Daryl J. Carter March 24, 2000
Richard D. Farman March 26, 2000
Christine Garvey March 27, 2000
William M. Kahane March 27, 2000
Leslie D. Michelson March 27, 2000
Jacqueline R. Slater March 24, 2000
Thomas M. Steinberg March 24, 2000
Beverly Benedict Thomas March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,410
<SECURITIES> 0
<RECEIVABLES> 60,824
<ALLOWANCES> 3,114
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,649,171
<DEPRECIATION> 294,846
<TOTAL-ASSETS> 1,854,877
<CURRENT-LIABILITIES> 0
<BONDS> 875,564
0
0
<COMMON> 1,072
<OTHER-SE> 589,900
<TOTAL-LIABILITY-AND-EQUITY> 1,854,877
<SALES> 357,581
<TOTAL-REVENUES> 565,664
<CGS> 267,335
<TOTAL-COSTS> 405,133
<OTHER-EXPENSES> 3,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,374
<INCOME-PRETAX> 117,910
<INCOME-TAX> 47,690
<INCOME-CONTINUING> 70,220
<DISCONTINUED> 0
<EXTRAORDINARY> 26,652
<CHANGES> 0
<NET-INCOME> 96,872
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.89
</TABLE>
