<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 December 31, 1999
-------------------------
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.)
2215 Sanders Road, Suite 400,
Northbrook, IL 60062
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(847) 753-7500
-----------------------------------------------------
(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
---- ----
19,709,816
-------------------------------------------------------------------------
(Number of shares outstanding of the registrant's
common stock at January 24, 2000.)
1
<PAGE>
PART I
FINANCIAL INFORMATION
2
<PAGE>
Item 1. Financial Statements
GRUBB & ELLIS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
December 31, June 30,
1999 1999
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 25,730 $ 5,500
Services fees receivable, net 10,729 9,019
Other receivables 2,657 2,291
Prepaids and other current assets 4,991 5,020
Deferred tax assets, net 885 2,940
--------------- ---------------
Total current assets 44,992 24,770
Noncurrent assets:
Equipment and leasehold improvements, net 20,401 18,554
Goodwill, net 30,190 28,564
Deferred tax assets, net 1,767 3,450
Other assets 6,432 4,455
--------------- ---------------
Total assets $103,782 $ 79,793
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,446 $ 3,122
Credit facility indebtedness 1,000 7,500
Acquisition indebtedness 1,142 2,332
Accrued compensation and employee benefits 14,127 9,511
Deferred commissions payable 17,156 -
Other accrued expenses 3,718 2,605
--------------- ---------------
Total current liabilities 40,589 25,070
Long-term liabilities:
Acquisition indebtedness - 553
Accrued claims and settlements 8,366 8,837
Other liabilities 802 851
--------------- ---------------
Total liabilities 49,757 35,311
--------------- ---------------
Stockholders' equity:
Common stock, $.01 par value: 50,000,000 shares
authorized; issued and outstanding
19,691,016 (net of
18,800 treasury shares) at December 31, 1999 197 199
and
19,885,084 shares at June 30, 1999.
Additional paid-in-capital 113,063 112,550
Retained earnings (deficit) (59,235) (68,267)
--------------- ---------------
Total stockholders' equity 54,025 44,482
--------------- ---------------
Total liabilities and stockholders' equity $103,782 $ 79,793
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
GRUBB & ELLIS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended December 31, ended December 31,
----------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Advisory services fees $ 100,321 $ 84,261 $ 180,653 $ 148,474
Management services fees 16,966 14,380 31,835 26,336
--------------- --------------- --------------- ---------------
Total revenue 117,287 98,641 212,488 174,810
--------------- --------------- --------------- ---------------
Costs and expenses:
Advisory services commissions 62,279 50,107 109,976 87,379
Salaries, wages and benefits 24,443 20,275 48,232 40,582
Selling, general and administrative 17,949 17,060 33,856 30,716
Depreciation and amortization 2,799 1,775 5,097 3,048
--------------- --------------- --------------- ---------------
Total costs and expenses 107,470 89,217 197,161 161,725
--------------- --------------- --------------- ---------------
Total operating income 9,817 9,424 15,327 13,085
Other income and expenses:
Interest and other income 287 292 538 504
Interest expense (101) (136) (293) (293)
--------------- --------------- --------------- ---------------
Income before income taxes 10,003 9,580 15,572 13,296
Provision for income taxes (4,312) (3,780) (6,540) (5,186)
--------------- --------------- --------------- ---------------
Net income $ 5,691 $ 5,800 $ 9,032 $ 8,110
=============== =============== =============== ===============
Net income per common share
Basic - $ .29 $ .29 $ .46 $ .41
=============== =============== =============== ===============
Diluted - $ $.27 $ .27 $ .43 $ .37
=============== =============== =============== ===============
Weighted average common shares
outstanding:
Basic - 19,764,149 19,756,374 19,822,359 19,739,249
=============== =============== =============== ===============
Diluted - 21,063,369 21,656,858 21,082,347 21,796,497
=============== =============== =============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
GRUBB & ELLIS COMPANY
CONDENSED CONSOLDATED STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the six months
ended December 31,
-----------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 9,032 $ 8,110
Deferral of payment of commission expense 17,156 15,188
Depreciation and amortization expense 5,097 3,048
Adjustments to reconcile net income to net cash
provided by operating activities 6,273 8,887
------------------ -----------------
Net cash provided by operating activities 37,558 35,233
------------------ -----------------
Cash Flows from Investing Activities:
Purchase of equipment, software and leasehold (4,767) (3,499)
improvements
Cash paid for business acquisitions, net of cash acquired (861) (14,603)
Other investing activities (1,500) -
------------------ -----------------
Net cash used in investing activities (7,128) (18,102)
------------------ -----------------
Cash Flows from Financing Activities:
Repayment of acquisition debt (1,743) (149)
Repayment of borrowings on credit facility (10,000) -
Borrowings on credit facility 3,500 -
Repurchase of treasury stock (1,608) -
Other financing activities (349) 539
------------------ -----------------
Net cash used in investing activities (10,200) 390
------------------ -----------------
Net increase in cash and cash equivalents 20,230 17,521
Cash and cash equivalents at beginning of period 5,500 14,251
------------------ -----------------
Cash and cash equivalents at end of period $ 25,730 $ 31,772
================== =================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
GRUBB & ELLIS COMPANY
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, 1999.
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
recurring nature. Certain amounts in prior periods have been reclassified to
conform to the current presentation.
Operating results for the six months ended December 31, 1999 are not necessarily
indicative of the results that may be achieved in future periods.
2. Income Taxes
The provision for income taxes for the six months ended December 31, 1999 and
1998 is as follows (in thousands):
For the six months ended
December 31,
---------------------------------
1999 1998
------------ -------------
Current $2,802 $ 743
Deferred 3,738 4,443
------------ -------------
$6,540 $5,186
============ =============
6
<PAGE>
GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements
3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
----------------------------------------- -------------------------------------
1999 1998 1999 1998
----------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 5,691 $ 5,800 $ 9,032 $ 8,110
================= =================== ================= ===============
Basic earnings per share:
Weighted average common shares
outstanding 19,764 19,756 19,822 19,739
================= =================== ================= ===============
Earnings per share - basic $ .29 $ .29 $ .46 $ .41
================= =================== ================= ===============
Diluted earnings per share:
Weighted average common shares
outstanding 19,764 19,756 19,822 19,739
Effect of dilutive securities:
Stock options and warrants 1,458 1,901 1,340 2,057
----------------- ------------------- ----------------- ---------------
Weighted average dilutive common
shares outstanding 21,222 21,657 21,162 21,796
================= =================== ================= ===============
Earnings per share - diluted $ .27 $ .27 $ .43 $ .37
================= =================== ================= ===============
</TABLE>
4. Business Acquisitions
On July 30, 1999, the Company acquired substantially all of the assets of
Landauer Associates, Inc., a real estate valuation and consulting firm.
Consideration given to the seller at closing included cash and common stock
warrants. The Company recorded the acquisition under the purchase method of
accounting, and all operations subsequent to the acquisition date are reflected
in the Company's financial statements.
Pro Forma Information:
The Company also completed three other acquisitions during fiscal year 1999
(Williams Property Venture d/b/a Smithy Braedon Oncor International and Smithy
Braedon Oncor International Management, Inc., Commercial Florida Realty
Partners, Inc. and Island Realty Service Group, Inc.) whose results of
operations, due to the timing of the acquisitions, are not included in the
Company's financial statements for the six months ended December 31, 1998.
The following unaudited pro forma financial information reflects the operations
of the Company for the six months ended December 31, 1998, assuming the above
acquisitions had occurred on July 1, 1998 (in thousands, except share data):
7
<PAGE>
GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements
4. Business Acquisitions (continued)
Six months ended
December 31,
1998
-------------------
Total revenue $191,617
Income before taxes 13,989
Net income 8,533
Earnings per share:
Basic .43
Diluted .39
The Company's results of operations for the six months ended December 31, 1999,
which include operations acquired from Landauer Associates, Inc. subsequent to
the date of acquisition, do not materially differ from pro forma results that
would have been obtained for that period.
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.
5. Credit Facility Debt
On October 15, 1999 the Company entered into a new credit agreement ("Credit
Agreement") arranged by Bank of America, N.A. ("BofA"), and simultaneously
repaid and terminated its prior credit facility. The Credit Agreement consists
of a $40 million reducing revolver credit facility to be used for acquisitions
and stock repurchases (of which $15 million is uncommitted), along with a $10
million revolving credit facility for working capital purposes. Interest on
outstanding borrowings is due quarterly in arrears and is based upon BofA's
prime rate and/or the LIBOR rate plus, in either case, an additional margin
based upon a particular financial ratio of the Company, and will vary depending
upon which interest rate options the Company chooses to be applied to specific
borrowings. Both credit facilities mature on October 15, 2004, however, the
total available commitment on the reducing revolver will be reduced by 20%, 35%
and 45% during the third, fourth and fifth year of the facility, respectively.
Borrowings totaling $3 million from the new Credit Agreement were used to repay
loans under the prior agreement which were outstanding as of September 30, 1999,
along with related financing costs of the new facility which are being amortized
over the term of the Credit Agreement. As of December 31, 1999, loans of $1.0
million were outstanding, which bear interest at an annual rate of 8.095%.
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, among other
things, the prohibition of the payment of dividends, restrictions on the
redemption or repurchase of capital stock, and the maintenance of certain
financial ratios.
8
<PAGE>
GRUBB & ELLIS COMPANY
Notes to Condensed Consolidated Financial Statements
6. Segment Information
The Company has two reportable segments - Advisory Services and Management
Services, and evaluates segment performance and allocates resources based on
earnings before interest expense, taxes, depreciation and amortization
("EBITDA") (in thousands).
<TABLE>
<CAPTION>
Advisory Management Company
Services Services Totals
Six months ended December 31, 1999
<S> <C> <C> <C>
Total revenue $180,653 $31,835 $212,488
EBITDA 19,102 1,860 20,962
Total assets as of December 31, 1999 78,766 25,016 103,782
Six months ended December 31, 1998
Total revenue $148,474 $26,336 $174,810
EBITDA 15,286 1,351 16,637
Total assets as of December 31, 1998 69,076 26,963 96,039
</TABLE>
7. Commitments and Contingencies
The Company previously disclosed in its Annual Report on Form 10-K for the year
ended June 30, 1999, 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. During the six months ended December 31, 1999, there were no material
developments in this matter.
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
<PAGE>
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 ability of the Company to integrate
acquired companies and assets, and (vii) other factors described in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999.
RESULTS OF OPERATIONS
Revenue
The Company's revenue is derived principally from advisory services fees related
to commercial real estate, which include commissions from leasing, acquisition
and disposition transactions as well as fees from valuation, consulting and
asset management assignments. Management services fees comprise the remainder
of the Company's revenues, and include fees related to both property management
and facilities management outsourcing, business services and agency leasing.
Revenue in any given quarter during the three fiscal year period ended June 30,
1999, as a percentage of total annual revenue, ranged from a high of 31.4% to a
low of 19.1%, with revenue earned in the second quarters of each of the last
three fiscal years ranging from 28.8% to 31.4%. The Company has typically
experienced its lowest quarterly revenue in the quarter ending March 31 of each
year with higher and more consistent revenue in the quarters ended June 30 and
September 30, 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 six months ended December 31, 1999 was $212.5 million, an
increase of 21.6% over revenue of $174.8 million for the same period last year,
reflecting stronger real estate markets overall and increased business activity
across the Company's service lines. This improvement related primarily to a
$32.2 million increase in advisory services fees over the same period in 1998,
which was due to an increased amount of strategic and select corporate account
activity and the effect of acquisitions completed during or after the second
quarter of fiscal 1999. Management services fees of $31.8 million for the six
months ended December 31, 1999 increased by $5.5 million, or 20.9%,
10
<PAGE>
as a result of increased activity in business services and property management
and facilities management outsourcing assignments.
Total revenue for the quarter ended December 31, 1999 was $117.3 million, an
increase of 18.9% over revenue of $98.6 million for the same period last year.
Advisory services fees increased $16.1 million or 19.1% over the prior year
period, while management services fees increased by $2.6 million, or 18.0%.
Costs and Expenses
Advisory services commission expense is the Company's major expense and is a
direct function of transaction related revenue levels, which include advisory
service commissions and other fees. Professionals participate in advisory
services fees at rates which increase upon achievement of certain levels of
production. As a percentage of gross transaction revenue, related commission
expense increased by 203 basis points and 261 basis points for the six months
and quarter ended December 31, 1999, respectively, as compared to the same
periods in 1998. This increase was due to higher participation rates in effect
at some of the companies acquired over the past two years as well as larger
percentages of the fiscal 2000 revenue generated by professionals in the higher
commission brackets.
Total costs and expenses, other than advisory services commissions and
depreciation and amortization, increased by $10.8 million, or 15.1%, for the
first six months of fiscal year 2000 compared to the same period in fiscal year
1999. For the quarter ended December 31, 1999, these same costs and expenses
increased by $5.1 million, or 13.5%, compared to the same quarter in fiscal year
1999. The rise in these operating costs is attributable partially to the
incremental operating and integration costs associated with the acquisition of
Landauer, which was acquired in the first quarter of fiscal 2000, along with
additional costs and expenses related to fiscal 1999 acquisitions and start-up
costs associated with a large management services outsourcing assignment.
Depreciation and amortization expense for the quarter and six months ended
December 31, 1999 increased to $2.8 million from $1.8 million and to $5.1
million from $3.1 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 1999 and early in fiscal year 2000.
Amortization of the goodwill related to the Company's various business
acquisitions during 1998 and 1999 also contributed to this increase. The Company
also signed multi-year service contracts with certain key advisory
professionals, the costs of which are being amortized over the life of the
respective contract which is generally two to three years. Amortization expense
of $489,000 and $968,000 was recognized in the quarter and six months ended
December 31, 1999, respectively, compared to $415,000 for each of the same
periods in the prior year. In previously filed financial statements, these costs
were included in advisory services commissions expense, and have been
reclassified for comparative purposes for all periods presented.
11
<PAGE>
Net Income
Net income for the six months ended December 31, 1999 was $9.0 million, or $.43
per common share on a diluted basis, as compared to net income on $8.1 million,
or $.37 per common share for the same period in fiscal year 1999, primarily due
to stronger operations in the first quarter of fiscal 2000. Net income for the
quarter ended December 31, 1999 of $5.7 million, or $.27 per common share on a
diluted basis, was relatively unchanged from the same period in fiscal 1999.
Slightly improved operations for the quarter were offset by an increase in the
Company's effective tax rate due to the utilization of the majority of the
Company's remaining state net operating loss carryforwards in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operations of approximately $37.6 million
in the six months ended December 31, 1999, including approximately $17.1 million
from deferred commissions. Investing activities totaling $7.1 million were
funded using this cash, including $4.8 million of purchases of equipment,
software and leasehold improvements. The Company also funded net financing
activities of $10.2 million, including $8.2 million for net credit facility and
acquisition debt repayments, and $1.6 million for the repurchase of its common
stock.
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 advisory services activity during the quarter ended December 31.
Deferred commissions balances of approximately $17.1 million, related to
revenues earned in calendar year 1999, were paid in the quarter ending March 31,
2000.
On October 15, 1999 the Company entered into a new credit agreement ("Credit
Agreement") arranged by Bank of America, N.A. ("BofA"), and simultaneously
repaid and terminated its prior credit facility. The Credit Agreement consists
of a $40 million reducing revolver credit facility to be used for acquisitions
and stock repurchases (of which $15 million is uncommitted), along with a $10
million revolving credit facility for working capital purposes. Borrowings from
the new Credit Agreement were used to repay outstanding loans, along with
related financing costs of the new facility which are being amortized over the
term of the Credit Agreement. See Note 5 of Notes to Condensed Consolidated
Financial Statements for additional information. Subsequent to December 31,
1999, all remaining loans under the current facility were repaid.
In August 1999 the Company announced a program through which it may purchase up
to $3 million of its common stock on the open market from time to time as market
conditions warrant. As of December 31, 1999 the Company had repurchased 284,000
shares at a total cost of approximately $1,608,000.
12
<PAGE>
The Company believes that its short-term and long-term operating cash
requirements will be met by operating cash flow. In addition, the Company's
credit facility is available for additional capital needs. 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
As of December 31, 1999, the Company had completed its three year technology
plan, which included initiatives to mitigate any material risks associated with
the year 2000 issues. This technology plan resulted in the re-design and
replacement of most of the Company's information systems and equipment
platforms, including intranet, human resources, general ledger, accounts
receivable/payable and advisory services fee processing and market research.
The Company also identified areas other than these information systems for which
it might be at risk due to the year 2000, including telecommunication systems,
third party vendors, and building and property accounting systems related to
properties managed by Grubb & Ellis Management Services, Inc. ("GEMS"). As of
December 31, 1999, the Company had upgraded or replaced all non-compliant
telecommunication systems, identified risk issues and completed remediation
projects for its managed buildings and installed upgraded software for its
property accounting systems.
Through January 31, 2000, the Company has not encountered any year 2000 related
issues which would have affected its operations in the areas described above. It
will continue to monitor both its internal software and equipment and managed
building systems over the next few months to detect whether any such problems
arise. No future significant expenditures are expected related to year 2000
compliance.
13
<PAGE>
PART II
OTHER INFORMATION
(Items 3 and 5 are not applicable
for the quarter ended December 31, 1999)
14
<PAGE>
Item 1. Legal Proceedings.
------------------
The information called for by Item 1 is incorporated by reference from Note 7 to
Notes to Condensed Consolidated Financial Statements.
Item 2. Changes in Securities
---------------------
(b) Effective October 15, 1999, the Company entered into a secured credit
agreement with Bank of America, N.A. as Administrative Agent and a lender, and
certain other lenders (the "Credit Agreement"), providing for a credit facility
of up to $50 million. The term of the Credit Agreement extends until October
2004. As security for the facility, the lenders 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 or other
repurchases, redemption or distributions with respect to its capital stock,
other than dividends, redemption or other distributions payable in common stock
with the same economic and voting rights as the currently outstanding common
stock; and the Company may repurchase shares for cash in the amount of $10
million less the amount spent on the repurchase of shares since June 30, 1999
and less the amounts spent on certain other restricted investments. There are
also restrictions on indebtedness, liens, guarantees, loans, investments,
acquisitions, and dispositions of assets. The financial covenants applicable
during the term of the Credit Agreement include maintaining a ratio of debt to
EBITDA of no more than 2.25 to 1.00 as of the last day of each fiscal quarter
beginning December 31, 1999 for the period of the four fiscal quarters ending on
that date; and a ratio of EBITDA to the sum of interest expense, income taxes,
debt service, capital expenditures and earnout payments of at least 1.00 to 1.00
at all times.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The 1999 annual meeting of stockholders of the Company was held on November 18,
1999. The Company submitted to a vote of stockholders, through the solicitation
of proxies, the election of nine directors, representing the entire Board of
Directors. The votes cast for, against and withheld with respect to each nominee
for election as director were as follows:
Nominee For Withheld
--------- --- Authority
-----------
Neil Young 18,114,196 48,056
R. David Anacker 18,114,316 47,936
Joe F. Hanauer 18,114,518 47,734
C. Michael Kojaian 18,114,055 48,197
15
<PAGE>
Sidney Lapidus 17,640,565 521,687
Reuben S. Leibowitz 17,730,422 431,830
Robert J. McLaughlin 18,114,397 47,855
John D. Santoleri 18,112,366 49,886
Todd A. Williams 18,106,657 55,595
There were no broker non-votes with respect to any of the nominees for director.
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).
(4) Instruments Defining the Rights of Security Holders, including indentures.
4.1 Credit Agreement among the Registrant, certain subsidiaries of the
Registrant, Bank of America, N.A., American National Bank and Trust of
Chicago and LaSalle Bank National Association, dated as of October 15,
1999, incorporated herein by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q filed on November 12, 1999 (Commission File
No. 1-8122).
4.2 Revolving Credit Loan Note executed by the Registrant in favor of Bank of
America, N.A. in the amount of $3,714,285.71 dated as of October 15, 1999,
16
<PAGE>
incorporated herein by reference to Exhibit 4.2 to the Registrant's
Quarterly Report on Form 10-Q filed on November 12, 1999 (Commission File
No. 1-8122).
4.3 Revolving Credit Loan Note executed by the Registrant in favor of American
National Bank and Trust of Chicago in the amount of $3,428,571.43 dated as
of October 15, 1999, incorporated herein by reference to Exhibit 4.3 to the
Registrant's Quarterly Report on Form 10-Q filed on November 12, 1999
(Commission File No. 1-8122).
4.4 Revolving Credit Loan Note executed by the Registrant in favor of LaSalle
Bank National Association in the amount of $2,857,142.86 dated as of
October 15, 1999, incorporated herein by reference to Exhibit 4.4 to the
Registrant's Quarterly Report on Form 10-Q filed on November 12, 1999
(Commission File No. 1-8122).
4.5 Reducing Revolving Credit Loan Note executed by the Registrant in favor of
Bank of America, N.A. in the amount of $9,285,714.29 dated as of October
15, 1999, incorporated herein by reference to Exhibit 4.5 to the
Registrant's Quarterly Report on Form 10-Q filed on November 12, 1999
(Commission File No. 1-8122).
4.6 Reducing Revolving Credit Loan Note executed by the Registrant in favor of
American National Bank and Trust of Chicago in the amount of $8,571,428.57
dated as of October 15, 1999, incorporated herein by reference to Exhibit
4.6 to the Registrant's Quarterly Report on Form 10-Q filed on November 12,
1999 (Commission File No. 1-8122).
4.7 Reducing Revolving Credit Loan Note executed by the Registrant in favor of
LaSalle Bank National Association in the amount of $7,142,857.14 dated as
of October 15, 1999, incorporated herein by reference to Exhibit 4.7 to the
Registrant's Quarterly Report on Form 10-Q filed on November 12, 1999
(Commission File No. 1-8122).
4.8 Swingline Loan Note executed by the Registrant in favor of Bank of America,
N.A. in the amount of $2,000,000 dated as of October 15, 1999, incorporated
herein by reference to Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-Q filed on November 12, 1999 (Commission File No. 1-8122).
On an individual basis, instruments other than Exhibits listed above under
Exhibit 4 defining the rights of holders of long-term debt of the Registrant and
its consolidated subsidiaries and partnerships do not exceed ten percent of
total consolidated assets and are, therefore, omitted; however, the Company will
furnish supplementally to the Commission any such omitted instrument upon
request.
(10) Material Contracts
10.1 Pledge Agreement between the Registrant and Bank of America, N.A., as
Administrative Agent, dated as of October 15, 1999, incorporated herein by
17
<PAGE>
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-
Q filed on November 12, 1999 (Commission File No. 1-8122).
10.2 Pledge Agreement between Grubb & Ellis Management Services, Inc. and Bank
of America, N.A., as Administrative Agent, dated as of October 15, 1999,
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q filed on November 12, 1999 (Commission File
No. 1-8122).
10.3 Pledge Agreement between HSM, Inc. and Bank of America, N.A., as
Administrative Agent, dated as of October 15, 1999, incorporated herein by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-
Q filed on November 12, 1999 (Commission File No. 1-8122).
10.4 Guarantee and Collateral Agreement by the Registrant and certain of its
Subsidiaries in favor of Bank of America, N.A., as Administrative Agent,
dated as of October 15, 1999, incorporated herein by reference to Exhibit
10.4 to the Registrant's Quarterly Report on Form 10-Q filed on November
12, 1999 (Commission File No. 1-8122).
10.5 Collateral Trademark Security Agreement by the Registrant in favor of Bank
of America, N.A., as Administrative Agent, dated as of October 15, 1999,
incorporated herein by reference to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q filed on November 12, 1999 (Commission File
No. 1-8122).
(27) Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
None.
18
<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: February 14, 2000 /s/ Blake W. Harbaugh
------------------------------------
Blake W. Harbaugh
Senior Vice President and
Chief Financial Officer
19
<PAGE>
Grubb & Ellis Company and Subsidiaries
EXHIBIT INDEX
for the quarter ended December 31, 1999
---------------------------------------
Exhibit
- -------
(27) Financial Data Schedule
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Condensed Consolidated Financial Statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,730
<SECURITIES> 0
<RECEIVABLES> 11,862
<ALLOWANCES> 1,133
<INVENTORY> 0
<CURRENT-ASSETS> 44,992
<PP&E> 42,164
<DEPRECIATION> 21,763
<TOTAL-ASSETS> 103,782
<CURRENT-LIABILITIES> 40,589
<BONDS> 0
0
0
<COMMON> 197
<OTHER-SE> 53,828
<TOTAL-LIABILITY-AND-EQUITY> 103,782
<SALES> 0
<TOTAL-REVENUES> 213,026
<CGS> 0
<TOTAL-COSTS> 109,976
<OTHER-EXPENSES> 87,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 293
<INCOME-PRETAX> 15,572
<INCOME-TAX> 6,540
<INCOME-CONTINUING> 9,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,032
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.43
</TABLE>
