<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 March 31, 1995
-------------------
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.)
One Montgomery Street, Telesis Tower,
San Francisco, CA 94104
-------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(415) 956-1990
----------------------------------------------------
(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
--- ---
8,800,633
-------------------------------------------------
(Number of Shares Outstanding of the Registrant's
Common Stock at May 1, 1995)
1
<PAGE>
PART I
FINANCIAL INFORMATION
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts and shares)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenue:
Commercial real estate brokerage commissions $ 29,880 $ 27,779
Real estate services fees, commissions and other 8,193 6,566
---------- ----------
Total Revenue 38,073 34,345
---------- ----------
Costs and Expenses:
Real estate brokerage and other commissions 17,095 15,620
Selling, general and administrative 12,405 11,412
Salaries and wages 11,621 10,745
Depreciation and amortization 437 452
Special charges and unusual items (119) --
---------- ----------
Total costs and expenses 41,439 38,229
---------- ----------
Total operating loss (3,366) (3,884)
Other income and expenses:
Interest income 288 133
Other income (loss), net (28) (293)
Interest expense to related parties (739) (586)
---------- ----------
Loss before income taxes (3,845) (4,630)
Provision for income taxes 66 117
---------- ----------
Net loss $ (3,911) $ (4,747)
---------- ----------
---------- ----------
Net loss applicable to common stockholders, net
of dividends in arrears and accretion of
liquidation preference on preferred stock in
the amount of $701 and $638 in 1995 and 1994,
respectively $ (4,612) $ (5,385)
Net loss per common share and equivalents $ (.52) $ (1.33)
Weighted average common shares outstanding 8,797,377 4,062,136
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
--------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,462 $ 23,371 $ 9,859
Real estate brokerage
commissions receivable 2,715 4,500 2,225
Real estate services fees and
other commissions receivable 3,030 3,317 2,009
Other receivables 2,768 3,116 4,172
Prepaids and other current
assets 1,184 2,222 2,077
--------- --------- ---------
Total current assets 22,159 36,526 20,342
Noncurrent Assets:
Real estate brokerage
commissions receivable 352 454 1,136
Real estate investments held
for sale and real estate owned 1,037 1,016 1,241
Equipment and leasehold
improvements, net 5,251 5,203 4,977
Other assets 1,945 2,230 1,865
--------- --------- ---------
Total assets $ 30,744 $ 45,429 $ 29,561
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, continued
(in thousands, except per share amounts and shares)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
-------- -------- --------
(unaudited) (unaudited)
LIABILITIES
<S> <C> <C> <C>
Current Liabilities:
Notes payable and current portion
of long-term debt $ 446 $ 508 $ 506
Current portion of notes payable
and long-term debt to related
party -- -- 4,000
Accounts payable 2,102 1,764 1,536
Compensation and employee benefits
payable 5,330 8,556 6,375
Deferred commissions payable 125 5,195 180
Accrued severance obligations 709 876 2,323
Accrued office closure costs 1,236 1,346 2,782
Accrued claims and settlements 2,264 2,502 10,375
Other accrued expenses 6,346 8,430 6,005
-------- -------- --------
Total current liabilities 18,558 29,177 34,082
Long-Term Liabilities:
Long-term debt, net of current
portion 387 391 839
Long-term debt to related party,
net of current portion 25,674 25,292 24,593
Accrued claims and settlements 13,274 13,404 9,124
Accrued severance obligations 202 277 457
Accrued office closure costs 1,910 2,220 3,938
Other 130 154 26
-------- -------- --------
Total liabilities 60,135 70,915 73,059
-------- -------- --------
Commitments and contingencies (Note 4) -- -- --
-------- -------- --------
REDEEMABLE PREFERRED STOCK
12% Senior Convertible Preferred
Stock, $100.00 per share redemption
value; 137,160 shares outstanding -- -- 14,857
5% Junior Convertible Preferred Stock,
$100.00 per share redemption value;
150,000 shares outstanding -- -- 15,737
-------- -------- --------
Total redeemable preferred stock -- -- 30,594
-------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value:
1,000,000 shares authorized; 137,160
shares of 12% Senior Convertible
Preferred Stock and 150,000 shares
of 5% Junior Convertible Preferred
Stock outstanding 32,143 32,143 --
Common stock, $.01 par value:
25,000,000 shares authorized;
8,800,633, 8,797,377 and 4,112,358
shares issued and outstanding at
March 31, 1995, December 31, 1994 and
March 31, 1994, respectively 89 89 42
Additional paid-in capital 56,923 56,917 47,591
Retained earnings (deficit) (118,546) (114,635) (121,725)
-------- -------- --------
Total stockholders' equity (deficit) (29,391) (25,486) (74,092)
-------- -------- --------
Total liabilities and
stockholders' equity (deficit) $ 30,744 $ 45,429 $ 29,561
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1995 1994
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,911) $ (4,747)
Adjustments to reconcile net loss to net
cash used in operating activities (6,431) (5,450)
-------- --------
Net cash used in operating activities (10,342) (10,197)
-------- --------
Cash Flows from Investing Activities:
Distribution from real estate joint ventures
and real estate owned - 40
Purchases of equipment and leasehold
improvements (501) (331)
-------- -------
Net cash used in investing activities (501) (291)
-------- -------
Cash Flows from Financing Activities:
Proceeds from borrowing - 4,000
Repayment of notes payable (66) (62)
Proceeds from issuance of common stock - 3
-------- --------
Net cash provided by (used in) financing
activities (66) 3,941
-------- --------
Net decrease in cash and cash equivalents (10,909) (6,547)
Cash and cash equivalents at beginning of period 23,371 16,406
-------- -------
Cash and cash equivalents at end of period $ 12,462 $ 9,859
-------- --------
-------- --------
-------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 603 $ 598
Income taxes 487 197
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
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, its wholly and majority
owned and controlled subsidiaries and partnerships (the "Company"), and 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 and footnotes thereto on
Form 10-K for the year ended December 31, 1994.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain amounts in prior periods have been reclassified to
conform to the current presentation.
Operating results for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995. Any adjustments to reserves provided in prior
periods in connection with offices which management determined in 1993 to
close in 1994 are reflected as "Special charges and unusual items".
2. INCOME TAXES
The Company's tax provision is attributable to federal, state and local
income taxes assessed on profitable subsidiaries of the Company.
3. LOSS PER COMMON SHARE AND EQUIVALENTS
Loss per common share computations are based on the weighted average number
of common shares outstanding. Common equivalent shares from stock options
and warrants are excluded from the computation if their effect is anti-
dilutive.
The calculation of net loss per common share includes net loss, adjusted
for amounts applicable to the Senior and Junior Preferred Stock related to
undeclared dividends earned in the amounts of approximately $498,000 and
$203,000, respectively, for the quarter ended March 31, 1995, and accretion
of liquidation preference (for periods during which the preferred stock was
subject to mandatory redemption) of $444,000 and $194,000, respectively,
for the quarter ended March 31, 1994.
7
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
4. 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 in the
ordinary course of business, as well as in connection with its
participation in various joint ventures, partnerships, and a trust, 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 December 31, 1994 the details of a complaint, JOHSZ ET AL. V.
KOLL COMPANY, ET AL., and a related complaint, YOUNKIN, MAIONA, ET AL. V.
KOLL COMPANY, ET AL. and a purported class action lawsuit, JOHN W.
MATTHEWS, ET AL. V. KIDDER, PEABODY & CO., ET AL. AND HSM INC., ET AL. The
YOUNKIN case has been stayed pending appellate review of the trial court's
denial of Edison's demurrer alleging that the California Public Utilities
Commission has exclusive jurisdiction over the subject matter of the
complaint. Except as described herein, there has been no material change
with respect to these matters.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUE
The Company's revenue is derived principally from commercial brokerage
activities. Property management, mortgage brokerage and appraisal and
consulting fees provide substantially all of the remaining revenue.
The Company has historically experienced its lowest quarterly revenue in the
first quarter of each year, generally running about 20% of total annual
revenues. As a percentage of total annual revenue, quarterly revenue during
1994, 1993, and 1992 ranged from a high of 30.8% to a low of 19.8%. The fourth
quarter has historically provided the highest quarterly revenue due to increased
activity related to clients' desire to complete transactions by year-end.
Additionally, the Company operates in an industry that may be affected by
various economic conditions, such as interest rates, and tax and environmental
laws.
Total operating revenues of $38.1 million for the first quarter of 1995
increased by $3.7 million or 10.9% over the same period in 1994. Commercial
brokerage commissions of $29.9 million increased by $2.1 million, or 7.6% over
the first quarter of 1994. Commercial brokerage revenue increased primarily in
the Pacific Southwest region as a result of improving market conditions for
commercial real estate services coupled with the Company's efforts to increase
its competitive position. Other real estate service fees of $8.2 million
increased by $1.6 million, or 24.8% over the first quarter of 1994 primarily
related to heightened business services activity in the Company's property
management operations.
COSTS AND EXPENSES
Real estate brokerage and other commission expense (salespersons' participation)
is the Company's major expense and is a direct function of gross brokerage
commission revenue levels. Commission expense related to the commercial
brokerage operations represents the major component of salespersons'
participation. As a percentage of total commercial real estate brokerage
commission revenue, commercial brokerage salespersons' participation expense for
the first quarter of 1995 increased by .8% over the first quarter of 1994.
Total costs and expenses, other than real estate brokerage commissions expense,
increased by $1.7 million, or 8.0% to $24.4 million for the first quarter of
1995 as compared to the same period in 1994. The increase was primarily
attributable to
9
<PAGE>
COSTS AND EXPENSES, (CONTINUED)
increased business activity levels in the commercial brokerage branch offices
and property management operations, as well as increased commitments to
upgrading marketing support and information systems which management believes
will contribute to future earnings.
Special charges and unusual items were favorably adjusted by $119,000 in the
first quarter of 1995. The adjustment included $90,000 related to the reversal
of a portion of the remaining lease liability of the Southern California
residential brokerage operations sold in November 1994.
NET LOSS
Net loss of $3.9 million or $.52 per common share for the first quarter of 1995
compares favorably to the net loss of $4.7 million or $1.33 per common share for
the same period in 1994. The improvement over prior year's performance was
primarily related to the realization of financial benefits of closing
unprofitable offices and operations, allowing management to focus on its core
businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $10.9 million from December 31, 1994 to
March 31, 1995. The decrease was mainly attributable to cash used by operations
of $10.3 million, which included $2.9 million for 1994 salespersons' and
managers' incentive compensation, $5.1 million for deferred salespersons'
commission payments, and aggregate interest payments of $600,000 on the 9.9%
Senior Notes and the Revolving Credit Note.
Working capital decreased by $3.7 million to $3.6 million during the first
quarter of 1995. The Company has historically experienced the highest use of
operating cash in the first quarter of the year, primarily related to the
payment of year-end compensation and deferred commission payment balances which
attain peak levels as a result of fourth quarter business activity.
Additionally, quarterly revenues are typically at their lowest level in the
first quarter.
During 1994, debt agreements with The Prudential Insurance Company of America
were renegotiated and modified to provide, among other things, deferral of
principal payments until November 1, 1997 and thereafter on the $15 million of
principal amount of the 9.9% Senior Notes, 10.65% Payment-in-Kind Notes and the
Revolving Credit Note which would have been due from 1994 through 1996.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES, (CONTINUED)
The Company believes that its short-term and long-term cash requirements will be
met by operating cash flow. With the completion of the previously mentioned
long-term debt restructuring in 1994, and deployment of its 1995 business plan,
management believes it will be able to focus on expanding its core commercial
real estate business and should be prepared to take advantage of the improving
real estate markets. However, if the Company's goals are 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.
11
<PAGE>
PART II
OTHER INFORMATION
(Items 2, 3, 4 and 5 are not applicable
for the quarter ended March 31, 1995)
12
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
The Company previously disclosed in its Annual Report on Form 10-K for the
year ended December 31, 1994 the details of a complaint, JOHSZ ET AL. V. KOLL
COMPANY, ET AL., and a related complaint, YOUNKIN, MAIONA, ET AL. V. KOLL
COMPANY, ET AL. and a purported class action lawsuit, JOHN W. MATTHEWS, ET AL.
V. KIDDER, PEABODY & CO., ET AL. AND HSM INC., ET AL. The YOUNKIN case has been
stayed pending appellate review of the trial court's denial of Edison's demurrer
alleging that the California Public Utilities Commission has exclusive
jurisdiction over the subject matter of the complaint. Except as described
herein, there has been no material change with respect to these matters.
ITEM 6(a). EXHIBITS
(3) ARTICLES OF INCORPORATION AND BYLAWS
3.1 Certificate of Amendment to the Restated Certificate of Incorporation
of the Registrant, effective November 1, 1994, incorporated herein by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-
K filed on March 31, 1995 (Commission File No. 1-8122).
3.2 Certificate of Incorporation of the Registrant, as restated effective
November 1, 1994 (not yet filed with the Secretary of State of the
State of Delaware), 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).
3.3 Grubb & Ellis Company Bylaws, as amended effective June 1, 1994,
incorporated herein by reference to Exhibit 4.21 to the Registrant's
Quarterly Report on Form 10-Q filed on November 14, 1994 (Commission
File No. 1-8122).
3.4 Amendment to the Grubb & Ellis Company Bylaws, effective as of June 1,
1994, incorporated herein by reference to Exhibit 4.20 to the
Registrant's Quarterly Report on Form 10-Q filed on November 14, 1994
(Commission File No. 1-8122).
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(27) FINANCIAL DATA SCHEDULE
ITEM 6(b) REPORTS ON FORM 8-K
NONE
13
<PAGE>
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: May 12, 1995 /s/ James E. Klescewski
----------------------------
James E. Klescewski
Vice President and Corporate
Controller
(Chief Accounting Officer)
14
<PAGE>
Grubb & Ellis Company and Subsidiaries
EXHIBIT INDEX (A)
FOR THE QUARTER ENDED MARCH 31, 1995
EXHIBIT
(11) STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(27) FINANCIAL DATA SCHEDULE
(A) Exhibits incorporated by reference are listed in Item 6(a) of this report.
15
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT (11) STATEMENT RE COMPUTATION OF
PER SHARE EARNINGS - FORM 10-Q
for the three months ended
March 31, 1995 and 1994
(unaudited)
(in thousands, except for shares and per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1995 1994
------ -------
<S> <C> <C>
Primary loss per share
applicable to Common Stock:
Weighted average common
shares outstanding 8,797,377 4,062,136
--------- ---------
--------- ---------
Net loss $ (3,911) $ (4,747)
Dividends in arrears and accretion
of liquidation preference on
Preferred Stock (701) (638)
--------- ----------
Net loss applicable to
Common Stockholders $ (4,612) $ (5,385)
--------- ---------
--------- ---------
Net loss per common share
and equivalents applicable
to Common Stock $ (.52) $ (1.33)
--------- ---------
--------- ---------
Fully-diluted loss per share
applicable to Common Stock:
Weighted average common
shares outstanding 8,797,377 4,062,136
--------- ---------
--------- ---------
Net loss $ (4,612) $ (5,385)
--------- ---------
--------- ---------
Net loss per common share
and equivalents applicable
to Common Stock $ (.52) $ (1.33)
--------- ---------
--------- ---------
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,462
<SECURITIES> 0
<RECEIVABLES> 11,207
<ALLOWANCES> 5,110
<INVENTORY> 0
<CURRENT-ASSETS> 22,159
<PP&E> 19,041
<DEPRECIATION> 13,790
<TOTAL-ASSETS> 30,744
<CURRENT-LIABILITIES> 18,558
<BONDS> 0
<COMMON> 89
0
32,143
<OTHER-SE> 56,923
<TOTAL-LIABILITY-AND-EQUITY> 30,744
<SALES> 0
<TOTAL-REVENUES> 38,333<F1>
<CGS> 0
<TOTAL-COSTS> 17,095
<OTHER-EXPENSES> 24,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 739
<INCOME-PRETAX> (3,845)
<INCOME-TAX> 66
<INCOME-CONTINUING> (3,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,911)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
<FN>
<F1>Interest income and Other income (loss), net are included in Total Revenue.
</FN>
</TABLE>
