UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-13145
LASALLE PARTNERS INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
200 East Randolph Drive, Chicago, IL 60601
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class November 13, 1998
----- -----------------
Common Stock ($0.01 par value) 16,230,358
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 26
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 26
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 27
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
($ in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . $ 15,214 30,660
Trade receivables, net. . . . . . . . . 69,616 80,565
Notes receivable. . . . . . . . . . . . 16,144 6,995
Other receivables . . . . . . . . . . . 6,489 2,400
Prepaid expenses. . . . . . . . . . . . 2,006 2,055
Deferred tax benefit. . . . . . . . . . 5,104 5,104
-------- ---------
Total current assets. . . . . . 114,573 127,779
Property and equipment, at cost,
less accumulated depreciation of
$33,610 and $28,993 in 1998
and 1997, respectively. . . . . . . . . 23,360 16,098
Intangibles resulting from
business acquisitions, net of
accumulated amortization of $8,997
and $5,698 in 1998 and 1997,
respectively. . . . . . . . . . . . . . 53,120 50,366
Investments in real estate ventures . . . 50,965 18,080
Long-term receivables, net. . . . . . . . 8,014 6,607
Other assets, net . . . . . . . . . . . . 2,845 957
-------- ----------
$252,877 219,887
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities . . . . . . . . . $ 27,150 25,781
Accrued compensation. . . . . . . . . . 32,822 40,163
Other liabilities . . . . . . . . . . . 6,296 6,100
-------- ----------
Total current liabilities . . . 66,268 72,044
Long-term credit facility . . . . . . . . 28,442 --
Other long-term liabilities . . . . . . . 1,134 946
Commitments and contingencies
-------- ----------
Total liabilities . . . . . . . 95,844 72,990
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
($ in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -----------
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
16,230,358 shares issued and
outstanding . . . . . . . . . . . . . 162 162
Additional paid-in capital. . . . . . . 122,696 121,778
Retained earnings . . . . . . . . . . . 33,003 24,327
Accumulated other comprehensive
income. . . . . . . . . . . . . . . . 1,172 630
-------- ----------
Total stockholders' equity. . . 157,033 146,897
-------- ----------
$252,877 219,887
======== ==========
See accompanying notes to consolidated financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
($ in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
--------- -------- --------- --------
Revenue:
Fee-based services. . . . . . . . . . . . . . . . $ 63,611 51,310 186,067 138,697
Equity in earnings from
unconsolidated ventures . . . . . . . . . . . . 466 109 2,340 1,848
Other income. . . . . . . . . . . . . . . . . . . 755 439 1,702 937
-------- -------- -------- --------
Total revenue . . . . . . . . . . . . . . . 64,832 51,858 190,109 141,482
Operating expenses:
Compensation and benefits . . . . . . . . . . . . 37,739 29,515 116,775 86,112
Operating, administrative and other . . . . . . . 16,265 13,851 50,057 36,993
Depreciation and amortization . . . . . . . . . . 2,599 2,541 8,177 6,495
-------- -------- -------- --------
Total operating expenses. . . . . . . . . . 56,603 45,907 175,009 129,600
-------- -------- -------- --------
Operating income. . . . . . . . . . . . . . 8,229 5,951 15,100 11,882
Interest expense. . . . . . . . . . . . . . . . . . 413 283 992 3,859
-------- -------- -------- --------
Earnings before provision (benefit)
for income taxes . . . . . . . . . . . . 7,816 5,668 14,108 8,023
Net provision (benefit) for income taxes. . . . . . 3,010 (1,942) 5,432 (1,808)
-------- -------- -------- --------
Net earnings. . . . . . . . . . . . . . . . $ 4,806 7,610 8,676 9,831
======== ======== ======== ========
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
--------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments. . . . . $ 244 (488) 542 (1,053)
---------- ---------- ---------- ----------
Comprehensive income. . . . . . . . . . . . . . . . $ 5,050 7,122 9,218 8,778
========== ========== ========== ==========
Basic earnings per common share (1) . . . . . . . . $ 0.30 0.51 0.54 0.51
=========== ========== ========== ==========
Weighted average shares outstanding . . . . . . . . 16,230,358 16,200,000 16,210,340 16,200,000
========== ========== ========== ==========
Diluted earnings per common share (1) . . . . . . . $ .29 0.51 0.53 0.51
========== ========== ========== ==========
Diluted weighted average shares outstanding . . . . 16,446,906 16,306,171 16,403,225 16,306,171
========== ========== ========== ==========
<FN>
(1) Earnings per share for 1997 is calculated based on earnings for the period from incorporation,
July 22, 1997 through September 30, 1997.
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
($ in thousands, except share data)
(UNAUDITED)
Partners'
Capital Effect of
Common Stock Additional Retained (Deficit) Cumulative
------------------- Paid-In Earnings Predecessor Translation
Shares Amount Capital (Deficit) Partnerships Adjustment Total
---------- ------ ---------- --------- ------------ ----------- ---------
Balances at January 1,
1997. . . . . . . . . . -- -- -- -- $ 23,148 1,099 24,247
Net earnings (through
July 21, 1997). . . . -- -- -- -- 1,513 -- 1,513
Distributions. . . . . -- -- -- -- (14,835) -- (14,835)
Acquisition of the
Galbreath Company
common stock. . . . . -- -- -- -- 29,292 -- 29,292
Effect of the
reorganization. . . . 12,200,000 $ 122 38,996 -- (39,118) -- --
Net proceeds from the
initial Offering. . . 4,000,000 40 82,782 -- -- -- 82,822
Other. . . . . . . . . -- -- -- -- -- (565) (565)
---------- ------ -------- ------ ------- ------ --------
Balances after the
reorganization and
initial Offering. . . . 16,200,000 162 121,778 -- -- 534 122,474
Net earnings (July 22,
1997 through
December 31, 1997) . -- -- -- 24,327 -- -- 24,327
Other. . . . . . . . . -- -- -- -- -- 96 96
---------- ------ -------- ------ ------- ------ --------
Balances at December 31,
1997. . . . . . . . . . 16,200,000 162 121,778 24,327 -- 630 146,897
Net earnings . . . . . -- -- -- 8,676 -- -- 8,676
Shares issued under
stock purchase plan. 30,358 -- 918 -- -- -- 918
Other. . . . . . . . . -- -- -- -- -- 542 542
---------- ------ -------- ------ ------- ------ --------
Balances at
September 30, 1998. . . 16,230,358 $ 162 122,696 33,003 -- 1,172 157,033
========== ====== ======== ====== ======= ====== ========
<FN>
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
($ in thousands)
(UNAUDITED)
1998 1997
-------- --------
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . $ 8,676 9,831
Reconciliation of net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . 8,177 6,495
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . . . . (2,340) (1,848)
Provision for loss on receivables and
other assets. . . . . . . . . . . . . . . 1,218 1,659
Operating distributions from real
estate ventures . . . . . . . . . . . . . 2,585 2,562
Deferred compensation amortization. . . . . 143 --
Foreign exchange loss . . . . . . . . . . . 106 --
Loss (gain) on disposition of property
and equipment . . . . . . . . . . . . . . (39) (196)
Tax benefit on SFAS No. 109 Conversion. . . -- (5,037)
Changes in:
Receivables . . . . . . . . . . . . . . . . 5,683 29,366
Prepaid expenses and other assets . . . . . (1,066) (268)
Accounts payable, accrued liabilities and
accrued compensation. . . . . . . . . . . (4,841) (25,428)
-------- --------
Net cash provided by
operating activities. . . . . . . . . 18,302 17,136
Cash flows provided by (used in) investing
activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . . . (11,921) (3,376)
Acquisition of business-Satulah Group, Inc. . (5,465) --
Proceeds from disposition of property
and equipment . . . . . . . . . . . . . . . 170 224
Cash balances assumed in Galbreath
acquisition . . . . . . . . . . . . . . . . -- 1,008
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . . . . (45,965) (9,002)
Distributions, repayments of advances
and sale of investments . . . . . . . . . 826 5,800
-------- --------
Net cash used in investing
activities. . . . . . . . . . . . . . (62,355) (5,346)
Cash flows provided by (used in) financing
activities:
Net borrowings under credit facility. . . . . 28,442 (71,115)
Distributions to partners . . . . . . . . . . -- (14,835)
Net proceeds from the initial offering. . . . -- 83,056
-------- --------
Net cash provided by (used in)
financing activities. . . . . . . . . 28,442 (2,894)
Effects of foreign currency translation
on cash balances. . . . . . . . . . . . . . . 165 (186)
-------- --------
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997
-------- --------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . . . . (15,446) 8,710
Cash and cash equivalents, January 1. . . . . . 30,660 7,207
-------- --------
Cash and cash equivalents, September 30 . . . . $ 15,214 15,917
======== ========
Supplemental disclosure of cash flow information:
Interest paid was $935 and $4,058 for the periods
ended September 30, 1998 and 1997, respectively.
Taxes paid were $1,930 and $847 for the periods
ended September 30, 1998 and 1997, respectively.
See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
($ in thousands, except share data)
(UNAUDITED)
Readers of this quarterly report should refer to the Company's audited
financial statements for the year ended December 31, 1997, which are
included in the Company's 1997 Form 10-K, filed with the Securities and
Exchange Commission, as certain footnote disclosures which would substan-
tially duplicate those contained in such audited financial statements have
been omitted from this report.
(1) ORGANIZATION
LaSalle Partners Incorporated [successor to LaSalle Partners Limited
Partnership and LaSalle Partners Management Limited Partnership
(collectively, the "Predecessor Partnerships")] was incorporated in
Maryland on April 15, 1997, (collectively referred to as the "Company").
On July 22, 1997, the Company completed an initial public offering (the
"Offering") of 4,000,000 shares of LaSalle Partners Incorporated common
stock, $.01 par value per share (the "Common Stock"). In addition, all of
the partnership interests held in the Predecessor Partnerships were
contributed to the Company, pursuant to agreements among the general and
limited partners, in exchange for an aggregate of 12,200,000 shares of
common stock. The contribution occurred immediately prior to the closing
of the Offering. The 4,000,000 shares were offered at $23 per share,
aggregating $82,822, net of offering costs, of which $63,490 was used to
retire long-term debt and related interest.
The Predecessor Partnerships were subject to a reorganization as part
of the incorporation of the Company. Due to the existence of a paired
share arrangement between the Predecessor Partnerships and between the
former general partners of the Predecessor Partnerships, as well as the
existence of identical ownership before and after the incorporation of the
Predecessor Partnerships, such transactions were accounted for in a manner
similar to the accounting used for a pooling of interests. Thus, the
Company's financial statements include the financial positions and results
of operations of the Predecessor Partnerships at their historical basis.
(2) INTERIM INFORMATION
The consolidated and combined financial statements as of
September 30, 1998 and for the three and nine month periods ended September
30, 1998 and 1997 are unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the consolidated and combined financial
statements for these interim periods have been included. The results for
the periods ended September 30, 1998 and 1997 are not necessarily
indicative of the results to be obtained for the full fiscal year.
(3) EARNINGS PER SHARE
Basic earnings per common share was based on weighted average shares
outstanding of 16,230,358 and 16,210,340 for the three and nine month
periods ended September 30, 1998, respectively. Diluted earnings per
common share was based on weighted average shares outstanding of 16,446,906
and 16,403,225 for the three and nine month periods ended September 30,
1998, respectively, which reflects increases of 216,548 and 192,885 shares
primarily representing the dilutive effect of outstanding stock options
whose exercise price was less than the average market price of the
Company's stock for the period and, to a lesser extent, the dilutive effect
of shares to be issued under the Company's employee stock benefit plans.
(4) BUSINESS SEGMENTS
The Company's operations have been classified into three business
segments: Management Services, Corporate and Financial Services and
Investment Management. The Management Services segment provides three
primary service capabilities: (i) property and facility management and
leasing for property owners; (ii) development management for both investors
and real estate users seeking to develop new buildings or renovate existing
facilities; and (iii) project management of tenant improvements in both
owner-occupied and leased space. The Corporate and Financial Services
segment provides transaction and advisory services through three primary
service capabilities, including: (i) tenant representation for corporations
and professional services firms; (ii) investment banking services to
address the financing, acquisition, and disposition needs of real estate
owners; and (iii) land acquisition services for owners and users of land.
The Investment Management segment provides real estate investment
management services to institutional investors, corporations and high net
worth individuals.
Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. The Company allocates
all expenses, other than interest and income taxes, as substantially all
expenses incurred benefit one or more of the segments.
Summarized unaudited financial information by business segment for
the three and nine month periods ended September 30, 1998 and 1997 is as
follows:
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
--------- -------- --------- --------
Management Services:
Revenue:
Property and facility management fees . . . . . $ 12,527 10,694 33,879 28,347
Leasing fees. . . . . . . . . . . . . . . . . . 9,051 7,179 19,990 13,178
Development management fees . . . . . . . . . . 2,591 2,148 6,786 4,892
Project management fees . . . . . . . . . . . . 4,361 1,889 12,361 4,985
Intersegment revenue. . . . . . . . . . . . . . 193 25 399 75
Other income. . . . . . . . . . . . . . . . . . 321 157 673 286
--------- ------- ------- -------
29,044 22,092 74,088 51,763
Operating expenses:
Compensation, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . 27,251 21,580 78,624 53,092
Depreciation and amortization . . . . . . . . . 1,263 961 3,880 2,402
--------- ------- ------- -------
Operating income (loss) . . . . . . . . . . . $ 530 (449) (8,416) (3,731)
========= ======= ======= =======
Corporate and Financial Services:
Revenue:
Tenant representation fees. . . . . . . . . . . $ 10,784 7,600 20,965 18,084
Investment banking fees . . . . . . . . . . . . 6,278 3,678 20,832 9,590
Land fees . . . . . . . . . . . . . . . . . . . 2,696 1,147 5,304 2,939
Construction operations . . . . . . . . . . . . 250 225 807 635
Equity in earnings from unconsolidated ventures (47) 249 (53) 431
Intersegment revenue. . . . . . . . . . . . . . 429 -- 529 392
Other income. . . . . . . . . . . . . . . . . . 84 97 242 183
--------- ------- ------- -------
20,474 12,996 48,626 32,254
Operating expenses:
Compensation, operating and administrative
expenses . . . . . . . . . . . . . . . . . . . 14,288 9,592 41,357 27,333
Depreciation and amortization . . . . . . . . . 316 323 926 870
--------- ------- ------- -------
Operating income. . . . . . . . . . . . . . . $ 5,870 3,081 6,343 4,051
========= ======= ======= =======
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
--------- -------- --------- --------
Investment Management:
Revenue:
Advisory fees . . . . . . . . . . . . . . . . . $ 14,228 15,512 61,620 54,145
Acquisition fees. . . . . . . . . . . . . . . . 845 1,238 3,524 1,902
Equity in earnings from unconsolidated ventures 513 (140) 2,393 1,417
Other income. . . . . . . . . . . . . . . . . . 350 185 786 468
--------- ------- ------- -------
15,936 16,795 68,323 57,932
Operating expenses:
Compensation, operating and administrative expenses 13,087 12,219 47,779 43,147
Depreciation and amortization . . . . . . . . . . 1,020 1,257 3,371 3,223
--------- ------- ------- -------
Operating income. . . . . . . . . . . . . . . $ 1,829 3,319 17,173 11,562
========= ======= ======= =======
Total segment revenue . . . . . . . . . . . . . . . $ 65,454 51,883 191,037 141,949
Intersegment revenue eliminations . . . . . . . . . (622) (25) (928) (467)
--------- ------- ------- -------
Total revenue . . . . . . . . . . . . . . . . $ 64,832 51,858 190,109 141,482
========= ======= ======= =======
Total segment operating expenses. . . . . . . . . . $ 57,225 45,932 175,937 130,067
Intersegment operating expense eliminations . . . . (622) (25) (928) (467)
--------- ------- ------- -------
Total operating expenses. . . . . . . . . . . $ 56,603 45,907 175,009 129,600
========= ======= ======= =======
Total operating income. . . . . . . . . . . . $ 8,229 5,951 15,100 11,882
========= ======= ======= =======
(5) PRO FORMA FINANCIAL INFORMATION
The following pro forma consolidated and combined statements of
earnings give effect to the acquisition of the common stock of Galbreath,
as adjusted for the Tenant Representation and Investment Banking units
which were not acquired, the provision for income taxes as though the
Company and Galbreath were taxable entities at an effective tax rate of
38.5%, the conversion of the Company to corporate form and the initial
public offering, including the receipt and application of the net proceeds
therefrom to repay long-term indebtedness and related interest, as if these
events occurred on January 1, 1997.
The pro forma adjustments are based upon available information and
certain assumptions that management of the Company believes are reasonable.
The pro forma consolidated and combined financial statements are not
necessarily indicative of what the actual results of operations would have
been for the three and nine month periods ended September 30, 1997 had the
Company completed the acquisition of the Galbreath common stock and
consummated its conversion to corporate form and the Offering transactions
as of the dates indicated nor does it purport to represent the future
financial position or results of operations of the Company. The three and
nine month periods ended September 30, 1998 represent the Company's actual
results of operations.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
1998 1997 1998 1997
--------- -------- --------- --------
Revenue:
Fee-based services. . . . . . . . . . . . . . . . $ 63,611 51,310 186,067 146,548
Equity in earnings from unconsolidated ventures . 466 109 2,340 1,921
Other income. . . . . . . . . . . . . . . . . . . 755 439 1,702 1,224
---------- ---------- ---------- ----------
Total revenue . . . . . . . . . . . . . . . . . 64,832 51,858 190,109 149,693
Operating expenses:
Compensation and benefits . . . . . . . . . . . . 37,739 29,515 116,775 91,196
Operating, administrative and other . . . . . . . 16,265 14,039 50,057 39,920
Depreciation and amortization . . . . . . . . . . 2,599 2,541 8,177 7,158
---------- ---------- ---------- ----------
Total operating expenses. . . . . . . . . . . . 56,603 46,095 175,009 138,274
---------- ---------- ---------- ----------
Operating income. . . . . . . . . . . . . . . . 8,229 5,763 15,100 11,419
Interest expense. . . . . . . . . . . . . . . . . . 413 135 992 864
---------- ---------- ---------- ----------
Earnings before provision for income taxes. . . 7,816 5,628 14,108 10,555
Net provision for income taxes. . . . . . . . . . . 3,010 2,167 5,432 4,063
---------- ---------- ---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . $ 4,806 3,461 8,676 6,492
========== ========== ========== ==========
Basic earnings per common share . . . . . . . . . . $ 0.30 0.21 0.54 0.40
========== ========== ========== ==========
Weighted average shares outstanding . . . . . . . . 16,230,358 16,200,000 16,210,340 16,200,000
========== ========== ========== ==========
Diluted earnings per common share . . . . . . . . . $ 0.29 0.21 0.53 0.40
========== ========== ========== ==========
Diluted weighted average shares outstanding . . . . 16,446,906 16,329,096 16,403,225 16,329,032
========== ========== ========== ==========
FOOTNOTE 5 - CONTINUED
Pro forma total revenue and operating expenses for Galbreath include
activities such as property management and leasing, facility management and
development management. Additional adjustments to operating expenses were
made for estimated incremental general and administrative costs associated
with operations as a public company totaling $187 and $563 for the three
and nine month periods ended September 30, 1997, respectively. As a result
of the repayment of the Company's long-term notes payable out of the
proceeds of the Offering, the related actual interest expense totaling $148
and $2,995 for the three and nine month periods ended September 30, 1997,
respectively, has been eliminated in the pro forma results. The pro forma
results further include an additional provision for income taxes totaling
$4,109 and $5,871 for the three and nine month periods ended September 30,
1997, respectively, giving effect to the conversion of the Company and
Galbreath to taxable entities.
(6) DEBT
In addition to its existing five year unsecured revolving credit
facility of $150,000, the Company obtained a $175 million credit facility
(the "Acquisition Facility") in September 1998 which is to be used
exclusively to fiance the acquisition of Compass (note 7). The Acquisition
Facility, which is placed with a syndicate of seven banks, has a one year
term with two six month extensions and bears a variable rate of interest
based on market rates. Under the terms of the revolving credit facility
and the Acquisition Facility (collectively, the "Facilities"), the Company
must maintain a certain level of consolidated net worth and ratio of funded
debt to earnings before interest expense, income taxes, depreciation and
amortization expense, and must meet a minimum fixed charge coverage ratio.
Additionally, the Company is restricted from, among other things, incurring
certain levels of indebtedness to lenders outside of the Facilities,
disposing of a significant portion of its assets, and is subject to lender
approval on certain levels of co-investment. As of September 30, 1998,
there were no outstanding borrowings on the Acquisition Facility. The
Company had $28,442 of outstanding borrowings on its revolving credit
facility at September 30, 1998, compared with no outstanding borrowings at
December 31, 1997.
(7) SUBSEQUENT EVENTS - ACQUISITIONS
On October 1, 1998, the Company acquired all of the common stock of
the following real estate service companies (collectively referred to as
"Compass") 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.). On October 31, 1998, the Company also
acquired Compass Management and Leasing (Australia) Pty Limited, the Lend
Lease property and facility management business in Australia. The Company
paid $180,000 in cash for all of the acquired companies, which it financed
via borrowings on its Facilities. The purchase of the companies also
includes provisions for an earnout payment of up to $77,500 over five
years.
FOOTNOTE 7 - CONTINUED
On October 22, 1998, the Company and Jones Lang Wootton ("JLW")
announced that they reached a definitive agreement to merge their
operations. JLW is an employee owned business and provides a wide range of
real estate advisory, transactional and asset management services to local,
national and international clients in both the private and public sectors
with more than 4,000 employees located in 32 countries throughout Europe,
Asia, North America, and Australia. The transaction, which is principally
structured as a share exchange, has been approved by the Company's Board of
Directors and the Boards of Directors of the JLW companies and
partnerships. Under the terms of the agreement, the Company will issue up
to 14.3 million shares of common stock, plus approximately $6,000 in cash,
subject to a closing net worth adjustment. The transaction is expected to
close in early 1999 and is subject to acceptance of the exchange offer by
JLW shareholders and partners, approval by the Company's shareholders,
regulatory and tax clearances, and other customary conditions, and there
can be no assurance it will be completed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
LaSalle Partners Incorporated is a leading vertically integrated
global real estate services firm that provides management services,
corporate and financial services and investment management services to
corporations and other real estate owners and investors worldwide. The
Company has grown by expanding both its client base and its range of
services and products in anticipation of client needs. The Company
completed its initial public offering ("Offering") on July 22, 1997,
raising net proceeds of $82.8 million which were used primarily to repay
the Company's long-term debt and related interest of $63.5 million.
The Company has pursued a growth strategy that capitalizes on
existing client relationships and emerging industry trends. The key
components of the growth strategy include expanding client relationships to
increase the range of services currently provided in addition to developing
new client relationships, broadening its international presence and
selectively pursuing strategic acquisitions and co-investment
opportunities.
Since late 1994, the Company has completed the following strategic
acquisitions: Alex. Brown Kleinwort Benson Realty Advisors Corporation, a
real estate investment advisor, in November 1994; CIN Property Management,
a London-based investment advisor, in October 1996; The Galbreath Company,
a property and development management company, in April 1997; the project
management business of Satulah Group Inc., a project management/facilities
conversion company, in January 1998; and Compass Management and Leasing and
certain of its affiliates, a property management and leasing, facility
management and project management company with operations in the United
States, United Kingdom, Australia and Brazil, in October 1998.
Additionally, in October 1998 the Company and Jones Lang Wootton, an
employee owned international real estate services firm with operations in
Europe, Asia, Australia and the United States announced their intent to
merge operations.
The Company intends to continue to increase its co-investment with its
investment management clients. This strategy should serve to grow the
assets under management, generate returns on investment and create
potential opportunities to provide services related to the acquisition,
financing, property management, leasing and disposition of such
investments. As of September 30, 1998, the Company had a total investment
of $51.0 million in 41 separate property or fund co-investments with
additional capital commitments of $14.5 million for future fundings of co-
investments.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUE
The Company's total revenue, after elimination of intersegment
revenue, grew $13.0 million, or 25.0%, to $64.8 million for the three
months ended September 30, 1998 and grew $48.6 million, or 34.4%, to $190.1
million for the nine months ended September 30, 1998 from the prior year
periods. Despite recent volatile conditions in the economy and activity
declines in the domestic real estate and capital markets, increased
revenues for both periods were driven primarily by the strong U.S. economy;
significant inflows of capital to the real estate market for most of the
nine months ended September 30, 1998; an ongoing trend toward consolidation
in many financial services businesses; and the Company's ability to cross-
market real estate services to its clients.
These increases have been partially offset by a decline in property
management, disposition, leasing and investment management fees from four
multiple investor funds ("Commingled Funds") formed by the Company in the
1980s. The decline is a result of the current and continuing disposition of
the funds' assets, in accordance with the strategic plan. These asset
dispositions are expected to be substantially completed by the end of 1998.
Revenue generated from these funds compared with total revenue was
approximately 1% for the three and nine months ended September 30, 1998 and
approximately 6% for the prior year periods.
Revenue for the Company's Management Services segment, which
represented 44.5% and 38.8%, respectively, of the Company's total revenue
for the three and nine months ended September 30, 1998, increased $7.0
million, or 31.5%, to $29.0 million for the three months ended
September 30, 1998 and increased $22.3 million, or 43.1%, to $74.1 million
for the nine months ended September 30, 1998 from the prior year periods.
Increases in revenue were primarily a result of higher volumes of leasing
activity and the acquisition of Galbreath and Satulah and, to a lesser
extent, to increases in property and facility management fees, strategic
alliance relationships formed by the Project Management business, and a
higher volume of development projects being managed by the Development
Management business. These increases were partially offset by a decline in
revenue related to the sale of the Commingled Fund properties discussed
previously.
The Company's Corporate and Financial Services segment revenue, which
represented 30.9% and 25.3%, respectively, of the Company's total revenue
for the three and nine months ended September 30, 1998, increased $7.5
million, or 57.5%, to $20.5 million for the three months ended
September 30, 1998 and increased $16.4 million, or 50.8%, to $48.6 million
for the nine months ended September 30, 1998 over the prior year periods.
The increase in revenue for both periods was primarily attributable to an
increased volume of corporate finance, investment sales and private equity
activity, slightly offset by a reduction in performance fees generated
during the third quarter of 1998 as compared to the third quarter of 1997
and augmented for the nine month period in 1998 by performance fees
generated on the disposition of certain hotel properties in connection with
the formation of the LaSalle Hotel Properties REIT in the second quarter of
1998. In addition, the Company experienced increased transaction volume by
both its Tenant Representation and Land units during the periods. These
increases were partially offset by a decline in revenue related to the sale
of the Commingled Fund properties discussed previously.
The Company's Investment Management segment revenue, which represented
24.6% and 35.9%, respectively, of the Company's total revenue for the three
and nine months ended September 30, 1998, decreased $0.9 million, or 5.1%,
to $15.9 million for the three months ended September 30, 1998 and
increased $10.4 million, or 17.9%, to $68.3 million for the nine months
ended September 30, 1998 from the prior year periods. The decrease in
revenue for the third quarter of 1998 was primarily attributable to a
decrease in performance fees generated as compared to the prior year
period, in addition to the decline in revenue from four of the Company's
Commingled Funds discussed previously. To a lesser extent, the decrease
can be attributed to the transition of approximately $1.0 billion in assets
under management related to the CalPERS portfolio to the client's new
investment advisor during the third quarter of 1998. These decreases for
the third quarter of 1998 were partially offset by increased equity
earnings from the segment's co-investment holdings as well as international
acquisition fees. The 1998 year to date gain in revenue was primarily
attributable to performance fees generated on the disposition of certain
assets under management, including certain hotel properties in connection
with the formation of the LaSalle Hotel Properties ("LHO") in the second
quarter of 1998, and, to a lesser extent, to the higher volume of activity
performed by the securities unit and increased acquisition fees generated
on international fund activity. These increases were partially offset by a
decline in revenue from four of the Company's Commingled Funds discussed
previously.
OPERATING EXPENSE
The Company's operating expenses, after elimination of intersegment
expenses, increased $10.7 million, or 23.3%, to $56.6 million for the three
months ended September 30, 1998 and increased $45.4 million, or 35.0%, to
$175.0 million for the nine months ended September 30, 1998 from the prior
year periods. Operating expenses represented 87.3% and 92.1% of total
revenue, respectively, for the three and nine month periods ended
September 30, 1998 which is consistent with the prior year periods.
Increased operating expense levels reflect the (i) increased accrual for
incentive compensation as a result of higher operating profits from the
prior year periods; (ii) increased personnel and other operating costs
associated with staffing levels necessary to support new business
initiatives and increased business activity; (iii) personnel and other
operating costs associated with the acquisition of Galbreath and Satulah,
including the amortization of goodwill and intangibles; and, (iv) personnel
and infrastructure costs related to public reporting and technology
enhancements.
Operating expenses for the Company's Management Services segment
increased $6.0 million, or 26.5% to $28.5 million for the three months
ended September 30, 1998 and increased $27.0 million or 48.7% to $82.5
million for the nine months ended September 30, 1998 over the prior year
periods. These increases were primarily a result of the effects of the
Galbreath and Satulah acquisitions, including personnel costs and
amortization of intangibles resulting from the acquisitions, higher
compensation and benefit costs associated with increased staffing to
support new business initiatives and incremental corporate infrastructure
costs as a result of higher staffing levels and technology enhancements.
Operating expenses for the Corporate and Financial Services segment
increased $4.7 million, or 47.3%, to $14.6 million for the three months
ended September 30, 1998 and increased $14.1 million, or 49.9%, to $42.3
million for the nine months ended September 30, 1998 over the prior year
periods. The increases principally reflect the accrual incentive
compensation resulting from the increased level of operating profits
generated, in addition to increased personnel and other operating costs
associated with staffing levels necessary to support new business
initiatives and the increased business activity.
Operating expenses for the Investment Management segment increased
$0.6 million, or 4.7%, to $14.1 million for the three months ended
September 30, 1998 and increased $4.8 million, or 10.3%, to $51.2 million
for the nine months ended September 30, 1998 over the prior year periods.
The increase for the three months ended September 30, 1998 was primarily
attributable to the new international office opened in the Netherlands
subsequent to the third quarter of 1997. The increase for the nine months
ended September 30, 1998 was substantially a result of increased accruals
for incentive compensation, consistent with the increased level of
operating profits generated for the period as compared to the prior year.
OPERATING INCOME
As a result of the factors noted above, the Company's operating income
increased $2.3 million, or 38.3%, to $8.2 million for the three months
ended September 30, 1998 and increased $3.2 million, or 27.1%, to $15.1
million for the nine months ended September 30, 1998 over the prior year
periods. As a percentage of total revenue, the Company's operating income
remained relatively constant compared to the prior year period at 12.7% and
7.9% for the three and nine months ended September 30, 1998, respectively.
INTEREST EXPENSE
Interest expense increased $0.1 million to $0.4 million for the three
months ended September 30, 1998 and decreased $2.9 million to $1.0 million
for the nine months ended September 30, 1998 from the prior year periods.
The decrease for the nine months ended September 30, 1998 is principally a
result of the repayment of the Company's long-term debt from the net
proceeds of the Offering.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $5.0 million to $3.0 million
for the three months ended September 30, 1998 and increased $7.2 million to
$5.4 million for the nine months ended September 30, 1998 from the prior
year periods. The increases are a result of a $5.0 million tax benefit
recorded by the Company during the third quarter of 1997 upon its
conversion from partnership to corporate form in July 1997, in addition to
the resulting provision for income taxes at an effective tax rate of 38.5%.
NET EARNINGS
As a result of the factors discussed previously, the Company's net
earnings decreased $2.8 million, or 36.8%, to $4.8 million for the three
months ended September 30, 1998 and decreased $1.2 million, or 11.7%, to
$8.7 million for the nine months ended September 30, 1998 from the prior
year periods.
PRO FORMA RESULTS
Pro forma results for the three and nine months ended September 30,
1997 give effect to (i) the acquisition of Galbreath, as adjusted for the
Tenant Representation and Investment Banking units which were not acquired,
as if the acquisition occurred on January 1, 1997; (ii) the provision for
income taxes as though the Company and Galbreath were both taxable entities
as of January 1, 1997 at an effective tax rate of 38.5%; and (iii)
estimated incremental general and administrative costs associated with
operations as a public company and the repayment of the Company's long-term
notes payable out of the proceeds of the Offering as if the Offering
occurred on January 1, 1997.
The Company's actual historical revenue for the three and nine months
ended September 30, 1998 of $64.8 million and $190.1 million, respectively,
compare to $51.9 million and $149.7 million for the prior year periods on a
pro forma basis. The Company's operating expenses for the three and nine
months ended September 30, 1998 on an actual historical basis were 87.3%
and 92.1% of revenue, respectively, compared to 88.9% and 92.4% for the
prior year periods on a pro forma basis. As a result of the factors
previously discussed, the Company's actual historical net income increased
$1.3 million to $4.8 million for the three months ended September 30, 1998
and increased $2.2 million to $8.7 million for the nine months ended
September 30, 1998 from the prior year periods on a pro forma basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its cash requirements primarily from operating
activities. No one client accounts for more than 10% of the Company's
total revenue. During the nine months ended September 30, 1998, cash flows
provided by operating activities totaled $18.3 million, an increase of $1.2
million over the prior year period. The increase in operating cash flows
is primarily attributable to increased incentive fees generated which are
typically paid upon closing of the related transaction.
The Company continues to pursue co-investment opportunities with its
investment management clients, for which the holding period typically
ranges from three to seven years. Such co-investments are represented by
non-controlling general partner and limited partner interests. In addition
to its share of investment returns, the Company typically earns investment
management fees, and in some cases, property management and leasing fees on
these investments. The equity earnings from these co-investments have had a
relatively small impact on the Company's current earnings and cash flow.
However, the Company's increased participation as a principal in real
estate investments could increase fluctuations in the Company's net
earnings and cash flow as a result of the timing and magnitude of the gains
or losses and potential incentive participation fees, if any, to be
recognized on the disposition of the assets. In certain of these
investments, the Company will not have complete discretion to control the
timing of the disposition of such investments.
Net cash used in investing activities was $62.4 million for the nine
months ended September 30, 1998 compared with $5.3 million for the prior
year period. The increased usage of $57.0 million is primarily attributable
to a higher level of co-investment during 1998, including an $18.9 million
investment in LHO (net additional co-investment of $15.2 million) in April
1998. In addition, the Company acquired the project management business of
the Satulah Group Inc. in January 1998 for $5.5 million in cash. Finally,
the Company experienced increased net capital expenditures of $8.5 million
primarily as a result of the continued customization and implementation of
a new property accounting and information system by its Management Services
segment and a new corporate accounting system in addition to the on-going
replacement of personal computers. The Company anticipates that future
capital expenditures will continue to exceed prior year levels as a result
of technology enhancements that are currently in progress.
Historically, the Company has financed its operations, acquisitions
and co-investments with internally generated funds, ownership equity and
borrowings under revolving credit facilities. In addition to the Company's
existing five year unsecured revolving credit facility of $150 million, in
September 1998, the Company obtained a $175 million credit facility (the
"Acquisition Facility") which is to be used exclusively to finance the
acquisition of certain businesses from Lend Lease as described under
Subsequent Events - Acquisitions. The new facility, which is placed with a
syndicate of seven banks, has an initial term of one year with two six
month extensions. The revolving credit facility is available for working
capital, co-investment, and acquisitions. The facilities are guaranteed by
certain of the Company's subsidiaries. The Company must maintain a certain
level of consolidated net worth and ratio of funded debt to EBITDA, and
must meet a minimum fixed charge coverage ratio. Additionally, the Company
is restricted from, among other things, incurring certain levels of
indebtedness to lenders outside of the facilities and disposing of a
significant portion of its assets, and is subject to lender approval on
certain levels of co-investment. The facilities bear variable rates of
interest based on market rates. There were no borrowings as of and for the
nine months ended September 30, 1998 on the Acquisition Facility. The
Company had outstanding borrowings of $28.4 million as of September 30,
1998 on its revolving credit facility. The Company's effective interest
rate on its revolving credit facility was 5.8% and 6.7% for the nine months
ended September 30, 1998 and 1997, respectively.
Net cash provided by financing activities was $28.4 million for the
nine months ended September 30, 1998 compared with net cash used of $2.9
million in the prior year period. The increase in cash flows is primarily
a result of the Company's conversion to corporate form in July 1997 and the
elimination of partnership distributions which were made to its partners
during 1997 in accordance with partnership agreements for which no like
dividends were made during 1998. To a lesser extent the increase in cash
flows are due to increased borrowings on the Company's revolving credit
facility to fund increased co-investment activity and capital expenditures
as previously discussed. The Company believes, based on current operating
plans, that cash generated from operations and available borrowings will be
sufficient to meet its capital and liquidity requirements for the
foreseeable future.
SEASONALITY
Historically, the Company's revenue, operating profits and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. This seasonality is due to a calendar year-end focus
on the completion of transactions, which is consistent with the real estate
industry generally. In contrast, the Company's Investment Management
segment earns performance fees on client's returns on their real estate
investments. Such performance fees are generally earned when the asset is
disposed of, the timing of which the Company does not have complete
discretion over. The Company's non-variable operating expenses, which are
treated as expenses when incurred during the year, are relatively constant
on a quarterly basis. Therefore, the Company typically sustains a loss in
the first quarter of each calendar year, typically reports a small profit
or loss in the second and third quarters and records a substantial majority
of the Company's earnings in the fourth calendar quarter, barring the
recognition of investment generated performance fees.
INFLATION
The Company's operations are directly affected by various national and
local economic conditions, including interest rates, the availability of
credit to finance real estate transactions and the impact of tax laws. To
date, the Company does not believe that general inflation has had a
material impact on its operations, as revenue, commissions, and other
variable costs related to revenue are primarily impacted by real estate
supply and demand rather than general inflation.
OTHER MATTERS
ACCOUNTING MATTERS
In an attempt to align its operating results with those presented by
similar companies within the industry, certain amounts have been
reclassified in the Company's 1997 revenue and operating expenses to
reflect direct personnel cost reimbursements received on property or
specific client assignments on a net, rather than a gross, basis. There
was no effect on operating profits or net earnings as historically
reported.
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" becomes effective for
fiscal years beginning after December 15, 1997 and is not expected to have
a material impact on the Company's financial statements.
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" becomes effective for all
fiscal quarters for fiscal years beginning after June 15, 1999 and is not
expected to have a material impact on the Company's financial statements.
YEAR 2000 ISSUES
The "Year 2000 Issue" is the result of computer programs and systems
having been designed and developed to use two digits, rather than four, to
define the applicable year. As a result, these computer programs and
systems may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, pay invoices or engage in similar normal
business activities. The Company has defined five key phases in addressing
the Year 2000 Issue: awareness, assessment, renovation, validation and
implementation.
Under the guidance of a Year 2000 program team, who's strategy is
supported by senior management, the Company has substantially completed its
awareness phase and will continue this phase through December 31, 1999 to
maintain a heightened sense of awareness to the Year 2000 Issue. The
Company conducts its business primarily with commercial software purchased
from third-party vendors and has significantly upgraded its information
systems capabilities over the last two years and is in the process of
finalizing the roll-out of new property and client accounting systems. In
conducting the assessment phase, the Company is reviewing the year 2000
compliance of these systems in addition to creating an inventory of all
other applications, systems software and hardware including the related
impact of the Year 2000 Issue. Completion of the assessment phase is
anticipated to be in early 1999.
Based upon the results of the assessment phase, the Company will
determine the appropriate levels of renovation and validation that will be
required. As a result of the significant recent upgrades of the critical
business systems, the renovation process of converting, replacing or
eliminating selected platforms, applications, databases and utilities, as
well as the validation process of testing and verifying, is anticipated to
be completed by mid-year 1999. The implementation phase, which involves
returning the tested systems to operational status and the development of
contingency plans for critical business systems, is also anticipated to be
completed by mid-year 1999.
Management expects that the cost of additional modifications to the
Company's software to meet Year 2000 requirements will not be material.
The total anticipated costs related to the phases previously discussed is
currently projected to be approximately $2.7 million, including
approximately $1.3 million of operating expenses associated with testing
and other matters and $1.4 million of capital expenditures, primarily
representing system upgrades which provide operational benefits above and
beyond Year 2000 compliance. The Company has incurred $.2 million in
operating expenses to date. Factors that could impact the Company's
ability to make the necessary modifications or replacements include, but
are not limited to, the availability and cost of trained personnel and the
ability of such personnel to locate and correct all relevant computer
codes. If such modifications are not completed on a timely basis or are
more costly to implement than anticipated, the Company's business,
financial condition or results of operations could be materially adversely
affected.
The ability of third parties with whom the Company transacts business
or companies that the Company may acquire to adequately address their Year
2000 issues is outside the Company's control. At this time, the Company is
in the process of reviewing the Year 2000 compliance of its major suppliers
and customers. There can be no assurance that the failure to adequately
address Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition, and results of operations.
Properties for which the Company provides management services rely on
a variety of third party suppliers to provide critical operating services.
These suppliers may utilize systems and embedded technologies to control
the operation of building systems such as utilities, lighting, security,
elevators, heating, ventilating and air conditioning systems. The Company
is in the process of obtaining assurances from suppliers as to their Year
2000 compliance and preparing contingency plans, including the
identification of alternative suppliers. The Company does not control
these third party suppliers, and for some suppliers, such as utility
companies, there may be no feasible alternative suppliers available. The
failure to these suppliers' systems could have a material adverse effect on
the operations of the affected property, and widespread failures could have
a material adverse effect on the Company.
Although the Company is not aware of any threatened claims related to
the Year 2000, the Company may become subject to litigation arising from
such claims and, depending on the outcome, such litigation could have a
material adverse affect on the Company. It is not clear whether the
Company's insurance coverage would be adequate to offset these and other
business risks related to the Year 2000.
SUBSEQUENT EVENTS - ACQUISITIONS
On October 1, 1998, the Company 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.). On
October 31, 1998, the Company also acquired Compass Management and Leasing
(Australia) Pty Limited, the Lend Lease property and facility management
business in Australia. Atlanta-based Compass Management and Leasing, Inc.
is a global real estate management firm, with operations across the United
States, United Kingdom, South America and Australia. The Company paid
$180,000 in cash for all of the acquired companies. The purchase of the
companies also includes provisions for an earnout payment of up to $77.5
million over five years. The acquisition was accounted for as a purchase
and, accordingly, operating results for the Compass business will be
included in the Company's results subsequent to the date of acquisition.
On October 22, 1998, the Company and Jones Lang Wootton ("JLW")
announced that they reached a definitive agreement to merge their
operations. JLW, which is headquartered in London, provides a wide range
of real estate advisory, transactional and asset management services to
local, national and international clients in both the private and public
sectors. JLW is an employee owned company and has more than 4,000
employees located in 32 countries throughout Europe, Asia, North America,
and Australia. The transaction, which is principally structured as a share
exchange, has been approved by the Company's Board of Directors and the
Board of Directors of the JLW companies and the partnerships. Under the
terms of the agreement, the Company will issue up to 14.3 million shares of
common stock and approximately $6.0 million in cash, subject to a closing
net worth adjustment. The transaction, which is expected to close in early
1999, is subject to acceptance of the exchange offer by Jones Lang Wootton
shareholders and partners, approval by LaSalle shareholders, regulatory and
tax clearances, and other customary conditions. There can be no assurance
that the transaction will be completed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various litigation matters arising in
the ordinary course of business, some of which involve claims for damages
that are substantial in amount. Most of these matters are covered by
insurance. In the opinion of the Company, the ultimate resolution of such
litigation matters will not have a material adverse effect on the financial
position, results of operations and liquidity of the Company.
ITEM 5. OTHER MATTERS
On October 22, 1998, Lizanne Galbreath resigned from the Board of
Directors.
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 the Company 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 the Company to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in the Company's Registration
Statement (No. 333-25741), under "Risk Factors" and elsewhere, in the
Company'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 the Company 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 the
Company's business and results of operations; (ii) the risk that property
management and investment management agreements will be terminated prior to
expiration or not renewed; (iii) the dependence of the Company's revenue
from property management and leasing services on the performance of the
properties managed by the Company; (iv) the risks inherent in pursuing a
selective acquisition strategy; (v) the concentration of the Company's
business in properties in central business districts; (vi) the risks
associated with the co-investment activities of the Company; (vii) the
seasonal nature of the Company's revenue, operating income and net
earnings; and (viii) the competition faced by the Company in a variety of
business disciplines within the commercial real estate industry. The
Company expressly disclaims any obligation or undertaking to update or
revise any forward-looking statements to reflect any changes in events or
circumstances or in the Company's expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) A Current Report on Form 8-K, dated August 31, 1998, reporting
the definitive agreement for the Company to acquire two Lend Lease real
estate services businesses, was filed during the quarter ended
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LASALLE PARTNERS INCORPORATED
Dated: November 13, 1998 BY:/S/ WILLIAM E. SULLIVAN
------------------------------
William E. Sullivan
Executive Vice President and
Chief Financial Officer
(Authorized Officer,
Principal Financial Officer and
Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 $175,000,000 Credit Agreement, dated as of
September 21, 1998, among LaSalle Partners Incorporated, the Guarantors
Party Thereto, the Lenders Party Thereto, Harris Trust and Savings Bank, as
Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, and
The First National Bank of Chicago, as Administrative Agent.
10.2 First Amendment to the Company's $150,000,000
Multicurrency Credit Agreement, dated as of September 21, 1998.
10.3 Second Amendment to the LaSalle Partners
Incorporated Employee Stock Purchase Plan.
27.1 Financial Data Schedule.