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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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
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(State or other jurisdiction of (IRS 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in its definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of voting common stock held by non-affiliates of the
registrant as of August 18, 2000 was approximately
$28,811,000.
The number of shares outstanding of the registrant's common stock as of
August 18, 2000 was 19,874,669 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A no later than 120 days after the end of the fiscal year (June 30,
2000) are incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
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Page
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COVER PAGE 1
TABLE OF CONTENTS 2
Part I.
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 40
Part III.
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain Beneficial
Owners and Management 41
Item 13. Certain Relationships and Related Transactions 41
Part IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 42
SIGNATURES 48
EXHIBIT INDEX 50
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GRUBB & ELLIS COMPANY
PART I
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Item 1. Business
General
Grubb & Ellis Company, a Delaware corporation organized in 1980, is the
successor by merger to a real estate brokerage company first established in
California in 1958. Grubb & Ellis Company and its wholly owned subsidiaries
(the "Company") is a full service commercial real estate company. The Company
has a global strategic alliance with Knight Frank, one of the leading property
consulting firms in Europe and Asia. The Company, through its offices,
affiliates and alliance with Knight Frank, provides a full range of real estate
services, including advisory, management and consultative services, to users and
investors worldwide. With the collective resources of nearly 7,000 people in
200 offices in 27 countries, the Company's professionals arrange the sale or
lease of such business properties as industrial, retail and office buildings, as
well as the acquisition and disposition of multi-family and hospitality
properties and commercial land. Major multiple-market clients have a single
point of contact through the Company's Corporate and Financial Services Groups
for coordination of all services as well as site selection, feasibility studies,
market forecasts and research. The Company is one of the nation's largest
publicly traded commercial real estate firms, based on total revenue.
Property and facilities management services are provided by Grubb & Ellis
Management Services, Inc. ("GEMS"), a wholly owned subsidiary of the Company.
GEMS had approximately 150 million square feet of property under management as
of June 30, 2000.
Strategic Initiatives
In fiscal 2000, the Company continued to pursue its business strategy of
diversifying its revenue beyond commercial brokerage by enhancing the quality of
its service to better meet the needs of its multi-market clients. These
initiatives include the Company's Corporate Services and Financial Services
Groups, which utilize a relationship management system to allow the Company to
respond to the increasing demand from major corporate and institutional clients
for expanded services through a single point of contact. The Company also
broadened its national affiliate program, through alliances with 34 real estate
services firms, which has enabled it to enter markets where it previously did
not have a formal presence and to better meet the multi-market needs of national
clients. The Company has also invested in technology systems designed to
provide a scalable platform for growth and to efficiently deliver and share data
with clients. Among them is what the Company believes to be a state-of-the-art,
company-wide information sharing and research network which enables its
professional staff across all offices to work more efficiently, access the
latest market intelligence, and more fully address clients' needs.
Since July 1998, the Company also completed four acquisitions that reinforce its
strategy of increasing its presence in key markets. Those acquisitions
included: Bishop Hawk, Inc., a Northern California real estate services firm;
Smithy Braedon Oncor International, serving the greater
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Washington D. C. metropolitan area; Commercial Florida Realty Partners, Inc., a
southern Florida firm; and Island Realty Service Group, Inc., a real estate
services firm based in Long Island, New York. In addition, in July 1999, the
Company acquired substantially all of the assets of Landauer Associates, Inc., a
national real estate valuation and consulting firm with offices in several major
cities across the United States.
In March 2000, the Company announced that it had established a global strategic
alliance with Knight Frank, a London based international real estate services
company, to create a common service platform to provide consistent quality
service worldwide. The alliance calls for an exclusive referral arrangement in
areas of shared capability, and will entail, among other initiatives, the
coordination of marketing efforts, integration of market research capabilities
and interconnection of technology systems.
In August 1999, the Company announced its intent to repurchase, from time to
time, up to $3.0 million of its common stock on the open market. See Item 7 of
this Report for additional information.
Organization
The Company is organized in the following business segments, in order to provide
the real estate related services described below. Additional information on
these business segments can be found in Note 13 of Notes to Consolidated
Financial Statements under Item 8 of this Report.
Advisory Services
The Company advises and represents the interests of tenants, owners, buyers or
sellers in leasing, acquisition and disposition transactions. These
transactions involve various types of commercial real estate, including office,
industrial, retail, hospitality and land. In addition, the Company delivers
consulting and strategic planning services to its clients, including site
selection, feasibility studies, exit strategies, market forecasts, appraisals
and demographics and research services. Historically, these services have
represented a significant portion of the Company's revenue, and in fiscal year
2000 represented 84% of the Company's total revenue.
Management Services
GEMS provides comprehensive property management, agency leasing and related
services for properties owned primarily by institutional investors, along with
facilities management services for corporate users. Related services include
construction management, business services and engineering services. In fiscal
year 2000, these services represented the remaining 16% of the Company's total
revenue.
Competition
The Company competes in a variety of service disciplines within the commercial
real estate industry. Each of these business areas is highly competitive on a
national as well as local level. The Company faces competition not only from
other real estate service providers, but also from accounting and appraisal
firms and self-managed real estate investment trusts. Although many of the
Company's
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competitors are local or regional firms that are substantially smaller than the
Company, some of these firms are substantially larger than the Company on a
local or regional basis. In general, there can be no assurance that the Company
will be able to continue to compete effectively, to maintain current fee levels
or margins, or maintain or increase its market share. Due to the Company's solid
capital base, its relative strength and longevity in the markets in which it
presently operates, and its ability to offer clients a range of real estate
services on a local, regional, national and international basis, the Company
believes that it can operate successfully in the future in this highly
competitive industry, although there can be no assurances in this regard.
Environmental Regulation
Federal, state and local laws and regulations impose environmental controls,
disclosure rules and zoning restrictions which have impacted the management,
development, use, and/or sale of real estate. Such laws and regulations tend to
discourage sales and leasing activities and mortgage lending with respect to
some properties, and may therefore adversely affect the Company and the industry
in general. Failure of the Company to disclose environmental issues in
connection with a real estate transaction may subject the Company to liability
to a buyer or lessee of property. Applicable laws and contractual obligations
to property owners could also subject the Company to environmental liabilities
through the provision of management services. Environmental laws and regulations
impose liability on current or previous real property owners or operators for
the cost of investigating, cleaning up or removing contamination caused by
hazardous or toxic substances at the property. The Company may be held liable
as an operator for such costs in its role as an on-site property manager.
Liability can be imposed even if the original actions were legal and the Company
had no knowledge of, or was not responsible for, the presence of the hazardous
or toxic substances. Further, the Company may also be held responsible for the
entire payment of the liability if it is subject to joint and several liability
and the other responsible parties are unable to pay. The Company may also be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site, including the presence of
asbestos containing materials. Insurance for such matters may not be available.
Additionally, new or modified environmental regulations could develop in a
manner which could adversely affect the Company's advisory and management
services. The Company's financial results and competitive position for the
fiscal year 2000 have not been materially impacted by its compliance with
environmental laws or regulations, and no material capital expenditures relating
to such compliance are planned.
Seasonality
A substantial component of the Company's revenues, as well as the related
commission expense, is transactional in nature and as a result is subject to
seasonal fluctuations. However, the Company's non-variable operating expenses,
which are treated as expenses when incurred during the year, are relatively
constant in total dollars on a quarterly basis. 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 ending June 30 and
September 30. The quarter ending December 31 has historically provided the
highest quarterly level of revenue due to increased activity caused by the
desire of clients to complete transactions by calendar year-end. Revenue in any
given quarter during the years ended June 30, 2000, 1999 and 1998, as a
percentage of total annual revenue, ranged from a high of 31.4% to a low of
19.1%.
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Service Marks
The Company has registered trade names and service marks for the "Grubb & Ellis"
name and logo. The right to use the "Grubb & Ellis" name is considered an
important asset of the Company, and the Company actively defends and enforces
such trade names and service marks.
Real Estate Markets
The Company's business is highly dependent on the commercial real estate
markets, which in turn are impacted by such factors as the general economy,
interest rates and demand for real estate in local markets. Changes in one or
more of these factors could either favorably or unfavorably impact the volume of
transactions and prices or lease terms for real estate. Consequently, the
Company's revenue from advisory services and property management fees, operating
results, cash flow and financial condition could also be impacted by changes in
these factors.
Item 2. Properties
The Company leases all of its office space. The terms of the leases vary
depending on the size and location of the office. As of June 30, 2000, the
Company leased approximately 733,000 square feet of office space in 68 locations
under leases, which expire at various dates through July 31, 2010. For those
leases which are not renewable, the Company believes there is adequate
alternative office space available at acceptable rental rates to meet its needs,
although there can be no assurances in this regard. For further information,
see Note 9 of the Notes to Consolidated Financial Statements under Item 8 of
this Report.
Item 3. Legal Proceedings
The information called for by Item 3 is included in Note 9 of the Notes to
Consolidated Financial Statements under Item 8 of this Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
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GRUBB & ELLIS COMPANY
PART II
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Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The principal market for the Company's common stock is the New York Stock
Exchange ("NYSE"). The following table sets forth the high and low sales prices
of the Company's common stock on the NYSE for each quarter of the fiscal years
ended June 30, 2000 and 1999.
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2000 1999
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High Low High Low
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First Quarter $ 5 15/16 $ 4 5/8 $ 4 1/16 $ 8 3/8
Second Quarter $ 6 $ 4 9/16 $ 10 5/16 $ 7 7/16
Third Quarter $ 6 $ 4 9/16 $ 7 7/8 $ 6 1/4
Fourth Quarter $ 6 7/8 $ 5 1/4 $ 6 7/8 $ 5 1/16
</TABLE>
As of August 18, 2000, there were 1,911 registered holders of the Company's
common stock and 19,874,669 shares of common stock outstanding, of which
15,072,831 were held by persons who may be considered "affiliates" of the
Company, as defined in Federal securities regulations. Sales of substantial
amounts of common stock, including shares issued upon the exercise of warrants
or options, or the perception that such sales might occur, could adversely
affect prevailing market prices for the common stock.
No cash dividends were declared on the Company's common stock during the fiscal
years ended June 30, 2000 or 1999. The Company has agreed, under the terms of
its revolving credit facility, not to pay cash dividends on its common stock for
the duration of the facility, without obtaining an appropriate waiver from the
lenders. See "Liquidity and Capital Resources" under Item 7 of this Report.
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Item 6. Selected Financial Data
Five Year Comparison of Selected Financial and Other Data for the Company:
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<CAPTION>
for the years ended June 30,
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2000 1999 1998 1997 1996
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(in thousands, except per share amounts and share data)
<S> <C> <C> <C> <C> <C>
Total revenue $ 413,535 $ 314,101 $ 282,834 $ 228,630 $ 193,728
Net income 16,290 8,079 21,506 19,010 2,102
Dividends in arrears applicable to preferred
stockholders - - - (1,431) (3,012)
Provision for income taxes (10,958) (5,301) (447) (372) (198)
Reduction in deferred tax asset
valuation allowance - 1,325 6,504 3,220 -
Net income (loss) applicable to common
stockholders (1) 16,290 8,079 21,506 17,579 (910)
Net income (loss) per common share (1)
- Basic .82 0.41 1.10 1.22 (.10)
- Diluted .77 0.37 .98 .97 (.10)
Weighted average common shares
-Basic 19,779,220 19,785,715 19,607,352 14,429,971 8,870,720
-Diluted 21,037,311 21,587,898 22,043,920 19,567,635 8,870,720
Other Data:
EBITDA (2) $ 39,472 $ 20,085 $ 19,118 $ 17,629 $ 7,418
EBITDA as a percent of total revenue 9.5% 6.4% 6.8% 7.7% 3.8%
</TABLE>
(1)
Net income (loss) and per share data reported on the above table reflect other
non-recurring expenses in the amount of $2.65 and $2.4 million for the fiscal
years ended June 30, 2000 and 1997, respectively. Other non-recurring income of
$462,000 is included in the results for the fiscal year ended June 30, 1996.
Net income for the fiscal year ended June 30, 1997 includes $5.4 million in
extraordinary gain, net of taxes, on the extinguishment of debt. For
information regarding comparability of this data as it may relate to future
periods, see discussion in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 10 of the Notes to
Consolidated Financial Statements under Item 8 of this Report.
(2)
The Company defines EBITDA as earnings before interest expense, income taxes,
depreciation and amortization, adjusted to exclude other non-recurring income
and expense and extraordinary items, which may not be comparable to measures of
the same title reported by other companies.
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as of June 30,
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2000 1999 1998 1997 1996
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(in thousands, except per share amounts and share data)
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Consolidated Balance Sheet Data:
Total assets $ 103,235 $ 79,793 $ 63,518 $ 36,696 $ 29,658
Working capital 11,883 (300) 15,822 16,985 8,064
Long-term debt - 553 459 - 27,514
Other long-term liabilities 9,551 9,688 10,118 12,700 14,948
Stockholders' equity (deficit) 61,620 44,482 35,414 12,923 (27,475)
Book value per common share 3.11 2.24 1.80 .66 (3.08)
Common shares outstanding 19,810,894 19,885,084 19,721,056 19,509,952 8,916,415
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain items discussed in this Annual Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and, as such, involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by these statements. You can identify such
statements by the fact that they do not relate strictly to historical or current
facts. These statements use words such as "believe", "expect", "should,"
"plan," "intend" and "anticipate." Actual results will be affected by a variety
of risks and factors, including, without limitation, international, national and
local economic conditions and real estate risks and financing risks.
All such forward-looking statements speak only as of the date of this
Annual Report. The Company expressly disclaims any obligation or undertaking to
release publicly any updates of revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
Factors which could adversely affect the Company's ability to obtain these
results include, among other things:
. Decline in the Volume and Prices of Real Estate Transactions. The Company's
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revenue is largely based on commissions from real estate transactions. As a
result, a decline in the volume of real estate available for lease or sale, or
in real estate prices, could have a material adverse effect on the Company's
revenues.
. General Economic Slowdown or Recession in the Real Estate Markets. Periods
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of economic slowdown or recession, rising interest rates or declining demand for
real estate, both on a general or regional basis, will adversely affect certain
segments of the Company's business. Such economic conditions could result in a
general decline in rents and sales prices, a decline in the level of investment
in real estate, a decline in the value of real estate investments and an
increase in defaults by tenants under their respective leases, all of which in
turn would adversely affect revenues from advisory services fees and brokerage
commissions which are derived from property sales, aggregate rental payments and
property management fees.
. The Company's Debt Level and Ability to Make Principal and Interest
-------------------------------------------------------------------
Payments. As a result of the Company's strategic initiatives, the Company may
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incur substantial amounts of debt. Any material downturn in the Company's
revenue or increase in its costs and expenses could render the Company unable to
meet its debt obligations.
. Expenses Related to Initiatives. As discussed in Part I, Item 1 of this
-------------------------------
Annual Report under "Strategic Initiatives," the Company has undertaken, and
plans to continue to undertake, a number of strategic initiatives, some of which
involve investments in technology systems and people.
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The investments related to some or all of these new initiatives may result in
significant expenditures by the Company. The Company's results of operations
could be adversely affected if these strategic initiatives are unsuccessful.
. Impact of the Internet A real estate advisory firm's ability to deliver
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quality services depends in part on the collection and dissemination of market
information to its clients. Although the role of the Internet in the commercial
real estate industry is still in its infancy, the risk exists that in the future
it will replace some of the functions of the professional real estate advisor
in these areas. This potential competition for certain services may in turn
cause a downward pressure on commission rates, and therefore impact the revenues
of the Company.
. Risks Associated with Acquisitions. As discussed in Part I, Item I of this
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Annual Report under "Strategic Initiatives," the Company has completed a number
of acquisitions and established a strategic alliance. There can be no assurance
that significant difficulties in integrating operations acquired from other
companies and in coordinating and integrating systems in a strategic alliance
will not be encountered, including difficulties arising from the diversion of
management's attention from other business concerns, the difficulty associated
with assimilating groups of broad and geographically dispersed personnel and
operations and the difficulty in maintaining uniform standards and policies.
There can be no assurance that the integration will ultimately be successful,
that the Company's management will be able to effectively manage any acquired
business or that any acquisition or strategic alliance will benefit the Company
overall.
. Liabilities Arising from Environmental Laws and Regulations. Part I, Item I
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of this Annual Report under "Environmental Regulation" discusses potential risks
related to environmental laws and regulations.
. The Company Faces Intense Competition. Part I, Item I of this Annual
-------------------------------------
Report under "Competition" discusses potential risks related to competition.
. The Company's Revenues are Seasonal. Part I, Item I of this Annual Report
-----------------------------------
under "Seasonality" discusses potential risks related to the seasonal nature of
the Company's business.
. The Company's Ability to Attract and Retain Qualified Personnel. The
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growth of the Company's business is largely dependent upon its ability to
attract and retain qualified personnel in all areas of its business. If the
Company is unable to attract and retain such qualified personnel, it may be
forced to limit its growth, and its business and operating results could suffer.
. Control by Existing Stockholders. A single investor beneficially owns
--------------------------------
approximately 46% of the outstanding common stock of the Company. As a result,
this investor can significantly influence the Company's affairs and policies and
the approval or disapproval of most matters submitted to a vote of the Company's
stockholders, including the election of directors.
. Other Factors. Other factors described elsewhere in this Annual Report.
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RESULTS OF OPERATIONS
Overview
The Company reported net income of $16.3 million for the year ended June 30,
2000, reflecting continued growth from its major acquisitions in fiscal year
1999, increased revenues from its focus on multi-market corporate and
institutional clients, and improved cost productivity resulting from the
Company's continuing investment in technology and personnel.
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The Company's advisory services fees, fueled in part by a continued strong
economy and commercial real estate markets, increased by 33.9% to $348.2 million
in fiscal year 2000, while management services fee revenue increased by 21.0% or
$11.3 million for the same period.
Fiscal Year 2000 Compared to Fiscal Year 1999
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 assignments 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 property management and
facilities management outsourcing, engineering and construction management
services, business services and agency leasing.
Total revenue for fiscal year 2000 was $413.5 million, an increase of 31.7% from
$314.1 million for fiscal year 1999, reflecting stronger real estate markets
overall and increased business activity across the Company's service lines.
This improvement related primarily to an $88.1 million, or 33.9%, increase in
advisory services fees as a result of growth in strategic and select corporate
account activity, along with the effect of acquisitions completed in fiscal year
1999. Management services fees of $65.4 million increased by $11.3 million, or
21.0%, in fiscal 2000 compared to the prior year, as a result of increased
activity in business services and property management and facilities management
outsourcing assignments.
Cost 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
service fees at rates, which increase upon achievement of certain levels of
production. As a percentage of gross transaction revenue, related commission
expense increased by 200 basis points for fiscal year 2000 as compared to fiscal
year 1999. 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 year 2000 revenue generated by professionals in the
higher commission brackets.
Total costs and expenses, other than advisory services commissions, depreciation
and amortization and other non-recurring expenses, increased by $22.1 million,
or 15.3%, for fiscal year 2000 compared to 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 Associates, Inc.
in the first quarter of fiscal 2000, along with additional costs and expenses
related to fiscal 1999 acquisitions and infrastructure and personnel to support
the overall revenue growth of the Company.
Depreciation and amortization expense for fiscal year 2000 increased to $10.5
million from $7.3 million in fiscal year 1999 as the Company placed in service
numerous technology infrastructure improvements during the latter part of fiscal
year 1999 and through the first half of fiscal year 2000. Amortization of
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
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certain advisory professionals over the last two fiscal years, the costs of
which are being amortized over the lives of the respective contracts, which are
generally two to three years. Amortization expense relating to these contracts
of $2.2 million was recognized in fiscal year 2000, compared to $1.2 million 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.
Other non-recurring expenses totaling $2.7 million for fiscal year 2000 were
recognized in connection with the resignation of the Company's former chairman
and chief executive officer.
Interest expense incurred in fiscal years 2000 and 1999 was due primarily to
seller financing related to business acquisitions made in calendar year 1998, as
well as credit facility borrowings in the last half of fiscal year 1999.
Income Taxes
As of June 30, 2000, the Company had gross deferred tax assets of $10.0 million,
with $2.8 million of the deferred tax assets relating to net operating loss
carry forwards which will be available to offset future taxable income through
2008. Management believes that, due to favorable economic conditions, the
elimination of long-term debt and the recent trend of earnings, it is more
likely than not that the Company will generate sufficient future taxable income
to realize the majority of these net deferred tax assets. The Company has
recorded a valuation allowance for $4.4 million against the deferred tax assets
as of June 30, 2000 and will continue to do so until such time as management
believes that it is more likely than not that the Company will realize such tax
benefits. Although uncertainties exist as to these events, the Company will
continue to review its operations periodically to assess whether and when all
deferred tax assets may be realized. See Note 6 of Notes to Consolidated
Financial Statements in Item 8 of this Report for additional information.
Net Income
Net income for fiscal year 2000 was $16.3 million, or $.77 per common share on a
diluted basis, as compared to net income of $8.1 million, or $.37 per common
share for fiscal year 1999. The Company generated basic earnings per share of
$.82 and $.41 in fiscal years 2000 and 1999, respectively. Included in net
income were deferred tax benefits of $1.4 million and $1.3 million for fiscal
years 2000 and 1999, respectively.
Stockholders' Equity
During fiscal year 2000, stockholders' equity increased $17.1 million to $61.6
million from $44.5 million at June 30, 1999. In addition to net income of $16.3
million for fiscal year 2000, the Company received $1.2 million from the sale of
common stock under its stock option plans and employee stock purchase plan. The
Company also issued a warrant to Aegon USA Realty Advisors, Inc., to purchase
600,000 shares of its common stock, which was valued at $1.6 million, and
repurchased 359,900 shares of its common stock for approximately $2.0 million.
In addition, the Company agreed to pay $1.6 million to its former chairman and
chief executive officer in return for the cancellation of options to purchase
465,000 shares of common stock of the Company. See Notes 7 and 10 of Notes to
Consolidated Financial Statements in Item 8 of this Report for additional
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information. The book value per common share issued and outstanding increased
to $3.11 at June 30, 2000 from $2.24 at June 30, 1999.
Fiscal Year 1999 Compared to Fiscal Year 1998
Revenue
Total revenue for fiscal year 1999 was $314.1 million, an increase of 11.1% over
revenue of $282.8 million for fiscal year 1998. This improvement related
primarily to an $18.2 million, or 50.9%, increase in management services fees as
a result of increased activity in property and facilities management and
business services and continued gains in outsourcing contracts. Advisory
services fees increased by $13.0 million, or 5.3%, in fiscal year 1999 compared
to the prior year, although such fees related to investment sales for the same
periods decreased 26.6% due to fallout from the tightened credit market
experienced by the real estate industry in the latter half of calendar 1998.
Advisory services fee revenues, excluding fees related to investment sales,
increased by 12.9% in fiscal year 1999 as compared to fiscal year 1998.
Cost and Expenses
As a percentage of advisory services revenues, related commission expense
increased slightly, due to higher participation percentages attributable to
higher production levels, and higher costs related to guaranteed participation
amounts for newly hired professionals.
Total costs and expenses, other than advisory services commissions, increased by
$22.6 million, or 17.7%, for fiscal year 1999 compared to fiscal year 1998.
These increases were due to increased operating, depreciation and amortization
expenses attributable to the nine acquisitions made by the Company during fiscal
year 1999 and the latter part of fiscal year 1998, as well as higher variable
operating costs associated with increases in its management services business.
Interest expense incurred in fiscal year 1999 was due primarily to seller
financing related to business acquisitions made in calendar year 1998, as well
as credit facility borrowings in the last half of fiscal year 1999.
Income Taxes
As of June 30, 1999, the Company had gross deferred tax assets of $11.9 million,
with $5.4 million of the deferred tax assets relating to net operating loss and
tax credit carry forwards. The Company recorded a valuation allowance for $4.3
million against the deferred tax assets as of June 30, 1999. The Company
reduced the valuation allowance by $1.3 million to recognize deferred tax assets
expected to be realized in future years.
Net Income
Net income for fiscal year 1999 was $8.1 million, or $.37 per common share on a
diluted basis, as compared to net income of $21.5 million, or $.98 per common
share, for fiscal year 1998. The Company generated basic earnings per share of
$.41 and $1.10 in fiscal years 1999 and 1998,
13
<PAGE>
respectively. Included in net income were deferred tax benefits of $1.3 million
and $6.5 million for fiscal years 1999 and 1998, respectively.
Stockholders' Equity
During fiscal year 1999, stockholders' equity increased $9.1 million to $44.5
million from $35.4 million at June 30, 1998. In addition to net income of $8.1
million for fiscal year 1999, the Company received $1.0 million from the sale of
common stock under its stock option plans and employee stock purchase plan. The
book value per common share issued and outstanding increased to $2.24 at June
30, 1999 from $1.80 at June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 2000, cash and cash equivalents increased by $12.4 million
primarily as a result of cash provided by operating activities of $34.9 million
offset by cash used in investing activities of $11.0 million and financing
activities of $11.5 million. Net cash used in investing activities related to
$8.0 million of technology infrastructure investments and purchases of other
equipment and leasehold improvements and cash paid in connection with business
acquisitions and investments totaling $3.0 million. Net cash used in financing
activities related to $7.5 million of repayments on the Company's credit
facility, $900,000 of financing fees paid in connection with the credit
facility, the repayment of $2.4 million of seller indebtedness related to the
Company's recent acquisitions, and the repurchase of common stock totaling $2.0
million. The Company also received $1.2 million from the issuance of stock
pursuant to its employee stock purchase plan and stock option plans.
On October 15, 1999 the Company entered into a 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 along with a $10 million revolving credit facility for
working capital purposes. Borrowings from the 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.
As of June 30, 2000, all remaining loans under the current facility had been
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 June 30, 2000, the Company had repurchased 359,900
shares at a total cost of approximately $1,983,000.
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. In the event of
adverse economic conditions or other unfavorable events, and to the extent that
the Company's cash requirements are not met by operating cash flow or borrowings
under its credit facility, the Company may find it necessary to reduce
expenditure levels or undertake other actions as may be appropriate under the
circumstances.
Although current market dynamics have limited opportunities for short-term
accretive acquisitions, the Company continues to explore additional strategic
acquisition opportunities that have the potential
14
<PAGE>
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, or a
combination of the above. Although it is the Company's intent to actively pursue
this strategy, no assurances can be made that any additional acquisitions will
be made.
The Company's revolving credit facility contains certain restrictive covenants
including restrictions on the payment of dividends, acquisitions, dispositions
of assets, indebtedness, liens, investments, the extension of credit and the
issuance of certain types of preferred stock, and the maintenance of a certain
ratio of debt to cash flow. As of June 30, 2000, the Company was in compliance
with all covenants of the credit facility.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". The Company
had no holdings of derivative financial or commodity instruments at June 30,
2000. A review of the Company's other financial instruments and risk exposures
at that date revealed that the Company had exposure to interest rate risk. The
Company utilized sensitivity analyses to assess the potential effect of this
risk and concluded that near-term changes in interest rates should not
materially adversely affect the Company's financial position, results of
operations or cash flows.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Grubb & Ellis Company
We have audited the accompanying consolidated balance sheets of Grubb & Ellis
Company as of June 30, 2000 and 1999, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grubb &
Ellis Company at June 30, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States.
ERNST & YOUNG LLP
Chicago, Illinois
August 24, 2000
16
<PAGE>
GRUBB & ELLIS COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
2000 1999
------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,862 $ 5,500
Service fees receivable, net 17,060 9,019
Other receivables 3,416 2,291
Advisor service contracts, net 2,364 1,618
Prepaids and other current assets 2,113 3,402
Deferred tax assets, net 1,132 2,940
------------------ -----------------
Total current assets 43,947 24,770
Noncurrent assets:
Equipment, software and leasehold improvements, net 20,501 18,554
Goodwill, net 29,559 28,564
Deferred tax assets, net 3,133 3,450
Other assets 6,095 4,455
------------------ -----------------
Total assets $ 103,235 $ 79,793
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,554 $ 3,122
Credit facility indebtedness - 7,500
Acquisition indebtedness 519 2,332
Accrued compensation and employee benefits 14,316 9,511
Other accrued expenses 7,675 2,605
----------------- -----------------
Total current liabilities 32,064 25,070
Long-term liabilities:
Acquisition indebtedness - 553
Accrued claims and settlements 8,741 8,837
Other liabilities 810 851
----------------- -----------------
Total liabilities 41,615 35,311
----------------- -----------------
Stockholders' equity:
Common stock, $.01 par value: 50,000,000 shares
authorized; 19,810,894 and
19,885,084 shares issued and outstanding at
June 30, 2000 and 1999, respectively 198 199
Additional paid-in-capital 113,399 112,550
Retained earnings (deficit) (51,977) (68,267)
------------------- ------------------
Total stockholders' equity 61,620 44,482
------------------ ------------------
Total liabilities and stockholders' equity $103,235 $ 79,793
================= =================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
17
<PAGE>
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended June 30, 2000, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
2000 1999 1998
--------------- ------------- --------------
<S> <C> <C> <C>
Revenue:
Advisory services fees $ 348,165 $ 260,071 $ 247,040
Management services fees 65,370 54,030 35,794
--------------- ------------- --------------
Total revenue 413,535 314,101 282,834
--------------- ------------- --------------
Costs and expenses:
Services commissions 208,260 150,343 140,457
Salaries, wages and benefits 98,383 83,531 70,680
Selling, general and administrative 68,304 61,064 53,816
Depreciation and amortization 10,521 7,328 3,563
Other non-recurring expenses 2,650 - -
--------------- ------------- --------------
Total costs and expenses 388,118 302,266 268,516
--------------- ------------- --------------
Total operating income 25,417 11,835 14,318
Other income and expenses:
Interest and other income 884 922 1,237
Interest expense (413) (702) (106)
--------------- ------------- --------------
Income before income taxes 25,888 12,055 15,449
(Provision) benefit for income taxes (9,598) (3,976) 6,057
--------------- ------------- --------------
Net income $ 16,290 $ 8,079 $ 21,506
=============== ============= ==============
Net income per common share:
Basic- $ 0.82 $ 0.41 $ 1.10
=============== ============= ==============
Diluted- $ 0.77 $ 0.37 $ 0.98
=============== ============= ==============
Weighted average common shares outstanding:
Basic- 19,779,220 19,785,715 19,607,352
=============== ============= ==============
Diluted- 21,037,311 21,587,898 22,043,920
=============== ============= ==============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
18
<PAGE>
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 2000, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
------------
Retained Total
Outstanding Additional Earnings Stockholders'
Shares Amount Paid-In-Capital (Deficit) Equity
--------------- ------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Balance as of June 30, 1997 19,509,952 $ 196 $ 110,579 $ (97,852) $ 12,923
Employee common stock
purchases and net
exercise of stock
options 211,104 2 983 - 985
Net income - - - 21,506 21,506
--------------- ----------- ---------------- ---------------- -------------
Balance as of June 30, 1998 19,721,056 198 111,562 (76,346) 35,414
Employee common stock
purchases and net
exercise of stock
options 164,028 1 988 - 989
Net income - - - 8,079 8,079
--------------- ----------- ---------------- ---------------- -------------
Balance as of June 30, 1999 19,885,084 199 112,550 (68,267) 44,482
Stock warrants issued - - 1,620 - 1,620
Stock repurchases (359,900) (4) (1,979) - (1,983)
Employee common stock
purchases and net
exercise of stock
options 285,710 3 1,208 - 1,211
Net income - - - 16,290 16,290
--------------- ----------- ---------------- ---------------- -------------
Balance as of June 30, 2000 19,810,894 $ 198 $ 113,399 $ (51,977) $ 61,620
=============== =========== ================ ================ =============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
19
<PAGE>
GRUBB & ELLIS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 2000, 1999 and 1998
(in thousands, except share data)
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------ -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 16,290 $ 8,079 $ 21,506
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred tax provision (benefit) 2,125 3,334 (6,504)
Depreciation and amortization 10,521 7,328 3,563
(Recovery) provision for services fees
receivable valuation allowances (336) 547 96
Increase in services fees receivable (7,705) (541) (4,488)
Increase in prepaid and other assets (2,135) (6,040) (1,321)
Increase (decrease) in accounts payable 6,432 (723) 699
Increase in compensation and employee benefits payable 4,805 2,563 2,380
Decrease in accrued claims and settlements (95) (204) (1,471)
Increase (decrease) in other liabilities 5,032 (1,548) (19)
------------- ------------ -----------
Net cash provided by operating activities 34,934 12,795 14,441
------------- ------------ -----------
Cash Flows from Investing Activities:
Purchases of equipment, software and leasehold improvements (8,008) (9,669) (10,200)
Cash paid for business acquisitions, net of cash acquired (1,112) (17,102) (7,580)
Other investing activities (1,900) - -
------------- ------------ -----------
Cash used in investing activities (11,020) (26,771) (17,780)
------------- ------------ -----------
Cash Flows from Financing Activities:
Proceeds (repayment) from credit facility (7,500) 7,500 -
Repayment of acquisition indebtedness (2,366) (3,264) -
Proceeds from issuance of common stock, net 1,211 989 985
Repurchase of common stock (1,983) - -
Deferred financing fees (914) - (185)
------------- ------------ -----------
Net cash (used in) provided by financing activities (11,552) 5,225 800
------------- ------------ -----------
Net increase (decrease) in cash and cash equivalents 12,362 (8,751) (2,539)
Cash and cash equivalents at beginning of the year 5,500 14,251 16,790
------------- ------------ -----------
Cash and cash equivalents at end of the year $ 17,862 $ 5,500 $ 14,251
============= ============ ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
20
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) The Company:
Grubb & Ellis Company (the "Company") is a full service commercial
real estate company that provides services to real estate owners/investors
and tenants including advisory services involving leasing, acquisitions and
dispositions, and property and facilities management services.
Additionally, the Company provides consulting and strategic services with
respect to commercial real estate.
(b) Principles of Consolidation:
The consolidated financial statements include the accounts of Grubb &
Ellis Company, and its wholly and majority owned and controlled
subsidiaries and controlled partnerships, including Grubb & Ellis
Management Services, Inc. ("GEMS"), which provides property and facilities
management services. All significant intercompany accounts have been
eliminated.
(c) Basis of Presentation:
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States 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.
(d) Revenue Recognition:
Real estate sales commissions are recognized at the earlier of receipt
of payment, close of escrow or transfer of title between buyer and seller.
Receipt of payment occurs at the point at which all Company services have
been performed, and title to real property has passed from seller to buyer,
if applicable. Real estate leasing commissions are recognized at the
earlier of receipt of full payment or partial payment and tenant occupancy,
assuming lease and commission agreements have been executed and no
contingencies exist. All other commissions and fees are recognized at the
time the related services have been performed by the Company, unless future
contingencies exist.
In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition,"
which summarized the SEC staff's views regarding the recognition and
reporting of revenues in financial statements and requires companies to
comply with the SAB not later than the fourth fiscal quarter of the fiscal
year
21
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
beginning after December 15, 1999, which for the Company would be the quarter
ended June 30, 2001. Based upon current estimates, the Company would record a
charge to income of approximately $5.3 million, before applicable taxes,
representing the cumulative change as of July 1, 2000. Although the adoption of
SAB 101 may impact the period in which leasing transaction revenues are
recognized, it is not expected to impact the timing of the Company's cash flow
from operations. The Company has not completed its analysis of the impact of
SAB 101 for periods subsequent to June 30, 2000.
(e) Costs and Expenses:
Real estate advisory and other commission expense are recognized concurrently
with the related revenue. All other costs and expenses are recognized when
incurred.
GEMS incurs certain salaries, wages and benefits in connection with the property
and corporate facilities management services it provides which are in part
reimbursed at cost by the owners of such properties. The following is a summary
of the GEMS total gross and reimbursable salaries, wages and benefits (in
thousands) for the years ended June 30, 2000, 1999 and 1998. The net expense is
included in salaries and wages on the Consolidated Statements of Income.
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
--------------------- --------------------- -----------------
Gross salaries, wages and benefits $132,556 $125,126 $101,610
Less: reimbursements from property owners (94,621) (94,753) (79,333)
--------------------- --------------------- -----------------
Net salaries, wages and benefits $ 37,935 $ 30,373 $ 22,277
===================== ===================== =================
</TABLE>
(f) Accounting for Stock-Based Compensation:
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation ("Statement 123") allows companies to either account
for stock-based compensation under the provisions of Statement 123 or under the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). The Company
elected to continue accounting for stock-based compensation to its employees
under the provisions of APB 25. Accordingly, because the exercise price of the
Company's employee stock options equals or exceeds the fair market value of the
underlying stock on the date of grant, no compensation expense is recognized by
the Company. If the exercise price of an award is less than the fair market
value of the underlying stock at the date of grant, the Company recognizes the
difference as compensation expense over the vesting period of the award. The
Company, however, is required to provide pro forma disclosure as if the fair
value measurement provisions of Statement 123 had been adopted. See Note 7 of
Notes to Consolidated Financial Statements for additional information.
22
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
(g) Income Taxes:
Deferred income taxes are recorded based on enacted statutory rates to reflect
the tax consequences in future years of the differences between the tax bases of
assets and liabilities and their financial reporting amounts. Deferred tax
assets, such as net operating loss carry forwards, which
will generate future tax benefits are recognized to the extent that realization
of such benefits through future taxable earnings or alternative tax strategies
is more likely than not.
(h) Cash and Cash Equivalents:
Cash and cash equivalents consist of demand deposits and highly liquid
short-term debt instruments with maturities of three months or less from the
date of purchase and are stated at cost.
Cash payments for interest were approximately $537,000, $511,000 and
$127,000 for each of the fiscal years ended June 30, 2000, 1999 and 1998,
respectively. Cash payments for income taxes for the fiscal years ended June 30,
2000, 1999 and 1998 were approximately $4,372,000, $474,000 and $297,000,
respectively.
(i) Equipment, Software and Leasehold Improvements:
Equipment, software and leasehold improvements are recorded at cost.
Depreciation of equipment is computed using the straight-line method over their
estimated useful lives ranging from three to seven years. Software costs
consist of costs to purchase and develop software. All software costs are
amortized using a straight-line method over their estimated useful lives,
ranging from three to seven years. Development costs are amortized once the
related software is placed in service. Leasehold improvements are amortized
using the straight-line method over their useful lives not to exceed the terms
of the respective leases. Maintenance and repairs are charged to expense as
incurred.
(j) Goodwill
Goodwill, representing the excess of the cost over the fair value of the
net tangible assets of acquired businesses, is stated at cost and is amortized
on a straight line basis over estimated future periods to be benefited, which
range from 15 to 25 years. Accumulated amortization amounted to approximately
$3,375,000 and $1,651,000 at June 30, 2000 and 1999, respectively.
In accordance with Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed
of", the net carrying value of goodwill is reviewed by management if facts and
circumstances, such as significant declines in revenues or number of
professionals, suggest that an impairment may exist. If an impairment is
identified as a result of such reviews, the Company would measure it by
comparing undiscounted cash flows of a specific acquired business with the
carrying value of goodwill associated therewith. If the future
23
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued)
estimated undiscounted cash flows are not sufficient to recover the carrying
value of such goodwill, such asset
would be adjusted to its fair value through a charge to operations. No
impairment losses have been identified in fiscal 2000, 1999 or 1998.
(k) Accrued Claims and Settlements:
The Company has maintained partially self-insured and deductible programs
for errors and omissions, general liability, workers' compensation and certain
employee health care costs. Reserves for such programs are included in accrued
claims and settlements and compensation and employee benefits payable, as
appropriate. Reserves are based on the aggregate of the liability for reported
claims and an actuarially-based estimate of incurred but not reported claims.
(l) Fair Value of Financial Instruments:
Statements of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
Consolidated Balance Sheets. Considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The carrying amounts of the Company's financial instruments, which include
cash and cash equivalents, receivables and obligations under accounts payable
and debt instruments, approximate their fair values, based on similar
instruments with similar risks.
(m) Reclassifications:
Certain prior year amounts have been reclassified to conform to the current
year presentation. Amortization expense for fiscal year 1999 includes
amortization of $1.2 million relating to multi-year service contracts with
certain advisory professionals, which was included in advisory services
commission expense in previous financial statements and has been reclassified
for comparative purposes.
24
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Services Fees Receivable, net
Service fees receivable at June 30, 2000 and 1999 consisted of the following
(in thousands):
<TABLE>
<CAPTION>
2000 1999
----------------------- -----------------------
<S> <C> <C>
Advisory services fees receivable $ 20,390 $ 18,114
Commissions payable (9,126) (14,642)
----------------------- -----------------------
Net advisory services receivable 11,264 3,472
Management services fees receivable 8,432 8,671
Allowance for uncollectible accounts (2,326) (2,662)
----------------------- -----------------------
Total 17,370 9,481
Less portion classified as current 17,060 9,019
----------------------- -----------------------
Non-current portion (included in other assets) $ 310 $ 462
======================= =======================
</TABLE>
The following is a summary of the changes in the allowance for uncollectible
service fees receivable for the fiscal years ended June 30, 2000, 1999 and 1998
(in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---------------------- ----------------------- ----------------
<S> <C> <C> <C>
Balance at beginning of year $ 2,662 $ 2,115 $ 2,019
Provision for bad debt - 547 96
Recovery of allowance (336) - -
----------------------- ----------------------- ----------------
Balance at end of year $ 2,326 $ 2,662 $ 2,115
====================== ======================= ================
</TABLE>
3. Equipment, Software and Leasehold Improvements, net
Equipment, software and leasehold improvements at June 30, 2000, and 1999
consisted of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999
---------------------- ------------------------
<S> <C> <C>
Furniture, equipment and software systems $ 37,028 $ 33,545
Leasehold improvements 4,577 4.097
---------------------- ------------------------
Total 41,605 37,642
Less accumulated depreciation and amortization 21,104 19,088
---------------------- ------------------------
Equipment, software and leasehold improvements, net $ 20,501 $ 18,554
====================== ========================
</TABLE>
The Company wrote off approximately $4.0 million and $2.2 million of
furniture and equipment during the fiscal years ended June 30, 2000 and 1999,
respectively. Approximately $3.7 million and $2.1 million of depreciation and
amortization expense had been recorded on these assets prior to their
disposition.
4. Earnings Per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("Statement 128") requires disclosure of basic earnings per share which excludes
any dilutive effects of options, warrants, and convertible securities and
diluted earnings per share.
25
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Earnings Per Common Share (Continued)
The following table sets forth the computation of basic and diluted earnings
per common share from continuing operations (in thousands, except per share
data):
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
2000 1999 1998
--------- ---------- ---------
<S> <C> <C> <C>
Basic earnings per common share:
Net income applicable to common stockholders $ 16,290 $ 8,079 $ 21,506
========= ========== ==========
Weighted average common shares outstanding 19,779 19,786 19,607
========= ========== ==========
Earning per common share - basic $ 0.82 $ 0.41 $ 1.10
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Diluted earnings per common share:
Net income applicable to common stockholders $ 16,290 $ 8,079 $ 21,506
========= ======== =========
Weighted average common shares outstanding 19,779 19,786 19,607
Effect of dilutive securities:
Stock options and warrants 1,258 1,802 2,437
--------- -------- ---------
Weighted average common shares outstanding 21,037 21,588 22,044
========= ======== =========
Earning per common share - diluted $ 0.77 $ 0.37 $ .98
========= ======== =========
</TABLE>
Options outstanding to purchase shares of common stock, the effect of which
would be anti-dilutive, were 1,177,800, 1,124,850 and 48,550 at June 30, 2000,
1999 and 1998, respectively, and were not included in the computation of diluted
earnings per share because the option exercise price was greater than the
average market price of the common shares for the year.
5. Credit Facility Debt
On October 15, 1999 the Company entered into a 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, 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
26
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Credit Facility Debt (Continued)
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 at the closing date,
along with related financing costs of the new facility which are being amortized
over the term of the Credit Agreement. As of June 30, 2000, there were no loans
outstanding.
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, restrictions on the payment of dividends, the redemption or repurchase
of capital stock, and acquisitions, investments and loans; and the maintenance
of certain financial ratios.
6. Income Taxes
The Company maintains a fiscal year ending June 30 for financial reporting
purposes and a calendar year for income tax reporting purposes. The provision
(benefit) for income taxes for the fiscal years ended June 30, 2000, 1999 and
1998 consisted of the following (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 6,230 $ 227 $ 169
State and local 1,243 415 278
-------- -------- --------
7,473 642 447
Deferred 2,125 3,334 (6,504)
-------- -------- --------
Net provision (benefit) $ 9,598 $ 3,976 $ (6,057)
======== ======== ========
</TABLE>
At June 30, 2000, federal income tax operating loss carry forwards ("NOL's")
were available to the Company in the amount of approximately $7.3 million, which
expire in 2008. Utilization of the net operating loss carryforwards is limited
to approximately $960,000 per year, pursuant to Section 382 of the Internal
Revenue Code ("Code") relating to a prior ownership change.
As a result of a change in estimate in the fiscal year ended June 30, 2000
additional NOL's of approximately $2.0 million, previously considered
unavailable to the Company under Section 382 (and not given accounting
recognition) were identified. Approximately $1.0 million of these NOL's were
utilized in fiscal year 2000, with the remaining carryforwards reflected as a
component of the NOL's at June 30, 2000, discussed above.
27
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income Taxes (Continued)
The Company's effective tax rate on its income before taxes differs from the
statutory federal income tax rate as follows for the fiscal years ended June 30:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes (net of federal tax benefits) 5.2 1.9 1.2
Alternative minimum tax - 1.9 1.1
Meals and entertainment 1.3 3.4 2.4
Reduction in valuation allowance - (11.0) (53.0)
Goodwill amortization and other (2.1) 1.8 -
Stock option compensation - - (3.9)
Real estate partnership losses - - (6.9)
NOL carryforwards (2.3) - (15.1)
------------ ------------ -----------
Effective income tax rate 37.1% 33.0% (39.2%)
=========== ============ ===========
</TABLE>
During fiscal years 1999 and 1998, the Company reduced the valuation
allowance by $1.3 million and $6.5 million, respectively, to recognize deferred
tax assets expected to be realized in future years. Management believes that,
due to favorable economic conditions, the elimination of long-term debt and the
Company's recent history of earnings, it is more likely than not that the
Company will generate sufficient future taxable income to realize the net
deferred tax assets.
Deferred income tax liabilities or assets are determined based on the
differences between the financial statement and tax basis of assets and
liabilities. The components of the Company's deferred tax assets and
liabilities are as follows as of June 30, 2000 and 1999 (in thousands):
28
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Income Taxes (Continued)
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Deferred tax assets:
NOL and credit carry forwards $ 2,838 $ 5,389
Insurance reserves 2,451 2,784
Commission and fee reserves 1,196 1,500
Claims and settlements 1,431 1,423
Other 2,122 766
-------- -------
Deferred tax assets 10,038 11,862
Less valuation allowance (4,366) (4,260)
-------- -------
5,672 7,602
Deferred tax liabilities (1,407) (1,212)
-------- -------
Net deferred tax asset $ 4,265 $ 6,390
======== =======
Current $ 1,132 $ 2,940
======== =======
Long Term $ 3,133 $ 3,450
======== =======
</TABLE>
7. Stock Options, Warrants, Stock Purchase and 401 (k) Plans
Stock Option Plans:
Changes in stock options were as follows for the fiscal years ended June 30,
2000, 1999, and 1998:
<TABLE>
2000 1999 1998
---------------------------------------------------------------------------------------------------
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------- ----------------- --------- ---------------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Stock options
outstanding at the
beginning of the year 2,530,280 $1.88 to $18.75 2,383,280 $1.88 to $27.50 1,802,320 $ 1.88 to $27.50
Granted 845,500 $4.75 to $ 5.81 357,500 $6.25 to $ 8.94 815,000 $11.13 to $16.44
Lapsed or canceled (648,050) $1.88 to $20.00 (182,100) $2.38 to $27.50 (82,600) $ 2.38 to $18.75
Exercised (13,400) $1.88 to $ 2.38 (28,400) $1.88 to $ 6.50 (146,440) $ 1.88 to $13.50
------------- ---------- ----------
Stock options outstanding
at the end of the year 2,714,330 $1.88 to $16.44 2,530,280 $1.88 to $20.00 2,383,280 $ 1.88 to $27.50
============= ========== ==========
Exercisable at end of the
year 1,127,182 1,045,102 635,520
============= ========== ==========
</TABLE>
Additional information segregated by relative ranges of exercise prices for
stock options outstanding as of June 30, 2000 is as follows.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Weighted Exercise Exercise
Exercise Average Price-Outstanding Price-Exercble
Price Shares Remaining Life Shares Shares
----------------------- --------------------- --------------------- ------------------------ -------------------
<S> <C> <C> <C> <C>
$ 1.88 to $ 4.25 662,030 3.02 $ 3.29 $ 2.95
$ 4.38 to $ 5.81 874,500 8.95 $ 5.54 $ 4.53
$ 6.25 to $ 8.94 401,550 7.53 $ 8.12 $ 7.32
$10.00 to $16.44 776,250 6.90 $11.95 $10.43
------------------
2,714,330
==================
</TABLE>
29
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stock Options, Warrants and Stock Purchase and 401 (k) Plans (Continued)
Weighted average information per share with respect to stock options for
fiscal years ended June 30, 2000 and 1999 is as follows:
2000 1999
---------- ----------
Exercise price:
Granted $ 5.63 $ 8.49
Lapsed or cancelled 4.27 10.67
Exercised 1.98 3.71
Outstanding at June 30 7.21 6.96
Remaining life 6.71 years 4.78 years
The Company's 1990 Amended and Restated Stock Option Plan, as amended,
provides for grants of options to purchase the Company's common stock. The plan
was amended effective February 1, 1997 and June 20, 1997 to increase the
authorized number of shares issuable under the plan by 300,000 and 200,000
shares, respectively, to a total of 2,000,000 shares. At June 30, 2000, 1999 and
1998, the number of shares available for the grant of options under the plan
were 543,524, 226,124 and 164,474, respectively. Stock options under this plan
may be granted at prices from 50% up to 100% of the market price per share at
the dates of grant, their terms and vesting schedules of which are determined by
the Board of Directors.
The Company's 1993 Stock Option Plan for Outside Directors provides for an
automatic grant of an option to purchase 10,000 shares of common stock to each
newly elected independent member of the Board of Directors and an automatic
grant of an option to purchase 8,000 shares at the successive four year service
anniversaries of each such director. The exercise prices are set at the market
price at the date of grant. The options expire five years from the date of grant
and vest over three years from such date. The plan was amended in November 1998
to increase the number of issuable shares authorized for the plan from 50,000 to
300,000 and to provide for the anniversary options. At each of June 30, 2000,
1999 and 1998, the number of shares available for the grant of options was
246,000, 246,000 and 10,000 respectively.
The Company's 1998 Stock Option Plan provides for grants of options to
purchase the Company's common stock. The plan authorizes the issuance of up to
2,000,000 shares, and had 567,100, 1,081,950 and 1,305,000 shares available for
grant as of June 30, 2000, 1999 and 1998, respectively. Stock options under this
plan may be granted at prices and with such other terms and vesting schedules as
determined by the Compensation Committee of the Board of Directors, or, with
respect to options granted to corporate officers, the full Board of Directors.
30
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stock Options, Warrants and Stock Purchase and 401 (k) Plans (Continued)
Stock Warrants
As of June 30, 2000, the Company had the following stock warrants
outstanding:
Number of Exercise
Warrants Price
----------------- ---------------
475,000 $2.37500
235,045 3.40355
887,358 3.50000
88,496 3.60449
600,000 6.25000
In July 1999, the Company issued a warrant to purchase 600,000 shares of the
Company's common stock to Aegon USA Realty Advisors, Inc., the parent company of
Landauer Associates, Inc. ("LAI"), as part of the consideration granted in the
acquisition of LAI. The warrants have a five-year life, expiring in July 2004,
while all other warrants expire in January 2002.
Employee Common Stock Purchase Plan:
The Grubb & Ellis Company Employee Stock Purchase Plan was adopted effective
August 1, 1997, and provides for the purchase of up to 750,000 shares of common
stock by employees of the Company at a 15% discount from market price, as
defined, through payroll deductions. The numbers of shares purchased under this
plan were 272,310, 135,963 and 79,272 during the fiscal years ended June 30,
2000, 1999 and 1998, respectively.
Employee 401 (k) Plan:
The Company has a 401(k) plan covering eligible employees and provides that
employer contributions may be made in common stock of the Company or cash.
Discretionary contributions by the Company for the plans (net of forfeitures and
reimbursements received pursuant to property and corporate facilities management
services agreements) amounted to approximately $514,000, $891,000, and $637,000
for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
31
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stock Options, Warrants and Stock Purchase and 401 (k) Plans (Continued)
Pro Forma Information
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
options granted subsequent to July 1, 1996, and therefore includes grants under
the 1990 Amended and Restated Stock Option Plan, 1993 Stock Option Plan for
Outside Directors and 1998 Stock Option Plan, and purchases made under the Grubb
& Ellis Employee Stock Purchase Plan, under the fair value method of that
Statement. The fair value for the options was estimated at the date of grant
using a Black-Scholes option pricing model. Weighted-average assumptions for
options granted for fiscal years 2000, 1999 and 1998, respectively, are as
follows:
<TABLE>
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Risk free interest rates 5.99% 4.74% 6.13%
Dividend yields 0% 0% 0%
Volatility factors of the expected market price
of the common stock .598 .627 .625
Weighted-average expected lives 6.00 years 6.00 years 4.10 years
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
changes in these assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of options granted. The weighted average fair
values of options granted by the Company in fiscal years 2000, 1999 and 1998
using this model were $2.90, $4.40 and $6.17, respectively.
The effects on fiscal year 2000, 1999 and 1998 pro forma net income and pro
forma earnings per common share of amortizing to expense the estimated fair
value of stock options are not necessarily representative of the effects on net
income to be reported in future years due to such things as the vesting period
of the stock options, and the potential for issuance of additional stock options
in future years. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period. The pro
forma effect of applying Statement 123's fair value method to the Company's
stock-based awards results in net income of approximately $14,614,000,
$6,645,000 and $20,609,000, basic earnings per share of $.74, $.34 and $1.05,
and diluted earnings per share of $.69, $.31 and $.93 for the fiscal years ended
June 30, 2000, 1999 and 1998 respectively.
32
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Stock Options, Warrants and Stock Purchase and 401 (k) Plans (Continued)
Stock Repurchase Plan
In August 1999, the Company announced a program through which it may
repurchase up to $3.0 million of its common stock on the open market from time
to time as market conditions warrant. As of June 30, 2000, the Company had
repurchased 359,900 shares of stock at an aggregate price of approximately $2.0
million.
8. Related Party Transactions
Revenue earned by the Company for services rendered to affiliates, including
joint ventures, officers and directors and their affiliates, was as follows for
the fiscal years ended June 30, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
------- ------ ------
Advisory services commissions $11,253 $6,810 $3,282
Management services and other fees $ 5,570 $3,859 $2,341
9. Commitments and Contingencies
Noncancelable Operating Leases:
The Company has noncancelable operating lease obligations for office space
and certain equipment ranging from one to eight years, and sublease agreements
under which the Company acts as sublessor. The office space leases provide for
annual rent increases based on the Consumer Price Index, or other specific
terms, and typically require payment of property taxes, insurance and
maintenance costs.
Future minimum payments under noncancelable operating leases with an initial
term of one year or more were as follows at June 30, 2000 (in thousands):
Year Ending Lease
June 30, Obligations
----------------- ---------------
2001 $16,137
2002 14,138
2003 10,792
2004 7,862
2005 5,957
Thereafter 7,288
Lease and rental expense for the fiscal years ended June 30, 2000, 1999 and
1998 amounted to $21,268,000, $18,708,000, and $15, 590,000, respectively.
33
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments and Contingencies (Continued)
Legal Matters
John W. Matthews, et al. v Kidder, Peabody & Co., et al. and HSM Inc., et al.,
----------------------------------------------------------------------------
filed on January 23, 1995 in the United States District Court for the Western
District of Pennsylvania, is a class action on behalf of approximately 6,000
limited partners who invested approximately $85 million in three public real
estate limited partnerships (the "Partnerships") during the period beginning in
1982 and continuing through 1986. The defendants include HSM Inc., a wholly-
owned subsidiary of the Company, and several subsidiaries of HSM Inc., along
with other parties unrelated to HSM Inc. The complaint alleges violation under
the Racketeer Influenced and Corrupt Organizations Act ("RICO"), securities
fraud, breach of fiduciary duty and negligent misrepresentation surrounding the
defendants' organization, promotion, sponsorship and management of the
Partnerships. Specific damages were not pled, but treble, punitive as well as
compensatory damages and restitution were sought. Following the court's
dismissal of the complaint by Partnerships I and III due to the plaintiff's lack
of standing, in September 1996, the district court granted plaintiff's motion to
file an amended complaint to add additional plaintiffs, and granted plaintiffs'
motion for class certification with respect to Partnerships I, II and III.
Plaintiffs then filed an amended complaint adding new party plaintiffs in order
to preserve claims relating to Partnerships I and III. The case was stayed in
September 1996, pending the outcome of defendants' subsequent appeal to the
United States Court of Appeals for the Third Circuit on the question of the
applicability of the Private Securities Litigation Reform Act of 1995 (the
"Securities Litigation Reform Act") to the case. The Third Circuit Court of
Appeals entered an order in November 1998 holding that the Securities Litigation
Reform Act was not applicable to this case and that plaintiffs may proceed with
their RICO claims against the defendants. Defendants filed a petition for writ
of certiorari with the United States Supreme Court appealing the Third Circuit's
decision, which was denied on April 19, 1999. Discovery has been completed.
On August 18, 2000, the district court issued an opinion granting defendants'
motions for summary judgment dismissing the federal RICO claims as time-barred
under the statute of limitations. As to the state law claims for breach of
fiduciary duty and negligent misrepresentation, the court declined to exercise
supplemental jurisdiction and dismissed them without prejudice. The court
declined to rule on defendants' motion to decertify the class because it was
moot. Plaintiffs have filed a notice of appeal to the Third Circuit Court of
Appeals.
The Company has, and intends to continue to, vigorously defend the Matthews
--------
action, and believes it has meritorious defenses to contest the claims asserted
by the 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 other 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 appraisal business, many of
which may not be covered by the Company's insurance policies. In
34
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Commitments and Contingencies (Continued)
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.
10. Other Non-recurring Expense
During the fiscal year ended June 30, 2000, the Company recorded a $2.7
million charge for incremental non-recurring costs related to the resignation of
Neil Young, the Company's chairman and chief executive officer, on May 25, 2000.
The Company and Mr. Young entered into a separation agreement which provides for
payments totaling $2.7 million, prior to certain contingent amounts. The
payments include $1.6 million in return for cancellation of options to purchase
465,000 shares of common stock of the Company.
11. Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and interest-bearing investments. Users
of real estate services account for a substantial portion of trade receivables
and collateral is generally not required. The risk associated with this
concentration is limited due to the large number of users and their geographic
dispersion.
The Company places substantially all of its interest-bearing investments with
major financial institutions and limits the amount of credit exposure with any
one financial institution.
12. Business Acquisitions and Related Indebtedness
Fiscal 1998 Acquisitions
The Company completed the acquisition of five companies during fiscal year
1998, for purchase prices totaling approximately $10.6 million, including seller
provided financing of approximately $3.0 million, bearing interest rates ranging
from 5.0% to 9.25%.
The amounts due the sellers matured and were repaid in the amounts of
$2,807,000 and $170,000 in fiscal years 1999 and 2000, respectively. The Company
also paid the sellers additional consideration totaling $400,000, which was
contingent upon revenue levels achieved subsequent to the date of acquisition.
Fiscal 1999 Acquisitions
On July 22, 1998, the Company acquired substantially all of the assets of
Bishop Hawk, Inc. for total consideration of approximately $11.1 million, which
included seller financing of approximately $2.5 million. The Company has
recorded the acquisition under the purchase method of accounting,
35
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Business Acquisitions and Related Indebtedness (Continued)
with all operations subsequent to the acquisition date reflected in the
Company's financial statements. The notes to the seller were repaid in
installments through July 2000, and bore interest at a weighted average rate of
9.14% per annum. The Company was obligated to make certain incentive based
payments to the seller, contingent upon the achievement of defined revenue
levels for the twelve months following the acquisition date. Such revenue levels
were not achieved, and therefore no further contingent obligation remains
related to this acquisition. In connection with this acquisition, the Company
incurred $3.5 million of borrowings under its credit facility, all of which were
repaid by August 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 Service 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.
The purchase prices of these three acquisitions totaled approximately $8.3
million, including seller provided financing of approximately $347,000 which
bore interest at an annual rate of 7.5% and was repaid through 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.
Fiscal 2000 Acquisition:
On July 30, 1999, the Company acquired substantially all of the assets of
Landauer Associates, Inc. a real estate valuation and consulting firm.
Consideration to the seller at closing included cash, common stock warrants (see
Note 7 of Notes to Consolidated Financial Statements), and the assumption of
certain liabilities. The Company has 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 for the fiscal year ending June
30, 2000.
Substantially all of the purchase prices in the fiscal years 2000, 1999 and
1998 acquisitions were allocated to goodwill.
36
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Business Acquisitions and Related Indebtedness (Continued)
Pro Forma Information (unaudited):
The following unaudited pro forma financial information reflects the operations
of the Company, assuming the above ten acquisitions had occurred on July 1 of
each year (in thousands, except share data):
Fiscal year ended Fiscal year ended
June 30, 1999 June 30, 1998
------------------ ------------------
Total revenue $341,827 $343,118
Income before taxes 13,158 18,007
Net income 8,752 23,006
Earnings per share:
Basic 0.44 1.18
Diluted 0.41 1.03
The Company's results of operations for fiscal year 2000, 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.
13. Segment Information
The Company has two reportable segments - Advisory Services and Management
Services.
The Advisory Services segment advises buyers, sellers, landlords and tenants
on the sale, leasing and valuation of commercial property and includes the
Company's Corporate Services and Financial Services Groups and national
affiliate program operations.
The Management Services segment provides property management, leasing and
related services for owners of investment properties and facilities management
services for corporate users.
The fundamental distinction between the Advisory Services and Management
Services segments lies in the nature of the revenue streams and related cost
structures. Advisory Services generates revenues primarily on a commission or
project fee basis. Therefore, the personnel responsible for providing these
services are compensated primarily on a commission basis. The Management
Services revenues are generated primarily by long term (one year or more)
contractual fee arrangements. Therefore, the personnel responsible for
delivering these services are compensated primarily on a salaried basis.
37
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Segment Information (Continued)
The Company evaluates segment performance and allocates resources based on
earnings before interest expense, taxes, depreciation and amortization
("EBITDA"). The segment information below has been prepared using the same
accounting policies as those described in the summary of significant accounting
policies. Corporate overhead expenses, along with interest and other income,
have been allocated on a relative revenue basis to each segment.
<TABLE>
<CAPTION>
Advisory Management Company
Services Services Totals
-------------- ------------- ----------
(Amounts in $000's)
<S> <C> <C> <C>
Fiscal year ended June 30, 2000
Total Revenues $348,165 $65,370 $413,535
EBITDA 34,216 5,256 39,472
Total Assets 76,380 22,590 98,970
Fiscal year ended June 30, 1999
Total Revenues $260,071 $54,030 $314,101
EBITDA 16,899 3,186 20,085
Total Assets 51,821 21,582 73,403
Fiscal year ended June 30, 1998
Total Revenues $247,040 $35,794 $282,834
EBITDA 19,963 (845) 19,118
Total Assets 34.052 19,742 53,794
</TABLE>
Reconciliation of Segment EBITDA to Statements of Income:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Total Segment EBITDA $ 39,472 $ 20,085 $ 19,118
Less:
Depreciation & amortization 10,521 7,328 3,563
Non-recurring expenses 2,650 - -
Interest expense 413 702 106
------------ ------------ -----------
Income before income taxes $ 25,888 $ 12,055 $ 15,449
============ ============ ===========
</TABLE>
Reconciliation of Segment Assets to Balance Sheet:
<TABLE>
<CAPTION>
As of June 30,
--------------
2000 1999
-------- -------
<S> <C> <C>
Total segment assets $ $ 98,970 $ 73,403
Deferred taxes 4,265 6,390
------------- -------------
Total Assets $ 103,235 $ 79,793
============= =============
</TABLE>
38
<PAGE>
GRUBB & ELLIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued
14. Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 2000
(in thousands, except per share amounts)
----------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Operating revenue $ 95,201 $ 117,287 $ 93,567 $ 107,480
================= ============== =============== ==============
Operating income $ 5,510 $ 9,817 $ 4,412 $ 5,678
================= ============== =============== ==============
Income before income taxes $ 5,569 $ 10,003 $ 4,586 $ 5,730
================= ============== =============== ==============
Net income $ 3,341 $ 5,691 $ 2,660 $ 4,598
================= ============== =============== ==============
Net income per common share:
Basic- $ .17 $ .29 $ .14 $ .23
================= ============== =============== ==============
Weighted average common shares outstanding 19,851 19,764 19,676 19,794
================= ============== =============== ==============
Diluted- $ .16 $ .27 $ .13 $ .22
================= ============== =============== ==============
Weighted average common shares outstanding 21,072 21,063 20,894 21,089
================= ============== =============== ==============
EBITDA $ 8,059 $ 12,903 $ 7,303 $ 11,207
================= ============== =============== ==============
Common stock market price range (high: low) $ 5.94 : $4.63 $ 6.00 : $4.56 $ 6.00 : $4.56 $ 6.88 : $5.25
================= ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1999
(in thousands, except per share amounts)
---------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Operating revenue $ 76,169 $ 98,641 $ 59,962 $ 79.329
================ =============== ============= ===============
Operating income (loss) $ 3,661 $ 9,424 $ (4,078) $ 2,828
================ =============== ============= ===============
Income (loss) before income taxes $ 3,716 $ 9,580 $ (4,010) $ 2,769
================ =============== ============= ===============
Net income (loss) $ 2,310 $ 5,800 $ (2,406) $ 2,375
================ =============== ============= ===============
Net income (loss) per common share:
Basic- $ 0.12 $ 0.29 $ (0.12) $ 0.12
================ =============== ============= ===============
Weighted average common shares outstanding 19,722 19,756 19,805 19,860
================ =============== ============= ===============
Diluted- $ 0.11 $ 0.27 $ (0.12) $ 0.11
================ =============== ============= ===============
Weighted average common shares outstanding 21,880 21,657 21,480 21.337
================ =============== ============= ===============
EBITDA $ 5,146 $ 11,491 $ (1,799) $ 5,247
================ =============== ============= ===============
Common stock market price range (high: low) $ 14.06 : $8.38 $ 10.31 : $7.44 $7.88 : $6.25 $ 6.88 : $5.06
================ =============== ============= ===============
</TABLE>
39
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
40
<PAGE>
GRUBB & ELLIS COMPANY
PART III
________________________________________________________________________________
Item 10. Directors and Executive Officers of the Registrant
The information called for by Item 10 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the "Exchange Act") no later than 120
days after the end of the 2000 fiscal year.
Item 11. Executive Compensation
The information called for by Item 11 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end of the 2000 fiscal
year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end of the 2000 fiscal
year.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is incorporated by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Exchange Act no later than 120 days after the end of the 2000 fiscal
year.
41
<PAGE>
GRUBB & ELLIS COMPANY
PART IV
--------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. The following Report of Independent Auditors and Consolidated Financial
Statements are submitted herewith:
Report of Independent Auditors
Consolidated Balance Sheets at June 30, 2000 and June 30, 1999.
Consolidated Statements of Income for the years ended June 30, 2000,
1999 and 1998.
Consolidated Statements of Stockholders' Equity for the years ended June
30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended June 30, 2000,
1999 and 1998.
Notes to Consolidated Financial Statements.
2. All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the information is
contained in the Notes to Consolidated Financial Statements and therefore
have been omitted.
3. Exhibits required to be filed by Item 601 of Regulation S-K:
(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 March 31, 1995
(Commission File No. 1-8122 ).
3.2 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).
42
<PAGE>
3.3 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).
3.4 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).
3.5 Grubb & Ellis Company Bylaws, as amended and restated effective as of
May 31, 2000.
(4) Instruments Defining the Rights of Security Holders, including
Indentures.
4.1 First Amendment to Warrant No. 18, held by Warburg, Pincus Investors,
L.P., exercisable for 687,358 shares of common stock of the Registrant
extending the expiration date to January 29, 2002, incorporated herein
by reference to Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q filed on November 13, 1996 (Commission File No. 1-8122).
4.2 First Amendment to Warrant No. 19, held Warburg, Pincus Investors,
L.P., exercisable for 325,000 shares of common stock of the Registrant
extending the expiration date to January 29, 2002, incorporated herein
by reference to Exhibit 4.3 to the Registrant's Quarterly Report on
Form 10-Q filed on November 13, 1996 (Commission file No. 1-8122).
4.3 Stock Purchase Agreement dated as of December 11, 1996 among the
Registrant, Mike Kojaian, Kenneth J. Kojaian and C. Michael Kojaian,
incorporated herein by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 8-K filed on December 20, 1996 (Commission File
No. 1-8122).
4.4 Registration Rights Agreement dated as of December 11, 1996 among the
Registrant, Warburg, and Pincus Investors, L.P., Joe F. Hanauer, Mike
Kojaian, Kenneth J. Kojaian and C. Michael Kojaian, incorporated
herein by reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K filed on December 20, 1996 (Commission File No. 1-8122).
4.5 Purchase Agreement dated as of January 24, 1997 between the Registrant
and Warburg, Pincus Investors, L.P., incorporated herein by reference
to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on
February 4, 1997 (Commission File No. 1-8122).
4.6 Stock Purchase Agreement dated as of January 24, 1997 between the
Registrant and Archon Group, L.P., incorporated herein by reference to
Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on
February 4, 1997 (Commission File No. 1-8122).
43
<PAGE>
4.7 Registration Rights Agreement dated as of January 24, 1997 between the
Registrant and Archon Group, L.P., incorporated herein by reference to
Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on
February 4, 1997 (Commission File No. 1-8122).
4.8 Stock Subscription Warrant No. 20 dated December 11, 1996 issued to Joe F.
Hanauer Trust, incorporated herein by reference to Exhibit 4.11 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997
(Commission File No. 1-8122).
4.9 Stock Subscription Warrant No. 21 dated December 11, 1996 issued to
Warburg, Pincus Investors, L. P., incorporated herein by reference to
Exhibit 4.12 to the Registrant's Quarterly Report on Form 10-Q filed on
February 13, 1997 (Commission File No. 1-8122).
4.10 Stock Subscription Warrant No. 22 dated December 11, 1996 issued to Joe F.
Hanauer Trust, incorporated herein by reference to Exhibit 4.13 to the
Registrant's Quarterly Report on Form 10-Q filed on February 13, 1997
(Commission File No. 1-8122).
4.11 Stock Subscription Warrant No. 23 dated December 11, 1996 issued to
Warburg, Pincus Investors, L.P., incorporated herein by reference to
Exhibit 4.14 to the Registrant's Quarterly Report on Form 10-Q filed on
February 13, 1997 (Commission File No. 1-8122).
4.12 Form of Amendment No. 1 to Stock Subscription Warrants No. 8, 9, 13 and 15
issued to Joe F. Hanauer Trust, incorporated herein by reference to
Exhibit 4.15 to the Registrant's Quarterly Report on Form 10-Q filed on
February 13, 1997 (Commission File No. 1-8122).
4.13 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 11, 1999.
4.14 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,
incorporated herein by reference to Exhibit 4.2 to the Registrant's
Quarterly Report on Form 10-Q filed on November 11, 1999.
4.15 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 11, 1999.
4.16 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 11, 1999.
4.17 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 11, 1999.
4.18 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,
44
<PAGE>
1999, incorporated herein by reference to Exhibit 4.6 to the Registrant's
Quarterly Report on Form 10-Q filed on November 11, 1999.
4.19 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 11, 1999.
4.20 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 11, 1999.
4.21 Promissory Note Issued July 22, 1998 by Grubb & Ellis Company in favor of
Bishop Hawk, Inc. (in the amount of $1,084,020), incorporated herein by
reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K
filed on August 5, 1998 (Commission File no. 1-8122). [maybe keep in this
last time since it was just repaid July 2000]
4.22 Stock Subscription Warrant No. A-1 dated July 30, 1999 issued to Aegon USA
Realty Advisors, Inc., incorporated herein by reference to Exhibit 4.20 to
the Registrant's Annual Report on Form 10-K filed on September 28, 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* General Release and Separation Agreement entered into between Neil Young
and Grubb & Ellis Company dated as of May 30, 2000, incorporated herein by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K
filed on August 2, 2000 (Registration No. 1-8122).
10.2* Employment agreement between Neil R. Young and the Registrant dated as of
February 22, 1996, incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q filed on May 15, 1996
(Commission File No. 1-8122).
10.3* First Amendment to the Employment Agreement between Neil R. Young and the
Registrant dated as of May 19, 1999, incorporated herein by reference to
Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on
September 28, 1999 (Registration No. 1-8122).
.
10.4* Grubb & Ellis 1990 Amended and Restated Stock Option Plan, as amended
effective as of June 20, 1997, incorporated herein by reference to Exhibit
4.6 to the Registrant's Registration Statement on Form S-8 filed on
December 19, 1997 (Registration No. 333-42741).
10.5* Description of Grubb & Ellis Company Executive Officer Incentive
Compensation Plan, incorporated herein by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K filed on September 28, 1999
(Registration No. 1-8122).
45
<PAGE>
10.6* 1993 Stock Option Plan for Outside Directors, incorporated herein by
reference to Exhibit 4.1 to the Registrant's registration statement on
Form S-8 filed on November 12, 1993 (Registration No. 33-71484).
10.7 First Amendment to the 1993 Stock Option Plan for Outside Directors,
effective November 19, 1998, incorporated herein by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q filed on February
12, 1999 (Commission File No. 1-8122).
10.8* Grubb & Ellis 1998 Stock Option Plan, effective as of January 13, 1998,
incorporated herein by reference to Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K filed on September 28, 1999 (Registration
No. 1-8122).
10.9* First Amendment to the Grubb & Ellis 1998 Stock Option Plan, effective as
of February 10, 2000, incorporated herein by reference to Exhibit 10.7 to
the Registrant's Quarterly Report on Form 10-Q filed on May 12, 2000
(Commission file No. 1-8122).
10.10* Executive Change of Control Plan, effective as of May 10, 1999 and
attached form of Acknowledgement Agreement, incorporated herein by
reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K
filed on September 28, 1999 (Registration No. 1-8122).
.
10.11* First Amendment to the Executive Change of Control Plan, effective as of
February 10, 2000, incorporated herein by reference to Exhibit 10.6 to
the Registrant's Quarterly Report on Form 10-Q filed on May 12, 2000
(Commission file No. 1-8122).
10.12* Second Amendment to the Executive Change of Control Plan, effective as
of June 1, 2000, and attached form of Acknowledgement Agreement.
10.13* Executive Incentive Bonus and Severance Plan, effective as of June 1,
2000.
10.14* Change of Status and Separation Agreement between Steven J. Kaplan and
Grubb & Ellis Company, dated as of March 23, 2000, along with General
Release.
10.15 Pledge Agreement between the Registrant and Bank of America, N.A., as
Administrative Agent, dated as of October 15, 1999, incorporated herein
by 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).
10.16 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).
10.17 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).
46
<PAGE>
10.18 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).
10.19 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).
*Management contract or compensatory plan or arrangement.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
23.1 Consent of Ernst & Young LLP
(24) Powers of Attorney
(27) Financial Data Schedule
(b) Reports on Form 8-K
A current report on Form 8-K dated May 25, 2000 was filed with the Securities
and Exchange Commission, reporting under Item 5 the resignation of Neil Young as
Chairman of the Board, President and Chief Executive Officer of the Company, and
the related financial impact of his separation agreement.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
/s/ Brian D. Parker September 28, 2000
------------------------------------------------------------
Brian D. Parker
Member, Office of the President
and Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Principal Executive Officers
----------------------------
/s/ Brian D. Parker September 28, 2000
------------------------------------------------------------
Brian D. Parker
Member, Office of the President
and Executive Vice President
* September 28, 2000
------------------------------------------------------------
Maureen A. Ehrenberg
Member, Office of the President
and President of Grubb & Ellis Management Services, Inc.
* September 28, 2000
------------------------------------------------------------
John G. Orrico
Member, Office of the President
and President of Grubb & Ellis Real Estate Advisory Services
* By: Brian D. Parker, Attorney-in-Fact, pursuant to Powers Of Attorney
Principal Financial and Accounting Officer
------------------------------------------
/s/ Blake W. Harbaugh September 28, 2000
------------------------------------------------------------
Blake W. Harbaugh
Senior Vice President and Chief Financial Officer
48
<PAGE>
Directors
---------
** September 28, 2000
-------------------------------------------------------
R. David Anacker, Director
** September 28, 2000
-------------------------------------------------------
Joe F. Hanauer, Director
** September 28, 2000
-------------------------------------------------------
C. Michael Kojaian, Director
** September 28, 2000
-------------------------------------------------------
Sidney Lapidus, Director
** September 28, 2000
-------------------------------------------------------
Reuben S. Leibowitz, Director
** September 28, 2000
-------------------------------------------------------
Robert J. McLaughlin, Director
September 28, 2000
-------------------------------------------------------
John D. Santoleri, Director
** September 28, 2000
-------------------------------------------------------
Todd A. Williams, Director
/s/ Robert J. Walner
---------------------------------------------------------------------------
**By: Robert J. Walner, Attorney-in-Fact, pursuant to Powers Of Attorney
49
<PAGE>
Grubb & Ellis Company and Subsidiaries
EXHIBIT INDEX
for the fiscal year ended June 30, 2000
---------------------------------------
Exhibit
(3) Articles of Incorporation and Bylaws
3.5 Grubb & Ellis Company Bylaws, as amended and restated effective as of
May 31, 2000.
(4) Instruments Defining the Right of Security Holders Including Indentures
(10) Material Contracts
10.12 Second Amendment to the Executive Change of Control Plan, effective as
of June 1, 2000, and attached form of Acknowledgement Agreement.
10.13 Executive Incentive Bonus and Severance Plan, effective as of June 1,
2000.
10.14 Change of Status and Separation Agreement between Steven J. Kaplan and
Grubb & Ellis Company, dated as of March 23, 2000, along with General
Release.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors
23.1 Consent of Ernst & Young LLP
(24) Powers of Attorney
(27) Financial Data Schedule
(A) Exhibits incorporated by reference are listed in Item 14 (a) 3 of
this Report
50
