<PAGE>
This Form 10-Q consists of 15 sequentially numbered pages.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
Commission file number 0-17189
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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 May 1, 1996
were 47,751,482
<PAGE>
KOLL REAL ESTATE GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
I N D E X
-------------------
Page No.
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Part I - Financial Information:
- ------
Item 1 - Financial Statements
Introduction to the Financial Statements . . . . . . . . 3
Balance Sheets -
December 31, 1995 and March 31, 1996 . . . . . . . . . . .4
Statements of Operations -
Three Months Ended March 31, 1995 and 1996 . . . . . . . .5
Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1996 . . . . . . . .6
Notes to Financial Statements. . . . . . . . . . . . . . .7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 11
Part II - Other Information:
- -------
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . 14
Item 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . 14
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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, 1995.
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
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KOLL REAL ESTATE GROUP, INC.
BALANCE SHEETS
--------------
(in millions)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------ ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4.9 $ 2.9
Restricted cash 2.5 2.1
Real estate held for development or sale 28.1 29.7
Operating properties, net 5.7 5.7
Land held for development 220.0 221.2
Other assets 11.2 10.3
------ ------
$272.4 $271.9
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 8.6 $ 8.2
Senior bank debt 16.6 19.1
Subordinated debentures 173.2 178.5
Other liabilities 44.4 44.4
------ ------
Total liabilities 242.8 250.2
------ ------
Stockholders' equity:
Series A Preferred Stock .4 .4
Class A Common Stock 2.4 2.4
Capital in excess of par value 229.9 229.9
Deferred proceeds from stock issuance (1.1) (1.1)
Minimum pension liability (1.0) (1.0)
Accumulated deficit (201.0) (208.9)
------ ------
Total stockholders' equity 29.6 21.7
------ ------
$272.4 $271.9
------ ------
------ ------
</TABLE>
See 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
March 31,
1995 1996
----- -----
<S> <C> <C>
REVENUES:
Asset Sales $ 5.1 $ .5
Operations 1.3 2.2
----- -----
6.4 2.7
----- -----
COSTS OF:
Asset Sales 5.1 .3
Operations 2.2 2.2
----- -----
7.3 2.5
----- -----
Gross operating margin (.9) .2
General and administrative expenses 2.1 1.6
Interest expense 5.3 6.1
Other expense net --- .4
----- -----
Loss before income taxes (8.3) (7.9)
Provision (benefit) for income taxes (2.6) ---
----- -----
Net Loss $(5.7) $(7.9)
----- -----
----- -----
Net loss per common share $(.12) $(.17)
----- -----
----- -----
</TABLE>
See the accompanying notes to financial statements.
5
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KOLL REAL ESTATE GROUP, INC.
STATEMENTS OF CASH FLOWS
------------------------
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1996
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5.7) $(7.9)
Adjustments to reconcile to cash used by operating activities:
Depreciation and amortization .3 .2
Non-cash interest expense 4.8 5.5
Gains on asset sales --- (.2)
Proceeds from asset sales, net 4.9 .5
Investments in real estate held for development or sale (2.2) (1.9)
Investments in land held for development (2.2) (1.2)
Decrease in other assets 4.8 .5
Decrease in accounts payable, accrued and other liabilities (25.8) (.4)
----- -----
Cash used by operating activities (21.1) (4.9)
----- -----
Cash flows from investing activities:
Purchase of short-term investments (5.6) ---
----- -----
Cash used by investing activities (5.6) ---
----- -----
Cash flows from financing activities:
Borrowings of senior bank debt 17.3 2.5
Repayments of senior bank debt (1.3) ---
Use of restricted cash 7.5 .4
Deposit of restricted cash (5.0) ---
----- -----
Cash provided by financing activities 18.5 2.9
----- -----
Net decrease in cash and cash equivalents (8.2) (2.0)
Cash and cash equivalents - beginning of period 13.0 4.9
----- -----
Cash and cash equivalents - end of period $4.8 $2.9
----- -----
----- -----
</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, 1995.
NOTE 2 - LOSS PER COMMON SHARE
The weighted average number of common shares outstanding for the three months
ended March 31, 1995 and 1996 were 46.6 million shares and 47.7 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
REAL ESTATE
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 estimation process
involved in the determination of net realizable value is inherently uncertain
since it requires estimates as to future events and market conditions. Such
estimation process assumes the Company's ability to complete development and
dispose of its real estate properties in the ordinary course of business based
on management's present plans and intentions. Economic, market, environmental
and political conditions may affect management's development and marketing
plans. In addition, the implementation of such development and marketing plans
could be affected by the availability of future financing for development and
construction activities. Accordingly, the ultimate net realizable values of the
Company's real estate properties are dependent upon future economic and market
conditions, the availability of financing, and the resolution of political,
environmental and other related issues.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" ("SFAS 121"), which requires an impaired asset (real
property or intangible) to be written down to fair value. If an impairment
occurs, the fair value of an asset for purposes of SFAS 121 is deemed to be the
amount a willing buyer would pay a willing seller for such asset in a current
transaction. As required, the Company adopted SFAS 121 during the quarter
ended March 31, 1996, which did not have any effect on its financial
statements. Any potential future revaluation of the Bolsa Chica property that
could result if a recapitalization is implemented by the Company would be based
on the facts and circumstances at that time.
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"). In January 1996 the California
Coastal Commission approved Orange County's Local Coastal Plan ("LCP") which
provides for development of up to 2,500 homes on the mesa (high ground) portion
of the property and up to 900 homes on the lowland
7
<PAGE>
portion of the property, not to exceed 3,300 homes in the aggregate, and a
wetlands restoration plan for this property, which remains subject to further
governmental approvals, as further described below.
The January 1996 California Coastal Commission approval of the Company's
development plan included two suggested modifications, agreed to in principle
by the Company, which require: (1) a 50-foot buffer along the coastal edge of
the mesa and (2) an agreement by the Company to dedicate approximately 770
acres to a public agency if the Company does not pursue a federal 404 permit
for wetlands restoration and lowlands development. These suggested
modifications require the approval of the Orange County Board of Supervisors
prior to final certification of the LCP by the California Coastal Commission,
which the Company expects to obtain during the second or third quarter of 1996.
Under the 3,300-unit LCP the Company is committed to restoring the wetlands at
Bolsa Chica provided that federal agencies approve development of up to 900
homes in the lowlands. Wetlands restoration and development on the lowlands
remains subject to approval by the U.S. Army Corps of Engineers. The Company's
goal is to obtain such approval by the first quarter of 1997, however, the
Corps of Engineers could delay or decline its approval.
The Company is actively pursuing the secondary permitting process for
the project, such as tract maps and grading plans, through the County of
Orange, as well as a federal permit from the U.S. Army Corps of Engineers for
wetlands restoration and development in the lowlands. This process is
currently expected to be completed within 18 months. In the meantime, the
Company has continued to work closely with the various state and federal
agencies which have expressed an interest in acquiring the Bolsa Chica
lowlands, in an effort to resolve the remaining contingencies and complete
the proposed transaction. As a result, in March 1996 the Company entered into
a letter of intent to sell the Bolsa Chica lowlands to the California State
Lands Commission. The ability of the Company to complete any such
transaction remains subject to various contingencies, including: (i)
finalizing acquisition terms; (ii) completion of an environmental site
assessment which would be satisfactory to the State Lands Commission; (iii)
satisfactory completion of an appraisal and title report; and (iv) Coastal
Commission and federal approval of the amount of mitigation credits to be
granted to the Ports of Los Angeles and Long Beach in exchange for the Ports
funding a $67 million acquisition and wetlands restoration escrow account.
Of course, there can be no assurance that a definitive agreement will be
entered into or that any transaction will be completed.
With the approval by the Coastal Commission of the 3,300-unit LCP in
January 1996, the Company expects, subject to its ability to obtain financing
on a commercially reasonable and timely basis, and subject to obtaining certain
secondary permits, to commence infrastructure construction on the mesa in 1997.
However, due to certain 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
start of construction could be delayed substantially. In this regard, on March
6, 1996 and March 11, 1996, two lawsuits were filed against the Coastal
Commission, the Company and other Bolsa Chica landowners as real parties in
interest, alleging that the Coastal Commission's approval of the 3,300-unit LCP
is not in compliance with the Coastal Act and other statutory requirements.
These lawsuits seek to set aside the approval of the Bolsa Chica project. The
Company does not believe that these lawsuits will be successful in permanently
preventing the Company from completing the Bolsa Chica project, however there
can be no assurance in this regard or that these suits will not result in
delays.
Note 4 - Debt
SENIOR BANK DEBT
During the first quarter of 1996, the Company borrowed approximately $2.5
million under a construction loan agreement with Nomura Asset Capital
Corporation to partially fund infrastructure construction at Rancho San
Pasqual, the Company's golf/residential property in San Diego County.
8
<PAGE>
This loan agreement allows for a one-time right to reborrow $5 million after
repayment of the initial $5 million construction loan, subject to certain
restrictions. As required under the construction loan agreement, in January
1995 the Company deposited $5 million into an escrow account to be used
solely for funding of infrastructure construction costs at Rancho San
Pasqual, of which $2.1 million remains as restricted cash as of March 31,
1996.
Cash payments for interest on senior bank debt were approximately $.3
million and $.4 million for the three months ended March 31, 1995 and 1996,
respectively.
Subordinated Debt
Subordinated debt was comprised of the following (in millions):
December 31, March 31,
1995 1996
------------ ---------
Senior subordinated debentures $138.2 $146.5
Subordinated debentures 34.6 36.6
------------ ---------
Total face amount 172.8 183.1
Less unamortized discount (5.6) (5.5)
Plus accrued interest 6.0 .9
------------ ---------
$173.2 $178.5
------------ ---------
------------ ---------
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.
After review of the IRS's proposed adjustments, the Company estimates that, if
upheld, the adjustments could result in Federal tax liability, before interest,
of approximately $17 million (net of amounts which may be payable by former
affiliates pursuant to tax sharing agreements). The IRS proposed adjustments,
if upheld, could result in a disallowance of up to $147 million of available
net operating loss carryforwards, of which none are recognized as of March 31,
1996, after consideration of the valuation allowance. The Company has not
determined the extent of potential accompanying state tax liability adjustments
should the proposed IRS adjustments be upheld. 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 ultimately
result in any material adjustments to the Company's financial statements. 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
$.1 million and $0 for the three months ended March 31, 1995 and 1996,
respectively. Tax refunds received were $.4 million and $0 for the three months
ended March 31, 1995 and 1996, respectively.
9
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
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 PRPs, 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. In June 1995, EPA proposed a CERCLA settlement pursuant to which UOP
pay approximately between $2.6 and $3.3 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 determined to vigorously defend UOP's position
that the EPA's proposed cleanup 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.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The principal activities of the Company include: (i) obtaining zoning and
other entitlements for land it owns and improving the land for residential
development; (ii) single and multi-family residential construction in Southern
California; and (iii) providing commercial, industrial, retail and residential
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, Phoenix, Seattle, Shanghai, China and Taipei, Taiwan. Once the
residential land owned by the Company 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
intends to consider additional real estate acquisition and joint venture
opportunities; however, over the next year the Company's strategic goals are to
(i) obtain new financing for development of the Bolsa Chica mesa; (ii) complete
the secondary permitting for development of the Bolsa Chica mesa and secure all
federal permits for development and restoration of the Bolsa Chica lowlands;
(iii) continue working with state and federal agencies in an effort to complete
the potential sale of the Bolsa Chica lowlands to the California State Lands
Commission; and (iv) evaluate, and if appropriate, pursue recapitalization
alternatives which deleverage the Company's capital structure; and (v) to
maintain adequate liquidity to cover general and administrative, liability
management and interest costs. There can be no assurance that the Company will
accomplish, in whole or in part, all or any of these strategic goals.
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 (Note 2). 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 withdrawals,
litigation or appeals of regulatory approvals and availability of adequate
capital, financing and cash flow. In addition, future values may be adversely
affected by 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. 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. However, over the past year, the number of
potential purchasers and capital sources interested in Southern California
residential properties appears to have increased.
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.
At March 31, 1996, the Company's unrestricted cash and cash equivalents
aggregated $2.9 million and restricted cash of $2.1 million was available to
fund infrastructure improvements at the Company's Rancho San Pasqual project.
During the quarter ended March 31, 1996, the Company borrowed $2.5 million
under its construction loan agreement with Nomura Asset Capital Corporation
("Nomura") to fund infrastructure improvements at
11
<PAGE>
its Rancho San Pasqual golf and residential community in San Diego county. On
May 10, 1996 the Company completed the first phase sale of 22 residential
lots at Rancho San Pasqual to a homebuilder for approximately $.7 million. In
addition, the Company has executed sales agreements with two other
homebuilders and a letter of intent with a fourth homebuilder, which are
scheduled to purchase an aggregate of 100 additional first phase lots at
Rancho San Pasqual for approximately $5.3 million by June 30, 1996.
Furthermore, the Company recently entered into a letter of intent to sell its
Eagle Crest Golf Course at Rancho San Pasqual to a nationally recognized
owner/operator of golf courses. After paying the current operator of the golf
course termination related costs, the Company expects to realize net cash
proceeds of approximately $5 million. These transactions remain subject to
certain contingencies and there can be no assurance that all of these
transactions will be completed by June 30, 1996. Under loan agreements with
Nomura, the Company is required to utilize 90% of such sales proceeds to
prepay outstanding senior bank debt; however, the Company would then be
permitted to reborrow up to $5 million of the repayments for further
development of the Rancho San Pasqual 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 and infrastructure are significant. The Company will continue to be
dependent primarily on real estate asset sales, existing financing arrangements
(Note 4) and cash and cash equivalents on-hand to fund infrastructure
construction costs at Rancho San Pasqual, a minimum level of project
development costs for Bolsa Chica, cash interest payments and general and
administrative expenses during 1996. With the recent approval of the Bolsa
Chica project by the California Coastal Commission, the Company is also seeking
new financing for development of Bolsa Chica and evaluating recapitalization
alternatives.
FINANCIAL CONDITION
MARCH 31, 1996 COMPARED WITH DECEMBER 31, 1995
The $2.0 million decrease in cash and cash equivalents primarily reflects
spending for project development costs primarily at Rancho San Pasqual and
Bolsa Chica, and general and administrative expenses during the first quarter
of 1996, as well as other activity presented in the Statements of Cash Flows.
Restricted cash of $2.1 million at March 31, 1996 reflects funds deposited into
escrow accounts for funding certain infrastructure costs at Rancho San Pasqual.
The $1.6 million increase in real estate held for development or sale
primarily reflects approximately $2.5 million of investment in infrastructure
construction at Rancho San Pasqual, partially offset by approximately $.9
million of assessment district reimbursements.
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 MARCH 31, 1996 COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1995
The decrease in revenues from asset sales of $5.1 million in 1995 to $.5
million in 1996 and the decrease in costs of sales from $5.1 million to $.3
million reflect an absence in 1996 of residential home sales at the Company's
Wentworth by the Sea project in New Hampshire due to the sale of the
Wentworth project during the fourth quarter of 1995, and the sale of
industrial property in Murrieta, California which occurred during the three
months ended March 31, 1995. Asset sales in 1996 were limited to land sales
at the Company's
12
<PAGE>
resort/residential property in Calumet, Michigan, and one home sale at the
Company's Oceanside Hills project in San Diego County.
The increase in revenues from operations is primarily due to improvements
in the Company's commercial development business for the three months ended
March 31, 1996 as compared with the same period in 1995.
The $.5 million decrease in general and administrative expense is
primarily due to decreases in costs of personnel and professional services.
The $.8 million increase in interest expense reflects compounded interest
on the Company's PIK debentures.
The .4 million increase in other expense, net during the three months
ended March 31, 1996 as compared with the three months ended March 31, 1995 is
primarily due to lower interest income during the recent period and an absence
in 1996 of other income from forgiveness of certain accrued liabilities in
connection with the February 1995 agreement to settle the Abex litigation.
The benefit for income taxes for the three months ending March 31, 1996
has been offset by a corresponding valuation allowance.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain of the foregoing information is forward looking in nature and
involves risks and uncertainties that could significantly impact the ability of
the Company to achieve its currently anticipated goals and objectives. These
risks and uncertainties include, but are not limited to, withdrawals,
litigation or appeals of regulatory approvals and availability of adequate
capital, financing and cash flow. In addition, future values may be adversely
affected by increases in property taxes, increases in the costs of labor and
materials and other development risks such as the demand for housing generally
and the supply of competitive products. 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. Other significant risks and uncertainties are discussed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
13
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
-----------------
See "Item 3 - Legal Proceedings" in the Company's Annual Report on Form 10-
K for the Year Ended December 31, 1995.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
14
<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.
KOLL REAL ESTATE GROUP, INC.
/s/ RAYMOND J. PACINI
Date MAY 15, 1996 ----------------------------
------------- RAYMOND J. PACINI
Executive Vice President
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 257
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 272
<CURRENT-LIABILITIES> 0
<BONDS> 179
0
0
<COMMON> 2
<OTHER-SE> 20
<TOTAL-LIABILITY-AND-EQUITY> 272
<SALES> 1
<TOTAL-REVENUES> 3
<CGS> 0
<TOTAL-COSTS> 3
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (8)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
