<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, 1999
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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
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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 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 ___
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19,885,084
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(Number of shares outstanding of the registrant's
common stock at May 6, 1999)
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 SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
------------------------------ ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue:
Transaction services fees $ 46,832 $ 49,589 $ 195,306 $ 177,615
Management services fees 13,130 9,388 39,466 24,986
----------- ----------- ----------- -----------
Total revenue 59,962 58,977 234,772 202,601
----------- ----------- ----------- -----------
Costs and expenses:
Transaction services commissions 26,602 27,570 114,396 100,915
Salaries and wages 21,065 18,406 61,647 52,367
Selling, general and administrative 14,738 13,276 45,454 38,474
Depreciation and amortization 1,635 852 4,268 2,384
----------- ----------- ----------- -----------
Total costs and expenses 64,040 60,104 225,765 194,140
----------- ----------- ----------- -----------
Total operating income (loss) (4,078) (1,127) 9,007 8,461
Other income and expenses:
Interest and other income 268 336 772 925
Interest expense (200) - (493) -
----------- ----------- ----------- -----------
Income (loss) before income taxes (4,010) (791) 9,286 9,386
Net benefit (provision) for income taxes 1,604 3,446 (3,582) 4,844
----------- ----------- ----------- -----------
Net income (loss) $ (2,406) $ 2,655 $ 5,704 $ 14,230
=========== =========== =========== ===========
Net income (loss) per common share
Basic - $ (.12) $ .14 $ .29 $ .73
=========== =========== =========== ===========
Diluted - $ (.12) $ .12 $ .26 $ .65
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic - 19,805,429 19,626,177 19,760,990 19,586,285
=========== =========== =========== ===========
Diluted - 21,479,690 21,914,686 21,709,564 21,975,508
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
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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,
1999 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,894 $ 14,251
Services fees receivable 12,179 8,006
Other receivables 1,836 2,329
Prepaids and other current assets 5,519 3,179
Deferred tax assets 3,307 5,584
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Total current assets 26,735 33,349
Noncurrent assets:
Equipment and leasehold improvements, net 16,078 13,152
Goodwill, net 28,990 10,578
Deferred tax assets 3,297 4,140
Other assets 2,465 2,299
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Total assets $ 77,565 $ 63,518
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,631 $ 3,845
Credit facility indebtedness 6,000 -
Acquisition indebtedness 4,484 2,807
Accrued compensation and employee benefits 8,505 6,948
Other accrued expenses 3,030 3,927
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Total current liabilities 24,650 17,527
Long-term liabilities:
Acquisition indebtedness 931 -
Accrued claims and settlements 9,399 9,041
Other liabilities 857 1,536
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Total liabilities 35,837 28,104
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Stockholders' equity:
Common stock, $.01 par value: 50,000,000 shares authorized; 19,819,760
and 19,721,056 shares issued and outstanding at March 31, 1999 and
June 30, 1998, respectively 198 198
Additional paid-in-capital 112,172 111,562
Retained earnings (deficit) (70,642) (76,346)
-------- --------
Total stockholders' equity 41,728 35,414
-------- --------
Total liabilities and stockholders' equity $ 77,565 $ 63,518
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
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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,
--------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 5,704 $ 14,230
Adjustments to reconcile net income to net cash
provided by operating activities 952 (3,551)
-------- --------
Net cash provided by operating activities 6,656 10,679
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Cash Flows from Investing Activities:
Purchases of equipment, software and leasehold improvements (5,865) (7,130)
Cash paid for business acquisitions, net of cash acquired (17,089) (2,937)
-------- --------
Net cash used in investing activities (22,954) (10,067)
-------- --------
Cash Flows from Financing Activities:
Proceeds from borrowings on credit facility 6,000 -
Other financing activities (59) 231
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Net cash provided by financing activities 5,941 231
-------- --------
Net increase (decrease) in cash and cash equivalents (10,357) 843
Cash and cash equivalents at beginning of period 14,251 16,790
-------- --------
Cash and cash equivalents at end of period $ 3,894 $ 17,633
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 267 $ -
Income taxes 1,303 790
</TABLE>
See notes to condensed consolidated financial statements.
5
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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, 1998.
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, 1999 are not necessarily
indicative of the results that may be achieved in future periods.
2. INCOME TAXES
The net provision (benefit) for income taxes for the nine months ended March 31,
1999 and 1998 is as follows (in thousands):
For the nine months ended
March 31,
-------------------------
1999 1998
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Current $ 462 $ 260
Deferred 3,120 (5,104)
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$3,582 $(4,844)
====== =======
The Company recognized a tax benefit for the nine months ended March 31, 1998,
as a result of a reduction in the valuation allowance against its net deferred
tax assets.
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
3. EARNINGS PER SHARE
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>
Three months ended Nine months ended
March 31, March 31,
---------------------------------------------
1999 1998 1999 1998
---------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income (loss) $(2,406) $ 2,655 $ 5,704 $14,230
======= ======= ======= =======
Weighted average common shares outstanding 19,805 19,626 19,761 19,586
======= ======= ======= =======
Earnings (loss) per share - basic $ (0.12) $ 0.14 $ 0.29 $ 0.73
======= ======= ======= =======
DILUTED EARNINGS PER SHARE:
Net income (loss) $(2,406) $ 2,655 $ 5,704 $14,230
======= ======= ======= =======
Weighted average common shares outstanding 19,805 19,626 19,761 19,586
Effect of dilutive securities:
Stock options and warrants (A) - 2,289 1,949 2,390
------- ------- ------- -------
Weighted average dilutive common shares outstanding 19,805 21,915 21,710 21,976
======= ======= ======= =======
Earnings (loss) per share - diluted $ (0.12) $ 0.12 $ 0.26 $ 0.65
======= ======= ======= =======
</TABLE>
(A) Since the company recognized a net loss for the three months ended
March 31, 1999, the effect of stock options and warrants would be
anti-dilutive. These securities, which otherwise would have had a
dilutive effect of approximately 1.7 million shares, have been
excluded from the earnings per share calculation for the three months
ended March 31, 1999.
4. BUSINESS ACQUISITIONS AND RELATED INDEBTEDNESS
On July 22, 1998, the Company acquired substantially all of the assets of
Bishop Hawk, Inc. for total consideration of approximately $11.1 million,
inclusive of seller financing totaling approximately $2.5 million. The
Company has recorded the acquisition under the purchase method of
accounting, and all operations of Bishop Hawk, Inc. subsequent to the
acquisition date are reflected in the Company's financial statements for
the nine months ended March 31, 1999.
The notes to the seller are payable in installments through July 22, 2000,
and bear interest at a weighted average rate of 9.14% per annum. In the
event that certain revenue levels are not attained in the first year
following the acquisition, up to $500,000 will be deducted from the amounts
due under the notes, therefore reducing the recorded purchase price. The
Company also will pay an additional amount ("Earnout Payment"), which, if
earned, will be payable by September 22, 1999. The Earnout Payment is
payable to the extent that the gross revenue earned by the Company during
the twelve months following the date of the acquisition through the efforts
of the former Bishop Hawk, Inc. professionals who join the Company exceeds
agreed upon levels. Due to the contingent nature of this payment, the
Company will record this portion of the purchase price only to the extent
7
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
4. BUSINESS ACQUISITIONS AND RELATED INDEBTEDNESS (CONTINUED)
it is paid to the seller. In connection with this acquisition, the Company
incurred $3.5 million of borrowings under its credit facility, all of which were
repaid by August 21, 1998.
In December 1998, the Company acquired substantially all of the assets of
Williams Property Venture d/b/a Smithy Braedon Oncor International and Smithy
Braedon Oncor International Management Inc. (collectively "Smithy Braedon"). The
Company also acquired substantially all of the assets of Commercial Florida
Realty Partners, Inc. ("Commercial Florida") and Island Realty Services Group,
Inc. ("Island Realty") in February 1999. The Company has recorded these
acquisitions under the purchase method of accounting, and all operations
subsequent to the respective acquisition dates are reflected in the Company's
financial statements for the nine months ended March 31, 1999.
The purchase prices of these three acquisitions totaled approximately $8.3
million, including seller provided financing of approximately $347,000 which
bears interest at an annual rate of 7.5% and becomes due in January 2000. The
Company is also obligated to pay additional purchase price amounts which are
contingent on revenue levels achieved during the twelve months following the
acquisitions. Due to the contingent nature of these payments, the Company will
record this portion of the purchase prices only to the extent they are paid to
the sellers.
Pro Forma Information:
The following unaudited pro forma financial information reflects the operations
of the Company for the nine months ended March 31, 1999 and 1998, assuming the
above acquisitions had occurred on July 1 of each period (in thousands, except
share data):
Nine months ended
March 31,
1999 1998
------------ --------------
Total revenue $239,158 $224,020
Income before taxes $ 9,487 $ 10.534
Net income $ 5,827 $ 14,931
Earnings per share:
Basic $ 0.29 $ 0.76
Diluted $ 0.27 $ 0.68
Pro forma information does not purport to be indicative of the results that
would have been obtained had these events occurred at the beginning of the
periods presented, and is not intended to be a projection of future results.
8
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GRUBB & ELLIS COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
5. COMMITMENTS AND CONTINGENCIES
The Company previously disclosed in its Annual Report on Form 10-K for the year
ended June 30, 1998, information concerning a lawsuit entitled Johsz et al. v.
---------------
Koll Company, et al., and a related lawsuit entitled Maiona v. Southern
- --------------------- ------------------
California Edison, et al. The lawsuits alleged that the plaintiffs, employees
- ------------------------
and brokers associated with the Company had contracted cancer from
electromagnetic waves produced by an electric transformer located in a vault
below office space leased by the Company. In the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998, the Company disclosed
that its motion to dismiss the Maiona case was granted and that the Company
------
anticipated that the plaintiffs would appeal. In January 1999, the Maiona and
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Johsz matters were settled for a waiver of costs.
- -----
The Company also previously disclosed in its Annual Report on Form 10-K for the
year ended June 30, 1998, information concerning a lawsuit filed on January 23,
1995 in the United States District Court for the Western District of
Pennsylvania, entitled John W. Matthews, et al. v. Kidder, Peabody & Co., et al.
---------------------------------------------------------
and HSM Inc., et al. On September 26, 1996, the court granted plaintiffs' motion
- --------------------
to file an amended complaint to add additional plaintiffs with respect to
Partnerships I and III and granted plaintiffs' motion for class certification
with respect to Partnerships I, II and III. Subsequently, the court entered an
order granting an interlocutory appeal by defendants to the September 26, 1996
order on the question of the applicability of the Private Securities Litigation
Reform Act of 1995 (the "Securities Litigation Reform Act") to this case. The
case was stayed, including discovery, pending the outcome of the appeal. In
November, 1998 the United States Court of Appeals for the Third Circuit entered
an order holding that the Securities Litigation Reform Act is not applicable to
this case and that plaintiffs may proceed with their RICO claims against the
defendants. Discovery is now proceeding. Defendants filed a petition for writ of
certiorari with the United States Supreme Court appealing the Third Circuit's
decision. On April 19, 1999, the United States Supreme Court denied defendants'
petition.
The Company intends to vigorously defend the Matthews action and believes it has
--------
meritorious defenses to contest the claims asserted by plaintiffs. Based upon
available information, the Company is not able to determine the financial
impact, if any, of such action, but believes that the outcome will not have a
material adverse effect on the Company's financial position or results of
operations.
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 and partnerships, 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.
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 which may involve known and
unknown risks, uncertainties and other factors that may cause the Company's
actual results and performance in future periods to be materially different from
any future results or performance suggested by these statements. Such factors,
which could adversely affect the Company's ability to obtain these results
include, among other things, (i) the volume of transactions and prices for real
estate in the real estate markets generally, (ii) a general or regional economic
downturn which could create a recession in the real estate markets, (iii) the
Company's debt level and its ability to make interest and principal payments,
(iv) an increase in expenses related to new initiatives, investments in
personnel and technology, and service improvements, (v) the success of new
initiatives and investments, (vi) the impact of Year 2000 technology issues,
(vii) the ability of the Company to integrate acquired companies and assets, and
(viii) other factors described in the Company's Form 10-K for the fiscal year
ended June 30, 1998.
RESULTS OF OPERATIONS
REVENUE
The Company's revenue is derived principally from transaction services fees
related to commercial real estate, which include commissions from leasing,
acquisition and disposition transactions as well as fees from appraisal,
consulting and asset management assignments. Management services fees comprise
the remainder of the Company's revenues, and include fees related to both
property and facilities management, business services, construction management
and agency leasing.
Revenue in any given quarter during the three fiscal year period ended June 30,
1998, as a percentage of total annual revenue, ranged from a high of 31.2% 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%. The Company has historically
experienced its lowest quarterly revenue in the quarter ending March 31 of each
year and its highest quarterly revenue in the quarter ending December 31, due to
increased activity caused by the desire of clients to complete transactions by
calendar year-end.
Total revenue for the nine months ended March 31, 1999 was $234.8 million, an
increase of 15.9% over revenue of $202.6 million for the same period last year,
reflecting stronger real estate markets in the first two quarters of fiscal 1999
than the prior year periods, increased business activity across the Company's
service lines and the impact of the Company's recent acquisitions. This
improvement related to a $17.7 million increase in transaction service
commissions, which was partially offset by a decline in investment sales in the
third quarter of fiscal 1999 as described below, and a $14.5 million increase in
management services fees over the same period in 1998. Management services fees
of $39.5 million for the nine months ended March 31, 1999 increased by 58.0%, as
a result of increased activity in business services and property and facilities
management.
10
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Total revenue for the quarter ended March 31, 1999 was $60.0 million, an
increase of 1.7% over revenue of $59.0 million for the same period last year.
Transaction services commissions decreased $2.8 million or 5.6% over the prior
year period due to a 42% decline in investment sales activity resulting from the
lagging effect of the tightening credit markets in late 1998, while management
services fees increased by $3.7 million, or 39.9%. The Company's acquisitions
over the last twelve months positively impacted both of these service lines.
COSTS AND EXPENSES
Transaction services commission expense is the Company's major expense and is a
direct function of gross transaction revenue levels, which include transaction
service commissions and other fees. Professionals participate in transaction
services fees at rates which increase upon achievement of certain levels of
production. As a percentage of gross transaction revenue, related commission
expense increased for the nine months and quarter ended March 31, 1999 as
compared to the same periods in 1998 due to higher participation percentages
related to increased production levels.
Total costs and expenses, other than transaction services commissions, increased
by $18.1 million, or 19.5%, for the first nine months of fiscal year 1999
compared to the same period in fiscal year 1998. The rise in costs is
attributable primarily to additional variable operating costs associated with
increases in its transaction and management services businesses, as well as the
impact of the Company's recent acquisitions.
Total costs and expenses, other than transaction services commissions, for the
quarter ended March 31, 1999 increased by $4.9 million, or 15.1%, compared to
the same quarter in fiscal year 1998 due primarily to the costs described above.
Depreciation and amortization expense for the quarter and nine months ended
March 31, 1999 increased to $1.6 million from $852,000 and to $4.3 million from
$2.4 million, respectively, in the comparable periods last year, as the Company
placed in service numerous technology infrastructure improvements during the
latter part of fiscal year 1998 and early in fiscal year 1999. Amortization of
the goodwill related to the Company's various business acquisitions during 1998
and 1999 also contributed to this increase.
NET INCOME
Net income for the nine months ended March 31, 1999 was $5.7 million, or $.26
per common share on a diluted basis, as compared to net income of $14.2 million,
or $.65 per common share for the same period in fiscal year 1998. The decrease
was due primarily to a provision for income taxes of $3.6 million in the nine
months ended March 31, 1999 as compared to a net tax benefit of $4.8 million
related to a reduction in the valuation allowance against certain deferred tax
assets in the same period last year. Net income for the nine months ended March
31, 1999 reflects an effective tax rate of 39 percent, compared with a rate of 3
percent in the same period last year (exclusive of the non-recurring deferred
tax benefit) due to the utilization of net operating loss carryforwards from
prior years. Income before taxes for the nine months ended March 31, 1999
remained relatively unchanged from the same period last year.
11
<PAGE>
The Company recognized a net loss for the quarter ended March 31, 1999 of $2.4
million or $.12 per common share on a diluted basis, as compared to net income
of $2.7 million or $.12 per common share for the same period in fiscal year
1998. The decrease was due to primarily to the increased costs in fiscal 1999
and the net tax benefit recognized in fiscal 1998, as described above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $13.7 million to $2.1 million during the nine
months ended March 31, 1999, due primarily to $6.0 million of borrowings on the
credit facility, in addition to a decrease in the Company's cash and cash
equivalents of $10.4 million from June 30, 1998 to March 31, 1999. The Company
used a portion of its cash reserves along with the credit facility borrowings
and cash provided by operations of $6.4 million to fund $22.9 million of
investing activities, primarily for business acquisitions (see Note 4 of Notes
to Condensed Consolidated Financial Statements for additional information) and
purchases of equipment and leasehold improvements.
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 balances of approximately $16.0 million, related to
revenues earned in the six months ended December 31, 1998, were paid in the
quarter ended March 31, 1999.
The Company believes that its long-term operating cash requirements, including
its technology initiative commitments, will be met by operating cash flow. In
addition, the Company has a $35 million credit facility available for additional
capital needs. Currently, the Company has outstanding borrowings totaling $7.5
million for short-term operating cash requirements under the credit facility, of
which $1.5 million was borrowed in April 1999.
To the extent that the Company's cash requirements are not met by operating cash
flow or borrowings under its credit facility, in the event of adverse economic
conditions or other unfavorable events, the Company may find it necessary to
reduce expenditure levels or undertake other actions as may be appropriate under
the circumstances.
The Company continues to explore additional strategic acquisition opportunities
that have the potential to broaden its geographic reach, increase its market
share to a significant portion and/or expand the depth and breadth of its
current lines of business. The sources of consideration for such acquisitions
could be cash, the Company's current credit facility, 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.
Year 2000 Issues
During fiscal years 1997 and 1998, and continuing in 1999, the Company
significantly increased its investment in various technology initiatives. The
Company embarked upon these initiatives to enhance the
12
<PAGE>
productivity of its staff and business processes, and to provide a stable
platform to support the Company's recent and future growth. In addition, this
technology improvement plan has replaced most of the Company's information
systems and equipment platforms, including intranet, human resources, general
ledger, accounts payable and transaction services management and research, and
consequently has brought these systems into compliance with year 2000
requirements. The Company is currently in the process of developing a new
transaction services revenue system, and is completing upgrades to various
remaining servers and desktop computers. The Company expects to complete these
remaining initiatives by August 1999, and consequently to mitigate any material
risk associated with the year 2000. The Company is also currently formulating a
contingency plan to address the risk associated with the current revenue system
which is not year 2000 compliant. The Company has made capital expenditures
totaling $7.9 million through March 31, 1999 related to these systems, and
currently expects to invest an additional $1.1 million over the next eight
months to complete its technology plan, the majority of which relates to
software development. Management of the Company believes it has an effective
program in place relating to its internal information systems to resolve the
year 2000 issue in a timely manner, although no assurances can be given in this
regard.
The Company has assessed its exposure to year 2000 issues other than those
related to internal information systems, including issues related to third party
vendors, in order to develop an appropriate plan (including contingencies to
address these risks). In addition to its own information systems, the Company's
year 2000 plan includes consideration of building systems in properties managed
by Grubb & Ellis Management Services ("GEMS") (as well as the Company's
facilities), various property accounting systems for GEMS clients, and
telecommunications systems. The Company evaluated its telecommunication systems
and expects to invest a total of $2.3 million before the end of calendar 1999 to
upgrade or replace non-compliant telephone, voice mail, facsimile and other
telecommunications equipment, of which $1.4 million has been spent to date. The
Company will face business interruption risk if telecommunications are suspended
as a result of a year 2000 issue. GEMS is working with its clients (property
owners) to gather information on the year 2000 readiness of building systems
such as security, elevator and HVAC. For client accounting, GEMS has received
and installed accounting software upgrades from all software vendors, with one
exception that is scheduled to be completed by August 1999. GEMS is working with
its clients as well as these vendors to address these systems in a timely
fashion.
The Company is currently developing a contingency plan to address any risks
associated with the Company not completing its plan before the year 2000. Since
the Company cannot anticipate all possible outcomes of the year 2000 problem,
nor predict the readiness of entities with which it transacts business, there
can be no assurance these events will not have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
13
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PART II
OTHER INFORMATION
(ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE
FOR THE QUARTER ENDED MARCH 31, 1999)
14
<PAGE>
Item 1. LEGAL PROCEEDINGS.
-----------------
The information called for by Item 1 is incorporated by reference from Note 5 to
Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS
--------
(3) Articles of Incorporation and Bylaws
3.1 Certificate of Incorporation of the Registrant, as restated effective
November 1, 1994, incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K filed on March 31, 1995 (Commission File
No. 1-8122).
3.2 Certificate of Retirement with Respect to 130,233 Shares of Junior
Convertible Preferred Stock of Grubb & Ellis Company, filed with the Delaware
Secretary of State on January 22, 1997, incorporated herein by reference to
Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q filed on February
13, 1997 (Commission File No. 1-8122).
3.3 Certificate of Retirement with Respect to 8,894 Shares of Series A Senior
Convertible Preferred Stock, 128,266 Shares of Series B Senior Convertible
Preferred Stock, and 19,767 Shares of Junior Convertible Preferred Stock of
Grubb & Ellis Company, filed with the Delaware Secretary of State on January 22,
1997, incorporated herein by reference to Exhibit 3.4 to the Registrant's
Quarterly Report on Form 10-Q filed on February 13, 1997 (Commission File No. 1-
8122).
3.4 Grubb & Ellis Company Bylaws, as amended and restated effective June 1,
1994, incorporated herein by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q filed on November 13, 1996 (Commission File No. 1-
8122).
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K
-------------------
None.
15
<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, 1999 /s/ Brian D. Parker
-----------------------------------
Brian D. Parker
Executive Vice President
and Chief Financial Officer
16
<PAGE>
GRUBB & ELLIS COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
for the quarter ended March 31, 1999
------------------------------------
Exhibit
- -------
(27) Financial Data Schedule
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,894
<SECURITIES> 0
<RECEIVABLES> 16,013
<ALLOWANCES> 1,998
<INVENTORY> 0
<CURRENT-ASSETS> 26,735
<PP&E> 33,138
<DEPRECIATION> 17,060
<TOTAL-ASSETS> 77,565
<CURRENT-LIABILITIES> 24,650
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 41,530
<TOTAL-LIABILITY-AND-EQUITY> 77,565
<SALES> 0
<TOTAL-REVENUES> 235,544
<CGS> 0
<TOTAL-COSTS> 114,396
<OTHER-EXPENSES> 111,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> 9,286
<INCOME-TAX> 3,582
<INCOME-CONTINUING> 5,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,704
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
</TABLE>
