UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
For the fiscal year
ended December 31, 1997 Commission File Number 1-13145
LASALLE PARTNERS INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
(State of organization) (I.R.S. Employer Identification No.)
200 East Randolph Drive, Chicago, IL 60601
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------------
Common Stock ($.01 par value) New York Stock Exchange
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 [ ]
As of February 27, 1998, there were outstanding 16,200,000 shares of the
Registrant's Common Stock. The aggregate market value of the Registrant's
Common Stock held for non-affiliates on February 27, 1998 was approximately
$199,889,000 based on the closing price of $35.875 per share. The
aggregate market value of all of the Registrant's 16,200,000 shares of
Common Stock outstanding on such date was approximately $581,175,000
Portions of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on May 21, 1998 are incorporated by reference in
Part III of this report.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . 14
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 15
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . 16
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . 20
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 28
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . 29
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . 63
PART III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . 63
Item 11. Executive Compensation. . . . . . . . . . . . . 63
Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . 63
Item 13. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 63
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 64
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS . . . . . . 65
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 67
i
PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
LaSalle Partners Incorporated (together with its predecessors and
subsidiaries), (the "Company"), founded in 1968, is a leading full-service
real estate firm that provides management services, corporate and financial
services and investment management services to corporations and other real
estate owners and investors worldwide. The Company has grown by expanding
both its client base and its range of services and products in anticipation
of client needs. Primarily providing investment banking, investment
management and land services in its early years of existence, the Company
expanded to offer development management services beginning in 1975,
property management and leasing and tenant representation services
beginning in 1978. In addition, the Company was a pioneer in the facility
management services business, first offered by the Company in 1990. By
offering a broad range of real estate products and services, and through
its extensive knowledge of domestic and international real estate markets,
the Company is able to serve as a single source provider of solutions for
its clients' full range of real estate needs.
ORGANIZATION
Prior to its incorporation in Maryland on April 15, 1997 and its
initial public offering (the "Offering") of 4,000,000 shares of LaSalle
Partners Incorporated common stock on July 22, 1997, the Company transacted
business as LaSalle Partners Limited Partnership and LaSalle Partners
Management Limited Partnership (collectively, the "Predecessor
Partnerships"). Immediately prior to the Offering, the general and limited
partners of the Predecessor Partnerships contributed all of their
partnership interests in the Predecessor Partnerships to the Company for an
aggregate of 12,200,000 shares of common stock. The Company subsequently
caused the Predecessor Partnerships to contribute, among other things,
substantially all of their assets and liabilities to one of four wholly
owned subsidiaries, LaSalle Partners Management Services, Inc., LaSalle
Partners Corporate & Financial Services, Inc., LaSalle Advisors Capital
Management, Inc., or LaSalle Partners Co-Investment, Inc., also
incorporated in April 1997. LaSalle Partners International, Inc., an
existing subsidiary of the Predecessor Partnerships, continues to conduct
the Company's international operations.
In April 1997, the Company acquired all of the common stock of the
Galbreath Company, a property, facility and development management company.
The Company's principal objectives for the merger were to expand the
Company's geographic presence, add additional client relationships and
provide for economic synergies with the Management Services segment. In
addition, the Company acquired the project management business of Satulah
Group Inc., a project management and facilities conversion company, in
January 1998. The Company's objective was to enhance its current project
management services and to support its long-term growth strategy of
expanding service capabilities.
BUSINESS SEGMENTS
To meet the diverse needs of its clients, the Company provides its
full range of real estate services through three principal business
segments: Management Services, Corporate and Financial Services and
Investment Management. For financial information and a discussion of the
operating performance of each segment refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the notes to
the audited financial statements provided elsewhere herein.
MANAGEMENT SERVICES
The Company's Management Services segment develops and implements
property level strategies to increase investment value for real estate
owners and optimize occupancy costs for corporate owners and users of real
estate. The Management Services segment provides four primary service
capabilities: (i) property management and leasing for property owners
("Property Management and Leasing Services"); (ii) facility management for
properties occupied by corporate owners and users ("Facility Management
Services"); (iii) development management for both investors and real estate
users seeking to develop new buildings or renovate existing facilities
("Development Management Services"); and (iv) project management providing
strategic occupancy planning, tenant improvement project management and
relocation management to the Company's clients ("Project Management
Services"). As of December 31, 1997, the Management Services group had
property management, leasing or facility management responsibility for
approximately 202.7 million square feet of commercial space. Based on the
1997 CPN Survey, the Company is the third largest property manager in the
U.S.
PROPERTY MANAGEMENT AND LEASING SERVICES. Active since 1978, the
Company's Property Management and Leasing Services unit operates, markets
and leases commercial real estate. The Company's goal, as a pioneer in the
development of value-creating property management services, is to enhance
its clients' property values through aggressive day-to-day management
focused on maintaining high levels of occupancy and tenant satisfaction,
while lowering the operating costs of such properties. During 1997, the
Company provided on-site Property Management and Leasing Services for over
300 office, retail, mixed-use and industrial properties, in the U.S. and
completed approximately 1,250 lease transactions totaling approximately
14.0 million square feet.
The Company's Property Management and Leasing Services are typically
provided by an on-site general manager and staff supported through
extensive regional supervisory teams as well as central resources in areas
such as training, technical and environmental services, accounting,
marketing and human resources. Property general managers assume full
responsibility for property management and leasing activities, client
satisfaction and financial results and are compensated, not by fees or
commissions, but through a combination of base salary and performance bonus
that is directly linked to results produced for clients.
The Company typically receives fees based on the value of the lease
revenue commitment for leases consummated while it serves as exclusive
property leasing agent. Increasingly, management agreements provide for
incentive compensation relating to operating expense reductions, gross
revenue, occupancy objectives or tenant satisfaction levels. As is
customary in the industry, management contract terms typically range from
one to three years, but are cancelable at any time upon a short notice
period, usually 30 to 60 days. However, on a portfolio basis, the Company's
average length per management assignment as of December 31, 1997 is
approximately four years.
Consolidation among property management and leasing companies, in
combination with improving leasing markets, provides significant
opportunities for the Company. Since the fee arrangements for most of the
Company's Property Management and Leasing Services assignments are largely
dependent on property revenues, the Company has benefitted from the
national recovery in commercial real estate markets which has been
characterized by rising average commercial rental and occupancy rates
during the 1993-1997 time period. The Company intends to expand its
Property Management and Leasing Services unit through a combination of
targeted marketing initiatives and acquisitions. Based on its industry
experience, the Company believes that its established infrastructure and
its reputation for high quality service make the Company an attractive
potential acquirer to many smaller local, regional and national property
management firms. The marketing efforts of the Property Management and
Leasing Services unit are directed toward pursuing new third-party
management assignments, expanding the Company's relationships with existing
clients and capitalizing on new business opportunities that may arise from
the Investment Management group's initiatives, such as implementation of
its co-investment strategy.
FACILITY MANAGEMENT SERVICES. The Company was a pioneer in the
facility management services business and currently is one of the largest
providers of facility management services in the United States. The
Company's Facility Management Services unit provides comprehensive
portfolio and property management services to corporations and institutions
that outsource their real estate management functions. The properties under
management range from corporate headquarters to industrial complexes. The
Company's target clients typically have large portfolios (usually over one
million square feet) with significant opportunities to reduce costs and
improve service delivery. Performance measures are generally developed to
quantify progress made toward the goals and objectives that are set
mutually with clients. At December 31, 1997, the Company has approximately
98.9 million square feet under management.
The Company's Facility Management Services unit also serves as an
important "port of entry" for the Company's other business units. Depending
on client needs, the Facility Management Services unit, either alone or
through the Company's other business units, provides services such as
portfolio planning, property management, leasing, tenant representation,
acquisition, finance, disposition, project management, development
management and land advisory services. Facility Management Services
relationships generated revenue of approximately $15.9 million in 1997 for
the Company's other business units.
The Facility Management Services unit is compensated on the basis of
negotiated fees, which are typically structured to include a base fee and a
performance bonus. The performance bonus compensation is based on a
quantitative evaluation of progress toward performance measures and
regularly scheduled client satisfaction surveys. Facility Management
Services agreements are typically three to five years in duration.
The Company believes that the global corporate trend of outsourcing
non-core business functions represents an important long-term business
opportunity for LaSalle Partners. The Company believes that its broad-based
service capabilities will become an increasingly valuable competitive
advantage in pursuing Facility Management Services assignments. The Company
believes that its demonstrated experience, cost-cutting successes and
client satisfaction also provide it with an important competitive
advantage. In order to efficiently provide all services required to manage
and operate large facility portfolios, the Company forms partnerships with
major building services and architecture firms. The Facility Management
Services-unit is also actively pursuing with new business opportunities for
universities, health care institutions, government agencies and other
potential clients.
DEVELOPMENT MANAGEMENT SERVICES. Active since 1975, the Company's
Development Management Services unit manages all aspects of the
development, redevelopment and renovation of commercial projects,
principally on a fee basis. The Company prepares projections, budgets,
schedules and cash flows for its clients, which are generally corporations
with significant office space needs, in addition to undertaking
entitlement, zoning and a variety of other development-related
responsibilities. The Development Management Services unit frequently
manages development initiatives for clients of the Company's Facility
Management Services, Tenant Representation Services and Land Services
units, as well as for clients of the Company's Investment Management group
which are pursuing development-related investment strategies.
The Company has extensive experience in ground-up development in the
office, retail and institutional sectors. As of December 31, 1997, the
Development Management Services unit was managing the development of 22
projects totaling approximately 4.9 million square feet nationally.
The Development Management Services unit generates development and
advisory fees. Fees are typically fixed and are negotiated based upon the
cost of the developments or improvements. Assignments are typically multi-
year in nature.
PROJECT MANAGEMENT SERVICES. Active since 1988, the Company's Project
Management Services unit provides facility build-out and conversion
management, move management and strategic occupancy planning services to
tenants of leased space, owners in self-occupied buildings and owners of
real estate investments. The Project Management Services unit frequently
manages the relocation and build-out initiatives for clients of the
Company's Property Management and Leasing Services, Facility Management
Services and Tenant Representation Services units.
With the acquisition of the project management business of Satulah
Group Inc. in January 1998, the Company is one of the largest providers of
project management services nationally, with 131 professionals in 14 U.S.
markets. During 1997, the Company provided services on approximately 744
different projects for 22 clients. The Company intends to grow its Project
Management Services business via expansion into additional U.S. markets.
The Project Management Services unit is typically compensated on the
basis of negotiated fees. Contracts are typically multi-year in nature for
national clients with individual projects being completed in less than one
year.
CORPORATE AND FINANCIAL SERVICES
The Company's Corporate and Financial Services group provides
transaction and advisory services through three primary service
capabilities: (i) tenant representation for corporations and professional
service firms ("Tenant Representation Services"); (ii) investment banking
services to address the financing, acquisition and disposition needs of
real estate owners ("Investment Banking Services"); and (iii) land
acquisition and development services for owners, users and developers of
land ("Land Services").
TENANT REPRESENTATION SERVICES. First offered in 1978, the Company's
Tenant Representation Services unit assists clients by defining space
requirements, identifying suitable alternatives, recommending appropriate
occupancy solutions and negotiating lease and ownership terms with third
parties.
The Company seeks to lower its clients' real estate costs, minimize
real estate occupancy risks, improve clients' flexibility and occupancy
control and create more productive office environments. The Company uses a
multi-disciplined approach to develop occupancy strategies that are linked
to its clients' core business objectives. In 1997, the Tenant
Representation Services unit completed over 300 transactions for a total of
approximately 8.1 million square feet.
The domestic tenant representation industry includes a large number of
service providers offering a wide range of service quality and
capabilities. The Tenant Representation Services unit directs its marketing
efforts toward developing "strategic alliances" with clients whose real
estate requirements include on-going assistance in meeting their real
estate needs and also toward clients who have the need to consider multiple
real estate options and to execute complex strategies.
In many cases, the Company develops a strategic alliance with clients
to deliver fully integrated real estate services, including comprehensive
on-going strategic planning and transaction execution services across
multiple office locations via the assignment of dedicated client teams. The
Company views its strategic alliances as a competitive advantage since
these long-term relationships lower business development costs for the
Company and create recurring revenue sources. In 1997, approximately 81% of
the Tenant Representation Services unit revenue was derived from strategic
alliances. Through these relationships, the Company gains a better
understanding of its clients' portfolio and occupancy requirements since
the same professionals service the client's needs nationwide. The Company
believes that these relationships enable it to deliver more consistent
services and better results than single-transaction, commissioned brokerage
service providers.
In addition to its strategic alliances, the Company also represents
clients in large, complex transaction assignments that typically involve
relocations of headquarters facilities or major consolidations of offices.
In such assignments, the Company draws on other capabilities of the firm to
enable clients to consider development of new facilities, weigh the
benefits of purchase or lease decisions and evaluate long-term financing
options.
The Company distinguishes its tenant representation services from
those of its competitors in several ways. The Company's Tenant
Representation Services professionals are recruited on the basis of strong
educational credentials and broad business experience, with approximately
90% holding Master of Business Administration or other advanced degrees. In
addition, in contrast to the Company's major national brokerage
competitors, the Company's Tenant Representation Services professionals do
not earn commissions, but are compensated by means of a base salary and
performance bonus that is determined by their contribution to achieving
predetermined client performance objectives.
The Company is generally compensated for Tenant Representation
Services on a negotiated fee basis. Although fees are generated by lease
commissions, they are often also determined by performance related to
targets set by the Company and the client prior to the Company's engagement
and, in the case of strategic alliances, at annual intervals thereafter.
Quantitative and qualitative measurements assess progress relative to these
goals, and the Company is compensated accordingly, with incentive fees
often awarded for superior performance.
INVESTMENT BANKING SERVICES. Active since 1968, the Company's
Investment Banking Services unit is engaged in real estate finance,
portfolio advisory activities, corporate finance and institutional property
sales. In 1997, the Company completed institutional property sales, debt
financings, equity financings and portfolio advisory activities on assets
and portfolios valued at approximately $5.4 billion.
The Company believes that its Investment Banking Services unit has a
number of competitive strengths, including its broad accumulated base of
real estate investment banking knowledge and an ability to draw on the
Company's access to global capital sources. The Company's Management
Services group and Investment Management group are valuable resources for
the Investment Banking Services unit in providing local market and property
information and capital markets expertise.
The Investment Banking Services unit is integral to the business
development efforts of the Company's other business units by researching,
developing and introducing innovative new financial products and
strategies; including the development of the Company's hotel investment
capability, which is currently performed within the Company's Investment
Management group.
The Company is typically compensated for Investment Banking Services
on the basis of the value of transactions completed or securities placed,
but in certain circumstances the Company receives retainer fees for
strategic advisory services.
LAND SERVICES. The Company has been active in the evaluation,
acquisition and disposition of land assets since 1970. The Company's Land
Services professionals offer clients expertise and broad experience in a
range of land-related competencies, including land planning and urban
design, governmental approvals, market and financial analysis and
valuations. The Land Services unit completed 56 transactions in 1997 in
United States markets and advised on assignments in several international
markets. The Company's Land Services unit benefits from LaSalle Partners'
strong relationships with its clients, with approximately 43% of Land
Services unit transactions in 1997 involving clients serviced by other
business units of the Company.
The Land Services unit acquires and sells urban and suburban
development projects and sites for future development, undertakes complex
land assemblages and site searches and provides advisory services for
owners of land and land-development projects. The Company's Land Services
unit also originates and executes land-related investment programs in
development properties and portfolios of land assets for the clients of the
Company's Investment Management group. In addition, the Company developed
expertise in the sale of portfolios of land and land-related assets. The
Company's Land Services professionals also have advised public institutions
on land-related assignments, including the conversion of military base
facilities, master planning of peripheral airport land and the evaluation
and disposition of land related to major transit systems.
INVESTMENT MANAGEMENT
The Company's Investment Management group provides real estate
investment management services to institutional investors, corporations and
high net-worth individuals. The Company serves its clients through a broad
range of real estate money management products and services in the public
and private capital markets to meet various strategic, risk/return and
liquidity requirements, with a wide variety of equity and debt products.
This business is organized along two functional lines, private equity and
debt investments and public equity and debt investments. The Company offers
its clients a range of investment alternatives, including private direct
(i.e., single asset acquisitions) and fund (i.e., portfolios of assets)
investments in many real estate property types (e.g., office, retail,
hotel, industrial, residential, land and parking) and public investments,
primarily in REITs and other public real estate equities. The Company
believes that the success of the Investment Management group is built on
the foundation of fully integrated research, innovative investment
strategies and a strong client focus. The Investment Management group's
strategy is focused on three fundamentals: (i) developing and executing
tailored investment strategies to meet a variety of client objectives; (ii)
providing superior performance for its clients; and (iii) delivering a high
level of service.
As of December 31, 1997, the Company managed approximately $14.7
billion of real estate assets, making it the third largest manager of
institutional equity capital invested in domestic real estate assets and
securities. Approximately $3.6 billion of this total represents public real
estate securities currently managed by the Company's ABKB/LaSalle
Securities unit ("ABKB/LaSalle Securities"), a leading domestic
institutional real estate securities manager.
The investment and capital origination activities of the Company's
Investment Management group are becoming increasingly international. As of
December 31, 1997, 22% of the Company's assets under management were
invested outside of the U.S. Additionally, approximately 40% of equity
capital under management by the Company at December 31, 1997 originated
from international investors. The Company expects its international
Investment Management group to continue to increase as a proportion of
total capital raised and invested. Investment Management group activities
generate significant additional business for other parts of the Company's
operations, particularly in the areas of Property Management and Leasing
Services and Investment Banking Services.
The Company maintains an extensive real estate research department
which, with a staff of 12 professionals, monitors real estate and capital
market conditions, both domestically and in several international markets,
to enhance investment decisions and identify future opportunities. In
addition to drawing on public sources for information, the research
department utilizes the extensive local presence of the Company's
professionals throughout the U.S. to gain proprietary insight into local
market conditions.
PRIVATE EQUITY AND DEBT INVESTMENTS. The Company introduced its first
institutional investment fund in 1979 and currently has a series of
commingled investment funds including three new domestic funds and the new
French fund offered in 1997. The Company also has single client account
relationships ("separate accounts") with domestic and international
investors for whom the Company manages private real estate investments. On
behalf of its Investment Management clients, the Company acquires, manages,
leases, finances and divests real estate investments across a broad range
of real estate property types.
To take advantage of the trend toward globalization of real estate
capital sources, the Company strengthened and extended its international
investment activities with the acquisition in October 1996, of CIN Property
Management (now renamed CIN LaSalle Investment). CIN LaSalle Investment
Management, rated the largest manager of pension fund real estate equity
investments in the United Kingdom by Pensions World, has expanded the
Company's investment activities and capital raising in the United Kingdom
and continental Europe. The Company also initiated opportunistic investment
programs in France in 1996, acquiring for clients one of the first
distressed French real estate loan portfolios sold by financial
institutions, and again in 1997, creating a real estate investment fund to
acquire Paris office buildings. The Company currently has approximately
300 assets under investment or property management agreements in the United
Kingdom and France, with a total value of approximately $3.2 billion at
December 31, 1997. The Company continues to explore additional
international markets for its Investment Management clients. The Company
intends to leverage its organizational strength through selective
acquisitions and the use of the Company's international offices to take
advantage of the accelerating interest in international investment, to
expand investment activity to new countries and to strengthen its position
as a leading intermediary for international real estate capital flows.
The trend among investors is to favor advisors that co-invest in newly
formed investment vehicles in order to better align the interests of the
investor and the advisor. The Company believes that co-investment will
become increasingly important in order for the Company to retain and expand
its competitive position. The Company also believes that its co-investment
strategy will greatly strengthen its ability to raise capital for new
investment funds over which the Company exercises discretionary investment
authority. The Company has continued to expand its co-investment
activities. By increasing assets under management, the Company also gains
the opportunity to provide additional services related to the acquisition,
financing, property management, leasing and disposition of such assets.
Investment Management group operations are conducted with teams of
professionals dedicated to achieving client objectives. All investment
decisions for private market investments must be approved by the Company's
five-member investment committee. The investment committee approval process
is utilized for both the Company's discretionary investment funds and for
all of its separate account clients.
The Company is generally compensated for investment management
services for private equity and debt investments based on initial capital
invested, with additional fees tied to investment performance above
benchmark levels. The term of the Company's advisory agreements varies by
the form of investment vehicle involved and the type of service provided.
The Company's investment funds have various lifespans, typically ranging
between five and ten years, with extension provisions based on a vote of
investors. Separate account advisory agreements generally have three year
terms with "at will" termination provisions.
PUBLIC EQUITY AND DEBT INVESTMENTS. The Company conducts its
securities investment business through ABKB/LaSalle Securities, which was
formed by the Company in 1994 in connection with the acquisition of ABKB's
real estate advisory business. The Company offers its clients the ability
to invest in either separate account or fund investment vehicles focused on
public real estate equity and debt securities. The Company principally
invests its clients' capital in domestic REIT equities but is also active
in private placement investments in publicly traded real estate companies
and selected investments in private real estate companies seeking capital
to ultimately gain access to the public markets.
As of December 31, 1997, ABKB/LaSalle Securities had $3.6 billion of
assets under management. The Company is typically compensated by its
securities investment clients on the basis of the market value of assets
under management with increasing use of incentive fees tied to performance
of investments above benchmark levels.
COMPETITIVE ADVANTAGES
The Company believes that it has several competitive advantages which
have established it as a leader in the real estate services and investment
management industries. These advantages include the Company's:
RELATIONSHIP ORIENTATION. The Company's client-driven focus enables
the Company to develop long-term relationships with owners and users of
real estate. By developing such relationships, the Company generates repeat
business and creates recurring revenue sources; nearly 90% of the Company's
1997 revenue was derived from clients for which the Company provided
services in prior years. The Company's relationship orientation is
supported by an employee compensation system which it believes is unique in
the real estate industry. The Company compensates its professionals with a
salary, bonus and stock ownership plan which is designed to reward client
relationship building, teamwork and quality performance, rather than on a
commission basis which is typical in the industry.
FULL RANGE OF SERVICES. By offering a wide range of high quality,
complementary services, the Company can combine its services to develop and
implement real estate strategies that meet the increasingly complex needs
of its clients. The Company's product and service capabilities include
property management and leasing, facility management, development
management, project management, tenant representation, investment banking,
land acquisition and development, and investment management.
GEOGRAPHIC REACH. With 10 corporate offices and approximately 300
property and other offices throughout the U.S., the Company possesses in-
depth knowledge of local markets and can provide its full range of real
estate services throughout the country. In addition, the Company's eight
international offices give the Company the ability to serve its clients'
needs in key international markets. The international offices also serve as
the platform from which the Company will expand its international presence.
REPUTATION. Based on its industry knowledge, commissioned marketing
surveys, industry publications and number of long-standing client
relationships, the Company believes that it is widely recognized by large
corporations and institutional owners and users of real estate as a
provider of high quality, professional real estate services and investment
management products. The Company believes its name recognition and
reputation for quality services are significant advantages when pursuing
new business opportunities.
EXPERIENCED MANAGEMENT/EMPLOYEE EQUITY INCENTIVES. The Company's
senior management team has an average of approximately 19 years of
experience in the real estate services industry and have generally been
with LaSalle Partners for an average of 17 years. The Company uses equity-
based incentive compensation and bonus plans and minimum stock ownership
guidelines to foster employee commitment and align employee and stockholder
interests. As of March 1998, the Company's senior management team
indirectly owns approximately 20.4% of the outstanding common stock and
total employee ownership is approximately 44.8%.
INDUSTRY TRENDS
The real estate services industry has emerged from the severe downturn
in the real estate markets in the early 1990s. Strong improvements in
commercial real estate fundamentals - supply, demand, vacancy and rental
rates - have contributed to increased property values. The Company believes
that the recovery of the real estate markets and the trends described below
provide growth opportunities for the Company.
CONSOLIDATION
The real estate services industry is highly fragmented. Many large
real estate service firms engaged in the property management business,
including the Company, believe that, as a result of substantial existing
infrastructure investments and the ability to spread fixed costs over a
broader base of business, it is possible to recognize incrementally higher
margins on property management assignments as the amount of square footage
under management increases. The advantages of scale in the property
management business, including the ability to provide higher quality
service at a lower cost to the user, has led to a significant consolidation
trend among real estate service providers.
In addition, large users of commercial real estate services have
recently demonstrated a desire to use a smaller number of real estate firms
capable of providing a full range of services across multiple geographic
markets. The ability to offer a full range of services requires significant
corporate infrastructure investment, including information technology and
personnel training. Smaller regional and local real estate service firms,
with limited resources, are less able to make such investments.
GROWTH OF OUTSOURCING
In recent years, outsourcing of professional real estate services has
increased substantially as corporations have focused corporate resources,
including capital, on their core competencies. In addition, public and
other non-corporate users of real estate, such as government agencies and
health and educational institutions, have begun outsourcing real estate
activities as a means of reducing costs. As a result, there are significant
growth opportunities for firms that can provide integrated real estate
services across many geographic markets.
ALIGNMENT OF INTERESTS OF INVESTORS AND INVESTMENT MANAGERS
As a result of recovering real estate markets, institutional investors
have increased their allocation of investment capital to real estate and
many investors have shown a desire to commit their capital to investment
managers willing to co-invest with them on specific investments. In
addition, investors are increasingly requiring that the fees paid to
investment managers be more closely aligned with investment performance. As
a result, the Company believes that those investment managers with co-
investment capital will have an advantage in attracting real estate
investment capital. Co-investment typically brings with it the opportunity
to provide additional services related to the acquisition, financing,
property management, leasing and disposition of such investments.
INCREASING DEMAND FOR GLOBAL SERVICES; GLOBALIZATION OF CAPITAL FLOWS
As many U.S. corporations have pursued growth opportunities in
international markets, they have increased their demand for global real
estate services, such as facility management, tenant representation and
development management. The Company believes that this trend will favor
those real estate service providers with the capability to provide services
in key international markets. Additionally, real estate capital flows have
become more global as foreign investors have invested in U.S. assets, and
U.S. investors have sought international real estate investment
opportunities. This trend has created new markets for investment managers
that can facilitate international real estate capital flows and can execute
cross-border real estate transactions.
GROWTH STRATEGY
The Company intends to use its increased financial flexibility from
the offering to pursue its growth strategy, which is designed to capitalize
on existing client relationships and emerging industry trends. Key
components of its growth strategy include the following:
EXPANDING CLIENT RELATIONSHIPS
Based on its ability to deliver high quality real estate services, the
Company has been able to successfully leverage discrete client assignments
into more comprehensive relationships utilizing some or all of its business
groups. Current industry trends, particularly improving real estate markets
and the increased outsourcing of real estate services, provide a favorable
environment for the Company to increase the scope of its current client
relationships and to develop new relationships through its broad array of
services. The Company's business groups identify new clients and markets
and pursue opportunities to sell the products and services of many of the
Company's business units. The Company's Client Services Group, which is a
dedicated firm-wide marketing organization, acts as a catalyst in assisting
Company professionals in all groups in marketing multiple services of the
firm to existing and prospective clients.
BROADENING INTERNATIONAL PRESENCE
To take advantage of the trend toward globalization of real estate
capital sources and investment opportunities and the international business
expansion of many of its corporate clients, the Company intends to expand
its existing international operations and enter new international markets.
This expansion is expected to include the opening of new international
offices and may include selective acquisitions of international real estate
services companies. In order to serve its clients' increasingly global real
estate needs, and to pursue new business opportunities, the Company has
opened offices in London, Paris, Amsterdam, Mexico City, Beijing, Toronto,
Shanghai and New Delhi. The Company intends to use these international
offices to serve as a platform from which the Company will expand its
international presence.
SELECTIVELY PURSUING STRATEGIC ACQUISITIONS
The Company intends to selectively pursue acquisition targets to
expand its capability to serve clients and strengthen its position as an
industry leader. The expected benefits of such acquisitions include
expanding and enhancing its product and service offerings, broadening its
geographic market coverage or generating economies of scale. The Company
will only pursue acquisitions which meet its standards for quality of
service and are compatible with the Company's culture. Consistent with this
strategy, the Company acquired the assets of ABKB, a domestic real estate
investment management business, in late 1994; CIN Property Management, an
investment management business in the United Kingdom, in late 1996; The
Galbreath Company, a national property management company, in 1997; and the
project management business of Satulah Group Inc. a project management/
facilities conversion company, in early 1998. Through these acquisitions,
the Company added over $5 billion to its assets under management, extended
the Company's securities advisory capabilities, established the Company as
one of the largest managers of real estate investment equity capital in the
United Kingdom, increased its property and facility management square feet
under management by approximately 68 million and established the Company as
one of the largest property and project managers in the U.S.
PURSUING CO-INVESTMENT OPPORTUNITIES
The Company intends to continue its strategy of co-investing with its
investment management clients, to take advantage of recovering real estate
markets. As of December 31, 1997, the Company had a total net investment of
$18.1 million in 42 separate property or fund co-investments. The
acquisition cost of the properties acquired through these co-investments
exceeds $1.2 billion. Existing co-investments consist primarily of office
and hotel properties purchased within the last four years.
The Company's co-investment strategy is supported by its broad
fundamental real estate research capabilities, which include identifying
trends in geographic regions and property types. The Company's extensive
knowledge of local markets drawn from each of its business segments
facilitates the identification and evaluation of specific investment
opportunities. Co-investments provide the Company with the opportunity to
participate in any returns generated by such investments and provide
services related to the acquisition, financing, property management,
leasing and disposition of such investments. As a result of the Offering,
the Company has additional financial flexibility to pursue its co-
investment strategy.
OTHER MATTERS IMPACTING THE COMPANY'S BUSINESS
GENERAL ECONOMIC CONDITIONS; REAL ESTATE ECONOMIC CLIMATE
Periods of economic slowdown or recession, rising interest rates or
declining demand for real estate could result in a general decline in rents
which in turn would adversely affect revenue from property management fees
and commissions or fees derived from property sales and leases. Such
conditions could also lead to a decline in sale prices as well as a decline
in supply of capital invested in commercial real estate and related assets.
The condition of the real estate market tends to be cyclical and related to
the state of the economy as a whole, or to the perceptions of investors and
users as to the economic outlook.
RISK OF TERMINATION OR OTHER LOSS OF MANAGEMENT AGREEMENTS
The Company is substantially dependent on revenue received for
services performed under property management and leasing and investment
management agreements, and would be adversely affected if a significant
number of these agreements were terminated or were not renewed. For the
year ended December 31, 1997, revenue from property and facility management
and leasing agreements and investment management agreements constituted
approximately 31% and 32%, respectively, of total revenue. Most property
and facility management and leasing and investment management agreements
have terms of approximately three years and typically are terminable by the
client for any reason on as little as 30 to 60 days' notice. There can be
no assurance that any such contracts will be canceled prior to expiration
or will renew when the term expires. In addition, the Company derives
substantial property management and leasing and investment banking fees
from real estate assets managed by its Investment Management Group.
Contracts for these related services may be terminated or lost for a number
of reasons, including the termination or cancellation of the underlying
assets management agreement or disposition of the subject property.
DEPENDENCE ON PROPERTY PERFORMANCE
The Company's revenue from property management and leasing services
are generally based on percentages of the revenue generated by the
properties that it manages. In addition, leasing commissions typically are
based on the value of the lease revenue commitments. Accordingly, the
continued success of the Company will be dependent, in part, upon the
performance of the properties it manages. Such performance in turn will
depend in part upon the ability of the Company to attract and retain
creditworthy tenants for the properties it manages, the Company's ability
to control operating expenses (some of which are beyond the Company's
control), financial conditions prevailing generally and in the areas in
which such properties are located and the real estate market generally.
RISKS INHERENT IN PURSUING SELECTIVE ACQUISITION STRATEGIES
The Company intends to continue to selectively pursue domestic and
international acquisitions as a means of strengthening its position as a
industry leader, as well as expanding and enhancing its current product and
service offerings and geographic market coverage. The success of the
Company's acquisition strategy will be dependent upon the availability of
suitable acquisition candidates on favorable terms, of which there can be
no assurance. Further, there can be no assurance that any acquisition will
be integrated successfully into the Company's operations or will perform in
accordance with expectations or that business judgements as to the value or
consequences of any such acquisitions will prove correct. The
consideration paid for any future acquisition may be in cash, debt or
shares of the Company's capital stock. The Company could incur substantial
indebtedness or substantial goodwill or both in connection with its
acquisition strategy. In addition, issuances of additional shares of the
Company's capital stock in connection with an acquisition could result in
dilution to stockholders. See "Growth Strategy-Strategic Acquisitions".
CONCENTRATION OF PROPERTIES IN CENTRAL BUSINESS DISTRICTS
Many of the properties for which the Company provides management and
leasing or investment management services are office buildings in the
central business districts ("CBDs") of major urban cities. Rental rates
and property values of CBD office buildings have historically experienced
greater declines relative to other property types and locations during
periods of economic downturn.
RISK ASSOCIATED WITH CO-INVESTMENT ACTIVITIES
The Company continues to expand its co-investment activities. The
Company's increased participation as a principal in real estate investments
could increase fluctuations in the Company's net earnings and cash flow.
The Company's co-investments also inherently involve the risk of loss of
the Company's investment. Moreover, in certain of these investments, the
Company will not have complete discretion to control the timing of the
disposition of such investments and, as a result, the recognition of any
related gain or loss. Subsidiaries of the Company are general partners in
numerous general and limited partnerships which invest in or manage real
estate assets. As a general partner, these subsidiaries may be liable to
their partners as well as liable for the obligations of such partnerships.
Because all of the Company's general partnership interests are held through
its special purpose subsidiaries, the Company believes that its exposure to
contingent liabilities is limited to the total invested or committed
capital in and notes from or advances to such subsidiaries holding the
general partnership interests. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Pursuing Co-
investment Opportunities."
SEASONALITY
Historically, the Company's revenue, operating profits and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Seasonality."
COMPETITION
The Company competes in a variety of business disciplines within the
commercial real estate industry, including investment management, tenant
representation, corporate facility management, construction and development
management, on-site property management and leasing, and investment
banking. Each of these business disciplines is highly competitive on a
national as well as local level. Depending on the industry segment, the
Company faces competition from other real estate service providers,
institutional lenders, insurance companies, investment banking firms,
investment managers and accounting firms. Some of the Company's principal
competitors in certain of these business disciplines have greater financial
resources and a broader global presence. Many of the Company's competitors
are local or regional firms which are substantially small than the Company
on an overall basis; however, they may be substantially larger on a local
or regional basis. The Company has faced increased competition in recent
years in the Management Services and Investment Management segments of its
business which has, in some cases, resulted in lower property and
investment management fees, or compensation arrangements more closely
aligned with performance. In recent years, there has also been a
significant increase in the number of REITs which self-manage their real
estate assets, which could decrease the demand for property management
services, and thereby increase competition. In general, with respect to
each of the Company's business disciplines, there can be no assurance that
the Company will be able to continue to compete effectively, will be able
to maintain current fee or margin levels or arrangements or will not
encounter increased competition.
ENVIRONMENTAL CONCERNS
Various federal, state and local laws and regulations impose liability
on current or previous real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or
toxic substances at the property. In the Company's role as an on-site
property manager, it could be held liable as an operator for such costs.
Such liability may be imposed without regard to legality of the original
actions and without regard to whether the Company knew of, or was
responsible for, the presence of such hazardous or toxic substances, and
such liability may be joint and several with other parties. If the
liability is joint and several, the Company could be responsible for
payment of the full amount of liability, whether or not any other
responsible party is also liable. Further, any failure of the Company to
disclose environmental issues could subject the Company to liability to a
buyer or lessee of property. In addition, some environmental laws create a
lien on the contaminated site in favor of the government for damages and
costs it incurs in connection with the contamination. The operator of a
site may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating from the
site, including the presence of asbestos-containing materials. There can
be no assurance that any of such liabilities to which the Company or any of
its affiliates may become subject will not have a material adverse effect
upon the business or financial condition of the Company.
EMPLOYEES
The Company employs 1,464 people, including 1,204 professional staff
members and 260 support personnel. None of the Company's employees are
members of any labor union. Satisfactory relations have generally prevailed
between the Company and its employees.
The Company has entered into an agreement with LPI Service Corporation
("LPISC"), a company controlled by a former employee of the Company,
pursuant to which LPISC provides the services of approximately 1,900
janitorial, engineering and property maintenance workers for certain
properties managed by the Company. The Company has an option to purchase
LPISC. Approximately 440 of the employees of LPISC are members of labor
unions.
ITEM 2. PROPERTIES
The Company's principal executive office is located at 200 East
Randolph Drive, Chicago, Illinois, where the Company currently occupies
over 100,000 square feet of office space pursuant to a lease that expires
in February 2006. The Company has 10 United States corporate offices
located in Atlanta, Baltimore, Chicago, Columbus, Dallas, Denver, Los
Angeles, New York, San Francisco and Washington D.C. and eight
international corporate offices located in Amsterdam, Beijing, London,
Mexico City, New Delhi, Paris, Toronto and Shanghai. The Company's
corporate offices are each leased pursuant to agreements with terms ranging
from month-to-month to nine years. In addition, the Company has
approximately 300 property and other offices throughout the United States.
On-site property management offices are generally located within properties
under management and are provided without cost.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various litigation matters arising in
the ordinary course of business, some of which involve claims for damages
that are substantial in amount. Most of these matters are covered by
insurance. In the opinion of the Company, the ultimate resolution of such
litigation matters will not have a material adverse effect on the financial
position, results of operations and liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
stockholders during the fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed for trading on the New York Stock
Exchange under the symbol "LAP."
As of February 27, 1998, there were approximately 3,000 beneficial
holders of the Company's Common Stock.
Trading of the Common Stock on the New York Stock Exchange began on
July 17, 1997. The following table sets forth the high and low sale prices
of the Common Stock as reported on the New York Stock Exchange.
1997 High Low
---- ---
Third Quarter (July 17 through September 30) . . $36.69 $27.13
Fourth Quarter . . . . . . . . . . . . . . . . . $38.56 $28.50
The Company has not paid cash dividends on its common stock to date.
The Company intends to retain its earnings to support the expansion of the
business and therefore does not intend to pay cash dividends for the
foreseeable future. Any payment of future dividends and the amounts
thereof will be at the discretion of the Board of Directors and will depend
upon the Company's financial condition, earnings and other factors deemed
relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth summary historical consolidated and combined financial data for the Company.
The information should be read in conjunction with the consolidated and combined financial statements of the
Company and related notes and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
Year Ended December 31,
-----------------------------------------------------------------------------------------
1997 1996
Pro Forma Pro Forma
1997 1996 1995 1994 1993 (1) (1)
---------- ---------- ---------- ---------- ----------- ----------- -----------
($ in thousands, except share data)
Statement of
Operations Data:
Total revenue
(2). . . . . . . $ 224,773 159,453 138,618 116,698 95,491 232,984 189,398
Total operating
expenses (2). . . 189,659 132,552 118,502 98,683 78,478 198,333 159,221
---------- ---------- ---------- ---------- ----------- ---------- ----------
Operating profits. . 35,114 26,901 20,116 18,015 17,013 34,651 30,177
Interest expense . . 3,995 5,730 3,806 5,159 5,257 1,000 1,075
---------- ---------- ---------- ---------- ----------- ---------- ----------
Earnings before
provision for
income taxes. . . . 31,119 21,171 16,310 12,856 11,756 33,651 29,102
Net provision
for income taxes. . 5,279 1,207 505 554 300 12,956 11,204
---------- ---------- ---------- ---------- ----------- ---------- ----------
Net earnings . . . . $ 25,840 19,964 15,805 12,302 $ 11,456 20,695 17,898
========== ========== ========== ========== =========== ========== ==========
Basic earnings (4) (3) (3)
per common share. . $ 1.50 1.28 1.10
========== ========== ==========
Weighted average
shares outstanding. 16,200,000 16,200,000 16,200,000
========== ========== ==========
Diluted earnings (4) (3) (3)
per common share. . $ 1.49 1.27 1.10
========== ========== ==========
Diluted weighted
average shares
outstanding . . . . 16,329,613 16,329,555 16,329,555
========== ========== ==========
Year Ended December 31,
-----------------------------------------------------------------------------------------
1997 1996
Pro Forma Pro Forma
1997 1996 1995 1994 1993 (1) (1)
---------- ---------- ---------- ---------- ----------- ---------- -----------
($ in thousands, except share data)
Other Data:
EBITDA (5) . . . . . $ 44,207 32,317 24,356 20,866 $ 19,544 44,407 37,624
Cash flows provided
by (used in):
Operating
activities. . . . . $ 40,577 13,964 13,553 24,628 4,837 33,027 13,646
Investing
activities. . . . . (14,126) (32,478) (5,706) (4,885) (2,738) (14,367) (31,852)
Financing
activities. . . . . (3,128) 17,189 (12,365) (12,028) (6,758) (10,996) 37,605
Investments under
management (6). . . $14,700,000 15,200,000 11,500,000 10,700,000 $ 7,000,000 14,700,000 15,200,000
Total square feet-
facility manage-
ment (7). . . . . . 98,900 66,700 66,700 50,600 50,600 98,900 97,500
Total square feet
under management
(8) . . . . . . . . 202,700 131,600 125,700 102,400 98,300 202,700 200,000
Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
($ in thousands)
Balance Sheet Data:
Cash and cash
equivalents. . . . . . . . . $ 30,660 7,207 8,322 12,840 $ 5,125
Total assets . . . . . . . . . 219,887 156,614 115,001 107,055 84,512
Long-term notes payable. . . . -- 55,551 40,805 41,028 56,619
Total liabilities. . . . . . . 72,990 132,367 100,004 93,898 99,801
Total partners'
capital (deficit)/
stockholders'
equity. . . . . . . . . . . . 146,897 24,247 14,997 13,157 (15,289)
<FN>
(1) Pro forma results give effect to (i) the acquisition of Galbreath on
April 22, 1997, as adjusted for the tenant representation and investment
banking units which were not acquired, as if such acquisition had occurred
on January 1, 1996; (ii) the provision for income taxes as though the
Company and Galbreath were taxable entities as of January 1, 1996 at an
effective tax rate of 38.5%; and (iii) estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of the Company's long-term notes payable out of the proceeds of
the initial public offering as if the Offering had occurred on January 1,
1996.
(2) Current and historical revenue and operating expenses have been
reclassified to reflect personnel cost reimbursements received on property
management or specific client assignments on a net rather than gross basis.
There was no effect on operating profits or net earnings as currently or
historically reported.
(3) Pro forma basic and diluted earnings per common share are calculated
based on the 16,200,000 shares outstanding upon completion of the initial
public offering and the impact of outstanding dilutive options in
accordance with SFAS No. 128.
(4) Basic and diluted earnings per common share are calculated based on
net earnings for the period from conversion to corporate form, July 22,
1997, through December 31, 1997.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization, thereby removing the effect of certain non-
cash charges on income, such as the amortization of intangible assets
relating to acquisitions. Management believes that EBITDA is useful to
investors as a measure of operating performance, cash generation and
ability to service debt. However, EBITDA should not be considered as an
alternative either to: (i) net earnings (determined in accordance with
GAAP); (ii) operating cash flow (determined in accordance with GAAP); or
(iii) liquidity. There can be no assurance that the Company's calculation
of EBITDA is comparable to similarly titled items reported by other
companies.
(6) Investments under management represents the aggregate fair market
value or cost basis of assets managed by the Investment Management segment
as of the end of the periods shown.
(7) Represents the total square footage of properties for which the
Company provided facility management services as of the end of the periods
shown.
(8) Represents the total square footage of properties for which the
Company provided property management and leasing or facility management
services as of the end of the periods shown.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company completed its initial public offering ("Offering") on
July 22, 1997, raising net proceeds of $82.8 million. A substantial block
of the Company's stock, approximately 44.8%, is owned by employees, of
which approximately 20.4% is owned by senior management. The proceeds of
the Offering were used primarily to repay the Company's long-term debt and
related interest of $63.5 million. At December 31, 1997, the Company had
approximately $30.7 million in cash and cash equivalents, an increase of
$23.5 million over December 31, 1996 and had no outstanding debt.
The Company is pursuing a growth strategy that capitalizes on existing
client relationships and emerging industry trends. The key components of
the growth strategy include expanding client relationships to increase the
range of services provided to current clients and developing new client
relationships, broadening its international presence and selectively
pursuing strategic acquisitions and co-investment opportunities.
The Company has completed four strategic acquisitions since late 1994
and continues to consider potential acquisition candidates that have both a
strong strategic and cultural fit. Potential acquisitions will focus
primarily on the Management Services segment to enhance product and
geographic coverage, and on the international markets to complete the
Company's global expansion initiative. To date, completed acquisitions
include Alex. Brown Kleinwort Benson Realty Advisors Corporation, a real
estate investment advisor, in November 1994; CIN Property Management, a
London-based investment advisor, in October 1996; The Galbreath Company, a
property and development management company, in April 1997; and the project
management business of Satulah Group Inc., a project management/facilities
conversion company, in January 1998.
As a result of the substantial goodwill associated with acquisitions
of service companies and the related amortization, the Company believes
that EBITDA (earnings before interest expense, income taxes, depreciation
and amortization expense) is the most appropriate measure of operating
performance, cash generation and comparability among real estate service
companies. EBITDA, however, should not be considered as an alternative to
either (i) net earnings determined in accordance with GAAP; (ii) operating
cash flow determined in accordance with GAAP; or (iii) liquidity. There
can be no assurance that the Company's calculation of EBITDA is comparable
to similarly titled items reported by other companies. The Company's
EBITDA increased $11.9 million, or 36.8%, to $44.2 million in 1997 compared
to $32.3 million in 1996, which was an increase of $8,0 million, or 32.7%,
from $24.4 million in 1995.
The Company intends to accelerate its strategy of co-investing with
its investment management clients. This strategy is intended to increase
the growth of assets under management, generate return on investment and
create potential opportunities to provide services related to acquisition,
financing, property management, leasing and disposition of such
investments. As of December 31, 1997, the Company had a total investment
of $18.1 million in 42 separate property or fund co-investments with
additional capital commitments of $ 11.1 million for future fundings of co-
investments.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH TO YEAR ENDED DECEMBER 31, 1996
REVENUE
The Company's total revenue grew $65.3 million, or 41.0%, to $224.8
million in 1997 from $159.5 million in 1996. Increased revenues were
driven in part, by the acquisition of CIN and Galbreath, and also by three
additional factors: the strong U.S. economy increased inflow of capital to
the real estate market, and the Company's ability to cross-market real
estate services to its clients. The strong economy has led to job growth,
which has fueled increased demand for real estate of all types. This
increased demand has produced rising rental rates and higher investment
returns for owners, thereby attracting investment capital to the market.
The inflow of capital has led to a high level of transaction activity,
including disposition, acquisition, and financing of real estate. The
Company's ability to cross-market all of these services to its clients has
augmented the increased revenue generated by higher activity levels.
These increases have been partially offset by a decline in property
management, leasing and investment management fees from four multiple
investor funds ("Commingled Funds") formed by the Company in the 1980s. The
decline is a result of the current and continuing disposition of the funds'
assets, in accordance with the strategic plan. These asset dispositions are
expected to be completed by the end of 1998. Revenue generated from these
funds compared with total revenue was 4.5% for 1997 and 10.8% for 1996.
Revenue for the Company's Management Services segment, which
represented 38.4% of the Company's total revenue in 1997, increased $27.0
million, or 45.3%, to $86.6 million in 1997 from $59.6 million in 1996.
This increase was primarily due to the acquisition of Galbreath with
approximately 67.5 million square feet under management and, to a lesser
extent, as a result of an increase in management and leasing fees generated
from a net additional 5.6 million square feet under management for the
Company, exclusive of the Galbreath portfolio. These increases were
partially offset by a decline in revenue related to the sale of the
Commingled Fund properties discussed previously.
The Company's Corporate and Financial Services segment revenue, which
represented 27.1% of the Company's total revenue in 1997, increased $18.4
million, or 41.9%, to $62.3 million in 1997 from $43.9 million in 1996.
This record revenue resulted primarily from a $12.7 million increase in
revenue from the Company's Investment Banking business. A number of
significant tenant representation transactions and a series of transactions
generated from the unit's strategic alliances, including two of the
Company's facility management clients, accounted for the majority of the
$4.7 million increase in tenant representation revenue. Approximately 81%
of domestic tenant representation revenue in 1997 was generated from
strategic alliances with large corporations or professional service firms.
The Company's Investment Management segment revenue, which represented
34.5% of the Company's total revenue in 1997, increased $20.4 million, or
35.6%, to $77.6 million in 1997 from $57.2 million in 1996. The net gain in
revenue was primarily attributable to growth in the Company's European
advisory business resulting from the CIN acquisition and to increased
performance fees generated on the disposition of certain assets under
management. These increases were partially offset by a decline in revenue
from four of the Company's Commingled Funds discussed previously.
OPERATING EXPENSE
The Company's operating expenses increased $57.1 million, or 43.1%, to
$189.7 million in 1997 from $132.6 million in 1996. As a percentage of
total revenue, operating expenses increased to 84.4% in 1997 from 83.1% in
1996, primarily reflecting the impact of goodwill amortization associated
with the recent acquisitions. All three of the Company's segments
experienced higher levels of compensation and benefits associated with
increased staffing and higher incentive compensation associated with the
Company's increased operating profits.
Operating expenses for the Company's Management Services segment
increased $30.2 million, or 62.3%, to $78.6 million in 1997 from $48.4
million in 1996. This increase was primarily a result of increased
compensation and benefit costs, the effects of the Galbreath acquisition-
including personnel costs, amortization of intangibles resulting from the
acquisition, and transition and integration costs- and increased corporate
infrastructure costs as a result of higher staffing levels and technology
enhancements.
Operating expenses for the Corporate and Financial Services segment
increased $13.0 million, or 38.8%, to $46.4 million in 1997 from $33.5
million in 1996. The increase was principally a result of increased
incentive compensation earned by the Investment Banking and Tenant
Representation units, consistent with the increased level of operating
profits generated. In addition, the segment experienced higher employment
levels to meet the increased demand for services, and, to a lesser extent,
increased corporate infrastructure costs related to higher staffing levels
and technology enhancements.
Operating expenses for the Investment Management segment increased
$14.4 million, or 27.8%, to $66.2 million in 1997 from $51.8 million in
1996. The increase was primarily a result of increased incentive
compensation, consistent with the increased level of operating profits
generated, the effects of the CIN acquisition-including personnel costs and
amortization of intangibles resulting from the acquisition-and, to lesser
extents, to increased corporate infrastructure costs as a result of higher
staffing levels and technology enhancements, and a one-time reserve of $1.5
million established in late 1997 related to the pending liquidation of a
mid-1980 investment vehicle. These increases were partially offset by a
decrease in staffing levels from 1996 through unreplaced attrition and
redeployment of resources to other segments, in addition to reduced
employee relocation costs.
OPERATING PROFITS
As a result of the factors noted above, the Company's operating
profits increased $8.2 million, or 30.5%, to $35.1 million in 1997 from
$26.9 million in 1996. As a percentage of total revenue, operating profits
decreased to 15.6% in 1997 from 16.9% in 1996, primarily as a result of
increased amortization of intangible assets associated with the recent
acquisitions.
INTEREST EXPENSE
Interest expense decreased $1.7 million, or 30.3%, to $4.0 million in
1997 from $5.7 million in 1996, principally as a result of the repayment of
the Company's long-term debt from the net proceeds of the Offering and the
subsequent repayment of outstanding debt under its working capital facility
in July 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $4.1 million to $5.3 million
in 1997 from $1.2 million in 1996 as a result of the Company's conversion
from partnership to corporate form in July 1997 and the resulting provision
for income taxes at an effective tax rate of 38.5%. This increase was
offset by the recognition of a $6.8 million tax benefit, in accordance with
SFAS No. 109, as a result of the Company recording a deferred tax asset
arising from temporary differences between the book and tax basis of its
consolidated assets and liabilities at the date of conversion to corporate
form.
NET EARNINGS
Net earnings increased $5.9 million, or 29.4%, to $25.8 million in
1997 from $20.0 million in 1996. Net earnings in 1997 represented 11.5% of
total revenue, compared with 12.5% in the previous year as a result of
increased tax expense related to the conversion of the Company to corporate
form and the increased amortization expense related to intangible assets
associated with the recent acquisitions.
PRO FORMA RESULTS
Pro forma results give effect to (i) the acquisition of Galbreath, as
adjusted for the Tenant Representation and Investment Banking units which
were not acquired, as if the acquisition occurred on January 1, 1996; (ii)
the provision for income taxes as though the Company and Galbreath were
both taxable entities as of January 1, 1996 at an effective tax rate of
38.5%; and (iii) estimated incremental general and administrative costs
associated with operations as a public company and the repayment of the
Company's long-term notes payable out of the proceeds of the Offering as if
the Offering occurred on January 1, 1996.
On a pro forma basis, the Company's total revenue for 1997 and 1996
was $233.0 million and $189.4 million, respectively, compared with actual
results of $224.8 million and $159.5 million, respectively. Pro forma
revenue of Galbreath includes fees generated primarily from management
services activities, such as property management and leasing, facility
management and development management assignments consistent with the
Company's Management Services segment.
Pro forma operating profits were $34.7 million and $30.2 million for
1997 and 1996, respectively, compared with actual results of $35.1 million
and $26.9 million, respectively. The decrease in 1997 operating profits on
a pro forma basis is a result of the amortization of intangible assets
associated with the Galbreath acquisition, lower operating profits
generated by Galbreath in the first quarter of the year, consistent with
the real estate industry generally, and incremental expenses associated
with public ownership for the first half of the year. The increase in 1996
operating profits reflects the operations of Galbreath for a full year,
offset by the amortization of intangibles and the incremental expenses
associated with public ownership. Pro forma net earnings were $20.7
million and $17.9 million for 1997 and 1996, respectively, compared with
actual results of $25.8 million and $20.0 million, respectively. The
decrease in net earnings reflects the additional income tax provision as a
result of the conversion of the Company to corporate form, offset by a
decrease in interest expense associated with the repayment of the Company's
long-term notes payable from the net proceeds of the Offering.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUE
The Company's total revenue grew $20.8 million, or 15.0%, to $159.5
million in 1996 from $138.6 million in 1995. In general, the strong U.S.
economy in 1996 and a lack of new construction since the early 1990s
resulted in tightening supplies and rising rental rates for commercial real
estate in the United States leading to an increasing amount of public and
private capital investment. These factors generated increased revenues for
each of the Company's three segments. These increases were partially
offset by a decline in property management, leasing and investment
management fees from four multiple investor funds ("Commingled Funds")
formed by the Company in the 1980s as a result of the current and
continuing disposition of the funds assets in accordance with the strategic
plan, with asset dispositions expected to be completed by the end of 1998.
Revenue generated from these funds for the Company's three segments
compared to total revenue were 10.8% and 11.8% for 1996 and 1995,
respectively.
The Company's Management Services segment revenue, which represented
37.2% of the Company's total revenue in 1996, increased $7.1 million, or
13.6%, to $59.6 million in 1996 from $52.4 million in 1995. This increase
was primarily due to an increase in property management and leasing fees
resulting from the net addition of approximately 6 million square feet of
new property management and leasing assignments in 1996 and to an increase
in property management fees generated for a major new facility management
assignment. The Company's property management and leasing revenue was
impacted by a decline in revenue related to the Commingled Fund properties
discussed previously.
Corporate and Financial Services segment revenue, which represented
26.9% of the Company's total revenue in 1996, increased $8.3 million, or
23.2%, to $43.9 million in 1996 from $35.6 million in 1995. This revenue
growth resulted primarily from an increase in revenue from the Company's
Tenant Representation unit. A number of significant tenant representation
transactions and a series of transactions generated from a new facility
management client accounted for the majority of the increased tenant
representation revenue.
The Company's Investment Management segment revenue, which represented
35.9% of the Company's total revenue in 1996, increased $5.2 million, or
10.1%, to $57.2 million in 1996 from $52.0 million in 1995. The net gain in
revenue was primarily attributable to growth in the Company's European
advisory business resulting from the CIN Property Management acquisition in
October 1996, and, to a lesser extent, the increase in assets under
management from the Company's co-investment activities and the Company's
securities advisory business. These increases were partially offset by a
decline in investment management fees from the Company's Commingled Funds
discussed previously.
OPERATING EXPENSES
The Company's operating expenses increased $14.1 million, or 11.9%, to
$132.6 million in 1996 from $118.5 million in 1995. As a percentage of
total revenue, operating expenses declined to 83.1% in 1996 from 85.5% in
1995, reflecting the relatively fixed nature of certain administrative
expenses from 1995 to 1996 as well as the impact in 1995 of a provision for
the estimated uncollectible portion of a receivable from one of the
Company's affiliates.
Operating expenses for the Company's Management Services segment
increased $7.2 million, or 17.5%, to $48.4 million in 1996 from $41.2
million in 1995. This increase was primarily a result of increased staffing
levels to meet the demands associated with an expansion of square feet
under management, incremental expenses associated with an increased
commitment of senior personnel to the national leasing effort, and, to a
lesser extent, technology costs incurred to enhance client service and
information reporting for property management assignments.
Operating expenses for the Corporate and Financial Services segment
increased $5.5 million, or 19.9%, to $33.5 million in 1996 from $27.9
million in 1995, principally as a result of higher staffing levels to meet
the higher levels of activity throughout the year and increased incentive
compensation earned by employees consistent with increased operating
profits.
The Company's Investment Management segment operating expenses
increased $1.1 million, or 2.2%, to $51.8 million in 1996 from $50.7
million in 1995, primarily as a result of additional operating expenses and
amortization of goodwill and intangible assets associated with the
acquisition of CIN and, to a lesser extent, to employee relocation costs.
These increases were substantially offset by certain one-time expenses
incurred in 1995 related to the reorganization of this segment.
OPERATING PROFITS
Based on the factors noted above, the Company's operating profits
increased $6.8 million, or 33.7%, to $26.9 million in 1996 from $20.1
million in 1995. As a percentage of total revenue, operating profits
increased to 16.9% in 1996 from 14.5% in 1995, principally as a result of
certain one-time charges incurred in 1995 related to the Investment
Management segment reorganization and the provision for an uncollectible
receivable from one of the Company's affiliates.
INTEREST EXPENSE
Interest expense increased $1.9 million, or 50.6%, to $5.7 million in
1996 from $3.8 million in 1995, principally as a result of increased
borrowings under the Company's long-term credit facility to fund the
acquisition of CIN, technology and infrastructure investments and
additional co-investments.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased $.7 million, or
139%, to $1.2 million in 1996 from $.5 million in 1995, due to an increased
volume of transactions performed in jurisdictions with higher state taxes
and increased foreign taxes paid in connection with international
operations.
NET EARNINGS
Net earnings increased $4.2 million, or 26.3%, to $20.0 million in
1996 from $15.8 million in 1995. Net earnings in 1996 represented 12.5% of
total revenue, compared with 11.4% in the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its cash requirements primarily from operating
activities. No one client accounted for more than 10% of the Company's
total revenue in 1997, 1996 and 1995. During 1997, cash flows provided by
operations totaled $40.6 million, an increase of $26.6 million over the
1996. This increase is primarily attributable to more consistent quarterly
earnings in 1997. As compared with 1996 and 1995, in which the majority of
the years' earnings were generated in the fourth quarter with cash
collections occurring in the first quarter of the following year, the
Company experienced strong second and third quarters in 1997 with cash
being collected in the current year.
The Company continues to pursue co-investment opportunities with its
investment management clients, for which the holding period typically
ranges from three to seven years. Such co-investments are represented by
non-controlling general partner and limited partner interests. In addition
to its share of investment returns, the Company typically earns investment
management fees, and in some cases, property management and leasing fees on
these investments. The equity earnings from these co-investments have had a
relatively small impact on the Company's current earnings and cash flow.
However, the Company's increased participation as a principal in real
estate investments could increase fluctuations in the Company's net
earnings and cash flow as a result of the timing and magnitude of the gains
or losses and potential incentive participation fees, if any, to be
recognized on the disposition of the assets. In certain of these
investments, the Company will not have complete discretion to control the
timing of the disposition of such investments.
Net cash used in investing activities was $14.1 million for 1997
compared with $32.5 million for 1996. The decrease in cash used in
investing activities is principally a result of the acquisition of CIN in
October 1996 for cash of $15.7 million, and, to a lesser extent,
expenditures on furniture and fixtures at the Company's new corporate
headquarters in 1996. Although there was a decrease in cash used for
capital additions as compared with 1996, the Company anticipates that
future expenditures will exceed current year levels to continue technology
enhancements that are currently in progress. The decreases in cash used in
investing activities were partially offset by an increase in funds used for
co-investment of $2.9 million. Net cash used in investing activities
increased $26.8 million to $32.5 million in 1996 from $5.7 million in 1995
as a result of the 1996 activity previously discussed and increased co-
investment in 1996 of $5.3 million.
Historically, the Company has financed its operations, acquisitions
and co-investments with internally generated funds, ownership equity and
borrowings under revolving credit facilities. In November 1997, the Company
replaced its $70 million credit agreement, which consisted of a short-term
revolving line of credit and a long-term facility, with a $150 million,
five-year unsecured revolving credit facility. The facility is guaranteed
by certain of the Company's subsidiaries and is available for working
capital, co-investment, and acquisitions. The Company must maintain a
certain level of consolidated net worth and ratio of funded debt to EBITDA,
and must meet a minimum fixed charge coverage ratio. The Company is
restricted from incurring certain levels of indebtedness to lenders outside
of the facility and disposing of a significant portion of it assets, and is
subject to lender approval on certain levels of co-investment. The
facility bears variable rates of interest based on market rates. The
Company's effective interest rate was 6.73% and 6.85% for 1997 and 1996,
respectively.
Prior to the Offering, the Company also had outstanding $37.2 million
in subordinated debt owed to affiliates of Dai-ichi Life Property Holdings,
Inc., a significant stockholder, in the form of Class A and Class B Notes
("Notes"), each bearing interest at 10% payable annually on December 31.
The Notes and related accrued interest, which were prepayable without
penalty, were repaid from the proceeds of the Offering.
Net cash used in financing activities was $3.1 million for 1997
compared with net cash provided of $17.2 million in 1996 and net cash used
of $12.4 million for 1995. The changes in financing cash flows are
primarily a result of increased borrowing in 1996 to fund the acquisition
of CIN and infrastructure investments. An increase in cash flows from
operations during 1997 of $26.6 million resulted in a decrease in borrowing
needs. In addition, the Company received net proceeds from the Offering of
$82.8 million, of which $63.5 million was used to repay the Company's long-
term notes payable and $14.5 million was used to repay short-term
indebtedness. The Company believes, based on current operating plans that
cash generated from operations and available borrowings will be sufficient
to meet its capital and liquidity requirements for the foreseeable future.
DISPOSITION
On December 31, 1996, the Company completed the sale of its
Construction Management business, which specialized in the interior build-
out of office and retail space for tenants in the Chicago and Los Angeles
markets, to a former member of the Company's management. The business was
sold in exchange for a note of $9.1 million. The note, which is secured by
the current and future assets of the business, is due December 31, 2006.
For financial reporting purposes, the Company has not treated the
transaction as a divestiture. Principal and interest to be received under
the note will be treated as a reserve, if necessary, for any anticipated
financial exposure under the terms of the asset purchase agreement, with
the remainder recognized as income when principal and interest payments are
received. Income recognized during 1997 totaled $1.1 million, compared
with $1.3 million and $1.4 million of revenue, reflected net of related
expenses, in 1996 and 1995, respectively.
SEASONALITY
Historically, the Company's revenue, operating profits and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. This seasonality is due to a calendar year-end focus
on the completion of transactions, which is consistent with the real estate
industry generally. In addition, an increasing percentage of the Company's
management contracts contain clauses providing for performance bonuses to
be received if the Company's Management Services segment achieves certain
performance targets. Such incentive payments are generally earned in the
fourth quarter. In contrast, the Company's Investment Management segment
earns performance fees on client's returns on their real estate
investments. Such performance fees are generally earned when the asset is
disposed of, the timing of which the Company does not have complete
discretion over. The Company's non-variable operating expenses, which are
treated as expenses when incurred during the year, are relatively constant
on a quarterly basis. Therefore, the Company typically sustains a loss in
the first quarter of each calendar year, reports a small profit or loss in
the second and third quarters and records a substantial majority of the
Company's earnings in the fourth calendar quarter, barring the recognition
of investment generated performance fees. Results in 1997 were stronger in
the second and third quarters compared with previous years as a result of
performance fees recognized by the Investment Management segment as well as
a higher level of transactions completed by the Tenant Representation and
Investment Banking units as compared to prior years.
INFLATION
The Company's operations are directly affected by various national and
local economic conditions, including interest rates, the availability of
credit to finance real estate transactions and the impact of tax laws. To
date, the Company does not believe that general inflation has had a
material impact on its operations, as revenue, commissions, and other
variable costs related to revenue are primarily impacted by real estate
supply and demand rather than general inflation.
OTHER MATTERS
ACCOUNTING MATTERS
In an attempt to align its operating results with those presented by
similar companies within the industry, certain amounts have been
reclassified in the Company's current and historical revenue and operating
expenses to reflect direct personnel cost reimbursements received on
property or specific client assignments on a net, rather than a gross,
basis. There was no effect on operating profits or net earnings as
currently or historically reported.
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and No. 131 "Disclosures about Segments of an
Enterprise and Related Information" become effective for fiscal years
beginning after December 15, 1997 and will not have a material impact on
the Company's financial statements.
YEAR 2000 ISSUES
The Company conducts its business primarily with commercial software
purchased from third-party vendors. After an analysis of the Company's
exposure to the impact of the year 2000 issues, the Company has determined
that such commercial software is expected to be substantially year 2000
compliant and that completion of the year 2000 compliance is not expected
to have a material impact on its business, operations, or financial
condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Page
----
LASALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP, Independent Auditors. . . . . . . 30
Consolidated and Combined Balance Sheets as of
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . 31
Consolidated and Combined Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995 . . . . . . 34
Consolidated and Combined Statements of Stockholders'
Equity For the Years Ended December 31,
1997, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated and Combined Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995 . . . . . . 38
Notes to Consolidated and Combined Financial Statements. . . . . . 41
Quarterly Results of Operations. . . . . . . . . . . . . . . . . . 59
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS:
II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 62
All other schedules have been omitted since the required information
is presented in the financial statements and related notes or is not
applicable.
INDEPENDENT AUDITORS' REPORT
The Stockholders and
Board of Directors of
LaSalle Partners Incorporated:
We have audited the accompanying consolidated and combined balance
sheets of LaSalle Partners Incorporated and subsidiaries and their
predecessors (the "Company") as of December 31, 1997 and 1996, and the
related consolidated and combined statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. In connection with our audits of the Consolidated and
Combined Financial Statements, we have also audited the Financial Statement
Schedule II - Valuation and Qualifying Accounts for each of the year's in
the three-year period ended December 31, 1997. These consolidated and
combined financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated and combined financial statements
and financial statement schedule 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.
In our opinion, the consolidated and combined financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
Consolidated and Combined Financial Statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 16, 1998
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ in thousands)
1997 1996
--------- ---------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 30,660 7,207
Trade receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 81,648 87,283
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,312 3,005
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 1,228
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 5,104 --
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 127,779 98,723
Property and equipment, at cost, less accumulated
depreciation of $28,993 and $23,310
in 1997 and 1996, respectively . . . . . . . . . . . . . . . . . . . . 16,098 14,549
Intangibles resulting from business acquisitions,
net of accumulated amortization of $5,698 and $2,287
in 1997 and 1996, respectively . . . . . . . . . . . . . . . . . . . . 50,366 23,735
Investments in real estate ventures. . . . . . . . . . . . . . . . . . . 18,080 13,687
Long-term receivables, net . . . . . . . . . . . . . . . . . . . . . . . 6,607 5,052
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 957 868
-------- --------
$219,887 156,614
======== ========
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED BALANCE SHEETS - CONTINUED
1997 1996
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 25,781 30,786
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . 40,163 26,016
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6,100 3,442
Borrowings under working capital facility. . . . . . . . . . . . . . . -- 6,500
Current maturities of long-term notes payable. . . . . . . . . . . . . -- 9,064
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 72,044 75,808
Long-term notes payable:
Subordinated loans, less current maturities. . . . . . . . . . . . . . -- 34,106
Long-term credit facility, less current maturities . . . . . . . . . . -- 21,445
-------- --------
-- 55,551
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . 946 1,008
Commitments and contingencies
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 72,990 132,367
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED BALANCE SHEETS - CONTINUED
1997 1996
--------- ---------
Stockholders' equity:
Predecessor Partnerships' capital. . . . . . . . . . . . . . . . . . . -- 23,148
Common stock, $.01 par value per share,
100,000,000 shares authorized;
16,200,000 shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 121,778 --
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,327 --
Effect of cumulative translation adjustments . . . . . . . . . . . . . 630 1,099
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 146,897 24,247
-------- --------
$219,887 156,614
======== ========
<FN>
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands, except share data)
1997 1996 1995
------------ ------------ ------------
Revenue:
Fee-based services . . . . . . . . . . . . . . . . . $219,911 155,466 134,431
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . . . . . 3,238 3,220 3,130
Other income . . . . . . . . . . . . . . . . . . . . 1,624 767 1,057
-------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . 224,773 159,453 138,618
Operating expenses:
Compensation and benefits. . . . . . . . . . . . . . 122,126 88,159 77,974
Operating, administrative and other. . . . . . . . . 58,440 38,977 36,288
Depreciation and amortization. . . . . . . . . . . . 9,093 5,416 4,240
-------- -------- --------
Total operating expenses . . . . . . . . . . . 189,659 132,552 118,502
Operating profits. . . . . . . . . . . . . . . . . . 35,114 26,901 20,116
Interest expense . . . . . . . . . . . . . . . . . . . 3,995 5,730 3,806
-------- -------- --------
Earnings before provision
for income taxes . . . . . . . . . . . . . . . . . 31,119 21,171 16,310
Net provision for income taxes . . . . . . . . . . . . 5,279 1,207 505
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 25,840 19,964 15,805
======== ======== ========
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS - CONTINUED
1997 1996 1995
------------ ------------ ------------
Basic earnings per common share (1). . . . . . . . . . $ 1.50
=========
Weighted average shares outstanding. . . . . . . . . . 16,200,000
==========
Diluted earnings per common share (1). . . . . . . . . $ 1.49
=========
Diluted weighted average shares outstanding. . . . . . 16,329,613
==========
<FN>
(1) Earnings per share is calculated based on earnings for the period from conversion to corporate form, July
22, 1997, through December 31, 1997.
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands, except share data)
Partners'
Capital Effect of
Common Stock Additional Retained (Deficit) Cumulative
------------------- Paid-In Earnings Predecessor Translation
Shares Amount Capital (Deficit) Partnerships Adjustments Total
---------- ------ ---------- --------- ------------ ----------- ---------
Balance at January 1,
1995 . . . . . . . . . . -- -- -- -- $ 13,157 -- 13,157
Net earnings . . . . . . -- -- -- -- 15,805 -- 15,805
Distributions. . . . . . -- -- -- -- (13,965) -- (13,965)
---------- ------ -------- ------ ------- ------ --------
Balance at December 31,
1995 . . . . . . . . . . -- -- -- -- 14,997 -- 14,997
Net earnings. . . . . . -- -- -- -- 19,964 -- 19,964
Distributions . . . . . (11,813) -- (11,813)
Other . . . . . . . . . -- -- -- -- -- 1,099 1,099
---------- ------ -------- ------ ------- ------ --------
Balances at December 31,
1996 . . . . . . . . . . -- -- -- -- 23,148 1,099 24,247
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners'
Capital Effect of
Common Stock Additional Retained (Deficit) Cumulative
------------------- Paid-In Earnings Predecessor Translation
Shares Amount Capital (Deficit) Partnerships Adjustments Total
---------- ------ ---------- --------- ------------ ----------- ---------
Net earnings (through
July 21, 1997) . . . . -- -- -- -- 1,513 -- 1,513
Distributions . . . . . -- -- -- -- (14,835) -- (14,835)
Acquisition of
Galbreath common
stock. . . . . . . . . -- -- -- -- 29,292 -- 29,292
Effect of the
reorganization . . . . 12,200,000 $ 122 38,996 -- (39,118) -- --
Net proceeds from the
initial Offering . . . 4,000,000 40 82,782 -- -- -- 82,822
Other . . . . . . . . . -- -- -- -- -- (565) (565)
---------- ------ -------- ------ ------- ------ --------
Balances after the
reorganization and
initial Offering . . . . 16,200,000 162 121,778 -- -- 534 122,474
Net earnings (July 22,
1997 through
December 31, 1997). . -- -- -- 24,327 -- -- 24,327
Other . . . . . . . . . -- -- -- -- -- 96 96
---------- ------ -------- ------ ------- ------ --------
Balances at December 31,
1997 . . . . . . . . . . 16,200,000 $ 162 121,778 24,327 -- 630 146,897
========== ====== ======== ====== ======= ====== ========
<FN>
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands)
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . $ 25,840 19,964 15,805
Reconciliation of net earnings to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . 9,093 5,416 4,240
Equity in earnings and gain on sale from
unconsolidated ventures. . . . . . . . . . . . . (3,238) (3,220) (3,130)
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . . . . . 2,640 986 2,732
Operating distributions from real estate ventures. 4,018 3,571 1,078
Tax benefit on conversion to corporate form. . . . (6,842) -- --
Changes in:
Receivables. . . . . . . . . . . . . . . . . . . . 9,631 (17,234) (9,699)
Prepaid expenses and other assets. . . . . . . . . 1,864 37 172
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . . . . . (2,429) 4,444 2,355
---------- ---------- ----------
Net cash provided by
operating activities . . . . . . . . . . . 40,577 13,964 13,553
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
1997 1996 1995
------------ ------------ ------------
Cash flows provided by (used in) investing
activities:
Net capital additions--property and equipment. . . (6,277) (10,790) (5,055)
Acquisition of CIN . . . . . . . . . . . . . . . . -- (15,700) --
Cash balances assumed in Galbreath
acquisition. . . . . . . . . . . . . . . . . . . 1,008 -- --
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . . . . (16,546) (9,270) (1,941)
Distributions, repayments of advances
and sale of investments. . . . . . . . . . . . 7,689 3,282 1,290
---------- ---------- ----------
Net cash used in investing activities . . . (14,126) (32,478) (5,706)
Cash flows provided by (used in) financing
activities:
Net borrowings (repayments) under working
capital facility. . . . . . . . . . . . . . . . . (6,500) 23,000 1,600
Net borrowings (repayments) under long-term
notes payable . . . . . . . . . . . . . . . . . . (64,615) 6,002 --
Distributions to partners. . . . . . . . . . . . . (14,835) (11,813) (13,965)
Net proceeds from the initial Offering . . . . . . 82,822 -- --
---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . (3,128) 17,189 (12,365)
Effects of foreign currency translation
on cash balances. . . . . . . . . . . . . . . . . . 130 210 --
---------- ---------- ----------
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
1997 1996 1995
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . 23,453 (1,115) (4,518)
Cash and cash equivalents, January 1 . . . . . . . . 7,207 8,322 12,840
---------- ---------- ----------
Cash and cash equivalents, December 31 . . . . . . . $ 30,660 7,207 8,322
========== ========== ==========
<FN>
Supplemental disclosure of cash flow information ($ in thousands):
Interest paid was $4,195, $5,191 and $3,798 for the years ended December 31, 1997, 1996 and 1995, respectively.
Taxes paid were $9,910, $1,179, and $723 for the years ended December 31, 1997, 1996 and 1995, respectively.
On April 22, 1997, the Company acquired the common stock of Galbreath in exchange for a 17.5% limited
partnership interest valued at $29,292. Identifiable operating assets and liabilities and investments in real
estate ventures totaled $10,948, $14,099 and $1,500, respectively, in addition to cash of $1,008 as of the
acquisition date. The Company incurred transaction related expenses of $641. The increase in these assets and
liabilities, excluding cash acquired, and the resulting goodwill of $30,576 have not been reflected in the above
Consolidated and Combined Statements of Cash Flows.
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
($ in thousands, except share data)
(1) ORGANIZATION
LaSalle Partners Incorporated [successor to LaSalle Partners Limited
Partnership and LaSalle Partners Management Limited Partnership
(collectively, the "Predecessor Partnerships")] was incorporated in
Maryland on April 15, 1997, (collectively referred to as the "Company").
On July 22, 1997, the Company completed an initial public offering (the
"Offering") of 4,000,000 shares of LaSalle Partners Incorporated common
stock, $.01 par value per share (the "Common Stock"). In addition, all of
the partnership interests held in the Predecessor Partnerships were
contributed to the Company, pursuant to agreements among the general and
limited partners, in exchange for an aggregate of 12,200,000 shares of
common stock. The contribution occurred immediately prior to the closing
of the Offering. The 4,000,000 shares were offered at $23 per share,
aggregating $82,822, net of offering costs, of which $63,490 was used to
retire long-term debt and related interest.
The Predecessor Partnerships were subject to a reorganization as part
of the incorporation of the Company. Due to the existence of a paired
share arrangement between the Predecessor Partnerships and between the
former general partners of the Predecessor Partnerships, as well as the
existence of identical ownership before and after the incorporation of the
Predecessor Partnerships, such transactions were accounted for in a manner
similar to the accounting used for a pooling of interests. Thus, the
Company's financial statements include the financial positions and results
of operations of the Predecessor Partnerships at their historical basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The consolidated and combined financial statements include the
accounts of the Company and their majority-owned-and-controlled
partnerships and subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation and combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
CASH HELD FOR OTHERS
The Company controls certain cash and cash equivalents as agents for
its investment and property management clients. Such amounts, which total
$270,997 and $338,504 at December 31, 1997 and 1996, respectively, are not
included in the accompanying Consolidated and Combined Balance Sheets.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CASH FLOWS
Cash and cash equivalents include demand deposits and investments in
U.S. Treasury instruments (generally held available for sale) with
maturities of three months or less. The combined carrying value of such
investments of $19,290 and $1,000 approximates their market value at
December 31, 1997 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of" on January 1, 1996.
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or change in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying value of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell. Adoption of SFAS No. 121 did not have a
material impact on the Company's financial position, results of operations,
or liquidity.
INVESTMENTS IN REAL ESTATE VENTURES
The Company has limited and general partner interests in various real
estate ventures with interests generally ranging from less than 1% to 49.5%
which are accounted for using the equity method. In instances where the
Company exercises temporary control over co-investments, such investments
are accounted for under the equity method.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangibles resulting from business acquisitions are amortized on a
straight-line basis over the estimated lives (five to 40 years) of the
related assets. The Company periodically evaluates the recoverability of
the carrying amount of intangibles resulting from business acquisitions by
assessing whether any impairment indications are present, including
substantial recurring operating deficits or significant adverse changes in
legal or economic factors that affect the businesses acquired. If such
analysis indicates impairment, the intangible asset would be adjusted in
the period such changes occurred based on its estimated fair value, which
is derived from expected cash flow of the businesses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
receivables, accounts payable and notes payable. The estimated fair value
of cash and cash equivalents, receivables, and payables approximates their
carrying amounts due to the short maturity of these instruments. The
estimated fair value of the Company's credit facilities approximates their
carrying value due to their variable interest rate terms.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States,
except those subsidiaries located in highly inflationary economies, are
generally measured using the local currency as the functional currency. The
assets and liabilities of these subsidiaries are translated at the rates of
exchange at the balance sheet date. The resultant translation adjustments
are included as a separate component of stockholders' equity. Income and
expense are translated at average monthly rates of exchange. Gains and
losses from foreign currency transactions are included in net earnings. For
subsidiaries operating in highly inflationary economies, the associated
gains and losses from balance sheet translation adjustments are included in
net earnings. The Company enters into forward currency exchange contracts
on a limited basis to manage currency risks and reduce its exposure
resulting from fluctuations in foreign currency exchange rates. To the
extent that such exchange contracts hedge fluctuations in the designated
foreign currency associated with existing commitments, assets, or
liabilities, the associated gains and losses are deferred and are
recognized in income upon settlement of the related transaction. The
Company does not enter into derivative financial instruments for trading or
speculative purposes. At December 31, 1997, the Company had one forward
exchange contract in effect with a notional value of $3,151 with
approximately no market value and carrying value.
EARNINGS PER SHARE
Net earnings of $24,327 were used in the calculations of basic and
diluted earnings per share, and reflects earnings for the period from
conversion to corporate form, July 22, 1997, through December 31, 1997.
Basic earnings per share was based on weighted average shares outstanding
of 16,200,000 for the period. Diluted earnings per share was based on
weighted average shares outstanding of 16,329,613 for the period, which
reflects an increase of 129,613 shares representing the dilutive effect of
outstanding stock options whose exercise price was less than the average
market price of the Company's stock for the period.
REVENUE RECOGNITION
Advisory and management fees are recognized in the period in which the
services are performed. Transaction commissions are recorded as income at
the time the related services are provided unless significant future
contingencies exist. Development Management fees are generally recognized
as billed, which approximates the percentage of completion method of
accounting. Incentive fees are recorded in accordance with specific terms
of each compensation agreement and are typically tied to performance that
is measured at year end, the disposition of an asset, or at the conclusion
of a given project. Fees recognized in the current period that are
expected to be received beyond one year have been discounted to the present
value of future expected payments.
For financial statement presentation purposes, certain one-time
leasing commission payments, aggregating $10,776 in 1997, made to former
Galbreath employees related to contracts in progress at the acquisition
date have been presented as a reduction of related commission revenue.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
DEPRECIATION
Depreciation and amortization is calculated for financial reporting
purposes using the straight-line method based on the estimated useful lives
of the assets. Furniture totaling $14,865 and $14,400 at December 31, 1997
and 1996, respectively, is depreciated over seven years. Computer equipment
and software totaling $19,423 and $13,862 at December 31, 1997 and 1996,
respectively, are depreciated from three to five years. Leasehold
improvements totaling $10,803 and $9,597 at December 31, 1997 and 1996,
respectively, are amortized over the lease periods ranging from one to 10
years.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with
the 1997 presentation.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at
the date of grant. The Company follows the requirements of the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for stock-based compensation, and accordingly,
recognizes no compensation expense for stock option grants, but provides
the pro forma disclosures required by the statement of Financial Accounting
Standards ("SFAS") Statement No. 123 "Accounting for Stock-Based
Compensation".
(3) ACQUISITIONS
On April 22, 1997, the Company acquired all of the common stock of
Galbreath, a property, facility and development management company. In
consideration for the stock, the Company issued a 17.5% limited partnership
interest in the Predecessor Partnerships to the former stockholders of
Galbreath. The acquisition was accounted for as a purchase and,
accordingly, operating results of this business subsequent to the date of
acquisition are included in the accompanying Consolidated and Combined
Statements of Earnings. The excess purchase price over the fair value of
the identifiable assets and liabilities acquired was $30,576, including
transaction costs, of which $6,115 was allocated to management contracts
that are being amortized on a straight line basis over eight years and
$24,461 was allocated to goodwill which is being amortized on a straight-
line basis over 40 years based on the Company's estimate of useful lives.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
On October 17, 1996, the Company acquired all of the common stock of
CIN Property Management Limited, a London, England investment and property
management private limited liability company, for $15,709 including
transaction expenses. The name of the entity was immediately changed to CIN
LaSalle Investment Management ("CIN"). The acquisition was accounted for as
a purchase and accordingly, operating results of this business subsequent
to the date of acquisition are included in the accompanying Consolidated
and Combined Statements of Earnings. The excess purchase price over the
fair value of the identifiable assets and liabilities acquired was $15,700,
of which $4,710 was allocated to advisory contracts which are being
amortized on a straight-line basis over five years and $10,990 was
allocated to goodwill that is being amortized on a straight-line basis over
a period of 20 years based on the Company's estimate of useful lives.
The pro forma results of such acquisitions, with the exception of
Galbreath, are not material to the Company's consolidated and combined
financial statements.
(4) DISPOSITIONS
Effective December 31, 1996, the Company sold its Construction
Management business and certain related assets to a former member of
management for a $9.1 million note. The note, which is secured by the
current and future assets of the business, is due December 31, 2006 and
bears interest at rates of 6.8% to 10.0%, with interest payments due
annually. Principal payments are also due annually beginning January 1998.
Under the terms of the Asset Purchase Agreement, the Company has
agreed to provide certain administrative and financial services, at cost,
beginning in January 1997 and may provide certain financial assistance if
necessary. For financial reporting purposes, the Company has not treated
the transaction as a divestiture. The results of operations of the
Construction Management business will be accounted for similar to the
equity method of accounting. As such, principal and interest to be received
under the note will be treated as a reduction of such net assets and as a
reserve, if necessary, for any anticipated financial exposure under the
terms of the Asset Purchase Agreement with the remainder recognized as
income.
Revenue recognized under the equity method totaled $1,100 for the year
ended December 31, 1997. Revenue related to the Construction Management
business for the years ended December 31, 1996 and 1995 totaled $5,678 and
$4,977, respectively. For financial statement presentation purposes, the
1996 and 1995 revenues have been presented net of related expenses totaling
$4,407 and $3,619, respectively, as part of Fee Based Services revenue in
the accompanying Consolidated and Combined Statements of Earnings.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(5) BUSINESS SEGMENTS
The Company's operations have been classified into three business
segments: Management Services, Corporate and Financial Services and
Investment Management. The Management Services segment provides three
primary service capabilities: (i) property and facility management and
leasing for property owners; (ii) development management for both investors
and real estate users seeking to develop new buildings or renovate existing
facilities; and (iii) project management of tenant improvements in both
owner-occupied and leased space. The Corporate and Financial Services
segment provides transaction and advisory services through three primary
service capabilities, including: (i) tenant representation for corporations
and professional services firms; (ii) investment banking services to
address the financing, acquisition, and disposition needs of real estate
owners; and (iii) land acquisition services for owners and users of land.
The Investment Management segment provides real estate investment
management services to institutional investors, corporations and high net
worth individuals.
Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. The Company allocates
all expenses, other than interest and income taxes, as substantially all
expenses incurred benefit one or more of the segments. Identifiable assets
by segment are those assets that are used by or are a result of each
segment's business. Corporate assets are principally cash and cash
equivalents, office furniture and leasehold improvements.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Summarized financial information by business segment for 1997, 1996 and 1995 is as follows:
1997 1996 1995
-------- -------- --------
Management Services
Segment revenue:
Property and facility management fees. . . . . . . $ 43,547 32,143 28,941
Leasing fees . . . . . . . . . . . . . . . . . . . 25,159 14,819 13,951
Development management . . . . . . . . . . . . . . 8,853 5,825 3,125
Project management . . . . . . . . . . . . . . . . 7,994 6,297 4,817
Intersegment revenue . . . . . . . . . . . . . . . 195 200 1,370
Equity in earnings from unconsolidated ventures. . 340 -- --
Other income . . . . . . . . . . . . . . . . . . . 464 281 212
-------- -------- --------
86,552 59,565 52,416
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 75,039 46,794 40,015
Depreciation and amortization. . . . . . . . . . . 3,605 1,651 1,202
-------- -------- --------
Operating profits. . . . . . . . . . . . . . $ 7,908 11,120 11,199
======== ======== ========
Identifiable assets. . . . . . . . . . . . . . . . . $ 67,528 26,096
======== ========
Corporate and Financial Services:
Segment revenue
Tenant representation. . . . . . . . . . . . . . . $ 33,485 28,793 21,354
Investment banking . . . . . . . . . . . . . . . . 19,401 6,664 6,908
Land fees. . . . . . . . . . . . . . . . . . . . . 5,955 4,536 3,675
Construction operations. . . . . . . . . . . . . . 1,100 1,271 1,358
Equity in earnings from unconsolidated ventures. . 476 1,380 2,171
Intersegment revenue . . . . . . . . . . . . . . . 1,464 1,000 --
Other income . . . . . . . . . . . . . . . . . . . 422 253 154
-------- -------- --------
62,303 43,897 35,620
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
1997 1996 1995
-------- -------- --------
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 45,240 32,410 27,029
Depreciation and amortization. . . . . . . . . . . 1,197 1,055 890
-------- -------- --------
Operating profits. . . . . . . . . . . . . . $ 15,866 10,432 7,701
======== ======== ========
Identifiable assets. . . . . . . . . . . . . . . . . $ 38,464 51,914
======== ========
Investment Management
Segment revenue:
Advisory fees. . . . . . . . . . . . . . . . . . . $ 70,817 52,217 44,327
Acquisition fees . . . . . . . . . . . . . . . . . 3,600 2,939 6,411
Equity in earnings from unconsolidated ventures. . 2,422 1,840 959
Other income . . . . . . . . . . . . . . . . . . . 738 195 255
-------- -------- --------
77,577 57,191 51,952
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 61,946 49,132 48,588
Depreciation and amortization. . . . . . . . . . . 4,291 2,710 2,148
-------- -------- --------
Operating profits. . . . . . . . . . . . . . $ 11,340 5,349 1,216
======== ======== ========
Identifiable assets. . . . . . . . . . . . . . . . . $ 52,883 54,798
======== ========
Total segment revenue. . . . . . . . . . . . . . . . . $226,432 160,653 139,988
Intersegment revenue eliminations. . . . . . . . . . . (1,659) (1,200) (1,370)
-------- -------- --------
Total revenue. . . . . . . . . . . . . . . . $224,773 159,453 138,618
======== ======== ========
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
1997 1996 1995
-------- -------- --------
Total segment operating expenses . . . . . . . . . . . $191,318 133,752 119,872
Intersegment operating expense eliminations. . . . . . (1,659) (1,200) (1,370)
-------- -------- --------
Total operating expenses . . . . . . . . . . $189,659 132,552 118,502
======== ======== ========
Total operating profits. . . . . . . . . . . $ 35,114 26,901 20,116
======== ======== ========
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
The Company maintains operations and provides services outside of the
United States. International revenue aggregated $25,621, $7,676 and $5,164
in 1997, 1996 and 1995, respectively. Identifiable assets of such
operations aggregated $22,859 and $26,702 at December 31, 1997 and 1996,
respectively.
(6) PROFORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma consolidated and combined statements of
earnings give effect to the acquisition of the common stock of Galbreath,
as adjusted for the Tenant Representation and Investment Banking units
which were not acquired, the incorporation of the Company and the initial
public offering, including the receipt and application of the net proceeds
therefrom to repay long-term indebtedness and related interest, as if these
events occurred on January 1, 1996.
The pro forma adjustments are based upon available information and
certain assumptions that management of the Company believes are reasonable.
The pro forma consolidated and combined financial statements are not
necessarily indicative of what the actual results of operations would have
been for the 12 month periods ended December 31, 1997 and 1996 had the
Company completed the acquisition of the Galbreath common stock and
consummated its conversion to corporate form and the Offering transactions
as of the dates indicated nor does it purport to represent the future
financial position or results of operations of the Company.
PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
1997 1996
---------- ----------
Revenue:
Fee based services . . . . . . . . $ 227,762 183,349
Equity in earnings from
unconsolidated ventures. . . . . 3,311 3,792
Other income . . . . . . . . . . . 1,911 2,257
---------- ----------
Total revenue. . . . . . . . . 232,984 189,398
Operating expenses:
Compensation and benefits. . . . . 127,210 104,294
Operating, administrative,
and other. . . . . . . . . . . . 61,367 47,480
Depreciation and amortization. . . 9,756 7,447
---------- ----------
Total operating expenses . . . 198,333 159,221
---------- ----------
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
1997 1996
---------- ----------
Operating profits. . . . . . . 34,651 30,177
Interest expense . . . . . . . . . . 1,000 1,075
---------- ----------
Earnings before provision
for income taxes . . . . . . 33,651 29,102
Net provision for income taxes . . . 12,956 11,204
---------- ----------
Net earnings . . . . . . . . . $ 20,695 17,898
========== ==========
Basic earnings per common share. . . $ 1.28 1.10
========== ==========
Weighted average shares
outstanding. . . . . . . . . . . . 16,200,000 16,200,000
========== ==========
Diluted earnings per
common share . . . . . . . . . . . $ 1.27 1.10
========== ==========
Diluted weighted average
shares outstanding . . . . . . . . 16,329,555 16,329,555
========== ==========
Pro forma total revenue and operating expenses for Galbreath include
activities such as property management and leasing, facility management and
development management. Additional adjustments to operating expenses were
made for estimated incremental general and administrative costs associated
with operations as a public company totaling $563 and $750 for 1997 and
1996, respectively. As a result of the repayment of the Company's long-
term notes payable out of the proceeds of the Offering, the related actual
interest expense totaling $2,955 and $4,655 for 1997 and 1996,
respectively, has been eliminated in the pro forma results. The pro forma
results further include an additional provision for income taxes totaling
$7,677 and $9,787 for 1997 and 1996, respectively, giving effect to the
conversion of the Company and Galbreath to taxable entities.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(7) INVESTMENTS IN REAL ESTATE VENTURES
The Company has invested in certain real estate ventures that own and
operate commercial real estate. These investments include noncontrolling
general and limited partnership ownership interests generally ranging from
less than 1% to 49.5% of the respective ventures. The Company has made
initial capital contributions to the ventures and has remaining commitments
to certain ventures for additional capital contributions of approximately
$11,075 as of December 31, 1997. Substantially all venture interests are
held by corporate subsidiaries of the Company. Accordingly, the Company's
exposure to liabilities and losses of the ventures is limited to its
initial and remaining commitments.
Such investments have been accounted for under the equity method of
accounting in the accompanying Consolidated and Combined Financial
Statements. As such, the Company recognizes its share of the underlying
profits and losses of the ventures as revenue in the accompanying
Consolidated and Combined Statements of Earnings. The Company generally is
entitled to operating distributions in accordance with its respective
ownership interests.
Summarized combined financial information for the above unconsolidated
ventures is presented below:
1997 1996 1995
---------- ---------- ----------
Balance Sheet:
Investments in real estate . . .$1,236,217 1,043,074
Total assets . . . . . . . . . .$1,406,236 1,167,413
========== ==========
Mortgage indebtedness. . . . . .$ 579,310 567,971
Total liabilities. . . . . . . .$ 631,807 617,635
========== ==========
Total equity . . . . . . . . . .$ 774,429 549,778
========== ==========
Investments in unconsolidated
ventures . . . . . . . . . . . . .$ 17,100 12,562
Statements of Operations:
Revenues . . . . . . . . . . . .$ 288,709 212,048 187,720
Net earnings . . . . . . . . . .$ 96,725 35,333 31,783
========== ========== ==========
Equity in earnings from
unconsolidated ventures. . . . . .$ 3,238 3,220 3,130
========== ========== ==========
During 1997, the Company made loans to certain of these real estate
ventures, of which $4,716 was outstanding at December 31, 1997 and is
included in other receivables in the accompanying Consolidated and Combined
Balance Sheet. These notes, which carried an interest rate of
approximately 9.0%, were substantially repaid in January 1998. The Company
also has investments that are accounted for using the cost method that
totaled $980 and $1,125 at December 31, 1997 and 1996, respectively.
Certain of the Company's capital contributions to the ventures are
represented by notes payable that totaled $618 and $1,008 at December 31,
1997 and 1996, respectively. Such notes are generally interest bearing and
mature in 2000.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(8) DEBT
CREDIT FACILITY
In November 1997, the Company replaced its $70,000 credit agreement,
which consisted of a short-term revolving line of credit and a long-term
facility, with a $150,000, five year unsecured revolving credit facility.
The facility is guaranteed by certain of the Company's subsidiaries and is
available for working capital, co-investment and acquisitions. The Company
must maintain a certain level of consolidated net worth and ratio of funded
debt to earnings before interest expense, income taxes, depreciation and
amortization expense, and must meet a minimum fixed charge coverage ratio.
The Company is restricted from incurring certain levels of indebtedness to
lenders outside of the facility, disposing of a significant portion of its
assets, and is subject to lender approval on certain levels of co-
investment. The facility bears variable rates of interest based on market
rates and requires the Company to pay a commitment fee of .15% per annum on
the unused portion of the commitment. The Company's effective interest
rate was 6.73% and 6.85% in 1997 and 1996, respectively. The Company had
no outstanding debt on the facility at December 31, 1997 compared with
$6,500 and $27,402 on the short-term and long-term facility, respectively,
at December 31, 1996.
SUBORDINATED LOANS
Subordinated loans consisted of Class A and Class B unsecured notes
payable to two former limited partners of the Predecessor Partnerships.
The amounts outstanding on the Class A and Class B notes, which were
$37,213 at December 31, 1996, were repaid out of the proceeds of the
Offering.
(9) LEASES
The Company leases office space in various buildings for its own use
with remaining lease terms ranging from one to nine years. The terms of
these operating leases provide for the Company to pay base rent and a share
of increases in operating expenses and real estate taxes in excess of
defined amounts.
Minimum future lease payments (i.e., base rent) due in each of the
next five years ending December 31 are as follows:
AMOUNT
------
1998 . . . . . . . . . . $ 4,556
1999 . . . . . . . . . . 4,475
2000 . . . . . . . . . . 4,450
2001 . . . . . . . . . . 3,748
2002 . . . . . . . . . . 3,221
Thereafter . . . . . . . 10,912
-------
$31,362
=======
Rent expense was $7,146, $6,117 and $5,597, during 1997, 1996 and
1995, respectively. Of these amounts, $218, and $2,560 were paid to
affiliates during 1996 and 1995, respectively.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(10) INCOME TAXES
For the period prior to the incorporation of the Predecessor
Partnerships, the accompanying Consolidated and Combined Statements of
Earnings include a federal and state income tax provision for wholly owned
corporate subsidiaries and a state tax provision for certain states that
require partnerships to pay income taxes. For the period January 1, 1997
through July 21, 1997, such amounts aggregated $1,112. No other provision
for income taxes was made for those periods as the liability for such taxes
would have been that of the respective partners of the Predecessor
Partnerships. As a result of the Company's conversion from partnership to
corporate form in July 1997, a tax benefit of $6,842 was recognized related
to deferred tax assets recorded in accordance with the provisions of SFAS
No. 109 arising from temporary differences between the book and tax basis
of the Company's assets and liabilities at the date of conversion.
Subsequent to conversion, the Company's provision for income taxes
aggregated $11,009 and consisted of the following:
Current Deferred Total
------- -------- -------
U.S. Federal . . . . $3,930 2,656 $ 6,586
State and local. . . 823 1,000 1,823
Foreign. . . . . . . 2,600 -- 2,600
------ ------ -------
$7,353 3,656 $11,009
====== ====== ======
Income tax expense for the period subsequent to conversion differed
from the amounts computed by applying the U.S. federal income tax rate of
35% to earnings before provision for income taxes ($28,596 for the period
July 22, 1997 through December 31, 1997) as a result of the following:
Computed "expected" tax expense. . . . $10,009 35.0%
Increase (reduction) in income
taxes resulting from:
State and local income taxes,
net of federal income
tax benefit. . . . . . . . . . . 1,185 4.1%
Amortization of goodwill . . . . . (573) (2.0%)
Other, net . . . . . . . . . . . . 388 1.4%
------- -----
$11,009 38.5%
======= =====
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
December 31, July 22,
1997 1997
----------- ----------
Deferred Tax Assets:
Foreign tax credit carryforwards . . $2,600 --
Accrued expenses . . . . . . . . . . 2,205 7,139
Property and equipment . . . . . . . 1,397 1,166
Allowances for uncollectible
accounts . . . . . . . . . . . . . 2,208 2,208
Other. . . . . . . . . . . . . . . . 554 1,475
------ ------
$8,964 11,988
====== ======
Deferred Tax Liabilities:
Investments in real estate
ventures . . . . . . . . . . . . . $2,820 2,602
Other. . . . . . . . . . . . . . . . 1,065 651
------ ------
$3,885 3,253
====== ======
There is no valuation allowance for deferred tax assets as of December
31, 1997. In assessing whether the deferred tax assets are realizable,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversals of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over
the periods during which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the
benefits of these deductible differences. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
As of December 31, 1997, the Company has available $2,600 of foreign
tax credit carryforwards for U.S federal income tax purposes, which expire
in 2002. Current income taxes receivable at December 31, 1997 was $916.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(11) STOCK OPTION AND STOCK COMPENSATION PLANS
RETIREMENT PLAN
The Company has a qualified profit sharing plan that incorporates IRC
Section 401(k) for its eligible employees. Contributions under the
qualified profit sharing plan are made via a combination of employer match
and an annual contribution on behalf of eligible employees. Included in
the accompanying Consolidated and Combined Statements of Earnings for the
years ended December 31, 1997, 1996 and 1995 are contributions of $1,652,
$1,009 and $689, respectively.
Related trust assets of the Plan are managed by trustees and are
excluded from the accompanying Consolidated and Combined Financial
Statements.
STOCK AWARD AND INCENTIVE PLAN
In 1997, the Company adopted a stock award and incentive plan that
provides for the granting of options to eligible participants of the
Company to purchase a specified number of shares of common stock. Under
the plan, the total number of shares of common stock available to be issued
is 2,215,000. The options are granted at the market value of common stock
at the date of grant. The options vest at such times and conditions as the
Compensation Committee of the Board of Directors of the Company determines
and sets forth in the award agreement. Such options granted in 1997 vest
over a period of one to six years. Certain options having a six-year
vesting period are subject to an accelerated vesting schedule based on the
future average stock price. At December 31, 1997, there were 1,477,000
additional shares available for grant under the stock award and incentive
plan. In January 1998, the Company issued 373,677 additional options.
The per share weighted-average fair value of options granted during
1997 was $11.63 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: expected dividend
yield of 0.00%, risk-free interest rate of 6.95%, expected life from six to
nine years, and expected volatility rate of 16.50%. The options granted in
1997 have a contractual term of seven to 10 years.
The Company accounts for its stock option and compensation plans under
the provisions of SFAS No. 123, which allows entities to continue to apply
the provisions of APB No. 25 and provide pro forma net income and net
income per share disclosures for employee option grants as if the fair-
value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB No. 25 in accounting for its
stock award and incentive plan, and, accordingly, no compensation cost has
been recognized for its stock award and incentive plan in the Consolidated
and Combined Financial Statements. Had the Company determined compensation
cost based upon the fair value at the date of grant for its options as set
forth under SFAS No. 123, the Company's net earnings basic earnings per
common share and diluted earnings per common share for the period July 22,
1997 through December 31, 1997, would have been $23,924, $1.48 and $1.47,
respectively.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Stock option activity during 1997 is as follows:
Shares Weighted-
(000) Average
------ ---------
Outstanding at beginning of year . . . -- $ --
Granted. . . . . . . . . . . . . . . . 740.5 23.29
Exercised. . . . . . . . . . . . . . . -- --
Forfeited. . . . . . . . . . . . . . . (2.5) 23.00
-----
Outstanding at end of year . . . . . . 738.0 $23.29
=====
At December 31, 1997, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was $23.00-$35.06
and 9.5 years, respectively. At December 31, 1997, none of the options
were exercisable.
OTHER STOCK COMPENSATION PROGRAMS
The Company maintains other stock compensation programs for eligible
employees. Under these plans, the employee contributions for stock
purchases will be enhanced by the Company through an additional
contribution of 15%. Employee contributions vest immediately while Company
contributions are subject to various vesting periods. The related
compensation cost is amortized to expense over the vesting period.
(12) TRANSACTIONS WITH AFFILIATES
Certain employees of the Company have an ownership interest in Diverse
Real Estate Holdings Limited Partnership ("Diverse"). Diverse has an
ownership interest in and operates investment assets, primarily as the
managing general partner of real estate ventures. Included in the
accompanying Consolidated and Combined Balance Sheets is a long-term
receivable, net of allowance, from Diverse totaling $1,663 and $2,413 at
December 31, 1997 and 1996, respectively.
Certain officers of the Company are trustees for real estate funds
that were organized by a subsidiary. The Company earns advisory and
management fees for services rendered to the funds. Included in the
accompanying Consolidated and Combined Financial Statements are revenues of
$4,209, $10,306 and $10,502 for 1997, 1996 and 1995, respectively, as well
as receivables of $496 and $1,292 at December 31, 1997 and 1996,
respectively, related to such services.
The Company also earns fees and commissions for services rendered to
affiliates of Dai-Ichi Life Property Holdings, Inc. and Galbreath Holdings,
LLC, two significant stockholders, real estate ventures in which the
Company has an equity interest, and ventures in which Diverse has an
ownership interest. Included in the accompanying Consolidated and Combined
Financial Statements are revenues from such affiliates of $32,957, $18,866
and $17,310 for 1997, 1996 and 1995, respectively, as well as receivables
for reimbursable expenses and revenues as of December 31, 1997 and 1996 of
$6,159 and $5,746, respectively.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONCLUDED
(13) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various litigation matters arising in
the ordinary course of business, some of which involve claims for damages
that are substantial in amount. Most of these litigation matters are
covered by insurance. In the opinion of management, the ultimate resolution
of such litigation matters will not have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
(14) SUBSEQUENT EVENTS
On January 2, 1998, the Company acquired the project management
business of Satulah Group Inc., a national project and facility management
service provider for approximately $6,400.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited combined statements
of earnings data for each of the Company's last eight quarters. In the
opinion of management, this information has been presented on the same
basis as the audited consolidated and combined financial statements
appearing elsewhere in this report, and includes all adjustments,
consisting only of normal recurring adjustments and accruals, that the
Company considers necessary for a fair presentation. The unaudited
consolidated and combined quarterly information should be read in
conjunction with the Company's Consolidated and Combined Financial
Statements and the notes thereto. The operating results for any quarter
are not necessarily indicative of the results for any future period.
LA SALLE PARTNERS INCORPORATED
QUARTERLY INFORMATION
UNAUDITED
1997
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1)(2):
Management Services. . . . . . . . . . . . . . . . . $ 10,782 18,839 22,067 34,672 $ 86,360
Corporate and Financial Services . . . . . . . . . . 4,527 14,339 12,996 28,975 60,837
Investment Management. . . . . . . . . . . . . . . . 16,397 24,740 16,795 19,644 77,576
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 31,706 57,918 51,858 83,291 $224,773
Operating profits (loss) (1) . . . . . . . . . . . . . $ (3,272) 9,203 5,951 23,232 $ 35,114
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (4,719) 6,940 7,610 16,009 $ 25,840
Basic earnings per common share (3). . . . . . . . . . $ 0.51 0.99 1.50
Diluted earnings per common share (3). . . . . . . . . $ 0.51 0.98 1.49
1996
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1)(2):
Management Services. . . . . . . . . . . . . . . . . $ 8,918 12,840 14,945 22,662 $ 59,365
Corporate and Financial Services . . . . . . . . . . 3,217 6,267 8,036 25,377 42,897
Investment Management. . . . . . . . . . . . . . . . 11,186 12,078 11,676 22,251 57,191
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 23,321 31,185 34,657 70,290 $159,453
Operating profits (loss) (1) . . . . . . . . . . . . . $ (5,205) 420 2,923 28,763 $ 26,901
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (5,792) (645) 923 25,478 $ 19,964
LA SALLE PARTNERS INCORPORATED
QUARTERLY INFORMATION - CONTINUED
<FN>
(1) Excludes intersegment revenue and intersegment expense.
(2) Current and historical management revenue and operating expenses have
been reclassified to reflect personnel cost reimbursements received on
property or specific client assignments on a net rather than gross basis.
There was no effect on operating profits or net earnings as currently or
historically reported.
(3) Basic and diluted earnings per common share are based on earnings for
the period from conversion to corporate from, July 22, 1997 through
December 31, 1997.
LASALLE PARTNERS INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
Additions
Balance at -------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Periods
- ----------- ---------- ---------- ---------- ---------- ----------
1997
Accounts Receivable
Reserves . . . . . . . . . $1,900 2,640 1,530(B) 3,391(A) $2,679
1996
Accounts Receivable
Reserves . . . . . . . . . 1,900 986 -- 986(A) 1,900
1995
Accounts Receivable
Reserves . . . . . . . . . -- 2,732 -- 832(A) 1,900
(A) Includes primarily write-offs of uncollectible accounts
(B) Represents reserve acquired as a result of the Galbreath acquisition
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the material in the Company's Proxy Statement for the 1998 Annual Meeting
of Stockholders (the "Proxy Statement") under the captions "Election of
Directors," "Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the material appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements
See Index to Consolidated and Combined Financial
Statements in Item 8 of this report.
2. Financial Statement Schedule:
See Index to Consolidated and Combined Financial
Statements in Item 8 of this report.
3. Exhibits
A list of exhibits is set forth in the Exhibit Index
which immediately precedes the exhibits and which is incorporated by
reference herein.
(b) Reports on Form 8-K:
No reports on Form 8-K were files during the fourth
quarter of 1997.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, in Item 1. "Business", Item 3.
"Legal Proceedings", Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and other narrative text,
captions, graphics, and elsewhere (such as in other reports by the Company,
filings by the Company with the Securities and Exchange Commission, press
releases, presentations and communications by the Company or its management
and written and oral statements) constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance, achievements, plans and objectives of the Company to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in this report, in Item 1.
"Business", Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere, in the Company's
Registration Statement (No. 333-25741) with respect to the Offering, under
"Risk Factors" and elsewhere, and in other reports filed by the Company
with the Securities and Exchange Commission and include, among other
things, the following: (i) the impact of general economic conditions and
the real estate economic climate on the Company's business and results of
operations; (ii) the risk that property management and investment
management agreements will be terminated prior to expiration or not
renewed; (iii) the dependence of the Company's revenue from property
management and leasing services on the performance of the properties
managed by the Company; (iv) the risks inherent in pursuing a selective
acquisition strategy; (v) the concentration of the Company's business in
properties in central business districts; (vi) the risks associated with
the co-investment activities of the Company; (vii) the seasonal nature of
the Company's revenue, operating income and net earnings; and (viii) the
competition faced by the Company in a variety of business disciplines
within the commercial real estate industry. The Company expressly
disclaims any obligation or undertaking to update or revise any forward-
looking statements to reflect any change in events or circumstances or in
the Company's expectations or results.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of LaSalle Partners
Incorporated, a Maryland corporation, and the undersigned Directors and
officers of LaSalle Partners Incorporated, hereby constitutes and appoints
Stuart L. Scott, Robert C. Spoerri, William E. Sullivan and Vivian I. Mumaw
its, his or her true and lawful attorneys-in-fact and agents, for it, him
or her and in its, his or her name, place and stead, in any and all
capacities, with full power to act alone, to sign any and all amendments to
this report, and to file each such amendment to this report, with all
exhibits thereto, and any and all documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as it,
he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the
City of Chicago, State of Illinois, on the 27th day of March, 1998.
LaSalle Partners Incorporated
/s/ STUART L. SCOTT
-----------------------------
By: Stuart L. Scott
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 27th day of March, 1998.
SIGNATURE TITLE
- --------- -----
/S/ STUART L. SCOTT
- --------------------------
Stuart L. Scott Chairman of the Board of
Directors and Chief Executive
Officer
(Principal Executive Officer)
/S/ ROBERT C. SPOERRI
- --------------------------
Robert C. Spoerri President, Chief Operating
Officer and Director
/S/ WILLIAM E. SULLIVAN
- --------------------------
William E. Sullivan Executive Vice President,
Chief Financial Officer,
Secretary and Director
(Principal Financial Officer
and Principal Accounting Officer)
/S/ DANIEL W. CUMMINGS
- --------------------------
Daniel W. Cummings Co-President--LaSalle Advisors
Capital Management, Inc. and
Director
/S/ CHARLES K. ESLER
- --------------------------
Charles K. Esler President and Chief Executive
Officer--LaSalle Partners
Management Services, Inc.
and Director
/S/ M. G. ROSE
- --------------------------
M. G. Rose President, Tenant Representation
Division--LaSalle Partners
Management Services, Inc.
and Director
SIGNATURE TITLE
- --------- -----
/S/ LYNN C. THURBER
- --------------------------
Lynn C. Thurber Co-President--LaSalle Advisors
Capital Management, Inc. and
Director
- --------------------------
Earl E. Webb Managing Director, Investment
Banking Division, -- LaSalle
Partners Corporate & Financial
Services, Inc. and Director
/S/ LIZANNE GALBREATH
- --------------------------
Lizanne Galbreath Chairman, LaSalle Partners
Management Services, Inc. and
Director
/S/ DARRYL HARTLEY-LEONARD
- --------------------------
Darryl Hartley-Leonard Director
/S/ THOMAS C. THEOBALD
- --------------------------
Thomas C. Theobald Director
/S/ JOHN R. WALTER
- --------------------------
John R. Walter Director
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Subscription Agreement (Incorporated by reference to
Exhibit 2.01 to the Registrant's Registration Statement No. 333-25741).
3.1 Articles of Amendment and Restatement of LaSalle Partners
Incorporated (Incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
3.2 Amended and Restated Bylaws of LaSalle Partners
Incorporated (Incorporated by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
4.1 Form of certificate representing shares of Common Stock
(Incorporated by reference to Exhibit 4.01 to the Registrant's Registration
Statement No. 333-25741).
10.1 Multicurrency Credit Agreement, dates as of November 25,
1997, among LaSalle Partners Incorporated, the Guarantors party thereto,
the Banks from time to time party thereto and Harris Trust and Savings
Bank, as Agent.
10.2 Contribution and Exchange Agreement, dated as of
April 21, 1997, by and among DEL-LPL Limited Partnership, DEL-LPAML Limited
Partnership, LaSalle Partners Limited Partnership, LaSalle Partners
Management Limited Partnership, The Galbreath Company, The Galbreath
Company of California, Inc., Galbreath Holdings, LLC and the Stockholders
of The Galbreath Company (Incorporated by reference to Exhibit 10.08 to the
Registrant's Registration Statement No. 333-25741).
10.3 Agreement for the sale and purchase of shares in CIN
Property Management Limited, dated October 8, 1996, by and between British
Coal Corporation and LaSalle Partners International (Incorporated by
reference to Exhibit 10.09 to the Registrant's Registration Statement No.
333-25741).
10.4 Asset Purchase Agreement, dated as of December 31, 1996,
by and among LaSalle Construction Limited Partnership, LaSalle Partners
Limited Partnership, Clune Construction Company, L.P. and Michael T. Clune
(Incorporated by reference to Exhibit 10.10 to the Registrant's
Registration Statement No. 333-25741).
10.5 LaSalle Partners Incorporated 1997 Stock Award and
Incentive Plan (Incorporated by reference to Exhibit 99.2 to the
Registrant's Registration Statement No. 333-42193).
10.6 LaSalle Partners Incorporated Employee Stock Purchase
Plan (Incorporated by reference to Exhibit 99.1 to the Registrant's
Registration Statement No. 333-42193).
10.7 LaSalle Partners Incorporated Stock Compensation Program
(Incorporated by reference to Exhibit 99.3 to the Registrant's Registration
Statement No. 333-42193).
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.8 Description of Management Incentive Plan
10.9 Registration Rights Agreement, dated as of April 22,
1997, by and among the LaSalle Partners Incorporated, DEL-LPL Limited
Partnership, DEL-LPAML Limited Partnership, DSA-LSPL, Inc., DSA-LSAM, Inc.
and Galbreath Holdings, LLC (Incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement No. 333-25741.)
10.10 Form of Indemnification Agreement with Executive Officers
and Directors
10.11 Consent Agreement, dated as of April 15, 1997, by and
among DSA-LSPL, Inc., DSA-LSAM, Inc., DEL-LPL Limited Partnership, DEL-
LPAML Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (Incorporated by reference to Exhibit 10.16 to the Registrant's
Registration Statement No. 333-25741.)
10.12 Consent Agreement, dated as of April 22, 1997, by and
among the Stockholders of The Galbreath Company and The Galbreath Company
of California, Inc., Galbreath Holdings, LLC, DEL-LPL Limited Partnership,
DEL-LPAML Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (Incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement No. 333-25741.)
21.1 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP, independent auditors
24.1 Power of Attorney (Set forth on page preceding signature
page of this report.)
27.1 Financial Data Schedule