-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WJ17Xdz4c0qhE0WQmrQzJZMYtnODGEDc7zNm3dstjT1jXaOtJukgeiUquGtDA0vq b/GcyRJZpM8BAy6pGFZlKw== 0001047469-98-010941.txt : 19980324 0001047469-98-010941.hdr.sgml : 19980324 ACCESSION NUMBER: 0001047469-98-010941 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19980323 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRUBB & ELLIS CO CENTRAL INDEX KEY: 0000216039 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE AGENTS & MANAGERS (FOR OTHERS) [6531] IRS NUMBER: 941424307 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-08122 FILM NUMBER: 98570903 BUSINESS ADDRESS: STREET 1: 2215 SANDERS RD STREET 2: STE 400 CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 4159561990 MAIL ADDRESS: STREET 1: ONE MONTGOMERY ST STE 3100 STREET 2: TELESIS TWR 9TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q/A 1 10-Q/A FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ---------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ___________________ Commission File Number: 1-8122 ------------------ GRUBB & ELLIS COMPANY ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-1424307 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2215 Sanders Road, Suite 400, Northbrook, IL 60062 --------------------------------------- (Address of principal executive offices) (Zip Code) (847) 753-7500 ---------------------------------------------------- (Registrant's telephone number, including area code) No Change --------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 ___ --- 19,588,371 ------------------------------------------------- (Number of shares outstanding of the registrant's common stock at November 1, 1997) PART I FINANCIAL INFORMATION 2 ITEM 1. FINANCIAL STATEMENTS GRUBB & ELLIS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) For the Three Months Ended September 30, -------------------- 1997 1996 ---------- --------- Revenue: Transaction service commissions $ 52,205 $ 42,791 Management services fees 7,058 5,728 Other fees 2,836 3,308 ---------- --------- Total revenue 62,099 51,827 ---------- --------- Costs and expenses: Transaction service commissions 31,202 25,936 Salaries and wages 15,859 12,677 Selling, general and administrative 11,995 10,694 Depreciation and amortization 736 767 Other non-recurring income -- (93) ---------- --------- Total costs and expenses 59,792 49,981 ---------- --------- Total operating income 2,307 1,846 Other income and expenses: Interest income 248 130 Other income, net 31 76 Interest expense to related parties -- (726) ---------- --------- Income before income taxes 2,586 1,326 Net benefit (provision) for income taxes 449 (30) ---------- --------- Net income $ 3,035 $ 1,296 ---------- --------- ---------- --------- Net income applicable to common stockholders, net of undeclared dividends earned on preferred stock in 1996 $ 3,035 $ 501 ---------- --------- ---------- --------- Net income per common share: Basic - $ .16 $ .06 ---------- --------- ---------- --------- Diluted - $ .14 $ .06 ---------- --------- ---------- --------- Weighted average common shares outstanding: Basic - 19,541,544 8,916,567 ---------- --------- ---------- --------- Diluted - 22,036,137 8,916,567 ---------- --------- ---------- --------- See notes to condensed consolidated financial statements. 3 GRUBB & ELLIS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS September 30, June 30, 1997 1997 ---------- --------- Current assets: Cash and cash equivalents $ 17,113 $ 16,790 Commissions, management services and other fees receivable 7,165 4,694 Other receivables 1,983 2,097 Prepaids and other current assets 99 1,257 Deferred taxes 3,820 3,220 ---------- --------- Total current assets 30,180 28,058 Noncurrent assets: Equipment and leasehold improvements, net 6,917 5,988 Commissions, management services and other fees receivable 581 525 Other assets 2,280 2,125 ---------- --------- Total assets $ 39,958 $ 36,696 ---------- --------- ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,034 $ 1,938 Compensation and employee benefits payable 4,963 4,568 Accrued office closure costs 605 788 Other accrued expenses 4,264 3,779 ---------- --------- Total current liabilities 11,866 11,073 Long-term liabilities: Accrued claims and settlements 10,l12 10,512 Accrued office closure costs 272 308 Other liabilities 1,874 1,880 ---------- --------- Total liabilities 24,124 23,773 ---------- --------- Stockholders' equity: Common stock, $.01 par value: 25,000,000 shares authorized; 19,583,571 and 19,509,952 shares issued and outstanding at September 30, 1997 and June 30, 1997, respectively 197 196 Additional paid-in-capital 110,454 110,579 Retained earnings (deficit) (94,817) (97,852) ---------- --------- Total stockholders' equity 15,834 12,923 ---------- --------- Total liabilities and stockholders' equity $ 39,958 $ 36,696 ---------- --------- ---------- --------- See notes to condensed consolidated financial statements. 4 GRUBB & ELLIS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) For the three Months Ended September 30, ------------------- 1997 1996 ---------- --------- Cash Flows from Operating Activities Net income $ 3,035 $ 1,296 Adjustments to reconcile net income to net cash provided by operating activities (1,170) (118) ---------- --------- Net cash provided by operating activities 1,865 1,178 ---------- --------- Cash Flows from Investing Activities: Purchases of equipment and leasehold improvements (1,418) (287) Proceeds from disposition and distribution from real estate joint ventures and real estate owned -- 10 ---------- --------- Net cash used in investing activities (1,418) (277) ---------- --------- Cash Flows from Financing Activities: Exercise of common stock options (124) -- Repayment of notes payable -- (5) ---------- --------- Net cash used in financing activities (124) (5) ---------- --------- Net increase in cash and cash equivalents 323 896 Cash and cash equivalents at beginning of period 16,790 13,547 ---------- --------- Cash and cash equivalents at end of period $ 17,113 $ 14,443 ---------- --------- ---------- --------- _________________________________ Supplemental Disclosure of Cash Flow Information: Cash payments during the period for: Interest $ 605 Income taxes $ 195 33 See notes to condensed consolidated financial statements. 5 GRUBB & ELLIS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. INTERIM PERIOD REPORTING The accompanying unaudited condensed consolidated financial statements include the accounts of Grubb & Ellis Company and its wholly owned subsidiaries and controlled partnerships (collectively, the "Company"). The accompanying unaudited condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and, therefore, should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 1997. The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities (including disclosure of contingent assets and liabilities) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations for the interim periods presented have been included in these financial statements and are of a normal and recurring nature. Certain amounts in prior periods have been reclassified to conform to the current presentation. Operating results for the three months ended September 30, 1997 are not necessarily indicative of the results that may be achieved in future periods. 2. INCOME TAXES The Company's tax provision consists of currently payable state and local income taxes and federal alternative minimum taxes, totaling $151,000 and $30,000 in the three months ended September 30, 1997 and 1996, respectively. In addition, the Company recognized a deferred tax benefit of $600,000 in the three months ended September 30, 1997, as a result of a reduction in the valuation allowance against the net deferred tax asset, based upon the expected utilization of net operating loss carryforwards. Management believes that, due to favorable economic conditions, the elimination of debt and the recent trend of earnings, it is more likely than not that the Company will generate sufficient future taxable income to realize the deferred tax asset. 6 GRUBB & ELLIS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. NET INCOME PER COMMON SHARE Net income per common share computations are based on the weighted average number of common shares outstanding. Stock options, stock warrants and convertible preferred stock are excluded from the computations of diluted earnings per share if their effect is anti-dilutive. The calculation of net income per common share for the three months ended September 30, 1996, includes adjustments for earned but undeclared dividends related to the Company's previously outstanding Senior and Junior Convertible Preferred Stock, totaling $578,000 and $217,000, respectively. All of the preferred stock was either retired or converted to common stock during December 1996. PRO FORMA INFORMATION -- The information below presents (in thousands, except share data) the pro forma impact to net income per common share for the three months ended September 30, 1996 assuming (a) equity investments of $10 million in December 1996 and $11.25 million in January 1997 were made at the beginning of the period, then concurrently (b) all outstanding long- term debt was immediately retired and (c) all outstanding Senior and Junior Convertible Preferred Stock was also immediately retired or converted into common stock. 1996 ---- Net income applicable to common stockholders $ 501 Add pro forma adjustments: Dividends applicable to preferred stock 795 Interest expense to related parties 726 Pro forma net income applicable to common stockholders $ 2,022 ---------- ---------- Pro forma weighted average common shares outstanding: Basic - 19,323,000 ---------- ---------- Diluted - 19,945,000 ---------- ---------- Pro forma net income per common share (A): $ .10 ---------- ---------- (A) The pro forma net income per common share amounts are the same for both basic and diluted bases of calculation. The pro forma information is not necessarily indicative of the results of the Company had such transactions occurred on the dates discussed above, nor does such information purport to represent the expected result for future periods. 4. IMPACT OF CHANGE IN ACCOUNTING STANDARDS 7 GRUBB & ELLIS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. IMPACT OF CHANGE IN ACCOUNTING STANDARDS (CONTINUED) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share", which replaced the previously reported primary and fully diluted earnings per share calculations with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented and, where necessary, restated to conform to the Statement No. 128 requirements. The following table sets forth the computation of basic and diluted earnings per share from continuing operations (in thousands, except per share data):
Quarter ended September 30, --------------------------- 1997 1996 -------- --------- BASIC EARNINGS PER SHARE: Income before extraordinary gain $ 3,035 $1,296 Adjustments: Dividends-senior preferred stock -- (578) Dividends-junior preferred stock -- (217) -------- --------- Net income applicable to common stockholders $ 3,035 $ 501 -------- --------- -------- --------- Weighted average common shares outstanding 19,542 8,917 -------- --------- -------- --------- Earnings per share - basic $ 0.16 $ 0.06 -------- --------- -------- --------- DILUTED EARNINGS PER SHARE: Income before extraordinary gain $ 3,035 $ 501 -------- --------- -------- --------- Weighted average common shares outstanding 19,542 8,917 Effect of dilutive securities: Stock options and warrants 2,494 -- Senior convertible preferred stock -- -- Junior convertible preferred stock -- -- -------- --------- Weighted average common shares outstanding 22,036 8,917 -------- --------- -------- --------- Earnings per share - diluted $ 0.14 $ 0.06 -------- --------- -------- ---------
5. COMMITMENTS AND CONTINGENCIES The Company has guaranteed, in the aggregate amount of $4 million, the contingent liabilities of one of its wholly-owned subsidiaries with respect to two limited partnerships in which the subsidiary formerly acted as general partner. The Company is involved in various claims and lawsuits arising out of the conduct of its business, as well as in connection with its participation in various joint ventures, partnerships, a trust, and an appraisal business, many of which may not be covered by the Company's insurance policies. In the opinion of management, the eventual outcome of such claims and lawsuits is not expected to have a material adverse effect on the Company's financial position or results of operations. The Company previously disclosed in its Annual Report on Form 10-K for the year ended June 30, 1997, information concerning a lawsuit entitled JOHSZ ET AL. V. KOLL COMPANY, ET AL., and a related lawsuit entitled YOUNKIN, MAIONA, ET AL. V. KOLL COMPANY, ET AL. and a class action lawsuit, JOHN W. MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL. AND HSM INC., ET AL. Since such report, there has been no material change WITH RESPECT TO THESE MATTERS. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements which may involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested by these statements. Such factors, which could adversely affect the Company's ability to obtain these results include, among other things, (i) the volume of transactions and prices for real estate in the real estate markets generally, (ii) a general or regional economic downturn which could create a recession in the real estate markets, (iii) the Company's debt level and its ability to make interest and principal payments, (iv) an increase in expenses related to new initiatives, investments in personnel and technology, and service improvements, (v) the success of new initiatives and investments, and (vi) other factors described in the Company's Form 10-K for the fiscal year ended June 30, 1997. RESULTS OF OPERATIONS REVENUE The Company's revenue is derived principally from transaction service commissions related to commercial real estate. Property and facilities management services, along with asset management, mortgage brokerage, appraisal and consulting fees, provide substantially all of the remaining revenue. Revenue in any given quarter during the three fiscal year period ended June 30, 1997, as a percentage of total annual revenue, ranged from a high of 31.1% to a low of 19.0%, with revenue earned in the first quarters of each of the last three fiscal years ranging from 22.7% to 25.3%. The Company has historically experienced its lowest quarterly revenue in the quarter ending March 31 of each year with progressively higher revenue in the quarters ending June 30, September 30, and December 31, due to increased activity caused by the desire of clients to complete transactions by calendar year-end. Total revenue for the quarter ended September 30, 1997 was $62.1 million, an increase of 19.8% over revenue of $51.8 million for the same period last year, reflecting a continued strong national economy, robust commercial real estate markets and increased business activity across the Company's service lines. This improvement related primarily to a $9.4 million increase in transaction service commissions over the same period in 1996. Management services fees of $7.1 million for the quarter ended September 30, 1997 increased by $1.3 million, or 23.2%, as a result of increased activity in business services and property and facilities management. These improvements were slightly offset by reduced asset management and other fees for the quarter ended September 30, 1997. COSTS AND EXPENSES Transaction service commission expense is the Company's major expense and is a direct function of gross transaction service commission revenue levels. As a percentage of transaction service commission revenue, related commission 9 expense remained relatively unchanged for the quarter ended September 30, 1997 as compared to the same period in 1996. Commission expense related to other fee revenue is also included in transaction service commission expense for the periods reported. Total costs and expenses, other than transaction service commissions, increased for the three months ended September 30, 1997, by $4.5 million or 18.9% over the comparable period last year. The rise in costs is attributable in part to expenses associated with increased business activity in the Company's core businesses; higher general and administrative expense resulting from increased expenses related to marketing, research and technology; and the recruiting costs and salaries for senior-level executives hired to direct the Company's Corporate Services Group and Institutional Services Group. Other non-recurring income of $93,000 was recognized for the quarter ended September 30, 1996 primarily related to the recovery of previously established reserves for office closure costs. NET INCOME Net income of $3.0 million or $.14 per common share on a diluted basis for the quarter ended September 30, 1997 compared favorably to net income of $1.3 million or $.06 per common share for the same period in 1996. The increase over the prior year's performance was related to higher net earnings from transaction and management services activities, the elimination of interest expense resulting from the extinguishment of the Company's long-term debt, and the recognition of a deferred tax benefit of $600,000 in the first quarter of fiscal 1998. This increase in income was partially offset by the increase in costs and expenses other than transaction service commissions, as described above. LIQUIDITY AND CAPITAL RESOURCES Working capital increased by $1.3 million to $18.3 million during the quarter ended September 30, 1997, while cash and cash equivalents increased by $323,000 during the same period. The increase was primarily attributable to cash provided by operations of $1.9 million, net of purchases of equipment and leasehold improvements of $1.4 million. The Company believes that its short-term and long-term cash requirements will be met by operating cash flow. In addition, the Company has a $15 million credit facility available for additional capital needs. Currently, the Company has no outstanding borrowings under the credit facility. To the extent that the Company's cash requirements are not met by operating cash flow or borrowings under the credit facility, due to 10 adverse economic conditions or other unfavorable events, the Company may find it necessary to reduce expense levels or undertake other actions as may be appropriate under the circumstances. The Company has increased its investment in various business and technology initiatives, entering into preliminary contracts for intranet, human resources, and transaction services information systems. The Company's current contracted commitments for these systems, including required computer hardware additions and upgrades, total approximately $528,000, with additional commitments being likely. The Company is exploring strategic acquisition opportunities that have the potential to broaden its geographic reach and expand the depth and breadth of its current lines of business. The sources of consideration for such acquisitions could be cash, the Company's line of credit, new debt, and/or the issuance of stock. Although it is the Company's intent to actively pursue this strategy, no assurances can be made that these acquisitions will occur. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 11 PART II OTHER INFORMATION (ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE FOR THE QUARTER ENDED SEPTEMBER 30, 1997) 12 ITEM 6(a). EXHIBITS (3) ARTICLES OF INCORPORATION AND BYLAWS 3.1 Certificate of Incorporation of the Registrant, as restated effective November 1, 1994, incorporated herein by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K filed on March 31, 1995 (Commission File No. 1-8122). 3.2 Certificate of Retirement with Respect to 130,233 Shares of Junior Convertible Preferred Stock of Grubb & Ellis Company, filed with the Delaware Secretary of State on January 22, 1997, incorporated herein by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 3.3 Certificate of Retirement with Respect to 8,894 Shares of Series A Senior Convertible Preferred Stock, 128,266 Shares of Series B Senior Convertible Preferred Stock, and 19,767 Shares of Junior Convertible Preferred Stock of Grubb & Ellis Company, filed with the Delaware Secretary of State on January 22, 1997, incorporated herein by reference to Exhibit 3.4 to the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-8122). 3.4 Grubb & Ellis Company Bylaws, as amended and restated effective June 1, 1994, incorporated herein by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122). (27) FINANCIAL DATA SCHEDULE ITEM 6(b) REPORTS ON FORM 8-K None. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GRUBB & ELLIS COMPANY (Registrant) Date: November 13, 1997 /s/ Brian D. Parker ------------------------- Brian D. Parker Senior Vice President and Chief Financial Officer 14 GRUBB & ELLIS COMPANY AND SUBSIDIARIES EXHIBIT INDEX FOR THE QUARTER ENDED SEPTEMBER 30, 1997 EXHIBIT (27) FINANCIAL DATA SCHEDULE 15 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 17,113 0 11,390 1,661 0 30,180 21,360 14,443 39,958 11,866 0 0 0 197 15,637 39,958 0 62,378 0 31,202 28,590 0 0 2,586 (449) 3,035 0 0 0 3,035 .16 .14
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