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<IMS-DOCUMENT>0000912057-94-001752.txt : 19940518
<IMS-HEADER>0000912057-94-001752.hdr.sgml : 19940518
ACCESSION NUMBER: 0000912057-94-001752
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 19940331
FILED AS OF DATE: 19940516
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: KOLL REAL ESTATE GROUP INC
CENTRAL INDEX KEY: 0000840216
STANDARD INDUSTRIAL CLASSIFICATION: 1531
IRS NUMBER: 020426634
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17189
FILM NUMBER: 94528668
BUSINESS ADDRESS:
STREET 1: 4343 VON KARMAN AVENUE
STREET 2: NULL
CITY: NEWPORT BEACH
STATE: CA
ZIP: 92660-
BUSINESS PHONE: 7148333030
MAIL ADDRESS:
STREET 1: 4343 VON KARMAN AVENUE
CITY: NEWPORT BEACH
STATE: CA
ZIP: 92660-
FORMER COMPANY:
FORMER CONFORMED NAME: BOLSA CHICA CO/
DATE OF NAME CHANGE: 19921229
FORMER COMPANY:
FORMER CONFORMED NAME: HENLEY GROUP INC/DE/
DATE OF NAME CHANGE: 19910415
FORMER COMPANY:
FORMER CONFORMED NAME: HENLEY NEWCO INC
DATE OF NAME CHANGE: 19900109
</IMS-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<DESCRIPTION>FORM 10-Q
<TEXT>
<PAGE>
This Form 10-Q consists of 12 sequentially numbered pages.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
--------------
Commission file number 0-17189
-------
KOLL REAL ESTATE GROUP, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0426634
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
4343 Von Karman Avenue
Newport Beach, California 92660
------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 833-3030
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
------- ------
The number of shares of Class A Common Stock outstanding at April 30, 1994 were
43,319,703.
<PAGE>
KOLL REAL ESTATE GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
I N D E X
-----------------------------------------
Page No.
--------
PART I - Financial Information:
Item 1 - Financial Statements
Introduction to the Financial Statements. . . . . . . . 3
Balance Sheets -
December 31, 1993 and March 31, 1994. . . . . . . . . . 4
Statements of Operations -
Three Months Ended March 31, 1993 and 1994. . . . . . . 5
Statements of Cash Flows -
Three Months Ended March 31, 1993 and 1994. . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
PART II - Other Information:
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . 11
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . 12
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
<PAGE>
KOLL REAL ESTATE GROUP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION TO THE FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
Koll Real Estate Group, Inc. and its consolidated subsidiaries (the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
The financial information presented herein reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
3
<PAGE>
KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 21.8 $ 19.6
Short-term investments 21.7 21.9
Real estate held for development or sale 47.7 47.2
Operating properties, net 16.3 16.2
Land held for development 315.9 318.5
Other assets 22.9 20.6
------- --------
$ 446.3 $ 444.0
------- --------
------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 30.8 $ 31.7
Senior bank debt 7.0 5.9
Subordinated debentures 134.9 139.2
Other liabilities 110.1 107.7
------- --------
Total liabilities 282.8 284.5
------- --------
Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.2 2.2
Capital in excess of par value 230.0 229.7
Deferred proceeds from stock issuance (1.5) (1.2)
Minimum pension liability (1.5) (1.5)
Accumulated deficit (66.1) (70.1)
------- --------
Total stockholders' equity 163.5 159.5
------- --------
$ 446.3 $ 444.0
------- --------
------- --------
</TABLE>
See the accompanying notes to financial statements.
4
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1993 1994
---- ----
<S> <C> <C>
Revenues:
Asset Sales $ - $ 1.1
Operations .2 2.3
---- ----
.2 3.4
---- ----
Costs of:
Asset Sales - 1.1
Operations .6 2.1
---- ----
.6 3.2
---- ----
Gross operating margin (.4) .2
General and administrative expenses 2.5 2.6
Interest expense 6.1 4.4
Other (income) expense, net (1.6) .4
---- ----
Loss from continuing operations before
income taxes (7.4) (7.2)
Provision (benefit) for income taxes (2.9) (2.5)
---- ----
Loss from continuing operations (4.5) (4.7)
Discontinued operations:
Income from operations, net of income taxes 2.1 -
Gain on disposition, net of income taxes - 0.7
---- ----
Loss before cumulative effect of
accounting change (2.4) (4.0)
Cumulative effect of accounting
change for income taxes (36.0) -
------ ------
Net loss $ (38.4) $ (4.0)
------- -------
------- -------
Earnings (loss) per common share:
Continuing operations $ (.11) $ (.11)
Discontinued operations .05 .02
Cumulative effect of accounting change ( .90) -
------- -------
Net loss per common share $ (.96) $ (.09)
------- -------
------- -------
</TABLE>
See the accompanying notes to financial statements.
5
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1993 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of accounting change $ (2.4) $ (4.0)
Adjustments to reconcile to cash used by operating activities:
Depreciation and amortization .4 .3
Non-cash interest expense 5.2 4.3
Gain on disposition of discontinued operation - (.7)
Proceeds from asset sales, net - 1.1
Investments in real estate held for development or sale (.3) (.6)
Investment in land held for development (1.3) (2.6)
Decrease (increase) in other assets (3.6) 2.1
Decrease in accounts payable, accrued and
other liabilities (8.5) (1.8)
------ ------
Cash used by operating activities (10.5) (1.9)
------ ------
Cash flows from investing activities:
Purchase of short-term investments - (.2)
Proceeds from disposition of discontinued operation - 1.0
------ ------
Cash provided by investing activities - .8
------ ------
Cash flows from financing activities:
Net proceeds from nonrecourse debt 43.4 -
Repayments of senior bank debt (21.0) (1.1)
------ ------
Cash provided (used) by financing activities 22.4 (1.1)
------ ------
Net increase (decrease) in cash and cash equivalents 11.9 (2.2)
Cash and cash equivalents - beginning of period 41.6 21.8
------ ------
Cash and cash equivalents - end of period $ 53.5 $ 19.6
------ ------
------ ------
</TABLE>
See the accompanying notes to financial statements.
6
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements should be read in conjunction with the
Financial Statements and Notes thereto included in the Annual Report on
Form 10-K of Koll Real Estate Group, Inc. (the "Company") for the year ended
December 31, 1993.
Certain prior-period amounts have been reclassified to conform with their
current presentation.
NOTE 2 - LOSS PER COMMON SHARE
The weighted average number of common shares outstanding for the three
months ended March 31, 1993 and 1994 were 39.8 million shares and 43.3 million
shares, respectively. The Series A Preferred Stock is not included in the loss-
per-share calculation because the effect is anti-dilutive.
NOTE 3 - LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately 1,200 acres known as
Bolsa Chica located in Orange County, California, surrounded by the City of
Huntington Beach and approximately 35 miles south of downtown Los Angeles. The
Company is currently seeking approvals from local, state and federal
governmental entities for a residential project of approximately 4,900 units
(including approximately 4,300 units on Company-owned land) on this site. A
revised environmental impact report was released for public comments in December
1993 for a 60-day period which concluded on February 18, 1994. The County of
Orange requested that this document contain an in-depth analysis of an
alternative plan which includes 3,500 homes, in addition to the in-depth
analysis of the Company's plan. While the Company is striving to obtain
approval of its plan, if the plan is modified to accept fewer residential
units, such modification would probably result in a reduction in the estimated
net realizable value and resulting carrying value of the Bolsa Chica project
currently reflected in the Company's financial statements, which would be
partially offset by a decrease in deferred taxes. Due to a number of factors
beyond the Company's control, including possible objections of various
environmental and so-called public interest groups that may be made in
legislative, administrative or judicial forums, the required approvals could be
delayed substantially. Subject to these and other uncertainties inherent in the
entitlement process, the Company's goal is to obtain all material governmental
approvals in the first half of 1995 and to begin construction in the second half
of 1995, depending on economic and market conditions. Realization of the
Company's investment in Bolsa Chica will also depend upon various economic
factors, including the demand for residential housing in the Southern California
market and the availability of credit to the Company and to the housing
industry.
7
<PAGE>
NOTE 4 - DEBT
SENIOR BANK DEBT
The Company prepaid $1.1 million of senior bank debt during the three
months ended March 31, 1994 with proceeds from residential home sales at the
Company's Wentworth By The Sea project in New Hampshire. Cash payments for
interest on senior bank debt were approximately $.9 million and $.1 million for
the three months ended March 31, 1993 and 1994, respectively.
SUBORDINATED DEBT
Subordinated debt was comprised of the following (in millions):
<TABLE>
<CAPTION>
December 31, March 31,
1993 1994
------------ ---------
<S> <C> <C>
Senior subordinated debentures $ 109.4 $ 116.0
Subordinated debentures 27.4 29.0
------- -------
Total face amount 136.8 145.0
Less unamortized discount (6.7) (6.5)
Plus accrued interest 4.8 .7
------- -------
$ 134.9 $ 139.2
------- -------
------- -------
</TABLE>
NOTE 5 - INCOME TAXES
Cash payments for federal, state and local income taxes were approximately
$7.7 million and $.3 million for the three months ended March 31, 1993 and 1994,
respectively. Tax refunds received were $1.0 million and $.7 million for the
three months ended March 31, 1993 and 1994, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company was notified in March 1994 that a predecessor company and the
Internal Revenue Service entered into a Stipulation of Settlement regarding an
asserted tax deficiency that is the subject of certain tax sharing agreements.
The Company was informed by the other parties to these tax sharing agreements
that it is being charged with a net obligation of approximately $21 million
under this settlement. The Company has accrued for this obligation since
December 1989. In April 1994, the Company notified the other parties that it is
contesting their assertion of this obligation, prompting the other parties to
commence legal action against the Company by filing suit in Delaware state
court. The Company fully anticipated the prospect of litigation and is
vigorously defending its position with respect to the nonpayment of the alleged
tax sharing obligation, in addition to asserting its own claims for monetary
damages. In that regard, the Company filed suit against one of the parties in
New York state court in April 1994. See "Part II, Item 1 - Legal Proceedings".
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The principal activity of the Company has been to obtain zoning and other
entitlements for land it owns and to improve the land for residential
development. Once the land is entitled, the Company may sell unimproved land to
other developers or investors; sell improved land to home builders; or
participate in joint ventures with other developers, investors or home builders
to finance and construct infrastructure and homes. The Company's principal
activities also include providing commercial, industrial, retail and residential
development services to third parties, including feasibility studies,
entitlement coordination, project planning, construction management, financing,
marketing, acquisition, disposition and asset management services on a national
basis, through its current offices throughout California, and in Seattle, Dallas
and Denver. The Company intends to consider additional real estate acquisition
opportunities; however, over the next two years the Company's principal
objective is to maintain adequate liquidity to fully support the Bolsa Chica
project entitlement efforts.
Real estate held for development or sale and land held for development
(real estate properties) are carried at the lower of cost or estimated net
realizable value. The Company's real estate properties are subject to a number
of uncertainties which can effect the future values of those assets. These
uncertainties include delays in obtaining zoning and regulatory approvals,
withdrawals or appeals of regulatory approvals and availability of adequate
capital, financing and cash flow. While the Company is striving to obtain
approval of its plan for developing approximately 4,300 residential units on
its Bolsa Chica property, if the plan is modified to accept fewer residential
units, such modification would probably result in a reduction in the estimated
net realizable value and resulting carrying value of the Bolsa Chica project
currently reflected in the Company's financial statements, which would be
partially offset by a decrease in deferred taxes. In addition, future values may
be adversely affected by heightened environmental scrutiny, limitations on the
availability of water in Southern California, increases in property taxes,
increases in the costs of labor and materials and other development risks,
changes in general economic conditions, including higher mortgage interest
rates, and other real estate risks such as the demand for housing generally and
the supply of competitive products. Real estate properties do not constitute
liquid assets and, at any given time, it may be difficult to sell a particular
property for an appropriate price. The state of the nation's economy, and
California's economy in particular, has had a negative impact on the real estate
market generally, on the availability of potential purchasers for such
properties and upon the availability of sources of financing for carrying and
developing such properties.
LIQUIDITY AND CAPITAL RESOURCES
The principal assets remaining in the Company's portfolio are residential
land which must be held over an extended period of time in order to be developed
to a condition that, in management's opinion, will ultimately maximize the
return to the Company. Consequently, the Company requires significant capital to
finance its real estate
9
<PAGE>
development operations. Historically, sources of capital have included bank
lines of credit, specific property financings, asset sales and available
internal funds. Although the Company reported income in 1993 as a result of
gains on dispositions and extinguishment of debt, it reported losses in 1991,
1992 and for the three months ended March 31, 1994, and expects to report losses
in the foreseeable future. While a significant portion of such losses is
attributable to noncash interest expense on the Company's subordinated
debentures, the Company's capital expenditures for project development are
significant.
In addition, the Company was notified in March 1994 that a predecessor
company and the Internal Revenue Service entered into a Stipulation of
Settlement regarding an asserted tax deficiency that is the subject of certain
tax sharing agreements. The Company was informed by the other parties to these
tax sharing agreements that it is being charged with a net obligation of
approximately $21 million under this settlement. The Company has accrued for
this obligation since December 1989. In April 1994, the Company notified the
other parties that it is contesting their assertion of this obligation,
prompting the other parties to commence legal action against the Company by
filing suit in Delaware state court. The Company fully anticipated the prospect
of litigation and is vigorously defending its position with respect to the
nonpayment of the alleged tax sharing obligation, in addition to asserting its
own claims for monetary damages. In that regard, the Company filed suit against
one of the parties in New York state court in April 1994. See "Part II, Item 1 -
Legal Proceedings".
Given the limited availability of capital for real estate development under
current conditions in the financial markets, the Company will be dependant
primarily on cash, cash equivalents and short-term investments on hand to fund
project investments, and general and administrative costs. At March 31, 1994 the
Company's cash, cash equivalents and short-term investments aggregated $41.5
million. However, if the Company is required to pay all or substantially all of
the $21 million claimed under the tax sharing agreements as discussed above, and
any such amount is not financed, the Company will need to obtain other sources
of financing or sell additional assets in order to meet projected cash
requirements during 1995.
FINANCIAL CONDITION
MARCH 31, 1994 COMPARED WITH DECEMBER 31, 1993
There were no significant changes in the Company's balance sheet at
March 31, 1994 compared with December 31, 1993.
RESULTS OF OPERATIONS
The results for 1993 have been reclassified to reflect the results of Lake
Superior Land Company and Deltec Panamerica S.A. as discontinued operations.
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1994 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1993
The increase in revenues from $.2 million in 1993 to $3.4 million in 1994
and the increase in costs of sales from $.6 million in 1993 to $3.2 million in
1994 principally reflect the operations of the domestic real estate development
business acquired from The Koll Company in September 1993, and residential home
sales at the Company's Wentworth By The Sea project in New Hampshire during the
three months ended March 31, 1994.
The decrease in interest expense from $6.1 million in 1993 to $4.4 million
in 1994 primarily reflects both the reductions in outstanding senior bank debt
throughout 1993, and the reduction in outstanding subordinated debt in December
1993.
The change in other (income) expense, net from $1.6 million of income for
1993 to $.4 million of expense for 1994 primarily reflects a $2.0 million
insurance reimbursement received in 1993 related to 1992 environmental
litigation costs.
The gain on disposition of discontinued operations, net of income taxes for
the 1994 period reflects the receipt of cash for the February 1994 termination
of the contingent payment provision of a December 1993 agreement with Libra
Invest & Trade Ltd. ("Libra") whereby the Company exchanged its Lake Superior
Land Company subsidiary for approximately $42.4 million face amount of the
Company's senior subordinated debentures held by Libra and other consideration.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On April 13, 1994, Abex Inc. ("Abex") and Wheelabrator Technologies, Inc.
("WTI") filed suit in Delaware Chancery Court against the Company seeking, among
other things, declaratory relief, specific performance, and monetary damages for
the Company's alleged failure to pay approximately $21 million claimed to be
owed pursuant to tax sharing agreements entered into in 1988 and 1989. This suit
was filed after the Company contested the alleged obligation and asserted
various defenses to making any payment under these agreements. A motion to
dismiss was filed by the Company on May 6, 1994 and a hearing on this motion is
pending. A trial date for the case is currently scheduled for September 7, 1994.
The Company is vigorously defending its position with respect to the
nonpayment of the alleged tax sharing obligation. In that regard, on April 18,
1994 the Company filed suit in the Supreme Court of the State of New York
against WTI and Abex for damages of $7,600,000 for breach of their obligations
under a related tax sharing agreement entered into in 1992. On April 27, 1994,
the Company amended its complaint to name only Abex as a defendant in this
action. No trial date has been set for this case.
11
<PAGE>
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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.
KOLL REAL ESTATE GROUP, INC.
Date: May 13, 1994
------------ -------------------------------------
RAYMOND J. PACINI
Executive Vice President -
Chief Financial Officer
12
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