<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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: 0-06181
J.C. NICHOLS COMPANY
(Exact name of registrant as specified in its charter)
MISSOURI 44-0371610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 WARD PARKWAY, KANSAS CITY, MISSOURI 64112
(Address of principal executive offices) (Zip code)
(816) 561-3456
(Registrant's telephone number, including area code)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 30, 1998
----- -----------------------------
COMMON STOCK, $0.01 PAR VALUE 4,619,039
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<PAGE> 2
J.C. NICHOLS COMPANY
INDEX TO FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1998 (Unaudited) and
December 31, 1997 ........................................................ 1
Consolidated Statements of Income for the Three Months Ended March 31,
1998 and March 31, 1997 (Unaudited) ...................................... 2
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1998 and March 31, 1997 (Unaudited) ...................................... 3
Notes to Unaudited Consolidated Financial Statements ..................... 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................................... 5
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS ........................................................ 10
ITEM 2 CHANGES IN SECURITIES .................................................... 10
ITEM 3 DEFAULTS UPON SENIOR SECURITIES .......................................... 10
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...................... 10
ITEM 5 OTHER INFORMATION ........................................................ 10
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ......................................... 10
SIGNATURES ............................................................... 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS.
J.C. NICHOLS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Revenue-producing properties ..................................................................... $ 162,705,000 $ 163,230,000
Land and improvement inventories ................................................................. 9,424,000 9,791,000
Property held for future development ............................................................. 8,597,000 7,660,000
------------- -------------
Total properties ............................................................................. 180,726,000 180,681,000
Cash and cash equivalents ........................................................................ 23,713,000 15,968,000
Temporary investments ............................................................................ 33,554,000 42,633,000
Accounts receivable .............................................................................. 2,974,000 2,454,000
Prepaid expenses ................................................................................. 7,005,000 6,378,000
Notes receivable ................................................................................. 40,407,000 40,757,000
Investments in real estate partnerships .......................................................... 6,445,000 2,457,000
Minority interest in consolidated partnerships ................................................... 4,680,000 4,717,000
Income taxes receivable .......................................................................... 365,000 383,000
Other assets, net ................................................................................ 699,000 739,000
------------- -------------
$ 300,568,000 $ 297,167,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Mortgage indebtedness ............................................................................ $ 287,126,000 $ 288,553,000
Notes payable to banks and others ................................................................ 12,990,000 12,990,000
Accounts payable and tenants' deposits ........................................................... 6,551,000 9,059,000
Accrued expenses and other liabilities ........................................................... 7,645,000 8,006,000
Deferred income taxes ............................................................................ 3,970,000 2,708,000
Deferred gains on the sale of property ........................................................... 2,022,000 2,024,000
------------- -------------
320,304,000 323,340,000
------------- -------------
Shareholders' equity (deficit):
Common stock, par value $.01 per share; 10,000,000 shares authorized
(5,798,274 and 5,721,744 shares issued) ................................................... 100,000 100,000
Additional paid-in capital ................................................................... 24,251,000 19,917,000
Retained earnings ............................................................................ 101,891,000 99,788,000
------------- -------------
126,242,000 119,805,000
Less:
Treasury stock, at cost (1,179,235 shares of common stock) ................................... 145,978,000 145,978,000
------------- -------------
Total shareholders' equity (deficit) .................................................... (19,736,000) (26,173,000)
Commitments and contingencies ....................................................................
------------- -------------
$ 300,568,000 $ 297,167,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
J.C. NICHOLS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Sales and revenues:
Rents ........................................................................... $ 19,709,000 $ 20,011,000
Property sales .................................................................. 1,221,000 1,347,000
Dividends and interest .......................................................... 1,147,000 1,071,000
Gains on sales of investments and other assets .................................. 586,000 15,000
Equity in earnings (losses) of unconsolidated affiliates ........................ 54,000 (77,000)
Other ........................................................................... 248,000 378,000
------------ ------------
22,965,000 22,745,000
------------ ------------
Costs and expenses:
Selling, general and operating expenses ......................................... 10,407,000 9,874,000
Cost of property sales .......................................................... 873,000 1,107,000
Interest ........................................................................ 5,426,000 5,849,000
Depreciation and amortization ................................................... 2,894,000 3,373,000
------------ ------------
19,600,000 20,203,000
------------ ------------
Income before income taxes .................................................... 3,365,000 2,542,000
Income tax expense ......... ........................................................ 1,262,000 955,000
------------ ------------
Net income .................................................................... $ 2,103,000 $ 1,587,000
============ ============
Basic income per share (note 2) ..................................................... $ 0.46 $ 0.38
============ ============
Diluted income per share (note 2) ................................................... $ 0.44 $ 0.37
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
J.C. NICHOLS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net income ......................................................................... $ 2,103,000 $ 1,587,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 2,894,000 3,373,000
Deferred income taxes ......................................................... 1,262,000 955,000
Equity in losses of unconsolidated affiliates ................................. (54,000) 77,000
Earned stock compensation ..................................................... 48,000 -
Gains on sales of investments and other assets ................................ (586,000) (15,000)
Changes in:
Land and improvement inventories ............................................ 356,000 726,000
Accounts receivable ......................................................... (520,000) 90,000
Prepaid expenses ............................................................ (982,000) (1,169,000)
Income taxes receivable ..................................................... 17,000 2,071,000
Minority interest in consolidated partnerships .............................. (110,000) (15,000)
Accounts payable and tenants' deposits ...................................... (2,507,000) (174,000)
Accrued expenses and other liabilities ...................................... (269,000) 951,000
Other, net .................................................................. (60,000) (69,000)
------------ ------------
Net cash provided by operating activities ................................ 1,592,000 8,388,000
------------ ------------
Investing activities:
Net decrease in temporary investments .............................................. 9,079,000 9,677,000
Payments on notes receivable ....................................................... 2,272,000 1,805,000
Issuance of notes receivable ....................................................... (1,922,000) (931,000)
Additions to revenue-producing properties .......................................... (1,963,000) (1,531,000)
Additions to property held for future development .................................. (937,000) -
Proceeds from sales of capital assets .............................................. 537,000 -
Investments in unconsolidated affiliates ........................................... (4,289,000) -
Return of capital from real estate partnerships .................................... 370,000 548,000
Other, net ......................................................................... - 188,000
------------ ------------
Net cash provided by investing activities ................................ 3,147,000 9,756,000
------------ ------------
Financing activities:
Payments on mortgage indebtedness .................................................. (1,427,000) (2,010,000)
Issuance of common stock ........................................................... 4,286,000 -
Purchase of treasury stock ......................................................... - (12,810,000)
Capital contributions from minority partners ....................................... 147,000 -
------------ ------------
Net cash provided by (used in) financing activities ...................... 3,006,000 (14,820,000)
------------ ------------
Net increase in cash and cash equivalents ................................ 7,745,000 3,324,000
Cash and cash equivalents, beginning of period ......................................... 15,968,000 14,454,000
------------ ------------
Cash and cash equivalents, end of period ............................................... $ 23,713,000 $ 17,778,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
J.C. NICHOLS COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(1) INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of J.C. Nichols Company and
subsidiaries (the Company) have been prepared in accordance with the
instructions to interim financial statements. To the extent that information and
footnotes required by generally accepted accounting principles for complete
financial statements are contained in or consistent with the audited
consolidated financial statements, such information and footnotes have not been
duplicated herein. The December 31, 1997 consolidated balance sheet has been
derived from the audited consolidated financial statements as of that date. In
the opinion of management, all adjustments, including normal recurring accruals,
considered necessary for a fair presentation of financial statements have been
reflected herein. The results of the interim period ended March 31, 1998 are not
necessarily indicative of the results expected for the year ended December 31,
1998. Certain amounts in the consolidated financial statements have been
reclassified to conform with the 1998 presentation.
(2) INCOME PER SHARE
Basic income per share is computed using the weighted average number of
common shares outstanding during each period. Diluted income per share includes
the effect of all dilutive potential common shares (primarily stock options)
outstanding during each period.
The shares used in the calculation of basic and diluted income per share
are shown below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
--------------------------------------------------- ------------- -------------
<S> <C> <C>
Weighted average common shares outstanding
for computation of basic income per share 4,571,420 4,172,560
Stock options 167,946 125,562
------------- -------------
Shares outstanding for computation of diluted
income per share 4,739,366 4,298,122
============= =============
</TABLE>
(3) INVESTMENT IN LIMITED LIABILITY COMPANY
In November, 1997, the Company entered into an agreement with
Kessinger/Hunter & Company, Inc. (Kessinger/Hunter) to form a limited liability
company (LLC) to provide services to previous Kessinger/Hunter clients as well
as management and leasing for the Company's Kansas City area portfolio of
office, industrial and retail properties, excluding the Country Club Plaza. On
January 2, 1998, the Company made an initial investment in the LLC of
$4,286,000, which represents a 30% equity interest. The Company has the option
of increasing its equity interest to 65% by 2001. In addition, the agreement
provides to the LLC a call right which enables it to purchase up to 76,530
shares of common stock of the Company at a price of $56 per share. In February,
1998, the LLC returned to the Company the $4,286,000 to permit it to exercise
this call right. Accordingly, the Company issued 76,530 shares of its common
stock to the LLC.
4
<PAGE> 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL BACKGROUND
The following is a discussion of the historical operating results of the
Company.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
SUMMARY. Net income increased by $516,000 (32.5%) from $1.6 million for the
three months ended March 31, 1997 to $2.1 million for the three months ended
March 31, 1998. This net increase is due to changes in several income statement
line items that are explained below.
RENTS. Rental income decreased by $302,000 (1.5%) from $20.0 million for the
three months ended March 31, 1997 to $19.7 million for the three months ended
March 31, 1998 primarily due to a $1.1 million decrease in rental income related
to three properties that were sold during the third quarter of 1997. This
decrease is partially offset by a $771,000 increase due to improved rents in the
Company's office, retail, and apartment properties.
PROPERTY SALES. Property sales primarily represent sales of residential lots in
subdivisions developed by the Company, sales of condominiums in the Alameda
Towers project, and sales of villas in the Corinth Place Villas project.
Property sales decreased by $126,000 (9.4%) from $1.3 million for the three
months ended March 31, 1997 to $1.2 million for the three months ended March 31,
1998 and included lot sales of $820,000 and condominium sales of $401,000.
During the third quarter of 1997, the Company changed its accounting method from
recording lot sales on an "as closed" basis to recording lot sales on an "as
sold" basis. The lot sales recorded in the first quarter of 1997 are on an "as
closed" basis. Property sales of $1.3 million for the three months ended March
31, 1997 included lot sales of $518,000 ($666,000 on an "as sold" basis)
condominium sales of $660,000 and villa sales of $169,000.
GAINS ON SALES OF INVESTMENTS AND OTHER ASSETS. Gains on sales of investments
and other assets represent gains associated with the sales of revenue-producing
properties, property held for future development and other assets used in the
business. These gains fluctuate with the volume of asset dispositions and the
magnitude of the difference between sales proceeds and carrying value. The
$586,000 gain for the three months ended March 31, 1998 is primarily due to the
disposition of certain construction and maintenance equipment that was no longer
necessary to service the Company's real estate portfolio.
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES. Equity in earnings of
unconsolidated affiliates represents the Company's proportionate share of
earnings of affiliates in which the Company's ownership is 50% or less. This
line item increased $131,000 from a $77,000 loss for the three months ended
March 31, 1997 to $54,000 in income for the three months ended March 31, 1998.
The increase is primarily due to earnings generated by new office buildings that
were constructed and/or leased up during 1997 by the Iowa partnerships in which
the Company is a partner.
OTHER. Other represents leasing commissions and property management fees
generated from the Company's third party real estate brokerage and management
services, royalties, minority interest in losses and other miscellaneous
revenues. Other decreased by $130,000 from $378,000 for the three months ended
March 31, 1997 to $248,000 for the three months ended March 31, 1998 primarily
due to the Company transferring its third party real estate brokerage and
management services business to Kessinger/Hunter and Company, L.C., an
unconsolidated affiliate.
5
<PAGE> 8
SELLING, GENERAL AND OPERATING EXPENSES. Selling, general, and operating
expenses (S,G, & O) represent the expenses directly associated with operating
the Company's real estate assets and expenses that are considered to be
overhead. These expenses increased by $533,000 (5.4%) from $9.9 million for the
three months ended March 31, 1997 to $10.4 million for the three months ended
March 31, 1998, principally due to the three months ended March 31, 1998
containing approximately $1,100,000 of expenses related to the Company's
proposed merger with a wholly-owned subsidiary of Highwoods Properties, Inc.
This increase was partially offset by the absence of $307,000 of operating
expenses related to the three properties that were sold during the third quarter
of 1997.
COST OF PROPERTY SALES. Cost of property sales represents the Company's cost
basis in residential lots, condominium units, and villas sold during the year.
The cost of property sales is a function of the number of lots, condominium
units, and villas sold and their underlying cost basis. Cost of property sales
decreased by $234,000 (21.1%) from $1.1 million for the three months ended March
31, 1997 to $873,000 for the three months ended March 31, 1998 and included lot
cost of sales of $450,000 and condominium cost of sales of $423,000. Cost of
property sales for the three months ended March 31, 1997 included lot cost of
sales of $342,000 ($448,000 on an "as sold" basis), condominium cost of sales of
$623,000 and villa cost of sales of $142,000. The gross margin percentage on lot
sales was 45.1% for the three months ended March 31, 1998 as compared to 34.2%
for the three months ended March 31, 1997. The increase in gross margin
percentage on lot sales for the three months ended March 31, 1998 resulted from
the Company achieving higher average prices while keeping average lot costs at a
level consistent with the prior year. The gross margin percentage on condominium
sales was (5.5%) for the three months ended March 31, 1998, as compared to 5.6%
for the three months ended March 31, 1997. The decrease in gross margin
percentage on condominium sales for the three months ended March 31, 1998
resulted from the Company incurring greater finishing costs on condominium sales
for the three months ended March 31, 1998 than for the three months ended March
31, 1997.
INTEREST EXPENSE. Fluctuations in interest expense occur due to the level of the
Company's interest bearing indebtedness and the effect changes in interest rates
have on the Company's variable rate indebtedness. Interest expense declined by
$423,000 (7.2%) from $5.8 million for the three months ended March 31, 1997 to
$5.4 million for the three months ended March 31, 1998 primarily due to the
lower average balance of outstanding indebtedness during the three months ended
March 31, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation of the Company's revenue-producing
properties is computed using the straight-line method over the estimated useful
lives of the assets, generally seven to thirty-one years. Depreciation expense
fluctuates to some degree as properties are bought and sold. In addition,
certain financing charges and certain lease related costs are amortized over the
term of the associated loan or lease as applicable. The decrease of $479,000
(14.2%) from $3.4 million for the three months ended March 31, 1997 to $2.9
million for the three months ended March 31, 1998 is primarily due to property
sales and older fixed assets becoming fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, permanent mortgage financing,
and short term notes payable to banks represent the Company's primary sources of
liquidity to fund recurring capital costs associated with renewing leases and
renovating the Company's properties, payments on the Company's outstanding
indebtedness, and distributions to shareholders. The Company has a $10 million
unsecured line of credit with Commerce Bank, N.A. (Kansas City, Missouri)
bearing interest at the prime rate. At March 31, 1998, there were no outstanding
borrowings on this line of credit.
Management anticipates that cash generated before debt payments and
capital expenditures, together with the bank line of credit, will provide
adequate liquidity to conduct the Company's operations, fund its recurring
capital costs and interest expense, and permit normal amortization payments on
outstanding indebtedness. However, the Company is in the process of developing
two of the projects included in the Company's comprehensive redevelopment plan
for areas on and around the Country Club Plaza. The Country Club Plaza is a
prestigious shopping, entertainment and office development in Kansas City,
Missouri containing approximately 1,000,000 square feet of retail space
(including basement space) and 125,000 square feet of second floor office
space. These projects are to be supplemented by tax increment financing (TIF).
The Company anticipates that it
6
<PAGE> 9
will be able to fund the projects through 1998 with working capital and the
proceeds of a TIF bond. However, due to the proposed merger with a wholly-owned
subsidiary of Highwoods Properties, Inc., the Company has not secured the
additional financing necessary to fund expenditures on these two projects or
other Plaza redevelopment projects in 1999 and thereafter.
The ESOT currently holds 1,390,003 shares of the Company's common stock.
Until such time as shares distributed by the ESOT to its beneficiaries can be
readily traded on an established securities market, the Company is obligated to
repurchase such shares for a specified period of time at a price determined by a
qualified appraiser (the "Put Option"). The most recent appraisal of the common
stock held by the ESOT was made as of October 31, 1997 and established a price
of $61.00 per share.
If the Company remains obligated by the Put Option, the Company's
liquidity could be constrained. Given expected retirement trends, management
expects it can meet anticipated stock repurchase requirements with funds
generated from operations, selling its securities or additional borrowings.
In November, 1997, the Company entered into an agreement with
Kessinger/Hunter & Company, Inc. (Kessinger/Hunter) to form a limited liability
company (LLC) to provide services to previous Kessinger/Hunter clients as well
as management and leasing for the Company's Kansas City area portfolio of
office, industrial, and retail properties, excluding the Country Club Plaza. On
January 2, 1998, the Company made an initial investment in the LLC of
$4,286,000, which represents a 30% equity interest. The Company has the option
of increasing its equity interest to 65% by 2001. In addition, the agreement
provides to the LLC a call right which enables it to purchase up to 76,530
shares of common stock of the Company at a price of $56 per share. In February,
1998, the LLC returned to the Company the $4,286,000 to permit it to exercise
this call right. Accordingly, the Company issued 76,530 shares of its common
stock to the LLC.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THREE MONTHS ENDED MARCH 31,
1997
Net cash provided by operating activities decreased by $6.8 million from
$8.4 million for the three months ended March 31, 1997 to $1.6 million for the
three months ended March 31, 1998. The primary reasons for such decrease include
higher net cash outflows from the payment of accounts payable and accrued
expenses, lower cash inflows from the collection of income taxes receivable and
accounts receivable, and other operating income factors discussed above under
"Results of Operations."
Net cash flows provided by investing activities decreased by $6.7 million
from $9.8 million for the three months ended March 31, 1997 to $3.1 million for
the three months ended March 31, 1998. The $3.1 million of net cash flow
provided by investing activities was principally a result of decreasing
temporary investments a net $9.1 million and receiving $2.3 million of payments
on notes receivable. These receipts were substantially offset by the investment
in unconsolidated affiliates of $4.3 million, the $2.0 million in additions to
revenue-producing properties, and the issuance of $1.9 million of notes
receivable. For the three months ended March 31, 1997, the Company's net cash
provided by investing activities of approximately $9.8 million was principally a
result of decreasing temporary investments $9.7 million and receiving $1.8
million in payments on notes receivable. These receipts were partially offset by
investments of $1.5 million for additions to revenue-producing properties.
Net cash provided by financing activities increased by $17.8 million from
($14.8) million for the three months ended March 31, 1997 to $3.0 million for
the three months ended March 31, 1998. The $3.0 million of net cash provided by
financing activities for the three months ended March 31, 1998 was principally a
result of issuing $4.3 million of common stock, partially offset by a $1.4
million reduction in mortgage indebtedness. For the three months ended March 31,
1997, the Company's net cash used in financing activities of $14.8 million was
principally a result of purchasing $12.8 million of treasury stock and reducing
mortgage indebtedness $2.0 million.
7
<PAGE> 10
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
It is management's intent to apply the majority of the Company's
operating cash flows to reduce indebtedness and to improve and increase the
Company's portfolio of revenue-producing properties. The Company is organized as
a "Subchapter C" corporation and as such pays income taxes on its taxable income
and is generally not subject to distribution requirements based on net income.
Management believes that the Company's core operations are best measured by its
earnings before interest and dividend income, interest expense, income taxes,
depreciation and amortization, gains or losses from debt restructuring and sales
of assets, and valuation allowances, and after adjustments needed to similarly
convert the earnings of minority interests and unconsolidated partnerships.
Earnings, as so computed, are referred to herein as "EBITDA". This is a
supplemental performance measure used along with net income to report operating
results. EBITDA is not a measure of operating results or cash flows from
operating activities as defined by generally accepted accounting principles.
Additionally, EBITDA is not necessarily indicative of cash available to fund
operating needs and should not be considered as an alternative to cash flow as a
measure of liquidity. However, the Company believes that EBITDA provides
relevant information about its operations and, along with net income,
facilitates understanding of its operating results. The EBITDA and EBITDA, as
adjusted, set forth below may not be comparable to other real estate companies,
as each real estate company may define differently such terms.
<TABLE>
<CAPTION>
EBITDA
$(000)
For the Three Months Ended March 31, 1998 1997
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 2,103 $ 1,587
ADJUSTMENTS TO RECONCILE NET INCOME TO EBITDA:
Interest and dividend income (1,147) (1,071)
Interest expense 5,426 5,849
Income tax expense 1,262 955
Depreciation and amortization 2,894 3,373
Gains on sales of investments and other assets (586) (15)
Minority interest portion of add-backs (454) (699)
Unconsolidated subsidiaries' portion of add-backs 1,189 1,071
----------------------------
EBITDA $ 10,687 $ 11,050
============================
</TABLE>
Because of the number and size of non-recurring transactions included in
the Company's consolidated financial statements during the last several years,
management believes it is important to also present a reconciliation of the
foregoing EBITDA to "adjusted" EBITDA, as described below, which represents
EBITDA exclusive of certain non-recurring transactions. Management believes
adjusted EBITDA is more representative of the Company's underlying operations.
8
<PAGE> 11
<TABLE>
<CAPTION>
ADJUSTED EBITDA
$(000)
For the Three Months Ended March 31, 1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
EBITDA $ 10,687 $ 11,050
NON-RECURRING ITEMS:
Costs related to proposed merger 1,100 -
----------------------------
ADJUSTED EBITDA $ 11,787 $ 11,050
============================
</TABLE>
The above adjusted EBITDA amounts illustrate the Company's EBITDA if
certain non-recurring items had been eliminated from the Company's statements of
operations. These amounts are not necessarily indicative of future performance.
However, management does believe that, when read in conjunction with the
Company's consolidated financial statements, they assist the reader in better
understanding the Company's underlying business operations. The adjustment made
to arrive at adjusted EBITDA is explained as follows: "Costs related to proposed
merger" represent costs incurred by the Company in conjunction with the proposed
merger with a wholly-owned subsidiary of Highwoods Properties, Inc.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," requires the reporting of comprehensive income and its
components in the fiscal 1998 financial statements. Comprehensive income is
defined as the change in equity from transactions and other events and
circumstances from non-owner sources, and excludes investments by and
distributions to owners. Comprehensive income includes net income and other
items of comprehensive income meeting the above criteria. Because the Company
currently has no components other than net income which would constitute
comprehensive income, the adoption of SFAS No. 130 in 1998 did not require any
additional disclosures.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires reporting about operating segments, products and services,
geographic areas, and major customers. The objective of the pronouncement is to
provide information about the different types of business activities and
economic activities in which businesses operate. The adoption of SFAS No. 131 in
1998 did not require any additional disclosures.
9
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
On March 24, 1998, following an evidentiary hearing, the Court in Medina,
et al. v. McCarthy, et al. (" Medina") ruled that the Settlement Agreement
dated as of June 30, 1995 requires the vesting provisions of the Employee
Stock Ownership Plan ("ESOP") plan documents be amended to provide that
the Medina plaintiff class members be 100% vested in the stock and cash
allocated in their ESOP accounts pursuant to the Settlement Agreement. The
Court has not yet issued a final written order. If the Courts' final
written order is consistent with its announced ruling, such order will
have no impact on the Company.
On April 1, 1998, following a hearing, the Court ruled that the 59,413
shares and the $58,064, plus accrued interest, previously deposited by the
Company with the Court pursuant to the Settlement Agreement dated as of
June 30, 1995, be paid outside the Employee Stock Ownership Trust ("ESOT")
directly to nine individual defendants named in this interpleader action.
The Court has not yet issued a final written order. If the Courts' final
written order is consistent with its announced ruling, such order will
have no impact on the Company.
Additional information on these two legal proceedings is set forth in the
Company's Form 10-K for the year ended December 31, 1997.
ITEM 2 CHANGES IN SECURITIES.
The Company issued 76,530 shares of its common stock upon exercise of a
call right that was purchased from the Company on February 26, 1998 for
$4,286,000. The Company had previously agreed to issue the call right in
connection with an agreement to form a limited liability company with
Kessinger/Hunter & Company, Inc.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5 OTHER INFORMATION.
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
10.1 Operating Agreement of KH-JCN, L.C. between the Company and
Kessinger/Hunter & Company, Inc. and First Amendment to
Operating Agreement. *
10.2 Call Right issued by the Company to Kessinger/Hunter &
Company, Inc. *
- - ------------------
*Incorporated by reference from the Company's Form 10-K filed on March 31, 1998.
10
<PAGE> 13
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the quarter ended March 31, 1998.
However, on April 30, 1998, a Form 8-K was filed reflecting an
amendment to the merger agreement with Highwoods Properties, Inc.
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J.C. NICHOLS COMPANY
Date: May 13, 1998 By: /s/ MARK A. PETERSON
------------------------------------
Mark A. Peterson
Vice President, Chief Financial
Officer and Treasurer
(Authorized officer and
principal financial officer of
the registrant)
12
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<PERIOD-START> JAN-01-1998
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