<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-K/A
-----------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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 (I.R.S. Employer
of incorporation or Identification No.)
organization)
1270 AVENUE OF THE AMERICAS 10020
NEW YORK, N.Y. (Zip Code)
(Address of principal
executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-698-1440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common stock, $.01 Par Value, all New York
of one class (38,260,704 shares Stock Exchange
outstanding as of March 14, 1995)*
-------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
- ---------------------------
* The aggregate market value of Registrant's voting stock held by non-
affiliates as of March 14, 1995, based on the closing price on the New York
Stock Exchange composite tape on that date, was approximately $248,695,000.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant has incorporated in this Annual Report on Form 10-K the information
required in Part III from its Proxy Statement, to be filed with the Securities
and Exchange Commission in connection with its 1995 Annual Meeting of
Stockholders.
<PAGE>
ROCKEFELLER CENTER PROPERTIES, INC.
TABLE OF CONTENTS
-----------------
Part II
Form 10 K/A amends the following items of the Company's Annual Report
on Form 10-K previously filed with the Securities and Exchange
Commission on March 20, 1995:
PAGE
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 1
Item 8. Financial Statements and Supplementary
Data 1
Signatures 2
(i)
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages F-21
through F-33 herein is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data of the Company and the
report of independent auditors thereon are set forth at pages F-2 through F-20
herein and are incorporated herein by reference.
- 1 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROCKEFELLER CENTER PROPERTIES, INC.
/s/RICHARD M. SCARLATA
----------------------
Richard M. Scarlata
President and Chief Executive Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: February 13, 1996
- 2 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ROCKEFELLER CENTER PROPERTIES, INC. ("THE COMPANY")
Financial Statements F-2
Report of Independent Auditors F-2
Balance Sheets F-3
Statements of Income F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Report of Management F-20
Management's Discussion and Analysis F-21
Liquidity and Capital Resources - The Company F-21
Results of Operations - The Company F-25
Financial Condition and Outlook - The Property F-27
Results of Operations - The Property F-29
Cash Flow - The Property F-31
Appraised Value - The Property F-33
Quarterly Stock Information F-34
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES ("THE BORROWER")
Financial Statements F-35
Report of Independent Auditors F-35
Combined Balance Sheets F-36
Combined Statements of Operations and Partners' Capital Deficiency F-37
Combined Statements of Cash Flows F-38
Notes to Combined Financial Statements F-39
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Rockefeller Center Properties, Inc.
We have audited the accompanying balance sheets of Rockefeller Center
Properties, Inc. as of December 31, 1994 and 1993, and the related statements of
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 1 to the Company's financial statements, the
financial statements of the borrowers under the mortgage note ("Borrower"), the
Company's principal asset, as of December 31, 1994 and for the year then ended,
indicate the Borrower has experienced and expects to continue to experience
significant cash shortfalls which make it unlikely that the Borrower will be
able to fulfill all financial commitments to the Company for the foreseeable
future from its own resources. Such financial statements of the Borrower also
indicate that the Borrower does not have commitments from its partners to
continue to fund these cash shortfalls. In the event that the Borrower were to
default on its obligations and the Company were to take possession of the
property underlying the mortgage note (the Property), the Company would become
responsible for the Property's operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rockefeller Center Properties,
Inc. at December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
February 3, 1995 except for the second paragraph of Note 1 as to which the
date is February 9, 1996
F-2
<PAGE>
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Loan receivable, net of unamortized discount of
$36,101 and $40,636 (Notes 2 and 3) $1,263,899 $1,259,364
Portfolio securities (Notes 2 and 4) 14,300
Interest receivable (Notes 2 and 3) 36,321 38,063
Deferred debt issuance costs, net (Note 2) 16,709 4,936
Cash and cash equivalents 2,897 252
Other assets 169 594
---------- ----------
$1,319,995 $1,317,509
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current coupon convertible debentures due 2000 (Notes 2 and 5) $213,170 $213,170
Zero coupon convertible debentures due 2000, net of
unamortized discount of $259,322 and $289,642 (Notes 2 and 5) 326,863 296,543
Floating rate notes due 2000 (Notes 2 and 5) 150,000
14% Debentures due 2007, net of unamortized discount
of $4,639 (Notes 2 and 5) 70,361
Accrued interest payable (Notes 2 and 5) 37,338 33,662
Stock appreciation rights (Note 5) 2,611
Commercial paper outstanding, net of unamortized
discount of $427 (Notes 2 and 5) 247,223
Accounts payable and accrued expenses 2,185 1,746
---------- ----------
802,528 792,344
---------- ----------
Contingencies (Note 9)
Stockholders' equity:
Common stock, $.01 par value:
150,000,000 shares authorized;
38,260,704 shares issued and outstanding (Notes 1 and 7) 383 383
Additional paid-in capital (Note 5) 707,545 705,517
Distributions to stockholders in excess of net income (Note 7) (190,461) (180,735)
---------- ----------
Total stockholders' equity 517,467 525,165
---------- ----------
$1,319,995 $1,317,509
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues
Loan interest income (Notes 2 and 3) $108,732 $108,363 $107,873
Portfolio income (Notes 2, 4 and 5) 553 5,177 14,415
Short term investment income 20 126
-------- -------- --------
109,285 113,560 122,414
-------- -------- --------
-------- -------- --------
Expenses
Interest expense:
Current coupon convertible debentures (Notes 2 and 5) 22,478 22,020 21,793
Zero coupon convertible debentures (Notes 2 and 5) 30,320 27,507 24,956
14% Debentures (Notes 2 and 5) 87
Floating rate notes (Notes 2 and 5) 166
Commercial paper, bank loan and other (Notes 2 and 5) 24,450 28,816 34,050
-------- -------- --------
77,501 78,343 80,799
General and administrative (Note 8) 4,170 3,728 4,299
Cost of evaluating alternative financings (Note 8) 1,942
Amortization of deferred debt issuance costs (Note 2) 705 705 705
Cost of swap terminations and modifications
related to debt extinguishment (Notes 1 and 5) 9,855 3,451 -
-------- -------- --------
94,173 86,227 85,803
-------- -------- --------
Income before non-recurring income
and extraordinary gain on debt extinguishment 15,112 27,333 36,611
Non-recurring income (gain on sales of portfolio
securities) (Note 4) 31 8,593
-------- -------- --------
Income before extraordinary gain
on debt extinguishment 15,143 35,926 36,611
Extraordinary gain on
debt extinguishment (Note 5) - - 2,537
-------- -------- --------
Net income (Note 7) $15,143 $35,926 $39,148
-------- -------- --------
-------- -------- --------
Income per share (Note 2):
Income before extraordinary gain
on debt extinguishment $0.40 $0.96 $0.97
Extraordinary gain on debt extinguishment - - 0.07
-------- -------- --------
Net income per share $0.40 $0.96 $1.04
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Distributions
Additional to stockholders Total
Common Stock paid-in in excess of stockholders'
Shares Amount capital net income equity
---------- ------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 37,510,000 $375 $700,439 ($154,720) $546,094
Net income 39,148 39,148
Distributions to
stockholders
($1.69 per share) (63,392) (63,392)
-----------------------------------------------------------------------------------------
Balance at
December 31, 1992 37,510,000 375 700,439 (178,964) 521,850
Issuance of Common Stock 750,704 8 5,078 5,086
Net Income 35,926 35,926
Distributions to
stockholders
($1.00 per share) (37,697) (37,697)
-----------------------------------------------------------------------------------------
Balance at
December 31, 1993 38,260,704 383 705,517 (180,735) 525,165
Issuance of warrants 2,028 2,028
Net income 15,143 15,143
Distributions to
stockholders
($0.65 per share) (24,869) (24,869)
-----------------------------------------------------------------------------------------
Balance at
December 31, 1994 38,260,704 $383 $707,545 ($190,461) $517,467
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Loan interest received $105,495 $103,545 $101,660
Portfolio and other interest received 998 6,553 13,924
Interest paid on commercial paper, bank loan and other (27,020) (31,016) (31,633)
Interest paid on current coupon convertible debentures (17,053) (17,053) (17,209)
Payments for accounts payable, accrued expenses
and other assets (5,222) (3,798) (4,007)
-------- -------- --------
Net cash provided by operating activities 57,198 58,231 62,735
-------- -------- --------
Cash flows from investing activities:
Sales of portfolio securities 8,031 102,518
Portfolio maturities and redemptions 6,300 24,150 23,560
-------- -------- --------
Net cash provided by investing activities 14,331 126,668 23,560
-------- -------- --------
Cash flows from financing activities:
Maturities of commercial paper, net (246,682) (128,717) (12,545)
(Repayment of) proceeds from bank loans payable, net (20,000) 20,000
Dividends paid (24,869) (37,697) (63,392)
Proceeds from issuance of floating rate notes, 14%
debentures, warrants and SARs net of issuance costs 212,522
Proceeds from issuance of common stock 5,086
Payments to terminate (1994) and reduce
duration (1993) of interest rate swaps (9,855) (3,451)
Repurchase of convertible debentures (30,410)
-------- -------- --------
Net cash used in financing activities (68,884) (184,779) (86,347)
-------- -------- --------
Net increase (decrease) in cash 2,645 120 (52)
Cash and cash equivalents at the beginning of the year 252 132 184
-------- -------- --------
Cash and cash equivalents at the end of the year $2,897 $252 $132
-------- -------- --------
-------- -------- --------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $15,143 $35,926 $39,148
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sales of portfolio securities (31) (8,593)
Gain on debt extinguishment (2,537)
Cost of swap terminations and modification
related to debt extinguishment 9,855 3,451
Amortization of discount:
Zero coupon convertible debentures 30,320 27,507 24,956
Loan receivable (4,535) (4,178) (3,840)
Portfolio securities (383) (1,368)
Decrease in deferred debt issuance costs and
other assets, net 1,130 415 593
Decrease (increase) in interest receivable 1,742 891 (1,582)
Increase in accrued interest payable and amortized
unpaid discount on commercial paper 3,135 3,517 6,678
Increase (decrease) in accounts payable
and accrued expenses 439 (322) 687
-------- -------- --------
Net cash provided by operating activities $57,198 $58,231 $62,735
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND PURPOSE
Rockefeller Center Properties, Inc. (the "Company") was incorporated in Delaware
on July 17, 1985. The Company qualifies and has elected to be treated, for
Federal income tax purposes, as a real estate investment trust (a "REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"). 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 convertible,
participating mortgage loan (the "Loan") to two partnerships, Rockefeller Center
Properties and RCP Associates (collectively, the "Borrower"). The Borrower owns
the real property interests comprising most of the land and buildings known as
Rockefeller Center (the "Property"). The Loan, in the face amount of $1.3
billion, matures on December 31, 2007 and provides for payments of both base
interest ("Base Interest") at stated rates (See Note 3) and additional interest
("Additional Interest") based on Gross Revenues (as defined) of the Property
through December 31, 2000, and floating interest rates thereafter. The Loan is
convertible at the Company's option on December 31, 2000 (the "Equity Conversion
Date") or, if an event of default under the Loan Agreement has occurred and is
continuing, any earlier date specified by the Company, into a 71.5% (subject to
reduction in the event of certain prepayments) general partnership interest in
the partnership which will own the Property (the "Partnership") on that date.
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. As
of June 3, 1993, the Company became a self-administered REIT managing its own
day-to-day operations and affairs (Note 8).
In connection with the Company's retirement of commercial paper borrowings in
1994 and 1993, the Company exchanged payments with certain counterparties to
retire certain interest rate swap agreements in 1994 and made payments to
certain counterparties to reduce the duration of certain interest rate swap
agreements in 1993 which thereby reduced the Company's net swap liability. To
reflect the accounting directed by the staff of the Securities and Exchange
Commission, the Company has reclassified expenses relating to these interest
rate swap terminations and modifications from extraordinary loss to cost of
swap terminations and modifications related to debt extinguishment. The
Company recorded losses of $9,855,000 and $3,451,000 for the years ended
December 31, 1994 and 1993, respectively, as a result of these transactions.
The 1993 payments were made pursuant to agreements between the Company and
certain of its lenders whereby the Company had agreed to apply in this manner a
portion of the proceeds from the issuance of common stock. As of December 30,
1994 these agreements were terminated (Note 5). Information on the ongoing
status of the Borrower has been discussed in the Company's Form 10-Q's for the
quarters ended March 31, June 30 and September 30, 1995 and in addition, the
Company filed a Form 8-K on December 14, 1995 which included the Borrower's
financial statements for the year ended December 31, 1994 which were revised and
reissued as a result of the Borrower's filing of a voluntary petition for
reorganization under Chapter 11, title 11 of the United States Code, as amended.
STATUS OF THE BORROWER
Note 4 of the Notes to the audited combined Balance Sheets of the partnerships
comprising the Borrower as of December 31, 1994 and 1993 and the related
Combined Statements of Operations and Partners' Capital Deficiency and Cash
Flows for each of the three years in the period ended December 31, 1994 which
are reproduced at pages F-35 through F-46 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1994 states that
F-7
<PAGE>
"the Partnerships [comprising the Borrower] have experienced
significant cash shortfalls and, based upon management's projections,
will continue to experience significant cash shortfalls through the
Equity Conversion Date. These cash shortfalls have occurred primarily
as a result of changes in the real estate market from levels
anticipated when the Loan was initiated. These factors include lower
rental rates, greater rent abatements granted to tenants upon
initiation or renewal of lease commitments, and higher other
expenditures associated with obtaining new and renewal tenants. These
cash flow conditions have made it unlikely that the Partnerships will
be able to fulfill all financial commitments to RCPI [the Company] for
the foreseeable future from their own resources.
The Partnerships do not have a commitment from the Partners [of the
Partnerships comprising the Borrower] to fund these cash shortfalls.
These conditions raise substantial doubt about the Partnerships'
ability to continue as going concerns. The combined financial
statements of the Partnerships do not contain any adjustments to
reflect the possible future effects from the outcome of this
uncertainty."
Management of the Company believes that as of December 31, 1994 the fair
value of the collateral supporting the Loan, (the sum of (a) the value of the
Property as appraised as of December 31, 1994 and (b) the value of the
additional collateral required to be maintained by the Borrower as of that
date and thereafter) approximates the value at which the Loan is carried on
the Company's Balance Sheet. If the parents and affiliates of the Borrower
continue to support the Borrower through the funding of cash shortfalls as
they have through December 31, 1994, although not legally obligated to do so,
the Borrower will be able to satisfy its obligations under the Loan
Agreement. If the Borrower were to default on its obligations under the Loan
Agreement, there could be a significant change in the nature of the Company's
operations. If the Company were to foreclose on the Property and related
collateral and acquire title to the Property, it would be required to operate
the Property and to fund cash shortfalls of the Property. If the Company were
to acquire title to the Property, management of the Company believes, that
the value of the Property (appraised at approximately $1.25 billion at
December 31, 1994) would be significantly in excess of the Company's
obligations (approximately $760 million at December 31, 1994), and that
therefore the Company should be able to obtain sufficient financing to fund
cash shortfalls of the Property as well as to satisfy the Company's existing
obligations until such time (1996) as the Company, on the basis of the
projections contained in the December 31, 1994 appraisal, anticipates that
the Property will become cash flow positive. Such financing would be subject
to the consent of the holders of the Floating Rate Notes and 14% Debentures.
However, because of the Company's inability to estimate when, if ever, a
potential foreclosure would occur (if the Borrower were to default on its
obligations) and what prevailing conditions in the New York real estate
market and financial markets might be at such time, 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 Borrower has informed the Company that as of December 31, 1994 it has
complied with all of its covenants under the Loan Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FAIR VALUES OF FINANCIAL INSTRUMENTS (NOTES 3, 4 AND 5):
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based
F-8
<PAGE>
on estimates using present value and other techniques. Such techniques are
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Derived fair value estimates cannot be
substantiated by comparison to independent markets and may not reflect the
values that could be realized in any immediate settlement of the instrument
or otherwise. Statement 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts may not necessarily represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts of cash and cash
equivalents approximate their fair value.
LOAN RECEIVABLE: As the Loan receivable is the Company's principal asset,
fair value has been estimated based on the sum of (a) the appraised value of the
Property at December 31, 1994 ($1.25 billion) and (b) the value of the
additional collateral required to be maintained by the Borrower. As noted
below, the aggregate amount of such additional collateral was reduced from $200
million to $70 million as of January 1, 1995 and will be further reduced to $50
million on April 1, 1995.
DEBT: The carrying amounts of the Company's 14% Debentures and Floating
Rate Notes approximate their fair value. The fair values of the Company's
Current Coupon Convertible Debentures and Zero Coupon Convertible Debentures are
estimated using quoted market prices.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: Fair values for the Company's off-
balance-sheet financial instruments (interest rate swaps) are based on current
settlement values with the applicable counterparties based on information
supplied by such counterparties. The Company uses interest rate swaps to manage
interest rate risk on floating rate debt. Through the December 1994 retirement
of Commercial Paper borrowings, the interest expense associated with such swap
agreements is included with interest expense on commercial paper, bank loan and
other. The interest payable associated with such swap agreements is classified
as accrued interest payable.
The following are the Company's significant accounting policies:
LOAN INTEREST INCOME (NOTE 3):
Interest recognized on the Loan is calculated on the basis of the average yield
on the notes evidencing the Loan from the date of issuance through December 31,
2000 (the date at which the Loan will, if not converted, begin to bear floating
rates of interest). The average yield is 8.51% per annum and combines (using
the effective interest method) the differing coupon rates of Base Interest with
the amortization of original issue discount applicable to the Loan.
DEBT ISSUANCE COSTS:
Issuance costs of $10,690,000, pertaining to the outstanding Convertible
Debentures, at December 31, 1994 and 1993 have been deferred and are being
amortized straight-line over the period ending December 31, 2000, the maturity
date of the Convertible Debentures. The unamortized balance at December 31,
1994 was $4,231,000. Issuance costs of $9,192,000 and $3,286,000 relating to
the Floating Rate Notes and 14% Debentures, respectively, issued on December 29,
1994 have been deferred and are being amortized using the effective interest
method and straight-line method, respectively, over the expected life of the
Floating Rate Notes and 14% Debentures, respectively.
INTEREST EXPENSE (NOTE 5):
Interest expense recognized on the Convertible Debentures is based on the
average yields from the date of issuance through the maturity date, December 31,
2000. The average yields are computed (using the effective interest method) 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 resultant effective annual interest rates
are 9.23% and 10.23% for the Current Coupon and Zero Coupon Convertible
Debentures, respectively. Interest expense on the Floating Rate Notes is based
on the three-month London Interbank Offered Rate (LIBOR) reset 2 days prior to
each payment due date plus 4%. The interest
F-9
<PAGE>
rate at December 31, 1994 was 10.375%. Interest expense including the
amortization of the related original issue discount on the 14% Debentures,
arising from the allocation of a portion of the proceeds of the Warrants and
SARs, is computed using the straight-line method through the maturity date,
December 31, 2007.
INTEREST RATE SWAP AGREEMENTS (NOTE 5): The fair value of interest rate
swaps which are used for hedging purposes is not reflected in the balance
sheets. The incremental revenue or expense associated with an interest rate
swap is recognized over the term of the swap arrangement and through March
31, 1993 had been presented in the statements of income as a component of the
interest revenue of the related asset or the interest expense of the related
liability. In connection with the reduction of commercial paper outstanding
in April 1993 and the sale of a substantial portion of its portfolio of
investment securities in order to fund that reduction, beginning in the
second quarter of 1993 and through the retirement of Commercial Paper
borrowings in December 1994, the Company presented interest rate swaps on a
net basis as a component of interest expense on commercial paper, bank loan
and other. Prior periods have not been restated. Since the retirement of the
Company's commercial paper, the Company presents interest rate swaps on a net
basis as a component of interest expense on Floating Rate Notes.
NET INCOME PER SHARE:
Net income per share is based upon 38,260,704, 37,567,746 and 37,510,000,
average shares of Common Stock outstanding during 1994, 1993 and 1992,
respectively. For such periods of operations, fully diluted net income per
share is not presented since the effect of the assumed conversion of the
Convertible Debentures and Warrants and SARs would either be anti-dilutive in
1994 and 1993 or not materially different from net income per share as reported
in 1992.
CASH EQUIVALENTS:
Cash equivalents are highly liquid investments with the highest credit rating
which mature within three months or less.
3. LOAN RECEIVABLE AND INTEREST INCOME
The 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"). The 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 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 related recording tax
was paid by the Borrower. The 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 Loan, the Borrower's rights to collect certain rents with
respect to the Property.
The Company is the beneficiary of standby irrevocable letters of credit subject
to specified reductions and which, among other things, provide support for the
Borrower's payment of Base Interest (as defined) on the Loan. Subject to
certain conditions, the Borrower is required to maintain in effect similar
letters of credit, or to pledge collateral with a fair market value equal to the
required amount of such letters of credit until the Equity Conversion Date.
In April 1993, pursuant to agreements between the Borrower and the Company, the
level at which such letters of credit or other collateral must be maintained was
increased to $200 million until December 31, 1994. On January 1, 1995, the
level of this support decreased from $200 million to approximately $70 million
and on April 1, 1995 will decrease to $50 million which is the minimum level
that must be maintained through the Equity Conversion Date unless Net Operating
Income (as defined) of the Property for any year exceeds $150 million and the
Borrower has delivered to the Company an Accountant's Certificate (as defined)
stating that no deficits in Net Cash Flow (as defined) of the Property for any
subsequent year are forecasted. The Loan Agreement also contains covenants with
respect to the operation and maintenance of the Property and limitations on the
Borrower's right to dispose of the Property and to incur debt or liens.
F-10
<PAGE>
The Note provides for specified quarterly Base Interest payments during its term
resulting in the following equivalent annualized coupon rates for each of the
following years ending December 31:
1992: 7.820% 1997: 8.410%
1993: 7.965% 1998: 8.410%
1994: 8.115% 1999: 8.420%
1995: 8.390% 2000: 8.430%
1996: 8.400%
In addition, for each year through 2000 in which Gross Revenues (as defined) 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 the Equity Conversion Date or such earlier time as cash
became available. No Additional Interest has been earned by the Company to
date.
If the Loan is not converted on the Equity Conversion Date, the Loan will mature
on December 31, 2007, and nonconvertible floating rate notes will be issued in
exchange for any Convertible Debenture not converted on the maturity date. The
nonconvertible floating rate notes would mature on December 31, 2007, would be
prepayable at the Company's option at any time at par, and would bear interest
at the three-month LIBOR plus 1/4% or such greater spread (not in excess of 1%)
as is expected to result in such notes trading at par. The loan will bear
interest payable quarterly in arrears at the same rate as the nonconvertible
floating rate notes and will be prepayable at the option of the Borrower in
whole or in part, at any time, at 100% of its principal amount plus accrued
interest. The fair value of the Company's loan receivable at December 31, 1994,
computed on the basis described in Note 2, approximates $1.3 billion.
4. PORTFOLIO SECURITIES
The Company liquidated its portfolio securities during the years ended December
31, 1993 and 1994, which resulted in non-recurring gains of $8,593,000 and
$31,000, respectively. Proceeds from the sales of portfolio securities were
used to fund scheduled reductions in commercial paper outstanding.
5. DEBT
CONVERTIBLE DEBENTURES:
The Convertible Debentures were issued pursuant to an Indenture dated as of
September 15, 1985 (as amended, the "Indenture") between the Company and
Manufacturers Hanover Trust Company (now Chemical Bank), as Trustee. As of
December 31, 1993, United States Trust Company replaced Chemical Bank as
Trustee. As of December 29, 1994, the Convertible Debentures together with the
Floating Rate Notes and the 14% Debentures are secured by a pledge of the Note
and certain other collateral pursuant to the Collateral Trust Agreement dated as
of December 29, 1994 (the "Collateral Trust Agreement") among the Company,
Bankers Trust Company and Gary R. Vaughan (collectively, the "Collateral
Trustee"). Prior to December 29, 1994 the Convertible Debentures were general
unsecured obligations of the Company. The Convertible Debentures mature, and are
convertible into shares of Common Stock of the Company, on the Equity Conversion
Date.
Any Convertible Debentures not converted at maturity will be exchanged in
accordance with the terms of the Indenture for nonconvertible floating rate
notes (Note 3).
The Current Coupon Convertible Debentures bore interest from the date of
issuance until December 31, 1994 at the rate of 8% per annum, and from January
1, 1995 until December 31, 2000 will bear interest at the rate of 13% per annum,
payable annually on December 31 of each year.
F-11
<PAGE>
Between 1987 and 1992, the Company repurchased and retired a portion of its
Convertible Debentures. The cost of such repurchases, the face values
repurchased and retired and the gain or loss resulting from such repurchases for
1992, the last year in which such repurchases were made, and on a cumulative
basis are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
(In thousands) Year Ended December 31,
Cumulative 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Cost of debenture repurchases $217,295 $30,410
Face value repurchased and retired:
Current Coupon Convertible Debentures $121,830 $30,410
Zero Coupon Convertible Debentures $366,065
Gain resulting from extinguishment of debt $11,085 $2,537
- ---------------------------------------------------------------------------
</TABLE>
At December 31, 1994, the Company had repurchased and retired 36.4% of the
Current Coupon Convertible Debentures and 38.4% of the Zero Coupon Convertible
Debentures. At December 31, 1994 and 1993, $213,170,000 of the Current Coupon
Convertible Debentures were outstanding and $586,185,000 face amount of the Zero
Coupon Convertible Debentures were outstanding. The proceeds from issuances of
commercial paper, were used by the Company to finance its repurchases of its
Convertible Debentures. Commercial paper borrowings were repaid in 1993 and
1994 with proceeds from sales of the Company's investment portfolio, operating
cash flow and the issuance of 14% Debentures and Floating Rate Notes (see below)
in December 1994. Under the terms of the 14% Debentures and Floating Rate Notes
the Company is not permitted to repurchase any of its Convertible Debentures.
The Current Coupon Convertible Debentures are convertible at maturity at the
rate of 84.59 shares of Common Stock per $1,000 principal amount (subject to
anti-dilution adjustments). If the Current Coupon Convertible Debentures
outstanding as of December 31, 1994 are converted, 18,032,050 shares of Common
Stock of the Company would be issued. The fair value, based on quoted market
prices at December 31, 1994, of the Company's outstanding Current Coupon
Convertible Debentures was approximately $195,000,000. The Zero Coupon
Convertible Debentures are convertible at maturity at the rate of 46.06 shares
of Common Stock per $1,000 principal amount (subject to anti-dilution
adjustments). If the Zero Coupon Convertible Debentures outstanding as of
December 31, 1994 are converted, 26,999,681 shares of Common Stock of the
Company would be issued. The fair value, based on quoted market prices at
December 31, 1994, of the Company's outstanding Zero Coupon Convertible
Debentures was approximately $245,000,000. Upon the occurrence of an Event of
Default as defined, the Trustee may declare the unpaid principal of the
Convertible Debentures and any accrued interest thereon immediately due and
payable. In addition, the Convertible Debentures would become convertible at
special conversion rates (subject to anti-dilution adjustments) in the event
that such Convertible Debentures were called for redemption or became redeemable
at the option of the holder, or at any time that an Event of Default were to
occur and be continuing. The Convertible Debentures may be redeemed by the
Company at par plus accrued interest in the event of the imposition of certain
withholding taxes or certain certification requirements, in the event of an
acceleration of the Loan or an exercise of the option to convert the Loan, or
out of the proceeds from a sale or pledge by the Company of an interest in the
Loan or from a substantial casualty or condemnation in respect to the Property.
The Indenture provides that, with certain exceptions, the Company will not pay
dividends on or purchase shares of its Common Stock if funds used for all such
dividends or purchases would exceed cumulative aggregate Distributable Cash
(cash receipts from operations less operating expenses and interest) to that
date. The Indenture also imposes certain restrictions on the Company's ability
to consent to amendments of or grant waivers under the Loan Agreement or the
Mortgage.
FLOATING RATE NOTES:
Pursuant to a Loan Agreement between the Company and Goldman Sachs Mortgage
Company, as Agent and as
F-12
<PAGE>
Lender, dated December 18, 1994, the Company issued Floating Rate Notes
totaling $150,000,000. The Floating Rate Notes together with the Convertible
Debentures and the 14% Debentures are secured by a pledge of the Note and
certain other collateral and mature on December 31, 2000. Debt issuance
costs of $9,192,000 are being deferred and amortized using the effective
interest method over the expected life of the Floating Rate Notes. Interest
is based on 90-day LIBOR plus 4% reset two business days prior to each
interest payment date. At December 31, 1994 the interest rate in effect was
10.375%. Interest payment dates ("Interest Payment Dates") are March 1, June
1, September 1, and December 1 of each year. Required principal payments are
to be made on each Interest Payment Date beginning on June 1, 1995.
Mandatory principal payments shall be made of 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. However, the minimum
principal repayments required for each year are as follows:
<TABLE>
<CAPTION>
Year Principal Repayment
---- -------------------
<S> <C>
1995 $3,000,000
1996 9,000,000
1997 10,000,000
1998 12,000,000
1999 15,000,000
-----------
$49,000,000
-----------
-----------
</TABLE>
The Company may prepay the Floating Rate Notes in whole or in part on any
Interest Payment Date; however, any prepayment made during the first and second
years the Floating Rate Notes are outstanding (except mandatory prepayments)
would be subject to a 3% and 1.5% penalty, respectively, of the principal amount
prepaid. Upon the occurrence of an Event of Default, as defined, the Agent may
declare the unpaid principal of the Floating Rate Notes and any accrued interest
thereon immediately due and payable.
14% DEBENTURES:
The 14% Debentures were issued pursuant to a Debenture Purchase Agreement dated
as of December 18, 1994 ("Debenture Agreement") between the Company and
Whitehall Street Real Estate Limited Partnership V. The 14% Debentures together
with the Convertible Debentures and the Floating Rate Notes are secured by a
pledge of the Note and certain other collateral and mature on December 31, 2007.
Debt issuance costs of $3,286,000 are being deferred and amortized using the
straight-line method through December 31, 2007.
The 14% Debentures bear interest from the date of issuance until December 31,
2007 at a rate of 14% per annum, payable semi-annually on June 2 and December 2
of each year. If an Event of Default were to occur and be continuing, the 14%
Debentures would bear interest at 18% per annum. Upon the occurrence of an
Event of Default, as defined, the holders of the 14% Debentures ("Holders") may
declare the unpaid principal thereof and accrued interest thereon due and
payable. The 14% Debentures are redeemable in whole or in part at any time
after December 30, 2000 provided the Floating Rate Notes have been paid in full.
The penalties for early redemption are as follows:
Penalty
Redemption period (% of principal amount redeemed)
-------------------------------------- --------------------------------
December 30, 2000 to December 31, 2001 5%
January 1, 2002 to December 31, 2002 3%
January 1, 2003 to December 31, 2003 1.5%
January 1, 2004 to December 31, 2007 0%
F-13
<PAGE>
Pursuant to the Warrant Agreement dated December 18, 1994 between the Company
and Chemical Bank, as Warrant Agent, and in connection with the issuance of the
14% Debentures, the Company issued Warrants to acquire 4,155,927 shares of newly
issued common stock. Since the Warrants are separate from the 14% Debentures,
the Company is required to assign a value to the Warrants and reflect that value
in stockholders' equity. The value assigned to the Warrants of $2,028,000 has
been recorded as a debt discount and corresponding increase in stockholders'
equity. Such discount is being amortized using the straight-line method through
the expiration date of the Warrants, December 31, 2007. Each warrant is
exercisable at $5.00 per share. Beginning on January 15, 1996 each warrant is
entitled to an annual distribution payable on January 15 for the prior calendar
year in an amount equal to any positive difference between the total amount of
dividends paid per share of common stock in the preceding year and $0.60.
Beginning on January 1, 2001 the annual distribution will be in an amount equal
to any positive difference between the total amount of dividends paid per share
of common stock in the preceding year and the exercise price multiplied by 90-
day LIBOR in effect on the preceding December 31 plus 1%.
Also in connection with the issuance of the 14% Debentures, the Company issued
5,349,541 SARs, pursuant to the SAR Agreement between the Company and Chemical
Bank, as SAR Agent. Since the SARs are separate from the 14% Debentures, the
Company is required to assign a value to the SARs and reflect that value as a
liability. The value assigned to the SARs of $2,611,000 has been recorded as a
debt discount and corresponding liability. Such discount is being amortized
using the straight-line method through the expiration date of the SARs, December
31, 2007. Beginning on January 15, 1996 each stock appreciation right is
entitled to an annual distribution payable on January 15 for the prior calendar
year in an amount equal to any positive difference between the total amount of
dividends paid per share of common stock in the preceding year and $0.60.
Beginning on January 1, 2001 the annual distribution will be in an amount equal
to any positive difference between the total amount of dividends paid per share
of common stock in the preceding year and the exercise price multiplied by 90-
day LIBOR in effect on the preceding December 31 plus 1%. The SARs are
exchangeable for 14% Debentures or under certain circumstances for Warrants on a
one-for-one basis. Each SAR 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 minus the exercise price per share of the Warrants into which the SARs
are exchangeable times the number of Warrants exchanged. However, 14%
Debentures will not be issued for amounts less than $1,000, but cash will be
paid in lieu of such amounts. Following adoption and filing of an amendment to
the Certificate of Incorporation, which requires stockholder approval, and
adoption by the Board of any necessary implementing resolutions that would
permit Whitehall or an affiliate of Whitehall to hold the Warrants for which the
SARs would be exchangeable, the SARs shall automatically be exchanged for
Warrants on a one-for-one basis and the SARs liability will be reclassified to
paid in capital. Until such time as the Certificate of Incorporation is
amended, the Company will be required to adjust the SARs' liability for future
changes in the market price of the common stock.
Additional Warrants and SARs are issuable under certain circumstances to prevent
dilution.
SECURITY
Subject to the terms of the Collateral Trust Agreement, upon notice to the
Collateral Trustee of non-payment at maturity, or the acceleration of the
maturity, of the Convertible Debentures, the Floating Rate Notes or the 14%
Debentures, the holders of not less than 50% of the then outstanding aggregate
principal amount of any of the Convertible Debentures, the Floating Rate Notes
or the 14% Debentures shall have the right to direct the Collateral Trustee to
initiate the exercise of remedies under the Collateral Trust Agreement with
respect to the Note and the other collateral granted under the Collateral Trust
Agreement.
COMMERCIAL PAPER OUTSTANDING:
As of December 31, 1994 the Company has eliminated its commercial paper program.
The proceeds from the
F-14
<PAGE>
issuance of the Floating Rate Notes and 14% Debentures were used to retire all
remaining commercial paper outstanding as of December 30, 1994. As of December
31, 1993 there was $247,650,000 face amount of commercial paper outstanding, at
a weighted average interest rate of 3.50% and with a weighted average maturity
of 40 days.
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"). The Company does not use interest rate swaps for
trading purposes. 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 (notional principal $35,000,000) and certain of its Liability Swaps
(notional principal $180,000,000). The Company would be exposed to credit-
related losses in the event of non-performance by the counterparties to the swap
agreements; however, it does not expect any counterparties to fail to meet their
obligations given their current high credit ratings. The Company's credit-
related risk and market-related risk would be that the Floating Rate Notes would
no longer be partially hedged, and therefore the Company would not receive the
benefit of fixing the interest rate on a portion of its floating rate debt. 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, bank loan 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. The net amount payable to or receivable from the counterparties is
recorded as a component of accrued interest payable. Approximately 70% of the
Company's exposure to interest rate fluctuations on its Floating Rate Notes was
hedged by interest rate swaps at December 31, 1994.
F-15
<PAGE>
The notional amounts, fixed and variable interest rates and expiration dates
relating to such contracts are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) at December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------
Weighted
Notional Average
Type Expiring during the Year Amount Interest Rates
---- ------------------------ -------- --------------
<S> <C> <C> <C>
INTEREST RATE SWAPS (3 contracts) 1998 $105,000
Pay fixed rates 9.64%
Receive variable rates 5.56%
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands) at December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------
Weighted
Notional Average
Type Expiring during the Year Amount Interest Rates
---- ------------------------ -------- --------------
LIABILITY SWAPS (9 contracts) 1997 $30,000
1998 125,000
1999 130,000
--------
Total Liability Swaps
Notional Amount $285,000
Pay fixed rates 9.73%
Receive variable rates 3.43%
ASSET SWAPS (8 contracts) 1994 $5,000
1995 5,000
1996 20,000
1997 5,000
1998 5,000
--------
Total Asset Swaps
Notional Amount $40,000
Pay variable rates 3.40%
Receive fixed rates 9.47%
</TABLE>
The net notional principal, weighted average interest rate of net swaps
outstanding and annualized net payment relating to interest rate swap contracts,
as of December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Net notional prinicpal $105,000,000 $245,000,000
------------ ------------
------------ ------------
Weighted average interest rate
of net swaps outstanding 4.08% 6.33%
------------ ------------
------------ ------------
Annualized net payment $4,284,000 $15,508,000
------------ ------------
------------ ------------
</TABLE>
The current aggregate settlement values of all swaps outstanding (the fair value
of the Company's off-balance sheet financial instruments), based on information
supplied by the counterparties to the swap contracts, was a liability of
approximately $5.6 million at December 31, 1994 and an asset of $5 million and a
liability of $57 million at December 31, 1993. Generally, the settlement values
of outstanding swaps would decrease with an increase in LIBOR rates and would
increase as a result of a decrease in LIBOR rates.
F-16
<PAGE>
In connection with the Company's retirement of commercial paper borrowings in
1993 and 1994, the Company exchanged payments with certain counterparties to
retire all of the Asset Swaps and certain of the Liability Swaps in 1994 and
made payments to certain counterparties to reduce the duration of certain
Liability Swaps in 1993 which thereby reduced the Company's net swap
liability. As a result of these transactions, the Company recorded, as a cost
of swap terminations and modifications related to debt extinguishment,
$9,855,000 and $3,451,000 for the years ended December 31, 1994 and 1993,
respectively. The 1993 payments were made pursuant to agreements between the
Company and certain of its lenders whereby the Company had agreed to apply a
portion of the proceeds from the issuance of common stock. As of December
30, 1994 these agreements were terminated.
6. STOCKHOLDERS' EQUITY
In December of 1994, the Company issued Warrants and SARs in connection with the
issuance of its 14% Debentures. As of December 31, 1994, no Warrants or SARs
had been converted to common stock (Note 5). In December of 1993, 750,704
warrants issued in connection with the settlement of litigation
(Note 9) were exercised and a like number of shares of Common Stock were issued,
the proceeds of this issuance totaled $5,086,000.
7. INCOME TAXES AND DISTRIBUTIONS
No provisions for current or deferred income taxes have been made by the Company
on the basis that it has qualified under the Code as a REIT and has distributed
at least 95% of its annual net income as computed for tax purposes to
stockholders. To the extent that such distributions exceed such income, the
excess will be treated as a return of capital. Net capital gains generated by
the Company are proportionately distributed to the stockholders as net capital
gains dividends. During the years ended December 31, 1994, 1993 and 1992, the
Company made per share distributions to stockholders of $0.65, $1.00, and $1.69,
respectively, of which approximately $0.26, $0.07, and $0.65, respectively,
represented returns of capital. Through December 31, 1994, the cumulative
return of capital paid was $5.12 per share. Of the December, 1994 and 1993
total distribution amounts of $5,739,106 and $9,564,430, respectively, the
Company has designated that $789,362 and $7,893,468, respectively, constitute a
net capital gain dividend, amounting to approximately $.021 and $.206 per share,
respectively, or approximately 13.75% and 82.53% of the fourth quarter
dividends, respectively. Dividends were paid in April, July, October and
December of each year. No significant difference exists between financial
statement income and taxable income.
Beginning on January 15, 1996 each warrant and stock appreciation right is
entitled to an annual distribution payable on January 15 for the prior calendar
year in an amount equal to any positive difference between the total amount of
dividends paid per share of common stock in the preceding year and $0.60.
Beginning on January 1, 2001 the annual distribution will be in an amount equal
to any positive difference between the total amount of dividends paid per share
of common stock in the preceding year and the exercise price multiplied by 90-
day LIBOR in effect on the preceding December 31 plus 1%.
8. GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES
General and administrative expense includes compensation and benefits for the
Company's employees, and rent and related facility costs for 1994 and the period
June 3, 1993 through December 31, 1993. Cushman & Wakefield Realty Advisors,
Inc. ("C&W Realty"), a company affiliated with the Borrower through common
ownership, acted as administrator for the Company, performing certain
administrative and other services pursuant to an administrative services
agreement through June 2, 1993, when such agreement was terminated by the
Company. Fees paid to C&W Realty under this agreement amounted to $476,000 for
the year ended December 31, 1993 and $1 million for the year ended December 31,
1992. Also included in general and administrative expenses for each of the
years ended December 31, 1994, 1993 and 1992 are the following: directors and
officers liability insurance premiums, registrar and transfer agent fees,
debenture trustee fees, legal, audit and appraisal fees, financial advisory fees
and stockholder reporting costs.
F-17
<PAGE>
During the year ended December 31, 1994 the Company incurred $1,942,000 of
expenses in connection with its evaluation of alternative financings.
9. LEGAL MATTERS
On December 13, 1985, a stockholder commenced an action against the Company and
other defendants in the Supreme Court of the State of New York, New York County
alleging that the offering materials relating to the Company's initial public
offerings were false and misleading and seeking rescission and damages on behalf
of all purchasers of common stock of the Company during the period commencing
September 12, 1985 to and including December 13, 1985.
On February 23, 1993 the judge before whom this litigation was pending signed a
Final Order and Judgment approving the terms of a Stipulation and Agreement of
Settlement dated as of May 31, 1992, as supplemented (the "Settlement
Agreement"), settling this litigation.
In accordance with the terms of the Settlement Agreement, on November 3, 1993
the Company issued warrants to purchase 3,000,098 shares of the Company's common
stock to persons eligible under provisions of the Settlement Agreement. The
warrants were exercisable during the 30-day period ending December 3, 1993 at an
exercise price of $7.00 per share of common stock.
The Company is not a party to any material legal proceeding or environmental
litigation. For a description of a proceeding filed against the Company see
Note 11 - Subsequent Events.
10. THE PROPERTY
Summarized financial information of the Property provided by the Borrower is as
follows:
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Gross revenue $220,851 $226,597 $229,000
Less:
Operating expenses (161,890) (165,456) (160,698)
Interest expense, net (117,328) (114,599) (114,040)
-------- -------- --------
Net loss ($58,367) ($53,458) ($45,738)
-------- -------- --------
-------- -------- --------
</TABLE>
The cumulative cash flow shortfall of the Borrower since the inception of the
Loan in September 1985 ($572.6 million), has been funded by capital
contributions ($185.2 million), loans from its partners ($126.7 million) and
non-interest bearing advances from an affiliate ($260.7 million). The Loan
Agreement provides for the establishment of loans for the cumulative portion of
capital improvements made by the Borrower in excess of amounts specified in the
Loan Agreement. The cumulative amounts of excess capital improvements totaled
$126.7 million, $123 million and $107.5 million at December 31, 1994, 1993 and
1992, respectively. These excess capital improvement loans are deemed to be
made to the Borrower by its partners and bear interest at 80% of the prime rate
(as defined), compounded quarterly, which is added to the loan principal at the
end of each year. At December 31, 1994, 1993 and 1992, the amount of such
excess capital improvement loans (including accrued interest) totaled $160.7
million, $149.7 million and $127.9 million, respectively. Cumulative interest
accrued as of December 31, 1994 was $34 million. The results of operations of
the Property for 1994, 1993 and 1992 reflect non-cash interest charges of $7.3
million, $6.3 million and $6.2 million, respectively, relating to interest on
these excess capital improvement loans. Both the excess capital improvement
loans and the non-interest bearing advances are subordinate to the Company's
Loan; however, if the Company exercises its option to convert the Loan into an
equity interest in the Partnership, any outstanding loans for excess capital
improvements (including accrued interest) will become the obligation of the
Partnership.
F-18
<PAGE>
11. SUBSEQUENT EVENTS
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.
12. INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data)
- -------------------------------------------------------------------------------
1994 1Q 2Q 3Q 4Q
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $27,270 $27,262 $27,417 $27,336
Net income (loss) $6,667 $6,551 $3,321 ($1,396)
Net income (loss) per share $0.17 $0.17 $0.09 ($0.03)
- -------------------------------------------------------------------------------
1993 1Q 2Q 3Q 4Q
- -------------------------------------------------------------------------------
Revenues $30,164 $27,715 $27,815 $27,866
Net income $14,301 $10,417 $6,878 $4,330
Net income per share $0.38 $0.28 $0.18 $0.12
</TABLE>
F-19
<PAGE>
REPORT OF MANAGEMENT
Board of Directors and Stockholders March 15, 1995
Rockefeller Center Properties, Inc.
The management of Rockefeller Center Properties, Inc. (the Company) has the
responsibility for preparing the accompanying financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis and are
not misstated due to material fraud or error. The financial statements include
amounts that are based on management's best estimates and judgments. Management
also prepared the other information in the annual report and is responsible for
its accuracy and consistency with the financial statements.
The financial statements have been audited by Ernst & Young LLP. Management has
made available to Ernst & Young LLP all the Company's financial records and
related data. Furthermore, management believes that all representations made to
Ernst & Young LLP during its audit were valid and appropriate.
Management has established and maintains a system of internal accounting control
that provides reasonable assurance as to the integrity and reliability of the
financial statements, the protection of assets from unauthorized use or
disposition, and the prevention and detection of fraudulent financial reporting.
Management continually monitors the system of internal accounting control for
compliance. In addition, as part of its audit of the Company's financial
statements, Ernst & Young LLP evaluated selected internal accounting controls to
establish a basis for reliance thereon in determining the nature, timing, and
extent of audit tests to be applied. Management believes that, as of December
31, 1994, the system of internal accounting control is adequate to accomplish
the objectives discussed herein.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of business conduct. The code
addresses, among other things, potential conflicts of interest; business
conduct; political activities; and confidentiality of information. The Company
maintains a program to assess compliance with these policies.
The Audit Committee of the Board of Directors is directly responsible for
assuring that management fulfills its financial reporting responsibilities. The
Audit Committee met twice during 1994 with management and Ernst & Young LLP to
discuss audit activities, internal accounting controls, and financial reporting
matters. Ernst & Young LLP has unrestricted access to the Audit Committee.
/s/RICHARD M. SCARLATA
Richard M. Scarlata
President & Chief Executive Officer
F-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - THE COMPANY
In September 1985, Rockefeller Center Properties, Inc. (the "Company") issued
37,500,000 shares of Common Stock at $20 per share in an initial public
offering. Simultaneously with the offering of the Common Stock, the Company
issued Current Coupon Convertible Debentures in the principal amount of
$335,000,000 and Zero Coupon Convertible Debentures in the face amount of
$952,250,000 (collectively, the "Convertible Debentures"). The Company received
net proceeds of $1,233,770,000 from such offerings. Such funds were used to
make a convertible, participating mortgage loan (the "Loan") in the face amount
of $1,300,000,000 to two partnerships (collectively, the "Borrower"). The
partners of the Borrower are Rockefeller Group, Inc. ("RGI") and a wholly-owned
subsidiary of RGI. The Loan, which is secured by the real property interests
owned by the Borrower comprising most of the land and buildings known as
Rockefeller Center (the "Property"), was made pursuant to a loan agreement
between the Company and the Borrower (as amended, the "Loan Agreement"). The
Loan is convertible at the Company's option on December 31, 2000 (the "Equity
Conversion Date") or, if an event of default under the Loan Agreement has
occurred and is continuing, any earlier date specified by the Company into a
71.5% (subject to reduction in the event of certain prepayments) general
partnership interest in the partnership which will own the Property (the
"Partnership") on that date.
During December 1993, the Company issued an additional 750,704 shares of Common
Stock for a cash consideration of $7.00 per share as the result of an exercise
of an equivalent number of warrants which were issued pursuant to a court-
ordered class action settlement. The Company received proceeds of $5,086,000
from this Common Stock issuance. At December 31, 1994 and 1993 the Company had
38,260,704 shares of Common Stock outstanding.
On December 29, 1994 the Company issued $150,000,000 of Floating Rate Notes and
$75,000,000 of 14% Debentures and Warrants and SARs. The net proceeds from
these issuances of approximately $212,522,000 were used to retire commercial
paper borrowings of $193,100,000, and to retire interest rate swaps with a net
notional principal of $145,000,000 at a cost of $9,855,000. The balance of the
proceeds from this transaction has been applied to general corporate purposes.
The following table sets forth certain information regarding the Company's
outstanding debt as of December 31,1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Principal Balance
Interest Rate as of
as of December 31, 1994
Description Maturing December 31, 1994 (000 s)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Coupon Convertible Debentures 12/31/2000 (1) 8% (2) $213,170
Zero Coupon Convertible Debentures 12/31/2000 (1) 0% (3) 326,863 (4)
Floating Rate Notes 12/31/2000 (5) 10.375% (6) 150,000
14% Debentures 12/31/2007 14% 70,361 (7)
--------
$760,394
--------
--------
- --------------------------------------------------------------------------------------------------------------------------------
- ----------------
<FN>
(1) If not converted into common stock on 12/31/2000 become floating rate notes
due 12/31/2007.
(2) Rate effective 1/1/95 is 13%. Annual effective rate is 9.23% (see Note 2
to the Financial Statements).
(3) Annual effective rate is 10.23% (see Note 2 to the Financial Statements).
(4) Accreted value at 12/31/2000 - $586,185,000.
(5) See Note 5 to the Financial Statements for a description of mandatory
prepayments.
(6) Rate = 90-day LIBOR +4%, reset quarterly (exclusive of swap agreements, see
Note 5 to the Financial Statements).
(7) Accreted value at 12/31/2007 - $75,000,000.
</TABLE>
F-21
<PAGE>
The Company's primary source of liquidity is interest income received on the
Loan. During the years ended December 31, 1994, 1993 and 1992, cash generated
from interest income on the Loan was $105,495,000, $103,545,000 and
$101,660,000, respectively. The increase in each year over that of the
preceding year is attributable to the scheduled increase in the annualized
coupon rate on the Loan. The rate of Base Interest on the Loan increases
according to a fixed schedule. Following is a schedule of the rate of Base
Interest and the amount of Base Interest expected to be received by the Company
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 Loan also provides for Additional Interest (as defined) to be earned by the
Company under certain circumstances. For each year through 2000 in which Gross
Revenues (as defined) 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 the Equity Conversion Date
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 will earn
Additional Interest.
Note 4 of the Notes to the audited combined Balance Sheets of the partnerships
comprising the Borrower as of December 31, 1994 and 1993 and the related
Combined Statements of Operations and Partners' Capital Deficiency and Cash
Flows for each of the three years in the period ended December 31, 1994 which
are reproduced at pages F-35 through F-46 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1994 states that
"the Partnerships [comprising the Borrower] have experienced
significant cash shortfalls and, based upon management's projections,
will continue to experience significant cash shortfalls through the
Equity Conversion Date. These cash shortfalls have occurred primarily
as a result of changes in the real estate market from levels
anticipated when the Loan was initiated. These factors include lower
rental rates, greater rent abatements granted to tenants upon
initiation or renewal of lease commitments, and higher other
expenditures associated with obtaining new and renewal tenants. These
cash flow conditions have made it unlikely that the Partnerships will
be able to fulfill all financial commitments to RCPI [the Company] for
the foreseeable future from their own resources.
The Partnerships do not have a commitment from the Partners [of the]
Partnerships comprising the Borrower] to fund these cash shortfalls.
These conditions raise substantial doubt about the Partnerships'
ability to continue as going concerns. The combined financial
statements of the Partnerships do not contain any adjustments to
reflect the possible future effects from the outcome of this
uncertainty."
Management of the Company believes that as of December 31, 1994 the fair value
of the collateral supporting the Loan, (the sum of (a) the value of the Property
as appraised as of December 31, 1994 and (b) the value of the additional
collateral required to be maintained by the Borrower as of that date and
thereafter) approximates the value at which the Loan is carried on the Company's
Balance Sheet. If the parents and affiliates of the
F-22
<PAGE>
Borrower continue to support the Borrower through the funding of cash shortfalls
as they have through December 31, 1994, although not legally obligated to do so,
the Borrower will be able to satisfy its obligations under the Loan Agreement.
If the Borrower were to default on its obligations under the Loan Agreement,
there could be a significant change in the nature of the Company's operations.
If the Company were to foreclose on the Property and related collateral and
acquire title to the Property, it would be required to operate the Property and
to fund cash shortfalls of the Property. If the Company were to acquire title
to the Property, management of the Company believes, that the value of the
Property (appraised at approximately $1.25 billion at December 31, 1994) would
be significantly in excess of the Company's obligations (approximately $760
million at December 31, 1994), and that therefore the Company should be able to
obtain sufficient financing to fund cash shortfalls of the Property as well as
to satisfy the Company's existing obligations until such time (1996) as the
Company, on the basis of the projection contained in the December 31, 1994
appraisal, anticipates that the Property will become cash flow positive. Such
financing would be subject to the consent of the holders of the Floating Rate
Notes and 14% Debentures. However, because of the Company's inability to
estimate when, if ever, a potential foreclosure would occur (if the Borrower
were to default on its obligations) and what prevailing conditions in the New
York real estate market and financial markets might be at such time, 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.
As required by the Loan Agreement the Borrower has furnished to the Company a
certificate signed by the chief accounting officer of RGI stating that, to the
best of such officer's knowledge, after reasonable investigation, the Borrower
has observed or performed all of its covenants in the Loan Agreement for the
year ended December 31, 1994 and that such officer has obtained no knowledge of
any Default or Event of Default. Such covenants include the covenant in the
Loan Agreement prohibiting the Borrower from permitting Net Operating Income (as
defined) for any calendar year to be less than 80% of the Base Interest payable
for such year. As reported in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994 the Borrower had advised the Company in the
Fall of 1994 that the Borrower had anticipated that the Borrower would breach
this covenant for calendar 1994. As a consequence of the Company's recording on
September 6, 1994, at the expense of the Borrower, the Company's $1.25 billion
unrecorded mortgage on the Property this covenant and the covenants in the Loan
Agreement prohibiting the Borrower from making distributions in any calendar
year to its partners in excess of Net Cash Flow (as defined) for such year, from
making certain investments and from incurring certain contingent liabilities
will be deemed terminated and to be of no further force and effect one year
after the date of such recordation.
Portfolio and other interest received during 1994, 1993 and 1992 was $998,000,
$6,553,000 and $13,924,000, respectively. The decreases in each year from that
of the preceding year were due to portfolio sales and maturities, the proceeds
from which were used with operating cash to reduce the Company's short term debt
during the years ended December 31, 1994 and 1993 (see Note 5). The Company
completed the liquidation of its investment portfolio during 1994 realizing
$14,331,000 from sales of securities with a net carrying value of $14,300,000,
resulting in a net gain of $31,000.
During the years ended December 31, 1994, 1993 and 1992, interest paid on
commercial paper, bank loan and other was $27,020,000, $31,016,000 and
$31,633,000, respectively. The following schedule presents the components of
such interest paid:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest rate swap agreements $15,252,000 $16,620,000 $14,608,000
Commercial paper (including
commercial paper fees and 11,768,000 14,178,000 16,282,000
expenses)
Bank loans 218,000 743,000
--a--------- ----------- -----------
$27,020,000 $31,016,000 $31,633,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-23
<PAGE>
In December 1994 the Company concluded a study of its overall capital
structure. As a result of this study the Company issued $150,000,000 in
Floating Rate Notes and $75,000,000 in 14% Debentures, the proceeds from
which were used by the Company to retire its commercial paper and a portion
of its interest rate swaps (see Note 5). The Company retained $105,000,000
notional principal amount of interest rate swaps to hedge a portion of its
interest rate exposure on the Floating Rate Notes. For the year ended
December 31, 1994 the Company recorded as a cost of swap terminations related
to debt extinguishment, $9,855,000 to retire a portion of its interest rate
swaps (see Note 1 of the Notes to Financial Statements). The Company recorded
a charge for uncovered swaps of $3,125,000 in the third quarter of 1994
relating to swaps which no longer served as hedges. This charge has been
included in the cost of swap terminations discussed above in the results for
the year ended December 31, 1994 in conjunction with the retirement of a
portion of the Company's swaps.
As discussed in Note 5, the annualized net payment relating to interest rate
swaps outstanding at December 31, 1994 was $4,284,000. This amount may change
in 1995 and subsequent years as the floating rates receivable under the
Company's swaps are periodically reset. As discussed in Note 5, the Company
terminated its commercial paper program in December, 1994.
During the years ended December 31, 1994, 1993 and 1992, interest paid on the
Current Coupon Convertible Debentures was $17,053,000, $17,053,000 and
$17,209,000, respectively. The decrease from 1992 to 1993 is a result of the
repurchase of a portion of such convertible debentures in 1992. Coupon payments
on outstanding Current Coupon Convertible Debentures are made annually on
December 31. The interest rate payable for 1994 on the $213,170,000 Current
Coupon Convertible Debentures outstanding as of December 31, 1994 was 8% per
annum. Effective January 1, 1995 the rate payable increased to 13% per annum
through December 31, 2000. As a result of this increase in rate, the Company's
annual disbursement for interest on these debentures, assuming that all such
debentures outstanding on December 31, 1994 remain outstanding, will increase by
$10,658,500 for 1995 and each subsequent year through the year 2000.
In December 1994 the Company issued $150,000,000 Floating Rate Notes and
$75,000,000 14% Debentures and warrants ("Warrants") and stock appreciation
rights ("SARs") resulting in net proceeds of $212,522,000. These net proceeds
were used to retire the Company's commercial paper and certain interest rate
swap agreements. The first interest payment dates for the Floating Rate Notes
and 14% Debentures are March 1 and June 2, 1995, respectively (see Note 5);
accordingly, no interest was paid on this debt during 1994.
Combined net cash flow provided by operating and investing activities during
1994 was $71,529,000, from which the Company paid $24,869,000 in dividends. The
balance was applied by the Company to reduce short term debt.
In order to maintain its qualification as a real estate investment trust
(a "REIT") under the Internal Revenue Code of 1986, the Company is obligated to
distribute to its stockholders at least 95% of its annual net income as computed
for tax purposes. Through 1992, the Company had distributed to its stockholders
substantially all of its annual cash flow in excess of interest and operating
expenses, reserves and investments, resulting in a substantial return of capital
to stockholders. Through December 31, 1994, cumulative distributions paid of
$14.85 per share included a cumulative return of capital of $5.12 per share.
Distributions are made in April, July, October and December of each year.
The Company is the beneficiary of standby irrevocable letters of credit, subject
to specified reductions, which, among other things, provide support for the
Borrower's payment of Base Interest (as defined) on the Loan. Subject to
certain conditions, the Borrower is required to maintain in effect similar
letters of credit or to pledge collateral with a fair market value equal to the
required amount of such letters of credit, until the Equity Conversion Date.
During 1994 the level at which such letters of credit or other collateral were
required to be
F-24
<PAGE>
maintained was $200 million. On January 1, 1995, the required level of this
support decreased from $200 million to approximately $70 million and on April 1,
1995 will decrease to $50 million which is the minimum level that must be
maintained through the Equity Conversion Date unless Net Operating Income (as
defined) of the Property for any year exceeds $150 million and the Borrower has
delivered to the Company an Accountant's Certificate (as defined) stating that
no deficits in Net Cash Flow (as defined) of the Property for any subsequent
year are forecasted. If an event of default were to occur under the Loan and
the Loan were to be accelerated, the Company would be entitled to make drawings
under the letters of credit.
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 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
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 the Borrower is required to maintain
credit support facilities to provide additional security in an amount equal to
at least 50% of the excess. As of December 31, 1994, the Company had executed
seven rent offset agreements with tenants. The total Rent Offset Amount at such
date was $39,314,000, and accordingly $907,000 had as of that date been placed
in a rent offset escrow account. As of January 31, 1995 the Rent Offset Amount
has decreased to below $37.5 million and, accordingly, as of such date, the
Borrower is not required to maintain credit support facilities for these Rent
Offsets.
RESULTS OF OPERATIONS - THE COMPANY
The Company's principal source of income during each of the years ended December
31, 1994, 1993 and 1992 was loan interest income recognized on the Loan. Loan
interest income exceeded loan interest received in each of those years by
approximately $3.2 million, $4.8 million and $6.2 million, respectively. The
difference in each year is attributable partially to the amortization of
original issue discount applicable to the Loan and partially to the recognition
of interest income on the Loan according to the effective interest method by
which interest is calculated on the basis of the average yield on the notes
evidencing the Loan through the Equity Conversion Date. Loan interest income
accounted for 99.5%, 95.4% and 88.1% of total revenues during the years ended
December 31, 1994, 1993 and 1992, respectively.
Portfolio income earned in 1994 was $553,000 or 0.5% of total revenues. In 1993
and 1992, portfolio income accounted for 4.6% and 11.8% of total revenues,
respectively. The decline of $4,624,000 in portfolio income from 1993 to 1994
is a result of sales and maturities of portfolio securities as discussed above.
The Company liquidated its portfolio of investment securities during 1993 and
1994; accordingly, the Company will receive no portfolio income in 1995.
Interest expense on the Current Coupon Convertible Debentures during the years
ended December 31, 1994, 1993 and 1992 was $22,478,000, $22,020,000 and
$21,793,000, respectively. The yearly increases are attributable to 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 during the years ended
December 31, 1994, 1993 and 1992 was $30,320,000, $27,507,000 and $24,956,000,
respectively. The increase of $2,813,000 or 10.2% from 1993 to 1994 was 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%.
F-25
<PAGE>
Interest expense on 14% Debentures and Floating Rate Notes (which were issued on
December 29, 1994) for the year ended December 31, 1994 was $217,000.
Interest expense on commercial paper, bank loan and other for each of the years
ended December 31, 1994 1993 and 1992 was $24,486,000, $28,816,000 and
$34,050,000, respectively. The decline of $4,330,000 in such interest expense
from 1993 to 1994 principally reflects a combination of lower average commercial
paper borrowings outstanding during the year, the repayment of bank loans in
1993, and the lower cost of servicing interest rate swaps due to higher variable
interest rates received on certain swaps. These savings were partially offset
by the higher cost of commercial paper due to higher interest rates.
Combined interest expense on all debt totaled $77,501,000, $78,343,000 and
$80,799,000 for each of the years ending December 31, 1994, 1993 and 1992,
respectively. These amounts accounted for 82.3%, 90.9% and 94.2% of total
expenses in each of the respective years.
General and administrative expenses for the years ended December 31, 1994, 1993
and 1992 were $4,170,000, $3,728,000 and $4,299,000, respectively. The increase
of $442,000 in general and administrative expenses from 1993 to 1994 is
principally due to increased financial advisory fees.
During the year ended December 31, 1994 the Company incurred $1,942,000 of
expenses in connection with its evaluation of alternative financings.
In connection with the Company's retirement of commercial paper borrowings in
1994 and 1993, the Company exchanged payments with certain counterparties to
retire all of the asset swaps and certain of the liability swaps in 1994 and
made payments to certain counterparties to reduce the duration of certain
liability swaps in 1993 which thereby reduced the Company's net swap
liability. The Company recorded as a cost of swap terminations and
modifications related to debt extinguishment, $9,855,000 and $3,451,000 for
the years ended December 31, 1994 and 1993, respectively, as a result of
these transactions. The 1993 payments were made pursuant to agreements
between the Company and certain of its lenders whereby the Company had agreed
to apply a portion of the proceeds from the issuance of common stock (see
Note 5).
During the years ended December 31, 1994 and 1993 the Company recognized
non-recurring income of $31,000 and $8,593,000, respectively, consisting of
gains on sales of portfolio securities. The Company recognized an
extraordinary gain of $2,537,000 in 1992 in connection with extinguishment of
debt. The extraordinary gain was the result of repurchases of Current Coupon
Convertible Debentures made at discounts under carrying value. Carrying
value of the Current Coupon Convertible Debentures includes interest which
has been accrued at the effective annual interest rate of 9.23%, the average
yield to the maturity date. The average yield is computed, using the
effective interest method, by combining the differing coupon rates on the
Current Coupon Convertible Debentures. There have been no repurchases of
convertible debentures since the first quarter of 1992.
Net income during the years ended December 31, 1994, 1993 and 1992 was
$15,143,000, $35,926,000 and $39,148,000 reflecting the matters discussed above.
F-26
<PAGE>
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 the Borrower.
FINANCIAL CONDITION AND OUTLOOK - THE PROPERTY
For the year ended December 31, 1994, the Property experienced a net cash
outflow of $139.4 million consisting of an operating cash deficit of $41.7
million (including interest payments of $105.5 million to the Company), a
mortgage recording tax payment of $34.5 million, and disbursements totaling
$63.2 million for tenant improvements, leasing commissions and capital
improvements. This amount compared with a net cash outflow of $61.4 million for
the year ended December 31,1993, which was comprised of a cash outflow from
operations of $17.7 million (including interest payments of $103.5 million to
the Company) and expenditures aggregating $43.7 million for capital and leasing
disbursements.
These cash outflows brought the cumulative cash flow shortfall to $572.6 million
at December 31, 1994. To date, these shortfalls have been funded by capital
contributions ($185.2 million), non-interest-bearing advances from an affiliate
($260.7 million), and loans, excluding accrued interest, from the Borrower's
partners ($126.7 million).
Note 4 of the Notes to the audited combined Balance Sheets of the partnerships
comprising the Borrower as of December 31, 1994 and 1993 and the related
Combined Statements of Operations and Partners' Capital Deficiency and Cash
Flows for each of the three years in the period ended December 31, 1994 which
are reproduced at pages F-35 through F-46 of the Company's Annual Report on Form
10-K/A for the year ended December 31, 1994 states that
"the Partnerships [comprising the Borrower] have experienced
significant cash shortfalls and, based upon management's projections,
will continue to experience significant cash shortfalls through the
Equity Conversion Date. These cash shortfalls have occurred primarily
as a result of changes in the real estate market from levels
anticipated when the Loan was initiated. These factors include lower
rental rates, greater rent abatements granted to tenants upon
initiation or renewal of lease commitments, and higher other
expenditures associated with obtaining new and renewal tenants. These
cash flow conditions have made it unlikely that the Partnerships will
be able to fulfill all financial commitments to RCPI [the Company] for
the foreseeable future from their own resources.
The Partnerships do not have a commitment from the Partners [of the]
Partnerships comprising the Borrower] to fund these cash shortfalls.
These conditions raise substantial doubt about the Partnerships'
ability to continue as going concerns. The combined financial
statements of the Partnerships do not contain any adjustments to
reflect the possible future effects from the outcome of this
uncertainty."
Management of the Company believes that as of December 31, 1994 the fair value
of the collateral supporting the Loan, (the sum of (a) the value of the Property
as appraised as of December 31, 1994 and (b) the value of the additional
collateral required to be maintained by the Borrower as of that date and
thereafter) approximates the value at which the Loan is carried on the Company's
Balance Sheet. If the parents and affiliates of the Borrower continue to
support the Borrower through the funding of cash shortfalls as they have through
December 31, 1994, although not legally obligated to do so, the Borrower will be
able to satisfy its obligations under the Loan Agreement. If the Borrower were
to default on its obligations under the Loan Agreement, there could be a
significant change in the nature of the Company's operations. If the Company
were to foreclose on
F-27
<PAGE>
the Property and related collateral and acquire title to the Property, it would
be required to operate the Property and to fund cash shortfalls of the Property.
If the Company were to acquire title to the Property, management of the Company
believes, that the value of the Property (appraised at approximately $1.25
billion at December 31, 1994) would be significantly in excess of the Company's
obligations (approximately $760 million at December 31, 1994), and that
therefore the Company should be able to obtain sufficient financing to fund cash
shortfalls of the Property as well as to satisfy the Company's existing
obligations until such time (1996) as the Company, on the basis of the
projection contained in the December 31, 1994 appraisal, anticipates that the
Property will become cash flow positive. Such financing would be subject to the
consent of the holders of the Floating Rate Notes and 14% Debentures. However,
because of the Company's inability to estimate when, if ever, a potential
foreclosure would occur (if the Borrower were to default on its obligations) and
what prevailing conditions in the New York real estate market and financial
markets might be at such time, 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.
As required by the Loan Agreement the Borrower has furnished to the Company a
certificate signed by the chief accounting officer of RGI stating that, to the
best of such officer's knowledge, after reasonable investigation, the Borrower
has observed or performed all of it covenants in the Loan Agreement for the year
ended December 31, 1994 and that such officer has obtained no knowledge of any
Default or Event of Default. Such covenants include the covenant in the Loan
Agreement prohibiting the Borrower from permitting Net Operating Income (as
defined) for any calendar year to be less than 80% of the Base Interest payable
for such year. As reported in the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994 the Borrower had advised the Company in the
Fall of 1994 that the Borrower had anticipated that the Borrower would breach
this covenant for calendar 1994. As a consequence of the Company's recording on
September 6, 1994, at the expense of the Borrower, the Company's $1.25 billion
unrecorded mortgage on the Property this covenant and the covenants in the Loan
Agreement prohibiting the Borrower from making distributions in any calendar
year to its partners in excess of Net Cash Flow (as defined) for such year, from
making certain investments and from incurring certain contingent liabilities
will be deemed terminated and to be of no further force and effect one year
after the date of such recordation.
F-28
<PAGE>
RESULTS OF OPERATIONS - THE PROPERTY
The operating results of the Property during the years ended December 31, 1994,
1993, and 1992 are presented in summary form in the table below:
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands) 1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Gross revenue:
Fixed and percentage rents $156,314 $148,960 $150,197
Operating and real estate tax escalation 42,201 55,643 57,029
Consideration revenues 3,443 3,227 3,295
Sales and service revenues 18,893 18,767 18,479
-------- -------- ---------
220,851 226,597 229,000
-------- -------- ---------
Operating Expenses:
Real estate taxes 40,884 44,336 44,481
Utilities 16,386 16,553 16,360
Maintenance and engineering 32,062 33,657 30,509
Other operating expenses 39,839 40,639 40,792
Depreciation and amortization 25,761 21,821 19,834
Management fee 2,636 2,579 2,491
General and administrative 4,322 5,871 6,231
-------- -------- ---------
161,890 165,456 160,698
-------- -------- ---------
Operating income before interest 58,961 61,141 68,302
Interest expense, net 117,328 114,599 114,040
-------- -------- ---------
Net Loss ($58,367) ($53,458) ($45,738)
-------- -------- ---------
-------- -------- ---------
</TABLE>
The gross revenue of the Property for the year ended December 31, 1994 decreased
by $5.7 million or 2.6% when compared to the prior year. This decrease in gross
revenue was a result of lower operating and real estate tax escalation revenue.
This decrease was offset partially by increased fixed rent related to new leases
and lease renewals, higher consideration revenue, and increased sales and
service revenues. 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 operating and real estate tax
escalation revenue reflects the establishment of new escalation base years in
connection with new leases and lease renewals. To the extent to which the
revenue decrease was attributable to reduced escalation income, this factor was
offset in part by lower real estate tax costs recorded in the operating expense
category.
The following table shows the occupancy rates for the Property at specified
dates:
March 31, 1993 - 93.9% March 31, 1994 - 95.6%
June 30, 1993 - 93.9% June 30, 1994 - 96.1%
September 30, 1993 - 94.1% October 1, 1994 - 90.4%
December 31, 1993 - 94.6% December 31, 1994 - 90.2%
At year end 1994 the occupancy rate was 90.2%. This occupancy level was
attributable to a total of 608,000 square feet of vacant space resulting in
large measure from the significant turnover of leases which expired on
F-29
<PAGE>
September 30, 1994. In addition, a total of 682,000 square feet will become
available during 1995. Releasing the space will represent a significant
challenge which may involve ongoing high levels of expenditures for tenant work
and concessions.
During the year ended December 31, 1994, 266 leases covering approximately 2
million square feet of office, retail, and storage space were concluded and took
effect at net effective annual fixed rents averaging $31.98 per square foot.
The net effective annual rental rates for office space, which accounted for
approximately 1.9 million square feet of the total area leased, averaged $30.78
per square foot. This amount compared to a net effective rental rate of $31.54
per square foot for office space leases signed during 1993. 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 year ended December 31, 1994 averaged
$40.82 per square foot (compared with $38.01 per square foot for office space
leases signed during 1993). 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 1.9 million square feet of
office space leased during the year ended December 31, 1994, approximately 1.4
million square feet represented renewals of existing tenants at an average gross
rental rate of $40.14 per square foot. The combined fixed rent and escalation
payments prior to lease renewal for these renewing tenants had averaged $36.90
per square foot.
The following table shows selected lease expiration information for the Property
as of January 1, 1995 and has been furnished to the Company by the Borrower.
Lease turnover during the remaining term of the Loan could offer an opportunity
to increase the revenue of the Property or might have a negative impact on the
Property's revenue. Actual renewal rents and rental income will be affected
significantly by market conditions at the time and by the terms at which the
Borrower can then lease space.
<TABLE>
<CAPTION>
Number of Percentage of
Year leases expiring Area (sq.ft.) total rentable area
---- --------------- ------------- -------------------
<S> <C> <C> <C>
1995 142 682,390 11.0
1996 66 120,680 1.9
1997 43 79,746 1.3
1998 49 186,727 3.0
1999 60 169,697 2.7
2000 21 295,715 4.8
2001 13 36,584 0.6
2002 22 133,742 2.2
2003 24 84,618 1.4
2004 68 383,807 6.2
2005 11 252,245 4.1
2006 22 141,505 2.3
2007 8 57,080 .9
2008 10 163,931 2.7
2009 45 431,711 7.0
2010-2015 14 744,347 12.0
2016-2020 2 100,388 1.6
2022 3 1,283,576 20.7
Space under temporary occupancy N/A 145,569 2.4
Vacant space N/A 607,928 9.8
Space occupied by the Borrower N/A 87,513 1.4
--- --------- ------
623 6,189,499 100.0%
--- --------- ------
--- --------- ------
</TABLE>
F-30
<PAGE>
During the year ended December 31, 1994, the operating expenses of the Property
decreased by $3.6 million or 2% from the prior year. This decrease was a result
of lower real estate taxes ($3.5 million), decreased maintenance and engineering
expenses ($1.6 million), reduced general and administrative expense ($1.5
million), and lower other operating expenses ($.8 million). These decreases
were offset partially by increased charges for depreciation and amortization
($3.9 million).
Lower real estate taxes resulted from a decrease in both the assessed valuation
of the Property and New York City property tax rates. The lower maintenance and
engineering expenses were primarily a result of a reduction in elevator and
engineering labor costs, decreased heating, ventilation and air-conditioning
maintenance costs, and lower building facade cleaning costs. The decrease in
general and administrative expense was attributable to a reduction in the
required provision for doubtful accounts. Other operating expenses decreased as
a result of reduced cleaning costs and lower costs related to sales of services,
offset partially by an increase in protection services.
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 net result of the lower revenue offset partially by reduced operating
expenses was a decrease of $2.2 million or 4% in operating income before
interest for the year ended December 31, 1994.
Interest expense, net during the year ended December 31, 1994 increased $2.7
million, or 2%, as a result of scheduled increases in interest payments on the
Loan together with increased interest expense as a result of additional loans
made to the Borrower by its partners in order to fund certain of the Property's
capital improvements. In addition, interest expense increased as a result of
the amortization of the mortgage recording tax.
The gross revenue of the Property for the year ended December 31, 1993 decreased
by $2.4 million or 1% when compared to the prior year. This decrease in gross
revenue was primarily a result of lower fixed and percentage rents and lower
operating and real estate tax escalation revenue. These combined decreases
principally reflected lease renewals at lower base rents and lower average
occupancy levels at the Property.
The operating expenses of the Property increased by $4.8 million or 3% during
the year ended December 31, 1993 when compared to the prior year. This increase
was principally a result of increased maintenance and engineering costs ($3.1
million), increased depreciation and amortization ($2 million), and higher
utility costs ($.2 million). These increases were offset partially by lower
general and administrative expense ($.4 million) and decreased other operating
expenses ($.2 million).
CASH FLOW-THE PROPERTY
For the year ended December 31, 1994, the Property experienced an operating cash
deficit of $41.7 million. During the year ended December 31,1993, the operating
cash deficit amounted to $17.7 million. These cash flow deficits reflect the
payment of interest to the Company totaling $105.5 million and $103.5 million,
respectively, during the years ended December 31, 1994 and 1993. The increase
of $24 million in the operating cash deficit for year ended December 31, 1994
compared with the similar period during 1993 reflected an increase in lease
incentives associated with new and renewal tenants ($10.6 million), higher
levels of net working capital ($9.2 million), lower operating income before
interest ($2.2 million), and increased interest paid to the Company ($2
million).
F-31
<PAGE>
On September 6, 1994, the Company perfected its lien by recording the previously
unrecorded portion of the Loan at the Borrower's expense. The mortgage
recording tax totaled $34.5 million. The funds were loaned to the Borrower by
an affiliate of the Borrower and are included in non-interest bearing advances
at December 31, 1994.
For the year ended December 31, 1992, the Property experienced an operating cash
deficit of $18.3 million after payments of interest to the Company of $101.7
million. The lower operating cash deficit for 1992 compared with 1993 reflected
lower levels of net working capital offset partially by lower operating income
and increased interest paid to the Company.
The Borrower also expended funds for capital improvements to the Property,
tenant improvements, and leasing commissions as follows:
<TABLE>
<CAPTION>
(In thousands) Years ended December 31,
---------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Capital improvements $14,400 $27,300 $24,900
Tenant improvements 23,900 7,900 4,000
Leasing commissions
(including legal fees) 24,900 8,500 2,400
------- ------- -------
$63,200 $43,700 $31,300
------- ------- -------
------- ------- -------
</TABLE>
The Loan Agreement provides for the establishment of loans for the cumulative
portion of capital improvements made by the Borrower in excess of amounts
specified in the Loan Agreement. The cumulative amounts of excess capital
improvements totaled $126.7 million, $123 million, and $107.5 million at
December 31, 1994, 1993, and 1992, respectively. These excess capital
improvement loans are deemed to be made to the Borrower 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 December 31, 1994, 1993, and 1992 the amount of excess
capital improvement loans (including accrued interest) totaled $160.7 million,
$149.7 million, and $127.9 million, respectively.
The results of operations of the Property as of December 31, 1994, 1993, and
1992 reflect non-cash interest charges of $7.3 million, $6.3 million, and $6.2
million, respectively, relating to interest on these excess capital improvement
loans. Both the excess capital improvement loans and the non-interest bearing
advances are subordinated to the Company's Loan; however, if, on the Equity
Conversion Date, the Company exercises its option to convert the Loan into an
equity interest in the partnership which will then own the Property, any
outstanding loans for excess capital improvements (including accrued interest)
will become the obligation of the Partnership.
The Borrower is committed to expend significant funds for tenant improvements
and leasing commissions in connection with certain leases. In order to renew
and/or re-lease the available space during 1995, significant expenditures also
could be required. Additionally, the Borrower has committed and may be required
to commit to rent abatements in connection with the renewal and/or re-leasing of
space.
The letters of credit previously discussed under "Liquidity and Capital
Resources-The Company", support the payment of Base Interest on the Loan in the
event of cash flow shortfalls from the Property. On January 1, 1995, the level
of this support decreased from $200 million to approximately $70 million and on
April 1, 1995 will decrease to $50 million, which is the minimum level that must
be maintained through the Equity Conversion Date unless Net Operating Income (as
defined) of the Property for any year exceeds $150 million and the Borrower has
delivered to the Company an Accountant's Certificate (as defined) stating that
no deficits in Net Cash Flow (as defined) of the Property for any subsequent
year are forecasted.
F-32
<PAGE>
APPRAISED VALUE - THE PROPERTY
During 1994, the Company engaged Douglas Elliman Appraisal and Consulting
Division ("Douglas Elliman"), an independent appraisal firm, to appraise the
value assigned to the Property. Douglas Elliman, in a report dated January 11,
1995, concluded that, as of December 31, 1994, the value assigned to the various
fee and leasehold interests comprising the Property, subject to existing leases,
was $1.25 billion, an increase of $100 million from the value assigned in an
appraisal conducted as of December 31, 1993. This increase in value is due
primarily to a decrease in the real estate tax assessment and related real
estate tax rate and the successful releasing of 500,000 square feet of space
since the December 31, 1993 appraisal. During 1994 the Company also engaged The
Weitzman Group, Inc. ("The Weitzman Group"), an independent real estate
consulting firm, to review the Douglas Elliman report. On February 21, 1995 the
Company received a review and concurrence report dated February 15, 1995
prepared by The Weitzman Group stating that, based upon the review described in
such report, The Weitzman Group concurred with the Douglas Elliman estimate of
the aggregate market value of the Property and that, in the opinion of The
Weitzman Group, the aggregate market value estimated by Douglas Elliman does not
vary by more than 5.0 percent from the aggregate market value The Weitzman Group
would estimate in a full and complete appraisal report. The appraisal and the
concurrence report are discussed in greater detail in Part I, Item 1 of the
Company's Annual Report on Form 10-K.
F-33
<PAGE>
QUARTERLY STOCK INFORMATION
<TABLE>
<CAPTION>
Price Range (Composite)
- -------------------------------------------------------------------------------
1994 1Q 2Q 3Q 4Q
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High $8 3/8 $5 7/8 $6 $5 3/4
Low $5 1/2 $5 1/8 $5 1/8 $3 3/4
- -------------------------------------------------------------------------------
1993 1Q 2Q 3Q 4Q
- -------------------------------------------------------------------------------
High $10 1/8 $8 3/4 $7 1/2 $7 1/4
Low $6 7/8 $6 3/4 $6 7/8 $6 1/2
</TABLE>
F-34
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners of
Rockefeller Center Properties and RCP Associates
We have audited the accompanying combined balance sheets of Rockefeller Center
Properties and RCP Associates (collectively, the Partnerships) as of December
31, 1994 and 1993, and the related combined statements of operations and
partners' capital deficiency and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Rockefeller
Center Properties and RCP Associates at December 31, 1994 and 1993, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As shown in the financial statements, the Partnerships have experienced net
losses, have a substantial Partners' capital deficiency and, as more fully
described in Note 4 to the financial statements, have experienced and will
continue to experience significant cash shortfalls which raise substantial doubt
about their ability to continue as going concerns. The 1994 financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
New York, New York
February 3, 1995
F-35
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Current assets:
Cash $ 3 $ 4
Accounts receivable, less allowance for
doubtful accounts of $2,833 and $4,193 4,027 4,343
Due from RGI affiliates 1,286 60
Other current assets 856 622
---------- ----------
6,172 5,029
Fixed assets, at cost:
Land 402,419 402,419
Buildings 499,226 487,378
Furniture, fixtures and equipment 26,422 23,847
---------- ----------
928,067 913,644
Less accumulated depreciation (214,035) (198,675)
---------- ----------
714,032 714,969
Deferred renting expenses, less accumulated
amortization of $20,659 and $44,998 93,735 37,149
Lease incentives 31,327 13,949
Deferred financing expenses, less accumulated
amortization of $1,285 and $6,169 30,094 235
Other assets 2,960 2,699
---------- ----------
Total assets $ 878,320 $ 774,030
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 26,848 $ 23,617
Due to RGI affiliates 273,778 128,653
---------- ----------
300,626 152,270
Mortgage payable, net of unamortized original
issue discount of $36,101 and $40,639 1,263,899 1,259,361
Loans payable to RGI 160,715 149,654
Non-current mortgage interest payable 36,321 37,619
Partners' capital deficiency (883,241) (824,874)
---------- ----------
Total liabilities and partners'
capital deficiency $ 878,320 $ 774,030
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-36
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
AND PARTNERS' CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Rental revenue:
Fixed and percentage $159,757 $152,187 $153,492
Operating and real estate tax escalations 42,201 55,643 57,029
-------- -------- --------
Total rental revenue 201,958 207,830 210,521
Sales of services 18,893 18,767 18,479
-------- -------- --------
Gross revenues 220,851 226,597 229,000
-------- -------- --------
Real estate taxes 40,884 44,336 44,481
Maintenance and engineering 32,062 33,657 30,509
Other operating expenses 26,025 26,026 25,208
Utilities 16,386 16,553 16,360
Cost of service sales 13,060 13,919 14,884
Depreciation and amortization 25,761 21,821 19,834
General and administrative 4,322 5,871 6,231
Management fees 2,636 2,579 2,491
Ground rent 754 694 700
-------- -------- --------
161,890 165,456 160,698
-------- -------- --------
Operating profit 58,961 61,141 68,302
Interest expense 117,328 114,599 114,040
-------- -------- --------
Net loss (58,367) (53,458) (45,738)
Partners' capital deficiency, beginning of year (824,874) (771,416) (725,678)
-------- -------- --------
Partners' capital deficiency, end of year ($883,241) ($824,874) ($771,416)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-37
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($58,367) ($53,458) ($45,738)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 25,761 21,821 19,834
Non-current portion of interest expense 6,016 6,893 8,538
Amortization of original issue discount
and deferred financing expenses 5,827 4,176 3,839
Lease incentives, net (17,378) (6,826) (2,738)
Changes in certain assets and liabilities (3,531) 9,671 (2,051)
-------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES (41,672) (17,723) (18,316)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,423) (27,317) (24,890)
Deferred renting expenses paid (48,737) (16,358) (6,385)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (63,160) (43,675) (31,275)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from RGI affiliates, principally
relating to cash management system, net 135,601 45,938 44,076
Loans from RGI 3,747 15,457 5,515
Deferred financing expenses paid (34,517) -- --
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 104,831 61,395 49,591
-------- -------- --------
NET CHANGE IN CASH (1) (3) --
CASH, BEGINNING OF YEAR 4 7 7
-------- -------- --------
CASH, END OF YEAR $3 $4 $7
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $105,495 $103,545 $101,660
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-38
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
1. BASIS OF PRESENTATION
The accompanying financial statements include the combined accounts of two
partnerships, Rockefeller Center Properties (RCP) and RCP Associates
(Associates) (collectively, the Partnerships), in which Rockefeller Group,
Inc. (RGI) and one of its subsidiaries, Radio City Music Hall Productions,
Inc. (RCMHPI), are the sole partners (the Partners). The Partnerships
together own the real property interests constituting most of the land and
buildings in the landmarked portion of Rockefeller Center (the Property).
Transactions between the Partnerships have been eliminated in the
accompanying combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEPRECIATION AND AMORTIZATION - Buildings and improvements are depreciated
using the straight-line method over their useful lives, which range from 15
to 50 years. Capital replacements are depreciated using the straight-line
method over their estimated useful lives, which range from 3 to 15 years.
Deferred renting expenses represent expenditures associated with obtaining
new tenants and preparing the premises for occupancy. These costs are
amortized on a straight-line basis over the related lease terms.
Deferred financing expenses at December 31, 1994 represent mortgage
recording taxes paid (see Note 4), net of an accrued mortgage recording tax
credit. The cost is being amortized over the initial term of the RCPI
mortgage loan which extends until December 31, 2000 using the interest
method.
LEASE INCENTIVES - Lease incentives represent primarily the value of free
rental periods granted to tenants upon initiation or renewal of lease
commitments. Once rental payments begin, the lease incentives are reduced
over the remainder of the lease term.
INTEREST EXPENSE - Interest expense on the Rockefeller Center Properties,
Inc. Mortgage Loan (see Note 3) is recognized based on the average yield of
the mortgage notes through December 31, 2000 (the Equity Conversion Date).
The average yield combines the differing coupon rates of interest (Base
Interest) with the amortization (using the interest method) of the original
issue discount.
INCOME TAXES - The net income or loss of the Partnerships is included in
determining the net income of their partners which have the responsibility
to pay any related income taxes.
F-39
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
3. RCPI MORTGAGE LOAN
Rockefeller Center Properties, Inc. (RCPI), a real estate investment trust
(REIT), used the net proceeds of its initial public offerings to make a $1.3
billion participating mortgage loan (the Loan) to the Partnerships. The net
proceeds of the offerings totaled $1,233,752,000 and were loaned to the
Partnerships on September 19, 1985, thus creating original issue discount of
$66,248,000 with respect to the Loan.
Prior to the Equity Conversion Date, the Loan provides for specified
quarterly Base Interest payments during its remaining term with annualized
coupon rates increasing from 7.82% in 1992 to 8.43% in 2000.
The combination of the varying rates of Base Interest with the amortization
of the original issue discount results in an effective annual interest rate
approximating 8.51% over the term of the Loan. Through the year 2000, the
Loan provides for Additional Interest for each year in which gross revenues
(as defined) of the Property exceed $312.5 million. Additional Interest is
to accrue in an amount equal to the sum of (i) 31.5% of the excess over
$312.5 million plus (ii) $42.95 million. Through December 31, 1994, no
Additional Interest has been accrued. In accordance with an Internal
Revenue Service private letter ruling, effective as of October 26, 1990, the
formula used to calculate additional interest was revised. The revised
formula is intended to provide the REIT with the same amount of additional
interest as it would have received had the NBC transaction (see Note 5) been
a gross (as opposed to a net) rent transaction.
Under the revised formula for determination of additional interest, actual
gross revenues are increased by the amount of any real estate taxes and
operating expenses payable by a tenant to a third party (e.g., to New York
City or the provider of the services) instead of to the Partnerships. Gross
revenues are also increased to include any rent credits NBC receives for
capital improvements which qualify toward the Partnerships' obligation to
make $197,618,000 of capital improvements to the Property. Under the
revised formula, it is estimated that 1994 gross revenues for the purpose of
computing additional interest would have been $229.2 million.
In connection with the Loan, RCPI has been granted an option, exercisable on
the Equity Conversion Date (the Equity Option), to convert the outstanding
principal amount of the Loan into a 71.5% equity interest in the partnership
(representing the combination of RCP and Associates) then owning the
Property. There is no scheduled amortization of the Loan prior to the
Equity Conversion Date.
F-40
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
In the event that the Equity Option is not exercised, the Loan will mature in
a single installment on December 31, 2007, will bear interest (after 2000)
equal to the London Interbank Offered Rate (LIBOR) plus a spread of as much
as 1%, and can be prepaid at the option of the Partnerships (or successor
partnership) at 100% of its principal amount plus accrued interest, if any.
As of December 31, 1994, the Loan is secured by leasehold mortgages in the
aggregate amount of approximately $1.3 billion. Through September 6, 1994,
the Loan was secured by a recorded mortgage in the amount of approximately
$44.8 million and an unrecorded mortgage in the amount of approximately
$1,255.2 million. The Loan is further secured by a recorded Assignment of
Rents pursuant to which the Partnerships have assigned to RCPI, as security
for repayment of the Loan, the Partnerships' rights to collect certain rents
with respect to the Property.
The Loan Agreement requires the Partnerships to maintain a standby,
irrevocable letter of credit, or to deposit with a trustee either cash or
specified types of collateral of an equivalent fair market value
(collectively, "Security"). This Security supports the Partnerships'
payment of Base Interest due on the Loan. Letters of credit in favor of
RCPI have been obtained by RGI to satisfy this requirement.
During 1992, RCPI entered into a Stipulation and Agreement of Settlement in
settlement of a class action suit brought against RCPI. Under the terms of
this agreement, the Security was increased from $126 million to $200 million
until December 31, 1994. On January 1, 1995, the level of Security reverted
to the level originally required to be maintained under the Loan Agreement,
which is $70.4 million. This amount will be further reduced to $50 million
on April 1, 1995. As additional security for the Loan, 100,000 square feet
of development rights associated with Rockefeller Center were added to the
Loan.
The Loan Agreement also contains covenants with respect to the operation and
maintenance of the Property and limitations on the Partnerships' right to
dispose of the Property and incur debt or liens.
As noted above, the Loan has many unusual characteristics including the lack
of principal amortization, a variable interest rate, and the Property's
unique commercial, historic, and aesthetic attributes. While in the past
the Partnerships have estimated that the Loan's carrying value approximated
its fair value, continued volatility in both interest rates and the New York
commercial real estate market have resulted in a conclusion by the
Partnerships that only an investment banker, appraiser, or
similar expert could make an appropriate evaluation at this time. The
Partnerships have declined to incur the significant expense for an
appraisal. Accordingly, it is not practicable at
this time for the Partnerships to estimate the fair value of the Loan.
F-41
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
Certain leases grant tenants the right to reduce or offset rent payable if
the Partnerships breach certain obligations under the leases, including the
funding of tenant improvements and other items. An amendment to the Loan
agreement dated February 22, 1994 requires RGI to provide additional
collateral security in connection with these leases. The minimum security
amount, which at any time is equal to 50% of the excess of the tenants'
right to offset rent over $37.5 million, is required to be placed in an
escrow account. At December 31, 1994, these obligations totaled $39.3
million, resulting in a minimum security amount of $907,000.
4. FINANCIAL CONDITION AND OUTLOOK
The Partnerships have experienced significant cash shortfalls and, based
upon management's projections, will continue to experience significant cash
shortfalls through the Equity Conversion Date. These cash shortfalls have
occurred primarily as a result of changes in the real
estate market from levels anticipated when the Loan was initiated.
These factors include lower rental rates, greater rent abatements granted to
tenants upon initiation or renewal of lease commitments, and higher other
expenditures associated with obtaining new and renewal tenants. These cash
flow conditions have made it unlikely that the Partnerships will be able to
fulfill all financial commitments to RCPI for the foreseeable future from
their own resources.
The Partnerships do not have a commitment from the Partners to fund these
cash shortfalls.
These conditions raise substantial doubt about the Partnerships'
ability to continue as going concerns. The combined financial
statements of the Partnerships do not contain any adjustments to reflect the
possible future effects from the outcome of this uncertainty.
On September 6, 1994, RCPI, citing material adverse changes with respect to
the financial condition of the Partnerships, perfected their lien by
recording the $1,255.2 million previously unrecorded portion of the Loan at
the Partnerships' expense. The mortgage recording taxes totaled $34.5
million. Funds to pay these taxes were loaned to the Partnerships by
RGI.
5. NBC TRANSACTION
National Broadcasting Company, Inc. (NBC) leases approximately 1.3 million
square feet of space in three Rockefeller Center buildings (the GE Building, the
Studio Building, and the GE West Building).
Under agreements signed in 1988, the NBC lease has been extended to the year
2022. Through 1997, NBC will continue to pay rent on the basis of its prior
lease. The agreements, however, provide that, prior to 1997, NBC will have the
right to directly pay a portion of the operating expenses and real estate taxes
on its leased space and reduce its lease payments accordingly.
F-42
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
From 1997 to 2022, NBC will pay rent at fixed rates varying according to the
types of space involved (such as office or studio) and location within the
three buildings. This rent, which will increase by 15% in 2007 and again in
2017, has been determined on a "net" basis, that is, without including
amounts normally payable with regard to real estate taxes and operating
expenses. Further, NBC has options for one 10-year renewal period and one
9-year and five-month renewal period, at net rents determined according to
then fair market rental value. At NBC's option, the first renewal period
can be split into two renewal periods, the first of three years and the
second of seven years.
The agreements also grant to NBC options to lease, beginning in 1994, up to
approximately 910,000 square feet of office space in the GE Building which
is currently leased to other tenants. To date, NBC has exercised its right
to lease 108,000 square feet at a fixed net rate, increasing by 15% in 2007
and again in 2017. The remaining 802,000 square feet will be offered to NBC
for lease at then fair market net rental rates.
The transaction was structured to accommodate arrangements between New York
City and NBC for certain financial assistance in connection with the
project. The three affected buildings were subjected to a condominium
regime, and the NBC occupied areas were conveyed to the City's Industrial
Development Agency (IDA) for nominal consideration. These areas were then
leased back to the Partnerships at nominal rents, with NBC becoming a
subtenant of the Partnerships. Upon the expiration of the period of City
benefits, ownership will revert to the Partnerships. IDA ownership is a
technical structuring required to effectuate the transaction and will have
no economic effect upon the Partnerships.
6. RELATED PARTY TRANSACTIONS
RGI and affiliates occupy approximately 2% of the total rentable space
within the Property. The terms of the leases with RGI provide for an annual
base rent of approximately $4,402,000.
The Property includes Radio City Music Hall and the land on which it is
situated. Radio City Music Hall is operated by an RGI affiliate which pays
a nominal rent for this facility and is responsible for paying all costs
(including real estate taxes) related to its operation.
The Property includes a six-story parking garage. The garage is leased to
Rockefeller Center Management Corporation (RCMC) for an annual base rent of
approximately $2,300,000.
Rental revenue in the accompanying combined statements of operations and
partners' capital deficiency included $8,223,000, $7,778,000, and $7,712,000
earned during 1994, 1993, and 1992, respectively, under the terms of the
above mentioned leases. In addition to the base rent, the rental revenue
includes $1,521,000, $1,544,000, and $1,572,000 in 1994, 1993, and 1992,
respectively, relating to their proportionate share of increases in certain
costs and expenses of the Property.
F-43
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
Under the terms of a management agreement, RCMC provides management and
administrative services for the Property. During 1994, 1993, and 1992, RCMC
charged the Partnerships $2,636,000, $2,579,000, and $2,491,000,
respectively, in management fees under the terms of this agreement.
This management agreement also allows RCMC to receive commissions with
respect to leases negotiated within the Property, including overrides when
another broker is the procuring broker. During 1994, 1993, and 1992, RCMC
earned $22,389,000, $2,888,000, and $1,563,000 in commissions for leases
negotiated within the Property. Cushman & Wakefield, Inc., an RGI
subsidiary, was paid $1,673,000, $571,000, and $138,000 in leasing
commissions by the Partnerships during 1994, 1993, and 1992, respectively.
Under the terms of a franchise agreement with RCMC (as agent for the
Partnerships), Rockefeller Group Telecommunications Services, Inc., a
subsidiary of RGI, is permitted to provide shared telecommunication services
to tenants within the Property. No fees are paid to the Partnerships
relating to the right to provide these services. The Partnerships have
committed to pay for certain of the capital additions associated with
providing these services up to an aggregate of $13,000,000. During 1994,
1993, and 1992, the cost of capital additions borne by the Partnerships
approximated $1,153,000, $658,000, and $451,000, respectively. Total
expenditures through December 31, 1994 approximated $9,588,000.
The Partnerships participate in a cash management system under which their
funds, together with the funds of other related companies, are managed by a
subsidiary of RGI. At December 31, 1994, 1993, and 1992, the balances due
to RGI affiliates include $269,475,000, $125,388,000, and $79,141,000,
respectively, of interest-free overdrafts in the cash management system.
Salaried employees of the Partnerships participate in the defined benefit
pension plan maintained by RGI. Accordingly, the Partnerships were charged
their proportionate share of RGI's pension cost which aggregated $574,000,
$489,000, and $423,000 in 1994, 1993, and 1992, respectively. The hourly
employees of the Partnerships are covered by multi-employer sponsored
defined contribution plans. The contributions to these plans in 1994, 1993,
and 1992 aggregated $1,332,000, $1,370,000, and $1,326,000, respectively.
The Partnerships provide certain health care and life insurance benefits for
current and retired salaried employees through plans maintained by RGI.
Accordingly, the Partnerships were charged their proportionate share of
RGI's health care and life insurance costs which aggregated $1,150,000,
$1,725,000, and $1,524,000 in 1994, 1993, and 1992, respectively.
7. LOANS PAYABLE TO RGI
The Loan with RCPI (see Note 3) provides that, if the cumulative cost of
capital improvements made by the Partnerships is in excess of specified
amounts contained in the agreement for any
F-44
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
calendar year, the excess amount is deemed a renewable one-year loan from
RGI to the Partnerships for the next calendar year. The cumulative amount
of excess capital improvements totaled $126,681,000, $122,934,000, and
$107,477,000 at December 31, 1994, 1993, and 1992, respectively.
These excess capital improvement loans accrue interest at 80% of the prime
rate, compounded quarterly. Loans for the cumulative excess capital
improvements existing at the end of the preceding year do not begin to earn
interest until the beginning of the following year. Unpaid interest is
added to the principal balance and also earns interest at 80% of the prime
rate, compounded quarterly. The cumulative amount of unpaid interest
totaled $34,034,000, $26,720,000, and $20,467,000 at December 31, 1994,
1993, and 1992, respectively.
The loan principal and accumulated interest are due and payable following
the Equity Conversion Date, December 31, 2000. If RCPI exercises its
conversion option to acquire a 71.5% equity interest in the partnership then
owning the Property, the loans payable to RGI become the obligation of the
partnership having RCPI as a 71.5% partner and cease to be the sole
obligation of the prior partner group.
8. COMMITMENTS AND CONTINGENCIES
As of December 31, 1994, the Partnerships had approximately $54.4 million of
outstanding commitments to reimburse certain tenants for improvements to
leased premises. It is expected that these improvements will be completed
during 1995. Additional commitments are expected to arise as new leases
are signed.
As required by the Loan Agreement, the Partnerships are committed to make
certain capital improvements totaling $197.6 million prior to December 31,
2000. Qualifying capital expenditures through December 31, 1994
approximated $215.7 million, of which $168.4 million satisfy the $197.6
million requirement.
9. TENANT LEASING ARRANGEMENTS
Other than the NBC lease (see Note 5), the Partnerships lease to tenants
office, retail, and storage space in the Property through non-cancelable
operating leases expiring principally over the next 21 years. The leases
require fixed minimum monthly payments over their terms and provide for
adjustments to rent for the tenants' proportionate share of changes in
certain costs and expenses of the Property. Certain retail leases also
provide for additional rent which is based upon a percentage of sales of the
lessee.
F-45
<PAGE>
ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
The following is a schedule of minimum future rentals on non-cancelable
operating leases as of December 31, 1994:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1995 $ 164,557,000
1996 149,005,000
1997 148,079,000
1998 157,655,000
1999 153,138,000
Later years 1,781,050,000
--------------
Total minimum future rentals $2,553,484,000
--------------
--------------
</TABLE>
As a result of lease incentives, the actual cash flow may vary
significantly from the amounts presented above.
10. CASH FLOWS FROM CHANGES IN CERTAIN ASSETS AND LIABILITIES
The cash flows from changes in certain assets and liabilities of the
Company as of December 31, 1994, 1993, and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Decrease in accounts receivable $316,000 $856,000 $4,104,000
(Increase) decrease in other current
and non-current assets (509,000) 669,000 (207,000)
(Decrease) increase in accounts
payable and accrued expenses (3,338,000) 8,146,000 (5,948,000)
---------- ---------- ----------
($3,531,000) $9,671,000 ($2,051,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-46
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 2,897
<SECURITIES> 0
<RECEIVABLES> 1,263,899<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,319,995
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 760,394
<COMMON> 383
0
0
<OTHER-SE> 517,084
<TOTAL-LIABILITY-AND-EQUITY> 1,319,995
<SALES> 0
<TOTAL-REVENUES> 109,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,967
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,206
<INCOME-PRETAX> 15,112
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,143
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
<FN>
<F1>Loan receivable does not include accrued interest.
<F2>Classified Balance Sheet is not presented.
<F3>Classified Balance Sheet is not presented.
</FN>
</TABLE>
