<PAGE>
FORM 10-Q
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 JUNE 30, 1994
-------------------
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 (IRS Employer
incorporation or organization) Identification No.)
One Montgomery Street, Telesis Tower,
San Francisco, CA 94104
------------------------------------
(Address of principal executive offices)
(Zip Code)
(415) 956-1990
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(Registrant's telephone number, including area code)
One Montgomery Street, Telesis Tower,
Pacific Telesis Bldg., San Francisco, CA 94104
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(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 ___
4,128,540
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(Number of shares outstanding of the registrant's
common stock at August 1, 1994)
1
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PART I
FINANCIAL INFORMATION
2
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ITEM 1. FINANCIAL STATEMENTS.
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND SHARES)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Real estate brokerage $ 37,425 $ 40,199 $ 65,209 $ 74,253
commissions
Real estate service fees 8,054 10,430 14,615 18,480
Other income 824 103 962 296
Less: Commissions (21,121) (24,719) (36,741) (45,700)
--------- --------- ---------- ----------
Gross profit 25,182 26,013 44,045 47,329
Expenses and other:
Selling, general and 12,396 13,347 23,809 26,277
administrative
Salaries and wages 10,981 11,001 21,726 22,585
Interest expense 21 37 25 94
Interest expense to related party 690 551 1,272 1,261
Special charges & unusual items (308) -- (308) --
Depreciation and amortization 485 548 937 1,145
Other, net (366) -- (71) --
--------- --------- ---------- ----------
Total expenses and other 23,899 25,484 47,390 51,362
--------- --------- ---------- ----------
Income (loss) before 1,283 529 (3,345) (4,033)
income taxes
Provision for income taxes (80) (75) (197) (175)
--------- --------- ---------- ----------
Net income (loss) $ 1,203 $ 454 $ (3,542) $ (4,208)
========= ========= ========== ==========
Undeclared dividends (accretion
of liquidation preference) on
preferred stock $ 657 $ 599 $ 1,295 $ 998
Net income (loss) applicable to
common stock $ 546 $ (145) $ (4,837) $ (5,206)
Net income(loss) per common share $ .11 $ (.04) $ (1.18) $ (1.31)
and equivalents
========= ========= ========== ==========
Weighted average common 4,114,549 4,056,954 4,087,386 3,978,651
shares
========= ========= ========== ==========
</TABLE>
3
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
------- ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Assets
Cash and cash
equivalents $ 11,278 $ 22,364 $ 11,210
Real estate brokerage
commissions receivable 1,746 493 3,349
Real estate services
fees and other commissions
receivable 2,415 2,312 3,108
Other receivables 3,911 4,865 3,854
Real estate investments and
other assets held for sale -- -- 1,127
Prepaid and other current assets 3,193 2,628 2,539
-------- -------- --------
Total current assets 22,543 32,662 25,187
Noncurrent Assets
Real estate brokerage
commissions receivable 1,034 1,155 1,274
Real estate investments held for
sale & real estate owned 958 1,305 1,865
Equipment and leasehold
improvements, net 5,011 5,063 4,097
Excess of cost over net
assets of acquired
companies, net -- -- 10,257
Other assets 2,596 2,000 948
-------- -------- --------
Total assets $ 32,142 $ 42,185 $ 43,628
======== ======== =========
</TABLE>
4
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS AND SHARES)
LIABILITIES
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
-------- ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Liabilities
Notes payable and current portion
of long-term debt $ 506 $ 506 $ 1,853
Current portion of long-term debt
to related party 15,000 8,830 1,830
Accounts payable 1,554 1,873 1,070
Compensation and employee benefits 8,455 11,817 7,058
Deferred commissions payable 189 2,814 199
Accrued severance obligations 1,600 2,883 1,297
Accrued office closure costs 2,713 3,043 2,545
Accrued claims and settlements 5,129 10,375 3,223
Other accrued expenses 6,834 8,363 5,585
-------- -------- --------
Total current liabilities 41,980 50,504 24,660
Long-Term Liabilities
Notes payable and long-term debt,
net of current portion 766 900 1,059
Notes payable and long-term debt
to related party, net of current portion 15,636 15,237 18,672
Accrued claims and settlements 11,909 9,678 19,053
Accrued severance obligations 373 555 714
Accrued office closure costs 3,566 4,043 3,096
Other 142 235 1,331
------ ------ ------
Total liabilities 74,372 81,152 68,585
</TABLE>
REDEEMABLE PREFERRED STOCK
<TABLE>
<S> <C> <C> <C>
12% Senior convertible preferred stock, $100.00 per
share redemption value: 137,160 shares outstanding 15,366 14,365 13,519
5% Junior convertible preferred stock, $100.00 per
share redemption value: 150,000 shares outstanding 15,942 15,535 15,162
------ ------ ------
Total redeemable preferred stock 31,308 29,900 28,681
</TABLE>
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C>
Preferred stock, $.01 par value:
1,000,000 shares authorized;
Common stock, $.01 par value:
25,000,000 shares authorized;
4,114,549, 4,060,271 and 4,060,268
shares issued and
outstanding at June 30, 1994
December 31, 1993 and June 30,
1993, respectively. 42 41 41
Additional paid-in capital 46,940 48,070 49,301
Retained earnings (deficit) (120,520) (116,978) (102,980)
---------- --------- ---------
Total stockholders' deficit (73,538) (68,867) (53,638)
---------- --------- ---------
Total liabilities and
stockholders' deficit $ 32,142 $ 42,185 $ 43,628
========= ========= =========
</TABLE>
5
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------
1994 1993
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(3,542) $(4,208)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 937 1,145
(Increase) decrease in brokerage receivables (1,132) 987
Decrease in compensation and employee benefits (3,362) (1,569)
Decrease in deferred commissions (2,625) (1,715)
Decrease in accounts payable (319) (1,958)
Decrease in other, net (6,432) (5,861)
-------- ---------
Net cash used in operating activities (16,475) (13,179)
-------- ---------
Cash Flows from Investing Activities:
Dispositions of real estate joint ventures
and real estate owned 304 278
Disposition of other assets -- 3,350
Purchases of equipment and leasehold
improvements (828) (1,185)
Distributions from real estate joint ventures 40 --
-------- ---------
Net cash provided by (used in) investing activities (484) 2,443
-------- ---------
Cash Flows from Financing Activities:
Proceeds from borrowing 6,000 5,000
Repayment of notes payable (134) (8,654)
Proceeds from issuance of preferred stock -- 13,750
Cost related to issuance of preferred stock
and restructure of debt -- (1,147)
Proceeds from issuance of common stock 7 60
-------- ---------
Net cash provided by financing activities 5,873 9,009
-------- ---------
Net Decrease in Cash and Cash Equivalents (11,086) (1,727)
Cash and Cash Equivalents at Beginning of Period 22,364 12,937
-------- ---------
Cash and Cash Equivalents at End of Period $11,278 $11,210
======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $683 $325
Income Taxes 291 273
</TABLE>
6
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM PERIOD REPORTING
The accompanying unaudited consolidated financial statements
include the accounts of Grubb & Ellis Company, its wholly and
majority owned subsidiaries and controlled partnerships (the
"Company"), and are prepared in accordance with generally
accepted accounting principles for interim financial
information. The information presented includes all adjustments
which are, in the opinion of management, necessary to a fair
statement of results for the interim periods reported. All
adjustments are of a normal recurring nature. Revenues and
expenses recognized subsequent to 1993 related to offices which
management determined in 1993 to close in 1994 are included in
"Other, net" in the Consolidated Statement of Operations; such revenues
were $10.6 million and expenses were $10.5 million. Any adjustments
to reserves provided in prior periods in connection with these
closures are reflected as "Special charges and unusual items."
Such information should be read in conjunction with the
Company's Annual Report on Form 10-K/A for the year ended
December 31, 1993. Certain amounts in prior periods have been
reclassified to conform to the current presentation.
2. INCOME TAXES
The Company's tax provision is attributed to current state tax
liabilities.
3. INCOME (LOSS) PER COMMON SHARE AND EQUIVALENTS
Income (loss) per common share and equivalents computations are
based on the weighted average number of common shares
outstanding after giving effect to potential dilution from
common stock options and warrants.
The calculation of income (loss) per share of common stock
includes net income (loss) less amounts applicable to the
Senior and Junior Preferred Stock for undeclared dividends
(accretion of liquidation preference) earned in the amounts of
approximately $461,000 and $197,000, respectively, for the
quarter ended June 30, 1994, and $411,000 and $188,000,
respectively, for the quarter ended June 30, 1993. As of June
30, 1994, cumulative undeclared dividends applicable to the
Senior and Junior Preferred Stocks were $2,414,000 and
$1,078,000, respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company has indemnified two wholly owned partnerships for
their contingent liabilities of up to $2 million each.
Prior to September 1993, the Company and its subsidiary, Grubb
& Ellis Asset Services Company (GEASC), provided services to
the Resolution Trust Company (the RTC) and the Federal
Deposit Insurance Corporation (the FDIC). As a result of
Prudential's current stock ownership and certain of its rights
under the Stockholders' Agreement, Prudential
7
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GRUBB & ELLIS COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
may be deemed to be a related entity to the Company under RTC
regulation. The Company, upon learning that Prudential was
party to a lawsuit with the FDIC, voluntarily refrained from
entering into new RTC contracts on the basis that if Prudential
is deemed to be a related party with the Company, the existence
of the lawsuit might impair the Company's and GEASC's ability
to contract with the RTC and FDIC. In April 1994, the Company
was notified by the RTC that it has proposed to exclude the
Company and GEASC from RTC contracting as the Company had not
filed certain reports with the RTC. The Company has filed a
response to the RTC's proposed exclusion and is unable to
predict the outcome or timing of these matters or whether or
when it will be allowed to resume RTC and FDIC contracting
services.
JOHSZ ET AL V. KOLL COMPANY ET AL was filed in the Orange
County (California) Superior Court on March 14, 1994 against
the Koll Company, Grubb & Ellis Company, Koll Center Number 10,
a California general partnership (Koll), and Southern
California Edison Company (Edison). The Complaint was served
on the Company in June 1994. No discovery has been conducted.
The plaintiffs, two former Company brokers, their wives, and a
current Company employee, allege that the brokers and employee
acquired cancer from electromagnetic waves produced by the
electric transformer owned by Edison and situated in a vault
below office space leased by the Company in a building owned by
Koll. The Complaint alleges negligence, battery, negligent
infliction of emotional distress, fraudulent concealment, loss
of consortium and, against Edison only, strict liability.
Specific damages were not pled, but punitive as well as
compensatory damages are sought
The San Francisco Superior Court approved the settlement of two
consolidated actions, DONALD C. ANDERSON, ET AL. V. GRUBB &
ELLIS COMPANY, ET AL., AND GABRIEL L. AGUILAR, ET AL. V. GRUBB
& ELLIS COMPANY, ET AL., purported class actions, more fully
described in the Company's 1993 Annual Report on Form 10-K/A,
on behalf of approximately 180 limited partners of a limited
partnership formed to purchase an office/retail building in San
Francisco in 1985 in which the Company and certain of its
affiliates acted as the syndicator, the general partner of the
partnership and the property manager of the investment
property. Pursuant to the settlement, approximately 50,000
shares of common stock of the
8
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GRUBB & ELLIS COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCIES, (CONTINUED)
Company are to be issued and delivered to the settling parties,
along with a payment of cash. The Company's insurance carrier
will pay a substantial portion of the cash settlement.
In July 1994 the Company settled a potential claim of a former
joint venture partner relating to a partnership involving the
ownership and operation of commercial real estate. The
settlement involved the payment of cash and the issuance of
250,000 shares of common stock of the Company to the claimant.
The Company is involved in various other claims and lawsuits
arising in the ordinary course of business, as well as in
connection with its participation in various joint ventures,
partnerships and a trust.
In the opinion of management, upon the advice of counsel,
the settled cases aforementioned, and the eventual outcome of
the above claims and lawsuits will not have a material adverse
effect on the Company's financial position or results of
operations.
5. LONG-TERM DEBT MODIFICATIONS AND PROPOSED RIGHTS OFFERING
The Company, Warburg, Pincus Investors, L.P. (Warburg) and The
Prudential Insurance Company of America (Prudential) have
entered into agreements (the "Agreements") concerning proposed
financing transactions for the Company. Pursuant to the
Agreements, subject to obtaining the required vote of the
stockholders for the proposed plan of financing, and upon
formal amendment of the Company's debt agreements with
Prudential, the revolving credit facility will mature on
November 1, 1999, principal on the Senior Note will be payable
in two equal installments on November 1, 1997 and 1998, and
principal on the PIK Notes will be payable in two
approximately equal installments on November 1, 2000 and 2001.
The interest rate on the PIK Notes will increase from 10.65%
to 11.65% per annum on January 1, 1996. In addition, certain
covenants of the debt agreements remain in place, but will not
be in effect until April 1, 1997. The debt agreements, as
amended, will provide for supplemental principal payments
commencing July 1, 1998 if the Company meets certain financial
tests.
Prudential also has agreed to waive the Company's obligation to
repay any principal under the Revolving Credit Note and to
prepay the $4,000,000 principal which would have been due on
the Senior Notes through the earlier of the execution of a
definitive amendment of the Prudential Debt Agreement as
contemplated by the Financing Transactions or December 31,
1994.
Pursuant to the Agreements, Warburg has agreed to loan the
Company up to $10 million at an initial interest rate of 5%
per annum with a maturity date of April 28, 1995 ("Warburg
9
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GRUBB & ELLIS COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT MODIFICATIONS AND PROPOSED RIGHTS OFFERING,
(CONTINUED)
Interim Financing Loan"). The interest rate will increase to
10% per annum in the event that stockholder approval of
certain of the transactions contemplated by the Agreement is
not obtained. Interest on the loan will be due upon maturity
or upon refinancing, whichever occurs first. The loan is
secured by the Company's commercial brokerage revenues through
a cash collateral account. Prudential also has a lien on the
cash collateral account which will be subordinated to
Warburg's loan. As of June 30,1994, the Company had borrowed
$6 million from Warburg under this facility. The Agreements
also provide for the Company to seek additional equity capital
through a rights offering, subject to stockholder approval.
Warburg has agreed to acquire common stock not acquired by the
holders of common stock in the rights offering subject to a
maximum number of shares that will result in an aggregate
purchase price paid by Warburg being equal to $10 million plus
accrued interest on the Interim Financing Loan as of the
closing date of the proposed financing transactions. Warburg
will pay for such shares first through the cancellation of
indebtedness outstanding under the Interim Financing Loan,
including accrued interest, and thereafter through payments of
funds directly to the Company.
The Agreements also contemplate certain amendments to the
existing Convertible Preferred Stock and warrants to purchase
common stock of the Company held by Warburg and
Prudential, and the issuance of additional warrants to Warburg
and Prudential, also subject to stockholder approval.
6. SPECIAL CHARGES AND UNUSUAL ITEMS:
Special charges and unusual items were adjusted by $308,000 in
the second quarter of 1994. The adjustment relates to reserves
associated with the closure of certain offices which were
accomplished more efficiently than had been expected when
reserves were initially established at year end.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUE
The Company has typically experienced its lowest quarterly revenue
in the first quarter of each year with historically higher and more
consistent revenue in the second and third quarters. The fourth
quarter has historically provided the highest quarterly level of
revenue due to increased activity caused by the desire of clients
to complete transactions by year-end. However, quarterly revenue
variations are not significant. Over the last three years, revenue
in any given quarter, as a percentage of total annual revenue,
ranged from a high of no more than 29.2% to a low of 19.8%.
Effective February 1, 1994, the Company modified its organizational
structure to increase operating efficiencies and reduce costs. The
modifications included the integration of management of commercial
brokerage operations with the appraisal and consulting and
commercial mortgage brokerage operations, on a regional basis. The
integration also includes those property management operations which
the Company has resumed, independent of Axiom Real Estate
Management, Inc. ("Axiom"), a majority owned subsidiary of the
Company which provides property and facilities management. Axiom
closed certain offices pursuant to its strategic objective to focus
on those markets where it has a larger number of properties which
will enable it to provide more efficient, cost-effective service.
Additionally, in February 1994, the Company closed several
unprofitable appraisal and consulting offices.
The Company's revenue is derived principally through commercial
brokerage operations. For the first six months of 1994, total
revenues of $80.8 million declined over the same period in 1993 by
approximately $12.2 million or 13.1%. Excluding revenue from the
Northern California residential brokerage operations sold during
1993 and certain other offices which at the end of 1993 were closed
or were expected to be closed, as well as government contracting
business conducted during the first quarter of 1993 which was not
repeated in 1994, revenue increased approximately $7.6 million or
10.4% in the first six months of 1994 compared to the same period
of 1993.
Revenue of $46.3 million for the second quarter of 1994 declined by
$4.4 million or 8.7% from revenue of $50.7 million for the second
quarter of 1993. However, excluding revenue from those offices that
were closed at the end of 1993 or expected to be closed, revenue from
continuing operations of $46.3 million in the second quarter 1994
increased by $3.4 million or
11
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REVENUE (CONTINUED)
7.9% compared to the second quarter 1993 revenue from continuing
operations of $42.9 million. The increase in revenue in the second
quarter is primarily attributed to increased real estate activity
in the Pacific Northwest region.
COSTS AND EXPENSES
Real estate brokerage commissions expense (salespersons'
participation) is the Company's major expense and is contingent upon
gross brokerage commission revenue levels. As a percentage of total
revenue, salespersons' participation expense for the first six
months decreased to 45.5% from 49.1% for the same period in 1993.
Salespersons' participation expense for the second quarter decreased
to 45.6% from 48.7% for the same period in 1993. These decreases
were primarily a result of reduced expenses related to operations
which, at the end of 1993, had been closed or were expected to be
closed for which a closing provision was recorded at the end of 1993.
Operating expenses for continuing operations, other than real estate
brokerage commissions expense, increased by $3.7 million to $47.5
million for the first six months of 1994 as compared to the same
period in 1993. Operating expenses for continuing operations in the
second quarter of 1994 increased by $1.6 million or 7.2% from $22.6
million in the second quarter of 1993. These increases were
primarily a result of several key management positions being filled
in the latter part of 1993 and additional investments in training,
computer systems, and other resources anticipated to improve future
profits.
"Other, net" for the six months ended June 30, 1994 in the
Consolidated Statements of Operations included revenue of $10.6
million and expenses of $10.5 million related to offices which, at the
end of 1993, management expected to close in 1994. Special charges
and unusual items were adjusted by $308,000 in the second quarter of
1994. The adjustment relates to reserves associated with the closure
of certain offices which were accomplished more efficiently than
initially estimated at the end of 1993.
NET INCOME (LOSS)
Net loss of $3.5 million or $1.18 per share for the first six months
of 1994 compares favorably to the net loss of $4.2 million or $1.31
per share for the same period in 1993. Net income for the second
quarter of 1994 was $1.2 million as compared to net income of
$454,000 for the second quarter of 1993, primarily a result of
management focusing on its core businesses and the streamlining of
operations which were accomplished more efficiently than had been
expected when reserves were initially established at year end. Net
income per common share was $.11 for the second quarter of 1994. This
compares to a net loss of $.04 per share for the same period last year
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $11.1 million from December
31, 1993 to June 30, 1994. The decrease was mainly
12
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LIQUIDITY AND CAPITAL RESOURCES, (CONTINUED)
attributable to cash used by operations of $16.5 million, which
included $5.4 million for 1993 salespersons' and managers' incentive
compensation, $2.6 million for deferred salespersons' commission
payments, approximately $2.0 million related to legal settlements,
and an interest payment of $504,000 on the Prudential Senior Note.
These cash outflows were offset by cash received of $6 million from
the Warburg Interim Financing Loan (see Note 5 of Notes to the
Consolidated Financial Statements).
During the second quarter, working capital decreased from March 31,
1994 by $9.7 million to a deficit of $19.4 million due to the
reclassification from noncurrent to current liabilities of $4.0
million on the Warburg Interim Financing Loan, $5.0 million on the
Prudential Revolving Credit Note, and $4.0 million on the Prudential
Senior Notes, offset by the reclassification of $3.0 million from
current to noncurrent accrued claims and settlements.
Real estate brokerage commissions receivable, net of salespersons'
participation and allowance for uncollectible accounts, decreased
approximately $1.6 million as of June 30, 1994 compared to June 30,
1993, a result of increased collections of outstanding receivables,
and the write-off of receivables at the end of 1993 which the
Company deemed no longer collectible.
Stockholders' deficit was $73.5 million or $17.87 per share at June
30, 1994 as compared to $68.9 million or $16.96 per share at
December 31, 1993. The accumulated deficit increased to $120.5
million from $117.0 million at December 31, 1993.
The Company believes that its short-term and long-term cash
requirements will be met by operating cash flow, seasonal use of the
Prudential $5-million Revolving Credit Note, use of the interim
financing provided by Warburg (see Note 5 of Notes to the
Consolidated Financial Statements), and assuming the Company obtains
the required stockholder approval, the subsequent sale of
rights to acquire common stock in the Company (also discussed in
Note 5). Although second quarter operating cash flow was not
positive, historically the Company's cash flow typically has
improved in the third and fourth quarters. While the Company's full
year operating plan for 1994 provides for positive operating cash
flow, the Company was unable to generate positive operating cash
flow during the current quarter despite plans to do so. If the 1994
operating plan is not substantially achieved because of adverse
economic conditions or other unfavorable events, the Company may
find it necessary to further reduce expense levels, or undertake
other actions as may be appropriate.
13
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PART II
OTHER INFORMATION
(Items 2, 3, 4 and 5 are not applicable
for the quarter ended June 30, 1994)
14
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ITEM 1. LEGAL PROCEEDINGS
The information in Note 4, Commitments and Contingencies,
to the Consolidated Financial Statements related to JOHSZ
ET AL V. KOLL COMPANY ET AL., DONALD C. ANDERSON, ET AL. V.
GRUBB & ELLIS COMPANY, ET AL., AND GABRIEL L. AGUILAR, ET
AL. V. GRUBB & ELLIS COMPANY, ET AL., is incorporated
herein by reference.
ITEM 6(A). EXHIBITS
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES
4.1 Senior Note, Subordinated Note and Revolving Credit Note
Agreement between The Prudential Insurance Company of
America and the Registrant dated as of November 2, 1992,
incorporated herein by reference to Exhibit 4.6 to the
Registrant's Current Report on Form 8-K filed on February
8, 1993 (Commission File No. 1-8122).
4.2 Letter agreement between The Prudential Insurance Company
of America and the Registrant dated March 26, 1993,
incorporated herein by reference to Exhibit 4.10 to the
Registrant's Quarterly Report on Form 10-Q filed on May 15,
1993 (Commission File No. 1-8122).
4.3 Letter agreement between The Prudential Insurance Company
of America and the Registrant dated April 19, 1993,
incorporated herein by reference to Exhibit 4.11 to the
Registrant's Quarterly Report on Form 10-Q filed on May 15,
1993 (Commission File No. 1-8122).
4.4 Letter agreement between The Prudential Insurance Company
of America and the Registrant dated October 26, 1993,
incorporated herein by reference to Exhibit 4.21 to the
Registrant's registration statement on Form S-8 filed on
November 12, 1993 (Registration No. 33-71484).
4.5 Letter agreement between The Prudential Insurance Company
of America and the Registrant dated March 28, 1994,
incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K filed on March 31,
1994 (Commission File No. 1-8122).
4.6 Modification to Note and Security Agreement between the
Registrant and The Prudential Insurance Company of America
dated as of March 28, 1994, incorporated by reference to
Exhibit 4.17 to the Registrant's Amendment to its Annual
Report on Form 10-K/A filed on April 29, 1994 (Commission
File No. 1-8122).
4.7 Securities Purchase Agreement between The Prudential
Insurance Company of America and the Registrant, dated
as of November 2, 1992, incorporated herein by reference
to Exhibit 28.4 to the Registrant's Current Report on
15
<PAGE>
ITEM 6(A). EXHIBITS, CONTINUED.:
Form 8-K filed on November 12, 1992 (Commission File No.
1-8122).
4.8 Specimen of stock subscription warrant No. 5 issued to The
Prudential Insurance Company of America, dated January 29,
1993, exercisable for 200,000 shares of the Registrant's
Common Stock, incorporated by reference to Exhibit 28.10 to
the Registrant's Current Report on Form 8-K filed on
February 8, 1993 (Commission File No. 1-8122).
4.9 Securities Purchase Agreement among Warburg, Pincus
Investors, L.P., Joe F. Hanauer and the Registrant, dated
as of November 2, 1992, incorporated herein by reference to
Exhibit 28.3 to the Registrant's Current Report on Form 8-K
filed on November 12, 1992 (Commission File No. 1-8122).
4.10 Specimen of stock subscription warrant No. 6 issued to
Warburg, Pincus Investors, L.P., dated as of January 29,
1993, exercisable for 337,042 shares of the Registrant's
Common Stock, incorporated herein by reference to Exhibit
4.11 to the Registrant's registration statement on Form S-8
filed on November 12, 1993 (Registration No. 33-71484).
4.11 Specimen of stock subscription warrant No. S-3 issued to
Warburg, Pincus Investors, L.P., dated January 29, 1993,
exercisable for 370,566 shares of the Registrants Common
Stock, incorporated herein by reference to Exhibit 4.17 to
the Registrant's registration statement on Form S-8 filed
on November 12, 1993 (Registration No. 33-71484).
4.12 Summary of terms of proposed bridge loan and rights
offering executed by Warburg, Pincus Investors, L.P., The
Prudential Insurance Company of America and the Registrant
as of March 28, 1994, incorporated herein by reference to
Exhibit 4.11 to the Registrant's Annual Report on Form 10-K
filed on March 31, 1994 (Commission File No. 1-8122).
4.13 Cash Collateral Account Agreement between Bank of America,
N.T.&S.A. and the Registrant dated as of March 29, 1994,
incorporated herein by reference to Exhibit 4.12 to the
Registrant's Annual Report on Form 10-K filed on March 31,
1994 (Commission File No. 1-8122).
4.14 Intercreditor Agreement between Warburg, Pincus
Investors, L.P. and The Prudential Insurance Company of
America dated as of March 28, 1994, incorporated herein
by reference to Exhibit 4.13 to the Registrant's Annual
16
<PAGE>
ITEM 6(A). EXHIBITS, CONTINUED.:
Report on Form 10-K filed on March 31, 1994 (Commission
File No. 1-8122).
4.15 Promissory Note in the amount of up to $10 million dated
as of March 29, 1994, executed by the Registrant in favor
of Warburg, Pincus Investors, L.P., Incorporated herein by
reference to Exhibit 4.15 to the Registrant's Amendment to
its Annual Report on Form 10-K/A filed on April 29, 1994
(Commission File No. 1-8122).
4.16 Loan and Security Agreement among the Registrant, Warburg,
Pincus Investors, L.P. and The Prudential Insurance Company
of America dated as of March 29, 1994; incorporated herein
by reference to Exhibit 4.16 to the Registrant's Amendment
to its Annual Report on Form 10-K/A filed on April 29, 1994
(Commission File No. 1-8122).
4.17 Promissory Note in the amount of $250,000 dated as of
January 8, 1990 executed by the Registrant in favor of DW
Limited Partnership, incorporated herein by reference to
Exhibit 4.14 to the Registrant's Annual Report on Form 10-K
filed on March 31, 1994 (Commission File No. 1-8122).
On an individual basis, instruments other than Exhibits 4.1
through 4.17 listed above defining the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries and partnerships do not exceed ten percent of
total consolidated assets and are, therefore, omitted;
however, the Registrant will furnish supplementally to the
Commission any such omitted instrument upon request.
(10) MATERIAL CONTRACTS
10.1 Grubb & Ellis Company 1990 Amended and Restated Stock
Option Plan, as amended as of May 28, 1993, incorporated
herein by reference to Exhibit 4.1 to the Registrant's
registration statement on Form S-8 filed on November 12,
1993 (Registration No. 33-71580).
10.2 Grubb & Ellis Company Executive Supplemental Deferred
Compensation Plan, incorporated herein by reference to
Exhibit 10.13 to the Registrant's registration statement
on Form S-2 filed on January 12, 1990 (Registration No. 33-
32979).
10.3 Grubb & Ellis Company 1985 Restricted Value Stock Plan,
as amended effective December 3, 1987, incorporated herein
by reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K filed on March 31, 1989 (Commission
File No. 1-8122).
17
<PAGE>
(10) MATERIAL CONTRACTS, CONTINUED.:
10.4 Agreement between HSM Inc. and David Donosky dated January
15, 1988, regarding exchange of indebtedness, incorporated
herein by reference to Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K filed on March 30, 1988
(Commission File No. 1-8122).
10.5 Loan Agreement between David Donosky and the Registrant
dated October 20, 1989, incorporated herein by reference
to Exhibit 10.21 to the Registrant's registration statement
on Form S-2 filed on January 12, 1990 (Registration No. 33-
32979).
10.6 Description of Grubb & Ellis Company Senior Management
Compensation Plan, incorporated herein by reference to
Exhibit 10.17 to the Registrant's Annual Report on Form 10-
K filed on March 30, 1992 (Commission File No. 1-8122).
10.7 Stock Purchase and Stockholder Agreement dated May 6, 1992,
among GE New Corp., the Registrant and International
Business Machines Corporation, incorporated herein by
reference to Exhibit 28.2 to the Registrant's Quarterly
Report on Form 10-Q filed on May 15, 1992 (Commission File
No. 1-8122).
10.8 Master Management Agreement dated May 6, 1992 between
International Business Machines Corporation and GE New
Corp., incorporated herein by reference to Exhibit 28.2 to
the Registrant's Quarterly Report on Form 10-Q filed on May
15, 1992 (Commission File No. 1-8122).
10.9 Master Financing Agreement dated August 5, 1992 between IBM
Credit Corporation and Axiom Real Estate Management, Inc.,
incorporated herein by reference to Exhibit 28.4 to the
Registrant's Quarterly Report on Form 10-Q filed on August
13, 1992 (Commission File No. 1-8122).
10.10 Credit Agreement dated as of August 31, 1992, between
Axiom Real Estate Management, Inc. and the Registrant,
incorporated herein by reference to Exhibit 28.6 to the
Registrant's Quarterly Report on Form 10-Q filed on
November 16, 1992 (Commission File No. 1-8122).
10.11 Purchase Agreement dated February 16, 1993 between the
Registrant and JMB Institutional Realty Advisers, L.P.,
incorporated herein by reference to Exhibit 10.20 to the
Registrant's Quarterly Report on Form 10-Q filed on May
15, 1993 (Commission File No. 1-1822).
10.12 Purchase Agreement dated March 4, 1993 between the
Registrant and Fox and Carskadon/Better Homes and Gardens,
incorporated herein by reference to Exhibit 10.21 to the
Registrant's Quarterly Report on Form 10-Q filed May 15,
1993 (Commission File No. 1-1822).
18
<PAGE>
(10) MATERIAL CONTRACTS, CONTINUED.:
10.13 Stockholders' Agreement among Warburg, Pincus Investors,
L.P., The Prudential Insurance Company of America, Joe F.
Hanauer and the Registrant dated January 29, 1993,
incorporated herein by reference to Exhibit 28.1 to the
Registrant's Current Report on Form 8-K filed on February
8, 1993 (Commission File No. 1-8122).
10.14 Amendment to Stockholders' Agreement among Warburg, Pincus
Investors, L.P., The Prudential Insurance Company of
America, Joe F. Hanauer and the Registrant, dated as of
July 1, 1993, incorporated herein by reference to Exhibit
10.15 to the Registrant's Quarterly Report on Form 10-Q
filed on August 16, 1993 (Commission File No. 1-8122).
10.15 Severance Compensation Agreement, dated as of December 31,
1992, between the Registrant and Donald L. McGee,
incorporated herein by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K filed on April 15,
1993 (Commission File No. 1-8122).
10.16 Severance Compensation Agreement, dated as of August 31,
1992, between the Registrant and Emmett R. DeMoss, Jr.,
incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K filed on April 15,
1993 (Commission File No. 1-8122).
10.17 Severance Compensation Agreement, dated as of December 31,
1992, between the Registrant and Donald V. Jones,
incorporated herein by reference to Exhibit 10.27 to the
Registrant's Annual Report on Form 10-K filed on April 15,
1993 (Commission File No. 1-8122).
10.18 Amendment No. 1 to Severance Compensation Agreement, dated
as of December 31, 1992, between the Registrant and Donald
V. Jones, incorporated herein by reference to Exhibit
10.28 to the Registrant's Annual Report on Form 10-K filed
on April 15, 1993 (Commission File No. 1-8122).
10.19 Employment Agreement, effective May 20, 1992, between the
Registrant and Alvin L. Swanson, Jr., incorporated herein
by reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K filed on April 15, 1993 (Commission
File No. 1-8122).
10.20 First Amendment to Employment Agreement, effective as of
May 20, 1992, between the Registrant and Alvin L. Swanson,
Jr., incorporated herein by reference to Exhibit 10.30 to
the Registrant's Annual Report on Form 10-K filed on April
15, 1993 (Commission File No. 1-8122).
10.21 Second Amendment to Employment Agreement, effective as of
February 24, 1993, between the Registrant and Alvin L.
Swanson, Jr., incorporated herein by reference to Exhibit
19
<PAGE>
(10) MATERIAL CONTRACTS, CONTINUED.:
10.31 to the Registrant's Quarterly Report on Form 10-Q
filed on May 15, 1993 (Commission File No. 1-8122).
10.22 1993 Stock Option Plan for Outside Directors, incorporated
herein by reference to Exhibit 4.1 to the Registrant's
registration statement on Form S-8 filed on November 12,
1993 (Registration No. 33-71484).
10.23 Separation Agreement between the Registrant and Wilbert
F. Schwartz dated as of April 25, 1994, incorporated
herein by reference to Exhibit 10.23 to the Registrant's
Amendment to its Annual Report on Form 10-K/A filed on
April 29, 1994 (Commission File No. 1-8122).
10.24 Standby Agreement dated July 21, 1994 between the
Registrant and Warburg, Pincus Investors, L.P.,
incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form S-3 filed on
July 22, 1994 (Registration No. 33-5470).
10.25 Amendment dated July 20, 1994 to the Senior Notes, the
Subordinated Notes and the Revolving Note Agreement
between the Registrant and The Prudential Insurance
Company of America, incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement on Form
S-3 filed on July 22, 1994 (Registration No. 33-54707).
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
ITEM 6(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.
GRUBB & ELLIS COMPANY
----------------------
(Registrant)
Date: August 15, 1994 -----------------------
Robert J. Hanlon, Jr.
Senior Vice President and
Chief Financial Officer
20
<PAGE>
EXHIBIT 11
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT (11) STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS - FORM 10-Q
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED
JUNE 30, 1994 AND 1993
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary income (loss) per share
applicable to Common Stock
Weighted average common
shares outstanding 4,114,549 4,056,954 4,087,386 3,978,651
Net effect of the assumed conversion
of Preferred Stock 2,674,511 0 0 0
---------- --------- --------- ---------
Total 6,789,060 4,056,954 4,087,386 3,978,651
---------- --------- --------- ---------
Net income (loss) $ 1,203 $ 454 $ (3,542) $ (4,208)
Earnings applicable to
Preferred Stock (A) (461) (599) (1,295) (998)
---------- --------- --------- ----------
Net income (loss) applicable to
Common Stockholders $ 742 $ (145) $ (4,837) $ (5,206)
========== ========== ========== ==========
Net income (loss) per common
share and equivalents applicable
to Common Stock $ .11 $ (.04) $ (1.18) $ (1.31)
========== ========== ========== ==========
Fully-diluted income (loss) per share
applicable to Common Stock
Weighted average common
shares outstanding 4,114,549 4,056,954 4,087,386 3,978,651
Net effect of the assumed conversion
of Preferred Stock 7,225,712 0 0 0
---------- --------- --------- ---------
Total 11,340,261 4,056,954 4,087,386 3,978,651
========== ========== ========== ==========
Net income (loss) $ 1,203 $ (145) $ (4,837) $ (5,206)
========== ========== ========== ==========
Net income (loss) per common
share and equivalents applicable
to Common Stock $ .11 $ (.04) $ (1.18) $ (1.31)
========== ========== ========== ==========
(A)Assuming conversion of the 5% Junior Convertible Preferred Stock in the second quarter of 1994.
</TABLE>
