<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission file number 0-17189
KOLL REAL ESTATE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0426634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
4343 Von Karman Avenue
Newport Beach, California 92660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 833-3030
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 ___
The number of shares of Class A Common Stock outstanding at August 1, 1995 was
47,210,857.
<PAGE>
KOLL REAL ESTATE GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
I N D E X
Page No.
--------
PART I - Financial Information:
Item 1 - Financial Statements
Introduction to the Financial Statements 3
Balance Sheets -
December 31, 1994 and June 30, 1995 4
Statements of Operations -
Three Months and Six Months Ended June 30, 1994 and 1995 5
Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1995 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II - Other Information:
Item 1 - Legal Proceedings 15
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURE 16
2
<PAGE>
KOLL REAL ESTATE GROUP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION TO THE FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
Koll Real Estate Group, Inc. and its consolidated subsidiaries (the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading
when read in conjunction with the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994,
and the current year's previously issued Quarterly Report on Form 10-Q.
The financial information presented herein reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
3
<PAGE>
KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
----------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 13.0 $ 7.2
Restricted cash 7.5 4.1
Real estate held for development or sale 42.7 43.1
Operating properties, net 10.2 10.0
Land held for development 325.8 330.5
Other assets 23.8 17.0
----------- --------
$423.0 $411.9
----------- --------
----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued
liabilities $ 31.8 $ 9.4
Senior debt -- 16.5
Subordinated debentures 152.9 162.7
Other liabilities 92.8 86.0
----------- --------
Total liabilities 277.5 274.6
----------- --------
Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.3 2.4
Capital in excess of par value 230.5 230.1
Deferred proceeds from stock issuance (1.6) (1.2)
Minimum pension liability (2.0) (2.0)
Accumulated deficit (84.1) (92.4)
----------- --------
Total stockholders' equity 145.5 137.3
----------- --------
$423.0 $411.9
----------- --------
----------- --------
</TABLE>
See the accompanying notes to financial statements.
4
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1995 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Asset Sales $ 2.4 $ 4.2 $ 3.5 $ 9.3
Operations 2.4 1.5 4.7 2.8
----- ----- ----- -----
4.8 5.7 8.2 12.1
----- ----- ----- -----
COSTS OF:
Asset Sales 2.4 2.7 3.5 7.8
Operations 2.4 2.5 4.5 4.7
----- ----- ----- -----
4.8 5.2 8.0 12.5
----- ----- ----- -----
Gross operating margin -- .5 0.2 (.4)
General and administrative expenses 2.0 2.0 4.6 4.1
Interest expense 4.6 5.6 9.0 10.9
Other expense (income), net .2 (2.7) .6 (2.7)
----- ----- ----- -----
Loss from continuing operations before
income taxes (6.8) (4.4) (14.0) (12.7)
Provision (benefit) for income taxes (2.3) (1.8) (4.8) (4.4)
----- ----- ----- -----
Loss from continuing operations (4.5) (2.6) (9.2) (8.3)
Gain on disposition of discontinued operation,
net of income taxes -- -- .7 --
----- ----- ----- -----
Net loss $(4.5) $(2.6) $(8.5) $(8.3)
----- ----- ----- -----
----- ----- ----- -----
Earnings (loss) per common share:
Continuing operations $(.11) $(.06) $(.22) $(.18)
Discontinued operations -- -- .02 --
----- ----- ----- -----
Net loss per common share $(.11) $(.06) $(.20) $(.18)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
See the accompanying notes to financial statements.
5
<PAGE>
KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1994 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8.5) $(8.3)
Adjustments to reconcile to cash used by operating activities:
Depreciation and amortization .7 .6
Non-cash interest expense 8.8 10.1
Gain on disposition of discontinued operation (.7) --
Gains on asset sales -- (1.5)
Proceeds from asset sales, net 3.5 8.7
Investments in real estate held for development or sale (1.6) (5.6)
Investments in land held for development (5.4) (4.7)
Decrease in other assets 1.8 4.2
Decrease in accounts payable, accrued and
other liabilities (4.3) (29.2)
----- -----
Cash used by operating activities (5.7) (25.7)
----- -----
Cash flows from investing activities:
Sale of short-term investments 13.4 --
Proceeds from disposition of discontinued operation 1.0 --
----- -----
Cash provided by investing activities 14.4 --
----- -----
Cash flows from financing activities:
Borrowings of senior debt -- 19.1
Repayments of senior debt (3.4) (2.6)
Withdrawal of restricted cash -- 7.5
Deposit of restricted cash -- (4.1)
----- -----
Cash provided (used) by financing activities (3.4) 19.9
----- -----
Net increase (decrease) in cash and cash equivalents 5.3 (5.8)
Cash and cash equivalents - beginning of period 21.8 13.0
----- -----
Cash and cash equivalents - end of period $27.1 $7.2
----- -----
----- -----
</TABLE>
See the accompanying notes to financial statements.
6
<PAGE>
KOLL REAL ESTATE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements should be read in conjunction with
the Financial Statements and Notes thereto included in the Annual Report on
Form 10-K of Koll Real Estate Group, Inc. (the "Company") for the year ended
December 31, 1994, and the current year's previously issued Quarterly Report
on Form 10-Q.
NOTE 2 - LOSS PER COMMON SHARE
The weighted average number of common shares outstanding for the three
months ended June 30, 1994 and 1995 were 43.3 million shares and 47.0 million
shares, respectively, and the weighted average number of common shares
outstanding for the six months ended June 30, 1994 and 1995 were 43.3 million
shares and 46.8 million shares, respectively. The Series A Preferred Stock is
not included in the loss-per-share calculations because the effect would be
anti-dilutive.
NOTE 3 - LAND HELD FOR DEVELOPMENT
Land held for development consists of approximately 1,200 acres known as
Bolsa Chica located in Orange County, California, adjacent to the Pacific
Ocean, surrounded by the City of Huntington Beach and approximately 35 miles
south of downtown Los Angeles ("Bolsa Chica"). The Company is currently
seeking approvals from state and federal agencies for a Local Coastal Plan
("LCP") for wetlands restoration and residential development of 3,300 homes
at Bolsa Chica, which was unanimously approved by the Orange County Board
of Supervisors in December 1994. The related Development agreement was
unanimously approved by the Orange County Board of Supervisors in April 1995.
The project still requires approvals of the California Coastal Commission
and the U.S. Army Corps of Engineers. The Company, working with various
governmental, community and environmental groups, has developed a quality
master plan which reflects a 42% reduction in density (from 5,700 to
3,300 units) and a wetlands restoration plan to be funded by development of
up to 900 units in the lowlands.
7
<PAGE>
In July 1995, the Company was informed that the Ports of Long Beach and
Los Angeles and various federal and state agencies are expected to enter into
a Memorandum of Agreement ("MOA") specifying the terms under which the
various agencies would grant mitigation credits, which are needed by the
Ports to expand their facilities, in exchange for Ports' funds to be used for
restoration, maintenance and monitoring of the wetlands in the Bolsa Chica
lowlands. Consistent with the objectives of the MOA, the Company announced
that it has entered into an agreement with the American Land Conservancy,
a nonprofit conservation organization, to sell approximately 930 acres of
its 1,200-acre Bolsa Chica property, representing substantially all of the
Company's lowland ownership at the site. The ability of the Company
to complete any such sale is subject to substantial contingencies, including:
(i) obtaining all final approvals from various governmental agencies for
development of up to 2,500 residential units on the Company's approximately
200 acres (and approximately 21 acres owned by third parties) on the Bolsa
Chica mesa; (ii) Coastal Commission approval of (a) the Ports' Master Plan
amendments, including the amount of mitigation credits to be granted in
exchange for the Ports funding a $62 million wetlands restoration escrow
account and (b) a wetlands restoration plan for Bolsa Chica; and (iii) the
American Land Conservancy securing sufficient funds to complete the proposed
transaction. Therefore, there can be no assurance that any transaction will
be completed.
Under the 3,300 unit LCP which was approved by the Orange County Board of
Supervisors, the Company is committed to restoring the wetlands at Bolsa
Chica provided that state and federal agencies approve development of up to
900 homes in the lowlands. Unless significant contingencies regarding the
potential sale to the American Land Conservancy are satisfied, the Company
intends to request that the California Coastal Commission approve the 3,300
unit LCP in November 1995.
If the LCP is modified by the Coastal Commission, assuming a sale of the
lowlands, and approved for 2,500 units on the mesa in November 1995, the
Company expects to proceed with infrastructure construction in 1996,
depending on economic and market conditions. However, if significant
contingencies to the American Land Conservancy's proposed purchase are not
satisfied and if the Coastal Commission approves the 3,300 unit LCP in
November 1995, the Company expects to commence infrastructure construction on
the mesa in 1996, while completing the federal approval process for lowland
development and wetlands restoration. However, due to a number of factors
beyond the Company's control, including possible objections of various
environmental and so-called public interest groups that may be made in
legislative, administrative or judicial forums, the required approvals could
be delayed substantially; and there can be no assurance that the project will
receive final approvals as currently proposed.
8
<PAGE>
In this regard, on January 13, 1995, two lawsuits challenging the Orange
County Board of Supervisors approval of the Bolsa Chica project were filed in
Orange County Superior Court. Although the lawsuits differ in the particular
issues they raise, generally they each allege, among other things, violations
of the California Environmental Quality Act and violations of the California
Government Code planning and zoning laws. The plaintiffs in both actions are
not seeking monetary damages, but are instead asking the Court to set aside
the approval of the Bolsa Chica project. The plaintiffs in both lawsuits
also seek attorneys' fees in unspecified amounts if they prevail. The
Company and the County of Orange believe these lawsuits are without merit and
are vigorously defending them.
In the event that the County approved LCP is modified by the Coastal
Commission to materially reduce the number of residential units below 3,300,
a significant reduction in the book value of the Bolsa Chica project
currently reflected in the Company's financial statements would result. Any
such potential impact on the statement of operations and stockholders' equity
would be partially offset by a decrease in deferred taxes. Confidentiality
arrangements prevent the Company from releasing the price of the proposed
sale until all contingencies have been met. Realization of the Company's
investment in Bolsa Chica will also depend upon various economic factors,
including the demand for residential housing in the Southern California
market and the availability of credit to the Company and to the housing
industry. While the December 1994 bankruptcy filing by the County of Orange
is not indicative of the state of the overall Orange County economy, it
appears to have had an adverse effect on residential real estate and could
also impair the Company's ability to secure municipal bond financing for
infrastructure improvements necessary to develop Bolsa Chica.
NOTE 4 - DEBT
SENIOR DEBT
In February 1995, the Company borrowed $15.5 million under a letter of
credit and reimbursement agreement with Nomura Asset Capital Corporation
("Nomura") which was used along with $6.5 million of restricted cash to
settle litigation with Abex Inc. and Wheelabrator Technologies Inc. As of
June 30, 1995, $5 million was available under a construction loan agreement
with Nomura to fund infrastructure construction at the Company's Rancho San
Pasqual (formerly Eagle Crest) project.
The Company also borrowed $3.6 million under a construction loan agreement
with Bank of Boston during the six months ended June 30, 1995 and applied
9
<PAGE>
$2.6 million in proceeds from sales of residential homes at the Company's
Wentworth By The Sea project in New Hampshire to satisfy required prepayments,
resulting in an outstanding balance of $1.0 million as of June 30, 1995.
During the second quarter, the Company amended the construction loan
agreement with Bank of Boston to allow for additional borrowings of
$2 million to fund infrastructure construction on an additional phase
of the project. Approximately $6 million was available as of June 30, 1995
to fund residential and infrastructure construction at Wentworth under the
Bank of Boston construction loan agreement.
Cash payments for interest on senior debt were approximately $.2 million
and $.7 million for the six months ended June 30, 1994 and 1995, respectively.
SUBORDINATED DEBT
Subordinated debt was comprised of the following (in millions):
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995
------------ ---------
<S> <C> <C>
Senior subordinated debentures $123.0 $130.3
Subordinated debentures 30.7 32.6
------------ ---------
Total face amount 153.7 162.9
Less unamortized discount (6.2) (5.9)
Plus accrued interest 5.4 5.7
------------ ---------
$152.9 $162.7
------------ ---------
------------ ---------
</TABLE>
10
<PAGE>
NOTE 5 - INCOME TAXES
The Internal Revenue Service ("IRS") has completed its examinations of
the tax returns of the Company and its consolidated subsidiaries, including
formerly affiliated entities, for the years ended December 31, 1989, 1990 and
1991. With respect to each examination, the IRS has proposed material audit
adjustments. The Company disagrees with the positions taken by the IRS and
has filed a protest with the IRS to vigorously contest the proposed
adjustments. The Company is not currently able to determine the exact amount
of its potential exposure due to the complexity of the issues raised in the
examination reports and the tax sharing obligations of formerly affiliated
third parties. However, the Company preliminarily estimates that the IRS's
proposed adjustments, if upheld, could result in a tax liability of
approximately $27 million (a portion of which may be payable by former
affiliates pursuant to tax sharing agreements) and a disallowance of up to
$83 million of recognized net operating loss carryforwards. The Company's
protest was filed on August 11, 1995 and has not yet been considered by the
IRS Appeals Division. Management currently believes that the IRS's positions
will not result in any material adjustments to the Company's financial
statements. Therefore, the Company has not made any adjustments to its
existing reserves for any prospective tax liability or adverse tax
consequence at this time. The Company is prepared to pursue all available
administrative and judicial appeal procedures with regard to this matter and
the Company is advised that its dispute with the IRS could take up to five
years to resolve.
Cash payments for federal, state and local income taxes were approximately
$.4 million and $.2 million for the six months ended June 30, 1994 and 1995,
respectively. Tax refunds received were $.7 million and $.4 million for the
six months ended June 30, 1994 and 1995, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
As described in the Company's Form 10-K for the year ended December 31,
1994, the United States Environmental Protection Agency ("EPA") has
designated Universal Oil Products ("UOP"), among others, as a Potentially
Responsible Party ("PRP") with respect to an area of the Upper Peninsula of
Michigan (the "Torch Lake Site") under the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"). UOP is allegedly the successor in interest to one of the
companies that conducted mining operations in the Torch Lake area and an
affiliate of Allied Signal Inc., a predecessor of the Company. The Company
has not been named as a PRP at the site. However, Allied Signal has, through
UOP, asserted a contractual indemnification claim against the Company for all
claims that may be asserted against UOP by EPA or other parties with respect
to the site. EPA has proposed a clean-up plan which would involve covering
certain real property both contiguous and non-contiguous to Torch Lake with
soil and vegetation in order to address alleged risks posed by copper
tailings and slag at an estimated cost between $6 and $7.5 million. EPA
estimates that it has spent between $3 and $4 million to date in performing
studies of the site. Under CERCLA, EPA could assert claims against the Torch
Lake PRP's, including UOP, to recover the cost of these studies, the cost of
all remedial action required at the site, and natural resources damages. An
earlier settlement in principle with EPA staff pursuant to which UOP would
pay $1.7 million in exchange for a release similar to those normally granted
by EPA in such circumstances was rejected by certain other governmental
authorities in July 1993. Settlement negotiations between the Company, on
behalf of UOP, and EPA resumed shortly thereafter. In June 1995, EPA
proposed a CERCLA settlement pursuant to which UOP would pay approximately
$2.9 million in exchange for a limited covenant by EPA not to sue UOP in the
future. The Company, without admission of any obligation to UOP, has since
determined to vigorously defend UOP's position that the EPA's proposed
clean-up plan is unnecessary and inconsistent with the requirements of CERCLA
given that the EPA's own Site Assessment and Record of Decision found no
immediate threat to human health. In the Company's view the proposed
remediation costs would be in excess of any resulting benefits.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The principal activity of the Company is to obtain zoning and other
entitlements for land it owns and to improve the land for residential
development. Once the land is entitled, the Company may sell unimproved land
to other developers or investors; sell improved land to homebuilders; or
participate in joint ventures with other developers, investors or
homebuilders to finance and construct infrastructure and homes. The Company's
principal activities also include single and multi-family residential
construction and providing residential, retail, office and industrial
development services to third parties, including feasibility studies,
entitlement coordination, project planning, construction management,
financing, marketing, acquisition, disposition and asset management services
on a national and international basis, through its offices throughout
California, and in Dallas, Denver, Mexico City, Phoenix and Seattle. The
Company intends to consider additional real estate acquisition and joint
venture opportunities; however, over the next year the Company's principal
objective is to maintain adequate liquidity to fully support the Bolsa Chica
project entitlement efforts.
Real estate held for development or sale and land held for development
(real estate properties) are carried at the lower of cost or estimated net
realizable value based on undiscounted cash flows. The Company's real estate
properties are subject to a number of uncertainties which can affect the
future values of those assets. These uncertainties include delays in
obtaining zoning and regulatory approvals, withdrawals or appeals of
regulatory approvals and availability of adequate capital, financing and cash
flow. See "Item 1 - Financial Statements: Note 3 - Land Held for
Development" for a description of Bolsa Chica, the Company's principal
development project. In addition, future values may be adversely affected by
heightened environmental scrutiny, limitations on the availability of water
in Southern California, increases in property taxes, increases in the costs
of labor and materials and other development risks, changes in general
economic conditions, including higher mortgage interest rates, and other real
estate risks such as the demand for housing generally and the supply of
competitive products. While the December 1994 bankruptcy filing by the
County of Orange is not indicative of the state of the overall Orange County
economy, it appears to have had an adverse effect on residential real estate
and could also impair the Company's ability to secure municipal bond
financing for infrastructure improvements at Bolsa Chica.
12
<PAGE>
Real estate properties do not constitute liquid assets and, at any given
time, it may be difficult to sell a particular property for an appropriate
price. The state of California's economy has had a negative impact on the
real estate market generally, on the availability of potential purchasers
for such properties and upon the availability of sources of financing for
carrying and developing such properties.
LIQUIDITY AND CAPITAL RESOURCES
The principal assets in the Company's portfolio are residential land which
must be held over an extended period of time in order to be developed to a
condition that, in management's opinion, will ultimately maximize the return
to the Company. Consequently, the Company requires significant capital to
finance its real estate development operations. On February 6, 1995 the
Company entered into an agreement with Abex Inc. and Wheelabrator
Technologies, Inc. which settled litigation (the "Abex litigation") regarding
certain tax sharing agreements. Under the terms of the agreement, the
Company paid an aggregate of $22 million, $15.5 million of which was funded
by borrowings under a financing agreement with Nomura Asset Capital
Corporation ("Nomura") and the balance of $6.5 million was funded from
restricted cash.
During the six months ended June 30, 1995, the Company generated an
aggregate of approximately $8.7 million in cash from asset sales, principally
through the sale of wharfage rights in Coronado, California, the sale of
industrial property in Murrieta, California and sales of residential homes at
its Wentworth By The Sea project in New Hampshire, before utilizing
approximately $2.6 million of Wentworth proceeds to make required prepayments
of senior debt. At June 30, 1995 the Company's unrestricted cash and cash
equivalents aggregated $7.2 million and restricted cash of $4.1 million was
available to fund infrastructure improvements at the Company's Rancho San
Pasqual (formerly Eagle Crest) project. Historically, sources of capital have
included bank lines of credit, specific property financings, asset sales and
available internal funds. The Company has reported losses since 1991, with
the exception of 1993 results which included gains on dispositions and
extinguishment of debt, and expects to report losses in the foreseeable
future. While a significant portion of such losses is attributable to
non-cash interest expense on the Company's subordinated debentures, the
Company's capital expenditures for project development are significant.
Given the limited availability of capital to the Company until the Bolsa
Chica project approvals are obtained, the Company will continue to be
dependent primarily on real estate asset sales, existing financing
arrangements (see Note 4) and cash and cash equivalents on-hand to fund
project development and general and administrative costs during 1995.
13
<PAGE>
FINANCIAL CONDITION
JUNE 30, 1995 COMPARED WITH DECEMBER 31, 1994
The $5.8 million decrease in cash and cash equivalents primarily reflects
the funding of project development costs during the six months ended June 30,
1995, as well as other activity presented in the Statements of Cash Flows.
Restricted cash of $4.1 million at June 30, 1995 reflects funds deposited
into an escrow account, as required under the construction loan agreement
with Nomura, to be used solely for funding infrastructure costs at the
Company's Rancho San Pasqual residential project in San Diego County.
The $6.8 million decrease in other assets primarily reflects the March
1995 collection of a note receivable from AV Partnership, the
reclassification of a note receivable to real estate held for development or
sale upon acquisition of title to industrial property in Ontario, California
and the refund of a deposit upon termination of a purchase contract for
property adjacent to the Bolsa Chica site.
The $22.4 million decrease in accounts payable and accrued liabilities
primarily reflects the February 1995 payment of $22 million to settle the
Abex litigation.
Senior debt of $16.5 million reflects the February 1995 borrowing of $15.5
million under a letter of credit and reimbursement agreement with Nomura to
settle the Abex litigation discussed above and $1.0 million of net borrowings
under a construction loan agreement with Bank of Boston for development and
construction of single-family homes at the Company's Wentworth By The Sea
project in New Hampshire.
RESULTS OF OPERATIONS
The nature of the Company's business is such that individual transactions
often cause significant fluctuations in operating results from year to year.
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1994
The $1.8 million increase in asset sales revenues from $2.4 million in
1994 to $4.2 million in 1995 and the related increase in the costs of asset
sales from $2.4 million in 1994 to $2.7 million in 1995 principally reflects
the May 1995 sale of wharfage rights in Coronado, California. The decrease
in revenues from operations from $2.4 million in 1994 to $1.5 million in 1995
primarily reflects lower revenues in the Company's domestic development
business.
The $1.0 million increase in interest expense principally reflects higher
outstanding balances of subordinated debentures and senior debt at June 30,
1995.
14
<PAGE>
The change in other expense (income), net from $.2 million of expense in 1994
to $2.7 million of income in 1995 primarily reflects non-recurring income
from reductions in excess environmental reserves due to favorable
governmental agency rulings, partially offset by lower interest income as a
result of decreased cash balances.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1994
The $5.8 million increase in asset sales revenues from $3.5 million in
1994 to $9.3 million in 1995 and the increase in the related costs of asset
sales from $3.5 million in 1994 to $7.8 million in 1995 principally reflects
an increase in residential home sales at the Company's Wentworth By The Sea
project during the six months ended June 30, 1995, the March 1995 sale of
industrial property in Murrieta, California and the May 1995 sale of wharfage
rights in Coronado, California. The decrease in revenues from operations
from $4.7 million in 1994 to $2.8 million in 1995 primarily reflects lower
revenues in the Company's domestic development business.
The increase in interest expense from $9.0 million in 1994 to $10.9
million in 1995 principally reflects higher outstanding balances of
subordinated debentures and senior debt at June 30, 1995.
The change in other expense (income), net from $.6 million of expense in
1994 to $2.7 million of income for 1995 primarily reflects non-recurring
income from reductions in excess environmental reserves due to favorable
governmental agency rulings in 1995.
The gain on disposition of discontinued operations, net of income taxes
for the 1994 period reflects the receipt of cash for the February 1994
termination of the contingent payment provision of a December 1993 agreement
with Libra Invest & Trade Ltd. ("Libra") whereby the Company exchanged its
Lake Superior Land Company subsidiary for approximately $42.4 million face
amount of the Company's senior subordinated debentures held by Libra and
other consideration.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
"Item 3 - Legal Proceedings" in the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1994 is incorporated herein by this
reference. See also Notes 5 and 6 of Notes to Financial Statements set
forth above in Part I - Item 1.
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Second Amendment to Construction Loan Agreement dated as of April
28, 1995 between Great Island Trust Partnership and The First National
Bank of Boston.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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.
KOLL REAL ESTATE GROUP, INC.
Date August 14, 1995 /S/ Raymond J. Pacini
------------------------
RAYMOND J. PACINI
Executive Vice President -
Chief Financial Officer
16
<PAGE>
SECOND AMENDMENT TO CONSTRUCTION LOAN AGREEMENT
This Second Amendment to Construction Loan Agreement
(hereinafter, the "Second Amendment") is made as of this 28th day
of April, 1995 by and between The First National Bank of Boston,
a national banking association with a principal place of business
at 100 Federal Street, Boston, Massachusetts (the "Lender") and
Great Island Trust Partnership, a New Hampshire general
partnership with a principal place of business in New Castle, New
Hampshire (the "Borrower") in consideration of the mutual
covenants contained herein and the benefits to be derived
herefrom:
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender have entered into
certain loan arrangements, which loan arrangements are evidenced
by, among other documents and instruments, a certain Construction
Loan Agreement dated as of December 29, 1994, as amended by a
certain First Amendment to Construction Loan Agreement dated as
of March 27, 1995 (hereinafter, together with any extensions,
amendments, supplements or restatements thereof, the
"Agreement"); and
WHEREAS, the Borrower has requested that the Lender amend
and restructure certain terms and conditions of the Agreement and
make certain additional advances under the Development Loan
(unless otherwise defined in this Second Amendment, terms defined
in the Agreement shall have the meanings ascribed to such terms
therein); and
WHEREAS, the Lender has agreed to so restructure and modify
certain terms and conditions of the Agreement and make certain
additional advances under Development Loan, provided the
Borrower, among other things, enters into this certain Second
Amendment; and
WHEREAS, the Borrower, having so determined that the
amendment of certain terms and conditions of the Agreement and
the making of the additional advances under the Development Loan
is in its best interest, has agreed to enter into this Second
Amendment.
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is
agreed to by and between the Borrower and the Lender as follows:
1. WAIVER. The Borrower acknowledges and agrees that it has no
claims, counterclaims, offsets, defenses and/or causes of
action against the Lender with respect to the amount
outstanding under the Agreement or otherwise, to the extent
such claims, counterclaims, offsets, defenses and/or causes
of action should exist, the Borrower hereby WAIVES same and
hereby RELEASES the Lender and its agents, attorneys and/or
representatives from any and all liability in connection
therewith.
2. The Agreement is hereby amended as follows:
a. The definition of Development Note is hereby deleted in
its entirety and shall be replaced by the following:
"DEVELOPMENT NOTE" The Amended and Restated
Development Note in the principal face amount of the
Development Loan Amount dated April 28, 1995 made by
the Borrower to the order of the Lender, such Note to
be in form and substance satisfactory to the Lender.
b. The definition of Development Loan is hereby deleted in
its entirety and shall be replaced by the following:
"DEVELOPMENT LOAN. The $4,318,846.00 non-revolving
facility for the portion of the Project dedicated to
the construction and development of twenty (20) lots,
including one (1) model spec home, improvements to
several existing rental properties, final build out of
the Ducks Head Condominium and related entities, the
legal subdivision of the marina area, and
infrastructure improvements and development of 2
waterfront lots, 3 waterfront duplex lots, one (1)
interior duplex lot and one (1) interior lot and
construction of one-half (1/2) of a Model Duplex Spec
Home in connection with Phase III of the Project."
-2-
<PAGE>
c. The definition of Development Loan Amount is hereby
deleted in it entirety and shall be replaced by the
following:
"DEVELOPMENT LOAN AMOUNT. $4,318,846.00."
d. The definition of Improvements is hereby deleted in its
entirety and shall be replaced by the following:
"IMPROVEMENTS." The construction of twenty (20) lots
including one (1) model spec home, improvements to
several existing rental properties, final build out of
the Ducks Head Condominium, the construction of single
family residences to be constructed on the Land in
accordance with Plans and Specifications, the legal
subdivision of the marina and creation of the Dockside
Condominium and infrastructure improvements and
development of 2 waterfront lots, 3 waterfront duplex
lots, one (1) interior duplex lot and one (1) interior
lot and construction of one-half (1/2) of a Model Duplex
Spec Home in connection with Phase III of the Project.
e. The definition of Master Plan Documents is hereby
amended by inserting the phrase "the Dockside
Condominium" after "Condominium" in line 7 thereof.
f. Article 1 of the Agreement is hereby amended by
inserting the following new definitions therein in
alphabetical order:
"DOCKSIDE CONDOMINIUM." The Dockside at Wentworth-By-
The-Sea Condominium created pursuant to a Condominium
Declaration of Dockside at Wentworth-By-The-Sea
Condominium dated ___________________ to be recorded
with the Rockingham County Registry of Deeds, as same
may be amended.
"MODEL DUPLEX SPEC HOMES." The shell duplex spec homes
to be constructed under this Agreement which are not
subject to an Approved Sale Agreement."
g. Section 2.3(b) of the Agreement is hereby deleted in
its entirety.
-3-
<PAGE>
h. Section 2.3 of the Agreement is hereby amended by
inserting the following at the end thereof as new
subsections (d) and (e):
"(d) The total amount available to be borrowed by the
Borrower under the Development Loan shall be reduced by
an amount equal to the aggregate sum of any net sales
proceeds realized by the Borrower upon the sale of any
portion of the Project to the extent said proceeds are
in excess of or are not used to reduce the outstanding
balance due under the Development Note or the
Residences Note. Any such proceeds not utilized for
repayment of debt hereunder shall be utilized by the
Borrower for budgeted development costs associated with
the Project.
(e) Notwithstanding any other provision of this
Agreement, the Borrower acknowledges and agrees that
the Lender shall advance only up to the amount of
$1,000,000.00 with respect to any Improvements in Phase
III and/or the Dockside Condominium until all
documentation relating to sale of units in the Dockside
Condominium has received all necessary federal, state,
local or other governmental approval. The Borrower
shall supply the Lender with copies of all
documentation, notices and reports relative to Phase
III of the Project simultaneously upon delivery or
receipt. In the event all such approvals are not
received on or before August 8, 1995, the Borrower
acknowledges and agrees that the Lender shall make no
further advances under the Residences Loan or the
Development Loan with respect to Phase III and/or the
Dockside Condominium."
i. Section 4.3(e) of the Agreement is hereby deleted in
its entirety and the following substituted therefor:
"(e) Notwithstanding the foregoing, the Bank
acknowledges and agrees that it will advance up to the
amount of $350,000.00 under the Residences Loan for the
construction of one (1) new Model Spec Home, provided
that the proceeds of the sale of prior Model Spec Homes
-4-
<PAGE>
constructed by the Borrower have been used to reduce
the outstanding balance due under the Development Loan
and/or the Residences Loan. The Bank acknowledges and
agrees that, notwithstanding the provisions of Section
4.1 above, the Borrower shall not be required to expend
any Required Equity funds to construct Model Spec Homes
under this Section 4.3(e) unless the construction cost
exceeds the amount to be advanced by the Lender."
j. Section 4.3 of the Agreement is hereby amended by
inserting the following at the end thereof as
subsection (f):
"(f) Notwithstanding any other provision of this
Agreement, the Borrower may borrow up to the amount of
$1,050,000.00 under Residences Loan for the
construction of one and one-half (1.5) Model Duplex
Spec Homes.
k. Section 7.6 of the Agreement is hereby deleted in its
entirety and the following shall be substituted
therefor:
"SECTION 7.6. MANDATORY PRINCIPAL REDUCTIONS. The
outstanding balance due under the Development Loan
shall be reduced by the following amounts by the dates
specified below:
(i) June 30, 1995 - $600,000.00
(ii) September 30, 1995 - $1,000,000.00
(inclusive of
amounts paid under
(i) above)
(iii) March 31, 1996 - $1,700,000.00
(inclusive of
amounts paid under
(i) and (ii) above)
(iv) June 30, 1996 - $3,000,000.00
(inclusive of
amounts paid under
-5-
<PAGE>
(i), (ii) and (iii)
above)
(v) The Bank acknowledges
that the Borrower has
paid the sum of
$1,009,145.00 through
April 28, 1995, which
amount shall be
credited against the
amounts due under (i)
through (iv) above.
l. Section 10.4 of the Agreement is hereby amended by (i)
inserting the phrase "and/or Model Duplex Spec Homes"
on line 3 thereof after the word "Homes", (ii) deleting
clause (i) of the second sentence thereof, and (iii)
inserting the phrase ", the Dockside Condominium" on
line 24 thereof after the word "Condominium".
m. Section 13.11(iii) of the Agreement is hereby amended
by inserting the phrase ", the Dockside Condominium" on
line 2 thereof after the word "Condominium".
3. Upon the execution hereof, the Borrower shall pay to the
Bank an additional commitment fee of $20,000.00 in
connection with the additional advances to be made under the
Development Loan, which amount constitutes a fee and shall
not be applied in reduction of the amounts outstanding under
the Amended and Restated Development Note or the Residences
Note.
4. Except as expressly amended hereby, the remaining terms and
conditions of the Agreement and all other documents and
instruments executed in connection therewith shall remain in
full force and effect in accordance with their original
terms and conditions. This Second Amendment, which may be
executed in multiple counterparts, constitutes the entire
agreement of the parties regarding the matters contained
herein and shall not be modified by any prior oral or
written discussions. This Second Amendment shall be
governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts and is intended to take effect
-6-
<PAGE>
as a sealed instrument. This Second Amendment shall be
binding and shall inure to the benefit of the Lender, the
Borrower and their respective successors and assigns.
THE FIRST NATIONAL BANK OF
BOSTON
By:___________________________
Title:________________________
GREAT ISLAND TRUST PARTNERSHIP
By Its General Partners
Wentworth Holdings Inc.
By:______________________
Title:___________________
NC HOLDING COMPANY
By:______________________
Title:___________________
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 384
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 412
<CURRENT-LIABILITIES> 0
<BONDS> 163
<COMMON> 2
0
0
<OTHER-SE> 135
<TOTAL-LIABILITY-AND-EQUITY> 412
<SALES> 9
<TOTAL-REVENUES> 12
<CGS> 8
<TOTAL-COSTS> 12
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (13)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (8)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> 0
</TABLE>
