<PAGE>
CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
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 1-8971
------
Rockefeller Center Properties, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3280472
--------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1270 Avenue of the Americas, New York, N.Y 10020
-------------------------------------------------
(Address of principal executive offices)(Zip Code)
(212) 698-1440
--------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
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 August 14, 1995
------------------ ------------------------------
Common Stock, $.01 par value 38,260,704
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
INDEX PAGE
----- ----
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
The accompanying unaudited, interim financial statements have
been prepared in accordance with the instructions to Form 10-Q.
In the opinion of management, all adjustments (consisting only
of normal recurring items except as described in Note 1)
necessary for a fair presentation have been included.
Balance Sheets as of June 30, 1995 (unaudited) and
December 31, 1994 3
Statements of Operations for the quarters and six months
ended June 30, 1995 and 1994 (unaudited) 4
Statements of Cash Flows for the six months
ended June 30, 1995 and 1994 (unaudited) 5
Notes to Financial Statements (unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Supplemental information provided by the Debtors 24
PART II--OTHER INFORMATION 27
--------------------------
SIGNATURES 30
----------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
ROCKEFELLER CENTER PROPERTIES, INC.
BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
JUNE 30, 1995 DECEMBER 31, 1994
---------------- ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
Loan receivable and interest receivable $1,250,419 $1,300,220
Deferred debt issuance costs, net 15,127 16,709
Cash and cash equivalents 50,573 2,897
Other assets 308 169
---------- ----------
$1,316,427 $1,319,995
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current coupon convertible debentures due 2000 $213,170 $213,170
Zero coupon convertible debentures due 2000, net of
unamortized discount of $243,018 and $259,322 343,167 326,863
Floating rate notes due 2000 150,000 150,000
14% Debentures due 2007, net of unamortized discount
of $4,460 and $4,639 70,540 70,361
Accrued interest payable 50,141 37,338
Stock appreciation rights 1,182 2,611
Accounts payable and accrued expenses 1,795 2,185
---------- ----------
829,995 802,528
---------- ----------
Contingencies
Stockholders' equity:
Common stock $.01 par value:
150,000,000 shares authorized,
38,260,704 shares issued and
outstanding 383 383
Additional paid-in capital 707,545 707,545
Distributions to stockholders in excess
of net income (221,496) (190,461)
---------- ----------
Total stockholders' equity 486,432 517,467
---------- ----------
$1,316,427 $1,319,995
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-3-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
STATEMENTS OF OPERATIONS
($ in thousands except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Loan interest income (1) $27,030 $20,339 (1) $54,060
Short term investment and portfolio
income 339 232 446 472
------- ------ --------- -------
339 27,262 20,785 54,532
------- ------ --------- -------
Expenses:
Interest expense:
Current coupon convertible debentures 5,618 5,496 11,236 10,991
Zero coupon convertible debentures 8,152 7,395 16,304 14,791
14% Debentures 2,751 5,501
Floating rate notes 4,682 9,527
Commercial paper and other 6,516 12,897
------- ------ --------- -------
21,203 19,407 42,568 38,679
General and administrative 1,933 1,128 3,209 2,283
Amortization of deferred debt
issuance costs 883 176 1,732 352
Reduction in stock appreciation
rights liability (5,862) (1,428)
------- ------ --------- -------
18,157 20,711 46,081 41,314
------- ------ --------- -------
Net (loss) income ($17,818) $6,551 ($25,296) $13,218
------- ------ --------- -------
------- ------ --------- -------
Net (loss) income per share ($0.46) $0.17 ($0.66) $0.35
------- ------ --------- -------
------- ------ --------- -------
<FN>
(1) Loan interest income for the quarter and six months ended June 30, 1995 is
presented on a cash basis, see Note 1.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
($ in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Loan interest received $20,339 $39,348
Short term investment, portfolio and other
interest income received 249 664
Interest paid on floating rate notes (8,762)
Interest paid on 14% Debentures (4,521)
Interest paid on commercial paper and other (13,444)
Payments for accounts payable, accrued expenses
and other assets (3,890) (2,259)
-------- --------
Net cash provided by operating activities 3,415 24,309
-------- --------
Cash flows from investing activities:
Draw downs on letter of credit support 50,000
Portfolio maturities and redemptions 3,300
-------- --------
Net cash provided by investing activities 50,000 3,300
-------- --------
Cash flows from financing activities:
Dividends paid (5,739) (6,696)
Maturities of commercial paper, net (20,993)
-------- --------
Net cash used in financing activities (5,739) (27,689)
-------- --------
Net increase (decrease) in cash 47,676 (80)
Cash and cash equivalents at the beginning of the period 2,897 252
-------- --------
Cash and cash equivalents at the end of the period $50,573 $172
-------- --------
-------- --------
Reconciliation of Net (Loss) Income to Net Cash Provided by Operating Activities:
Net (loss) income ($25,296) $13,218
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Amortization of discount:
Zero coupon convertible debentures 16,304 14,791
14% Debentures 179
Increase in interest receivable and amortization
of loan receivable discount, net (199) (14,521)
Decrease in deferred debt issuance costs and
other assets, net 1,442 600
Increase in accrued interest payable and
amortized unpaid discount on commercial paper 12,803 10,454
Decrease in stock appreciation rights liability (1,428)
Decrease in accounts payable and accrued expenses (390) (233)
-------- --------
Net cash provided by operating activities $3,415 $24,309
-------- --------
-------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND PURPOSE
Rockefeller Center Properties, Inc. (the "Company") was formed to permit public
investment in a portion of Rockefeller Center. From the proceeds of its
offering of Common Stock and the offerings of its Current Coupon Convertible
Debentures due 2000 and Zero Coupon Convertible Debentures due 2000
(collectively, the "Convertible Debentures"), the Company made a $1.3 billion
convertible, participating mortgage loan to two partnerships, Rockefeller Center
Properties and RCP Associates (collectively, the "Borrower"). The partners of
the Borrower are Rockefeller Group, Inc. ("RGI") and Radio City Music Hall
Productions, Inc. ("RCMHP"), a wholly owned subsidiary of RGI. Mitsubishi
Estate Company, Ltd. controls an 80% equity interest in RGI, and Rockefeller
Family Interests hold the remaining 20%. The Borrower owns the real property
interests comprising most of the land and buildings known as Rockefeller Center
(the "Property"). In December 1994 the Company issued floating rate notes
("Floating Rate Notes") due December 31, 2000 and 14% debentures ("14%
Debentures") due December 31, 2007 and warrants ("Warrants") and stock
appreciation rights ("SARs") expiring December 31, 2007, the proceeds from which
were used to retire all of its commercial paper borrowings and certain of its
interest rate swap agreements.
STATUS OF THE BORROWER
On May 11, 1995, the two partnerships comprising the Borrower filed for
protection in New York under Chapter 11 of the Federal Bankruptcy Code. The
Company's only significant source of income is interest received on the mortgage
loan from the Borrower. As a result of this filing and until such time as these
proceedings have been brought to a conclusion, the Company does not expect to
receive interest payments from the Borrower and the Company's ability to enforce
its rights under the mortgage loan has been and will be stayed unless and until
the Court issues an order permitting the Company to take steps to enforce such
rights. The Company cannot predict either the length of time it will take to
conclude these proceedings or the ultimate outcome of these proceedings.
Due to the significant uncertainties created by the Borrower's Chapter 11
filings, the Company has limited recognition of income on the mortgage loan for
the six months ended June 30, 1995 to the cash actually received from the
Borrower during this period. The Company believes the carrying value of the
mortgage loan at June 30, 1995 ($1.25 billion) approximates the fair value of
the mortgage loan based upon the appraised value of the Property according to
the most recent appraisal report at December 31, 1994 ($1.25 billion).
Appraisals are only estimates of value and should not be relied upon as measures
of realizable value because the current market value of a property is not
indicative of the value such property may have at any time in the future. The
Company is unable at the present time to determine what impact, if any, the
Chapter 11 filings will have on the appraised value of the Property. Due to the
uncertainties caused by the Borrower's Chapter 11 filings, for accounting
purposes the Company intends to apply future cash receipts, if any, from the
Borrower to reduce the carrying value of the mortgage loan until these
uncertainties are resolved.
If the Company were to acquire title to the Property, it would be required to
operate the Property and to fund cash shortfalls of the Property. The Company
believes that the value of the Property in the hands of the Company would be
sufficiently in excess of the Company's obligations (approximately $830 million
at June 30, 1995), to enable the Company to obtain sufficient financing to fund
cash shortfalls of the Property as well as to satisfy the Company's existing
obligations until such time as the Property will become cash flow positive.
However, because of the Company's inability to estimate when the Chapter 11
cases will be concluded, what prevailing conditions in the New York real estate
market and financial markets might be at such time and the availability or the
terms
-6-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
required to obtain any necessary consents of lenders to the Company, no
assurance can be given that the Company would have access to sufficient
financial resources to fund cash shortfalls of the Property and to meet its
other obligations.
The following is a pro forma summary of the Company's statement of operations
for the six months ended June 30, 1995 to illustrate the impact on the Company's
results of operations for the six months then ended if the Borrower had filed
for protection under Chapter 11 of the Federal Bankruptcy Code on January 1,
1995 and the Company had received no interest payments for the six months ended
June 30, 1995, excluding the impact of additional interest income and
legal fees.
<TABLE>
<CAPTION>
($ in thousands) PRO FORMA
(unaudited) STATEMENT OF OPERATIONS
Six months ended
June 30, 1995
-------------
<S> <C>
Revenues $446
Expenses (46,081)
--------
Net loss ($45,635)
--------
--------
Net loss per share ($1.19)
--------
--------
</TABLE>
2. LOAN RECEIVABLE AND INTEREST INCOME
The mortgage loan, which is in the face amount of $1.3 billion, was made
pursuant to a Loan Agreement between the Company and the Borrower dated
September 19, 1985 (as amended, the "Loan Agreement"), and is evidenced by two
notes (collectively, as amended, the "Note"). Following the Borrower's failure
to make the interest payment due on May 31, 1995, the Company has drawn down on
the $50 million of letters of credit which supported, among other things,
payment of the base interest (as defined) on the mortgage loan. Due to the
uncertainties caused by the Borrower's Chapter 11 filings, for accounting
purposes this $50 million has been applied to reduce the carrying value of the
mortgage loan to $1.25 billion. Under the terms of the Floating Rate Notes a
substantial portion of the proceeds of these drawings would have to be applied
to a mandatory Floating Rate Note prepayment on September 1, 1995 unless the
holders otherwise agree. The mortgage loan and interest receivable on the
mortgage loan are combined on the Balance Sheet as of June 30, 1995 and a
reclassification has been made to the previously reported December 31, 1994
Balance Sheet to combine these items. The Company continues to explore a wide
range of strategic alternatives.
See Note 1 for discussion of the status of the Borrower.
Payment of the mortgage loan is secured by leasehold mortgages in the aggregate
amount of approximately $44.8 million which were assigned to the Company,
consolidated, spread and recorded as a first mortgage lien against the entire
Property. Through September 6, 1994, the mortgage loan also was secured by an
unrecorded mortgage in the amount of approximately $1,255.2 million. On
September 6, 1994 the Company recorded this mortgage. The mortgage loan is
further secured by a recorded assignment of rents pursuant to which the Borrower
has assigned to the Company, as security for repayment of the mortgage loan, the
Borrower's rights to collect certain rents with respect to the Property.
Loan interest income of Rockefeller Center Properties, Inc. for the six months
ended June 30, 1994 has been calculated on the basis of the average yield on the
Note through December 31, 2000 (the "Equity Conversion
-7-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
Date" and the date at which the mortgage loan would have, if not converted,
begun to bear floating rates of interest). Based on the scheduled principal and
interest payments the average yield is 8.51% per annum and combines (using the
interest method) differing coupon rates of base interest with the amortization
of original issue discount applicable to the loan.
3. DEBT
CONVERTIBLE DEBENTURES
Interest expense recognized on the Convertible Debentures is based on the
average yields to the maturity date, December 31, 2000. The average yields are
computed (using the interest method with semiannual compounding) by (1)
combining the differing coupon rates on the Current Coupon Convertible
Debentures and (2) amortizing the original issue discount related to the Zero
Coupon Convertible Debentures. The resulting effective annual interest rates
are 9.23% and 10.23% for the Current Coupon and Zero Coupon Convertible
Debentures, respectively.
FLOATING RATE NOTES
Interest expense on the Floating Rate Notes is based on the 90-day London
Interbank Offered Rate ("LIBOR") plus 4%. At June 30, 1995 the interest rate in
effect was 10.0625%. The average interest rate for the six months ended June
30, 1995 was 10.26%. In addition to this interest based upon LIBOR, interest
expense on the Floating Rate Notes includes the financial effect associated with
interest rate swap agreements used for hedging purposes (see below).
14% DEBENTURES
Interest expense on the 14% Debentures also includes the straight line
amortization of the original issue discount related to the Warrants and SARs
through the expiration date of December 31, 2007. Under the terms of the 14%
Debentures, to the extent that net cash flow ("Net Cash Flow") (calculated as
of the most recent fiscal quarter), which is defined as all gross receipts minus
actual operating expenses paid; interest paid or accrued (on a straight line
basis) on the Floating Rate Notes, 14% Debentures, and Current Coupon
Convertible Debentures; dividends paid or accrued; and distributions paid or
accrued on the Warrants and SARs, is insufficient to pay interest on the due
date the Company shall not be obligated to pay interest on the 14% Debentures
on such date and such interest shall accrue.
In connection with the issuance of the 14% Debentures in December 1994, the
Company separately issued to Whitehall Street Real Estate Limited Partnership V
("Whitehall") 5,349,541 SARs which remain outstanding as of June 30, 1995. The
SARs are exchangeable for 14% Debentures or under certain circumstances for
Warrants on a one-for-one basis. Each stock appreciation right is exchangeable
for a principal amount of 14% Debentures equal to the product of the average
daily market prices of the common stock for the 30 consecutive trading days
immediately preceding the date of exchange ($5.221 at June 30, 1995) minus the
exercise price per share of the Warrants into which the SARs are exchangeable
($5 per Warrant) times the number of Warrants into which the SARs are
exchangeable (5,349,541). The SARs would be automatically exchanged for
Warrants on a one-for-one basis following adoption and filing of an amendment to
the Company's Restated Certificate of Incorporation, as amended, which would
permit the holders of the SARs to own in excess of 9.8% of the outstanding
shares of the Company's stock and adoption of any necessary Board resolutions.
Upon any such an exchange, the SARs liability would be reclassified to paid-in
capital, requiring no further adjustments to future earnings.
Due to the decrease in the market price of the Company's stock during the six
months ended June 30, 1995, the Company was required to decrease its SARs
liability and record a current noncash increase in earnings of $1,428,000 in the
first six months of 1995. The Company is required to make adjustments to
earnings for the difference between the aggregate principal amount of 14%
Debentures issuable upon exchange of the SARs (SARs liability) and the value at
which the SARs liability is carried by the Company.
-8-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
INTEREST RATE SWAP AGREEMENTS
In connection with its issuance of commercial paper (subsequently replaced with
Floating Rate Notes and 14% Debentures) and its portfolio of investment
securities which was liquidated in 1993 and 1994, the Company entered into
interest rate swap agreements with financial institutions that were intended
either to fix a portion of the Company's interest rate risk on floating rate
debt ("Liability Swaps"), or to fix the yield on its floating rate portfolio
securities ("Asset Swaps"). Under the Liability Swaps, the Company pays a fixed
rate of interest semi-annually and receives a variable rate of interest semi-
annually based on 180-day LIBOR. Under the Asset Swaps, the Company received a
fixed rate of interest semi-annually and paid a variable rate of interest
quarterly based on 90-day LIBOR. In connection with the issuance of the
Floating Rate Notes and 14% Debentures in December 1994, the Company retired all
of its Asset Swaps and certain of its Liability Swaps. The amount to be paid or
received from interest rate swap agreements is accrued as floating interest
rates are reset semi-annually and, through the December 1994 retirement date of
the commercial paper borrowings, is included as a component of interest expense
on commercial paper and other. Since the retirement of the Company's commercial
paper, the Company presents the financial effect of interest rate swaps as a
component of interest expense on Floating Rate Notes. Approximately 70% of the
Company's exposure to interest rate fluctuations on its Floating Rate Notes was
hedged by interest rate swaps at June 30, 1995. The $105,000,000 notional
amount of Liability Swaps outstanding at June 30, 1995 represents three
contracts, each expiring during 1998.
The net notional principal, weighted average interest rate of net swaps
outstanding and annualized net payment relating to interest rate swap contracts,
as of June 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net notional principal $105,000,000 $245,000,000
------------ ------------
------------ ------------
Weighted average interest
rate of net swaps
outstanding 3.133% 5.573%
------------ ------------
------------ ------------
Annualized net payment $3,290,000 $13,654,000
------------ ------------
------------ ------------
</TABLE>
The current settlement value of all swaps outstanding at June 30, 1995, based on
market quotes, was a liability for the Company of approximately $10.4 million as
compared to approximately $29.0 million at June 30, 1994. Generally, the net
settlement value would decrease with an increase in LIBOR rates and would
increase as a result of a decrease in LIBOR rates.
4. NET (LOSS) INCOME PER SHARE AND DISTRIBUTIONS
Net (loss) income per share is based upon 38,260,704 average shares of Common
Stock outstanding during the quarters ended June 30, 1995 and 1994,
respectively. For the quarters and six months ended June 30, 1995 and 1994,
fully diluted net (loss) income per share is not presented since the effect of
the assumed conversion of the Convertible Debentures, Warrants and SARs would be
anti-dilutive.
On June 6, 1995 the Company announced that its Board of Directors had concluded
that due to the uncertainties created by the Borrower's Chapter 11 filings it
would not be appropriate to pay a dividend for the quarter ended June 30, 1995.
-9-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
5. LEGAL MATTERS
On January 23, 1995, Bear, Stearns & Co., Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation commenced an action against the Company in the Supreme
Court of New York, County of New York. The plaintiffs allege that the Company
breached a contract relating to the plaintiffs' provision of investment banking
services to the Company. The plaintiffs seek $5,062,500 in damages, plus costs,
attorneys' fees and interest. The case is in the initial pleading stage. The
Company is vigorously contesting the plaintiffs' allegations and on February 15,
1995, counsel to the Company filed a notice of a motion for an order dismissing
the complaint for failure to state a cause of action and granting such other and
further relief as the Court deems just and proper. The Company does not expect
the outcome of this litigation to have a material effect on the financial
condition of the Company.
On May 11, 1995 the two partnerships comprising the Borrower filed for
protection under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York as described in Note 1.
On May 24, 1995 Jerry Krim commenced an action encaptioned KRIM V. ROCKEFELLER
CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. On June 7, 1995, Kathy Knight
and Moishe Malamud commenced an action encaptioned KNIGHT, ET AL. V. ROCKEFELLER
CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. Both actions were filed in the
United State District Court for the Southern District of New York and purport to
be brought on behalf of a class of plaintiffs comprised of all persons who
purchased the Company's common stock between March 20, 1995 and May 10, 1995.
The complaints allege that the Company and Dr. Linneman violated the federal
securities laws by their purported failure to disclose prior to May 11, 1995
that the Borrower would file for bankruptcy protection. The cases have been
consolidated. On July 28, 1995, the Company and Dr. Linneman filed answers to
the complaints denying plaintiffs' substantive allegations and asserting
numerous affirmative defenses. The Company and Dr. Linneman believe that
plaintiffs' allegations are without merit and intend to vigorously contest these
actions.
On July 6, 1995 Charal Investment Company, Inc. commenced a derivative action
against certain of the Company's present and former directors in the Court of
Chancery of the State of Delaware in and for New Castle County. The Company was
named as a nominal defendant. The plaintiff alleges that the directors breached
their fiduciary duties by: 1) using commercial paper proceeds to repurchase
Convertible Debentures; (2) entering into interest rate swaps; and 3) making
capital distributions to stockholders. Prior to the commencement of the action,
the Company's Board of Directors appointed a special committee of the Board to
review the plaintiff's pre-suit demand that it institute litigation on the
Company's behalf with respect to such claims and recommend a course of action to
the full board. Plaintiff nevertheless commenced the action, asserting that
circumstances did not permit further delay. In light of the fact that the
plaintiff seeks damages on behalf of the Company, the Company does not expect
the outcome of this litigation to have a material adverse effect on the
financial condition of the Company.
On July 31, 1995 L.L. Capital Partners, L.P. commenced an action against the
Company in the United States District Court in the Southern District of New
York. The plaintiff alleges that, prior to December 1993, the Company failed to
disclose its purported belief that the Rockefeller family and the Borrower's
corporate parent would cease to fund the Borrower's cash flow shortfalls. The
Company believes that plaintiff's allegations are without merit and intends to
vigorously contest this action.
-10-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (Cont'd)
(UNAUDITED)
6. SUMMARIZED FINANCIAL INFORMATION CONCERNING THE BORROWER
Summarized financial information concerning the results of operations of the
Property provided by the Borrower is presented below:
<TABLE>
<CAPTION>
($ in thousands)
(unaudited)
Quarters ended June 30, Six Months ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenue $51,453 $55,785 $104,100 $111,033
------- ------- -------- --------
Less:
Operating expenses (37,175) (39,448) (77,480) (79,501)
Interest expense, net (14,031) (28,994) (45,038) (57,948)
Reorganizational items (263) (263)
------- -------- -------- --------
Net loss ($16) ($12,657) ($18,681) ($26,416)
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
-11-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES--THE COMPANY
The discussion below relates primarily to the Company's financial condition and
results of operations for the first six months of 1995.
The primary source of liquidity for the Company is interest income received on
its mortgage loan to two partnerships (collectively, the "Borrower"). The
mortgage loan is secured by leasehold mortgages in the aggregate amount of
approximately $44.8 million which were assigned to the Company, consolidated,
spread and recorded as a first mortgage lien against the entire property
("Property"). Through September 6, 1994, the mortgage loan also was secured by
an unrecorded mortgage in the amount of approximately $1,255.2 million. On
September 6, 1994 the Company recorded this mortgage. These mortgages are here
an after referred to as the mortgage ("Mortgage"). The mortgage loan is
further secured by a recorded assignment of rents pursuant to which the Borrower
has assigned to the Company, as security for repayment of the mortgage loan, the
Borrower's rights to collect certain rents with respect to the Property.
STATUS OF THE BORROWER
On May 11, 1995, the two partnerships comprising the Borrower filed for
protection in New York under Chapter 11 of the Federal Bankruptcy Code. The
Company's only significant source of income is interest received on the mortgage
loan from the Borrower. As a result of this filing and until such time as these
proceedings have been brought to a conclusion, the Company does not expect to
receive interest payments from the Borrower and the Company's ability to enforce
its rights under the mortgage loan has been and will be stayed unless and until
the Court issues an order permitting the Company to take steps to enforce such
rights. The Company cannot predict either the length of time it will take to
conclude these proceedings or the ultimate outcome of these proceedings.
Due to the significant uncertainties created by the Borrower's Chapter 11
filings, the Company has limited recognition of income on the mortgage loan for
the six months ended June 30, 1995 to the cash actually received from the
Borrower during this period. The Company believes the carrying value of the
mortgage loan at June 30, 1995 ($1.25 billion) approximates the fair value of
the mortgage loan based upon the appraised value of the Property according to
the most recent appraisal report at December 31, 1994 ($1.25 billion).
Appraisals are only estimates of value and should not be relied upon as measures
of realizable value because the current market value of a property is not
indicative of the value such property may have at any time in the future. The
Company is unable at the present time to determine what impact, if any, the
Chapter 11 filings will have on the appraised value of the Property. Due to the
uncertainties caused by the Borrower's Chapter 11 filings, for accounting
purposes the Company intends to apply future cash receipts, if any, from
the Borrower to reduce the carrying value of the mortgage loan until these
uncertainties are resolved.
If the Company were to acquire title to the Property, it would be required to
operate the Property and to fund cash shortfalls of the Property. The Company
believes that the value of the Property in the hands of the Company would be
sufficiently in excess of the Company's obligations (approximately $830 million
at June 30, 1995), to enable the Company to obtain sufficient financing to fund
cash shortfalls of the Property as well as to satisfy the Company's existing
obligations until such time as the Property will become cash flow positive.
However, because of the Company's inability to estimate when the Chapter 11
cases will be concluded, what prevailing conditions in the New York real estate
market and financial markets might be at such time and the availability or the
terms required to obtain any necessary consents of lenders to the Company, no
assurance can be given that the Company would have access to sufficient
financial resources to fund cash shortfalls of the Property and to meet its
other obligations.
-12-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
MORTGAGE LOAN INTEREST INCOME
Following the Borrower's failure to make the interest payment due on May 31,
1995, the Company has drawn down on the $50 million of letters of credit which
supported, among other things, payment of the base interest (as defined) on the
mortgage loan. Due to the uncertainties caused by the Borrower's Chapter 11
filings, for accounting purposes this $50 million has been applied to reduce the
carrying value of the mortgage loan. Under the terms of the Floating Rate Notes
a substantial portion of the proceeds from these drawings would have to be
applied to a mandatory Floating Rate Note prepayment on September 1, 1995 unless
the holders otherwise agree. The Company continues to explore a wide range of
strategic alternatives.
During the six months ended June 30, 1995 and 1994, cash from the Borrower for
payment of interest income on the mortgage loan was $20,339,000 and $54,060,000,
respectively. The mortgage loan agreement, enforcement of which is stayed,
unless and until the Court orders otherwise, during the pendency of the
Borrower's Chapter 11 cases, provides for base interest to be paid by the
Borrower in accordance with a schedule requiring the Borrower to pay on November
30 of each year that portion of the base interest payment due for the whole year
equal to the interest that is payable during such year with respect to the
Current Coupon Convertible Debentures of the Company due 2000 and the remainder
quarterly on February 28, May 31, August 31 and November 30 of each such year.
Following is the schedule of the rate of base interest and the amount of base
interest payments contemplated by the loan agreement in each of the following
years ending December 31:
<TABLE>
<CAPTION>
RATE Amount RATE Amount
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1995 8.390% $109,070,000 1998 8.410% $109,330,000
1996 8.400% 109,200,000 1999 8.420% 109,460,000
1997 8.410% 109,330,000 2000 8.430% 109,590,000
</TABLE>
The mortgage loan also provides for Additional Interest (as defined therein) to
be earned by the Company under certain circumstances. For each year through
2000 in which Gross Revenues (as defined therein) of the Property exceed
$312.5 million, Additional Interest would accrue in an amount equal to the sum
of (i) 31.5% of such excess plus (ii) $42.95 million and would be payable
currently only to the extent of available cash of the Borrower. If cash were
not available, the payment of Additional Interest would be deferred (without
interest) until December 31, 2000 (the "Equity Conversion Date," the date at
which the mortgage loan is convertible at the Company's option) or such earlier
time as cash became available. No Additional Interest has been earned by the
Company to date. Based on present conditions in the Midtown Manhattan rental
market, the Company does not currently expect that it would earn Additional
Interest even if the Borrower's reorganization proceedings were terminated.
SHORT TERM INVESTMENT, PORTFOLIO AND OTHER INCOME
Short term investment, portfolio and other interest income received during the
six months ended June 30, 1995 and 1994 totaled $249,000 and $664,000,
respectively. The decrease in short term investment, portfolio and other
interest income received of $415,000 was due to portfolio sales and maturities
during 1994, the proceeds from which were used to reduce the Company's short
term debt during 1994. This decrease in portfolio income was offset by interest
received on invested funds during the first six months of 1995. The Company's
short term investments are highly liquid and have the highest credit rating with
a maturity of less than three months.
-13-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
DEBT
On December 29, 1994 the Company issued $150,000,000 of floating rate notes
("Floating Rate Notes") and $75,000,000 of 14% debentures ("14% Debentures") and
warrants ("Warrants") and stock appreciation rights ("SARs"). Interest payment
dates ("Interest Payment Dates") on the Floating Rate Notes are March 1, June
1, September 1 and December 1 of each year. The Company paid $6,653,000 of
interest on the Floating Rate Notes and $2,109,000 of interest on its swap
agreements for a total of $8,762,000 paid in floating rate interest during the
six months ended June 30, 1995. Interest on the 14% Debentures is payable
semi-annually on June 2 and December 2, of each year. The Company paid
$4,521,000 of interest on the 14% Debentures during the six months ended Jun
30, 1995.
As discussed in Note 3 to the Financial Statements, the annualized payment
relating to the $105,000,000 notional principal of the interest rate swaps
outstanding at June 30, 1995 was $3,290,000. This amount may change during the
remainder of 1995 and in subsequent years, as the floating rates receivable are
periodically reset.
Coupon payments on outstanding Current Coupon Convertible Debentures are made
annually on December 31. The interest rate payable on the $213,170,000 Current
Coupon Convertible Debentures outstanding as of June 30, 1995 is 13% per annum
and, assuming no change in the amount of Current Coupon Convertible Debentures
outstanding, the interest payment will total $27,712,100 on January 2, 1996.
Prior to January 1, 1995 this interest rate was 8% per annum. The Company has
not repurchased any of its Convertible Debentures since 1992 and, under the
terms of the 14% Debentures and Floating Rate Notes, the Company is not
permitted to repurchase any of its Convertible Debentures.
The following schedule presents the components of commercial paper and other
interest paid during the period shown.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994
------------------
<S> <C>
Interest rate swap agreements $7,718,000
Commercial paper (including commercial
paper fees and expenses) 5,726,000
------------------
$13,444,000
------------------
------------------
</TABLE>
ABILITY TO SERVICE DEBT
The Loan Agreement between the Company and Goldman Sachs Mortgage Company
("GSMC") relating to the Floating Rate Notes (the "GSMC Loan Agreement")
provides for mandatory prepayments on the Floating Rate Notes on each quarterly
Interest Payment Date in an amount equal to Net Cash Flow calculated as of the
last day of the most recent fiscal quarter. The next quarterly Interest Payment
Date on the Floating Rate Notes is September 1, 1995 and Net Cash Flow for the
fiscal quarter ended June 30, 1995 includes the $50 million of letter of credit
drawings effected by the Company in June of 1995 following the failure by the
Borrower to make the interest payment due under the Loan Agreement on May 31,
1995 less, among other things, accruals as of the end of such quarter for
interest on the Floating Rate Notes, the 14% Debentures and the Current Coupon
Convertible Debentures.
The amount of the mandatory prepayment due on September 1, 1995 with respect to
the Floating Rate Notes is $33.7 million and a $3.9 million quarterly interest
payment on the Floating Rate Notes will also be due on such date. The Company
will have sufficient cash on hand to make these payments. However, unless prior
to
-14-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
September 1, 1995 either GSMC waives its right to receive all or a portion of
these payments or other provisions of the GSMC Loan Agreement or the Company is
able to secure additional funds in the form of unsecured working capital loans
or equity investments the Company may not be in full compliance with the
provisions of the GSMC Loan Agreement after making the mandatory payment and the
quarterly interest payment due on September 1, 1995 on the Floating Rate Notes.
If GSMC were to attempt to accelerate the indebtedness represented by the
Floating Rate Notes as a result of a claimed breach of the GSMC Loan Agreement,
such action could result in cross defaults under substantially all of the
Company's other indebtedness which could also be accelerated. If such
accelerations were to occur, proceedings to enforce such indebtedness could be
instituted, as could proceedings to realize on the pledge of the Company's
interests in the Note and the Mortgage and certain other assets which have been
pledged by the Company as security for the Floating Rate Notes, the 14%
Debentures and the Convertible Debentures. Any such foreclosure or other
proceedings to realize on collateral pledged by the Company, if instituted,
would likely lead to the commencement by the Company of a case under
Chapter 11 of the Federal Bankruptcy Code. Because of the uncertainties
inherent in any Chapter 11 case, which would be compounded in a
Chapter 11 case involving the Company by the uncertainties posed by the pending
Chapter 11 case involving the Borrower and uncertainties as to the value of the
Property, it is not possible to predict either the duration or the ultimate
outcome of any such proceedings or the consequences thereof to the holders of
the Company's debt and equity securities.
While the Company has, during the last two months, been engaged in discussions
with potential providers of additional equity investments in, or working capital
loans to, the Company such discussions have not, to date, resulted in a
transaction. There can be no assurance that the Company will be able to secure
additional working capital loans or equity investments upon satisfactory terms.
Whether or not the Company is in breach of the GSMC Loan Agreement in September
of 1995 or GSMC attempts to take any action as a result of any claimed
breach thereof, the Company will not have sufficient funds to make the $27.7
million interest payment due on the Current Coupon Convertible Debentures on
January 2, 1996 unless prior to such date the Company has consummated a
transaction providing it with such funds or enabling the Company to have retired
such Debentures.
A failure to make the January 2, 1996 interest payment on the Current Coupon
Convertible Debentures could result in an acceleration of the Convertible
Debentures, cross defaults under, and acceleration of, substantially all of the
Company's other indebtedness, actions to enforce such indebtedness or to realize
on the collateral securing the Floating Rate Notes, 14% Debentures and
Convertible Debentures and in the commencement of a Chapter 11 case by the
Company.
While the Company continues to explore a wide range of strategic alternatives
there can be no assurance that the Company will be able to consummate a
transaction which will address its liquidity concerns for the near and longer
terms.
NON-DISTURBANCE AGREEMENTS
The Company has executed non-disturbance agreements with tenants that occupy at
least a full floor in any of the buildings comprising a part of the Property and
certain other tenants upon request. Such agreements provide that in the event
of a foreclosure of the mortgage loan, such tenant's possession of space within
the Property will not be disturbed so long as such tenant is in compliance with
the terms of its lease. In addition, certain of these tenants, under their
leases, may offset fixed rent otherwise payable to the Borrower (up to specified
maximum
-15-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
amounts) in the event that the Borrower has failed to pay for certain
alterations to the leased property as provided for in such tenants' leases. In
the event the aggregate amount that all such tenants may offset (the "Rent
Offset Amount") exceeds $37.5 million, an agreement with the Borrower
(enforcement of which is stayed by the pendency of the Borrower's Chapter 11
cases) contemplates that the Borrower would maintain credit support facilities
to provide additional security in an amount equal to at least 50% of the
positive excess. As of June 30, 1995, the Company had executed seven rent
offset agreements with tenants. The total Rent Offset Amount at such date was
$17.4 million which is below the $37.5 million threshold and, accordingly, the
Borrower is not required to maintain credit support facilities for this Rent
Offset Amount.
RESULTS OF OPERATIONS--THE COMPANY
The Company's principal source of revenue during each of the six-month periods
ended June 30, 1995 and 1994 was loan interest income recognized on the mortgage
loan. As discussed in Note 1 to the Financial Statements, loan interest income
was recognized only to the extent of loan interest actually received from the
Borrower during the six-month period ended June 30, 1995. Loan interest income
exceeded loan interest received by $14,712,000 during the six-month period ended
June 30, 1994. The difference in the period ended June 30, 1994 is attributable
partially to the aforementioned schedule of periodic interest payments,
partially to the amortization of original issue discount applicable to the
mortgage loan and partially to the recognition of interest income on the
mortgage loan according to the effective interest method by which interest is
calculated on the basis of the average yield on the notes evidencing the
mortgage loan through the Equity Conversion Date.
Short term investment and portfolio income for the six months ended June 30,
1995, decreased by $26,000 or 5.5%, from that of the comparable prior year
period as a result of sales and maturities of portfolio securities during 1994
offset by an increase in interest earned on short term investments due to the
investing of funds received from the letter of credit proceeds discussed in Note
2.
Interest expense on Current Coupon Convertible Debentures for the six months
ended June 30, 1995 increased by $245,000 or 2.2%, over that of the comparable
prior year period, principally as a result of the recognition of interest
expense according to the effective interest method by which interest is
calculated on the basis of the average interest expense on the Current Coupon
Convertible Debentures through the maturity date, December 31, 2000.
Interest expense on Zero Coupon Convertible Debentures for the six months ended
June 30, 1995 increased by $1,513,000 or 10.2%, over that of the comparable
prior year period, principally as a result of accruals of interest on the
increasing accretion of the principal amount of the Zero Coupon Convertible
Debentures. Such accruals of interest grow at the annual rate of 10.2%.
Interest expense on the 14% Debentures and Floating Rate Notes, which replaced
the short term commercial paper borrowings and retired a portion of the
Company's interest rate swap agreements in December 1994, increased by
$2,131,000 or 16.5%, over that incurred on the commercial paper in the
comparable prior year period principally due to the increase in interest rates
between 1995 and 1994.
Combined interest expense on all debt totaled $42,568,000 and $38,679,000 for
each of the six-month periods ended June 30, 1995 and 1994, respectively. These
amounts accounted for 92.4% and 93.6% of total expenses in each of the
respective periods.
-16-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
General and administrative expenses for the six months ended June 30, 1995
increased by $926,000, or 40.6%, over that of the comparable prior year period,
due to increased legal fees and investor relations related expenses principally
due to the Borrower's Chapter 11 filings.
Amortization of deferred debt issuance costs for the six months ended June 30,
1995 increased by $1,380,000 or 392% due to the increased deferred debt issuance
costs relating to the 14% Debentures and Floating Rate Notes issued in December
1994.
The Company was required to record an increase in earnings of $1,428,000 for the
six months ended June 30, 1995 to reduce the SARs liability to reflect the
aggregate principal amount of 14% Debentures that would have been issuable upon
exchange of the SARs on June 30, 1995. The Company will be required to make
future adjustments to earnings to reflect the aggregate principal amount of 14%
Debentures issuable upon exchange of the SARs based upon the current market
price of the Company's stock unless an amendment to the Company's Restated
Certificate of Incorporation, as amended, is adopted and filed and any necessary
Board resolutions are adopted which would result in an automatic exchange of
SARs for Warrants (see Note 3 to the Financial Statements).
-17-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
THE PROPERTY
The financial information and analysis included in the following discussions of
the "Financial Condition and Outlook - The Property", "Results of Operations -
The Property", and "Cash Flow - The Property" have been furnished to the Company
by Rockefeller Center Properties and its affiliate, RCP Associates, referred to
elsewhere herein collectively as the Borrower.
PROCEEDINGS UNDER CHAPTER 11
On May 11, 1995 (the "Petition Date"), Rockefeller Center Properties ("RCP") and
its affiliate, RCP Associates, (collectively, the "Debtors") filed voluntary
petitions for reorganizations under Chapter 11 (the "Chapter 11 Cases"), title
11 of the United States Code, as amended (the "Bankruptcy Code") in the United
States Bankruptcy Court of the Southern District of New York (the "Bankruptcy
Court"). The Chapter 11 Cases have been assigned case numbers 95 B 42089 and 95
B 42088 (PBA), respectively. The separate Chapter 11 Cases of the Debtors have
been consolidated for procedural purposes and are being jointly administered
pursuant to an order of the Bankruptcy Court. A statutory unsecured creditors
committee has been appointed for RCP.
Subsequent to the Petition Date, the Debtors have continued in possession of
their properties and are operating and managing their businesses as debtors-in-
possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The
Debtors have sought and obtained orders from the Bankruptcy Court intended to
continue to allow the Debtors to maintain operations and obtain new business and
minimize the disruption caused by the Chapter 11 proceedings, including orders:
(i) authorizing the Debtors to pay certain prepetition liabilities, wages, and
other employee obligations and (ii) approving the use of cash collateral.
BASIS OF PRESENTATION
For financial reporting purposes, the Debtors have applied the provisions of the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), in preparing the unaudited combined financial statements as of and
for the period May 11, 1995 through June 30, 1995. In accordance with SOP 90-7,
those liabilities and obligations whose disposition is dependent upon the
outcome of the Chapter 11 Cases have been segregated and classified as
"Liabilities Subject to Compromise" in the unaudited combined balance sheet at
June 30, 1995.
In the opinion of the Debtors, the unaudited combined financial statements for
the current reporting period include all operating adjustments, which comprise
the normal accruals (exclusive of certain effects of bankruptcy) required to
reflect the operations of the Debtors in the ordinary course, necessary for a
fair presentation of the results for the period.
The unaudited combined financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business. With
the approval of the Bankruptcy Court where necessary, the Debtors may sell or
otherwise dispose of assets and liquidate or settle liabilities for amounts
different from those reflected in the unaudited combined financial statements.
Further, a plan of reorganization could materially change the amounts reported
in the unaudited combined financial statements, which do not reflect any
adjustments to the carrying value of assets or amounts and classification of
liabilities that might be necessary as a consequence of a plan of
reorganization. In the event that a Plan of Reorganization is not filed, and as
a result, the Properties are liquidated, other adjustments might be required.
In either case, any adjustments which result could be material.
-18-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
Certain items in the 1994 combined financial statements have been reclassified
in the 1995 combined financial statements in accordance with SOP 90-7.
RESULTS OF OPERATIONS - THE PROPERTY
The operating results of the Property during the quarter and six months ended
June 30, 1995 and 1994 are presented in summary form in the table below:
<TABLE>
<CAPTION>
($ In Thousands)
(Unaudited)
-----------
Quarters Ended Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
1995 1994 1995 1994
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Gross revenue:
Fixed and percentage rents $43,719 $38,765 $87,821 $75,951
Operating and real estate tax escalation 3,165 12,473 7,466 24,763
Consideration revenues 373 282 913 2,013
Sales and service revenues 4,196 4,265 7,900 8,306
--------- ---------- ----------- -----------
51,453 55,785 104,100 111,033
--------- ---------- ----------- -----------
Operating Expenses:
Real estate taxes 7,101 10,558 16,923 21,116
Utilities 3,633 3,389 8,402 8,304
Maintenance and engineering 7,844 8,245 15,673 15,784
Other operating expenses 9,822 9,756 19,154 19,230
Depreciation and amortization 6,706 5,866 13,416 11,846
Management fee 679 657 1,357 1,314
General and administrative 1,390 977 2,555 1,907
--------- ---------- ----------- -----------
37,175 39,448 77,480 79,501
--------- ---------- ----------- -----------
Earnings before interest and
reorganization items 14,278 16,337 26,620 31,532
Interest expense, net 14,031 28,994 45,038 57,948
--------- ---------- ----------- -----------
Earnings before reorganization items 247 (12,657) (18,418) (26,416)
Reorganization items:
Professional fees and expenses 301 - 301 -
Interest income (38) - (38) -
--------- ---------- ----------- -----------
Net Loss ($16) ($12,657) ($18,681) ($26,416)
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>
The gross revenue of the Property during the quarter and six months ended June
30, 1995 decreased by $4.3 million and $6.9 million, respectively, when compared
to the comparable prior-year periods. The decrease in gross revenue during the
quarter was primarily a result of decreased operating and real estate tax
escalation revenue offset partially by increased fixed rent. The reduction in
gross revenue during the six months ended
-19-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
June 30, 1995 was attributable to decreased operating and real estate tax
escalation revenue, lower consideration revenue, and decreased sales and service
revenues. These decreases were offset partially by increased fixed and
percentage rents related to new leases and lease renewals. The decrease in
operating and real estate tax escalation revenue reflected the establishment of
new escalation base years in connection with new leases and lease renewals.
Consideration revenue consists principally of one-time payments negotiated by
tenants for the right to cancel their leases prior to scheduled termination
dates. The decrease in sales and service revenues was a result of lower
occupancy.
The following table shows the occupancy rates for the Property at specified
dates:
September 30, 1993 - 94.1% October 1, 1994 - 90.4%
December 31, 1993 - 94.6% December 31, 1994 - 90.2%
March 31, 1994 - 95.6% March 31, 1995 - 90.1%
June 30, 1994 - 96.1% June 30, 1995 - 88.3%
As of June 30, 1995, the occupancy rate was 88.3%. This occupancy level
reflected a total of 723,000 square feet of vacant space resulting in large
measure from the significant turnover of leases which expired on September 30,
1994. In addition, a total of 450,000 square feet will become available during
the remainder of 1995. Releasing the space will represent a significant
challenge which may involve high levels of expenditures for tenant work and
concessions.
During the six months ended June 30, 1995, 86 leases covering approximately
304,000 square feet of office, retail, and storage space took effect, at net
effective annual fixed rents averaging $33.68 per square foot. The net
effective annual rental rates for office space, which accounted for
approximately 265,000 square feet of the total area leased, averaged $30.87 per
square foot. This amount compared to a net effective rental rate of $30.78 per
square foot for office space leases which took effect during all of 1994. Net
effective annual rental rates reflect the present value of base rental payments
less the current and future expenditures for tenant improvements, concessions,
and brokerage commissions. The gross rental rates for the office space leases
that were concluded and took effect during the six months ended June 30, 1995
averaged $35.49 per square foot (compared with $39.80 per square foot for office
space leases which took effect during all of 1994). The actual rate at which
each lease was executed depended upon its location within the Property, type of
space leased, length of lease term, and other factors. Of the approximately
265,000 square feet of office space leased during the six months ended June 30,
1995, approximately 145,000 square feet represented renewals of existing tenants
at an average gross rental rate of $34.43 per square foot. The combined fixed
rent and escalation payments prior to lease renewal for these renewing tenants
had averaged $30.19 per square foot.
The National Broadcasting Company, Inc. ("NBC") currently leases
approximately 1.3 million square feet of space in three interconnected
Rockefeller Center buildings (the GE Building, the Studio Building and the GE
West Building) and will continue to occupy its space through September 1997
under the terms of its lease existing prior to the extension. Under these
lease terms, NBC's 1996 annual rent is projected to be $27.7 million. NBC's
lease has been extended through the year 2022. NBC's 1998 annual rent is
projected to be $53.2 million. In addition, NBC has options for three
successive ten-year renewal periods after 2022 and has rights to lease
certain additional space. The lease agreement calls for NBC to pay rent on a
"net" basis, that is, without including amounts normally payable with regard
to real estate taxes and certain operating expenses, which NBC would pay
directly.
-20-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
The following table shows selected lease expiration and vacant space information
for the Property as of June 30, 1995 and has been furnished to the Company by
the Debtors. Actual renewal rents and rental income will be affected
significantly by market conditions at the time and by the terms at which the
Debtors can then lease space.
Number of Percentage of
Year leases expiring Area (sq.ft.) total rentable area
---- --------------- ------------ -------------------
1995 (July 1 to December 31) 83 449,991 7.27%
1996 67 118,370 1.91%
1997 47 80,855 1.31%
1998 60 202,036 3.27%
1999 59 166,906 2.70%
2000 39 316,747 5.12%
2001 13 35,956 0.58%
2002 22 136,725 2.21%
2003 24 84,639 1.37%
2004 71 387,209 6.26%
2005 18 267,495 4.33%
2006 22 144,127 2.33%
2007 9 72,688 1.18%
2008 10 165,608 2.68%
2009 46 483,308 7.81%
2010 8 123,912 2.00%
2012 3 256,725 4.15%
2013 2 59,741 0.96%
2014 6 300,068 4.85%
2019 1 2,266 0.04%
2020 2 94,595 1.53%
2022 4 1,292,122 20.89%
Space under temporary
occupancy N/A 133,626 2.16%
Vacant space N/A 722,518 11.68%
Space occupied by the
Debtors N/A 87,323 1.41%
--- --------- ------
616 6,185,556 100.0%
------ ----------- --------
------ ----------- --------
During the quarter ended June 30, 1995 the operating expenses of the Property
decreased by $2.3 million or 6% from the comparable prior-year period. This
decrease was a result of lower real estate taxes ($3.5 million) and lower
maintenance and engineering expenses ($.4 million). These decreases were offset
partially by higher costs for general and administrative expense ($.4 million),
depreciation and amortization ($.8 million), utilities ($.2 million), and
increases in other operating expenses ($.1 million).
The operating expenses of the Property decreased by $2 million, or 3%, during
the six months ended June 30, 1995, when compared to the comparable prior year
period. This decrease was a result of lower real estate taxes ($4.2 million)
and lower maintenance and engineering expenses ($.1 million). These decreases
were offset
-21-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
partially by increased depreciation and amortization charges ($1.6 million),
increased costs for general and administrative expense ($.6 million), and higher
utility costs ($.1 million).
The reduction in real estate taxes resulted from a decrease in both the assessed
valuation of the Property and New York City property tax rates. On June 29,
1995 the Bankruptcy Court approved an agreement between the Debtors and New York
City which reduced the assessed valuation of the Property. The agreement
covered the period from July 1, 1989 through June 30, 1995. The statement of
operations as of June 30, 1995 reflects the reduction in the assessed valuation
for the period January 1, 1995 through June 30, 1995. However, for the period
from July 1, 1989 through December 31, 1994, the New York City real estate tax
refund, estimated to be $22.9 million, has not been recorded since final
calculations are in process; the Debtors are obligated to refund substantial
portions of the $22.9 million to tenants. The reduction in maintenance and
engineering expenses reflected decreased exterior building maintenance.
Depreciation and amortization charges increased as a result of a higher fixed
asset base which included expenditures required by the Loan Agreement, other
capital expenditures, and improvements to tenant spaces necessitated by lease
commitments. The increase in general and administrative expense was
attributable primarily to increases in legal fees related to collection efforts
and an increase in the required provision for doubtful accounts. The higher
utility costs were primarily a result of increased electric rates.
As a result of the foregoing, operating income before interest and
reorganization items for the quarter and six months ended June 30, 1995
decreased by $2.1 million or 13% and by $4.9 million, or 16%, respectively, from
the comparable prior-year period.
Interest expense, net during the quarter and six months ended June 30, 1995
decreased $15 million or 52%, and $12.9 million, or 22%, respectively. Interest
expense accruals ceased on May 11, 1995 as a result of the bankruptcy
proceedings.
CASH FLOW-THE PROPERTY
For the six months ended June 30, 1995, the property experienced an operating
cash deficit of $6.7 million, after payments of interest to the Company of $20
million. For the six months ended June 30, 1994, the Property experienced an
operating cash deficit of $5 million after payments of interest to the Company
totaling $39.3 million. The increase of $1.7 million in the operating cash
deficit reflected an increase in lease incentives associated with new and
renewal tenants ($18.4 million) and decreased earnings before interest ($4.9
million). These factors were offset partially by a decrease in interest paid to
the Company ($19 million) and lower levels of net working capital ($2.6
million).
-22-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
The Debtors also expended funds for capital improvements to the Property, tenant
improvements, and leasing commissions as follows:
<TABLE>
<CAPTION>
(In thousands) Six Months ended June 30
-----------------------------
1995 1994
----------- ------------
<S> <C> <C>
Capital improvements $5,091 $4,699
Tenant improvements 30,547 6,732
Leasing commissions
(including legal fees) 3,399 10,256
----------- ------------
$39,037 $21,687
----------- ------------
----------- ------------
</TABLE>
These cash outflows brought the cumulative cash flow shortfall of the Property
since 1985 to $619.6 million at June 30, 1995. To date, these shortfalls have
been funded by capital contributions ($185.2 million), non-interest bearing
advances from an affiliate ($273.7 million), and loans, including accrued
interest, from the Debtors' partners ($160.7 million).
The mortgage loan agreement provides for the establishment of loans for the
cumulative portion of capital improvements made by the Debtors in excess of
amounts specified in the mortgage loan agreement. The cumulative amounts of
excess capital improvements totaled $126.7 million and $123 million at June 30,
1995 and 1994, respectively. These excess capital improvement loans are deemed
to be made to the Debtors by its partners and bear interest at 80% of the prime
rate (as defined), compounded quarterly. Interest charges on excess capital
improvement loans are added to the loan principal at the end of each year. At
June 30, 1995 and 1994, the amount of excess capital improvement loans
(including accrued interest) totaled $160.7 million and $149.7 million,
respectively. As a result of the Bankruptcy proceedings, interest has not been
accrued since May 11, 1995.
The letters of credit previously discussed under "Liquidity and Capital
Resources-The Company", supported the payment of base interest (as defined) on
the mortgage loan. In early June of 1995, RCPI received full payment of $50
million under the letters of credit. The $50 million payment was funded by
Rockefeller Group, Inc.
-23-
<PAGE>
Supplemental information provided by the Debtors.
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
DEBTORS-IN-POSSESSION
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS June 30, 1995 December 31, 1994
------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $7,868 $3
Cash held in escrow for lease obligations 783 -
Accounts receivable, less allowance for
doubtful accounts of $2,814 and $2,833 5,316 4,027
Due from RGI affiliates 2,701 1,286
Other current assets 2,035 856
------------ -------------
18,703 6,172
Fixed assets, at cost:
Land 402,419 402,419
Buildings 503,710 499,226
Furniture, fixtures and equipment 27,028 26,422
------------ -------------
933,157 928,067
Less accumulated depreciation (222,015) (214,035)
------------ -------------
711,142 714,032
Deferred renting expenses, less
accumulated amortization of $24,143
and $20,659 139,289 93,735
Lease incentives 53,973 31,327
Deferred financing expenses, less
accumulated amortization of $0 and $1,285 250 30,094
Other assets 3,090 2,960
------------ -------------
Total assets $926,447 $878,320
------------ -------------
------------ -------------
</TABLE>
-24-
<PAGE>
Supplemental information provided by the Debtors.
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
DEBTORS-IN-POSSESSION
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL June 30, 1995 December 31, 1994
DEFICIENCY ------------- -----------------
(UNAUDITED)
<S> <C> <C>
Liabilities not subject to compromise:
Accounts payable and accrued expenses $3,343 $26,848
Due to RGI affiliates 775 273,778
Mortgage payable, net of unamortized
original issue discount of $36,101
in 1994 - 1,263,899
Loans payable to RGI - 160,715
Non-current mortgage interest payable - 36,321
-------------- ----------------
4,118 1,761,561
Liabilities subject to compromise: 1,824,251 -
Partners' capital deficiency (901,922) (883,241)
-------------- ----------------
Total liabilities and partner's
capital deficiency $926,447 $878,320
-------------- ----------------
-------------- ----------------
</TABLE>
-25-
<PAGE>
Supplemental information provided by the Debtors.
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
DEBTORS-IN-POSSESSION
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before reorganization items $247 ($12,657) ($18,418) ($26,416)
Adjustments to reconcile net income (loss) before reorganization
items to net cash provided by (used in) operating activities
Depreciation and amortization 6,706 5,866 13,416 11,846
Decrease in prepaid real estate taxes 10,694 11,495 - -
Non-current portion of interest expense 11,843 8,187 21,475 16,333
Amortization of original issue discount and
deferred financing expenses 2,218 1,134 3,247 2,267
Decrease in accounts payable and accrued expenses (3,947) (2,781) (524) (7,188)
(Increase) decrease in other assets (1,429) (30) (1,302) 31
Increase (decrease) in accounts receivable (3,163) 973 (1,958) 2,418
Increase in lease incentives (10,932) (2,819) (22,646) (4,248)
----------- ----------- ---------- ------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES BEFORE REORGANIZATION
ITEMS 12,237 9,368 (6,710) (4,957)
OPERATING CASH USED IN REORGANIZATION ITEMS
Professional fees paid (301) - (301) -
Interest income 38 - 38 -
----------- ----------- ---------- ------------
(263) - (263) -
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 11,974 9,368 (6,973) (4,957)
----------- ----------- ---------- ------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Capital expenditures (2,299) (2,529) (5,091) (4,699)
Deferred renting expenses paid (4,995) (8,854) (33,946) (16,988)
Increase in cash held in escrow for tenant lease obligations (783) - (783) -
Deferred financing expenses paid (250) - (250) -
----------- ----------- ---------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (8,327) (11,383) (40,070) (21,687)
----------- ----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from RGI affiliates, principally cash
management system, net 4,218 2,015 54,908 26,644
----------- ----------- ---------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,218 2,015 54,908 26,644
----------- ----------- ---------- ------------
NET CHANGE IN CASH 7,865 - 7,865 -
CASH, BEGINNING OF PERIOD 3 4 3 4
----------- ----------- ---------- ------------
CASH, END OF PERIOD $7,868 $4 $7,868 $4
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense - $19,674 $20,339 $39,348
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
</TABLE>
-26-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
PART II.--OTHER INFORMATION
ITEM 1. Legal Proceedings
On January 23, 1995, Bear, Stearns & Co., Inc., and Donaldson, Lufkin
& Jenrette Securities Corporation commenced an action against the
Company in the Supreme Court of New York, County of New York. The
plaintiffs allege that the Company breached a contract relating to the
plaintiffs' provision of investment banking services to the Company.
The plaintiffs seek $5,062,500 in damages, plus costs, attorneys' fees
and interest. The case is in the initial pleading stage. The Company
is vigorously contesting the plaintiffs' allegations and on February
15, 1995 counsel to the Company filed a notice of a motion for an
order dismissing the complaint for failure to state a cause of action
and granting such other and further relief as the Court deems just and
proper. The Company does not expect the outcome of this litigation to
have a material effect on its financial condition.
On May 11, 1995, the two partnerships comprising the Borrower filed
for protection under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York
as described in Note 1 to the Financial Statements.
On May 24, 1995 Jerry Krim commenced an action encaptioned KRIM V.
ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. On June 7,
1995, Kathy Knight and Moishe Malamud commenced an action encaptioned
KNIGHT, ET AL. V. ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D.
LINNEMAN. Both actions were filed in the United States District
Court for the Southern District of New York and purport to be brought
on behalf of a class of plaintiffs comprised of all persons who
purchased the Company's common stock between March 20, 1995 and May
10, 1995. The complaints allege that the Company and Dr. Linneman
violated the federal securities laws by their purported failure to
disclose prior to May 11, 1995 that the Borrower would file for
bankruptcy protection. The cases have been consolidated. On July
28, 1995, the Company and Dr. Linneman filed answers to the
complaints denying plaintiffs' substantive allegations and asserting
numerous affirmative defenses. The Company and Dr. Linneman believe
that plaintiffs' allegations are without merit and intend to
vigorously contest these actions.
On July 6, 1995 Charal Investment Company, Inc. commenced a
derivative action against certain of the Company's present and
former directors in the Court of Chancery of the State of
Delaware in and for New Castle County. The Company was named as
a nominal defendant. The plaintiff alleges that the directors
breached their fiduciary duties by: 1) using commercial paper
proceeds to repurchase Convertible Debentures; (2) entering into
interest rate swaps; and 3) making capital distributions to
stockholders. Prior to the commencement of the action, the
Company's Board of Directors appointed a special committee of the
Board to review the plaintiff's pre-suit demand that it institute
litigation on the Company's behalf with respect to such claims
and recommend a course of action to the full board. Plaintiff
nevertheless commenced the action, asserting that circumstances
did not permit further delay. In light of the fact that the
plaintiff seeks damages on behalf of the Company, the Company
does not expect the outcome of this litigation to have a material
adverse effect on the financial condition of the Company.
On July 31, 1995 L.L. Capital Partners, L.P. commenced an action
against the Company in the United States District Court in the
Southern District of New York. The plaintiff alleges that, prior
to December 1993, the Company failed to disclose its purported
belief that the Rockefeller
-27-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
PART II--OTHER INFORMATION (cont'd)
family and the Borrower's corporate parent would cease to fund the
Borrower's cash flow shortfalls. The Company believes that
plaintiff's allegations are without merit and intends to vigorously
contest this action.
Other than the actions described above, the Company is not a party to
nor is any of its property the subject of any material legal
proceedings or environmental litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its annual meeting of stockholders on June 8, 1995.
(c) At the Annual Meeting, Dr. Linneman was reelected. The following
table sets for the number of votes cast for and withheld in the
election of Dr. Linneman:
For Withheld
--- --------
31,164,138 1,139,055
Also at the Annual Meeting, stockholders were asked to amend Article
NINTH of the Company's Restated Certificate of Incorporation, as
amended, to permit the Board of Directors to modify the 9.8% limit
on a Person's (as defined) ownership of common stock. Adoption of
this proposal would have required approval of holders of at least
80% of the outstanding common stock (30,609,000 shares). This
proposal was not adopted. The following table sets forth the number
of votes cast for and against, as well as the number of abstentions
and broker non-votes on this item:
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
13,269,556 3,070,854 621,494 15,341,289
Also at the Annual Meeting, stockholders were asked to ratify the
Company's appointment of Ernst & Young LLP as independent auditors for
the year 1995. The following table sets forth the number of votes
cast for and against, as well as the number of abstentions and broker
non-votes on this item:
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
31,392,788 599,490 310,913 2
A stockholder's proposal recommending that the Board of Directors of
the Company take the necessary steps to recommend to the stockholders
of the Company that the Restated Certificate of Incorporation of the
Company, as amended, be amended to require the annual election of all
directors was voted upon by stockholders at the Annual Meeting. This
proposal was defeated. The following table sets forth the number of
votes cast for and against, as well as the number of abstentions and
broker non-votes on such proposal:
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
6,448,849 9,373,757 1,273,882 15,206,705
-28-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
PART II--OTHER INFORMATION (cont'd)
A stockholder's proposal requesting that the Board of Directors of the
Company take the steps necessary to provide for cumulative voting in
the election of Directors was also voted upon by the stockholders at
the Annual Meeting. This proposal was defeated. The following table
sets forth the number of votes cast for and against, as well as the
number of abstentions and broker non-votes on such proposal:
For Against Abstentions Broker Non-Votes
--- ------- ----------- ----------------
5,271,209 10,410,785 1,214,695 15,406,504
ITEM 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter covered by
this report.
-29-
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
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.
ROCKEFELLER CENTER PROPERTIES, INC.
Date: August 14, 1995 By: /s/ Richard M. Scarlata
-------------------------------
Richard M. Scarlata
President and Chief Executive Officer
(Principal Financial Officer and
Principal Accounting Officer)
-30-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 50,573
<SECURITIES> 0
<RECEIVABLES> 1,250,419<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,316,427
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 776,877
<COMMON> 383
0
0
<OTHER-SE> 486,049
<TOTAL-LIABILITY-AND-EQUITY> 1,316,427
<SALES> 0
<TOTAL-REVENUES> 20,785
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,781
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,300
<INCOME-PRETAX> (25,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,296)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> 0
<FN>
<F1>Loan Receivable includes accrued interest.
<F2>Classified Balance Sheet is not presented.
<F3>Classified Balance Sheet is not presented.
</FN>
</TABLE>
