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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, 1998
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-8122
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GRUBB & ELLIS COMPANY
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(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
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(Address of principal executive offices)
(Zip Code)
(847) 753-7500
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(Registrant's telephone number, including area code)
No Change
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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 reptorts
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
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19,638,963
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(Number of shares outstanding of the registrant's
common stock at April 26, 1998)
1
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PART I
FINANCIAL INFORMATION
2
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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 For the Nine Months
Ended March 31, Ended March 31,
-------------------------------- --------------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Transaction service commissions $ 46,722 $ 38,993 $ 168,988 $ 138,294
Management services fees 8,272 6,389 23,141 17,766
Other fees 3,983 3,211 10,472 12,494
---------- ----------- ----------- ----------
Total revenue 58,977 48,593 202,601 168,554
---------- ----------- ----------- ----------
Costs and expenses:
Transaction service commissions 27,570 23,302 100,915 84,455
Salaries, wages and benefits 18,406 14,493 52,367 41,103
Selling, general and administrative 13,276 10,575 38,474 32,863
Depreciation and amortization 852 777 2,384 2,429
Other non-recurring expenses - 1,097 - 1,997
---------- ----------- ----------- ----------
Total costs and expenses 60,104 50,244 194,140 162,847
---------- ----------- ----------- ----------
Total operating (loss) income (1,127) (1,651) 8,461 5,707
Other income and expenses:
Interest income 336 287 865 638
Other income, net - 32 60 158
Interest expense to related parties - (106) - (1,431)
---------- ----------- ----------- ----------
(Loss) income before income taxes
and extraordinary item (791) (1,438) 9,386 5,072
Net benefit (provision) for income taxes 3,446 (28) 4,844 (95)
---------- ----------- ----------- ----------
Income (loss) before extraordinary item 2,655 (1,466) 14,230 4,977
Extraordinary item - gain
on extinguishment of
debt, net of taxes - 2,000 - 5,576
---------- ----------- ----------- ----------
Net income $ 2,655 $ 534 $ 14,230 $ 10,553
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Net income applicable to common stockholders
net of undeclared dividends earned on preferred
stock in 1997 $ 2,655 $ 534 $ 14,230 $ 9,122
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
3
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
---------------------------------- ---------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings (loss) per share:
Basic:
- from operations $ .14 $ (.08) $ .73 $ .28
- from extraordinary
gain - .11 - .44
----------- ----------- ----------- -----------
$ .14 $ .03 $ .73 $ .72
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 19,626,177 18,791,426 19,586,285 12,744,522
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted:
- from operations $ .12 $ (.08) $ .65 $ .27
- from extraordinary gain - .11 - .31
----------- ----------- ----------- -----------
$ .12 $ .03 $ .65 $ .58
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common
shares outstanding 21,914,686 18,791,426 21,975,508 18,224,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,633 $ 16,790
Commissions, management services and other
fees receivable 5,995 4,694
Other receivables 1,674 2,097
Prepaids and other current assets 760 1,257
Deferred tax assets, net 8,324 3,220
---------- ----------
Total current assets 34,386 28,058
Noncurrent assets:
Equipment and leasehold improvements, net 11,243 5,988
Other assets 4,891 2,650
---------- ----------
Total assets $ 50,520 $ 36,696
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,668 $ 1,938
Compensation and employee benefits payable 8,356 4,568
Other accrued expenses 2,931 4,567
---------- ----------
Total current liabilities 12,955 11,073
Long-term liabilities:
Accrued claims and settlements 8,399 10,512
Other liabilities 1,666 2,188
---------- ----------
Total liabilities 23,020 23,773
---------- ----------
Stockholders' equity:
Common stock, $.01 par value: 50,000,000 and
25,000,000 shares authorized, and 19,638,963
and 19,509,952 shares issued and outstanding
at March 31, 1998 and June 30, 1997,
respectively 198 196
Additional paid-in-capital 110,925 110,579
Retained earnings (deficit) (83,623) (97,852)
---------- ----------
Total stockholders' equity 27,500 12,923
---------- ----------
Total liabilities and stockholders' equity $ 50,520 $ 36,696
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
5
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31,
--------------------------
1998 1997
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 14,230 $ 10,553
Extraordinary item - gain on extinguishment
of debt - (5,576)
Other adjustments to reconcile net income to
net cash provided by operating activities (3,612) (2,268)
----------- ----------
Net cash provided by operating activities 10,618 2,709
----------- ----------
Cash Flows from Investing Activities:
Purchases of equipment and leasehold
improvements (7,130) (1,852)
Cash paid for business acquisitions and
related costs (2,937) -
Proceeds from disposition and distributions
from real estate investments 61 481
----------- ----------
Net cash used in investing activities (10,006) (1,371)
----------- ----------
Cash Flows from Financing Activities:
Issuance of common stock 347 21,250
Deferred financing fees (116) -
Repayment of long-term debt to related
party - (23,000)
Repayment of notes payable - (29)
----------- ----------
Net cash provided by (used in) financing
activities 231 (1,779)
----------- ----------
Net increase (decrease) in cash and cash 843 (441)
equivalents
Cash and cash equivalents at beginning of period 16,790 13,547
----------- ----------
Cash and cash equivalents at end of period $ 17,633 $ 13,106
----------- ----------
----------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ 1,466
Income taxes 790 126
</TABLE>
See notes to condensed consolidated financial statements.
6
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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 nine months ended March 31, 1998 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
$260,000 and $28,000 in the nine months ended March 31, 1998 and 1997,
respectively. In addition, the Company recognized a deferred tax
benefit of $5,104,000 in the nine months ended March 31, 1998, as a
result of a reduction in the valuation allowance against the deferred
tax assets, based upon the expected utilization of net operating loss
carryforwards. Management believes that, due to favorable economic
conditions, the recent elimination of debt and the trend of earnings, it
is more likely than not that the Company will generate sufficient future
taxable income to realize the net deferred tax assets.
7
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. EARNINGS PER SHARE
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.
Earnings per 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 if their effect is
anti-dilutive.
The calculation of earnings per share for the nine month period ended March
31, 1997, includes an adjustment for earned but undeclared dividends
related to the Company's previously outstanding convertible preferred
stock. All of the preferred stock was either retired or converted to
common stock during December 1996.
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations (in thousands, except
per share data):
<TABLE>
<CAPTION>
Quarter ended March 31, Nine Months Ended March 31,
-------------------------------- ---------------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary gain $ 2,655 $ (1,466) $ 14,230 $ 4,977
Adjustments for dividends on:
Senior convertible preferred stock - - - (1,032)
Junior convertible preferred stock - - - (399)
---------- ---------- ----------- -----------
Net income (loss) applicable to common stockholders
$ 2,655 $ (1,466) $ 14,230 $ 3,546
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common shares outstanding 19,626 18,791 19,586 12,745
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings (loss) per share - basic $ 0.14 $ (0.08) $ 0.73 $ 0.28
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary gain $ 2,655 $ (1,466) $ 14,230 $ 4,977
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common shares outstanding 19,626 18,791 19,586 12,745
Effect of dilutive securities:
Stock options and warrants 2,289 - 2,390 808
Senior convertible preferred stock - - - 3,075
Junior convertible preferred stock - - - 1,597
---------- ---------- ----------- -----------
Weighted average common shares outstanding 21,915 18,791 21,976 18,225
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings (loss) per share - diluted $ 0.12 $ (0.08) $ 0.65 $ 0.27
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
8
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. REVOLVING CREDIT FACILITY
On January 26, 1998, the Company amended its existing credit agreement,
by adding an additional bank and expanding the credit facility available
for general corporate purposes and acquisitions to $35 million from $15
million. Payment and maturity terms remained relatively unchanged, with
interest due quarterly in arrears at rates contingent upon a particular
financial ratio of the Company, and the agreement maturing on March 13,
2001. Performance of the Company's obligations under the credit
agreement is collateralized by substantially all of the Company's
assets. The credit agreement also contains certain restrictive
covenants, including the prohibition of the payment of dividends,
restrictions on the issuance of certain types of preferred stock, and
the maintenance of certain financial ratios.
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.
9
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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 regarding, among other
things, future revenue growth, income and changes in expense levels. These
statements 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 people 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. Management services fees
generated from property and facilities management services, along with other
fees comprised of asset management, mortgage brokerage, appraisal and
consulting fees, provide substantially all of the remaining revenue.
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. 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 19.1%, with revenue earned in the third quarters of
each of the last three fiscal years ranging from 19.1% to 21.3%.
Total revenue for the nine months ended March 31, 1998 was $202.6 million, an
increase of 20.2% over revenue of $168.6 million for the same period last
year, reflecting continued strong real estate markets and increased business
activity across the Company's service lines. This improvement related
primarily to a $30.7 million, or 22.2%, increase in transaction service
commissions over the same period in 1997. Management services fees of $23.1
million for the nine months ended March 31, 1998 increased by $5.4 million,
or 30.3%, as a result of increased activity in business services and property
and facilities management. The improvements in transaction service
commissions and management services fees were partially offset by reduced
asset management and other fees for the period.
10
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Total revenue for the quarter ended March 31, 1998 was $59.0 million, an
increase of 21.4% over revenue of $48.6 million for the same period last
year. Transaction service commissions increased $7.7 million or 19.8% over
the comparable 1997 period, while management services fees increased by $1.9
million, or 29.5%. Asset management and other fees increased slightly and
also contributed to the improved revenue for the period.
COSTS AND EXPENSES
Transaction service commission expense is the Company's major expense and is
a direct function of transaction related revenues, which include transaction
service commissions and other fees. As a percentage of these revenues,
related commission expense remained relatively unchanged for the nine months
and the quarter ended March 31, 1998 as compared to the same periods 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 commission expense,
increased by $14.8 million, or 18.9%, for the first nine months of fiscal
year 1998 and increased by $5.6 million, or 20.8%, for the third quarter of
fiscal year 1998 compared to the same periods in fiscal year 1997. These
increases were due in part to additional expenditures related to staffing and
implementing the Company's Corporate Services Group and Institutional
Services Group initiatives. In addition, the Company has incurred additional
variable operating costs in relation to increases in its transaction and
management services areas.
Special charges and unusual items for the quarter and nine month periods
ended March 31, 1997 resulted primarily from incremental non-recurring costs
related to the relocation of the Company's corporate headquarters from San
Francisco, California to Northbrook, Illinois.
NET INCOME
Net income for the nine months ended March 31, 1998 was $14.2 million, or
$.65 per common share on a diluted basis, as compared to net income of $10.6
million, or $.58 per common share for the same period in fiscal year 1997.
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 in fiscal year 1997, and the recognition of a non-recurring
$5.1 million deferred tax benefit in fiscal year 1998. Net income for the
prior period also included non-recurring charges of $2.0 million related
primarily to the corporate headquarters relocation and a $5.6 million
extraordinary gain on the extinguishment of debt in connection with the
financing transactions which occurred in fiscal 1997. Net income before the
above mentioned non-recurring items for the current nine-month period was
$9.1 million, or $0.42 per share, compared with $7.0 million, or $0.38 per
share, in the same period of fiscal 1997.
Net income for the quarter ended March 31, 1998 was $2.7 million or $.12 per
common share on a diluted basis, as compared to $534,000 or $.03 per common
share for the same period in fiscal year 1997. Net income includes the
effect of non-recurring items which consisted of a $3.4
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million deferred tax benefit in the most recent quarter, and a $2.0 million
extraordinary gain on extinguishment of debt that was offset by a $1.1
million charge related to the relocation of its corporate headquarters in the
comparable prior year period. The Company recognized a net loss before these
non-recurring items of $749,000 for the third quarter of fiscal year 1998, or
$(0.03) per share, compared with $369,000, or $(0.02) per share, for the same
period last year.
The Company's earnings per share amounts have been calculated in accordance
with the Statement of Financial Accounting Standards No. 128, "Earnings per
Share". See Note 3 of Notes to Condensed Consolidated Financial Statements
for additional information.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $4.4 million to $21.4 million during the nine
months ended March 31, 1998, although the Company's cash and cash equivalents
increased by only $843,000 during the same period. Cash provided by
operations of $10.6 million was offset by net cash of $10.0 million used in
investing activities, primarily for purchases of equipment and leasehold
improvements and cash paid for business acquisitions and related costs.
The Company has historically experienced the highest use of operating cash in
the quarter ended March 31, primarily related to the payment of incentive and
deferred commission payable balances which attain peak levels as a result of
the high volume of transaction services activity during the quarter ended
December 31. Deferred commissions payable balances of approximately $11.3
million, related to revenues earned in the six months ended December 31,
1997, were paid during the quarter ended March 31, 1998.
The Company believes that its short-term and long-term cash requirements will
be met by operating cash flow. In addition, on January 26, 1998, the Company
amended its credit agreement, by adding an additional bank and expanding the
credit facility available for general corporate purposes and acquisitions to
$35 million from $15 million. Payment terms and maturities remained
relatively unchanged, although certain restrictive covenants were eliminated
or modified. Currently, the Company has no outstanding borrowings under the
facility. (See Item 2.(b) of Part II of this report for additional
information.)
The Company has increased its investment in various business and technology
initiatives, entering into software related contracts for intranet, human
resources, general ledger and transaction services information systems. The
Company has made capital expenditures totaling $2.8 million in fiscal 1998
related to these contracts, and currently expects to invest an additional
$3.6 million over the next two years for these systems. The primary
objectives of these added technology investments are to enhance the
productivity and effectiveness of the Company's staff and business processes,
and to bring the Company's computer information systems into compliance with
year 2000
12
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requirements. The Company expects all of these initiatives to be completed
by the end of fiscal year 1999.
The Company anticipates that its financial results for the fourth quarter of
fiscal 1998 should continue to reflect the trends reported for the first nine
months of the year in many ways. Real estate markets, especially in the West
where the Company has a significant presence, should remain strong.
Infrastructure expenditures will continue, therefore, the Company expects to
see expenses as a percentage of revenue, on a rolling twelve month basis, to
continue to increase slightly during the fourth quarter of fiscal 1998,
before stabilizing and then decreasing in fiscal 1999.
The Company acquired the stock of White Commercial Real Estate, a real
estates services firm, in March 1998, and purchased the assets of La Cagnina
& Associates, Inc. and the stock of Crane Realty & Management Co., both
property management services firms, in April 1998. The Company will continue
to explore strategic acquisition opportunities that have the potential to
broaden its geographic reach and expand the depth 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 any new acquisitions will occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
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PART II
OTHER INFORMATION
(ITEMS 1, 3, 4 AND 5 ARE NOT APPLICABLE
FOR THE QUARTER ENDED MARCH 31, 1998)
14
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ITEM 2(b). CHANGES IN SECURITIES
As previously reported, effective January 26, 1998, the Company and
certain of its subsidiaries entered into an Amended and Restated Credit
Agreement (the "Credit Agreement") with PNC Bank, National Association
("PNC") and American National Bank and Trust Company of Chicago ("ANB")
(together, the "Banks"), providing for an increase in the existing revolving
credit facility made available to the Company by PNC from $15 million to $35
million. The facility had not been utilized at the date of this Report. The
term of the Credit Agreement extends until March 13, 2001. As security for
the facility, the Banks have a security interest in the majority of the
assets of the Company and its primary subsidiaries. In addition, the
material subsidiaries of the Company have guaranteed repayment of any amounts
borrowed under the facility. Pursuant to the provisions of the Credit
Agreement, the Company is prohibited from the payment of dividends with
respect to its capital stock, and from the issuance of preferred stock unless
the stock is unredeemable and not subject to any right with respect to
non-payment of dividends other than a right to cumulative dividends prior to
the payment of dividends on the common stock. In addition, the consent of
the Banks is required prior to the amendment of the certificate of the
incorporation or bylaws of the Company. There are also restrictions on
indebtedness, liens, guarantees, loans, investments, acquisitions, and
dispositions of assets. The financial covenants of the Credit Agreement
include maintaining a ratio of indebtedness to annual cash flow from
operations of no more than 3.00, 2.75 and 2.50 to 1.00 at the end of each
fiscal quarter during each of the periods from January 1, 1998 to December
31, 1998; January 1, 1999 to December 31, 1999; January 1, 2000 and
thereafter, respectively.
In March 1998, the Banks and the Company agreed to an amendment of the
Credit Agreement to allow for certain subordinated, short-term acquisition
debt.
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' 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).
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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 Amendment to the Restated Certificate of Incorporation of Grubb &
Ellis Company, filed with the Delaware Secretary of State on December 9,
1997, incorporated herein by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 filed on December 9, 1997 (Commission File
No. 333-42741).
3.5 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).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1 Amended and Restated Credit Agreement among the Registrant, certain
subsidiaries of the Registrant, PNC Bank, National Association, and American
National Bank and Trust Company of Chicago dated as of January 26, 1998,
incorporated herein by reference to Exhibit 4.1 to the Registrant's Quarterly
Report on Form 10-Q filed on February 13, 1998 (Commission File No. 1-8122).
4.2 Amended and Restated Subordination Agreement among the Registrant and
certain subsidiaries of the Registrant in favor of PNC Bank, National
Association, and American National Bank and Trust Company of Chicago dated as
of January 26, 1998, incorporated herein by reference to Exhibit 4.2 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1998
(Commission File No. 1-8122).
4.3 Revolving Credit Note executed by the Registrant in favor of PNC Bank,
National Association in the amount of $20 million dated as of January 26,
1998, incorporated herein by reference to Exhibit 4.3 to the Registrant's
Quarterly Report on Form 10-Q filed on February 13, 1998 (Commission File No.
1-8122).
4.4 Revolving Credit Note executed by the Registrant in favor of American
National Bank and Trust Company of Chicago in the amount of $15 million dated
as of January 26, 1998, incorporated herein by reference to Exhibit 4.4 to
the Registrant's Quarterly Report on Form 10-Q filed on February 13, 1998
(Commission File No. 1-8122).
4.5 First Amendment to Amended and Restated Credit Agreement among the
Registrant, certain subsidiaries of the Registrant, PNC Bank, National
Association, and American National Bank and Trust Company of Chicago dated as
of March 16, 1998.
16
<PAGE>
(10) MATERIAL CONTRACTS
10.1 Amended and Restated Master Collateral Assignment of Contracts Rights to
PNC Bank, National Association, as Agent by the Registrant and Subsidiaries of
the Registrant as of January 26, 1998, incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on February
13, 1998 (Commission File No. 1-8122).
10.2 Amended and Restated Master Agreement of Guaranty and Suretyship by the
Registrant and Subsidiaries of the Registrant in favor of PNC Bank, National
Association, as Agent by the Registrant and Subsidiaries of the Registrant as of
January 26, 1998, incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1998
(Commission File No. 1-8122).
10.3 Amended and Restated Pledge Agreement among the Registrant, certain
Subsidiaries of the Registrant, PNC Bank, National Association, and American
National Bank and Trust Company of Chicago dated as of January 26, 1998,
incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q filed on February 13, 1998 (Commission File No. 1-8122).
10.4 Amended and Restated Security Agreement among the Registrant, certain
Subsidiaries of the Registrant, PNC Bank, National Association, and American
National Bank and Trust Company of Chicago dated as of January 26, 1998,
incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q filed on February 13, 1998 (Commission File No. 1-8122).
10.5 Amended and Restated Trademark Security Agreement by the Registrant in
favor of PNC Bank, National Association, and American National Bank and Trust
Company of Chicago dated as of January 26, 1998, incorporated herein by
reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q
filed on February 13, 1998 (Commission File No. 1-8122).
(27) FINANCIAL DATA SCHEDULE
ITEM 6. (b) REPORTS ON FORM 8-K
None.
17
<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 14, 1998 /s/ Brian D. Parker
--------------------------------
Brian D. Parker
Senior Vice President and
Chief Financial Officer
18
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
FOR THE QUARTER ENDED MARCH 31, 1998
EXHIBIT
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4.5 First Amendment to Amended and Restated Credit Agreement among the
Registrant, certain subsidiaries of the Registrant, PNC Bank, National
Association, and American National Bank and Trust Company of Chicago dated as of
March 16, 1998.
(27) FINANCIAL DATA SCHEDULE
19
<PAGE>
FIRST AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT to Amended and Restated Credit Agreement is dated
as of March 16, 1998, and is made by and among GRUBB & ELLIS COMPANY, a Delaware
corporation (the "Borrower"), each of the GUARANTORS, the BANKS and PNC BANK,
NATIONAL ASSOCIATION, in its capacity as agent for the Banks (hereinafter
referred to in such capacity as the "Agent").
BACKGROUND
WHEREAS, the parties hereto are parties to that certain Amended and
Restated Credit Agreement dated as of January 26, 1998 (the "Agreement"),
pursuant to which the Banks provided to the Borrower a revolving credit facility
in an aggregate principal amount not to exceed $35,000,000 at any one time
outstanding; and
WHEREAS, the Borrower has requested the Lender to amend the negative
covenant in the Agreement with respect to permitted indebtedness in order to
address certain indebtedness which the Borrower or Grubb & Ellis Management
Services, Inc. may incur in connection with Permitted Acquisitions.
AGREEMENT
NOW THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. Capitalized terms used herein unless otherwise defined herein shall have
the meanings ascribed to them in the Agreement.
2. Subsection 8.2.1(iv) of the Agreement is hereby amended and restated as
follows:
"(iv) Indebtedness in the form of Earn-Out Consideration and
Acquisition Indebtedness when such Acquisition Indebtedness is due within two
years of the date of the Permitted Acquisition, provided that all such Earn-Out
Consideration and Acquisition Indebtedness shall be unsecured and shall be
subordinated to the Obligations on terms and conditions acceptable to the
Required Banks in their absolute discretion."
3. The Loan Parties reconfirm and ratify the Agreement and the Loan Documents
all in accordance with their respective terms, except to the extent that
any of those terms are expressly modified by the provisions of this
Amendment, and the Loan Parties confirm that the Agreement and the Loan
Documents have at all times since the date of their respective execution
and delivery continued in full force and effect.
<PAGE>
4. The provisions of this Agreement shall bind the Loan Parties and their
respective successors and assigns and are for the benefit of the Agent and
the Banks and their respective successors and assigns.
5. The Loan Parties each represent that it has the corporate power and has
been duly authorized by all requisite corporate action to execute and
deliver this Amendment and to perform its obligations hereunder.
6. The Loan Parties each represent that this Amendment has been duly executed
and delivered by such Loan Party and constitutes the legal, valid and
binding obligations of such Loan Party, enforceable against such Loan Party
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforceability of creditors rights generally or by general equitable
principles.
7. Neither this Amendment nor the consummation of the transactions
contemplated herein nor the performance by the Loan Parties of their
respective obligations hereunder or under the Agreement or the Loan
Documents will (i) violate any law, rule or regulation or court order to
which any Loan Party is subject; (ii) conflict with or result in a breach
of any Loan Party's certificate of incorporation or bylaws or any material
agreement or instrument to which any Loan Party is subject or by which its
properties are bound or (iii) result in the creation or imposition of any
lien, security interest or encumbrance on the property of any Loan Party,
whether now owned or hereafter acquired, other than liens in favor of the
Agent for the benefit of the Banks.
8. This Amendment may be executed by different parties hereto on any number of
separate counterparts, each of which, when so executed and delivered, shall
be an original, and all such counterparts shall together constitute one and
the same instrument.
[SIGNATURES APPEAR ON THE NEXT PAGE.]
-2-
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, this First
Amendment to Amended and Restated Credit Agreement has been duly signed, sealed
and delivered by the undersigned parties as of the day and year specified at the
beginning hereof.
GRUBB & ELLIS COMPANY
By: /s/ Brian Parker (Seal)
-------------------------------
Name: Brian Parker
------------------------------
Title: SVP, CFO
-----------------------------
EACH OF THE SUBSIDIARIES OF GRUBB &
ELLIS COMPANY SET FORTH ON THE
ATTACHED SCHEDULE I
By: /s/ Brian Parker (Seal)
-------------------------------
Name: Brian Parker
----------------------------
the SVP,CFO
-------------------------------
of each of the Loan Parties set
forth on Schedule I attached hereto
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/ Jay C. Baker
-------------------------------
Title: SVP
----------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/ Ross Weigand
------------------------------
Title: Vice President
----------------------------
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 17,633
<SECURITIES> 0
<RECEIVABLES> 6,991
<ALLOWANCES> 996
<INVENTORY> 0
<CURRENT-ASSETS> 34,386
<PP&E> 27,020
<DEPRECIATION> 15,777
<TOTAL-ASSETS> 50,520
<CURRENT-LIABILITIES> 12,955
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 27,302
<TOTAL-LIABILITY-AND-EQUITY> 50,520
<SALES> 0
<TOTAL-REVENUES> 203,526
<CGS> 0
<TOTAL-COSTS> 100,915
<OTHER-EXPENSES> 93,225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,386
<INCOME-TAX> (4,844)
<INCOME-CONTINUING> 14,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,230
<EPS-PRIMARY> .73
<EPS-DILUTED> .65
</TABLE>
