UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 1, 1998
LASALLE PARTNERS INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 1-13145 36-4150422
- ------------------------ ------------------------ ---------------
(State or other juris- (Commission File Number) (IRS Employer
diction of incorporation Identification
or organization) 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
Not Applicable
-------------------------------------------------------------
(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 1, 1998, LaSalle Partners Incorporated ("LaSalle") acquired all
of the common stock of the following real estate service companies formerly
owned by Lend Lease Corporation Limited ("Lend Lease"): Compass Management
and Leasing, Inc. and its wholly owned subsidiaries, The Yarmouth Group
Property Management, Inc., and ERE Yarmouth Retail, Inc. (formerly Compass
Retail, Inc.). Completion of the acquisition of Compass Management and
Leasing (Australia) Pty Limited, the Lend Lease property and facility
management business in Australia, is anticipated to occur shortly, pending
satisfaction of certain conditions, including licensing approvals. The
acquired companies, collectively referred to as "Compass", provide property
management and leasing, facility management and project management services
in the United States, United Kingdom, Australia and Brazil and will be
combined with LaSalle Partners Management Services, Inc., a wholly owned
subsidiary of LaSalle. The combined business, which is headquartered in
Chicago, Illinois, employs approximately 2,000 corporate employees.
LaSalle paid $167 million in cash for the acquired companies and will pay
an additional $13 million for the Australian operations. The total
purchase price of $180 million, before transaction costs of $4.1 million,
is being funded via a new $175 million credit facility priced at LIBOR plus
87.5 basis points and borrowings on LaSalle's existing revolving credit
facility. The new facility, which is placed with a syndicate of seven
banks which are First National Bank of Chicago, Harris Trust Savings Bank,
LaSalle National Bank, Bank of America National Trust and Savings
Association, The Chase Manhattan Bank, Star Bank, N.A., and The Northern
Trust Company, has an initial term of one year with two six month
extensions. The purchase and sale agreement ("Agreement") also contains
provisions for earn-out payments of up to $77.5 million to be made over the
next five years. Potential amounts to be paid related to the earn-out are
based on the level of new property management, facility management and
leasing business provided by Lend Lease and its affiliates under a long-
term strategic alliance created as part of the Agreement.
The acquisition was accounted for as a purchase and, accordingly, operating
results for the Compass business will be included in LaSalle's results
subsequent to the date of acquisition. The excess purchase price over the
fair value of the identifiable assets and liabilities acquired was $176.6
million, including transaction costs, of which $35.3 million was allocated
to management contracts that are being amortized on a straight-line basis
over eight years and $141.3 million was allocated to goodwill which is
being amortized on a straight-line basis over 40 years based on LaSalle's
estimate of useful lives. LaSalle anticipates that it will incur total
integration and transition costs of approximately $10.3 million on an
after-tax basis which will be charged to operations primarily in 1998 and
the first half of 1999. LaSalle Partners Management Services, Inc. and
Compass have duplicative regional infrastructures through which cost
synergies may be achieved. The cost synergies, the extent of which will be
dependent upon the successful integration of the businesses, are not
included in the pro forma financial statements included elsewhere herein.
Included elsewhere within this document are the pro forma Statements of
Earnings for the periods ended June 30, 1998 and December 31, 1997 for
LaSalle and Compass giving effect to the Compass transaction as if the
closing occurred on January 1, 1997 and the pro forma Balance Sheet as of
June 30, 1998 for LaSalle and Compass giving effect to the Compass
transaction as if the closing occurred on June 30, 1998. Also included
elsewhere in this document is the LaSalle Pro Forma Statement of Earnings
for the year ended December 31, 1997 which gives effect to the previous
acquisition of The Galbreath Company ("Galbreath") on April 22, 1997, as
adjusted for the tenant representation and investment banking units which
were not acquired, the additional provision (benefit) for income taxes as
though LaSalle and Galbreath were taxable entities as of January 1, 1997,
at an effective tax rate of 38.5%, estimated incremental general and
administrative costs associated with operations as a public company, and
the repayment of LaSalle's long-term debt out of the proceeds of the
initial public offering, as if the offering had occurred on January 1, 1997
(referred to herein as "LaSalle 1997 Pro Forma Events").
After giving effect to the Compass acquisition, LaSalle will have
approximately 400 million square feet of property under management, making
it the largest real estate management services company in the United States
based on total square feet under management, according to Commercial
Property News August 1998 "Top Property Managers Survey". A copy of the
press release announcing the closing of this transaction is filed as
Exhibit 99 to this Current Report on Form 8-K.
ITEM 5. OTHER MATTERS
The following unaudited pro forma consolidated and combined statement of
earnings for LaSalle for the year ended December 31, 1997 gives effect to
the LaSalle 1997 Pro Forma Events.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that LaSalle's management believes are reasonable.
The unaudited pro forma consolidated and combined financial statement is
not necessarily indicative of what the actual results of operations would
have been for the year ended December 31, 1997 had the aforementioned
events been completed as of the date indicated nor does it purport to
represent the future financial position or results of operations of
LaSalle.
LaSalle Partners Incorporated
Unaudited Pro Forma Consolidated and Combined Statement of Earnings
($ in thousands, except per share data)
Year Ended December 31, 1997
------------------------------------------------------
Incorporation
Acquisition and Offering
Historical Adjustments Adjustments Pro Forma
LaSalle (1) (2) (3) LaSalle
----------- ----------- ------------ -----------
Revenue:
Fee-based
services . . . . . .$ 219,911 7,851 -- 227,762
Equity in earn-
ings from
unconsolidated
ventures . . . . . . 3,238 73 -- 3,311
Other income. . . . . 1,624 287 -- 1,911
----------- ----------- ----------- -----------
Total revenue . . . 224,773 8,211 -- 232,984
Operating expenses:
Compensation and
benefits . . . . . . 122,126 5,084 -- 127,210
Operating, adminis-
trative and other. . 58,440 2,364 563 61,367
Depreciation and
amortization . . . . 9,093 663 -- 9,756
----------- ----------- ----------- -----------
Total operating
expenses . . . . . 189,659 8,111 563 198,333
----------- ----------- ----------- -----------
Operating income
(loss) . . . . . . 35,114 100 (563) 34,651
Interest expense . . . 3,995 -- (2,995) 1,000
----------- ----------- ----------- -----------
Earnings before
provision for
income taxes . . . 31,119 100 2,432 33,651
Year Ended December 31, 1997
------------------------------------------------------
Incorporation
Acquisition and Offering
Historical Adjustments Adjustments Pro Forma
LaSalle (1) (2) (3) LaSalle
----------- ----------- ------------ -----------
Net provision for
income taxes. . . . . 5,279 -- 7,677 12,956
----------- ----------- ----------- -----------
Net earnings
(loss) . . . . . .$ 25,840 100 (5,245) 20,695
=========== =========== =========== ===========
Basic earnings (4)
per share . . . . . .$ 1.50 $ 1.28
=========== ===========
Weighted average
shares out- (5)
standing. . . . . . .16,200,000 16,200,000
=========== ===========
Diluted earnings (4)
per share . . . . . .$ 1.49 $ 1.27
=========== ===========
Diluted weighted
average shares (5)
outstanding . . . . .16,329,613 16,329,613
=========== ===========
(1) The "historical" column represents the audited consolidated and
combined statement of earnings of LaSalle for the year ended December 31,
1997.
(2) These adjustments give effect to the acquisition of Galbreath with
LaSalle 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, 1997.
(3) These adjustments give effect to the additional provision (benefit)
for income taxes as though LaSalle and Galbreath were taxable entities as
of January 1, 1997, at an effective tax rate of 38.5%, estimated
incremental general and administrative costs associated with operations as
a public company, and the repayment of LaSalle's long-term debt out of the
proceeds of the initial public offering as if the offering had occurred on
January 1, 1997.
(4) Basic and diluted earnings per common share are calculated based on
net earnings for the period from LaSalle's conversion from partnership to
corporate form on July 22, 1997 through December 31, 1997.
(5) Includes the 16,200,000 shares of common stock outstanding upon
completion of LaSalle's initial public offering. The diluted weighted
average shares outstanding include the effect of options issued under
LaSalle's employee stock ownership programs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements in this filing and elsewhere (such as in reports, other
filings with the Securities and Exchange Commission, press releases,
presentations, and communications by LaSalle or its management and written
and oral statements) may 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 which may cause the actual results, performance,
achievements, plans and objectives of LaSalle 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 LaSalle's Registration Statement (No. 333-25741), under "Risk
Factors" and elsewhere in LaSalle's Annual Report on Form 10-K for the year
ended December 31, 1997, in Item 1. "Business", Item 7. "Management's
discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere, and in other reports filed by LaSalle with the Securities
and Exchange Commission. These factors include, among other things, the
following: (i) the impact of general economic conditions and the real
estate economic climate on LaSalle'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 LaSalle's revenue from property management and leasing services on the
performance of the properties managed by LaSalle; (iv) the risks inherent
in pursuing a selective acquisition strategy; (v) the concentration of
LaSalle's business in properties in central business districts; (vi) the
risks associated with the co-investment activities of LaSalle; (vii) the
seasonal nature of LaSalle's revenue, operating income and net earnings;
and (viii) the competition faced by LaSalle in a variety of business
disciplines within the commercial real estate industry. LaSalle expressly
disclaims any obligation or undertaking to update or revise any forward-
looking statements to reflect any changes in events or circumstances or in
LaSalle's expectations or results.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired:
Lend Lease acquired Compass Management and Leasing and its
subsidiaries ("CML"), and ERE Yarmouth Retail, Inc. ("Retail"), formerly
Compass Retail, Inc., on June 10, 1997 and acquired The Yarmouth Group
Property Management, Inc. ("Yarmouth") in 1993. Compass Management and
Leasing (Australia) Pty Limited was recently formed through a legal carve-
out of certain assets and liabilities of the Lend Lease property management
business in Australia. Accordingly, the businesses acquired by LaSalle
were under common control of Lend Lease from June 11, 1997 through the
closing of LaSalle's acquisition.
Compass Group
-------------
Represents combined financial statements for the Compass in
businesses acquired by LaSalle since June 11, 1997, the date these entities
were under common control by Lend Lease.
1. Report of Independent Auditors
2. Combined Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997
3. Combined Statements of Operations for the Six Months Ended
June 30, 1998 (unaudited) and for the Period June 11, 1997 through December
31, 1997.
4. Combined Statements of Stockholders' Equity for the Six Months
Ended June 30, 1998 (unaudited) and for the Period June 11, 1997 through
December 31, 1997.
5. Combined Statements of Cash Flows for the Six Months Ended
June 30, 1998 (unaudited) and for the Period June 11, 1997 through
December 31, 1997.
6. Notes to Combined Financial Statements.
INDEPENDENT AUDITORS' REPORT
The Stockholders
The Compass Group:
We have audited the accompanying combined balance sheet of the Compass
Group (the "Company") as of December 31, 1997, and the related combined
statements of operations, stockholders' equity, and cash flows for the
period June 11, 1997 to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Compass
Group as of December 31, 1997 and the results of their operations and their
cash flows for the period June 11, 1997 to December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
September 21, 1998, except
for note 12, which is as of
October 1, 1998
COMPASS GROUP
Combined Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997
June 30,
1998 December 31,
(unaudited) 1997
----------- -----------
ASSETS
Cash and cash equivalents, including
restricted cash of $179,898 and $129,686
at June 30, 1998 and December 31, 1997,
respectively . . . . . . . . . . . . . $ 816,412 2,990,367
Account receivables, net of allowance
of $943,423 and $526,776 at June 30,
1998 and December 31, 1997,
respectively . . . . . . . . . . . . . 20,461,274 24,758,475
Due from affiliates. . . . . . . . . . . 797,865 --
Prepaid expenses . . . . . . . . . . . . 773,594 276,191
----------- -----------
Total current assets . . . . . 22,849,145 28,025,033
Property and equipment, at cost,
less accumulated depreciation of
$2,611,651 and $1,785,970 at
June 30, 1998 and December 31,
1997, respectively . . . . . . . . . . 3,534,344 3,932,468
Intangibles resulting from business
acquisitions, net of accumulated
amortization of $21,178,539 and
$13,911,635 at June 30, 1998 and
December 31, 1997, respectively. . . . 126,347,832 136,805,787
Investments in unconsolidated
subsidiaries . . . . . . . . . . . . . 373,619 503,302
Deferred income taxes. . . . . . . . . . 4,316,324 2,744,096
Other assets, net of amortization. . . . 3,658,755 3,889,775
------------ -----------
$161,080,019 175,900,461
============ ===========
COMPASS GROUP
Combined Balance Sheets - Continued
June 30,
1998 December 31,
(unaudited) 1997
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities. . . . . . . . . . . . . $ 7,094,837 10,598,480
Due to parent. . . . . . . . . . . . . 4,737,178 2,387,912
Income taxes payable . . . . . . . . . -- 1,563,505
Other liabilities. . . . . . . . . . . 3,898,350 5,606,824
Accrued variable compensation. . . . . 3,923,699 9,450,463
Notes payable. . . . . . . . . . . . . 102,000,000 102,000,000
------------ -----------
Total current liabilities. . . 121,654,064 131,607,184
Commitments and contingencies
------------ -----------
Total liabilities. . . . . . . 121,654,064 131,607,184
------------ -----------
Stockholders' equity:
Common stock - $1 par,
3,100 shares authorized,
issued, and outstanding;
$1.60 par, 100 shares
authorized, 2 shares
issued and outstanding . . . . . . . 3,103 3,103
Additional paid-in capital . . . . . . 46,807,811 46,807,811
Retained earnings (deficit). . . . . . (7,384,959) (2,517,637)
------------ -----------
Total stockholders' equity . . 39,425,955 44,293,277
------------ -----------
$161,080,019 175,900,461
============ ===========
See accompanying notes to combined financial statements.
COMPASS GROUP
Combined Statements of Operations
For the Six Months ended June 30, 1998 (unaudited) and the
Period June 11, 1997 to December 31, 1997
Six months
ended June 11,
June 30, 1997 to
1998 December 31,
(unaudited) 1997
----------- ------------
Revenue
Fee-based services . . . . . . . . . . $ 40,052,370 48,587,947
Other income . . . . . . . . . . . . . 523,152 768,714
------------ -----------
Total revenue. . . . . . . . . 40,575,522 49,356,661
Operating expenses
Compensation and benefits. . . . . . . 23,265,022 26,466,277
Operating, administrative, and other . 12,310,892 11,547,854
Depreciation and amortization. . . . . 8,286,783 9,181,739
------------ -----------
Total operating expenses . . . 43,862,697 47,195,870
------------ -----------
Operating income (loss). . . . (3,287,175) 2,160,791
Interest expense . . . . . . . . . . . . 3,825,000 3,825,000
------------ -----------
Earnings (loss) before provision
for income taxes . . . . . . (7,112,175) (1,664,209)
Net provision (benefit) for income taxes (2,373,332) 54,455
------------ -----------
Net loss . . . . . . . . . . . $ (4,738,843) (1,718,664)
============ ===========
See accompanying notes to combined financial statements.
COMPASS GROUP
Combined Statements of Stockholders' Equity
For the Six Months ended June 30, 1998 (unaudited) and the
Period June 11, 1997 to December 31, 1997
Additional Retained
Common paid-in earnings
Stock capital (deficit) Total
---------- ----------- ---------- ----------
Balance,
June 11, 1997. . . . . . $ 4,103 45,307,811 (798,973) 44,512,941
Acquisition of
previously uncon-
solidated associate. . . (1,000) -- -- (1,000)
Net loss . . . . . . . . . -- -- (1,718,664) (1,718,664)
Capital contribution . . . -- 1,500,000 -- 1,500,000
--------- ---------- ---------- -----------
Balance,
December 31, 1997. . . . 3,103 46,807,811 (2,517,637) 44,293,277
Net loss . . . . . . . . . -- -- (4,738,843) (4,738,843)
Capital distribution . . . -- -- (128,479) (128,479)
--------- ---------- ---------- -----------
Balance,
June 30, 1998. . . . . . $ 3,103 46,807,811 (7,384,959) 39,425,955
========= ========== ========== ===========
See accompanying notes to combined financial statements.
COMPASS GROUP
Combined Statements of Cash Flows
For the Six Months ended June 30, 1998 (unaudited) and the
Period June 11, 1997 to December 31, 1997
Six months
ended June 11,
June 30, 1997 to
1998 December 31,
(unaudited) 1997
----------- ------------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . $(4,738,843) (1,718,664)
Reconciliation of net loss to net cash
provided by (used in) operating
activities:
Depreciation and amortization. . . . 8,286,783 9,181,739
Changes in:
Restricted cash. . . . . . . . . . . . (50,212) (84,095)
Receivables. . . . . . . . . . . . . . 3,499,336 (3,063,915)
Prepaid expenses, other assets,
and investment in subsidiaries . . . (2,504,150) (2,170,477)
Accounts payable, accrued liabilities,
and other liabilities. . . . . . . . (8,027,693) 1,221,287
----------- -----------
Net cash (used in) provided by
operating activities . . . . . (3,534,779) 3,365,875
----------- -----------
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment . . . . . . . . (427,557) (347,080)
Capital contributions (distributions). . (128,479) 1,500,000
Acquisition of previously
unconsolidated associate . . . . . . . -- (1,000)
----------- -----------
Net cash (used in) provided by
investing activities . . . . . (556,036) 1,151,920
----------- -----------
Cash flows provided by (used in)
financing activities - advances
from (to) parent . . . . . . . . . . . . 1,866,648 (7,041,084)
----------- -----------
Net increase (decrease) in
cash and cash equivalents. . . (2,224,167) (2,523,289)
Beginning cash and cash equivalents. . . . 2,860,681 5,383,970
----------- -----------
Ending cash and cash equivalents . . . . . $ 636,514 2,860,681
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for interest . . . . . . . . $ 7,512,500 --
=========== ===========
Cash paid for income taxes . . . . . . $ 31,100 8,961,162
=========== ===========
COMPASS GROUP
Combined Statements of Cash Flows - Continued
Six months
ended June 11,
June 30, 1997 to
1998 December 31,
(unaudited) 1997
----------- ------------
Effects of purchase accounting
related to acquisition:
Increase (decrease) in:
Intangibles. . . . . . . . . . . . . . $136,118,806
Other assets . . . . . . . . . . . . . 1,972,648
------------
138,091,454
------------
Taxes payable. . . . . . . . . . . . . 11,672,000
Notes payable. . . . . . . . . . . . . 102,000,000
Other liabilities. . . . . . . . . . . (2,027,735)
-----------
111,644,265
-----------
Net effect of purchase accounting
related to acquisition . . . . . . . . . $ 26,447,189
============
See accompanying notes to combined financial statements.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(1) ORGANIZATION
The accompanying combined financial statements of the Compass Group,
which consists of Compass Management & Leasing, Inc.; ERE Yarmouth Retail,
Inc. (formerly Compass Retail, Inc.); CJVS Inc.; Compass Management &
Leasing (UK) Ltd.; Compass Cayman; Compass Colorado, Inc.; The Yarmouth
Group Property Management, Inc. ("YGPM"); and Compass Management and
Leasing (Australia) Pty Limited ("Compass Australia") - (collectively
referred to herein as the "Company" or the "Compass Group"), present the
combined financial position of the Company as of December 31, 1997 and June
30, 1998 (unaudited) and the results of operations and cash flows for the
period June 11, 1997 to December 31, 1997 and for the six-month period
ended June 30, 1998 (unaudited). The accompanying combined financial
statements were prepared in anticipation of the purchase of the Company by
LaSalle Partners Incorporated ("LaSalle") - (note 12).
The office and industrial property and facilities management business
of Lend Lease Property Management (Australia) Pty Limited is to be
transferred to Compass Australia, which was incorporated in Australia in
August 1998. Since July 1, 1997 the commercial and industrial business had
been conducted as part of the Compass Australia division of Lend Lease
Property Management (Australia) Pty Limited.
YGPM, which was part of Yarmouth Holdings Limited, was acquired by
Lend Lease (U.S.) Inc. ("LLUS"), a wholly owned subsidiary of Lend Lease
Corporation Limited ("LLCL") in October 1993. This company has engaged in
the property management, leasing, and redevelopment/refurbishment of retail
shopping centers.
The remaining Compass Group entities were acquired by LLUS on
June 10, 1997 from The Equitable Life Assurance Society ("Equitable"). The
financial statements of all the Compass Group are combined starting June
11, 1997.
The Company's principal business is providing property management,
facility management, and leasing services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
Due to common control and management, the accompanying combined
financial statements reflect the combination of the financial statements of
each company mentioned in note (1). All material intercompany balances and
transactions have been eliminated in the combination.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(b) Concentration of Credit Risk
The Company's customers are not concentrated in any specific
geographic region, but are concentrated in office/industrial and retail
property management for which revenue was approximately 80% and 20%,
respectively, of the Company's fee-based service revenue for the period
June 11, 1997 to December 31, 1997. Two customers accounted for
approximately 38% of the Company's fee-based service revenue for the period
June 11, 1997 to December 31, 1997. An affiliate of the Company provides
investment advisory services, including but not limited to recommending
property managers, to a significant percentage of the Company's customers.
The Company provides reserves on accounts receivables based upon the
factors surrounding the credit risk of certain customers, historical trends
or other pertinent information.
(c) 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, contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(d) Cash Flows
For purposes of the combined statements of cash flows, the
Company considers highly liquid securities with a maturity of three months
or less to be cash equivalents.
(e) Impairment of Long-Lived Assets
The Company accounts for its long-lived assets under the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of (SFAS No. 121). This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes 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.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(f) Intangibles Resulting From Business Acquisitions
Intangibles resulting from business acquisitions are amortized
on a straight-line basis over the estimated lives of the related assets,
which is eight years for management contracts and 20 years for excess
purchase price over net assets acquired.
Intangibles resulting from business acquisitions consist of the
following at December 31, 1997:
Management contracts $ 97,132,087
Excess purchase price over
net assets acquired 53,585,335
Accumulated amortization (13,911,635)
------------
$136,805,787
============
(g) 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, payables,
and notes payable approximates their carrying amounts due to the short
maturity of these instruments.
(h) Foreign Currency Translation
The financial statements of entities outside the United States
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. Income and expense are
translated at average monthly rates of exchange. The resultant translation
adjustments are immaterial. Gains and losses from foreign currency
transactions are included in net earnings.
(i) Revenue Recognition
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. Construction and 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.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(j) Depreciation
Depreciation and amortization are calculated for financial
reporting purposes using the straight-line method based on the estimated
useful lives of the assets. Furniture and equipment are depreciated over
five to ten years. Computer equipment is depreciated from three to five
years. Leasehold improvements are amortized over the lease periods ranging
from one to ten years.
(k) Income Taxes
The Company's U.S. operations are reported in a combined
federal income tax return filed by LLUS. The Company computes its federal
income tax provision pursuant to a tax-sharing agreement with LLUS. The
tax-sharing agreement requires the Company's provision to be computed
essentially on a separate return basis. State and local income taxes are
provided on a separate company basis.
Deferred 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 calculated 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.
(l) Interim Information
The combined financial statements as of June 30, 1998 and for
the six months then ended are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the combined financial
statements for this interim period have been included. The results for the
interim period ended June 30, 1998 are not necessarily indicative of the
results that would be obtained for the full fiscal year.
(m) Postretirement Benefits
The Company accrues the cost of postretirement benefits as such
benefits are earned by eligible employees (note 6).
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1997 is summarized as
follows:
Furniture and equipment $ 1,954,272
Computer equipment 2,066,087
Leasehold improvements 1,698,079
------------
5,718,438
Less accumulated depreciation (1,785,970)
------------
Property, plant, and
equipment - net $ 3,932,468
============
Depreciation expense for the period June 11, 1997 to December 31,
1997 was $863,904.
(4) NOTES PAYABLE
The Company's debt consists of two promissory notes payable to an
affiliate. The amounts outstanding on the notes, which totaled
$102,000,000 at December 31, 1997, bear interest at 7.5% per annum payable
quarterly. Principal is due within 30 days after demand from the
affiliate, or as otherwise agreed upon between the parties.
(5) INCOME TAXES
The Company's provision for income taxes aggregated approximately
$54,000 for the period June 11, 1997 to December 31, 1997 and consisted of
the following:
Current Deferred Total
---------- -------- -----
U.S. Federal $1,397,000 (1,392,000) 5,000
State and local 491,000 (442,000) 49,000
---------- ---------- ------
$1,888,000 (1,834,000) 54,000
========== ========== ======
Income tax expense for the periods differed from the amounts computed
by applying the U.S. Federal income tax rate of 35% to earnings before
provision for income taxes as a result of the following:
Period from
June 11, 1997 to
December 31, 1997
-----------------
Computed "expected" tax expense
(benefit) $(582,000) (35.0)%
Increase (reduction) in income
taxes resulting from:
State and local income
taxes, net of Federal
income tax benefit 38,000 2.3
Amortization of goodwill 468,000 28.1
Other, net 130,000 7.8
--------- -----
$ 54,000 3.2%
========= =====
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
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, 1997
-----------------
Deferred tax assets:
Management contracts $ 1,375,000
Accrued expenses 855,000
Property and equipment 340,000
Postretirement benefits 298,000
------------
2,868,000
Deferred tax liabilities - goodwill (124,000)
------------
$ 2,744,000
============
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 is considered realizable; however, it could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
(6) EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in certain qualified and
nonqualified benefit plans sponsored by the Company or its subsidiaries
covering substantially all employees. These plans include
401(k)/investment plans, a variable compensation plan, a money purchase
pension plan, and a postretirement plan.
(a) 401(k)/Investment Plans
The 401(k)/investment plans are contributory plans which cover
all salaried employees who have reached the age of 21 and have completed
from thirty days to one year of service. Generally, employees may elect
annually to contribute between 2% and 12% of their compensation. The
Company matches contributions up to 2.5% of the employee's compensation,
subject to certain limitations. The cost under this plan was $624,906 for
the period June 11, 1997 to December 31, 1997.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(b) Variable Compensation Plan
The Company has a variable compensation plan which provides for
current and long-term payments to officers and employees based on stated
percentages of the Company's formula earnings as defined in the plan. The
cost under this plan was $5,842,473 for the period June 11, 1997 to
December 31, 1997.
(c) Money Purchase Pension Plan
The money purchase pension plan is a noncontributory plan that
covers all regular, full-time and part-time employees who have reached age
21 and have completed six months of continuous service. The Company
contributes 5% of an employee's compensation up to, and 10% of an
employee's compensation above the Social Security Wage Base. When
employees reach age 45, the Company contributes 10% of an employee's entire
pay. Contributions are made quarterly based on an employee's earnings from
date of eligibility. The cost under this plan was $1,725,539 for the
period June 11, 1997 to December 31, 1997.
(d) Postretirement Benefits
Prior to June 11, 1997, the Company participated in the
"Equitable Real Estate Investment Management, Inc. Welfare Benefits Plan"
to provide health and life insurance benefits for certain grandfathered
employees. ERE's postretirement plan provides for a sharing of costs with
retirees on a sliding scale that is based on each participant's years of
service at retirement.
The cost of postretirement benefits for certain retirees and
one current employee is recognized in accordance with the provisions of
Statement of Financial Accounting Standards No. 106, Employer's Accounting
for Postretirement Benefits Other Than Pensions. The Company continues to
fund postretirement benefit costs on a pay-as-you-go basis and for 1997
made estimated postretirement benefit payments of $37,000. The accumulated
postretirement benefit obligation relating to the Company was $662,000 at
December 31, 1997 and the postretirement benefit cost was $10,000 for the
period from June 11, 1997 to December 31, 1997.
(7) TRANSACTIONS WITH AFFILIATES
During the period presented, the Company operated under a shared
services agreement with a former affiliate, Equitable Realty Portfolio
Management, Inc. ("ERPM"), under which the Company charged ERPM for
utilizing certain of its employees' computer facilities and other operating
expenses. For the period June 11, 1997 to December 31, 1997, the Company
charged ERPM approximately $1,015,500 for these services. Management
believes these charges are reasonable, but are not necessarily indicative
of incremental costs incurred to provide these services.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
The Company utilizes the due to parent account to pay and receive
funds from its parent for items such as costs allocated to the Company by
the parent. The payable averaged $5,908,454 for the period June 11, 1997
to December 31, 1997. Amounts due to parent at December 31, 1997 were
$2,387,912.
(8) OPERATING LEASES
The Company leases certain facilities, vehicles, and equipment under
various lease arrangements. Leases for equipment, offices, and vehicles
having an initial or remaining noncancelable term in excess of one year as
of December 31, 1997 require the following approximate minimum future
rental payments:
Year Minimum rental
---- --------------
1998 $ 3,455,000
1999 2,290,000
2000 2,169,000
2001 1,650,000
2002 1,361,000
Thereafter 5,752,000
------------
Total $ 16,677,000
============
Rental expense for the period June 11, 1997 to December 31, 1997 was
$2,829,190.
(9) SEGMENTS
The Company maintains operations and provides services both within
and outside the United States. International revenue aggregated $2,299,382
for the period June 11, 1997 to December 31, 1997. Identifiable assets of
international operations at December 31, 1997 aggregated $6,230,909.
COMPASS GROUP
Notes to Combined Financial Statements
June 30, 1998 (unaudited) and December 31, 1997
(10) REVENUE
The Company derived fee-based revenue from the following categories
for the periods stated:
Six months June 11, 1997
ended June 30, to December 31,
1998 1997
(unaudited) (audited)
-------------- ---------------
Non-affiliated companies:
Management fees $ 15,225,065 16,699,503
Leasing fees 8,052,344 8,185,513
Construction management 2,361,438 2,496,842
Development fees 968,162 4,618,673
Facilities management 6,690,853 7,301,035
------------ ------------
Total non-affiliated
companies fee-based
revenue 33,297,862 39,301,566
------------ ------------
Affiliated or formerly
affiliated companies:
Management fees 4,071,613 4,761,248
Leasing fees 2,268,306 4,175,993
Construction management 449,526 348,109
Development fees (34,937) 1,031
------------ ------------
Total affiliated or
formerly affiliated
companies fee-based
revenue 6,754,508 9,286,381
----------- ------------
Total fee-based revenue $40,052,370 48,587,947
=========== ============
(11) COMMITMENTS AND CONTINGENCIES
The Company is a respondent in a number of legal proceedings. The
Company and its subsidiaries may also be subject to other claims and
assessments. In the opinion of management, the outcome of the proceedings
and other matters referred to above is not likely to have a material
adverse effect on the combined financial position, results of operations,
or liquidity of the Company.
(12) SUBSEQUENT EVENT
On October 1, 1998, LaSalle purchased the Company, excluding Compass
Australia, from Lend Lease Corporation Limited. The acquisition of Compass
Australia is anticipated to occur in the near future, pending satisfaction
of certain conditions including licensing approvals. LaSalle paid $167.0
million in cash for the acquired companies and anticipates paying an
additional $13.0 million for Compass Australia. The purchase of the
Company also includes provisions for an earnout payment of up to $77.5
million over five years.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(a) Financial Statements of Businesses Acquired (continued):
The Compass Companies
---------------------
Represents combined financial statements for CML and Retail for the
period January 1, 1997 to June 10, 1997, the date of acquisition by Lend
Lease, as audited by KPMG Peat Marwick LLP, and for the years ended
December 31, 1996 and 1995 as audited by PricewaterhouseCoopers LLP.
1. Reports of Independent Auditors
2. Combined Statements of Operations for the Period January 1,
1997 through June 10, 1997 and the Years Ended December 31, 1996 and 1995.
3. Combined Statements of Cash Flows for the Period January 1,
1997 through June 10, 1997 and the Years Ended December 31, 1996 and 1995.
4. Notes to Combined Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
The Compass Companies
We have audited the accompanying combined statements of operations and cash
flows of the Compass Companies (the "Company") for the period January 1,
1997 to June 10, 1997. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our
audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows
of the Compass Companies for the period January 1, 1997 to June 10, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
September 14, 1998
except for Note 8 which is
as of October 1, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
The Compass Companies
In our opinion, the accompanying combined statements of operations and of
cash flows of The Compass Companies and subsidiaries (the "Company") for
the years ended December 31, 1996 and 1995, present fairly, in all material
respects, the Company's results of operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles. These combined financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these combined financial statements based on our
audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 4, 1998
Atlanta, Georgia
THE COMPASS COMPANIES
Combined Statements of Operations
Period
January 1, Years ended
1997 to December 31,
June 10, -----------------------
1997 1996 1995
---------- ---------- ----------
Revenue
Fee-based services
Non-affiliated companies. . $22,528,943 44,604,943 35,269,632
Affiliated companies
(note 5). . . . . . . . . 6,240,628 18,748,795 22,072,182
Other income. . . . . . . . . 172,218 196,927 242,824
----------- ---------- ----------
Total revenue. . . . . . 28,941,789 63,550,665 57,584,638
----------- ---------- ----------
Operating expenses
Compensation and benefits . . 17,112,623 40,564,187 35,826,957
Operating, administrative
and other . . . . . . . . . 8,626,024 9,009,263 7,990,367
Depreciation and
amortization. . . . . . . . 771,979 1,476,777 1,232,579
----------- ---------- ----------
Total operating
expenses . . . . . . . 26,510,626 51,050,227 45,049,903
----------- ---------- ----------
Income before provision
for income taxes . . . . . . 2,431,163 12,500,438 12,534,735
Net provision for
income taxes
(note 3) . . . . . . . 1,130,969 5,087,787 5,588,848
----------- ---------- ----------
Net income . . . . . . . $ 1,300,194 7,412,651 6,945,887
=========== ========== ==========
The accompanying notes are an integral part
of these combined financial statements.
THE COMPASS COMPANIES
Combined Statements of Cash Flows
Period
January 1, Years ended
1997 to December 31,
June 10, -----------------------
1997 1996 1995
---------- ---------- ----------
Cash flows from operating
activities
Net income . . . . . . . . . $ 1,300,194 7,412,651 6,945,887
Reconciliation of net
income to net cash
provided by operating
activities
Depreciation and
amortization . . . . . . 771,979 1,476,777 1,232,579
Equity in net income
of partnership . . . . . (80,050) (43,135) --
Deferred income tax
provision. . . . . . . . (941,980) 20,322 (1,049,320)
(Recovery)/provision for
doubtful accounts. . . . (250,958) (1,103,852) 1,648,423
Changes in Assets and
Liabilities
Receivables. . . . . . . . (1,351,740) (2,598,451) (3,585,732)
Prepaid expenses and
other assets . . . . . . 1,411,534 (1,100,533) (1,586,807)
Accounts payable and
accrued liabilities. . . (1,490,855) (517,114) 4,733,254
Accrued variable
compensation . . . . . . (3,006,233) 1,360,785 1,945,363
----------- ---------- ----------
Net cash provided by
(used in) operating
activities. . . . . . (3,638,109) 4,907,450 10,283,647
----------- ---------- ----------
Cash flows from investing
activities
Capital additions -
property and equipment . . (1,968,010) (1,531,983) (1,189,350)
Investment in partnership. . -- (202,471) --
----------- ---------- ----------
Net cash used in
investing
activities . . . . . (1,968,010) (1,734,454) (1,189,350)
----------- ---------- ----------
Cash flows from financing
activities
Parent advances. . . . . . . 9,101,133 -- --
Dividends. . . . . . . . . . -- (2,800,000) (8,500,000)
----------- ---------- ----------
Net cash provided by
(used in) financing
activities . . . . . 9,101,133 (2,800,000) (8,500,000)
----------- ---------- ----------
Net increase in cash and
cash equivalents . . . . . . 3,495,014 372,996 594,297
Beginning cash and cash
equivalents. . . . . . . . . 1,934,547 1,561,551 967,254
----------- ---------- ----------
Ending cash and
cash equivalents . . . . . . $ 5,429,561 1,934,547 1,561,551
=========== ========== ==========
THE COMPASS COMPANIES
Combined Statements of Cash Flows - Continued
Period
January 1, Years ended
1997 to December 31,
June 10, -----------------------
1997 1996 1995
---------- ---------- ----------
Supplemental disclosure
of cash flow information
Cash remitted for income
taxes (including amounts
remitted through the
parent)
Federal . . . . . . . . . $ -- 3,500,000 5,000,000
State . . . . . . . . . . $ -- 1,334,003 1,308,984
=========== ========== ==========
The accompanying notes are an integral part
of these combined financial statements.
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
1. ORGANIZATION
The Compass Companies (the "Company") are composed of the combined
accounts of Compass Management and Leasing, Inc. ("CML"), ERE Yarmouth
Retail, Inc. (formerly Compass Retail, Inc.) and Compass Colorado, Inc. for
the periods presented. CML has three wholly-owned subsidiaries, CJVS,
Inc., Compass Management and Leasing (UK) Limited and Compass Cayman.
Prior to June 10, 1997, the Company was a wholly owned subsidiary of
Equitable Real Estate Investment Management, Inc. ("ERE") which was a
wholly-owned subsidiary of Equitable Investment Corporation ("EIC"). EIC
is a wholly-owned subsidiary of The Equitable Life Assurance Society of the
United States ("ELAS"). On June 10, 1997, ERE was acquired by a subsidiary
of Lend Lease Corporation Limited (See Note 8). The Company's primary
business is providing property management, facility management and leasing
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
Due to the existence of common control, the results of operations of
the Company have been presented on a combined basis. The combined
financial statements include the accounts of the Company and its majority-
owned-and-controlled subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation and combination.
CONCENTRATION OF CREDIT RISK
The Company's customers are not concentrated in any specific
geographic region, but are concentrated in office/industrial and retail
property management for which revenue was 80% and 20%, 79% and 21%, and 80%
and 20% of the Company's fee-based service revenue for the period January
1, 1997 to June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively. Two customers account for 40%, 39% and 44% of the Company's
fee-based service revenue for the period January 1, 1997 to June 10, 1997
and the years ended December 31, 1996 and 1995, respectively. An affiliate
of the Company provides investment advisory services to a significant
percentage of the Company's customers. The investment advisor provides
many services to these customers including the recommendation of property
manager. The Company provides reserves on accounts receivables based upon
the factors surrounding the credit risk of certain customers, historical
trends or other information.
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 at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
these estimates.
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
CASH FLOWS
For purposes of the combined statements of cash flows, the Company
considers highly liquid securities with a maturity of three months or less
to be cash equivalents.
REVENUE RECOGNITION
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. Construction and 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.
DEPRECIATION
Depreciation and amortization are calculated for financial reporting
purposes using the straight-line method based on the estimated useful lives
of the assets. Furniture and equipment are depreciated over five to ten
years. Computer equipment and software are depreciated over three to five
years. Leasehold improvements are amortized over the lease periods ranging
from one to ten years. Depreciation expense for the period January 1, 1997
to June 10, 1997 and the years ended December 31, 1996 and 1995 was
$771,979, $1,391,536 and $1,173,036, respectively.
INCOME TAXES
The Company's operations are reported in a combined federal income
tax return filed by ELAS. The Company computes its federal income tax
provision pursuant to a tax sharing agreement with ELAS. The agreement
requires the Company's provision to be computed essentially on a separate
return basis and provides for the apportionment of responsibility for taxes
and tax-related matters. Management believes that settlements will not
have a material effect on the results of the operations, financial position
or liquidity of the Company. State and local income taxes are provided on
a separate company basis.
The Company utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. At June
10, 1997, December 31, 1996 and 1995, management had not recorded a
valuation allowance on its deferred tax assets.
POSTRETIREMENT BENEFITS
The Company accrues the cost of postretirement benefits as such
benefits are earned by eligible employees (see Note 4).
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
3. INCOME TAXES
The provisions for income tax expense are summarized as follows:
Period
January 1, Years ended
1997 to December 31,
June 10, -----------------------
1997 1996 1995
---------- ---------- ----------
Current:
Federal . . . . . . . . $ 1,554,341 $3,800,327 $4,865,318
State and Local . . . . 518,608 1,267,138 1,772,850
----------- ---------- ----------
2,072,949 5,067,465 6,638,168
Deferred Income Taxes . . (941,980) 20,322 (1,049,320)
----------- ---------- ----------
Income Tax Provision. . . $ 1,130,969 $5,087,787 $5,588,848
=========== ========== ==========
Income tax expense for the periods differed from the amounts computed by applying the U.S. federal income
tax rate of 35% to income before provision for income taxes as a result of the following:
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
Years Ended
December 31,
January 1, 1997 to ----------------------------------------
June 10, 1997 1996 1995
------------------- ------------------ ------------------
Computed "expected" tax expense. . . . . . $ 850,907 35.0% $4,375,153 35.0 % $4,387,158 35.0%
Increase (reduction) in income taxes
resulting from
State and local income taxes,
net of federal income tax benefit. . 189,557 7.8% 823,640 6.5 % 1,152,352 9.2%
Other, net . . . . . . . . . . . . . . 90,505 3.7% (111,006) (0.8)% 49,338 0.4%
---------- ----- ---------- ------ ---------- -----
$1,130,969 46.5% $5,087,787 40.7 % $5,588,848 44.6%
========== ===== ========== ====== ========== =====
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
4. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in certain qualified and
non-qualified benefit plans sponsored by ERE or the Company covering
substantially all employees. These plans include 401(k)/Investment plans,
a variable compensation plan, money purchase pension plan and a
postretirement plan.
401(k)/INVESTMENT PLANS
The 401(k)/investment plan is a contributory plan, which covers all
regular, full-time and part-time employees who have completed one year of
continuous service or 1,000 hours. Employees may elect quarterly to
contribute between 2% and 12% of their compensation. The Company matches
contributions up to 2.5% of the employee's compensation, subject to certain
limitations. The net cost under this plan was $163,132, $243,296 and
$273,539 for the period January 1, 1997 to June 10, 1997 and the years
ended December 31, 1996 and 1995, respectively.
VARIABLE COMPENSATION PLAN
The Company participates in a variable compensation plan which is
sponsored by ERE that provides for current and long-term payments to
officers and employees based on stated percentages of the Company's formula
earnings as defined in the Variable Compensation Plan. The cost under this
plan was $2,540,581, $8,471,692 and $6,660,627 for the period January 1,
1997 to June 10, 1997 and the years ended December 31, 1996 and 1995,
respectively.
MONEY PURCHASE PENSION PLAN
The money purchase pension plan is a non-contributory plan that
covers all regular, full-time and part-time employees who have reached age
21 and have completed one year of continuous service or 1,000 hours. The
Company contributes 5% of an employee's compensation up to the Social
Security Wage Base ("SSWB"). Once the employee's compensation exceeds the
SSWB, the Company contributes 10% of an employee's compensation subject to
certain limitations. When an employee reaches age 45, the Company
contributes 10% of an employee's entire pay subject to certain limitations.
Contributions are made annually based on an employee's earnings from date
of eligibility. The net cost under this plan was $522,069, $726,085 and
$773,753 for the period January 1, 1997 to June 10, 1997 and the years
ended December 31, 1996 and 1995, respectively.
POSTRETIREMENT BENEFITS
The Company participates in the "Equitable Real Estate Investment
Management, Inc. Welfare Benefits Plan" to provide health and life
insurance benefits for certain grandfathered employees. ERE's
postretirement plan provides for a sharing of costs with retirees on a
sliding scale with retirees that is based on each participant's years of
service at retirement.
The cost of postretirement benefits is recognized in accordance with
the provisions of Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions".
The plan is administered by ERE and the Company funds their postretirement
benefit costs to ERE on a pay-as-you-go basis. For the period January 1,
1997 to June 10, 1997 and for the years ended December 31, 1996 and 1995,
the Company made estimated postretirement benefit payments of $13,000,
$26,000 and $17,000, respectively.
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
5. TRANSACTIONS WITH AFFILIATES
The fee-based services from affiliated companies are comprised of
amounts from all segments of ELAS's General Account. The ELAS Separate
Accounts are not considered affiliated companies since the accounts are
established for the benefit of third parties.
During the periods presented, ERE provided the Company with marketing
and information systems services. Corporate costs and charges for these
services have been allocated to the Company using methods that are based on
the direct effort and costs expended and are deemed appropriate for the
nature of the expenses involved. The charge for these allocations was
$320,443, $712,600 and $455,500 for the period January 1, 1997 to June 10,
1997 and the years ended December 31, 1996 and 1995, respectively.
Management believes the allocations are reasonable, but may not be
indicative of the costs that would have been incurred had the Company been
operated as a separate company.
During the periods presented, the Company operated under a shared
services agreement with its affiliate, Equitable Realty Portfolio
Management, Inc. ("ERPM"), under which the Company charged ERPM for
utilizing certain of its employees' computer facilities and other operating
expenses. These charges are allocated based on the salary of employees
utilized for this service. For the period January 1, 1997 to June 10, 1997
and the years ended December 31, 1996 and 1995, the Company charged ERPM
$923,157, $1,916,273 and $1,695,587, respectively, for these services.
Management believes these allocations are reasonable, but are not
necessarily indicative of incremental costs incurred to provide these
services.
The Company utilizes the Due to ERE account to pay to and receive
funds from its parent, ERE, for items such as costs allocated to the
Company by ERE and dividends paid to ERE. The payable averaged $9,873,008,
$6,380,157 and $6,508,802 for the period January 1, 1997 to June 10, 1997
and for the years ended December 31, 1996 and 1995, respectively. The
activity in this account is summarized as follows:
Period
January 1, Years Ended
1997 to December 31,
June 10, ------------------------
1997 1996 1995
------------ ---------- ----------
Beginning balance. . $ (6,146,398) (6,613,915) (6,403,689)
Net cash transfers
to ERE . . . . . . 5,228,372 18,609,136 18,041,037
Reimbursement of
costs, paid by
ERE on the
Company's
behalf . . . . . . (12,681,592) (18,141,619) (18,251,263)
------------ ----------- -----------
Ending balance . . . $(13,599,618) (6,146,398) (6,613,915)
============ =========== ===========
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
6. OPERATING LEASES
The Company leases certain facilities, vehicles and equipment under
varying lease arrangements. None of the agreements contain unusual renewal
or purchase options. Leases for equipment, offices and vehicles having an
initial or remaining noncancelable term in excess of one year as of June
10, 1997 require the following approximate minimum future rental payments:
Minimum
Year Rental
---- -----------
1997 $ 1,598,000
1998 2,883,000
1999 1,573,000
2000 1,268,000
2001 1,024,000
Thereafter 3,873,000
-----------
Total $12,219,000
===========
Rental expense for the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995 was $1,193,152, $4,021,570 and
$3,552,299, respectively. Included in these amounts was approximately
$267,000, $560,439 and $635,411 for the respective periods paid to
affiliated companies and other related parties.
7. COMMITMENTS AND CONTINGENCIES
The Company is respondent in a number of legal proceedings. The
Company and its subsidiaries may also be subject to other claims and
assessments. In the opinion of management, the outcome of the proceedings
and other matters referred to above is not likely to have a material
adverse effect on the results of operations or liquidity of the Company.
8. SUBSEQUENT EVENTS
On June 10, 1997, the Company and certain other affiliates were
purchased from ELAS by a U.S. subsidiary of Lend Lease Corporation Limited
("Lend Lease"). Lend Lease combined the company and other affiliates with
its existing US-based real estate investment management companies after
June 10, 1997.
THE COMPASS COMPANIES
Notes to Combined Financial Statements
For the period January 1, 1997 to June 10, 1997 and
the years ended December 31, 1996 and 1995
On October 1, 1998, LaSalle Partners Incorporated ("LaSalle")
purchased the Company, and an affiliated U.S. retail property management
business from Lend Lease. The acquisition of another affiliated business,
Compass Management and Leasing (Australia) Pty Limited ("Compass
Australia") is anticipated to occur in the near future, pending
satisfaction of certain conditions, including licensing approvals. LaSalle
paid $167.0 million in cash for the acquired companies and anticipates
paying an additional $13.0 million for Compass Australia. The purchase of
the companies also includes provisions for an earnout payment of up to
$77.5 million over five years.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(a) Financial Statements of Businesses Acquired (continued):
The Yarmouth Group Property Management, Inc.
--------------------------------------------
1. Report of Independent Accountants
2. Consolidated Statements of Operations for the Six Months Ended
June 30, 1997 and the Years Ended December 31, 1996 and 1995.
3. Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and the Years Ended December 31, 1996 and 1995.
4. Notes to Consolidated Financial Statements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors
The Yarmouth Group Property Management, Inc.
In our opinion, the accompanying consolidated statements of operations and
cash flows present fairly, in all material respects, The Yarmouth Group
Property Management, Inc. and subsidiary (the "Company") results of
operations and its cash flows for the six-month period ended June 30, 1997
and the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 17, 1998
Atlanta, Georgia
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Consolidated Statements of Operations
Period
January 1, Years ended
1997 to December 31,
June 30, -----------------------
1997 1996 1995
---------- ---------- ----------
Revenue
Fee-based services . . . . . $ 4,469,629 6,903,670 5,506,466
----------- ---------- ----------
Total revenue. . . . 4,469,629 6,903,670 5,506,466
Operating expenses
Compensation and benefits. . 1,606,080 2,909,553 2,792,733
Operating, administrative
and other. . . . . . . . . 1,568,331 2,420,226 1,927,003
Depreciation and
amortization . . . . . . . 817,907 1,649,372 1,706,020
----------- ---------- ----------
Total operating
expenses . . . . . . . 3,992,318 6,979,151 6,425,756
----------- ---------- ----------
Earnings (loss) before
provision for income
taxes. . . . . . . . . . . 477,311 (75,481) (919,290)
Provision for
income taxes . . . . . . . 503,602 596,345 257,376
----------- ---------- ----------
Net loss . . . . . . . $ (26,291) (671,826) (1,176,666)
=========== ========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Consolidated Statements of Cash Flows
Period
January 1, Years ended
1997 to December 31,
June 30, -----------------------
1997 1996 1995
---------- ---------- ----------
Cash flow from operating
activities
Net loss . . . . . . . . . . $ (26,291) (671,826) (1,176,666)
Reconciliation of net
loss to net cash
provided by operating
activities
Depreciation and
amortization . . . . . . 817,907 1,649,372 1,706,020
Changes in assets and
liabilities:
Accounts receivable. . . (599,199) (282,905) 350,566
Receivable from
affiliate. . . . . . . (198,971) (703,643) (72,003)
Accounts payable . . . . 16,946 15,594 5,373
Other accrued expenses . (9,409) (591) (858,220)
----------- ---------- ----------
Net cash provided by
(used in) operating
activities. . . . . . 983 6,001 (44,930)
----------- ---------- ----------
Cash flows from investing
activities
Net capital additions -
property and equipment . . (983) (6,413) (27,398)
----------- ---------- ----------
Net cash used in
investing
activities . . . . . (983) (6,413) (27,398)
----------- ---------- ----------
Cash flows from financing
activities
Payment of long term debt. . -- -- (34,736)
----------- ---------- ----------
Net cash used in
financing activities -- -- (34,736)
----------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents . . $ -- (412) (107,064)
Beginning cash and
cash equivalents. . . . . . . -- 412 107,476
----------- ---------- ----------
Ending cash and
cash equivalents . . . . . . $ -- -- 412
=========== ========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The Yarmouth Group Property Management, Inc. (the "Company') is a
wholly owned subsidiary of Yarmouth Holdings Limited, which engages in the
property management leasing and redevelopment/refurbishment of retail
shopping centers. Since its acquisition by The Lend Lease Group in October
1993, the Company has employed a June 30 fiscal year end. On June 10,
1997, The Lend Lease Group acquired Equitable Real Estate Investment
Management, Inc. (EREIM) and its subsidiaries from The Equitable Life
Assurance Society. Subsequently, the Company has been jointly operated
with an EREIM subsidiary, Compass Retail, Inc. (now called ERE Yarmouth
Retail, Inc.).
As indicated in Note 5, certain expenses incurred by an affiliate of
the Company are allocated to the Company. Although management believes
that the allocations are reasonable, the financial results are not
necessarily indicative of results had the Company operated as a separate
stand-alone entity. Additionally, the results of operations for the six
months ended June 30, 1997, are not necessarily indicative of the results
for the full year or the future results of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned-and-controlled subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
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 at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash
equivalents, receivables and accounts payable and accrued liabilities. The
estimated fair value of these instruments approximates their carrying
amounts due to their short maturity.
CASH FLOWS
For purposes of the consolidated statements of cash flows, the
Company considers highly liquid securities with a maturity of three months
or less to be cash equivalents. As a result of the Company's tax
allocation policy with its parent, there was no cash paid for income taxes.
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
REVENUE RECOGNITION
Property management fees are recognized in the period in which the
services are performed. Leasing revenues are recognized when earned, which
is generally when the lessee of the transaction takes occupancy, or in
accordance with the relevant client contract.
DEPRECIATION
Depreciation is determined for financial reporting purposes using the
straight-line method based on the estimated useful lives of the assets.
Furniture and equipment are depreciated over five to ten years. Computer
equipment and software are depreciated over three to five years.
Depreciation expense for the period ended January 1, 1997 to June 30,
1997 and the years ended December 31, 1996 and 1995 was $41,407, $96,372
and $153,020, respectively.
ACQUISITION BY LEND LEASE (US) INC.
Effective October 13, 1993, Lend Lease (US) Inc. acquired 100% of the
outstanding common stock of the Company's parent, Yarmouth Holdings
Limited. This acquisition also included the Company's principal affiliate,
The Yarmouth Group, Inc. ("TYG"). Together with acquisition costs, the
total consideration paid was $40.6 million. The acquisition has been
accounted for as a purchase, and has been allocated to the fair value of
the net assets acquired, summarized as follows (in millions).
Company TYG Total
------- ------- -------
Management contracts $ 12.1 $ 22.9 $ 35.0
Goodwill 0.8 1.3 2.1
------ ------- -------
$ 12.9 $ 24.2 37.1
====== =======
Other net assets 3.5
-------
$ 40.6
=======
Management contracts are amortized on a straight-line basis over the
period of expected benefit, which has been assessed as 8 years from the
date of acquisition. Similarly, goodwill is amortized on a straight-line
basis over a 20-year period.
INCOME TAXES
The Company is included in the consolidated federal and certain state
income tax returns of its ultimate parent. The Company's provision is
computed essentially on a separate return basis. State and local income
taxes are provided on a separate company basis.
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
Deferred 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 carry forwards.
Deferred tax assets and liabilities are calculated 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.
CONCENTRATION OF CREDIT RISK
The Company's customers are not concentrated in any specific
geographic region, but are concentrated in office and retail property
management for which revenues were 5% and 95%, 7% and 93%, and 7% and 93%,
of the Company's fee based service revenue for the period January 1, 1997
to June 30, 1997, and the years ended December 31, 1996, and December 31,
1995, respectively. Two customers account for 71% of the Company's fee
based service revenues for the period January 1, 1997 to June 30, 1997.
One customer accounts for 59% and 53% of the Company's fee based revenues
at December 31, 1996 and 1995, respectively. An affiliate of the Company
provides investment advisory services to a high percentage of the Company's
customers. The investment advisor provides many services to these
customers including the recommendation of property manager.
3. INCOME TAXES
The provision for income taxes is summarized as follows:
Period from Years Ended
January 1, 1997 December 31,
to --------------------
June 30, 1997 1996 1995
--------------- -------- --------
Current:
Federal $414,469 $490,797 $211,823
State and local 89,133 105,548 45,553
-------- -------- --------
Total $503,602 $596,345 $257,376
======== ======== ========
Income tax expense for the periods differed from the amounts computed
by applying the U.S. federal income tax rate of 35% to loss before
provision for income taxes as a result of the following:
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
Years Ended
Period from December 31,
January 1, 1997 to ----------------------------------------
June 30, 1997 1996 1995
------------------- ------------------ ------------------
Computed "expected" tax expense
(benefit). . . . . . . . . . . . . . . . $ 167,509 35.0% (26,418) (35.0)% (321,752) (35.0)%
Increase (reduction) in income taxes
resulting from
State and local income taxes . . . . . 31,197 6.5% 36,942 48.9% 15,944 1.7%
Amortization of management
contracts and goodwill . . . . . . . 271,775 56.9% 529,550 701.6% 529,550 57.6%
Other, net . . . . . . . . . . . . . . 33,121 6.9% 56,271 74.5% 33,634 3.6%
---------- ----- --------- ----- --------- -----
$ 503,602 105.3% 596,345 860.0% 257,376 97.9%
========== ====== ========= ====== ========= =====
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
4. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in various qualified and
non-qualified profit sharing plans sponsored by Yarmouth Group Holdings
Limited, covering certain employees of the Company. The 401(k)/Investment
plan is a contributory plan which covers all salaried employees who have
reached the age of 21 and have completed from thirty days to one year of
service. Generally, employees may elect annually to contribute between 2%
and 12% of their compensation. The Company is not required under the plan
documents to match contributions of employees.
Company discretionary contributions of approximately $2,800, $21,930,
and $27,770 were made to the various profit sharing plans for the six
months ended June 30, 1997, and for the years ended December 31, 1996 and
1995, respectively.
5. TRANSACTIONS WITH AFFILIATES
The Company has been allocated certain administrative costs and
charges by its affiliate, The Yarmouth Group, Inc., using methods that are
based on direct effect and pro-rata share of the items. These include
rental and other office occupancy expenses, corporate management incentive
compensation, and finance and human resource functions.
The charge for these allocations was as follows:
Six-month period ended June 30, 1997 $ 706,043
Year ended December 31, 1996 $ 1,399,948
Year ended December 31, 1995 $ 1,083,765
Management believes that the allocations are reasonable but they are
not necessarily indicative of the costs that would have been incurred had
the Company been operated as a separate company.
The Company participated in the centralized treasury and cash
management processes of The Yarmouth Group, Inc., with cash deposits
transferred to and disbursements made by The Yarmouth Group, Inc. on behalf
of the Company. These transactions are reflected in the receivable from
related parties, which is non-interest bearing.
6. COMMITMENTS AND CONTINGENCIES
The Company is respondent in a number of legal proceedings. The
Company and its subsidiaries may also be subject to other claims and
assessments. In the opinion of management, the outcome of the proceedings
and other matters referred to above is not likely to have a material
adverse effect on the combined financial position, results of operations,
or liquidity of the Company.
THE YARMOUTH GROUP PROPERTY MANAGEMENT, INC.
Notes to Consolidated Financial Statements
For the Six-month Period Ended June 30, 1997
and For the Years Ended December 31, 1996 and 1995
7. SUBSEQUENT EVENTS
As a result of change in ownership of managed properties on June 30,
1998, two significant property management agreements with the Company were
terminated.
On August 31, 1998, LaSalle Partners Incorporated ("LaSalle") and
Lend Lease Corporation Limited announced that they had reached a definitive
agreement for LaSalle to acquire the Company and certain other Lend Lease
real estate services businesses. LaSalle has agreed to pay Lend Lease
US$180 million at closing with provisions for an earnout payment of up to
US$77.5 million over five years. The transaction is subject to certain
conditions, including governmental and regulatory approvals and there can
be no assurance it will be completed.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(a) Financial Statements of Businesses Acquired (continued):
Lend Lease Property Management (Australia) Pty Limited
------------------------------------------------------
1. Report of Independent Auditors
2. Statements of Revenues and Direct Expenses Relating to the
Office and Industrial Business of Compass Management and Leasing
(Australia) Pty Limited for the Six Months Ended June 30, 1997 and the
Years Ended December 31, 1996 and 1995.
3. Notes to the Statements of Revenues and Direct Expenses
Relating to the Office and Industrial Business of Compass Management and
Leasing (Australia) Pty Limited.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lend Lease Property Management
(Australia) Pty Limited:
We have audited the accompanying statements of revenue and direct expenses
relating to the office and industrial business of Lend Lease Property
Management (Australia) Pty Limited for the six-month period ended June 30,
1997 and for the years ended December 31, 1996 and 1995. The statements
are the responsibility of the management of Lend Lease Property Management
(Australia) Pty Limited. Our responsibility is to express an opinion on
the financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Australia, the Company's local standards, that are
substantially equivalent to auditing standards generally accepted in the
United States. 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.
The office and industrial business of Lend Lease Property Management
(Australia) Pty Limited has been operated as an integral part of Lend Lease
Property Management (Australia) Pty Limited and has no separate legal
existence. The basis of preparation of the statement is described in
note 1.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the revenue and direct expenses relating to the
office and industrial business of Lend Lease Property Management
(Australia) Pty Limited for the six-month period ended June 30, 1997 and
for the years ended December 31, 1996 and 1995 on the basis described in
the preceding paragraph and in conformity with generally accepted
accounting principles in Australia.
/s/ KPMG
Sydney New South Wales, Australia
September 18, 1998
LEND LEASE PROPERTY MANAGEMENT (AUSTRALIA) PTY LIMITED
Statements of Revenue and Direct Expenses
Relating to the Office and Industrial Business of Lend Lease
Property Management (Australia) Pty Limited
For the Six-Month Period ended June 30, 1997
and for the Years ended December 31, 1996 and 1995
Six Months
ended Year ended Year ended
June 30, December 31, December 31,
1997 1996 1995
----------- ------------ ------------
(US$ thousands)
Revenue:
Property management
fees . . . . . . . . . $ 1,305 3,254 3,148
Leasing fees . . . . . . 395 1,159 1,974
Development fees . . . . 328 9 762
Other. . . . . . . . . . 7 1,771 2,732
------- ------- -------
Total revenue. . . . 2,035 6,193 8,616
Direct expenses:
Employee costs . . . . . 868 2,092 1,433
Other direct costs . . . 400 2,192 3,978
------- ------- -------
Total expenses . . . 1,268 4,284 5,411
------- ------- -------
Revenue net of
direct expenses. . $ 767 1,909 3,205
======= ======= =======
See accompanying notes to financial statements.
LEND LEASE PROPERTY MANAGEMENT (AUSTRALIA) PTY LIMITED
Notes to the Statements of Revenue and Direct Expenses
Relating to the Office and Industrial Business of Lend Lease
Property Management (Australia) Pty Limited
For the Six-Month Period ended June 30, 1997
and for the Years ended December 31, 1996 and 1995
(1) BASIS OF PREPARATION
The accompanying financial statements reflect the revenue and direct
expenses of the office and industrial business of Lend Lease Property
Management (Australia) Pty Limited ("LLPMA"). The accompanying financial
statements were prepared in anticipation of the sale of the office and
industrial business of LLPMA (note 5).
For the six-month period ended June 30, 1997 and for the years ended
December 31, 1996 and 1995, the office and industrial business operated as
an integral part of LLPMA. This business was not accounted for separately
from the other business activities of LLPMA during this period and as a
result it is not feasible to present full financial statements for the
office and industrial business on a stand-alone basis. Accordingly, the
accompanying financial statements reflect the revenue and direct expenses
relating to the office and industrial business only.
The accompanying financial statements are prepared in conformity with
accounting principles generally accepted in Australia. There are no
material differences between these principles and accounting principles
generally accepted in the United States as it relates to these financial
statements.
The accompanying financial statements are not intended to present all
the operations of LLPMA. Additionally, they do not purport to reflect all
the revenue and expenses of the office and industrial business on a stand-
alone basis, nor do they purport to be indicative of future revenue and
expenses of the office and industrial business.
(2) REVENUE
Revenue represents fees for services provided in respect of office
and industrial properties, which form a part of the LLPMA's business.
Development fees relate to development management and coordination
services provided to property owners for capital projects. Other revenue
includes revenue from parking facility management which was discontinued by
LLPMA during 1996.
For the period from January 1, 1995 to June 30, 1996, property
management fees were calculated at 2.85% of gross property revenue.
Additionally, certain direct employee costs (salaries and on-site costs)
were recoverable from clients at cost. Effective July 1, 1996, the
property management fee calculation reduced to 1.5% of gross property
revenue and the level of direct employee costs recoverable from clients
increased.
LEND LEASE PROPERTY MANAGEMENT (AUSTRALIA) PTY LIMITED
Notes to the Statements of Revenue and Direct Expenses
Relating to the Office and Industrial Business of Lend Lease
Property Management (Australia) Pty Limited
For the Six-Month Period ended June 30, 1997
and for the Years ended December 31, 1996 and 1995
Employee costs that are directly recoverable from clients are
excluded from the above revenue and direct expenses. Total costs recovered
in respect of these employees are as follows:
Six Months
ended Year ended Year ended
June 30, December 31, December 31,
1997 1996 1995
---------- ------------ ------------
(US$ thousands)
Employee costs directly
recoverable from
clients $1,520 2,190 1,439
====== ====== =======
During the period, one client generated more than 10% of total
revenue. Total revenue generated by this client during the periods were as
follows:
Six Months
ended Year ended Year ended
June 30, December 31, December 31,
1997 1996 1995
---------- ------------ ------------
(US$ thousands)
Revenue from
largest client $1,591 2,925 4,566
====== ====== ======
Percentage of
total revenue 78% 47% 53%
=== === ===
(3) DIRECT EXPENSES
Direct expenses represent those expenses that are directly
attributable to the generation of revenue. Employee costs that are
recovered directly from clients are excluded (see note 2 above).
(4) FOREIGN CURRENCY TRANSLATION
The activities of the Compass business are transacted in the local
currency, the Australian dollar. Revenue and expenses have been translated
into U.S. dollars using the average exchange rate for the respective
period.
(5) SUBSEQUENT EVENT
On August 31, 1998, LaSalle Partners Incorporated ("LaSalle") and
Lend Lease Corporation Limited, announced that they reached a definitive
agreement for LaSalle to acquire the office and industrial business of
LLPMA along with other businesses owned by Lend Lease Corporation Limited.
LaSalle has agreed to pay Lend Lease $180 million at closing with
provisions for an earnout payment of up to $77.5 million over five years.
Closing of the sale of the office and industrial business is subject to
certain conditions, including governmental and regulatory approvals.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(b) Pro Forma Financial Information
The following pro forma financial information gives effect to the
acquisition of Compass as submitted herewith:
1. Unaudited Pro Forma Combined Balance Sheet as of June 30, 1998
and notes thereto.
2. Unaudited Pro Forma Combined Statement of Earnings for the Six
Months Ended June 30, 1998 and notes thereto.
3. Unaudited Pro Forma Combined Statement of Earnings for the Year
Ended December 31, 1997 and notes thereto.
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1998
combines the historical unaudited consolidated financial statement of
LaSalle and the historical unaudited combined financial statements of
Compass as if the acquisition of Compass had occurred on that date giving
effect to the pro forma adjustments described in the accompanying notes.
Also presented are the Unaudited Pro Forma Combined Statements of
Earnings for the six months ended June 30, 1998 and the year ended December
31, 1997, giving effect to the acquisition of Compass as if it had been
consummated on January 1, 1997. The pro forma information is based on the
historical audited, unaudited as indicated elsewhere herein, consolidated
and combined financial statements of LaSalle and Compass, giving effect to
the acquisition of Compass based on the assumptions and adjustments set
forth in the accompanying notes.
The pro forma adjustments are based upon available information and
certain assumptions that LaSalle believes are reasonable under the
circumstances. The pro forma consolidated financial statements are not
necessarily indicative of what the actual financial position and results of
operations would have been as of June 30, 1998 and for the six months ended
June 30, 1998 and the year ended December 31, 1997 had LaSalle completed
the acquisition of Compass as of the dates indicated nor does it purport to
represent the future financial position or results of operations of
LaSalle.
LaSalle/Compass
Pro Forma Combined Balance Sheet
June 30, 1998
(Unaudited)
($ in thousands)
Compass
Historical ---------------------------- Pro Forma
LaSalle Historical Acquisition LaSalle/
(1) Combined (1) Adjustments Compass
------------ ------------ ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . $ 11,684 816 866 (2) 13,366
Trade receivables, net. . . . . . . . . . . 72,516 20,461 -- 92,977
Due from affiliate. . . . . . . . . . . . . -- 798 (798)(2) --
Other receivables . . . . . . . . . . . . . 7,732 -- -- 7,732
Prepaid expenses. . . . . . . . . . . . . . 1,422 774 -- 2,196
Other assets. . . . . . . . . . . . . . . . -- -- 948 (3) 948
Deferred tax benefit. . . . . . . . . . . . 5,104 -- 3,488 (3) 8,592
---------- ---------- -------- ----------
Total current assets . . . . . . . . . . 98,458 22,849 4,504 125,811
Property and equipment, at cost,
less accumulated depreciation . . . . . . . 19,631 3,534 -- 23,165
Goodwill and intangibles resulting from
business acquisitions, net of
amortization. . . . . . . . . . . . . . . . 53,959 126,348 (126,348)(3) 230,580
176,621 (3)
Investment in the Compass Businesses . . . . . -- -- (184,075)(3) --
184,075 (4)
Investments in real estate ventures. . . . . . 41,578 -- -- 41,578
Long-term receivables, net . . . . . . . . . . 6,826 -- -- 6,826
Deferred income taxes. . . . . . . . . . . . . -- 4,316 (4,316)(3) --
Other assets, net. . . . . . . . . . . . . . . 2,059 4,033 (3,659)(3) 2,433
---------- ---------- -------- ----------
Total Assets . . . . . . . . . . . . . $ 222,511 161,080 46,802 430,393
========== ========== ======== ==========
LaSalle Compass
Pro Forma Combined Balance Sheet - Continued
June 30, 1998
(Unaudited)
($ in thousands)
Compass
Historical ---------------------------- Pro Forma
LaSalle Historical Acquisition LaSalle/
(1) Combined (1) Adjustments Compass
------------ ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities. . . . . . . . . . . . . . . $ 27,659 7,095 2,806 (3) 41,635
4,075 (4)
Accrued compensation. . . . . . . . . . . . 23,638 3,924 5,334 (3) 32,896
Due to parent . . . . . . . . . . . . . . . -- 4,737 (4,737)(2) --
Other liabilities . . . . . . . . . . . . . 8,383 3,898 750 (3) 13,031
Current maturities of
long-term debt. . . . . . . . . . . . . . -- 102,000 (102,000)(2) --
---------- ---------- --------- ----------
Total current liabilities. . . . . . . . 59,680 121,654 (93,772) 87,562
Long-term credit facility. . . . . . . . . . . 9,776 -- 180,000 (4) 189,776
Other long-term liabilities. . . . . . . . . . 1,088 -- -- 1,088
---------- ---------- --------- ----------
Total Liabilities. . . . . . . . . . . 70,544 121,654 86,228 278,426
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
100,000,000 shares authorized;
16,229,815 issued and outstanding. . . . . . 162 3 (3)(3) 162
Additional paid-in capital . . . . . . . . . . 122,680 46,808 106,805 (2) 122,680
(153,613)(3) --
Retained earnings. . . . . . . . . . . . . . . 28,197 (7,385) 7,385 (3) 28,197
Accumulated other comprehensive income . . . . 928 -- -- 928
---------- ---------- --------- ----------
Total Stockholders' Equity . . . . . . 151,967 39,426 (39,426) 151,967
---------- ---------- --------- ----------
Total Liabilities and
Stockholders' Equity . . . . . . . . $ 222,511 161,080 46,802 430,393
========== ========== ========= ==========
<FN>
See Notes to Unaudited Pro Forma Financial Data
LaSalle/Compass
Notes to Unaudited Pro Forma Combined Balance Sheet
June 30, 1998
(1) The "Historical" columns represent the unaudited consolidated balance
sheet of LaSalle as of June 30, 1998 and the combined unaudited balance
sheet of Compass as of June 30, 1998.
(2) These adjustments give effect to the distribution of certain related
party assets and liabilities of Compass to Lend Lease and the repayment of
intercompany debt which was made in connection with the acquisition of
Compass by LaSalle. Pursuant to the terms of the purchase agreement
Compass will have $8.0 million in working capital, as defined in the
agreement, at closing.
(3) These adjustments give effect to the allocation of the purchase price
of $184.1 million to identifiable assets and liabilities at their estimated
fair values. The excess purchase price of $176.6 million was allocated to
management contracts ($35.3 million) and goodwill ($141.3 million), which
are being amortized on a straight-line basis over 8 years and 40 years,
respectively, based on an estimate of their useful lives. The estimate of
useful lives was based on the nature and terms of management contracts
acquired, Compass' existing client relationships, operating history and
market presence, and LaSalle's operating experience within the industry.
Due to the nature and expected recovery of assets and settlement of
liabilities, historical stated value approximates fair value. Estimated
current obligations of $8.9 million resulting from the acquisition have
been recorded as liabilities and additional goodwill and intangible assets.
(4) These adjustments represent the total consideration paid by LaSalle
for Compass of $184.1 million, including transaction related costs of $4.1
million, which was funded primarily from proceeds from LaSalle's long-term
credit facility, which has a one year term with options to extend up to one
year and bears interest at LIBOR + .875%.
LaSalle/Compass
Pro Forma Combined Statement of Earnings
Six Months Ended June 30, 1998
(Unaudited)
($ in thousands, except share data)
Compass
Historical ---------------------------- Pro Forma
LaSalle Historical Acquisition LaSalle/
(1) Combined (1) Adjustments Compass
------------ ------------ ----------- -----------
Revenue:
Fee-based services. . . . . . . . . . . . . $ 122,456 40,053 -- 162,509
Equity in earnings from
unconsolidated ventures . . . . . . . . . 1,874 -- -- 1,874
Other income. . . . . . . . . . . . . . . . 947 523 -- 1,470
---------- ---------- -------- ----------
Total revenue. . . . . . . . . . . . . . 125,277 40,576 -- 165,853
Operating Expenses:
Compensation and benefits . . . . . . . . . 79,036 23,265 -- 102,301
Operating, administrative and other . . . . 33,792 12,311 46,103
Depreciation and amortization . . . . . . . 5,578 8,287 (7,258)(2) 10,579
3,972 (3)
---------- ---------- -------- ----------
Total operating expenses . . . . . . . . 118,406 43,863 (3,286) 158,983
---------- ---------- -------- ----------
Operating income (loss). . . . . . . . . 6,871 (3,287) 3,286 6,870
Interest expense . . . . . . . . . . . . . . . 579 3,825 (3,825)(4) 6,655
6,076 (5)
---------- ---------- -------- ----------
Earnings (loss) before provision
(benefit) for income taxes . . . . . . 6,292 (7,112) 1,035 215
Net provision (benefit) for income taxes . . . 2,422 (2,373) 35 (6) 84
---------- ---------- -------- ----------
Net earnings (loss). . . . . . . . . . . $ 3,870 (4,739) 1,000 131
========== ========== ======== ==========
LaSalle/Compass
Pro Forma Combined Statement of Earnings - Continued
Six Months Ended June 30, 1998
(Unaudited)
($ in thousands, except share data)
Compass
Historical ---------------------------- Pro Forma
LaSalle Historical Acquisition LaSalle/
(1) Combined (1) Adjustments Compass
------------ ------------ ----------- -----------
Basic earnings per common share. . . . . . . . $ 0.24 0.01
========== ==========
Weighted average shares outstanding. . . . . . 16,200,000 16,200,000
========== ==========
Diluted earnings per common share. . . . . . . $ 0.24 0.01
========== ==========
(7)
Diluted weighted average shares outstanding. . 16,374,883 16,380,565
========== ==========
<FN>
See Notes to Unaudited Pro Forma Financial Data.
LaSalle/Compass
Notes to Unaudited Pro Forma Combined Statement of Earnings
For the Six Months Ended June 30, 1998
(1) The "Historical" columns represent the unaudited consolidated
statement of earnings of LaSalle for the six months ended June 30, 1998 and
the combined unaudited statement of earnings of Compass for the six months
ended June 30, 1998.
(2) The adjustment gives effect to the reversal of Compass' historical
amortization expense related to goodwill and other intangible assets (i.e.,
management contracts).
(3) The adjustment gives effect to the amortization of intangibles and
goodwill associated with the acquisition of Compass by LaSalle, on a
straight-line basis over the expected useful lives of 8 years and 40 years,
respectively.
(4) The adjustment gives effect to the elimination of interest expense
related to Compass' $102.0 million note payable to its parent which was
repaid in connection with the acquisition.
(5) The adjustment gives effect to borrowings on LaSalle's long-term
credit facility used to fund the acquisition of Compass, which has a one
year term with options to extend up to one year and bears interest at a
rate of LIBOR + .875%.
(6) The adjustment gives effect to the provision (benefit) for income
taxes as though LaSalle and Compass were taxable entities as of January 1,
1997 at an estimated effective tax rate of 39.2%.
(7) Diluted weighted average shares outstanding give effect to options of
LaSalle's Common Stock issued in connection with the acquisition of
Compass.
LaSalle/Compass
Unaudited Pro Forma Combined Statement of Earnings
Year Ended December 31, 1997
($ in the thousands, except share data)
Compass Acquisition
------------------------------------------------------------
Historical Results
--------------------------------------- Combin- Pro Acquisi-
Pro Forma CML/ Combined ation Forma tion Pro Forma
LaSalle Retail Yarmouth Austra- Compass Adjust- Combined Adjust- LaSalle/
(1) (2) (3) lia (4) (5) ments (6) ments Compass
-------- ------- -------- -------- -------- -------- -------- -------- --------
Revenue:
Fee-based
services . . . .$227,762 28,770 4,470 2,028 48,588 -- 83,856 -- 311,618
Equity in
earnings
from uncon-
solidated
ventures . . . . 3,311 -- -- -- -- -- -- -- 3,311
Other income. . . 1,911 172 -- 7 769 -- 948 -- 2,859
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenue . .232,984 28,942 4,470 2,035 49,357 -- 84,804 -- 317,788
Operating
Expenses:
Compensation
and benefits. .127,210 17,113 1,606 868 26,466 -- 46,053 -- 173,263
Operating,
administrative (7)
and other . . . 61,367 8,626 1,568 400 11,548 1,109 23,251 -- 84,618
Depreciation
and amortiza- (8)
tion . . . . . 9,756 772 818 -- 9,182 -- 10,772 (9,094) 19,378
(9)
-- -- -- -- -- -- -- 7,944 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses . . .198,333 26,511 3,992 1,268 47,196 1,109 80,076 (1,150) 277,259
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating
income. . . . 34,651 2,431 478 767 2,161 (1,109) 4,728 1,150 40,529
Interest (10)
expense . . . . . 1,000 -- -- -- 3,825 3,825 (3,825) 13,100
(11)
12,100
-------- -------- -------- -------- -------- -------- -------- -------- --------
LaSalle/Compass
Unaudited Pro Forma Combined Statement of Earnings (Continued)
Year Ended December 31, 1997
($ in thousands, except share data)
Compass Acquisition
------------------------------------------------------------
Historical Results
--------------------------------------- Combin- Pro Acquisi-
Pro Forma CML/ Combined ation Forma tion Pro Forma
LaSalle Retail Yarmouth Austra- Compass Adjust- Combined Adjust- LaSalle/
(1) (2) (3) lia (4) (5) ments (6) ments Compass
-------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings
(loss)
before
provision
(benefit)
for income
taxes. . . . . 33,651 2,431 478 767 (1,664) (1,109) 903 (7,125) 27,429
Net provision
(benefit) for
income taxes. . . 12,956 1,131 504 -- 54 -- 1,689 (3,885) 10,760
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net earnings
(loss) . . . .$ 20,695 1,300 (26) 767 (1,718) (1,109) (786) (3,240) 16,669
======== ======== ======== ======== ======== ======== ======== ======== ========
Basic earnings
per common share.$ 1.28 1.03
======== ========
Weighted
average
shares
outstanding . . .16,200,000 16,200,000
========== ==========
Diluted
earnings
per common
share . . . . . .$ 1.27 1.02
========== ========
Diluted
weighted
average
shares out-
standing. . . . .16,329,555 16,337,102
========== ==========
<FN>
See Notes to Unaudited Pro Forma Financial Data.
LaSalle/Compass
Notes to Unaudited Pro Forma Combined Statement of Earnings
For the Year Ended December 31, 1997
(1) Pro forma results give effect to (i) the merger of Galbreath with
LaSalle on April 22, 1997, as adjusted for the tenant representation and
investment banking units which were not acquired, as if such merger had
occurred on January 1, 1997, (ii) the provision for income taxes as though
LaSalle and Galbreath were taxable entities as of January 1, 1997 with 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 LaSalle's long-term debt out of the proceeds of the initial
public offering as if the offering had occurred on January 1, 1997. See
the pro forma financial information provided with respect to LaSalle
included elsewhere herein.
(2) Represents results of operations of CML and Retail from January 1,
1997 through June 10, 1997. As a result of the acquisition of CML and
Retail by Lend Lease on June 10, 1997, all entities comprising Compass were
under common control, and therefore, the results of operations from
June 11, 1997 through December 31, 1997 are included in the Historical
Combined Compass column.
(3) Represents results of operations of Yarmouth from January 1, 1997
through June 30, 1997. As a result of the CML and Retail acquisition by
Lend Lease on June 10, 1997, all entities comprising Compass were under
common control, and therefore, the results of operations of Yarmouth from
July 1, 1997 through December 31, 1997 are included in the Historical
Combined Compass column.
(4) Represents carve-out statements of revenues and direct expenses of
Compass Australia from January 1, 1997 through June 30, 1997. As a result
of the CML and Retail acquisition by Lend Lease on June 10, 1997, all
entities comprising Compass were under common control, and therefore, the
results of operations from July 1, 1997 through December 31, 1997 are
included in the Historical Combined Compass column.
(5) Represents results of operations of Historical Combined Compass from
June 11, 1997 (date at which all entities were under common control)
through December 31, 1997 for CML and Retail and from July 1, 1997 through
December 31, 1997 for Yarmouth and Compass Australia.
(6) Represents the results for Compass Management and Leasing, Inc., the
Yarmouth Property Management Group, Inc. and the Australian property
management businesses of Lend Lease on a pro forma basis for the year ended
December 31, 1997.
(7) The adjustment gives effect to the estimated allocation of the
Compass Australia indirect overhead expenses for the six months ended June
30, 1997 which were not included in the statement of revenues and direct
expenses of Compass Australia for the six months then ended. The Combined
Compass financial statements for the six months ended December 31, 1997
include the estimated allocation of indirect overhead expenses to Compass
Australia.
(8) The adjustment gives effect to the reversal of Compass' historical
amortization expense related to goodwill and other intangible assets (i.e.,
management contracts).
(9) The adjustment gives effect to the amortization of intangibles and
goodwill associated with the acquisition of Compass by LaSalle, on a
straight-line basis over the expected useful lives of 8 years and 40 years,
respectively.
(10) The adjustment gives effect to the elimination of interest expense
related to Compass' $102.0 million note payable to its parent which was
repaid in connection with the acquisition.
(11) The adjustment gives effect to borrowings on LaSalle's long-term
credit facility which has a one year term with options to extend up to one
year and bears interest at a rate of LIBOR + .875% used to fund the
acquisition of Compass.
(12) The adjustment gives effect to the provision for income taxes as
though LaSalle and Compass were taxable entities as of January 1, 1997 at
an estimated tax rate of 39.2%.
(13) Diluted weighted average shares outstanding give effect to options of
LaSalle's Common Stock issued in connection with the acquisition of
Compass.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued)
(c) Exhibits
A list of exhibits is set forth on the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
LASALLE PARTNERS INCORPORATED
Date: October 15, 1998 By: /s/ WILLIAM E. SULLIVAN
------------------------------
William E. Sullivan
Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
2(a) Purchase Agreement by and among LaSalle Partners
Incorporated and Lend Lease Corporation Limited, and the subsidiaries of
Lend Lease Corporation Limited named herein dated August 31, 1998.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG
23.3 Consent of PricewaterhouseCoopers LLP
99 Press release dated October 1, 1998 issued by LaSalle
Partners Incorporated