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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
For the fiscal year ended December 31, 2000 Commission file number 0-18694
CATELLUS DEVELOPMENT
CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-2953477
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
201 Mission Street
San Francisco, California 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(415) 974-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
------------------- ------------------------------
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
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 $1.725 billion on March 13, 2001.
As of March 13, 2001, there were 103,342,000 issued and outstanding shares
of the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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PART I
Item 1. Business
Catellus Development Corporation (the "Company") is a diversified real
estate operating 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
identifies and develops large-scale residential communities in prime housing
markets, selling finished lots to homebuilders; and (3) Catellus Urban
Development Group, which entitles and develops urban mixed-use sites in San
Francisco, Los Angeles, and San Diego.
We have a large portfolio of developable land in the western United States,
capable of supporting up to an estimated 47.7 million square feet of
commercial development and 10,759 units of residential development.
Approximately 97% of the total commercial development potential and 99% of the
potential residential lots/units are entitled. We also own 28.8 million square
feet of rental buildings. Approximately 55% of our rental properties and 67%
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. All of the residential
units are located in California with approximately 59% in Northern California
and 41% in Southern California.
The chart below summarizes the estimated development potential of our land
holdings as of December 31, 2000:
Development Potential of Land Inventory
Commercial Residential Hotel
------------- --------------- -------
(Square feet) (Lots or units) (Rooms)
Catellus Commercial Group--Commercial
Land................................ 32,412,000 -- --
Catellus Residential Group--
Residential Projects................ -- 6,004 --
Catellus Urban Development Group
Mission Bay (San Francisco,
California)....................... 6,357,000 4,305 500
Union Station (Los Angeles,
California)....................... 6,500,000 -- --
Santa Fe Depot (San Diego,
California)....................... 2,450,000 450 --
---------- ------ ---
Total................................ 47,719,000 10,759 500
========== ====== ===
Entitled............................. 46,392,000 10,649 500
Entitlements/Approvals In Progress... 1,327,000 110 --
The following table shows by net book value the Company's developable
properties.
Catellus Net Book Value
----------------------------
December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Catellus Commercial Group...................... $162,825 $178,523 $169,145
Catellus Residential Group..................... 110,724 163,610 132,660
Catellus Urban Development Group............... 366,136 323,858 294,084
Other.......................................... 6,023 15,431 20,531
-------- -------- --------
Subtotal..................................... 645,708 681,422 616,420
Accumulated depreciation....................... (16,051) (14,077) (13,250)
-------- -------- --------
Total........................................ $629,657 $667,345 $603,170
======== ======== ========
2
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. We are a
traditional corporation rather than a real estate investment trust ("REIT");
thus, we may reinvest our earnings without the minimum dividend requirements.
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) other
land holdings provides management and disposition services primarily for our
desert and non-strategic land portfolio, and (4) corporate services provided
land management services for third parties and certain owned properties.
However, the primary contract for the corporate services division expired in
2000.
Following is a more detailed discussion of the activities of these four
divisions.
Commercial Development
Our commercial development activities include (1) the acquisition and
entitlement of commercial land sites, (2) the construction of buildings, on
land we own, 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 our 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 2000, we commenced construction on 4.9 million square feet of new
commercial development and completed approximately 6.0 million square feet of
construction. Of the completed development, 5.2 million square feet were added
to the rental property portfolio and the remainder was sold. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" of this Form 10-K for more information
regarding this activity.
Sales. The following table summarizes CCG's sales of property in the periods
presented:
Year Ended December 31,
------------------------------
2000 1999 1998
--------- --------- --------
(In thousands)
Sales...................................... $ 151,914 $ 171,039 $ 89,459
Cost of sales.............................. (108,574) (136,280) (67,445)
--------- --------- --------
Gain on property sales(/1/).............. 43,340 34,759 22,014
Equity in earnings of development joint
ventures.................................. 13 (23) 1,296
--------- --------- --------
Total gain on property sales............. $ 43,353 $ 34,736 $ 23,310
========= ========= ========
--------
(/1/) Excludes depreciation recapture of $14,519 in 2000 and $4,354 in 1999.
3
In 2000, we invested approximately $32.5 million in the acquisition of land
capable of supporting approximately 10.2 million square feet of industrial
development. Following is a discussion of the development land inventory and
development projects.
Development Land Inventory
CCG's existing developable land portfolio, once entitled and approved, can
support an estimated 32.4 million square feet of new development
(approximately 31.1 million square feet of which is entitled).
The following table summarizes CCG's commercial development land inventory
activity by location as of and for the year ended December 31, 2000:
Potential Land Potential
Development Leases Development
Space Transfers and and Space
Region/State/City 12/31/99 Adjustments(/1/) Acquisitions Sales Development 12/31/00
----------------- ----------- ---------------- ------------ ------ ----------- -----------
(Square feet in thousands)
Southern California
City of Industry....... 33 -- -- -- -- 33
Rancho Cucamonga....... 1,392 44 -- (19) (625) 792
Ontario................ 2,905 -- -- (127) (504) 2,274
Anaheim................ 78 -- -- -- -- 78
Northridge............. -- 44 -- -- -- 44
Ontario (Kaiser)....... -- -- 6,000 -- -- 6,000
------ ------ ------ ------ ------ ------
Subtotal Southern
California............. 4,408 88 6,000 (146) (1,129) 9,221
------ ------ ------ ------ ------ ------
Northern California
Richmond............... 307 -- -- (218) -- 89
Fremont................ 7,481 20 -- -- (346) 7,155
Union City............. 481 -- -- (146) -- 335
Stockton............... 284 (284) -- -- -- --
Oakland................ 73 -- -- (73) -- --
Manteca................ 1,006 (1,006) -- -- -- --
------ ------ ------ ------ ------ ------
Subtotal Northern
California............. 9,632 (1,270) -- (437) (346) 7,579
------ ------ ------ ------ ------ ------
Total in California..... 14,040 (1,182) 6,000 (583) (1,475) 16,800
------ ------ ------ ------ ------ ------
Illinois
Woodridge.............. 2,452 13 -- (483) (1,048) 934
Glenview............... -- 925 117 -- (117) 925
Romeoville............. 979 (15) -- -- -- 964
Minooka................ -- -- 1,400 -- -- 1,400
Joliet................. -- 431 -- -- -- 431
Texas
Coppell................ 1,725 98 -- -- (105) 1,718
Garland................ 983 -- -- -- -- 983
Grand Prairie.......... -- 9 1,655 -- (850) 814
Houston................ 502 1,467 -- -- -- 1,969
Plano.................. -- 575 -- -- -- 575
Other
Denver, CO............. 1,730 -- -- -- (600) 1,130
Westminster, CO........ 943 9 -- -- (278) 674
Louisville, KY......... -- (54) 1,039 -- (383) 602
Oklahoma City, OK...... 1,235 4,142 -- (4,801) -- 576
Gresham, OR............ 1,110 -- -- (295) -- 815
Portland, OR........... 1,101 1 -- -- -- 1,102
------ ------ ------ ------ ------ ------
Total Outside of
California............. 12,760 7,601 4,211 (5,579) (3,381) 15,612
------ ------ ------ ------ ------ ------
Total................... 26,800 6,419 10,211 (6,162) (4,856) 32,412
====== ====== ====== ====== ====== ======
Entitled................ 18,374 31,085
Entitlements/approvals
in progress............ 8,426 1,327
--------
(/1/) Includes revisions to estimates of potential development or transfers of
property between commercial development and other categories of property.
4
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 1.3 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.
One of CCG's largest development projects, Pacific Commons in Fremont,
California, is also one of the largest planned business parks in Silicon
Valley. The project, which is adjacent to Interstate 880 sixteen miles north
of San Jose, consists of 810 acres, of which approximately 375 acres are
planned for development. In 2000, we finalized entitlements with the
certification of the supplemental Environmental Impact Report for the
8.3 million-square-foot business park reflecting species and wetlands
mitigation measures agreed with various government agencies. Approximately
776,000 square feet of R&D, light industrial, and warehouse properties at
Pacific Commons have been developed, constructed, sold, or leased and an
additional 345,000 square feet are currently under construction.
We also continued to acquire developable land to replenish our supply. In
August 2000, a wholly owned subsidiary acquired a former steel mill site in
Ontario, California, located in the heart of one of the nation's most active
distribution centers near the intersection of Interstates 15 and 10. The
property is served by both Union Pacific and Burlington Northern Santa Fe
railroads and is 6 miles from the Ontario International Airport. Plans for the
development, Kaiser Commerce Center, include a 6 million-square-foot
industrial park and truck plaza. The site was purchased for approximately
$21.4 million from Kaiser Ventures, Inc.
We were selected by the City of Alameda, California as the master developer
for the former 145-acre U.S. Navy Fleet Industrial Supply Center, Alameda
Annex and the adjacent 70-acre portion of the former Alameda Naval Air
Station. See the discussion of the Fleet Industrial Supply Center, Alameda
Annex and Alameda Naval Air Station, East Housing, Alameda, California in the
Catellus Residential Group section on page 14 of this Form 10-K for a more
detailed explanation of this project.
Asset Management
The asset management group manages 28.8 million square feet of industrial,
office, and retail properties, land leases, and interests in several joint
ventures. It also provided asset management services to third parties through
the end of year 2000.
Rental Properties
The following table provides information on CCG's rental properties:
Number of Property Operating
Properties Square Feet Owned Income(/1/)
-------------- -------------------- --------------------------
December 31, December 31, Year Ended December 31,
-------------- -------------------- --------------------------
2000 1999 1998 2000 1999 1998 2000 1999 1998
---- ---- ---- ------ ------ ------ -------- -------- --------
(In thousands, except for number of properties)
Asset Management
Industrial............. 61 62 58 26,251 22,240 17,010 $ 98,831 $ 76,958 $ 62,432
Office................. 13 13 14 1,625 1,622 1,719 20,228 19,043 18,365
Retail................. 10 10 12 880 881 928 10,511 9,512 9,127
Land and other
leases................ -- -- -- -- -- -- 8,797 7,311 6,846
Equity in earnings of
operating joint
ventures.............. -- -- -- -- -- -- 9,809 10,668 9,368
--- --- --- ------ ------ ------ -------- -------- --------
Subtotal............. 84 85 84 28,756 24,743 19,657 148,176 123,492 106,138
Corporate Services
Land and other
leases................ -- -- -- -- -- -- 5,762 6,636 4,493
--- --- --- ------ ------ ------ -------- -------- --------
Total CCG............... 84 85 84 28,756 24,743 19,657 $153,938 $130,128 $110,631
=== === === ====== ====== ====== ======== ======== ========
--------
(/1/Property)operating income is rental revenue less property operating costs.
5
Leasing. The following table summarizes leasing statistics for CCG's rental
properties:
As of December 31,
----------------------
2000 1999 1998
------ ------ ------
(Square feet in
thousands)
Industrial Buildings
Square feet owned................................ 26,251 22,240 17,010
Square feet leased............................... 25,143 20,824 16,200
Percent leased................................... 95.8% 93.6% 95.2%
Office Buildings
Square feet owned................................ 1,625 1,622 1,719
Square feet leased............................... 1,513 1,508 1,624
Percent leased................................... 93.1% 93.0% 94.5%
Retail Buildings
Square feet owned................................ 880 881 928
Square feet leased............................... 856 827 836
Percent leased................................... 97.3% 93.9% 90.1%
Total
Square feet owned................................ 28,756 24,743 19,657
Square feet leased............................... 27,512 23,159 18,660
Percent leased................................... 95.7% 93.6% 94.9%
Lease Expirations. The following table summarizes the lease expirations in
CCG's rental property portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
----- ----- ----- ----- ----- ---- ----- ---- ----- ----------
Percent................. 13.8% 9.5% 13.6% 12.9% 14.6% 2.9% 4.1% 2.1% 4.3% 22.2%
Square feet (in
thousands)............. 3,777 2,614 3,741 3,539 4,023 809 1,128 574 1,188 6,119
Approximately 1,151,000 square feet of month-to-month leases are shown as
expiring in 2001.
Industrial Building Portfolio
At December 31, 2000, our portfolio of industrial rental properties included
61 properties aggregating 26.3 million square feet that were 95.8% leased. At
December 31, 2000, we also had 3.0 million square feet under construction, of
which approximately 2.8 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, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Southern California..... 33 10,657 $ 55,069 $10,675 $44,394
Northern California..... 11 4,893 31,331 6,244 25,087
Illinois................ 2 4,298 17,587 4,726 12,861
Arizona................. 5 1,195 5,517 2,198 3,319
Texas................... 3 2,615 8,296 1,702 6,594
Colorado................ 1 612 3,215 865 2,350
Ohio.................... 1 965 2,846 490 2,356
Oklahoma................ 2 332 666 247 419
Oregon.................. 1 449 926 243 683
Kentucky................ 1 167 724 79 645
Kansas.................. 1 68 151 28 123
--- ------ -------- ------- -------
Total................. 61 26,251 $126,328 $27,497 $98,831
=== ====== ======== ======= =======
6
The following table summarizes the lease expirations in the industrial
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
----- ----- ----- ----- ----- ---- ---- ---- ----- ----------
Percent................. 13.6% 8.7% 13.4% 12.4% 15.7% 2.9% 4.0% 2.0% 4.3% 23.0%
Square feet (in
thousands)............. 3,432 2,190 3,362 3,131 3,936 740 997 496 1,074 5,785
Of the 3,432,000 square feet of leased industrial space that is scheduled to
expire in 2001, 62% is located in Southern California, 7% is in Northern
California, and the balance is spread throughout the other states.
Approximately 967,000 square feet of month-to-month leases are shown as
expiring in 2001.
In 2000, 4.0 million square feet of industrial buildings were added to the
portfolio. Of this total, we constructed and completed 5.1 million square feet
and sold 1.1 million square feet.
Office Building Portfolio
At December 31, 2000, our portfolio of office rental properties included 13
properties aggregating approximately 1.6 million square feet that were 93.1%
leased. At December 31, 2000, we also had 495,000 square feet under
construction, all of which is expected to be added to our portfolio.
The following table summarizes CCG's office buildings by region as of or for
the year ended December 31, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Northern California..... 3 526 $12,656 $ 3,561 $ 9,095
Southern California..... 7 575 9,189 3,821 5,367
Illinois................ 2 467 11,365 6,024 5,342
Oregon.................. 1 57 863 439 424
--- ----- ------- ------- -------
Totals.................. 13 1,625 $34,073 $13,845 $20,228
=== ===== ======= ======= =======
The following table summarizes the lease expirations in CCG's office
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Percent................. 15.6% 24.8% 19.1% 19.4% 2.2% 3.5% 8.7% 2.3% 0.0% 4.4%
Square feet (in
thousands)............. 236 375 290 294 34 53 131 34 0 66
Of the 236,000 square feet of leased office space that is scheduled to
expire in 2001, 83% is located in Southern California, and 17% is in Northern
California. Approximately 28,000 square feet of month-to-month leases are
shown as expiring in 2001.
Retail Building Portfolio
At December 31, 2000, our portfolio of retail rental properties included 10
properties aggregating 880,000 square feet that were 97.3% leased.
7
The following table summarizes CCG's retail portfolio by region as of or for
the year ended December 31, 2000:
Property Property
Number Operating Operating
of Properties Square Feet Revenues Costs Income
------------- ----------- -------- --------- ---------
(In thousands, except for number of properties)
Northern California..... 3 461 $ 8,580 $2,291 $ 6,289
Southern California..... 5 282 4,124 1,174 2,950
Colorado................ 1 100 1,528 614 914
Oregon.................. 1 37 581 223 358
--- --- ------- ------ -------
Totals................ 10 880 $14,813 $4,302 $10,511
=== === ======= ====== =======
The following table summarizes the lease expirations in CCG's retail
portfolio as of December 31, 2000:
2001 2002 2003 2004 2005 2006 2007 2008 2009 Thereafter
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Percent................. 12.7% 5.7% 10.4% 13.3% 6.2% 1.8% 0.0% 5.2% 13.3% 31.4%
Square feet (in
thousands)............. 109 49 89 114 53 16 0 44 114 268
Of the 109,000 square feet of leased retail space that is scheduled to
expire in 2001, 49% is in Colorado, 44% is in Southern California, and 6% is
in Northern California. Approximately 19,000 square feet of month-to-month
leases are shown as expiring in 2001.
Land and Leases Portfolio
The following table summarizes CCG's portfolio of land subject to leases by
region for the year ended December 31, 2000:
Property Property
Operating Operating
Revenues Costs Income
-------- --------- ---------
(In thousands)
Southern California........................... $7,226 $658 $6,568
Northern California........................... 597 123 473
Other states.................................. 1,966 211 1,756
------ ---- ------
Totals...................................... $9,789 $992 $8,797
====== ==== ======
8
Operating Joint Venture Portfolio
During the year the commercial group had direct or indirect equity interests
in three joint ventures that owned rental properties. These joint ventures
provided cash distributions to us of $23.0 million for the year ended December
31, 2000, and earnings of $9.8 million for the same period. As of December 31,
2000, we owned joint venture interests in the following operating properties,
except for the apartment joint venture whose assets were sold (as noted).
(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.)
Equity in Earnings
----------------------
Year Ended December
31,
No. of Ownership ----------------------
Ventures Size Interest 2000 1999 1998
-------- --------------- --------- ------ ------- ------
(In thousands)
Hotel(/1/).............. 2 2,000 rooms 25-50% $9,835 $10,567 $9,072
Office.................. 1 205,000 sq. ft. 67% (26) 67 137
Apartments(/2/)......... 1 387 units 50% -- 34 159
--- ------ ------- ------
Total................. 4 $9,809 $10,668 $9,368
=== ====== ======= ======
--------
(/1/)Excludes a hotel parking lot joint venture, which does not own rental
properties.
(/2/)Sold in February 1999.
Other Land Holdings
As of December 31, 2000, we owned approximately 363,000 acres of land in the
Southern California desert. The ownership of these desert properties is the
result of historical land grants to our railroad predecessors. 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 made
an assessment of the portfolio to explore the potential for agricultural,
mineral, water, telecommunications, 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.
We signed an agreement in February 1999 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 to the Federal government
for a total cash consideration of up to $54.6 million. The total purchase
price for the land was reduced to $45.1 million as a result of negotiations
over the amount of Federal government funding. This transaction was completed
in two phases during 2000: in January 2000 we conveyed approximately
225,000 acres to the Federal government for $25 million, and in July 2000 we
conveyed the remaining acreage and received the final $20.1 million.
Currently, TWC has an option to purchase an additional 277,000 acres of our
desert land for approximately $30.9 million. The option expires January 2002.
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 the aggregate total of non-strategic asset sales.
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.
The number of desert properties in our portfolio declined substantially
since 1995 as a result of sales activity.
9
Sales. The following table summarizes the sales of non-strategic properties
for the periods presented.
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Sales.............................................. $50,759 $10,275 $43,349
Cost of Sales...................................... 4,480 3,581 41,010
------- ------- -------
Gain............................................. $46,279 $ 6,694 $ 2,339
======= ======= =======
Corporate Services
We have provided acquisition, disposition, leasing, permit management, and
inventory services for Burlington Northern Santa Fe ("BNSF") over the past two
years. During that time, a major source of our management fee income was from
this contract to manage and sell BNSF's non-railroad real estate assets. As
anticipated, most of the railroad's inventory of managed assets has been sold
in accordance with the customer's goals. We decided not to pursue renewal of
this contract when it expired on December 31, 2000. Consequently, we expect
management fees and the related selling, general and administrative expenses
to decline in 2001.
In 1998, we invested a total of $50.5 million ($40.1 million was seller-
financed) in the acquisition of land and other interests in real property with
the intention to sell the majority of these assets. We manage the disposition
and leasing for these owned leases. Property operating income from these
leases was $5.8 million in 2000, $6.6 million in 1999, and $4.5 million in
1998.
The following table summarizes the management and development fees earned
for the periods presented.
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Management and development fees................... $11,784 $10,523 $12,845
The following table summarizes the sales of properties for the periods
presented.
Year Ended December
31,
----------------------
2000 1999 1998
------ ------- -------
(In thousands)
Sales............................................... $6,360 $14,053 $11,636
Cost of Sales....................................... 4,770 10,529 8,238
------ ------- -------
Gain.............................................. $1,590 $ 3,524 $ 3,398
====== ======= =======
10
Catellus Residential Group
The Catellus Residential Group ("CRG") is primarily involved in community
development, which identifies and develops (through entitlement,
infrastructure, and subdivision) large-scale residential communities in prime
housing markets, selling finished lots to homebuilders. Property is either
acquired directly or through a joint venture with a third party.
CRG also owns merchant housing assets--lots available for the construction
of a variety of for-sale residential homes. A consolidation in the
homebuilding industry resulted in a focus by national homebuilders on high-
volume, lower-margin activities that we determined were not part of our
corporate strategy. As a result, and as a part of our plan to restructure the
residential group, we sold a majority of our merchant housing assets in July
2000 to a newly formed limited liability company managed by Brookfield Homes
of California for $139 million in cash and a retained interest in the new
company valued at $22.5 million. In a separate transaction, Standard Pacific
Corporation paid $23 million for an 82-lot site in San Francisco, California,
partially owned by CRG, generating a pre-tax gain of approximately $6 million
to CRG.
In previous years, we were also active in public and private ventures, which
developed and marketed affordable rental and for-sale housing, as well as
institutional housing such as faculty and student housing for universities. We
determined that the activities explored by the public and private ventures
group did not warrant the continuation of a separate group, and we changed our
organization accordingly. Responsibility for the ongoing projects in this area
was retained by CRG.
Consistent with the transition plan that was adopted when the majority of
CRG's assets were acquired from the The Akins Companies, Bruce Akins and Carl
Akins, who were president and chairman of Catellus Residential Group,
respectively, left the company during 2000 to pursue other opportunities.
11
The following table summarizes CRG's residential development land inventory
activity in 2000:
Total Lots/ Sold to Ownership
Homes Controlled/ Transfers & Home Lot BHC/ or Controlled
1/1/00 Acquired Adjustments Closings Closings Stan. Pac. 12/31/00 Interest
----------- ----------- ----------- -------- -------- ---------- -------- -------------
Community Development
Northern California
Tracy(/1/)............. 2,400 -- (2,400) -- -- -- -- 100%
Hercules............... 813 -- 5 -- (117) -- 701 100%
Serrano--Sacramento.... 3,090 -- 19 -- (874) -- 2,235 67%
7th Street, Union
City.................. 18 -- -- -- (18) -- -- 100%
BHC Residential........ -- 830 -- (306) -- -- 524 35%
Southern California
Talega--San Clemente... 3,330 -- (474) -- (867) -- 1,989 30%
Chino Hills............ 60 -- (60) -- -- -- -- 100%
Summerlane--Huntington
Beach................. 92 -- -- -- (92) -- -- 100%
Texas
Oakcliff............... 285 -- -- -- (285) -- -- 100%
------ ----- ------ ---- ------ ---- ----- ---
Subtotal Community
Development........... 10,088 830 (2,910) (306) (2,253) -- 5,449
------ ----- ------ ---- ------ ---- -----
Merchant Housing
Northern California
Rosewalk--Union City... 10 -- -- -- -- (10) -- 100%
Brittany Hills--
Martinez.............. 57 -- -- (10) (10) (37) -- 100%
Shriners--San
Francisco............. 82 -- -- -- -- (82) -- 80%
Reimal Site--Gilroy.... 110 -- -- -- -- -- 110 100%
7th Street--Union
City.................. 41 -- (2) -- -- (39) -- 100%
Southern California
Cypress I--Irvine...... 10 -- -- -- -- (10) -- 100%
Cypress II--Irvine..... 72 -- -- -- -- (72) -- 100%
Cantamar--Carlsbad..... 39 -- -- (16) -- (23) -- 100%
Westbluffs--Playa del
Rey(/2/).............. 112 -- 2 -- -- -- 114 100%
Windsong--Buena Park... 30 -- -- (30) -- -- -- 100%
Claremore--Huntington
Beach................. 51 -- -- -- -- (51) -- 100%
Ashbury--Huntington
Beach................. 87 -- -- -- -- (87) -- 100%
Citrus--Tesoro--La
Quinta................ 47 -- -- (15) -- (32) -- 90%
Citrus--Mandarina--La
Quinta................ 44 -- -- (1) (43) -- -- 90%
Terra Linda--San
Clemente.............. 68 -- -- (24) -- (44) -- 100%
San Rafael--San
Clemente.............. 80 -- -- (36) -- (44) -- 100%
Aliso Viejo--Aliso
Viejo................. 74 -- -- -- -- (74) -- 100%
Talega Village--San
Clemente.............. -- 295 (19) -- -- -- 276 50%
Los Olivos--San
Clemente.............. -- 85 -- -- -- (85) -- 100%
Miraflores--La Quinta.. 86 -- (59) (24) -- -- 3 100%
Oxnard................. 190 -- -- (138) -- -- 52 50%
------ ----- ------ ---- ------ ---- ----- ---
Subtotal Merchant
Housing............... 1,290 380 (78) (294) (53) (690) 555
------ ----- ------ ---- ------ ---- -----
Total Residential
Properties........... 11,378 1,210 (2,988) (600) (2,306) (690) 6,004
====== ===== ====== ==== ====== ==== =====
Entitled................ 6,624 5,894
Entitlements/approvals
in process............. 4,754 110
--------
(/1/Land)was transferred to CCG.
(/2/We)have entitlements for this project; however, individuals are challenging
us under the California Environmental Quality Act "CEQA" and the Coastal
Commission.
12
The following is a brief summary of three of our most significant
residential projects followed by a potential mixed-use development project.
Talega--San Clemente, California. In 1997, we acquired a one-third interest,
since reduced to 30%, in a joint venture project, a 3,470-acre, 4,000-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 2000, 867 lots were sold at the site. A total of
1,634 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 2000, 874 lots were sold at the site. A total of 1,714
lots have been sold in the project since the acquisition of our interest.
Victoria By-The-Bay--Hercules, California. In 1997, Hercules, LLC, now a
wholly owned subsidiary, acquired the Pacific Refinery at Hercules,
California. Catellus RVL, Inc., formerly known as RVL, Inc. entered into an
agreement to provide entitlement services to Hercules, LLC, in return for an
option to buy the property after defined remediation work was completed. The
development has received approval for up to 880 residential units, a school,
commercial space, and public parks. In 2000, a total of 117 lots were sold at
this project to a home builder.
Among the factors that could affect the success of this project are (1) our
ability to manage the business successfully; (2) the accurate characterization
of environmental problems and receipt of all applicable environmental
clearances; and (3) the amount of the payment by the insurance company to
cover remediation budget overruns.
Fleet Industrial Supply Center, Alameda Annex and Alameda Naval Air Station,
East Housing, Alameda, California. In 1998, we were selected by the City of
Alameda, California as the master developer for the former 145-acre U.S. Navy
Fleet Industrial Supply Center, Alameda Annex ("FISC") and the adjacent 70-
acre portion ("East Housing") of the former Alameda Naval Air Station. In June
of 2000, we were granted entitlements to develop up to 500 single-family homes
and up to 1.3 million square feet of office and research and development space
on the site. The City of Alameda Housing Authority plans to build an
additional 39 multi-family units on 2.5 acres. Fifteen percent of all
residential units built will be affordable housing units.
The residential development and the business park are each divided into six
acquisition phases. Under our agreement with the City of Alameda, we must
purchase a minimum of 75 single-family lots annually and a minimum of 14.4
acres of business park every two years. Under the agreement, the City of
Alameda must deliver the land with environmental remediation and demolition of
existing structures completed, and the City of Alameda must build basic
infrastructure.
Construction of the housing and the business park requires approval of a
development plan, and design review, and may require further subdivision of
the property. We hope to undertake construction of the homes, buildings, and
associated site improvements by the end of 2001 or the first quarter 2002,
subject to satisfaction of these conditions.
13
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:
Year Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Sales........................................... $292,822 $161,913 $105,346
Cost of Sales................................... 238,930 121,107 79,220
-------- -------- --------
Gain.......................................... $ 53,892 $ 40,806 $ 26,126
======== ======== ========
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.
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Sales....................................... $316,523 $115,225 $ 89,961
Cost of Sales............................... 260,975 86,918 73,120
-------- -------- --------
Gain...................................... 55,548 28,307 16,841
Venture partners' interest.................. (27,781) (18,132) (11,510)
-------- -------- --------
Equity in earnings of unconsolidated joint
ventures................................. $ 27,767 $ 10,175 $ 5,331
======== ======== ========
14
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, co-
location, retail, entertainment, and hotel purposes. The chart below
summarizes the estimated development potential of CUG's current land holdings
as of December 31, 2000:
CUG's Potential Development Land Inventory
Commercial Residential Hotel
------------- -------------- ------
(Square Feet) (Lots or units) (Rooms)
Mission Bay (San Francisco,
California)...................... 6,357,000 4,305 500
Union Station (Los Angeles,
California)...................... 6,500,000 -- --
Santa Fe Depot (San Diego,
California)...................... 2,450,000 450 --
---------- ----- ---
Total............................. 15,307,000 4,755 500
========== ===== ===
Entitled.......................... 15,307,000 4,755 500
Following is a summary of these three 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
following chart shows our proposed development plan for Mission Bay:
Mission Bay
-----------------------------
Owned or
Company Leased by Project
Owned Others Total
--------- --------- ---------
Residential Units:
Market Rate.................................. 4,071 229 4,300
Affordable................................... 234 1,466 1,700
--------- --------- ---------
Total Residential............................ 4,305 1,695 6,000
========= ========= =========
Commercial (gross square feet):
R&D, Biotech, and Office..................... 5,557,000 -- 5,557,000
Retail and Entertainment..................... 800,000 12,000 812,000
UCSF Campus.................................. -- 2,650,000 2,650,000
--------- --------- ---------
Total Commercial............................. 6,357,000 2,662,000 9,019,000
========= ========= =========
Hotel:
Rooms........................................ 500 -- 500
========= ========= =========
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, the Port of San Francisco, the California State Lands Commission, UCSF,
and Catellus to result in the ownership described above in a developable
configuration. We 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 allowance of
office space permitted to be developed in the City at any given time.
15
The following highlights activity in Mission Bay. Because these processes
require participation of a number of parties and agencies, schedules are
subject to change.
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 baseball team).
Mission Bay South, the 238-acre portion of Mission Bay south of Mission
Creek, will be developed around UCSF's new 2.65 million-square-foot
biotech/research expansion campus. In accordance with agreements among us, the
Regents of the University of California, and the City, UCSF will locate the
UCSF expansion campus on a portion of Mission Bay South. We have donated
approximately 18 acres and agreed to donate approximately 11 acres in the
future for the campus, and the City contributed an additional 13.3 acres. The
UCSF campus will be developed by developers selected by UCSF (which may
include Catellus as one of the developers). 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.
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 and 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 flexible
mixed-use development including office, hotel, residential, urban
entertainment, retail, and sports facilities. 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. Amtrak, a commuter rail line (Coaster), and San Diego's
expanding trolley system serve the site daily. 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 Canadian developer, a 1.5-acre site for development of approximately 230
condominium units.
In 2000, we entered into a second sale agreement with Bosa Development for
another 1.5-acre site for development of approximately 230 condominium units
with closing scheduled for the third quarter 2001. Also, we completed
schematic plans for two office towers totaling 750,000 square feet and filed
an application with the City Center Development Committee.
Land Development Portfolio
As of December 31, 2000, CUG's interim-use land development portfolio
included 3 properties aggregating approximately 913,000 square feet. At
December 31, 2000, the portfolio was 88.4% leased. This portfolio represents
interim rental uses of properties intended for mixed-use development. We
expect 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.
16
The following table summarizes CUG's interim-use land development portfolio
by region as of or for the year ended December 31, 2000:
Property Property
Number of Square Operating Operating
Properties Feet Revenues Costs Income
---------- ------ -------- --------- ---------
(In thousands, except for number of buildings)
Northern California......... 1 780 $ 9,088 $3,488 $5,600
Southern California......... 2 133 5,525 3,874 1,651
--- --- ------- ------ ------
Totals.................... 3 913 $14,613 $7,362 $7,251
=== === ======= ====== ======
Other Items
Brownfields Development
Since 1997, we have formed wholly owned subsidiaries to acquire, or to make
investments in companies formed for the purpose of acquiring properties
requiring environmental remediation, performing the necessary remediation, and
selling, leasing, or operating the remediated properties. Our subsidiaries
expect 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. Among the factors that could affect the success of these projects 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.
There are two projects that we are currently proceeding with: Victoria-By-
The-Bay in Hercules, California, discussed in further detail in the
Residential Group section of this report and the Kaiser Commerce Center
discussed in further detail in the Commercial Group section of this report.
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, 2000, we had 358 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 and corporate levels.
Working with organized labor is a critical component of many of our
projects. With the high volume of construction activity in many of our
markets, labor shortages and costs could significantly influence the success
of projects. In addition, organized labor often plays a key role in community
organizations and discretionary land use decisions concerning entitlements.
17
Stock Repurchase Program
In October 1999, our Board of Directors authorized a one-year stock
repurchase program for up to $50 million of our outstanding common stock (the
"1999 Program"). Under the 1999 Program, we repurchased 1,997,300 shares at a
total cost of $28.7 million. The 1999 Program expired in October 2000. In
December 2000, our Board of Directors authorized a new one-year share
repurchase program (the "2000 Program") for up to $50 million, and in March
2001, our Board of Directors authorized an additional share repurchase program
for up to $50 million. See Note 12 of the accompanying Consolidated Financial
Statements for a discussion of share repurchase programs.
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 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, 2000.
18
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
Name Age Position
---- --- --------
Nelson C. Rising........ 59 Chairman of the Board and Chief Executive Officer
Stephen P. Wallace...... 46 Executive Vice President and Chief Operating Officer
C. William Hosler....... 37 Senior Vice President and Chief Financial Officer
Kathleen Smalley........ 43 Senior Vice President, Corporate Operations, and General Counsel
Paul A. Lockie.......... 42 Vice President and Controller
Jaime L. Gertmenian..... 34 Vice President, Human Resources and Administration
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, 1998-
1999, and 2000-2001, 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.
19
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.
MS. GERTMENIAN has been with the Company since October 1995, and currently
serves as Vice President of Human Resources and Administration.
20
Part II
Item 5. Market for Registrant's 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:
Common Stock
Price
-------------
High Low
------ ------
Year ended December 31, 1999
First Quarter............................................. $16.00 $13.25
Second Quarter............................................ $16.25 $13.00
Third Quarter............................................. $16.00 $11.75
Fourth Quarter............................................ $13.50 $10.75
Year ended December 31, 2000
First Quarter............................................. $13.88 $11.50
Second Quarter............................................ $16.88 $12.63
Third Quarter............................................. $19.06 $16.31
Fourth Quarter............................................ $19.38 $16.81
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 13, 2001, there were approximately 23,760 holders of record of the
Company's common stock.
21
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, 2000, 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 2000, 1999, and
1998.
Year Ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- -------- --------
(In thousands, except per share data)
Statement of Operations
Data:
Rental properties
Rental revenue........... $ 206,762 $ 172,295 $ 149,319 $128,897 $115,815
Property operating
costs................... (55,272) (46,754) (41,777) (37,653) (31,185)
Equity in earnings of
operating joint
ventures, net........... 9,809 10,668 9,368 7,436 5,993
--------- --------- --------- -------- --------
161,299 136,209 116,910 98,680 90,623
--------- --------- --------- -------- --------
Property sales and fee
services
Sales revenue............ 451,096 347,005 206,441 119,971 35,753
Cost of sales............ (337,755) (263,562) (154,903) (94,107) (8,981)
--------- --------- --------- -------- --------
Gain on property sales... 113,341 83,443 51,538 25,864 26,772
Equity in earnings of
development joint
ventures, net........... 27,780 10,152 6,627 2,123 757
Management and
development fees........ 15,460 14,968 16,792 15,895 8,462
Selling, general and
administrative
expenses................ (46,598) (27,342) (22,232) (19,528) (8,559)
Other.................... (8,554) (5,475) (662) (2,814) (15,034)
--------- --------- --------- -------- --------
101,429 75,746 52,063 21,540 12,398
--------- --------- --------- -------- --------
Interest expense.......... (50,964) (39,374) (37,384) (39,988) (42,521)
Depreciation and
amortization............. (46,505) (39,214) (34,054) (31,245) (30,561)
Corporate administrative
costs.................... (15,675) (14,760) (15,303) (9,463) (7,972)
Gain on non-strategic
asset sales.............. 46,279 6,803 18,929 5,029 24,405
Litigation and
environmental costs,
net...................... -- -- -- -- 1,093
Other, net................ 940 (4,253) (184) 1,176 (3,334)
--------- --------- --------- -------- --------
Income before minority
interests, income taxes
and extraordinary
items.................... 196,803 121,157 100,977 45,729 44,131
Minority interests........ (10,701) (3,247) (674) (3,145) (1,193)
--------- --------- --------- -------- --------
Income before income taxes
and extraordinary items.. 186,102 117,910 100,303 42,584 42,938
Income tax (expense)
benefit.................. (75,095) (47,690) (40,400) (17,343) (17,537)
--------- --------- --------- -------- --------
Income before
extraordinary items...... 111,007 70,220 59,903 25,241 25,401
Extraordinary items....... -- 26,652 (25,165) -- --
--------- --------- --------- -------- --------
Net income............... 111,007 96,872 34,738 25,241 25,401
Preferred stock
dividends............... -- -- -- (1,353) (22,173)
Premium on redemption of
preferred stock......... -- -- -- -- (1,334)
--------- --------- --------- -------- --------
Net income applicable to
common stockholders..... $ 111,007 $ 96,872 $ 34,738 $ 23,888 $ 1,894
========= ========= ========= ======== ========
Net income per share of
common stock--assuming
dilution:
Before extraordinary
items................... $ 1.02 $ 0.64 $ 0.55 $ 0.24 $ 0.03
Extraordinary items...... -- 0.25 (0.23) -- --
--------- --------- --------- -------- --------
Net income per share
after extraordinary
items--assuming
dilution................ $ 1.02 $ 0.89 $ 0.32 $ 0.24 $ 0.03
========= ========= ========= ======== ========
Average number of common
shares outstanding--
assuming dilution....... 109,017 109,146 109,420 100,768 75,835
========= ========= ========= ======== ========
22
Year Ended or as of December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands, except percentages and ratios)
Other Operating Data:
EBDDT(/1/).............. $ 159,270 $ 128,628 $ 103,394 $ 62,771 $ 25,852
EBITDA(/2/)............. $ 293,373 $ 207,643 $ 177,806 $ 117,163 $ 117,152
Buildings owned (square
feet).................. 28,756 24,743 19,657 16,874 15,217
Leased percentage....... 95.7% 93.6% 94.9% 97.7% 96.5%
Annual fixed
charges(/3/)........... $ 75,220 $ 75,024 $ 65,432 $ 55,672 $ 73,282
Debt and preferred stock
to total market
capitalization(/4/).... 37.9% 38.9% 36.4% 21.0% 46.8%
Capital
investments(/5/)....... $ 437,754 $ 540,024 $ 459,783 $ 257,984 $ 115,338
Fixed charge coverage
ratio(/6/)............. 3.90 2.77 2.72 2.10 1.60
December 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands)
Balance Sheet Data:
Total properties, net... $1,705,538 $1,649,171 $1,402,096 $1,122,975 $1,024,102
Total assets............ $2,275,542 $1,854,877 $1,625,540 $1,241,019 $1,123,118
Mortgage and other
debt................... $1,134,563 $ 875,564 $ 873,207 $ 568,699 $ 496,742
Preferred stock......... $ -- $ -- $ -- $ -- $ 274,428
Total stockholders'
equity................. $ 683,245 $ 590,972 $ 490,229 $ 451,899 $ 422,453
Other Data:
Total market
capitalization(/7/).... $2,991,000 $2,249,000 $2,402,000 $2,699,000 $1,647,000
--------
(1) We use a supplemental performance measure called Earnings Before
Depreciation and Deferred Taxes ("EBDDT"), along with net income, 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, for an understanding of our operating
results.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization, and deferred income taxes are added back to
net income as they represent non-cash charges. Since depreciation expense
is added back to net income on arriving at EBDDT, the portion of gain on
property sales attributable to depreciation recapture is excluded from
EBDDT. In addition, gains on the sale of non-strategic assets, 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.
(2) Represents earnings before interest, taxes, depreciation and
amortization, capitalized interest in cost of sales, extraordinary items,
preferred stock dividends, and premium on the redemption of preferred
stock.
(3) Represents total interest incurred, less non-cash interest incurred (see
Note 3 to our Consolidated Financial Statements), principal amortization,
and preferred stock dividends.
(4) 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.
(5) 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.
(6) Represents the ratio of EBITDA to fixed charges.
(7) 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.
23
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 related Notes 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 analysis of EBDDT by
segment is used in internal reporting to management and, we believe, provides
an effective means of understanding our business and corporate structure. (For
definition of EBDDT, see Note 13 of the accompanying Consolidated Financial
Statements.)
Summary EBDDT and reconciliation to net income for the years ended December
31, 2000, 1999, and 1998
Year Ended December 31,
---------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- ---------- ----------
(In thousands)
Pre-tax EBDDT
Commercial............... $138,872 $124,049 $100,015 $ 14,823 $ 24,034
Residential.............. 41,151 27,823 21,651 13,328 6,172
Urban Development........ 4,980 6,494 4,757 (1,514) 1,737
Corporate................ (13,194) (12,399) (10,995) (795) (1,404)
-------- -------- -------- -------- --------
Total pre-tax EBDDT........ 171,809 145,967 115,428 25,842 30,539
Current tax.............. (12,539) (17,339) (12,034) 4,800 (5,305)
-------- -------- -------- -------- --------
EBDDT...................... 159,270 128,628 103,394 30,642 25,234
Depreciation and
amortization............ (46,505) (39,214) (34,054) (7,291) (5,160)
Deferred taxes........... (62,556) (30,351) (28,366) (32,205) (1,985)
Gain on non-strategic
asset sales............. 46,279 6,803 18,929 39,476 (12,126)
Depreciation recapture... 14,519 4,354 -- 10,165 4,354
Extraordinary
gain/(expense), net of
tax..................... -- 26,652 (25,165) (26,652) 51,817
-------- -------- -------- -------- --------
Net income................. $111,007 $ 96,872 $ 34,738 $ 14,135 $ 62,134
======== ======== ======== ======== ========
24
Commercial:
The Commercial segment acquires and develops suburban commercial business
parks for our own account and the account of others. EBDDT consists primarily
of rental property operating income for buildings owned and sales gains from
properties sold.
Year Ended December 31,
------------------------------ Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- --------- -------- ---------- ----------
(In thousands)
Rental properties
Rental revenue......... $ 192,039 $ 159,843 $136,816 $ 32,196 $ 23,027
Property operating
costs................. (47,910) (40,383) (35,553) (7,527) (4,830)
Equity in earnings of
operating joint
ventures, net......... 9,809 10,668 9,368 (859) 1,300
--------- --------- -------- -------- --------
153,938 130,128 110,631 23,810 19,497
--------- --------- -------- -------- --------
Property sales and fee
services
Sales revenue.......... 158,274 185,092 101,095 (26,818) 83,997
Cost of sales(/1/)..... (113,344) (146,809) (75,683) 33,465 (71,126)
--------- --------- -------- -------- --------
Gain on property
sales............... 44,930 38,283 25,412 6,647 12,871
Equity in earnings of
development joint
ventures, net......... 13 (23) 1,296 36 (1,319)
--------- --------- -------- -------- --------
Total gain on
property sales.... 44,943 38,260 26,708 6,683 11,552
Management and
development fees...... 12,813 11,464 13,641 1,349 (2,177)
Selling, general and
administrative
expenses.............. (18,546) (9,280) (8,704) (9,266) (576)
Other.................. 2,877 1,822 (2,233) 1,055 4,055
--------- --------- -------- -------- --------
42,087 42,266 29,412 (179) 12,854
--------- --------- -------- -------- --------
Interest expense........ (50,806) (45,083) (40,028) (5,723) (5,055)
Minority interests...... (6,347) (3,262) -- (3,085) (3,262)
--------- --------- -------- -------- --------
Pre-tax EBDDT........ $ 138,872 $ 124,049 $100,015 $ 14,823 $ 24,034
========= ========= ======== ======== ========
Rental building
occupancy
(In thousands of square
feet, except
percentages)
Owned................... 28,756 24,743 19,657 4,013 5,086
Occupied................ 27,512 23,159 18,660 4,353 4,499
Occupancy percentage.... 95.7% 93.6% 94.9% 2.2% (1.4)%
--------
(/1/) Cost of sales for 2000 and 1999 includes $14.5 million and $4.4 million,
respectively, of depreciation recapture, which is included in net income,
but not EBDDT.
25
Rental Revenue Less Property Operating Costs
Rental revenue less property operating costs has increased over the past two
years mainly because of additions of buildings, land and land leases, and
rental increases on Same Space (properties that were owned and operated for
the entire "current" year and the entire immediately preceding year are
referred to as "Same Space") partially offset by properties sold. We added a
net 4.0 million square feet in 2000, 5.1 million square feet in 1999, and 2.8
million square feet in 1998 to our rental portfolio. Rental revenue less
operating costs for 2000, 1999, and 1998 are summarized as follows:
Year Ended Year Ended
December 31, December 31,
----------------- Difference ----------------- Difference
2000 1999 2000/1999 1999 1998 1999/1998
-------- -------- ---------- -------- -------- ----------
(In thousands)
Rental revenue less
operating costs:
Same Space.............. $ 93,279 $ 90,055 $ 3,224 $ 89,162 $ 85,910 $ 3,252
Properties added to
portfolio.............. 33,619 8,955 24,664 15,794 2,369 13,425
Properties sold from
portfolio.............. 2,780 6,537 (3,757) 617 1,639 (1,022)
Land and land leases.... 14,451 13,913 538 13,887 11,345 2,542
-------- -------- ------- -------- -------- -------
$144,129 $119,460 $24,669 $119,460 $101,263 $18,197
======== ======== ======= ======== ======== =======
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 changes
in rental income from our Same Space rental portfolio. Rather, we expect
growth in overall portfolio rental income will result primarily from new
properties we add to our rental portfolio over time.
The increase in rental revenue less property operating costs also arises
because the new buildings added to our portfolio in 2000 had higher occupancy
than those added in 1999. The occupancy, at December 31, 2000, for the
buildings added in 2000 was nearly 100%, as compared to 79%, at December 31,
1999, for the buildings added in 1999.
Rental revenue less operating costs from land and land subject to leases
increased $2.5 million in 1999 primarily from the addition of land leases to
the portfolio. A majority of the land subject to leases, which we intend to
sell, was acquired during 1998.
Equity in Earnings of Operating Joint Ventures
Equity in earnings of operating joint ventures, net, decreased by $0.9
million in 2000 primarily because of higher interest expense due to a
refinancing at a joint venture (see Note 5 of the accompanying Consolidated
Financial Statements). The 1999 increase of $1.3 million was because of higher
occupancies and room rates in hotels owned by two joint ventures.
26
Sales Revenue
Our Commercial segment has increased gain from property sales over the past
few years. Gain on property sales was $44.9 million in 2000, $38.3 million in
1999, and $26.7 million in 1998 summarized as follows:
Year Ended December 31,
---------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- ---------- ----------
(In thousands)
Commercial property
sales
Building sales:
Sales proceeds......... $106,282 $ 96,744 $ 44,364 $ 9,538 $ 52,380
Cost of sales.......... (82,288) (80,772) (38,426) (1,516) (42,346)
-------- -------- -------- -------- --------
Gain.................. 23,994 15,972 5,938 8,022 10,034
-------- -------- -------- -------- --------
Land sales:
Sales proceeds......... 45,577 34,596 37,116 10,981 (2,520)
Cost of sales.......... (26,271) (24,990) (27,007) (1,281) 2,017
-------- -------- -------- -------- --------
Gain.................. 19,306 9,606 10,109 9,700 (503)
-------- -------- -------- -------- --------
Other sales:
Sales proceeds......... 6,415 53,752 19,615 (47,337) 34,137
Cost of sales.......... (4,785) (41,047) (10,250) 36,262 (30,797)
-------- -------- -------- -------- --------
Gain.................. 1,630 12,705 9,365 (11,075) 3,340
-------- -------- -------- -------- --------
Gain on property
sales................ 44,930 38,283 25,412 6,647 12,871
Equity in earnings of
development joint
ventures, net......... 13 (23) 1,296 36 (1,319)
-------- -------- -------- -------- --------
Total gain on property
sales................ $ 44,943 $ 38,260 $ 26,708 $ 6,683 $ 11,552
======== ======== ======== ======== ========
The 2000 commercial property sales include the closings of 0.9 million
square feet of new industrial building space and the associated land, 445.8
acres of improved land capable of supporting 8.7 million square feet of
commercial development, and 1.2 million square feet of existing operating
properties. The 1999 commercial property sales include the closings of 1.3
million square feet of new industrial building space and the associated land,
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, as compared to the closings of 1.3 million square feet of new
industrial building space and the associated land and 176.0 acres of land
capable of supporting 3.2 million square feet of commercial development in
1998.
"Other sales" in the table above include a sale of an apartment joint
venture in San Diego, California in 1999 and a sale of a development joint
venture in Texas in 1998; there were no sales of operating joint ventures in
2000. The 2000, 1999, and 1998 "Other sales" also include the sales of 1,026
acres, 1,514 acres, and 388 acres, respectively, of land subject to leases
that we had acquired during 1998.
Following is a summary of property sales under contract but not closed:
December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Sales under contract, but not closed................ $35,880 $75,647 $83,456
======= ======= =======
Management and Development Fees
Over the past two years, a major source of management 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
27
managed assets has been sold in accordance with the customer's goals. We
decided not to pursue renewal of this contract when it expired on December 31,
2000. Consequently, we expect management fees and the related selling, general
and administrative expenses to decline in 2001. Management and development
fees increased by $1.3 million in 2000 primarily because of the development
and management fees related to a construction management contract with a
ground lessee, and higher sales commissions from the railroad customer. There
was a decrease of $2.2 million in 1999 primarily because of a management
contract with a Canadian railroad company that expired in 1998.
Selling, General and Administrative Expenses
The increases in 2000 and 1999 in selling, general and administrative
expenses of $9.3 million, of which approximately $7.4 million was employees
related and $1.9 million was administrative and office related, and $0.6
million, respectively, are primarily from additional staffing relating to
increased sales activity. Also contributing to the increase are the higher
costs to pursue new development activities, manage additions to the portfolio,
and expenses incurred on lost opportunities.
Other
"Other" increased by $1.1 million and $4.1 million in 2000 and 1999,
respectively, primarily because of interest income from restricted cash
generated by tax-deferred exchanges.
Interest
Interest expense increased $5.7 million and $5.1 million in 2000 and 1999,
respectively, primarily because of new mortgages placed on completed buildings
added to our portfolio. Increases in interest capitalized in 2000 and 1999 are
due to higher levels of development activity.
Following is a summary of interest incurred:
Year Ended December 31,
--------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- ------- ---------- ----------
(In thousands)
Total interest
incurred............... $ 63,365 $ 55,801 $49,613 $ 7,564 $ 6,188
Interest capitalized.... (12,559) (10,718) (9,585) (1,841) (1,133)
-------- -------- ------- ------- -------
Interest expensed....... $ 50,806 $ 45,083 $40,028 $ 5,723 $ 5,055
======== ======== ======= ======= =======
Previously capitalized
interest included in
cost of sales.......... $ 4,156 $ 5,127 $ 2,872 $ (971) $ 2,255
======== ======== ======= ======= =======
We expect interest expense to increase in 2001 as we anticipate to add new
debt collateralized by the newly completed and retained buildings.
Minority Interest
In 1999, we formed a consolidated venture and sold 10% of this consolidated
venture's stock to minority investors. The increase in 2000 was because the
venture operated for a full year in 2000, but not in 1999.
28
Residential:
In the past, the Residential segment acquired and developed mainly single-
family residential property. Because of the sale of the majority of our home-
building assets, as discussed below, this segment will concentrate
prospectively on land development of residential sites via direct investments
and joint ventures. EBDDT consists primarily of gains from sales of lots and
completed homes.
Year Ended December 31,
------------------------------ Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- --------- -------- ---------- ----------
(In thousands)
Rental properties
income.................. $ 110 $ 339 $ 641 $ (229) $ (302)
--------- --------- -------- --------- --------
Property sales and fee
services
Sales revenue........... 292,822 161,913 105,346 130,909 56,567
Cost of sales........... (238,930) (121,107) (79,220) (117,823) (41,887)
--------- --------- -------- --------- --------
Gain on property
sales................ 53,892 40,806 26,126 13,086 14,680
Equity in earnings of
development joint
ventures, net.......... 27,767 10,175 5,331 17,592 4,844
--------- --------- -------- --------- --------
Total gain on
property sales..... 81,659 50,981 31,457 30,678 19,524
Management and
development fees....... 1,498 892 1,310 606 (418)
Selling, general and
administrative
expenses............... (25,804) (17,237) (12,875) (8,567) (4,362)
Other................... (11,412) (7,133) 1,713 (4,279) (8,846)
--------- --------- -------- --------- --------
45,941 27,503 21,605 18,438 5,898
--------- --------- -------- --------- --------
Interest expense......... (546) (34) 79 (512) (113)
Minority interests....... (4,354) 15 (674) (4,369) 689
--------- --------- -------- --------- --------
Pre-tax EBDDT....... $ 41,151 $ 27,823 $ 21,651 $ 13,328 $ 6,172
========= ========= ======== ========= ========
Sales Revenue
In July 2000, we sold a majority of our home-building assets to a newly
formed limited liability company managed by Brookfield Homes of California,
Inc. for $139 million in cash and a retained interest in the new company
("BHC, LLC") at an agreed-upon value of $22.5 million. In addition, we are
entitled to a preferred return on the retained interest and 35% of additional
profits from BHC, LLC operations. Of the $22.5 million retained interest, we
have recognized $8.3 million as part of "Equity in earnings of development
joint ventures, net" in 2000. Also recognized as part of "Equity in earnings
of development joint ventures, net" was $0.8 million which represents our
share, 35%, of profits from BHC, LLC and $1 million which represents our share
of the preferred return from our investment in BHC, LLC as of December 31,
2000. We expect to recognize the remaining $14.2 million retained interest and
our share of profits from BHC, LLC as homes/lots are sold. With the exception
of BHC, LLC and any new joint ventures we may pursue, no further significant
earnings from home-building activities are expected beyond 2000.
29
Included in gain on property sales for 2000 is $13.4 million from the sale
of our home-building assets to the BHC, LLC, as well as $10.2 million, before
deduction of approximately $4 million in minority interest, from the closing
of an 80-lot site in San Francisco, and $30.3 million resulting primarily from
the closings of 512 lots and 347 homes compared to the closings of 328 homes
and 121 lots in 1999 and 244 homes and 45 lots in 1998.
Year Ended December 31,
----------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
--------- -------- -------- ---------- ----------
(In thousands)
PROPERTY SALES:
Wholly Owned
Homes:
Sales proceeds......... $ 200,319 $118,749 $ 84,377 $ 81,570 $34,372
Cost of sales.......... (176,338) (90,866) (65,175) (85,472) (25,691)
--------- -------- -------- --------- -------
Gain.................. 23,981 27,883 19,202 (3,902) 8,681
--------- -------- -------- --------- -------
Lots:
Sales proceeds......... 37,958 28,505 8,992 9,453 19,513
Cost of sales.......... (21,759) (16,347) (3,917) (5,412) (12,430)
--------- -------- -------- --------- -------
Gain.................. 16,199 12,158 5,075 4,041 7,083
--------- -------- -------- --------- -------
Joint Ventures--
Consolidated
Homes:
Sales proceeds......... 54,545 14,659 11,977 39,886 2,682
Cost of sales.......... (40,833) (13,894) (10,128) (26,939) (3,766)
--------- -------- -------- --------- -------
Gain.................. 13,712 765 1,849 12,947 (1,084)
--------- -------- -------- --------- -------
Gain on property sales.. 53,892 40,806 26,126 13,086 14,680
--------- -------- -------- --------- -------
JOINT VENTURES:
Homes:
Sales proceeds......... 130,383 16,179 40,292 114,204 (24,113)
Cost of sales.......... (121,585) (11,906) (31,882) (109,679) 19,976
--------- -------- -------- --------- -------
Gain.................. 8,798 4,273 8,410 4,525 (4,137)
--------- -------- -------- --------- -------
Lots:
Sales proceeds......... 186,140 99,046 49,669 87,094 49,377
Cost of sales.......... (139,390) (75,012) (41,238) (64,378) (33,774)
--------- -------- -------- --------- -------
Gain.................. 46,750 24,034 8,431 22,716 15,603
--------- -------- -------- --------- -------
Gain from development
joint ventures......... 55,548 28,307 16,841 27,241 11,466
Less: venture partners'
interest............... (27,781) (18,132) (11,510) (9,649) (6,622)
--------- -------- -------- --------- -------
Total equity in earnings
of development joint
ventures............... 27,767 10,175 5,331 17,592 4,844
--------- -------- -------- --------- -------
Total gain on property
sales.................. $ 81,659 $ 50,981 $ 31,457 $ 30,678 $19,524
========= ======== ======== ========= =======
30
Following is a summary of property sales under contract but not closed:
December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Owned projects and consolidated joint ventures:
Units................................................ $ 7,439 $54,782 $21,077
======= ======= =======
Lots................................................. $19,317 $16,195 $ 8,348
======= ======= =======
Joint venture projects(/1/)............................ $49,413 $ 7,638 $12,064
======= ======= =======
--------
(/1/) The amounts shown are 100% of the gross sales price; we are entitled to
receive from 30% to 67% of the net profits from these joint ventures.
Equity in earnings of development joint ventures, net, increased $17.6
million and $4.8 million in 2000 and 1999, respectively. Of the $17.6 million
increase in 2000, $10.1 million was attributable to BHC, LLC, as mentioned
above. The remaining increase is attributable to increased sales activities at
two of our investments, Serrano in El Dorado Hills, California and Talega in
San Clemente, California; our joint ventures sold 1,741 lots in 2000 as
compared to 797 lots and 29 homes in 1999. The $4.8 million increase in 1999
was primarily because of the increased margins at Serrano. The joint ventures
closed 797 lots and 29 homes in 1999 as compared to 810 lots and 87 homes in
1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $8.6 million in 2000
and $4.4 million in 1999. The increase in 2000 is primarily attributable to
the severance expenses related to the sale of the home-building assets to BHC,
LLC during 2000. The 1999 increase was primarily attributable to an increase
in staff as a result of significant growth of the business, as demonstrated by
revenue from property sales which increased by $57 million in 1999. We expect
selling, general and administrative expenses to decrease as a result of the
sale of home-building assets as compared to 2000.
Other
"Other" (expense) increased $4.3 million and $8.8 million in 2000 and 1999,
respectively, because of the $11 million and $6.7 million reserves provided in
2000 and 1999, respectively, for estimated losses related to cost overruns on
a fixed price contract for a development project. The factors listed in the
Forward-Looking Information and Risk Factors section, including particularly
costs of materials and labor, construction conditions, performance or
nonperformance of obligations by third parties, labor strikes, construction
delays, and ability of third parties to perform their obligations, could
affect the estimate.
Interest
Following is a summary of interest incurred:
Year Ended December 31,
-------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
------- -------- ------- ---------- ----------
(In thousands)
Total interest incurred.. $ 6,529 $ 13,160 $ 9,678 $(6,631) $ 3,482
Interest capitalized..... (5,983) (13,126) (9,757) 7,143 (3,369)
------- -------- ------- ------- -------
Interest expensed........ $ 546 $ 34 $ (79) $ 512 $ 113
======= ======== ======= ======= =======
Previously capitalized
interest included in
cost of sales........... $ 5,646 $ 6,650 $ 3,203 $(1,004) $ 3,447
======= ======== ======= ======= =======
31
Interest incurred and capitalized decreased in 2000 primarily because of the
sale of the home-building assets, as part of the sale proceeds was used to pay
off certain existing debt (see Note 14). In 1999, 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 from
our owned and consolidated joint venture projects.
Minority Interests
Minority interests increased $4.4 million in 2000. The increase is primarily
because of the sale of an 80-lot site in San Francisco by a consolidated joint
venture (see discussion on Sales Revenue above).
Urban Development:
The Urban Development segment entitles and develops urban mixed-use sites in
San Francisco, Los Angeles, and San Diego. The principal active project of the
segment is Mission Bay in San Francisco.
Year Ended December 31,
------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
------- ------- ------- ---------- ----------
(In thousands)
Rental properties
Rental revenue........... $14,613 $12,113 $11,862 $ 2,500 $ 251
Property operating
costs................... (7,362) (6,371) (6,224) (991) (147)
------- ------- ------- ------- ------
7,251 5,742 5,638 1,509 104
------- ------- ------- ------- ------
Property sales and fee
services
Management and
development fees........ 1,149 2,612 1,841 (1,463) 771
Selling, general and
administrative
expenses................ (2,248) (825) (653) (1,423) (172)
Other.................... (19) (164) (142) 145 (22)
------- ------- ------- ------- ------
(1,118) 1,623 1,046 (2,741) 577
------- ------- ------- ------- ------
Interest expense........... (1,153) (871) (1,927) (282) 1,056
------- ------- ------- ------- ------
Pre-tax EBDDT............ $ 4,980 $ 6,494 $ 4,757 $(1,514) $1,737
======= ======= ======= ======= ======
Rental building occupancy
(In thousands of square
feet, except percentages)
Owned...................... 913 1,152 1,220 (239) (68)
Occupied................... 807 969 1,081 (162) (112)
Occupancy percentage....... 88.4% 84.1% 88.6% 5.1% (5.1)%
Rental Revenue Less Property Operating Costs
The increase in 2000 is primarily attributable to higher rent and parking
revenue at Mission Bay in San Francisco. 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. We plan to generate future income in the Urban
Development segment from development activities, rental income, and sales
gains.
Following is a summary of property sales under contract but not closed:
December 31,
-------------------
2000 1999 1998
------- ----- -----
(In thousands)
Sales under contract, but not closed................. $49,400 $ -- $ --
======= ===== ===== ===
32
Management and Development Fees
Management and development fees decreased $1.5 million in 2000, but
increased $0.8 million in 1999. These changes are primarily attributable to a
higher level of development management activities related to the renovation of
Dodger Stadium in 1999.
Selling, General and Administrative Expenses
The increases of $1.4 million in 2000 and $0.2 million in 1999 are primarily
attributable to changes in overall staffing to accommodate increased activity
associated with all of the projects of the Urban Development segment,
especially Mission Bay.
Corporate:
Corporate consists of administrative costs and interest contra-expense for
interest capitalized on a consolidated basis but not attributed to an
operating segment.
Interest
Corporate interest consists primarily of interest contra-expense because the
Residential segment had qualifying assets which provided for the
capitalization of more interest than directly incurred by that segment. As a
result, the Residential segment capitalized interest incurred by other
segments. The decrease of interest contra-expense in 2000 is primarily because
of the sale of our home-building assets. We expect the interest contra-expense
to increase in 2001 because of the increase in business activities at our
Mission Bay project in San Francisco.
Year Ended December 31,
---------------------------- Difference Difference
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- ---------- ----------
(In thousands)
Interest contra-
expense................ $ 1,541 $ 6,614 $ 4,492 $(5,073) $ 2,122
Corporate administrative
costs.................. (15,675) (14,760) (15,303) (915) 543
Other................... 940 (4,253) (184) 5,193 (4,069)
-------- -------- -------- ------- -------
Pre-tax EBDDT......... $(13,194) $(12,399) $(10,995) $ (795) $(1,404)
======== ======== ======== ======= =======
Corporate Administrative Costs
Corporate administrative costs consist primarily of general and
administrative expenses. General and administrative expenses increased by $0.9
million in 2000 primarily because of the increase in our overall activities,
but such expenses in 1999 approximated those of 1998.
Other
The decrease in "other" expense in 2000 is primarily attributable to higher
interest income from higher short-term investments; the increase in 1999 is
primarily attributable to the increased use of consultants.
Items Not Included in EBDDT by Segment
See comparative presentation of reconciliation from EBDDT to net income at
page 24.
Depreciation and Amortization Expense
The increases in depreciation and amortization expense of $7.3 million and
$5.2 million in 2000 and 1999, respectively, are primarily attributable to the
new buildings added to the portfolio. In 2000 and 1999, we added
33
4.0 million net square feet and 5.1 million net square feet of building space,
respectively, to our portfolio. The added buildings resulted in incremental
depreciation expense of $7.1 million and $5.4 million in 2000 and 1999,
respectively.
Income Taxes
Income taxes increased $27.4 million and $7.3 million in 2000 and 1999,
respectively. These increases are resulted from higher pre-tax income
primarily attributed to higher rental income, gain from property sales, and
gain on non-strategic asset sales as discussed.
At December 31, 2000, our deferred tax liability consisted of deferred tax
assets totaling $123.0 million and deferred tax liabilities of $371.0 million.
Deferred tax assets include $3.1 million relating to tax credit carryforwards
for alternative minimum tax, which are not subject to expiration. Our other
deferred tax assets of $119.9 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 our deferred tax assets and that no valuation allowance
is required. In making this determination, we considered: the nature of our
deferred tax assets (and liabilities); the historical levels of taxable
income; the significant unrealized appreciation of the properties; and the
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 2001. The ultimate amount of federal tax payments, if any, would depend on
our taxable income.
Gain on Non-Strategic Asset Sales
Gain on sales of non-strategic assets was $46.3 million, $6.8 million, and
$18.9 million for 2000, 1999, and 1998, respectively.
From 1995 through 2000, we sold $320 million of non-strategic assets as part
of a program of selling non-strategic assets, with the proceeds used to pay
down a portion of existing debt, redeem preferred stock, and fund new
development. At year end, this program is substantially complete and the
remaining non-strategic asset is our desert portfolio of approximately 363,000
acres.
The increase in 2000 is primarily because of a sale of 405,000 acres of
desert land which was ultimately transferred to the federal government for a
total consideration of $45.1 million.
Depreciation Recapture
We exclude the portion of gain on property sales attributable to
depreciation recapture from EBDDT (see Note 13 of the accompanying
Consolidated Financial Statements). The increase of $10.2 million in
depreciation recapture from 1999 to 2000 is because of higher sales volume of
properties in 2000 as compared to 1999. We sold 11 buildings in 2000 as
compared to 6 buildings in 1999.
Extraordinary Income/Expense
In October of 1999, a partnership 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.
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
34
and a write-off of unamortized loan issuance costs. We replaced a loan that
had an average interest rate of 8.7% with a loan bearing an effective interest
rate of 6.6%.
Stock Repurchase Program
In October 1999, our Board of Directors authorized a one-year stock
repurchase program for up to $50 million of the outstanding common stock (the
"1999 Program"). Under the 1999 Program, as of December 31, 2000, we had
repurchased 1,997,300 shares at a total cost of $28.7 million. The 1999
Program expired in October 2000. In December 2000, our Board of Directors
authorized a new one-year share repurchase program (the "2000 Program"). As of
December 31, 2000, under the 2000 Program, we have not purchased any
outstanding shares. See Note 12 of the accompanying Consolidated Financial
Statements for activities related to stock repurchase programs subsequent to
December 31, 2000.
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.
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 or from year to 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, 2000, 1999, and 1998 was $336.2
million, $183.9 million, and $120.7 million, respectively. The change in cash
provided by operating activities is primarily attributable to sales of
development and other properties, and rental revenue. Sales of development and
other properties generated sales revenues of $451.1 million, $347.0 million,
and $206.4 million, and our rental property generated rental revenue of
$206.8 million, $172.3 million, and $149.3 million for the years ended
December 31, 2000, 1999, and 1998, respectively. Proceeds from sales of non-
strategic assets were $50.8 million, $10.6 million, and $80.0 million for the
years ended December 31, 2000, 1999, and 1998, respectively. Cash generated
from rental properties increased principally because of the addition of new
buildings. The increase in cash provided by operating activities for the year
ended December 31, 2000 was positively impacted by the decrease in capital
expenditures for residential and commercial development properties; whereas in
1999, an increase in capital expenditures partially offset the increase in
cash flows from operating activities. See further detail in the schedule of
capital expenditures in the following discussion.
Cash flows from investing activities
Net cash used in investing activities reflected in the statement of cash
flows for the years ended December 31, 2000, 1999, and 1998 was $264.4
million, $238.4 million, and $275.3 million, respectively. The increase in
2000 consists primarily of an increase of $55.6 million in the use of short-
term investments and restricted cash and an increase of $27.3 million in
capital expenditures offset by a decrease of $16.6 million in property
acquisitions, an increase of $20.8 million in net proceeds from sales of other
assets, an increase of $15.6 million in distributions from joint ventures, and
a $4.4 million decrease in contributions to joint ventures. The decrease
between 1999 and 1998 is primarily because of a $79.0 million decrease in the
use of restricted cash and investments and 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 an increase of $4.3 million in contributions to joint
ventures.
35
Capital expenditures reflected in the statement of cash flows include the
following:
Year Ended December 31,
-----------------------------
2000 1999 1998
-------- --------- ---------
(In thousands)
Capital Expenditures from Operating
Activities and Non-Cash Acquisitions(/1/)
Capital expenditures for residential and
commercial development properties........... $121,032 $179,479 $151,898
Property acquisitions........................ 26,464 35,620 24,061
Capitalized interest and property tax........ 7,738 14,266 9,213
-------- --------- ---------
Capital expenditures in cash flows for
operating activities........................ 155,234 229,365 185,172
Other acquisitions........................... -- 289 10,394
Seller-financed acquisitions................. -- 26,707 41,378
-------- --------- ---------
Total capital expenditures in operating
activities................................ 155,234 256,361 236,944
-------- --------- ---------
Capital Expenditures from Investing
Activities and Non-Cash Acquisitions(/2/)
Construction and building improvements....... 149,895 130,930 121,060
Predevelopment............................... 26,637 19,406 17,063
Infrastructure and other..................... 48,622 48,935 16,912
Capitalized interest and property tax........ 14,426 13,040 12,070
-------- --------- ---------
Capital expenditures for investment
properties.................................. 239,580 212,311 167,105
Commercial property acquisitions............. 35,471 52,051 52,110
Tenant improvements.......................... 5,767 5,301 3,624
-------- --------- ---------
Capital expenditures in investing
activities.................................. 280,818 269,663 222,839
Seller-financed acquisitions................. 1,702 14,000 --
-------- --------- ---------
Total capital expenditures in investing
activities................................ 282,520 283,663 222,839
-------- --------- ---------
Total capital expenditures................. $437,754 $ 540,024 $ 459,783
======== ========= =========
--------
(/1/This)category includes capital expenditures for properties we intend to
build to sell.
(/2/)This category includes capital expenditures for properties we intend to
hold for our own account.
Capital expenditures for residential and commercial development properties--
This item relates to the development of residential and commercial for-sale
development properties. The decrease from 1999 to 2000 is primarily because of
the sale of home-building assets in July 2000 (see discussion of gain on
property sales in Residential section). The increase from 1998 to 1999 is
attributable to the increase in both residential and commercial for-sale
development activity.
For the year ended December 31, 2000, we and our consolidated joint ventures
started construction on 407 residential units and completed 288 units compared
to 473 starts and 377 completions during 1999, and 334 starts and 247
completions during 1998.
Property acquisitions--We invested approximately $63.6 million, including a
$1.7 million seller-financed note from one of the commercial land
acquisitions, in 2000 and $128.7 million, including a total of $40.7 million
in seller-financed notes, in 1999 in the acquisition of new property either
directly or through joint ventures. The 2000 acquisitions included $37.2
million of commercial and mixed-use development land which added approximately
10.2 million square feet of potential development. Also included was $26.5
million in acquisitions of residential development property in California,
directly or through joint ventures, which will support up to 479 homes/lots.
In 1999, of the $128.7 million invested in property acquisitions, $67.5
million was invested in acquisitions of commercial land for development and
completed buildings, and $61.2 million in acquisitions of residential
development properties.
36
Capitalized interest and property taxes--This item represents interest and
property taxes capitalized as part of our development projects. The decrease
in 2000 compared to 1999 is primarily because of the sale of our home-building
assets offset by the increase in commercial construction activity, as noted
above.
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:
Year Ended December 31,
----------------------
2000 1999
---------- ----------
(In square feet)
Under construction, beginning of period.............. 4,641,000 5,036,500
Construction starts.................................. 4,863,000 5,371,000
Completed--retained in portfolio..................... (5,158,000) (4,166,500)
Completed--design/build or sold...................... (872,000) (1,600,000)
---------- ----------
Under construction, end of period.................... 3,474,000 4,641,000
========== ==========
Predevelopment--This item 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--This item represents primarily infrastructure
costs incurred in connection with our urban development and commercial
development projects. These costs relate primarily to the projects at
Woodridge, Illinois; Denver, Colorado; Rancho Cucamonga, California; Fremont,
California; and Mission Bay, San Francisco, California.
Cash flows from financing activities
Net cash provided by financing activities reflected in the statement of cash
flows for the years ended December 31, 2000, 1999, and 1998 was $229.3
million, $37.0 million, and $190.3 million, respectively. In 2000, we closed
two loans with a combined total of $324.8 million. At December 31, 2000, the
combined outstanding balance on these two loans was $297.4 million--see Note 3
of the accompanying Consolidated Financial Statements. The increase of $192.3
million in 2000 is primarily attributable to a net borrowing of $257.3 million
as compared to a net pay-down of $12.8 million in 1999 offset by a net
decrease in 2000 of $54.1 million in contributions from minority partners
because of the formation of a consolidated joint venture in 1999 and
$28.7 million used to purchase our common stock in 2000. The decrease of
$153.4 million in 1999 over 1998 is primarily because of a net pay-down of
$12.8 million in borrowing in 1999 as compared to a net borrowing of $255.8
million in 1998 offset by a $36.0 million redemption premium on early
retirement of debt and $26.1 million in financing costs in 1998 and a $52.6
million increase in contributions from minority partners in 1999.
Capital commitments
As of December 31, 2000, we had outstanding standby letters of credit and
surety bonds in the amount of $144.0 million in favor of local municipalities
or financial institutions to guarantee performance on real property
improvements or financial obligations.
As of December 31, 2000, we had approximately $98.6 million in total
commitments for capital expenditures to vendors. These commitments are
primarily contracts to construct industrial development projects,
predevelopment costs and re-leasing costs.
Additionally, in connection with the acquisition of property in 2000, one of
our indirect subsidiaries has entered into an agreement with the California
Department of Toxic Substance Control to perform certain work to
37
investigate and remedy hazardous materials left behind by the previous
operators of the site. We have guaranteed completion of the work with a
limited liability of $22 million. The current estimated cost for the work is
approximately $15 million, and we have a fixed price contract for the
completion of the work and obtained insurance to cover various cost overruns.
As a partner in certain joint ventures, we have made certain financing
guarantees (see Note 5). In addition, we have guaranteed debt service of $14.3
million and project completion of $5.1 million for various residential
projects.
Cash balances, available borrowings and capital resources
As of December 31, 2000, we had a total cash of $382.0 million, of which
$45.5 million is restricted cash. At year-end, in addition to the $382.0
million cash, we had $35.7 million in borrowing capacity under our commercial
construction facilities and $27.4 million in additional borrowing capacity
under our term loans, both available upon satisfaction of certain conditions.
Our short- and long-term liquidity and capital resources requirements will
be provided primarily 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, 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, completed buildings,
acquisitions and currently unencumbered properties. There is no assurance that
we can obtain this financing.
Debt covenants--Three loan agreements contain restrictive financial
covenants, the most restrictive of which requires a net cash flow coverage
ratio of 1.30:1. The other loans require that we maintain certain other
specified financial ratios. We were in compliance with all such covenants at
December 31, 2000.
Environmental Matters
Many of our properties or those of our subsidiaries 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 and our
subsidiaries incur ongoing environmental remediation and disposal costs, legal
costs relating to clean up, defense of litigation, and the pursuit of
responsible third parties. Costs incurred by the consolidated group in
connection with operating properties and with properties previously sold are
expensed. Costs incurred for properties to be sold by us or our subsidiaries
are capitalized and will be charged to cost of sales when the properties are
sold. Costs relating to undeveloped properties held by us or our subsidiaries
are capitalized as part of development costs (see Note 15 of the accompanying
consolidated financial statements for further discussions).
In recent years, certain of our subsidiaries have acquired properties with
known significant environmental issues for cleanup and redevelopment, and we
expect that we may continue to form subsidiaries to acquire such properties
(or that existing subsidiaries will acquire such properties) when the
potential benefits of redevelopment warrant. When our subsidiaries acquire
such properties, they undertake extensive due diligence to determine the
nature of environmental problems and the likely cost of remediation, and they
manage the risk with undertakings from third parties, including the sellers
and their affiliates, remediation contractors, third party sureties, and
insurers. The costs associated with such environmental costs are included in
the estimates for properties to be developed.
Year 2000 Readiness
We experienced no operational difficulties in connection with the year 2000
readiness. In 1999 we completed an extensive program to assess the potential
effects of the Year 2000 problem (the inability of some
38
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.
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,"
"plan," "prospects," and similar expressions. Forward-looking statements
include, but are not limited to, statements about plans; opportunities;
negotiations; markets and economic conditions; development, construction,
rental, and sales activities; availability of financing; and property values.
Also, on occasion, management makes oral statements that may include similar
forward-looking statements. Again, we try, wherever practical, to identify
these forward-looking statements with appropriate language.
We caution you not to place undue reliance on these forward-looking
statements, which reflect our current beliefs and are based on information
currently available to us. We do not undertake any obligation to revise these
forward-looking statements to reflect future events, changes in circumstances,
or changes in beliefs.
These forward-looking statements are subject to risks and uncertainties that
could cause our actual results, performance, or achievements to differ
materially from those expressed in or implied by these statements. In
particular, among the factors that could cause actual results to differ
materially are:
. Changes in the real estate market or in general economic conditions in
the areas in which we own property, including the possibility of a
general economic slowdown or recession, which some observers predict in
the near term. Such changes could also include changes in the growth,
job formation, and demographics of markets in which we own property or
changes in the local land use policies that might affect existing
constraints on supply
. Issues arising from shortages in electrical power to us or to our
customers, which could affect our ability to rent or sell properties,
the ability of tenants or buyers to pay for our properties or for the
use of our properties, or our ability to conduct our business
. Product and geographical concentration
. 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, other political and discretionary government
decisions affecting the use of or access to land, or legal challenges to
the issuance of approvals or entitlements
. Changes in the management team or competition for employees
. 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 us or our subsidiaries for environmental remediation at
properties owned, managed, or formerly owned or managed by us, our
subsidiaries, or the predecessors of either, and changes in
environmental laws and regulations
39
. Failure to reach agreement with third parties on definitive terms or
failure to close transactions, and failure or inability of third parties
to perform their obligations under agreements
. Increases in the cost of land and building materials
. Tight labor markets
. Limitations on or challenges to title to our properties
. Risks related to the performance, interests, and financial strength of
the co-owners of our joint venture projects
. Changes in policies and practices of organized labor groups who may work
on our projects
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, 2000, we did not have any outstanding interest-protection
contracts. We intend to continuously and actively monitor and manage interest
costs on our variable rate debt and may enter into interest rate-protection
contracts based on market fluctuations.
At December 31, 2000, approximately 60.4% of our debt bore interest at fixed
rates with a weighted average maturity of approximately 7.5 years and a
weighted average coupon rate of approximately 6.49%, 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 2.7 years and a weighted average coupon rate of approximately
8.70% at December 31, 2000. To the extent that we incur additional variable
rate indebtedness, our exposure to increases in interest rates would increase.
If coupon interest rates increased 100 basis points, the annual effect on our
financial position and cash flow would be approximately $4.5 million, based on
the outstanding balance of our debt at December 31, 2000. We believe, however,
that in no event would increases in interest expense as a result of inflation
significantly affect our financial position, results of operations, or cash
flow.
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
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 ("2001 Proxy Statement") which will be filed with the Securities and
Exchange Commission in connection with the 2001 Annual Meeting of
Stockholders.
Item 10. Directors and Executive Officers of the Registrant
The information in the section captioned "Election of Directors" in the 2001
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 18 to 20 of this Form 10-K.
The information in the section captioned "Section 16(a) Beneficial Ownership
Reporting Compliance" in the 2001 Proxy Statement is incorporated herein by
reference.
Item 11. Executive Compensation
The information in the sections captioned "Further Information concerning
the Board of Directors--Directors' Compensation," "Employment Agreements," and
"Compensation Policy for Senior Executive Officers" in the 2001 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 2001 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 2001 Proxy Statement is incorporated herein by reference.
41
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 and E-2.
(b) Reports on Form 8-K
None.
42
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
/s/ Nelson C. Rising
By __________________________________
Nelson C. Rising
Chairman and Chief Executive
Officer
Dated: March 21, 2001
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.
Signature Title Date
--------- ----- ----
Chairman and Chief March 21, 2001
/s/ Nelson C. Rising Executive Officer
____________________________________ (Principal Executive
Nelson C. Rising Officer)
Senior Vice President, March 21, 2001
/s/ C. William Hosler Chief Financial Officer
____________________________________ (Principal Financial
C. William Hosler Officer)
/s/ Paul A. Lockie Vice President and March 21, 2001
____________________________________ Controller (Principal
Paul A. Lockie Accounting Officer)
* Director March 21, 2001
____________________________________
Joseph F. Alibrandi
* Director March 21, 2001
____________________________________
Stephen F. Bollenbach
* Director March 21, 2001
____________________________________
Daryl J. Carter
* Director March 21, 2001
____________________________________
Richard D. Farman
* Director March 21, 2001
____________________________________
Christine Garvey
43
Signature Title Date
--------- ----- ----
* Director March 21, 2001
____________________________________
William M. Kahane
* Director March 21, 2001
____________________________________
Leslie D. Michelson
* Director March 21, 2001
____________________________________
Thomas M. Steinberg
* Director March 21, 2001
____________________________________
Beverly Benedict Thomas
/s/ Paul A. Lockie
*By: _______________________________
Paul A. Lockie
Attorney-in-Fact
March 21, 2001
44
CATELLUS DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
Report of Independent Accountants dated February 5, 2001................. F-2
Consolidated Balance Sheet at December 31, 2000 and 1999................. F-3
Consolidated Statement of Operations for the years ended December 31,
2000, 1999, and 1998.................................................... F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 2000, 1999, and 1998....................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
2000, 1999, and 1998.................................................... F-6
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 5, 2001................. 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
F-1
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, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
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 of America
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 our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 5, 2001
F-2
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
December 31,
----------------------
2000 1999
---------- ----------
Assets
Properties............................................. $2,025,813 $1,944,017
Less accumulated depreciation.......................... (320,275) (294,846)
---------- ----------
1,705,538 1,649,171
Other assets and deferred charges, net................. 121,033 93,021
Notes receivable, less allowance....................... 36,119 32,890
Accounts receivable, less allowance.................... 30,816 24,820
Restricted cash and investments........................ 45,478 19,565
Cash and cash equivalents.............................. 336,558 35,410
---------- ----------
Total............................................ $2,275,542 $1,854,877
========== ==========
Liabilities and stockholders' equity
Mortgage and other debt................................ $1,134,563 $ 875,564
Accounts payable and accrued expenses.................. 96,274 92,791
Deferred credits and other liabilities................. 58,722 58,751
Deferred income taxes.................................. 247,975 185,592
---------- ----------
Total liabilities.................................. 1,537,534 1,212,698
---------- ----------
Commitments and contingencies (Note 15)
Minority interests..................................... 54,763 51,207
---------- ----------
Stockholders' equity
Common stock, 108,088 and 107,185 shares issued and
106,091 and 107,185 shares outstanding at December
31, 2000 and 1999, respectively..................... 1,081 1,072
Paid-in capital...................................... 493,420 483,503
Treasury stock, at cost (1,997 shares at December 31,
2000)............................................... (28,660) --
Accumulated earnings................................. 217,404 106,397
---------- ----------
Total stockholders' equity......................... 683,245 590,972
---------- ----------
Total............................................ $2,275,542 $1,854,877
========== ==========
See notes to consolidated financial statements.
F-3
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Rental properties
Rental revenue.............................. $ 206,762 $ 172,295 $ 149,319
Property operating costs.................... (55,272) (46,754) (41,777)
Equity in earnings of operating joint
ventures, net.............................. 9,809 10,668 9,368
--------- --------- ---------
161,299 136,209 116,910
--------- --------- ---------
Property sales and fee services
Sales revenue............................... 451,096 347,005 206,441
Cost of sales............................... (337,755) (263,562) (154,903)
--------- --------- ---------
Gain on property sales..................... 113,341 83,443 51,538
Equity in earnings of development joint
ventures, net.............................. 27,780 10,152 6,627
--------- --------- ---------
Total gain on property sales............... 141,121 93,595 58,165
Management and development fees............. 15,460 14,968 16,792
Selling, general and administrative
expenses................................... (46,598) (27,342) (22,232)
Other, net.................................. (8,554) (5,475) (662)
--------- --------- ---------
101,429 75,746 52,063
--------- --------- ---------
Interest expense.............................. (50,964) (39,374) (37,384)
Depreciation and amortization................. (46,505) (39,214) (34,054)
Corporate administrative costs................ (15,675) (14,760) (15,303)
Gain on non-strategic asset sales............. 46,279 6,803 18,929
Other, net.................................... 940 (4,253) (184)
--------- --------- ---------
Income before minority interests, income
taxes and extraordinary items.............. 196,803 121,157 100,977
Minority interests............................ (10,701) (3,247) (674)
--------- --------- ---------
Income before income taxes and extraordinary
items...................................... 186,102 117,910 100,303
--------- --------- ---------
Income tax expense
Current..................................... (12,539) (17,339) (12,034)
Deferred.................................... (62,556) (30,351) (28,366)
--------- --------- ---------
(75,095) (47,690) (40,400)
--------- --------- ---------
Income before extraordinary items........... 111,007 70,220 59,903
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.................................. $ 111,007 $ 96,872 $ 34,738
========= ========= =========
Net income per share before extraordinary
items
Basic...................................... $ 1.04 $ 0.66 $ 0.56
========= ========= =========
Assuming dilution.......................... $ 1.02 $ 0.64 $ 0.55
========= ========= =========
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...................................... $ 1.04 $ 0.91 $ 0.33
========= ========= =========
Assuming dilution.......................... $ 1.02 $ 0.89 $ 0.32
========= ========= =========
Average number of common shares
outstanding--basic......................... 106,561 107,011 106,689
========= ========= =========
Average number of common shares
outstanding--diluted....................... 109,017 109,146 109,420
========= ========= =========
See notes to consolidated financial statements.
F-4
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
Common Stock Treasury Stock Accumulated
-------------- ---------------- Paid-In Earnings
Shares Amount Shares Amount Capital (Deficit)
------- ------ ------ -------- -------- -----------
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
Exercise of stock
options and other..... 903 9 -- -- 9,917 --
Treasury stock
purchases............. -- -- (1,997) (28,660) -- --
Net income............. -- -- -- -- -- 111,007
------- ------ ------ -------- -------- --------
Balance at December 31,
2000.................... 108,088 $1,081 (1,997) $(28,660) $493,420 $217,404
======= ====== ====== ======== ======== ========
See notes to consolidated financial statements.
F-5
CATELLUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Year Ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income................................... $ 111,007 $ 96,872 $ 34,738
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............... 46,505 39,214 34,054
Deferred income taxes....................... 62,556 48,119 22,075
Amortization of deferred loan fees and other
costs...................................... 6,400 4,575 2,826
Equity in earnings of joint ventures........ (37,589) (20,820) (15,995)
Gain on sales of other assets............... (20,614) (10,270) (4,529)
Minority interests in earnings of
consolidated entities...................... 10,701 3,247 674
Operating distributions from joint
ventures................................... 26,714 46,811 16,723
Cost of development properties and non-
strategic assets sold...................... 316,424 236,421 191,604
Capital expenditures for development
properties................................. (155,234) (229,365) (185,172)
Other property acquisitions................. -- (289) (10,394)
Other, net.................................. (1,570) (1,459) (2,391)
Change in assets and liabilities:
Accounts and notes receivable............... (11,674) (10,133) 3,122
Other assets and deferred charges........... (4,045) (11,901) (16,536)
Accounts payable and accrued expenses....... (13,283) 18,718 1,404
Other....................................... (51) 18,144 6,561
--------- --------- ---------
Net cash provided by operating activities..... 336,247 183,864 120,706
--------- --------- ---------
Cash flows from investing activities:
Property acquisitions........................ (35,471) (52,051) (52,110)
Capital expenditures for investment
properties.................................. (239,580) (212,311) (167,105)
Tenant improvements.......................... (5,767) (5,301) (3,624)
Net proceeds from sale of other assets....... 34,680 13,926 4,886
Distributions from joint ventures............ 15,600 -- --
Contributions to joint ventures.............. (7,944) (12,370) (8,105)
Restricted cash and investments.............. (25,913) 29,719 (49,284)
--------- --------- ---------
Net cash used in investing activities......... (264,395) (238,388) (275,342)
--------- --------- ---------
Cash flows from financing activities:
Borrowings................................... 540,007 295,628 971,121
Repayment of borrowings...................... (282,710) (308,426) (715,369)
Redemption premium on early retirement of
debt........................................ -- -- (36,041)
Payment on settlement of treasury-lock
contracts and financing fees................ -- -- (26,080)
(Distributions to) contributions from
minority partners, net...................... (7,123) 46,947 (5,650)
Purchase of treasury stock................... (28,660) -- --
Proceeds from issuance of common stock....... 7,782 2,810 2,336
--------- --------- ---------
Net cash provided by financing activities..... 229,296 36,959 190,317
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ................................. 301,148 (17,565) 35,681
Cash and cash equivalents at beginning of
year......................................... 35,410 52,975 17,294
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 336,558 $ 35,410 $ 52,975
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (net of amount capitalized)....... $ 41,131 $ 34,400 $ 32,625
Income taxes............................... $ 20,669 $ 13,154 $ 6,302
See notes to consolidated financial statements.
F-6
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 in entities controlled and consolidated by the Company are
separately reflected as minority interests in the accompanying balance sheet.
The Company's development portfolio of industrial, residential, retail,
office, and other projects (owned directly or through joint ventures) is
located mainly in major markets in California, Illinois, Texas, Colorado, and
Oregon. 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.
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 on a straight-line basis 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 other cases, when the Company receives inadequate cash down payment and
takes a note for the balance, profit is deferred until such time as sufficient
cash is received to meet minimum down payment requirements. 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 $45.5 million and $19.6 million at December 31, 2000 and
1999, respectively, $38.1 million and $9.9 million, respectively, represent
proceeds from property sales being held in separate cash accounts at a trust
company in order to preserve the Company's options of reinvesting the proceeds
on a tax-deferred basis. In addition, restricted investments of $7.1 million
and $9.7 million at December 31, 2000 and 1999, respectively, represent
certificates of deposit used to guarantee lease performance and $0.3 million
at December 31, 2000 represents a retained deposit for future lease-up costs.
Interest rate protection contracts ("Treasury-lock contracts")--The Company
could enter into interest rate protection agreements to lock its interest rate
when negotiating fixed rate financing agreements. Amounts paid or
F-7
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
received would be capitalized and amortized as a component of interest expense
using the effective interest method over the term of the associated debt
agreement.
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 $599.7 million
and remaining principal of $621.2 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 $3.8 million and $1.9 million at
December 31, 2000 and 1999, respectively. Interest is recognized as earned;
however, the Company discontinues accruing interest when collection is
considered doubtful. Notes are generally collateralized by real property or a
financing agreement.
Allowance for uncollectible accounts--Accounts receivable are net of an
allowance for uncollectible accounts totaling $1.7 million and $1.3 million at
December 31, 2000 and 1999, respectively.
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 is a significant likelihood that the
Company may be legally required to undertake 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.
F-8
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income per share--Income per share of common stock applicable to common
stockholders is computed by dividing net income, before extraordinary items,
by the weighted average number of shares of common stock and equivalents
outstanding during the period (see table below for effect of dilutive
securities).
Year Ended December 31,
------------------------------------------------------------------------------
2000 1999 1998
-------------------------- ------------------------- -------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
-------- ------- --------- ------- ------- --------- ------- ------- ---------
(In thousands, except per share data)
Income before
extraordinary items.... $111,007 106,561 $1.04 $70,220 107,011 $0.66 $59,903 106,689 $0.56
===== ===== =====
Effect of dilutive
securities-- stock
options(/1/)........... -- 2,456 -- 2,135 -- 2,731
-------- ------- ------- ------- ------- -------
Income applicable to
common stockholders
plus assumed conversion
of options(/1/)........ $111,007 109,017 $1.02 $70,220 109,146 $0.64 $59,903 109,420 $0.55
======== ======= ===== ======= ======= ===== ======= ======= =====
--------
(/1/) Includes Directors stock units.
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 minority investors. There are
also minority investors in the Company's consolidated residential joint
ventures.
New accounting standards--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. At
December 31, 2000 and 1999, the Company had no derivative investments or
ongoing hedging activities.
F-9
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Mortgage and Other Debt
Mortgage and other debt consisted of the following:
December 31,
-------------------
2000 1999
---------- --------
(In thousands)
First mortgage loan, interest at 6.01%, due at various
dates through November 11,
2008(/a/)................................................. $ 363,156 $368,034
Collateralized term loans, interest variable (7.88% to
8.55% at December 31, 2000), due at various dates through
September 28, 2005(/b/)................................... 309,837 12,612
First mortgage loans, interest at 6.65% to 9.75%, due at
various dates through May 1, 2010(/c/).................... 258,026 221,022
Construction loans, interest variable (8.19% to 9.5% at
December 31, 2000), due at various dates through April 13,
2003(/d/)................................................. 79,520 47,266
Acquisition loans, interest at 7.23% to 10.0%, due at
various dates through December 1, 2005(/e/)............... 43,273 44,022
Assessment district bonds, interest at 4.0% to 8.7%, due at
various dates through September 2, 2021(/f/).............. 26,116 24,845
Collateralized promissory notes, interest variable (10.5%
to 11.5% at December 31, 2000), due at various dates
through October 22, 2003(/g/)............................. 21,360 21,360
Industrial capital leases, interest variable (9.5% at
December 31, 2000), due at various dates through December
31, 2002(/h/)............................................. 15,336 6,852
Residential acquisition and construction loans, interest
variable (10.0% to 10.25% at December 31, 2000), due at
various dates through September 22, 2001(/i/)............. 8,772 36,000
Collateralized revolving credit line, interest variable.... -- 48,135
Revolving credit line (residential subsidiary)(/i/)........ -- 36,000
Other loans, interest at 5.33% to 6.7%, due at various
dates through October 15, 2025............................ 9,167 9,416
---------- --------
$1,134,563 $875,564
========== ========
--------
(/a/) In 1998, the Company closed a $373 million loan, which bears interest at
6.01% (6.6% effective rate considering financing costs) and is amortized
over 30 years with a maturity of 10 years. The Company recognized a $25.2
million extraordinary charge, net of tax benefit of $16.8 million, related
to the early retirement of this 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 Company closed a $157.9 million variable rate (LIBOR plus 1.8%)
collateralized term loan during 2000, maturing in September 2005. At
December 31, 2000, $130.5 million was drawn and the Company expects the
remaining $27.4 million to be funded upon satisfaction of certain
conditions.
During the year, the Company also closed a $166.9 million variable rate
(LIBOR plus 2.0%) collateralized term loan, maturing in October 2002. At
December 31, 2000, the entire amount was funded.
Term loans are collateralized by operating properties and by assignment of
rents generated by the underlying properties.
(/c/) The first mortgage loans consist of a $148.4 million loan bearing interest
at 6.65% (6.83% effective rate considering financing costs), maturing in
September 2006; $74.7 million of loans bearing interest at 7.29% (7.39%
effective rate considering financing costs) maturing at various dates from
January 2008 through May
F-10
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2010; a $21.0 million loan bearing interest at 9.75%, maturing October
2002; and $14.0 million of loans bearing interest at 7.625% to 9.5%,
maturing at various dates from October 2002 through March 2009 from
various lenders.
During 2000, the Company closed $41.3 million of new loans which amortize
over periods of 25 to 30 years with maturities of 8 to 10 years.
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.
(/d/) The Company's construction loans are used to finance industrial
development projects and are collateralized by the related land and
improvements.
(/e/) In connection with acquisitions of land, land subject to leases and other
leases, subsidiaries of the Company issued collateralized promissory
notes, of which $27.6 million was outstanding at December 31, 2000. The
Company intends to sell these assets. Accordingly, these collateralized
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
collateralized 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 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 collateralized by
certain of the Company's properties.
(/g/) These promissory notes were used to finance land purchases for residential
development projects and are collateralized by deeds of trust.
(/h/) Industrial capital leases represent the estimated present value of the
minimum lease payments.
(/i/) The Company's residential acquisition and construction loans are used to
finance development projects and are collateralized by the related land
and improvements. A total of approximately $68 million of debt consisting
of this debt and amounts outstanding under the revolving credit line was
paid from the initial cash proceeds from the sale of the home-building
assets of the Company (see Note 14).
Three loan agreements contain financial covenants, the most restrictive of
which requires a net cash flow coverage ratio of 1.30:1. The other loans
require that the Company maintain certain other specified financial ratios. The
Company was in compliance with all such covenants at December 31, 2000.
The maturities of mortgage and other debt outstanding as of December 31, 2000
are summarized as follows (in thousands):
2001.......................................................... $ 27,150
2002.......................................................... 308,130
2003.......................................................... 65,265
2004.......................................................... 20,695
2005.......................................................... 143,823
Thereafter.................................................... 569,500
----------
$1,134,563
==========
F-11
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest costs relating to mortgage and other debt are summarized as follows:
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Total interest incurred...................... $ 69,620 $ 63,764 $ 58,630
Interest capitalized......................... (18,656) (24,390) (21,246)
-------- -------- --------
Interest expensed............................ $ 50,964 $ 39,374 $ 37,384
======== ======== ========
Previously capitalized interest included in
cost of sales............................... $ 9,802 $ 11,777 $ 6,075
======== ======== ========
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:
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Federal income tax expense at statutory
rate........................................ $ 65,136 $ 41,269 $ 35,106
Increase in taxes resulting from:
State income taxes, net of federal impact.. 9,860 6,251 5,203
Other...................................... 99 170 91
-------- -------- --------
$75,095 $ 47,690 $ 40,400
======== ======== ========
F-12
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:
December 31,
-----------------
2000 1999
-------- --------
(In thousands)
Deferred tax liabilities:
Involuntary conversions (condemnations) of property...... $ 85,650 $ 90,341
Capitalized interest, taxes, and overhead................ 93,211 92,907
Like-kind property exchanges............................. 92,674 58,889
Investments in partnerships.............................. 49,029 45,839
Income of subsidiary REIT................................ 23,726 8,264
Capital lease............................................ 14,966 5,215
Other.................................................... 11,720 2,198
-------- --------
370,976 303,653
-------- --------
Deferred tax assets:
Operating loss and tax credit carryforwards.............. 3,071 8,233
Intercompany transactions (prior to spin-off)............ 15,253 15,306
Capitalized rent......................................... 23,901 24,411
Adjustment to carrying value of property................. 41,425 41,455
Construction contract receivable......................... 8,832 2,474
Depreciation and amortization............................ 17,309 14,312
Capital lease payable.................................... 6,134 2,741
Environmental reserve.................................... 4,097 4,161
Other.................................................... 2,979 4,968
-------- --------
123,001 118,061
-------- --------
Net deferred tax liability............................. $247,975 $185,592
======== ========
The Company has tax credit carryforwards of $3.1 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 $2.1 million and $1.1 million for the years ended
December 31, 2000 and 1999, respectively, associated with the exercise of
stock options is credited directly to paid-in capital on the accompanying
statement of stockholders' equity.
F-13
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 unconsolidated joint ventures include the following at
December 31, 2000:
Ownership
Operating Properties Percentage
-------------------- ----------
Hotel
International Rivercenter.... 25.16%
New Orleans Rivercenter...... 42.32%
Pacific Market Investment
Company..................... 50%
Office
Torrance Investment Company.. 66.67%
Ownership
Development Projects Percentage
-------------------- ----------
Residential Development
Talega Associates, LLC....... 30%
Talega Village, LLC.......... 50%
Serrano Associates, LLC...... 66.7%
BHC Residential, LLC (see
Note 14)..................... 35%(/1/)
--------
(/1/)Represents the Company's profit sharing percentage.
During 2000, the Company acquired the remaining interest that it did not
previously own in a residential joint venture, Hercules, LLC, which
subsequently sold 117 lots, and the Company realized a pre-tax gain of
$3.8 million. Consequently, the $27.1 million of the Company's investment in
this joint venture was consolidated as of December 31, 2000.
During 1999, the Company acquired the remaining 50% interest that it did not
previously own in its apartment joint venture, JMB/Santa Fe Bayfront Venture,
which subsequently sold the apartment building that was its sole asset, 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, 2000, these guarantees totaled $32.2 million.
In some cases, other parties have jointly and severally guaranteed these
obligations.
F-14
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:
Proportionate
Combined Share
------------------ ------------------
December 31, December 31,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
Assets:
Operating properties:
Property....................... $126,363 $127,265 $ 41,915 $ 42,009
Other.......................... 20,416 13,041 6,301 4,369
Development projects:
Property....................... 295,837 257,111 122,218 118,619
Other.......................... 29,562 12,583 13,413 9,285
-------- -------- -------- --------
Total........................ $472,178 $410,000 $183,847 $174,282
======== ======== ======== ========
Liabilities and venturers' equity:
Operating properties:
Notes Payable.................. $194,384 $131,903 $ 60,197 $ 44,481
Other.......................... 13,601 17,736 4,111 4,813
Development projects:
Notes Payable.................. 148,523 173,620 61,378 72,476
Other.......................... 82,138 18,282 27,997 7,503
-------- -------- -------- --------
Total liabilities............ 438,646 341,541 153,683 129,273
-------- -------- -------- --------
Venturers' equity/(deficit):
Operating properties........... (61,206) (9,333) (16,092) (2,916)
Development projects........... 94,738 77,792 46,256 47,925
-------- -------- -------- --------
33,532 68,459 30,164 45,009
-------- -------- -------- --------
Total liabilities and
venturers' equity........... $472,178 $410,000 $183,847 $174,282
======== ======== ======== ========
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, because there are varying distribution agreements,
and because 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.
During 2000, one of the hotel joint ventures refinanced its property and
subsequently distributed $15.6 million to the Company. This was recorded as a
reduction in the Company's proportionate share of the venturers' equity.
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.
F-15
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Combined Proportionate Share
-------------------------- ------------------------
Year Ended December 31,
---------------------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- ------- -------
(In thousands)
Revenue:
Operating properties.. $139,692 $136,199 $148,669 $ 41,777 $40,502 $38,716
Development projects.. 320,548 117,839 101,765 144,381 53,611 38,472
-------- -------- -------- -------- ------- -------
460,240 254,038 250,434 186,158 94,113 77,188
-------- -------- -------- -------- ------- -------
Expenses:
Operating properties.. 104,642 98,929 128,145 31,968 29,834 29,348
Development projects.. 275,893 91,139 84,785 116,601 43,459 31,845
-------- -------- -------- -------- ------- -------
380,535 190,068 212,930 148,569 73,293 61,193
-------- -------- -------- -------- ------- -------
Net earnings before
income tax............. $ 79,705 $ 63,970 $ 37,504 $ 37,589 $20,820 $15,995
======== ======== ======== ======== ======= =======
Note 6. Property
Book value by property type consisted of the following:
December 31,
----------------------
2000 1999
---------- ----------
(In thousands)
Rental properties:
Industrial buildings............................... $ 874,168 $ 739,158
Office buildings................................... 205,179 200,760
Retail buildings................................... 94,085 92,946
Land and land leases............................... 92,803 64,071
Investment in operating joint ventures............. (16,092) (2,916)
---------- ----------
1,250,143 1,094,019
---------- ----------
Developable properties:
Commercial......................................... 168,837 193,520
Residential (see Note 14).......................... 64,479 116,118
Urban development.................................. 366,136 323,859
Investment in development joint ventures........... 46,256 47,925
---------- ----------
645,708 681,422
---------- ----------
Work-in-process:
Commercial......................................... 50,098 52,207
Commercial--capital lease.......................... 37,415 13,038
Residential (see Note 14).......................... 4,883 65,154
---------- ----------
92,396 130,399
---------- ----------
Furniture and equipment.............................. 26,599 25,754
Other................................................ 10,967 12,423
---------- ----------
Gross book value..................................... 2,025,813 1,944,017
Accumulated depreciation............................. (320,275) (294,846)
---------- ----------
Net book value....................................... $1,705,538 $1,649,171
========== ==========
F-16
CATELLUS DEVELOPMENT CORPORATION
Note 7. Other Financial Statement Captions
Other Assets and Deferred Charges, Net
The Company's other assets and deferred charges consisted of the following:
December 31,
----------------
2000 1999
-------- -------
(In thousands)
Deferred financing fees, net............................... $ 29,647 $26,314
Deferred lease commissions, net............................ 33,096 25,757
Straight-line rent......................................... 17,452 13,433
Prepaid expenses........................................... 10,606 10,336
Deferred cost of sales..................................... 9,908 758
Cash surrender value of life insurance..................... 7,525 4,553
Other...................................................... 12,799 11,870
-------- -------
$121,033 $93,021
======== =======
Amortization of lease commissions was $4.9 million, $3.9 million, and $4.0
million for the years ended December 31, 2000, 1999, and 1998, respectively.
Amortization of deferred finance fees was $6.4 million, $4.6 million, and $2.8
million for the years ended December 31, 2000, 1999, and 1998, respectively.
The aggregate total of employee loans at December 31, 2000 was $1.9 million.
In December 2000, the Company issued an unsecured $1.0 million promissory note
to an employee pursuant to an employment agreement. Interest is fixed at 5.87%
and is due annually commencing February 28, 2002. Principal repayment is in
three annual installments of $333,000 commencing on the first anniversary of
the employee's termination date, as defined, subject to acceleration
provisions in case of certain events. The principal amount is included in
"Other" above.
Accounts Payable and Accrued Expenses
The Company's accounts payable and accrued expenses consisted of the
following:
December 31,
----------------
2000 1999
-------- -------
(In thousands)
Accrued construction costs................................. $ 33,183 $23,567
Salaries, bonuses and deferred compensation................ 27,985 23,291
Property taxes............................................. 14,331 12,401
Provision for estimated loss on fee development contract... -- 6,700
Interest................................................... 10,303 7,356
Income taxes............................................... -- 2,958
Other...................................................... 10,472 16,518
-------- -------
$ 96,274 $92,791
======== =======
F-17
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:
December 31,
---------------
2000 1999
------- -------
(In thousands)
Deferred profits............................................ $17,670 $25,167
Security deposits........................................... 11,457 5,825
Environmental and legal reserve............................. 10,377 10,502
Rent deposits............................................... 4,660 3,708
Sales deposits.............................................. 4,212 6,276
Other....................................................... 10,346 7,273
------- -------
$58,722 $58,751
======= =======
The environmental and legal reserve is more fully described in Note 15.
Deferred profits represent cash or notes 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 2052. Rental revenue under these leases
totaled $202.8 million in 2000, $168.4 million in 1999, and $150.1 million in
1998. Included in this revenue are rentals contingent on lessees' operations
of $3.4 million in 2000, $2.0 million in 1999, and $2.6 million in 1998.
Future minimum rental revenue under existing noncancelable operating leases as
of December 31, 2000, is summarized as follows (in thousands):
2001.......................................................... $ 151,635
2002.......................................................... 136,537
2003.......................................................... 117,787
2004.......................................................... 102,319
2005.......................................................... 75,987
Thereafter.................................................... 732,359
----------
$1,316,624
==========
The book value of the Company's properties under operating leases or held
for rent is summarized as follows:
December 31,
----------------------
2000 1999
---------- ----------
(In thousands)
Buildings............................................ $1,173,432 $1,032,864
Land and land leases................................. 92,803 64,071
---------- ----------
1,266,235 1,096,935
Less accumulated depreciation........................ (287,039) (264,213)
---------- ----------
$ 979,196 $ 832,722
========== ==========
F-18
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 $3.1 million in 2000, $3.3 million in 1999, and $3.0 million in 1998.
Future minimum lease payments as of December 31, 2000, are summarized as
follows (in thousands):
2001.............................................................. $2,289
2002.............................................................. 2,140
2003.............................................................. 1,921
2004.............................................................. 1,663
2005.............................................................. 1,351
Thereafter........................................................ 130
------
$9,494
======
Note 9. Property Sales and Fee Services--Other, net
Other (expense) income is summarized as follows:
Year Ended December 31,
--------------------------
2000 1999 1998
-------- ------- -------
(In thousands)
Provision for estimated loss on fee
development contract......................... $(11,000) $(6,700) $ --
Reserve for uncollectable note receivable..... (2,000) -- --
Abandoned project costs....................... (1,720) (2,608) (2,475)
Land holding costs............................ (286) (2,933) (3,384)
Interest income............................... 6,551 6,910 1,239
Deferred revenue.............................. -- -- 3,571
All other, net................................ (99) (144) 387
-------- ------- -------
$(8,554) $(5,475) $ (662)
======== ======= =======
During 2000 and 1999, the Company recorded estimated losses of $11.0 million
and $6.7 million, respectively, related to one residential fee development
project.
Note 10. Non-Strategic Asset Sales
The Company's sales of non-strategic assets are summarized as follows:
Year Ended December 31,
-----------------------
2000 1999 1998
------- ------- -------
(In thousands)
Sales................................................ $50,759 $10,576 $80,041
Cost of sales........................................ 4,480 3,773 61,112
------- ------- -------
Gain............................................... $46,279 $ 6,803 $18,929
======= ======= =======
In 2000, the Company sold 405,000 acres of desert holdings for $45.1 million
resulting in a pre-tax gain of $42.4 million.
F-19
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11. 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
profit sharing contributions by the Company. Total expense for the Company
under this plan was $1.2 million, $1.1 million, and $0.9 million in 2000,
1999, and 1998, 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 December 4, 2000.
The Company also has five stock option plans under which certain committees
of the Board of Directors may grant options to purchase up to 14,500,000
shares of common stock (Stock Option Plan, Amended and Restated Executive
Stock Option Plan, 1995 Stock Option Plan, Amended and Restated 1996
Performance Award Plan, and 2000 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 typically 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.
The Company also has various plans through which non-employee directors may
purchase or receive common stock of the Company.
Under the Amended and Restated Executive Stock Option Plan and the Amended
and Restated 1996 Performance Award Plan, each non-employee director was
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 the options are at fair market
value, as defined, on the date of grant. Options granted under the Amended and
Restated Executive Stock Option Plan were exercisable in installments on a
cumulative basis at a rate of 20% each year. Under the Amended and Restated
1996 Performance Award Plan, options granted through 1998 were exercisable
based upon stock price performance benchmarks, while options granted in 1999
and after became exercisable in four annual installments. After May 22, 1996,
no further options were granted to non-employee directors under the Amended
and Restated Executive Stock Option Plan.
Under the 2000 Performance Award Plan, in lieu of the automatic grants
provided for in the Amended and Restated 1996 Performance Award Plan, each
non-employee director is automatically granted an option, immediately
following each annual meeting of stockholders, to purchase 5,000 shares of
common stock. Any new non-employee member of the Board will receive an option
to purchase a portion of 5,000 shares that corresponds to the number of months
until the next annual meeting. The exercise price of each automatic stock
option is the closing stock price on the date of grant. Each automatic stock
option has a ten-year term and becomes exercisable in four equal installments
on each of the first four anniversaries of the date of grant.
In addition, the Amended and Restated 1996 Performance Award Plan had
provided, and the 2000 Performance Award Plan currently provides, that each
non-employee director may elect irrevocably to defer any retainers or fees and
receive director stock units instead. If a director makes such an election,
his or her director stock units will be distributed to him or her in the form
of common stock on a date not less than three years after
F-20
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the election is made. 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. Each non-employee director has already made an election under the
2000 Performance Award Plan for compensation to be earned in 2001.
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 2000, 1999, and 1998 was $5.31, $5.35,
and $6.26, 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 2000, 1999, and 1998, respectively:
risk-free interest rates of 6.39%, 5.52%, and 5.15%; zero percent dividend
yields; volatility factors of the expected market price of the Company's
common stock of 28.5%, 30.0%, and 31.4%, 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:
Year Ended December 31,
------------------------
2000 1999 1998
-------- ------- -------
(In thousands, except
income per
share information)
Pro forma net income applicable to common
stockholders.................................... $104,537 $92,333 $32,786
======== ======= =======
Pro forma income per share--basic................ $ 0.98 $ 0.86 $ 0.31
======== ======= =======
Pro forma income per share--assuming dilution.... $ 0.96 $ 0.85 $ 0.30
======== ======= =======
F-21
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity, and related information is
as follows:
Year Ended December 31,
---------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------ ------------------------
Weighted-Average Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
(In thousands, except exercise price information)
Outstanding--beginning
of year................ 7,333 $10.83 7,383 $10.49 6,522 $ 9.16
Granted................. 4,172 $14.05 827 $14.50 1,446 $15.98
Exercised............... (903) $ 8.61 (373) $ 7.38 (305) $ 7.69
Expired................. (147) $11.74 (25) $16.19 (2) $14.71
Forfeited............... (196) $15.85 (479) $14.75 (278) $11.06
------ ----- -----
Outstanding--end of
year................... 10,259 $12.22 7,333 $10.83 7,383 $10.49
====== ===== =====
Exercisable at end of
year................... 5,158 $10.03 4,369 $ 8.56 3,414 $ 8.05
====== ===== =====
Exercise prices for options outstanding as of December 31, 2000, ranged from
$5.58 to $21.38. The weighted-average remaining contractual life of those
options is 6.7 years.
Note 12. Capital Stock
The Company has authorized the issuance of 150 million shares of $.01 par
value common stock. The Company has reserved 14,500,000 shares of common stock
pursuant to various compensation programs.
In October 1999, the Company's Board of Directors authorized a share
repurchase program for up to $50 million of the outstanding common stock.
Share purchases under the program were made on the open market or in privately
negotiated transactions. The program was authorized for a period of one year.
Under the program, the Company repurchased 1,997,300 shares at a cost of $28.7
million. The Company's repurchases are reflected as treasury stock at cost and
are presented as a reduction to consolidated stockholders' equity.
On December 12, 2000, the Company's Board of Directors authorized a new
share repurchase program for up to $50 million of the outstanding stock
through the end of 2001. The timing of purchases, if any, 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. There were no
repurchases under this program as of December 31, 2000. Subsequent to year
end, the Company has purchased 2,888,900 shares at a cost of $49.9 million
through March 12, 2001. In March 2001, the Company received from its Board of
Directors authorization for an additional $50 million for its share repurchase
program.
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. 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 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. No shares of this series
of preferred stock have been issued.
F-22
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13. Segment Reporting
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which disaggregates its
business by type. The Company has four reportable segments: Commercial,
Residential, Urban Development, and Corporate. The Commercial segment leases
and manages the Company-owned commercial buildings and land, develops real
estate for the Company's own account or for third parties, and acquires and
sells developable land and commercial buildings. The Residential segment is
involved in community development, project management, and, historically,
home-building activities (see additional discussion regarding the sale of the
home-building assets in Note 14, Sale of Home-Building Assets). The Urban
Development segment entitles and develops major mixed-use development sites,
which includes 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.
EBDDT is calculated by making various adjustments to net income.
Depreciation, amortization, and deferred income taxes are added back to net
income as they represent non-cash charges. Since depreciation expense is added
back to net income in arriving at EBDDT, the portion of gain on property sales
attributable to depreciation recapture is excluded from EBDDT. In addition,
gains on the sale of non-strategic assets and extraordinary items, including
their current tax effect, represent unusual and/or non-recurring items and are
excluded from the EBDDT calculation. A reconciliation from EBDDT to net income
is also provided.
F-23
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial data by reportable segment is as follows:
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
2000
Rental properties:
Rental revenue.......... $ 192,039 $ 110 $ 14,613 $ -- $ 206,762
Property operating
costs.................. (47,910) -- (7,362) -- (55,272)
Equity in earnings of
operating joint
ventures, net.......... 9,809 -- -- -- 9,809
---------- --------- -------- -------- ----------
153,938 110 7,251 -- 161,299
---------- --------- -------- -------- ----------
Property sales and fee
services:
Sales revenue........... 158,274 292,822 -- -- 451,096
Cost of sales........... (98,825) (238,930) -- -- (337,755)
---------- --------- -------- -------- ----------
Gain on property
sales................ 59,449 53,892 -- -- 113,341
Equity in earnings of
development joint
ventures, net.......... 13 27,767 -- -- 27,780
---------- --------- -------- -------- ----------
Total gain on property
sales................ 59,462 81,659 -- -- 141,121
Management and
development fees....... 12,813 1,498 1,149 -- 15,460
Selling, general and
administrative
expenses............... (18,546) (25,804) (2,248) -- (46,598)
Other, net.............. 2,877 (11,412) (19) -- (8,554)
---------- --------- -------- -------- ----------
56,606 45,941 (1,118) -- 101,429
---------- --------- -------- -------- ----------
Interest expense........ (50,806) (546) (1,153) 1,541 (50,964)
Corporate administrative
costs.................. -- -- -- (15,675) (15,675)
Minority interests...... (6,347) (4,354) -- -- (10,701)
Other, net.............. -- -- -- 940 940
Depreciation recapture.. (14,519) -- -- -- (14,519)
---------- --------- -------- -------- ----------
Pre-tax EBDDT......... $ 138,872 $ 41,151 $ 4,980 $(13,194) 171,809
========== ========= ======== ========
Current taxes........... (12,539)
----------
EBDDT................... 159,270
Depreciation and
amortization........... (46,505)
Deferred taxes.......... (62,556)
Non-strategic asset
sales.................. 46,279
Depreciation recapture.. 14,519
----------
Net Income............ $ 111,007
==========
Investments in equity
method subsidiaries.... $ (16,081) $ 46,245 $ -- $ -- $ 30,164
========== ========= ======== ======== ==========
Segment assets.......... $1,397,400 $ 152,600 $355,600 $369,900 $2,275,500
========== ========= ======== ======== ==========
Capital expenditures for
segment assets......... $ 277,300 $ 115,400 $ 41,300 $ 2,000 $ 436,000
========== ========= ======== ======== ==========
Previously capitalized
interest included in
cost of sales.......... $ 4,156 $ 5,646 $ -- $ -- $ 9,802
========== ========= ======== ======== ==========
F-24
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
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
Equity in earnings of
development joint
ventures, net.......... (23) 10,175 -- -- 10,152
---------- --------- -------- -------- ----------
Total gain on property
sales................ 42,614 50,981 -- -- 93,595
Management and
development fees....... 11,464 892 2,612 -- 14,968
Selling, general and
administrative
expenses............... (9,280) (17,237) (825) -- (27,342)
Other, net.............. 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, net.............. -- -- -- (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.......... $1,222,300 $ 273,400 $316,000 $ 43,200 $1,854,900
========== ========= ======== ======== ==========
Capital expenditures for
segment assets......... $ 267,300 $ 202,200 $ 27,500 $ 2,300 $ 499,300
========== ========= ======== ======== ==========
Previously capitalized
interest included in
cost of sales.......... $ 5,127 $ 6,650 $ -- $ -- $ 11,777
========== ========= ======== ======== ==========
F-25
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Urban
Commercial Residential Development Corporate Total
---------- ----------- ----------- --------- ----------
(In thousands)
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
Equity in earnings of
development joint
ventures, net.......... 1,296 5,331 -- -- 6,627
---------- -------- -------- -------- ----------
Total gain on property
sales................ 26,708 31,457 -- -- 58,165
Management and
development fees....... 13,641 1,310 1,841 -- 16,792
Selling, general and
administrative
expenses............... (8,704) (12,875) (653) -- (22,232)
Other, net.............. (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, net.............. -- -- -- (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.......... $1,113,100 $179,900 $248,500 $ 84,000 $1,625,500
========== ======== ======== ======== ==========
Capital expenditures for
segment assets......... $ 246,500 $144,200 $ 26,200 $ 1,500 $ 418,400
========== ======== ======== ======== ==========
Previously capitalized
interest included in
cost of sales.......... $ 2,872 $ 3,203 $ -- $ -- $ 6,075
========== ======== ======== ======== ==========
F-26
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14. Sale of Home-Building Assets
In July 2000, the Company's residential subsidiary sold a majority of its
home-building assets, with a book value of $125.8 million, to a newly formed
limited liability company ("LLC") managed by Brookfield Homes of California,
Inc., for $139 million in cash and a retained interest in the new company
valued at $22.5 million. Approximately $77 million of the initial cash
proceeds were used for debt repayment, closing costs, and other expenses
related to the sale of the home building operations. The remaining proceeds
were added to the Company's working capital. Under the agreement, the
Company's residential subsidiary will receive in cash approximately 55% of the
value of its retained interest in early 2001 and anticipates receiving the
balance plus 35% of the profits in cash over the next 24 to 36 months as homes
are built and sold. In addition, the Company is entitled to a preferred return
on the retained interest.
In 2000, the Company recorded a $13.4 million gain on property sales related
to this transaction and recognized $8.3 million of the $22.5 million retained
interest, $0.8 million of the Company's 35% share of the profits of the LLC
and a $1.0 million preferred return from the Company's investment in the LLC.
Note 15. Commitments and Contingencies
As of December 31, 2000, the Company has outstanding standby letters of
credit and surety bonds in the amount of $144 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). In addition, the Company has guaranteed debt
service of $14.3 million and project completion of $5.1 million for various
residential projects.
The Company is a party to a number of legal actions arising in the ordinary
course of business. The Company cannot predict with certainty the final
outcome of these proceedings. Considering current insurance coverages and the
substantial legal defenses available, however, management believes that none
of these actions, when finally resolved, will have a material adverse effect
on the consolidated financial position, results of operations, or cash flows
of the Company. Where appropriate, the Company has established reserves for
potential liabilities related to legal actions or threatened legal actions.
These reserves are necessarily based on estimates and probabilities of the
occurrence of events and therefore are subject to revision from time to time.
Some of the legal actions to which the Company is party seek to restrain
actions related to the development process or challenge title to or possession
of the Company's properties. Typically, such actions, if successful, would not
result in significant financial liability for the Company but might instead
prevent the completion of the development process or the completion of the
development process as originally planned.
Inherent in the operations of the real estate business is the possibility
that environmental liability may arise from the current or past ownership, or
current or past operation, of real properties. The Company may be required in
the future to take action to correct or reduce the environmental effects of
prior disposal or release of hazardous substances by third parties, the
Company, or its corporate predecessors. Future environmental costs are
difficult to estimate because of such factors as the unknown magnitude of
possible contamination, the unknown timing and extent of the corrective
actions which may be required, the determination of the Company's potential
liability in proportion to that of other potentially responsible parties, and
the extent to which such costs are recoverable from insurance. Also, the
Company does not generally have access to properties sold in the past which
could create environmental liabilities.
At December 31, 2000, management estimates that future costs for remediation
of environmental contamination on operating properties and properties
previously sold approximate $9.9 million, and has provided
F-27
CATELLUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
a reserve for that amount. It is anticipated that such costs will be incurred
over the next several years. Management also estimates that similar costs
relating to the Company's properties to be developed or sold may range from
$25.5 million to $39.5 million. These amounts will be capitalized as
components of development costs when incurred, which is anticipated to be over
a period of twenty years, or will be deferred and charged to cost of sales
when the properties are sold. Environmental costs capitalized during 2000
totaled $0.7 million. The Company's estimates were developed based on reviews
which took place over several years based upon then-prevailing law and
identified site conditions. Because of the breadth of its portfolio, and past
sales, the Company is unable to review each property extensively on a regular
basis. Such estimates are not precise and are always subject to the
availability of further information about the prevailing conditions at the
site, the future requirements of regulatory agencies, and the availability and
ability of other parties to pay some or all of such costs.
In connection with the acquisition in 2000 of a property known to have
environmental problems, an indirect subsidiary of the Company has entered into
an agreement with the California Department of Toxic Substance Control to
perform certain work to investigate and remedy hazardous materials left behind
by the previous operators of the site. The Company has guaranteed completion
of the work with a limited liability of $22 million. The Company has entered
into a $15 million fixed-price contract for the completion of the work and
obtained insurance to cover various cost overruns.
F-28
CATELLUS DEVELOPMENT CORPORATION
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.
Year Ended December 31,
-------------------------------------------------------------------------------
2000 1999
--------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
-------- -------- --------- -------- -------- -------- -------- --------
(In thousands, except per share data)
Rental properties:
Rental revenue......... $ 49,918 $ 50,738 $ 52,523 $ 53,583 $ 41,479 $ 41,291 $ 43,081 $ 46,444
Property operating
costs................. (12,658) (13,731) (14,251) (14,632) (11,508) (11,250) (11,897) (12,099)
Property sales and fee
services:
Sales revenue.......... 76,021 106,978 213,190 54,907 73,639 70,455 98,123 104,788
Cost of sales.......... (56,138) (64,244) (172,512) (44,861) (55,722) (56,495) (77,013) (74,332)
Management and
development fees...... 3,269 3,324 2,749 6,118 2,836 3,839 3,936 4,357
Selling, general and
administrative
expenses.............. (9,923) (9,409) (14,249) (13,017) (5,560) (5,914) (5,564) (10,304)
Interest expense........ (9,819) (10,753) (12,957) (17,435) (9,406) (9,640) (10,404) (9,924)
Gain on non-strategic
asset sales............ 27,667 (198) 18,662 148 986 2,904 2,529 384
Corporate administrative
costs.................. (4,260) (3,460) (3,656) (4,299) (3,844) (3,750) (3,727) (3,439)
Depreciation and
amortization........... (10,870) (11,379) (11,661) (12,595) (9,162) (9,422) (10,039) (10,591)
Income before
extraordinary items.... 34,738 26,067 35,604 14,598 16,380 17,807 19,126 16,907
Extraordinary items,
net.................... -- -- -- -- -- -- -- 26,652
Net income.............. $ 34,738 $ 26,067 $ 35,604 $ 14,598 $ 16,380 $ 17,807 $ 19,126 $ 43,559
======== ======== ========= ======== ======== ======== ======== ========
Net income per common
share-- basic.......... $ 0.32 $ 0.24 $ 0.34 $ 0.14 $ 0.15 $ 0.17 $ 0.18 $ 0.41
======== ======== ========= ======== ======== ======== ======== ========
Net income per common
share-- assuming
dilution............... $ 0.32 $ 0.24 $ 0.33 $ 0.13 $ 0.15 $ 0.16 $ 0.18 $ 0.40
======== ======== ========= ======== ======== ======== ======== ========
EBDDT(/1/).............. $ 34,399 $ 41,669 $ 45,652 $ 37,550 $ 30,726 $ 32,033 $ 33,268 $ 32,601
======== ======== ========= ======== ======== ======== ======== ========
--------
(/1/) Refer to Note 13 for a definition of EBDDT.
F-29
EXHIBIT INDEX
Exhibit
Number
-------
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 2000 Performance Award Plan is incorporated by reference
to the exhibits to the Registrant's proxy statement for the annual
stockholders' meeting held on May 2, 2000.
10.7 Registrant's Deferred Compensation Plan is incorporated by reference
to the exhibits to the Form 10-K for the year ended December 31, 1997.
10.8 Second Amended and Restated Employment Agreement dated as of October
1, 1999, between the Registrant and Nelson C. Rising is incorporated
by reference to the exhibits to the Form 10-K for the year ended
December 31, 1999.
E-1
Exhibit
Number
-------
10.8A Amendment to Second Amended and Restated Employment Agreement dated as
of February 7, 2001, between the Registrant and Nelson C. Rising is
attached.
10.9A 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.
10.9B Letter Agreement dated November 16, 1996, 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, 1996.
10.10 Memorandum of Understanding regarding Employment dated February 7,
2001, between the Registrant and Kathleen Smalley is attached.
10.11 Memorandum of Understanding regarding Employment dated February 7,
2001, between the Registrant and C. William Hosler is attached.
10.12 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.
23.1 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 are
attached.
The Registrant has omitted instruments with respect to long-term debt where
the total amount of the securities authorized thereunder does not exceed 10
percent of the assets of the Registrant and its subsidiaries on a consolidated
basis. The Registrant agrees to furnish a copy of such instrument to the
Commission upon request.
E-2
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 5, 2001, 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 5, 2001
S-1
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 2000
(In thousands)
Additions
-------------------
Balance at Charged to Charged
Beginning Costs and to Other Balance at
of Year Expenses Accounts Deductions End of Year
---------- ---------- -------- ---------- -----------
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
Year ended December 31,
2000
Allowance for doubtful
accounts receivable.. 1,254 853 -- (404)(/1/) 1,703
Allowance for doubtful
notes receivable..... 1,860 2,000 -- (40)(/1/) 3,820
Reserve for
environmental and
legal costs.......... 10,502 -- -- (125)(/3/) 10,377
--------
Notes:
(/1/) Balances written off as uncollectible.
(/2/) Costs of unsuccessful projects written off.
(/3/) Environmental and legal costs incurred.
S-2
CATELLUS DEVELOPMENT CORPORATION
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(Dollars in thousands)
Cost Capitalized
Initial Cost to Subsequent to Gross Amount at Which Carried at
Catellus Acquisition Close of Period(/1/)(/2/)(/3/)
--------------------- --------------------- --------------------------------
Buildings & Carrying Buildings & Accumulated
Description Encumbrances Land Improvements Improvements Costs Land Improvements Total Depreciation
----------- ------------ -------- ------------ ------------ -------- -------- ------------ ---------- ------------
Rental
properties....... $ 964,213 $160,302 $60,683 $ 951,061 $ 94,189 $160,302 $1,105,933 $1,266,235 $287,039
---------- -------- ------- ---------- -------- -------- ---------- ---------- --------
Developable
properties
Mission Bay,
San Francisco,
CA.............. -- 85,055 3,952 83,612 57,256 85,055 144,820 229,875 3,973
Other properties
less than 5% of
total........... 158,039 155,307 20,652 103,386 182,628 155,307 306,666 461,973 12,078
---------- -------- ------- ---------- -------- -------- ---------- ---------- --------
Total developable
properties....... 158,039 240,362 24,604 186,998 239,884 240,362 451,486 691,848 16,051
---------- -------- ------- ---------- -------- -------- ---------- ---------- --------
Other............ 2,224 7,315 710 2,224 718 7,315 3,652 10,967 776
---------- -------- ------- ---------- -------- -------- ---------- ---------- --------
Total............ $1,124,476 $407,979 $85,997 $1,140,283 $334,791 $407,979 $1,561,071 $1,969,050 $303,866
========== ======== ======= ========== ======== ======== ========== ========== ========
Life on
Which
Depreciation
in Latest
Date of Income
Completion of Date Statement is
Description Construction Acquired Computed
----------- ------------- -------- ------------
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............
-----
(/1/) The aggregate cost for Federal income tax purpose is approximately
$1,466,000.
(/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
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)
Year Ended December 31,
--------------------------------
2000 1999 1998
---------- ---------- ----------
Balance at January 1.......................... $1,873,254 $1,630,797 $1,364,324
---------- ---------- ----------
Additions during period:
Acquisitions.............................. 63,637 103,113 126,634
Improvements.............................. 368,185 389,356 322,319
Reclassification from other accounts...... 22,107 505 7,855
---------- ---------- ----------
Total additions......................... 453,929 492,974 456,808
---------- ---------- ----------
Deductions during period:
Cost of real estate sold.................. 356,077 248,578 190,067
Other Reclassification to personal
property and other accounts.............. 2,056 1,939 268
---------- ---------- ----------
Total deductions........................ 358,133 250,517 190,335
---------- ---------- ----------
Balance at December 31........................ $1,969,050 $1,873,254 $1,630,797
========== ========== ==========
RECONCILIATION OF REAL ESTATE ACCUMULATED DEPRECIATION
AT BEGINNING OF PERIOD WITH TOTAL AT END OF PERIOD
(In thousands)
Year Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Balance at January 1................................. $279,946 $252,332 $225,087
-------- -------- --------
Additions during period:
Charged to expense............................... 39,266 32,890 28,029
-------- -------- --------
Deductions during period:
Cost of real estate sold......................... 14,685 4,773 734
Other............................................ 661 503 50
-------- -------- --------
Total deductions............................... 15,346 5,276 784
-------- -------- --------
Balance at December 31............................... $303,866 $279,946 $252,332
======== ======== ========
S-4