UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Act of 1934
For the fiscal year
ended December 31, 1998 Commission File Number 1-13145
LASALLE PARTNERS INCORPORATED
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
(State of organization) (I.R.S. Employer Identification No.)
200 East Randolph Drive, Chicago, IL 60601
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock ($.01 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ X ]
As of February 26, 1999, there were outstanding 16,319,134 shares of the
Registrant's Common Stock. The aggregate market value of the Registrant's
Common Stock held for non-affiliates on February 26, 1999 was approximately
$319,669,224 based on the closing price of $31.1875 per share. The
aggregate market value of all of the Registrant's 16,319,134 shares of
Common Stock outstanding on such date was approximately $508,952,992.
Portions of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on May 3, 1999 are incorporated by reference in
Part III of this report.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . . . 22
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 22
Item 6. Selected Financial Data . . . . . . . . . . . . 23
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . 28
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . 39
Item 8. Financial Statements and
Supplementary Data. . . . . . . . . . . . . . . 41
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . 79
PART III
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . 79
Item 11. Executive Compensation. . . . . . . . . . . . . 79
Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . . . . . 79
Item 13. Certain Relationships and
Related Transactions. . . . . . . . . . . . . . 79
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K . . . . . . . . . . . . 80
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS . . . . . . 81
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 83
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
LaSalle Partners Incorporated (together with its predecessors and
subsidiaries), ("LaSalle"), founded in 1968, is a leading full-service real
estate firm that provides management services, corporate and financial
services and investment management services to corporations and other real
estate owners and investors worldwide. LaSalle has grown by expanding both
its client base and its range of services and products in anticipation of
client needs. By offering a broad range of real estate products and
services, and through its extensive knowledge of domestic and international
real estate markets, LaSalle is able to serve as a single source provider
of solutions for its clients' full range of real estate needs.
As further discussed in the Organization section which follows,
LaSalle has reached a definitive agreement with Jones Lang Wootton ("JLW")
to merge operations. LaSalle will benefit from JLW's strength in Europe
and Asia Pacific, while JLW gains LaSalle's depth in North America and its
position as a leader in real estate investment management. Both firms
possess reputations as leaders in their respective markets and businesses
and are guided by a determination to create and maintain long-term client
relationships.
ORGANIZATION
Prior to its incorporation in Maryland on April 15, 1997 and its
initial public offering (the "Offering") of 4,000,000 shares of LaSalle
Partners Incorporated common stock on July 22, 1997, LaSalle transacted
business as LaSalle Partners Limited Partnership and LaSalle Partners
Management Limited Partnership (collectively, the "Predecessor
Partnerships"). Immediately prior to the Offering, the general and limited
partners of the Predecessor Partnerships contributed all of their
partnership interests in the Predecessor Partnerships to LaSalle for an
aggregate of 12,200,000 shares of common stock. LaSalle subsequently
caused the Predecessor Partnerships to contribute, among other things,
substantially all of their assets and liabilities to one of four wholly
owned subsidiaries, LaSalle Partners Management Services, Inc., LaSalle
Partners Corporate & Financial Services, Inc., LaSalle Advisors Capital
Management, Inc., or LaSalle Partners Co-Investment, Inc., also
incorporated in April 1997. LaSalle Partners International, Inc., an
existing subsidiary of the Predecessor Partnerships, continues to conduct
LaSalle's international operations through various of its subsidiaries.
In April 1997, LaSalle acquired all of the common stock of the
Galbreath Company, a property, facility and development management company.
LaSalle's principal objectives for the merger were to expand LaSalle's
geographic presence, add additional client relationships and provide for
economic synergies with the Leasing and Management Services segment. In
addition, LaSalle acquired the project management business of Satulah Group
Inc., a project management and facilities conversion company, in January
1998. LaSalle's objective was to enhance its current project management
services and to support its long-term growth strategy of expanding service
capabilities.
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In October 1998, LaSalle 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., ERE Yarmouth Retail, Inc.
(formerly Compass Retail, Inc.), and Compass Management and Leasing
(Australia) Pty Limited, the Lend Lease property and facility management
business in Australia. The acquisition of Compass elevated LaSalle's
position in the property and facility management industry to that of the
largest management services company in the United States and expanded its
international presence into Australia and South America.
In October 1998, LaSalle reached a definitive agreement to merge
operations with Jones Lang Wootton, one of the world's leading real estate
services companies. 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. Together, the combined company
will manage approximately 680 million square feet of property, provide
investment management services for $20.5 billion of assets, and operate a
business with more than 6,000 employees across 79 key markets in 34
countries on five continents. Under the terms of the agreement, LaSalle
will issue up to 14.3 million shares of common stock and approximately $6.2
million in cash, subject to a closing net worth adjustment. The completion
of the Jones Lang Wootton merger is conditional upon the satisfaction of
various closing conditions, including the approval of LaSalle stockholders.
A proxy statement soliciting approval has been mailed to stockholders, and
a special meeting has been scheduled for March 10, 1999. If LaSalle
stockholder approval is received and the other closing conditions are met,
the transaction is expected to close shortly after the meeting.
BUSINESS SEGMENTS
To meet the diverse needs of its clients, LaSalle provides its full
range of real estate services through three principal business segments:
Leasing and Management Services, Financial and Corporate Services and
LaSalle Investment Management. For financial information and a discussion
of the operating performance of each segment refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the notes to the audited financial statements provided elsewhere
herein.
LEASING AND MANAGEMENT SERVICES
LaSalle's Leasing and Management Services segment develops and
implements property level strategies to increase investment value for real
estate owners and optimize occupancy costs for corporate owners and users
of real estate. The Leasing and Management Services segment provides four
primary service capabilities: (i) leasing and property management for
property owners ("Leasing and Property Management Services"); (ii) facility
services for properties occupied by corporate owners and users ("Facility
Services"); (iii) development services for both investors and real estate
users seeking to develop new buildings or renovate existing facilities
("Development Services"); and (iv) project management services providing
strategic occupancy planning, tenant improvement project management and
relocation management, for LaSalle's clients ("Project Management
Services"). As of December 31, 1998, the Leasing and Management Services
segment had property management, leasing or facility management
responsibility for approximately 400.5 million square feet of commercial
space. According to rankings in Commercial Property News' August 1998 "Top
Property Managers Survey", LaSalle is the largest real estate management
services company in the United States.
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LEASING AND PROPERTY MANAGEMENT SERVICES. Active since 1978,
LaSalle's Leasing and Property Management Services unit operates, markets
and leases commercial real estate. LaSalle's goal, as a pioneer in the
development of value-creating property management services, is to enhance
its clients' property values through aggressive day-to-day management
focused on maintaining high levels of occupancy and tenant satisfaction,
while lowering the operating costs of such properties. During 1998,
LaSalle provided on-site Leasing and Property Management and Leasing
Services for over 780 office, retail, mixed-use and industrial properties,
in the United States and completed approximately 1,700 lease transactions
totaling approximately 16.8 million square feet.
LaSalle's leasing and property management services are typically
provided by an on-site general manager and staff supported through
extensive regional supervisory teams as well as central resources in areas
such as training, technical and environmental services, accounting,
marketing and human resources. Property general managers assume full
responsibility for property management and leasing activities, client
satisfaction and financial results and are compensated, not by fees or
commissions, but through a combination of base salary and performance bonus
that is directly linked to results produced for clients.
LaSalle typically receives fees based on the value of the lease
revenue commitment for leases consummated while it serves as exclusive
property leasing agent. Increasingly, management agreements provide for
incentive compensation relating to operating expense reductions, gross
revenue, occupancy objectives or tenant satisfaction levels. As is
customary in the industry, management contract terms typically range from
one to three years, but are cancelable at any time upon a short notice
period, usually 30 to 60 days. However, on a portfolio basis, LaSalle's
average length per management assignment as of December 31, 1998 is
approximately four years.
LaSalle's recent acquisitions of Compass, Satulah and Galbreath, in
light of the trend towards consolidation within the property management
industry generally, in addition to the recent investments in a new property
information system, provides opportunities for LaSalle to leverage its
increased size to offer high quality, low cost services over a wider
geographic area. In addition, the continued strength of the U.S. economy
and related steady demand for commercial space have caused occupancy rates
to remain over 90%-resulting in higher lease rates and rental income for
property owners. The continued rollover of below market leases should
further enhance returns for property owners. The marketing efforts of the
Leasing and Management Services business are directed toward pursuing new
third-party management assignments, expanding LaSalle's relationships with
existing clients and capitalizing on new business opportunities which may
arise from LaSalle Investment Management's initiatives, such as the
continuation of its co-investment strategy. Further, the proposed merger
with JLW will provide an opportunity to combine best practices around the
globe to enhance current client satisfaction and margin objectives as well
as to serve new multinational clients.
FACILITY SERVICES. LaSalle was a pioneer in the facility services
business and currently is the largest provider of facility services in the
United States. LaSalle's Facility Services unit provides comprehensive
portfolio and property management services to corporations and institutions
that outsource their real estate management functions. The properties under
management range from corporate headquarters to industrial complexes.
LaSalle's target clients typically have large portfolios (usually over one
million square feet) with significant opportunities to reduce costs and
improve service delivery. Performance measures are generally developed to
quantify progress made toward the goals and objectives that are set
mutually with clients. At December 31, 1998, LaSalle had approximately
188.0 million square feet under management.
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LaSalle's Facility Services unit also serves as an important "port of
entry" for LaSalle's other business units. Depending on client needs, the
Facility Services unit, either alone or through LaSalle's other business
units, provides services such as portfolio planning, property management,
leasing, tenant representation, acquisition, finance, disposition, project
management, development management and land advisory services. Facility
Services relationships generated revenue of approximately $26.3 million in
1998 for LaSalle's other business units.
The Facility Services unit is compensated on the basis of negotiated
fees, which are typically structured to include a base fee and a
performance bonus. The performance bonus compensation is based on a
quantitative evaluation of progress toward performance measures and
regularly scheduled client satisfaction surveys. Facility Services
agreements are typically three to five years in duration.
LaSalle believes that the global corporate trend of outsourcing non-
core business functions represents an important long-term business
opportunity. LaSalle also believes that its broad-based service
capabilities will become an increasingly valuable competitive advantage in
pursuing Facility Services assignments. LaSalle believes that its
demonstrated experience, cost-cutting successes and client satisfaction
also provide it with an important competitive advantage. In order to
efficiently provide all services required to manage and operate large
facility portfolios, LaSalle partners with major building services and
architecture firms. The Facility Services unit has been actively pursuing,
and has had success with obtaining, new business opportunities for
universities, health care institutions, government agencies and other
potential clients and, in fact, added nine new client relationships in
1998.
DEVELOPMENT SERVICES. Active since 1975, LaSalle's Development
Services unit manages all aspects of the development, redevelopment and
renovation of commercial projects, principally on a fee basis. LaSalle
prepares projections, budgets, schedules and cash flows for its clients,
which are generally corporations with significant office space needs, in
addition to undertaking entitlement, zoning and a variety of other
development-related responsibilities. The Development Services unit
frequently manages development initiatives for clients of LaSalle's
Facility Services, Tenant Representation Services and Land Services units,
as well as for clients of the LaSalle Investment Management segment which
are pursuing development-related investment strategies.
LaSalle has extensive experience in ground-up development in the
office, retail and institutional sectors. As of December 31, 1998, the
Development Services unit was managing the development of 37 projects
totaling approximately 5.8 million square feet nationally.
The Development Services unit generates development and advisory fees
which are typically fixed and are negotiated based upon the cost of the
developments or improvements. Assignments are typically multi-year in
nature.
PROJECT MANAGEMENT SERVICES. Active since 1988, LaSalle's Project
Management Services unit provides facility build-out and conversion
management, move management and strategic occupancy planning services to
tenants of leased space, owners in self-occupied buildings and owners of
real estate investments. The Project Management Services unit frequently
manages the relocation and build-out initiatives for clients of LaSalle's
Leasing and Property Management Services, Facility Services and Tenant
Representation Services units.
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With the acquisition of the project management business of Satulah
Group Inc. in January 1998, LaSalle is one of the largest providers of
project management services nationally, with 151 professionals in 14 U.S.
markets. During 1998, LaSalle provided services for approximately 75
clients. LaSalle intends to grow its Project Management Services business
via expansion into additional U.S. markets and by increasing the number of
LaSalle's current clients it provides services for.
The Project Management Services unit is typically compensated on the
basis of negotiated fees. Contracts are typically multi-year in nature for
national clients with individual projects being completed in less than one
year.
FINANCIAL AND CORPORATE SERVICES
LaSalle's Financial and Corporate Services group provides transaction
and advisory services through three primary service capabilities: (i)
tenant representation for corporations and professional service firms
("Tenant Representation Services"); (ii) investment banking services to
address the financing, acquisition and disposition needs of real estate
owners ("Investment Banking Services"); and (iii) land acquisition and
development services for owners, users and developers of land ("Land
Services").
TENANT REPRESENTATION SERVICES. First offered in 1978, LaSalle's
Tenant Representation Services unit assists clients by defining space
requirements, identifying suitable alternatives, recommending appropriate
occupancy solutions and negotiating lease and ownership terms with third
parties.
LaSalle seeks to lower its clients' real estate costs, minimize real
estate occupancy risks, improve clients' flexibility and occupancy control
and create more productive office environments. LaSalle uses a multi-
disciplined approach to develop occupancy strategies that are linked to its
clients' core business objectives. In 1998, the Tenant Representation
Services unit completed over 425 transactions for a total of approximately
9.1 million square feet.
The domestic tenant representation industry includes a large number of
service providers offering a wide range of service quality and
capabilities. The Tenant Representation Services unit directs its marketing
efforts toward developing "strategic alliances" with clients whose real
estate requirements include on-going assistance in meeting their real
estate needs and also toward clients who have the need to consider multiple
real estate options and to execute complex strategies. In many cases,
LaSalle develops a strategic alliance with clients to deliver fully
integrated real estate services, including comprehensive on-going strategic
planning and transaction execution services across multiple office
locations via the assignment of dedicated client teams. LaSalle views its
strategic alliances as a competitive advantage since these long-term
relationships lower business development costs for LaSalle and create
recurring revenue sources. In 1998, approximately 82% of the Tenant
Representation Services unit revenue was derived from strategic alliances.
Through these relationships, LaSalle gains a better understanding of its
clients' portfolio and occupancy requirements since the same professionals
service the client's needs nationwide. LaSalle believes that these
relationships enable it to deliver more consistent services and better
results than single-transaction, commissioned brokerage service providers.
In addition to its strategic alliances, LaSalle also represents
clients in large, complex transaction assignments that typically involve
relocations of headquarters facilities or major consolidations of offices.
In such assignments, LaSalle draws on other capabilities of the firm to
enable clients to consider development of new facilities, weigh the
benefits of purchase or lease decisions and evaluate long-term financing
options.
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LaSalle distinguishes its tenant representation services from those of
its competitors in several ways. LaSalle's Tenant Representation Services
professionals are recruited on the basis of strong educational credentials
and broad business experience, with approximately 90% holding Master of
Business Administration or other advanced degrees. Additionally, in
contrast to LaSalle's major national brokerage competitors, LaSalle's
Tenant Representation Services professionals do not earn commissions, but
are compensated by means of a base salary and performance bonus that is
determined by their contribution to achieving predetermined client
performance objectives.
LaSalle intends to further the growth of this business by continuing
to increase its strategic alliance relationships, to which it added seven
new ones in 1998, and by expanding the relationships to cover multinational
clients that have occupancy needs around the world and are looking for a
single source provider.
LaSalle is generally compensated for Tenant Representation Services on
a negotiated fee basis. Although fees are generated by lease commissions,
they are often also determined by performance related to targets set by
LaSalle and the client prior to LaSalle's engagement and, in the case of
strategic alliances, at annual intervals thereafter. Quantitative and
qualitative measurements assess progress relative to these goals, and
LaSalle is compensated accordingly, with incentive fees often awarded for
superior performance.
INVESTMENT BANKING SERVICES. Active since 1968, LaSalle's Investment
Banking Services unit is engaged in real estate finance, private equity
placements, portfolio advisory activities, corporate finance and
institutional property sales. In 1998, LaSalle completed institutional
property sales, debt financings, equity financings and placements and
portfolio advisory activities on assets and portfolios valued at
approximately $6.5 billion.
LaSalle believes that its Investment Banking Services unit has a
number of competitive strengths, including its broad accumulated base of
real estate investment banking knowledge and an ability to draw on
LaSalle's access to global capital sources. LaSalle's Leasing and
Management Services segment and the LaSalle Investment Management segment
are valuable resources for the Investment Banking Services unit in
providing local market and property information and capital markets
expertise. Subsequent to the merger with JLW, the Investment Banking
Services unit will have expanded access to international market and
property information which will create the platform necessary for this
business unit to offer its expertise to multinational clients.
The Investment Banking Services unit is integral to the business
development efforts of LaSalle's other business units by researching,
developing and introducing innovative new financial products and
strategies; including the development of LaSalle's hotel investment
capability, which is currently performed within LaSalle's Investment
Management group. In spite of the turbulence in the capital markets in the
latter half of 1998, the Investment Banking business performance exceeded
that of prior years, primarily as a result of their ability to provide
financing and private equity capital placements which was still strong
during 1998.
LaSalle is typically compensated for Investment Banking Services on
the basis of the value of transactions completed or securities placed, but
in certain circumstances LaSalle receives retainer fees for strategic
advisory services.
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LAND SERVICES. LaSalle has been active in the evaluation, acquisition
and disposition of land assets since 1970. LaSalle's Land Services
professionals offer clients expertise and broad experience in a range of
land-related competencies, including land planning and urban design,
governmental approvals, market and financial analysis and valuations. The
Land Services unit completed approximately 100 transactions in 1998 in
United States markets. LaSalle's Land Services unit benefits from
LaSalle's strong relationships with its clients, with approximately 34% of
Land Services unit transactions in 1998 involving clients serviced by other
business units of LaSalle.
The Land Services unit acquires and sells urban and suburban
development projects and sites for future development, undertakes complex
land assemblages and site searches and provides advisory services for
owners of land and land-development projects. LaSalle's Land Services unit
also originates and executes land-related investment programs in
development properties and portfolios of land assets for the clients of
LaSalle Investment Management. In addition, LaSalle has developed
expertise in the sale of portfolios of land and land-related assets.
LaSalle's Land Services professionals also have advised public institutions
on land-related assignments, including the conversion of military base
facilities, master planning of peripheral airport land and the evaluation
and disposition of land related to major transit systems.
LASALLE INVESTMENT MANAGEMENT
LaSalle Investment Management provides real estate investment
management services to institutional investors, corporations and high net-
worth individuals. LaSalle serves its clients through a broad range of real
estate money management products and services in the public and private
capital markets to meet various strategic, risk/return and liquidity
requirements, with a wide variety of equity and debt products. This
business is organized along two functional lines, private equity and debt
investments and public equity and debt investments. LaSalle offers its
clients a range of investment alternatives, including private direct
investments in multiple real estate property types (e.g., office, retail,
industrial, residential, land and parking), and indirect investments,
primarily in publicly traded REITs and other real estate equities. LaSalle
believes that the success of the LaSalle Investment Management segment is
built on the foundation of fully integrated research, innovative investment
strategies and a strong client focus. LaSalle Investment Management's
strategy is focused on three fundamentals: (i) developing and executing
tailored investment strategies to meet a variety of client objectives; (ii)
providing superior performance for its clients; and (iii) delivering a high
level of service.
As of December 31, 1998, LaSalle managed approximately $14.2 billion
of real estate assets, making it one of the largest managers of
institutional equity capital invested in domestic real estate assets and
securities. Approximately $3.6 billion of this total represents public real
estate securities currently managed by LaSalle's ABKB/LaSalle Securities
unit ("ABKB/LaSalle Securities"), a leading domestic institutional real
estate securities manager.
The investment and capital origination activities of LaSalle
Investment Management are becoming increasingly non-U.S. based. As of
December 31, 1998, 31% of LaSalle's assets under management were invested
outside of the U.S. Additionally, approximately 49% of equity capital
under management by LaSalle at December 31, 1998 originated from
international investors. LaSalle expects its international Investment
Management group to continue to increase as a proportion of total capital
raised and invested. LaSalle Investment Management activities generate
significant additional business for other parts of LaSalle's operations,
particularly in the areas of Leasing and Property Management Services and
Investment Banking Services.
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LaSalle maintains an extensive real estate research department which,
with a staff of 12 professionals, monitors real estate and capital market
conditions, both domestically and in several international markets, to
enhance investment decisions and identify future opportunities. In addition
to drawing on public sources for information, the research department
utilizes the extensive local presence of LaSalle's professionals throughout
the U.S. to gain proprietary insight into local market conditions.
Subsequent to the merger with JLW, the combined firm will have 22
investment research professionals around the globe in addition to an
impressive supply of local market knowledge on an international basis.
PRIVATE EQUITY AND DEBT INVESTMENTS. LaSalle introduced its first
institutional investment fund in 1979 and currently has a series of
commingled investment funds including three domestic funds and a French
fund first offered in 1997. LaSalle also has single client account
relationships ("separate accounts") with domestic and international
investors for whom LaSalle manages private real estate investments. On
behalf of its investment management clients, LaSalle acquires, manages,
leases, finances and divests real estate investments across a broad range
of real estate property types.
To take advantage of the trend toward globalization of real estate
capital sources, LaSalle strengthened and extended its international
investment activities with the acquisition in October 1996, of CIN Property
Management (now renamed CIN LaSalle Investment). CIN LaSalle Investment,
one of the largest managers of pension fund real estate equity investments
in the United Kingdom, has expanded LaSalle's investment activities and
capital raising in the United Kingdom and continental Europe. LaSalle
currently has approximately $4.4 billion in assets under management in the
United Kingdom and France. Subsequent to the merger with JLW, the combined
firm will have approximately $20.5 billion in assets under management, with
approximately $10.7 billion of those assets in the United Kingdom and
Europe. LaSalle intends to leverage its current organizational strength
and the access to global capital subsequent to the merger to take advantage
of the accelerating interest in international investment, to expand
investment activity to new countries within Europe and Asia Pacific and to
strengthen its position as a leading intermediary for real estate capital
flows in the U.S.
In early 1998, LaSalle Investment Management established LaSalle
Partners U.S. Real Estate Fund, a mutual fund investing in U.S. Equity
REITs that targets private investors and small institutional clients.
Investors continue to favor advisors that co-invest in newly formed
investment vehicles in order to better align the interests of the investor
and the advisor. LaSalle believes that co-investment will continue to be
important in certain regions of the world as a factor in retaining and
expanding its competitive position. LaSalle also believes that its co-
investment strategy will greatly strengthen its ability to raise capital
for new investment funds. By increasing assets under management, LaSalle
also gains the opportunity to provide additional services related to the
acquisition, financing, property management, leasing and disposition of
such assets.
LaSalle Investment Management's operations are conducted with teams of
professionals dedicated to achieving client objectives. All investment
decisions for private market investments must be approved by LaSalle's
five-member investment committee. The investment committee approval process
is utilized for both LaSalle's investment funds and for all of its separate
account clients.
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LaSalle is generally compensated for investment management services
for private equity and debt investments based on initial capital invested,
with additional fees tied to investment performance above benchmark levels.
The term of LaSalle's advisory agreements varies by the form of investment
vehicle involved and the type of service provided. LaSalle's investment
funds have various lifespans, typically ranging between five and ten years,
with extension provisions based on a vote of investors. Separate account
advisory agreements generally have three year terms with "at will"
termination provisions.
PUBLIC EQUITY AND DEBT INVESTMENTS. LaSalle conducts its securities
investment business through ABKB/LaSalle Securities, which was formed by
LaSalle in 1994 in connection with the acquisition of ABKB's real estate
advisory business. LaSalle offers its clients the ability to invest in
either separate account or fund investment vehicles focused on public real
estate equity and debt securities. LaSalle principally invests its clients'
capital in domestic REIT equities but is also active in private placement
investments in publicly traded real estate companies and selected
investments in private real estate companies seeking capital to ultimately
gain access to the public markets.
As of December 31, 1998, ABKB/LaSalle Securities had $3.6 billion of
assets under management. LaSalle is typically compensated by its securities
investment clients on the basis of the market value of assets under
management with increasing use of incentive fees tied to performance of
investments above benchmark levels.
In addition, LaSalle Investment Management furthered its endeavors in
the hotel industry with the completion of the initial public offering of
LaSalle Hotel Properties ("LHO"), a REIT which was formed to own hotel
properties and to continue and expand LaSalle's hotel investment activities
by investing particularly in upscale and luxury full service hotels located
primarily in major business and urban, resort and convention markets.
LaSalle provides advisory, acquisition and administrative services to LHO
for which it receives a base advisory fee calculated as a percentage of net
operating income, as well as performance fees based on growth in funds from
operations on a per share basis.
COMPETITIVE ADVANTAGES
LaSalle believes that it has several competitive advantages which have
established it as a leader in the real estate services and investment
management industries. These advantages include LaSalle's:
RELATIONSHIP ORIENTATION. LaSalle's client-driven focus enables
LaSalle to develop long-term relationships with owners and users of real
estate. By developing such relationships, LaSalle generates repeat business
and creates recurring revenue sources; approximately 85% of LaSalle's 1998
revenue was derived from clients for which LaSalle provided services in
prior years. LaSalle's relationship orientation is supported by an employee
compensation system which it believes is unique in the real estate
industry. LaSalle compensates its professionals with a salary, bonus and
stock ownership plan which is designed to reward client relationship
building, teamwork and quality performance, rather than on a commission
basis which is typical in the industry.
FULL RANGE OF SERVICES. By offering a wide range of high quality,
complementary services, LaSalle can combine its services to develop and
implement real estate strategies that meet the increasingly complex needs
of its clients. LaSalle's product and service capabilities include leasing
and property management, facility services, development services, project
management, tenant representation, investment banking, land acquisition and
development, and investment management. During 1998, LaSalle generated
nearly 50% of its revenue from clients utilizing more than one of these
services.
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GEOGRAPHIC REACH. With 10 corporate offices and over 700 property and
other offices throughout the U.S., LaSalle possesses in-depth knowledge of
local markets and can provide its full range of real estate services
throughout the U.S. In addition, ten international offices give LaSalle
the ability to serve its clients' needs in key international markets. Upon
the closing of the pending merger with JLW, LaSalle will increase the
number of countries in which it has offices to 34 and will have
approximately 6,000 employees on the ground. This geographic coverage will
position the combined firm to serve its multinational clients.
REPUTATION. Based on its industry knowledge, commissioned marketing
surveys, industry publications and number of long-standing client
relationships, LaSalle believes that it is widely recognized by large
corporations and institutional owners and users of real estate as a
provider of high quality, professional real estate services and investment
management products. LaSalle believes its name recognition and reputation
for quality services are significant advantages when pursuing new business
opportunities.
EXPERIENCED MANAGEMENT/EMPLOYEE EQUITY INCENTIVES. LaSalle's senior
management team has an average of approximately 19 years of experience in
the real estate services industry and have generally been with the firm for
an average of 17 years. LaSalle uses equity-based incentive compensation
and bonus plans and minimum stock ownership guidelines to foster employee
commitment and align employee and stockholder interests. Prior to the
merger with JLW, LaSalle employees own approximately 35% of the outstanding
LaSalle common stock - subsequent to the merger, employees of the combined
firm will own approximately 69%
INDUSTRY TRENDS
INCREASING DEMAND FOR GLOBAL SERVICES; GLOBALIZATION OF CAPITAL FLOWS.
As many U.S. corporations have pursued growth opportunities in
international markets, they have increased their demand for global real
estate services, such as facility services, tenant representation and
leasing and property management. LaSalle believes that this trend will
favor those real estate service providers with the capability to provide
services in key international markets. Additionally, real estate capital
flows have become more global as non-U.S. investors have invested in U.S.
assets, and U.S. investors have sought international real estate investment
opportunities. This trend has created new markets for investment managers
that can facilitate international real estate capital flows and can execute
cross-border real estate transactions.
CONSOLIDATION. The real estate services industry has gone through a
high degree of consolidation in recent years. Although the pace is likely
to slow in the future, many large real estate service firms engaged in the
property management business, including LaSalle, believe that, as a result
of substantial existing infrastructure investments and the ability to
spread fixed costs over a broader base of business, it is possible to
recognize incrementally higher margins on property management assignments
as the amount of square footage under management increases.
In addition, large users of commercial real estate services continue
to demonstrate a desire for a single source service provider across local,
national and international markets. The ability to offer a full range of
services on this scale requires significant corporate infrastructure
investment, including information technology and personnel training.
Smaller regional and local real estate service firms, with limited
resources, are less able to make such investments.
The above factors will likely result in continued consolidation among
property management firms attempting to gain size in particular markets as
well as among U.S. based and international firms.
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GROWTH OF OUTSOURCING. In recent years, outsourcing of professional
real estate services on an international level has increased substantially
as corporations have focused corporate resources, including capital, on
their core competencies. In addition, public and other non-corporate users
of real estate, such as government agencies and health and educational
institutions, have begun outsourcing real estate activities as a means of
reducing costs. As a result, there are significant growth opportunities for
firms that can provide integrated real estate services across many
geographic markets.
ALIGNMENT OF INTERESTS OF INVESTORS AND INVESTMENT MANAGERS.
Institutional investors continue to allocate significant portions of their
investment capital to real estate and many investors have shown a desire to
commit their capital to investment managers willing to co-invest with them
on specific investments. In addition, investors are increasingly requiring
that the fees paid to investment managers be more closely aligned with
investment performance. As a result, LaSalle believes that those investment
managers with co-investment capital will have an advantage in attracting
real estate investment capital. Co-investment typically brings with it the
opportunity to provide additional services related to the acquisition,
financing, property management, leasing and disposition of such
investments.
GROWTH STRATEGY
LaSalle intends to capitalize on the pending merger with JLW as well
as its competitive strength in the property management industry in the U.S.
to pursue the following growth strategy:
EXPANDING CLIENT RELATIONSHIPS. Based on its ability to deliver high
quality real estate services, LaSalle has been able to successfully
leverage discrete client assignments into more comprehensive relationships
utilizing some or all of its business groups. Current industry trends,
particularly the globalization of corporate clients and the increased
outsourcing of real estate services on an international basis, provide a
favorable environment for LaSalle to increase the scope of its current
client relationships and to develop new relationships through its broad
array of services. LaSalle's business groups identify new clients and
markets and pursue opportunities to sell the products and services of many
of LaSalle's business units. LaSalle has a dedicated firm-wide marketing
organization which acts as a catalyst in assisting LaSalle professionals in
all groups in marketing multiple services of the firm to existing and
prospective clients. This charge will be taken up by the combined firm's
Global Services Management Group subsequent to the merger.
STRENGTHENING INTERNATIONAL PRESENCE. To take advantage of the trend
toward globalization of real estate capital sources, investment
opportunities and the international business expansion of many of its
corporate clients, LaSalle intends to focus its near term efforts on the
complete integration of its predominately U.S. based business with the
geographic strengths provided by JLW in Europe and Asia Pacific. In order
to serve its clients' increasingly global real estate needs, and to pursue
new business opportunities, the combined firm will pursue selective
acquisitions in product categories and geographic niches with a near term
emphasis on South America and Africa.
PURSUING CO-INVESTMENT OPPORTUNITIES. LaSalle intends to continue its
strategy of co-investing with its investment management clients. As of
December 31, 1998, LaSalle had a total net investment of $53.0 million in
38 separate property or fund co-investments. The acquisition cost of the
properties acquired through these co-investments exceeds $2.0 billion.
Existing co-investments consist primarily of office and hotel properties
purchased within the last five years.
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LaSalle's co-investment strategy is supported by its broad fundamental
real estate research capabilities, which include identifying trends in
geographic regions and property types. LaSalle's extensive knowledge of
local markets drawn from each of its business segments facilitates the
identification and evaluation of specific investment opportunities. Co-
investments provide LaSalle with the opportunity to participate in any
returns generated by such investments and provide services related to the
acquisition, financing, property management, leasing and disposition of
such investments. As a result of the merger, the combined firm will have
an increased access to international market knowledge, positioning the firm
to take advantage of recovering markets in various regions throughout the
world.
PROVIDING CONSISTENT, HIGH QUALITY SERVICE. In conjunction with the
merger with JLW, the combined firm will create a Global Strategic
Management Group designed to ensure the worldwide operations work and
interact at the best-in-class levels clients have grown to expect from both
firms. Through the delivery of consistent, high quality service, the firms
aim to expand their current client relationships and grow the business
organically.
OTHER MATTERS IMPACTING LA SALLE'S BUSINESS
The following matters represent risks that will face the combined
firms of LaSalle and JLW ("Jones Lang LaSalle") subsequent to and in
connection with the proposed merger.
MATTERS RELATED TO THE MERGER WITH JLW
SUCCESSFUL INTEGRATION OF THE BUSINESS OPERATIONS OF, OR REALIZATION
OF THE BENEFITS FROM ACQUISITIONS MERGERS. The success of the acquisition
of the Compass businesses and the merger with JLW will depend upon a number
of factors, most importantly the ability of Jones Lange LaSalle to realize
expected cost savings associated with combining offices, reducing
infrastructure functions such as accounting, human resources and
information technology,and taking advantage of the buying power of the
combined company. The integration of the JLW companies and the Compass
businesses into LaSalle's existing business operations may place a
significant burden on management and require the expenditure of significant
sums. Such integration is subject to a number of risks, including:
. loss of LaSalle's key employees or those of Compass or JLW;
. the difficulty associated with assimilating the broad and
geographically dispersed personnel and operations of JLW;
. the disruption of LaSalle's ongoing business; and
. the difficulty in maintaining uniform standards, controls,
procedures and policies.
LaSalle's Management can not be sure that the anticipated benefits
from the merger with JLW and the acquisition of Compass will be realized or
that it will be able to integrate the businesses successfully.
DIFFERENT COMPENSATION STRUCTURES FOR EMPLOYEES OF JLW MAY NOT PROVIDE
ADEQUATE INCENTIVES. JLW has historically operated as a partnership or in
a manner resembling a partnership even though in certain jurisdictions the
businesses are structured as corporations. As such, the profits of the
various partnerships and corporations have been paid to the owners and key
employees as profit distributions, bonuses or dividends, according to the
business structure and tax regime in which the businesses operate.
Following the merger with JLW, owners and key employees of JLW will receive
market-based compensation packages similar to those of LaSalle's current
employees. While most of these former owners and employees of JLW will
have significant equity interests in Jones Lang LaSalle, their actual
compensation will in certain circumstances be lower. Furthermore, although
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the vesting and forfeiture provisions of a portion of the shares to be
issued to the beneficial owners of JLW and the shares to be placed in the
Employee Stock Option Trust ("ESOT") for the future benefit of certain JLW
employees are intended in part to incent such beneficial owners and other
key employees of JLW to remain with Jones Lang LaSalle, there can be no
assurance that they will be effective. LaSalle's Management can not be
sure that the compensation structure put in place following the merger with
JLW will provide the same performance incentives as existed prior to such
merger. If such employees are not adequately incentivized, they may not
attempt to perform as well for Jones Lang LaSalle after the merger as they
did for JLW prior to the merger.
INCREASED INTERNATIONAL OPERATIONS. Upon completion of the merger
with JLW, LaSalle will have significantly greater international exposure.
After giving pro forma effect to the merger with JLW and the acquisition of
the Compass, LaSalle would have derived approximately 53.7% and 54.1% of
its total revenue from sales outside the United States in the fiscal years
ended December 31, 1998 and 1997, respectively. The combined businesses
would have had operations in 34 countries, and would have employed 2,600
employees in the United States and 3,800 employees in other countries,
excluding, in both cases, on-site personnel responsible for the maintenance
of properties on behalf of clients. The increased scope of LaSalle's
international operations may lead to more volatile financial results and
difficulties in managing the combined businesses because of, but not
limited to, the following:
. political instability;
. greater difficulty in collecting accounts receivable in certain
geographic regions;
. unexpected changes in regulatory requirements;
. currency restrictions;
. delays and tariffs;
. difficulties and costs of staffing and managing international
operations;
. potentially adverse tax consequences;
. share ownership restrictions on foreign operations;
. currency fluctuations;
. the burden of complying with multiple and potentially
conflicting laws;
. the impact of business cycles and economic instability; and
. the geographic, time zone, language and cultural differences
between personnel in different areas of the world.
LaSalle expects to commit additional resources to expand its worldwide
sales and marketing activities, to globalize its service offerings and
products in selected markets and to develop local sales and support
channels. If LaSalle is unable to successfully implement these plans, to
maintain adequate long-term strategies which successfully manage the risks
associated with its global business or to adequately manage operational
fluctuations, its business, operating results and financial condition could
be materially and adversely affected.
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EXPANDED REGIONAL COVERAGE. After the merger with JLW, LaSalle may
experience an operating loss in one or more regions of the world for one or
more periods. LaSalle's ability to manage such operational fluctuations
and to maintain adequate long-term strategies in the face of such
developments will be critical to its continued growth and profitability.
After giving pro forma effect to the merger with JLW and the acquisition of
Compass, LaSalle would have generated 46.3% of our revenue in the United
States, 37.3% in Europe, 7.8% in Australasia and 8.6% in Asia for the year
ended December 31, 1998 compared to 45.0% in the United States, 33.1% in
Europe, 12.0% in Asia and 9.0% in Australia for the year ended December 31,
1997.
ASIA
During 1998 and 1997, Southeast and East Asia were impacted by
financial turmoil which was initially reflected in rapidly falling exchange
rates relative to the US Dollar. This led to falling stock market indices
and asset values and reduced economic growth prospects. Several property
markets were affected by speculative developments resulting in an
oversupply of completed or partially completed space. Property prices fell
along with prices of other investments and asset values. These events are
referred to herein as the "Asian Crisis."
The Asian Crisis reduced Asian economic growth in 1998 and, as
economic growth is generally a significant factor affecting property
markets, demand for property in Asia is generally weaker than in recent
years. A recovery in the Asian demand for property is unlikely to occur
until stability and economic growth returns to Asian financial markets.
However, also important to a recovery in Asian property markets will be the
adjustment to the current significant over supply of space in many markets,
which is likely to take time to correct. The short-term outlook for real
estate in Asia is, therefore, for depressed rents and capital values. The
length and severity of the downturn is likely to vary in different markets
within the region.
AUSTRALIA AND NEW ZEALAND
In addition, the Australia and New Zealand real estate markets, while
mature by world standards, are characterized by their relative lack of
depth. The lack of a fully comprehensive domestic industrial
infrastructure requiring imports of many manufactured goods such as motor
vehicles and industrial equipment, together with a heavily resource based
economy, means that the real economy is significantly influenced by
external economic events and developments. This gives rise to a somewhat
higher level of exposure to economic and financial volatility. The
Australian real estate markets are correspondingly small and prone to
external influences. Sydney and Melbourne, the primary commercial centers,
for example, have a total office market stock of some 64.6 million and 53.8
million square feet, respectively. Retail and industrial markets operate
in similar proportion and with a parallel degree of international exposure.
Thus, the economic performance of JLW in Australia and New Zealand is
significantly dependent on international trading conditions, particularly
in primary industries and commodities.
EXPOSURE TO CURRENCY LOSSES FROM CURRENCY FLUCTUATIONS. Due to the
constantly changing currency exposures to which Jones Lang LaSalle will be
subject after the merger, and the volatility of currency exchange rates,
LaSalle can not be sure that the combined company will not experience
currency losses in the future. LaSalle also cannot predict the effect of
exchange rate fluctuations upon future operating results. Historically,
LaSalle's revenue from non-United States operations has been primarily
denominated in US Dollars. JLW has historically generated revenues,
incurred expenses and made distributions and dividends to partners and
shareholders in the local currency where the associated revenue was earned.
Thus, neither LaSalle nor the JLW companies have experienced significant
fluctuations in revenues and earnings because of corresponding fluctuations
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in foreign currency exchange rates. With the integration of the two
operations, Jones Lang LaSalle's exposure to currency rate fluctuations
will be significantly increased. For the year ended December 31, 1998, on
a pro forma basis excluding compensation expense relating to the accounting
treatment applied to certain shares issued in the merger with JLW, a 68% of
net earnings would have been denominated in U.S. dollars and 32% would have
been denominated in other currencies, compared to 64% and 35% for the year
ended December 31, 1997, respectively. As a result, fluctuations in the
value of the US Dollar relative to the other currencies in which LaSalle
will generate earnings could result in foreign currency loss. Fluctuations
in currencies relative to the US Dollar may make it more difficult to
perform period-to-period comparisons of LaSalle's reported results of
operations.
LaSalle and JLW have in the past undertaken hedging transactions only
on a limited basis because neither company has historically engaged in a
significant amount of cross border transactions which would require the use
of such instruments. In the future, the management of Jones Lang LaSalle
will evaluate its on-going capital requirements on a global basis. The
management of Jones Lang LaSalle may decide to use currency hedging
instruments, including foreign currency forward contracts, purchased
currency options where applicable and borrowings in foreign currency.
Economic risks associated with these hedging instruments include: (i)
unexpected fluctuations in interest rates impacting Jones Lang LaSalle's
future buying power for purchasing foreign currencies; and (ii) unexpected
changes in the timing and collection of funds related to the hedging
instruments, both of which can cause hedging instruments to be ineffective.
An ineffective hedging instrument may expose Jones Lang LaSalle to currency
losses. There can be no assurance that such hedging will be effective.
FAILURE TO CONSUMMATE THE MERGER WITH JLW. If the merger with JLW is
not completed, the trading price of LaSalle's common stock could decline
and costs incurred in connection with the merger would negatively impact
our results from operations. In addition, costs incurred in connection
with the merger with JLW, currently estimated at $8.0 million, and the
termination fee of $12.0 million, if payable, would negatively impact
results from operations. The consummation of the merger is subject to the
satisfaction or waiver of a number of conditions, many of which are beyond
the control of LaSalle, the beneficial owners of JLW companies and JLW. In
addition, the parties to the purchase agreements pursuant to which the
merger will occur may terminate the purchase agreements under certain
circumstances. As a result, LaSalle can not be sure that the merger will
be completed on the terms set forth in the purchase agreements, if at all.
OPERATING LOSSES REFLECTING NON CASH CHARGES FOR ACQUISITION-RELATED
COMPENSATION EXPENSE COULD NEGATIVELY AFFECT TRADING PRICE. LaSalle
expects to incur compensation expense associated with the issuance of
shares totaling approximately $117.3 million in the year ended December 31,
1999 and $93.4 million in the year ended December 31, 2000, as a result of
the accounting treatment applied to the certain shares to be issued in
connection with the merger with JLW, assuming that the JLW companies have
the required net worth at closing. The total estimated compensation
expense of $210.7 million includes expense of $49.2 million which will be
subject to fluctuation based on quarterly changes in the price of LaSalle
Partners common stock. LaSalle anticipates that this compensation expense,
$210.3 million of which represents a non-cash charge, will cause Jones Lang
LaSalle to report operating losses for the years ended December 31, 1999
and 2000.
POTENTIAL TO DELAY, DEFER OR PREVENT A CHANGE OF CONTROL COULD
NEGATIVELY TRADING PRICE. The Stockholder Agreements, the DEL Stockholder
Agreements and the charter and amended bylaws of Jones Lang LaSalle will
include provisions that may discourage, delay, defer or prevent a takeover
attempt that may be in the best interest of stockholders of Jones Lang
LaSalle and may adversely affect the market price of its common stock. The
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Stockholder Agreements and the DEL Stockholder Agreements require (i) each
beneficial owner of the JLW companies, (ii) in the cases where a beneficial
owner is not a natural person, each employee of the JLW companies who owns
or holds an interest in such beneficial owner (such employee, a "Related
JLW Owner"), and (iii) each LaSalle Employee Stockholder, to vote all
shares of LaSalle common stock owned or controlled by such stockholder (a)
for persons nominated by the Jones Lang LaSalle board of directors pursuant
to the amended bylaws; and (b) in accordance with the recommendations of a
majority of the Jones Lang LaSalle board of directors on all matters (i)
submitted to the vote of the stockholders of Jones Lang LaSalle which have
been proposed by any stockholder as to which the Jones Lang LaSalle board
of directors has recommended against approving and (ii) relating to any
merger, sale of all or substantially all of Jones Lang LaSalle's assets, or
any similar transactions as to which the Jones Lang LaSalle board of
directors has recommended against approving.
As a result, during the term of the Stockholder Agreements and the DEL
Stockholder Agreements, as long as persons who hold a majority of the
issued and outstanding common stock of Jones Lang LaSalle continue to be
bound by these agreements, the Jones Lang LaSalle board of directors will
be composed of individuals nominated in accordance with the procedures set
forth in the amended bylaws, and you and other stockholders of Jones Lang
LaSalle will have a limited influence on the outcome of votes of the
stockholders of Jones Lang LaSalle on the matters covered by such
agreements. The beneficial owners of the JLW Companies, the Related JLW
Owners and the LaSalle Partners Employee Stockholders will hold
approximately 69% of the issued and outstanding shares of Jones Lang
LaSalle common stock at the time of the closing of the merger with JLW.
In addition, pursuant to the charter of Jones Lang LaSalle, Jones Lang
LaSalle will have a classified board of directors, pursuant to which
directors will be divided into three classes, with three-year staggered
terms. The classified board provision could increase the likelihood that,
in the event an outside party acquired a controlling block of Jones Lang
LaSalle's capital stock or initiated a proxy contest, incumbent directors
nevertheless would retain their positions for a substantial period, which
may have the effect of discouraging, delaying or preventing a change in
control of Jones Lang LaSalle. In addition, the charter of Jones Lang
LaSalle and the amended bylaws provide for:
. the ability of the Jones Lang LaSalle board of directors to
establish one or more classes and series of capital stock including the
ability to issue up to 10,000,000 shares of preferred stock, and to
determine the price, rights, preferences and privileges of such capital
stock without any further stockholder approval;
. a requirement that any stockholder action taken without a
meeting be pursuant to unanimous written consent; and
. certain advance notice procedures for Jones Lang LaSalle
stockholders nominating candidates for election to the Jones Lang LaSalle
board of directors.
Under the Maryland General Corporate Law, certain "Business
Combinations" between a Maryland corporation and any person who
beneficially owns 10% or more of the voting power of the corporation's
shares or an affiliate of the corporation who, at any time within the two-
year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of the then-outstanding voting stock of the
corporation (an "Interested Stockholder") or an affiliate of the Interested
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Stockholder are prohibited for five years after the most recent date on
which the Interested Stockholder became an Interested Stockholder.
Thereafter, any such Business Combination must be recommended by the board
of directors of such corporation and approved by the affirmative vote of at
least (1) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation and (2) 66-2/3 of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the Business
Combination is to be effected, unless, among other things, the
corporation's stockholders receive a minimum price as set forth in the
Maryland General Corporate Law for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. Pursuant to the Maryland General Corporate
Law, these provisions also do not apply to Business Combinations which are
approved or exempted by the board of directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder.
The provisions of the agreements described above, as well as LaSalle
charter and amended bylaws, and the Maryland General Corporate Law, could
discourage bids for common stock as well as adversely affect the market
price of common stock.
RISKS INHERENT IN THE INDUSTRY OR PARTICULAR TO JONES LANG LASALLE
NEGATIVE REAL ESTATE ECONOMIC CLIMATE OR GENERAL ECONOMIC CONDITIONS.
After the merger with JLW, LaSalle will operate in markets throughout the
world. An economic downturn in several of them or in significant markets
could have a material adverse effect on its business, results of operations
and financial condition. In addition, the real estate services business is
particularly impacted negatively by periods of economic slowdown or
recession, rising interest rates or declining demand for real estate.
These economic conditions, including the following, could have a number of
effects which could have a material adverse impact on certain segments of
LaSalle's business, including:
. a general decline in rents;
. a decline in the level of investment in real estate;
. a decline in the value of real estate investments; and
. a general decline in sales prices and the supply of capital
invested in commercial real estate and related assets.
The real estate market tends to be cyclical and related to the
condition of the economy as a whole or, at least, to the perceptions of
investors and users as to the economic outlook. For example, if property
owners believe that an economic downturn is likely to occur in the near
future, some may sell their properties in anticipation. This could result
in the new owners changing property and investment management firms which
could cause us to lose some clients or assignments or to make the clients
or assignments we retain less profitable.
LOSS OF SERVICE AGREEMENTS OR CLIENT RELATIONSHIPS. LaSalle is, and
after the merger with JLW will continue to be, substantially dependent on
long-term client relationships and on revenue received for services under
various service agreements. The loss of a substantial number of service
agreements or client relationships could have a material adverse effect on
our business, operating results and financial condition. Many service
agreements are cancellable by the client for any reason on as little as 30
to 60 days' notice. These contracts may be cancelled prior to their
expiration or not renewed when their respective terms expire. In addition,
the consummation of the merger with JLW and the acquisition of the Compass
businesses give a significant number of clients the right to terminate
their service agreements with the combined company.
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LaSalle provides related services such as property management and
leasing services to its investment management clients and earns substantial
fees for providing these services. If LaSalle's investment management
clients terminate or do not renew its services or if a property which is
part of an investment management portfolio is sold, other related services
provided to the investment management clients may also be terminated or not
renewed. In addition, some clients may have concerns about potential
conflicts of interest in having LaSalle serve as both investment manager
and property manager with respect to properties or in having LaSalle act as
investment manager and co-investment partner in respect of real estate
investment funds. As a result, they may terminate relationships and
service agreements for one or all services to avoid a potential conflict.
PROPERTY PERFORMANCE. LaSalle's revenue will be adversely affected by
decreases in the performance of the properties it manages. This is because
LaSalle's revenue from property management services will generally be based
upon percentages of the revenue generated by the properties that it manages
and its leasing commissions typically will be based on the value of the
lease revenue commitments. Property performance typically depends upon our
ability to attract and retain creditworthy tenants, and to control
operating expenses.
REAL ESTATE INVESTMENT RISKS AS A RESULT OF CO-INVESTMENT ACTIVITIES.
An important part of LaSalle's investment strategy includes investing its
capital in real estate investments with its investment management clients.
LaSalle's participation in real estate transactions through co-investment
activity could increase fluctuations in its earnings and cash flow. Other
risks associated with such activities include:
. loss of its investments;
. potential conflicts of interest with clients leading them to
terminate their other relationships with LaSalle;
. difficulties associated with international co-investment; and
. LaSalle's potential loss of control over the timing of the
recognition of gains, losses or potential incentive participation fees.
YEAR 2000. Many computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, such
computer programs and systems may recognize a date using "00" as the year
1900 rather than the year 2000. Significant uncertainty exists concerning
the potential effects associated with these Year 2000 issues.
LaSalle relies heavily upon its computer systems, as does JLW.
Without the use of our computer systems, LaSalle would have difficulty
processing transactions, paying invoices or engaging in similar normal
business activities. Both LaSalle and JLW are implementing plans to
review, test, remediate and upgrade or replace their existing computer
systems to ensure that they are Year 2000 compliant. However, if the
companies are unable to attract and retain qualified personnel who are able
to detect and remediate any Year 2000 problems, or to do so in a timely
manner, or if such Year 2000 problems are more costly than anticipated to
remediate, there could be a material adverse effect on the business,
operating results and financial condition.
There is also "embedded technology" in core property systems.
Embedded technology consists of micro-processing chips which are embedded
in the workings of mechanical devices, for example elevators in the
buildings managed. If non-compliant embedded technology fails, it may
cause core property systems to fail. As a result, the building's tenants
may be able to cancel leases, the owner may be subject to fines or
penalties under terms of the leases and owners may be unable to compensate
LaSalle and JLW for our services. Additionally, although neither LaSalle
nor JLW are not aware of any threatened claims related to the Year 2000,
they may be subject to litigation from such claims.
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Furthermore, if suppliers have not successfully become Year 2000
compliant, they may not be able to provide services or deliver products as
currently provided and delivered. LaSalle and JLW would then have to try
to contract with other suppliers with sufficient capacity to accommodate
needs. However, no assurance can be given that the companies would be able
to contract with any such new suppliers on acceptable terms, if at all.
CONCENTRATION OF OUR INCOME IN THE FOURTH QUARTER MAY CAUSE A LOSS IN
OTHER QUARTERS. LaSalle's operating income and earnings have historically
been substantially lower during the first three calendar quarters than in
the fourth quarter. The reasons for the concentration of income and
earnings in the fourth quarter include:
. a general, industry-wide focus on completing transactions by
calendar year end;
. LaSalle's lack of complete discretion over the timing of
dispositions of properties and, therefore, over the timing of payments of
performance fees which are paid for meeting certain performance targets
with respect to a property and generally earned when the property is
disposed of; and
. the constant nature of LaSalle's non-variable expenses
throughout the year versus the seasonality of its revenues, which has
historically resulted in a small loss in the first quarter, a small profit
or loss in the second and third quarters and a larger profit in the fourth
quarter, excluding the recognition of investment generated performance
fees.
LaSalle anticipates that its business will remain seasonal after the
merger with JLW. However, certain countries in which JLW operates do not
have the same degree of seasonality as the United States. Therefore,
LaSalle expects to recognize a lower percentage of its total earnings in
the fourth quarter after the merger with JLW. LaSalle can not be sure of
the seasonality of the combined earnings of its business and the JLW
companies because such seasonality is dependent upon many factors outside
of our control, including general economic conditions and the timing of the
closing of transactions.
LIABILITIES RELATED TO SUBSIDIARIES BEING GENERAL PARTNERS OF NUMEROUS
GENERAL AND LIMITED PARTNERSHIPS. LaSalle have subsidiaries which are
general partners in numerous general and limited partnerships which invest
in or manage real estate assets. Any subsidiary which is a general partner
is potentially liable to its partners and for obligations of its
partnership. If our exposure as a general partner is not limited, or if
our exposure as a general partner is expanded in the future, any resulting
losses may have a material adverse effect on our business, results of
operations and financial condition. We own our general partnership
interests through special purpose subsidiaries. We believe this structure
will limit our exposure to the total amount we have invested in, or the
total amount of committed capital in, and notes from or advances to, such
special purpose subsidiaries. However, this limited exposure may be
expanded in the future based upon, among other things, changes in our
operating practices, changes in applicable laws or the application of
additional laws to our business.
<PAGE>
ENVIRONMENTAL CONCERNS. Various national, state and local laws and
regulations impose liability on current or previous real property owners or
operators for the cost of investigating, cleaning up or removing
contamination caused by hazardous or toxic substances at the property.
LaSalle may be held liable as an operator for such costs in its role as an
on-site property manager. LaSalle could be held liable not only for
liability incurred at our properties, but also for liability incurred at
the properties of the JLW companies prior to the acquisition of the JLW
Companies. The liability may be imposed even if the original actions were
legal and the companies did not know of, or were not responsible for, the
presence of such hazardous or toxic substances. LaSalle may also be solely
responsible for the entire payment of the liability if LaSalle is subject
to joint and several liability with other responsible parties who are
unable to pay. LaSalle may be subject to additional liability if LaSalle
fails to disclosure environmental issues to a buyer or lessee of property
or if a third party is damaged or injured as a result of environmental
contamination emanating from the site. Additionally, some environmental
laws create a lien on the site in favor of the government for damages and
costs it incurs in connection with the contamination. LaSalle may also be
liable under common law to third parties for damages and injuries resulting
from environmental contamination emanating from the site, including the
presence of asbestos containing materials. LaSalle can not be sure that
any of such liabilities to which LaSalle or any of our affiliates may
become subject will not have a material adverse effect upon LaSalle's
business, results of operations or financial condition.
EMPLOYEES
LaSalle employs 2,220 people, including 1,910 professional staff
members and 310 support personnel. None of LaSalle's employees are members
of any labor union. Satisfactory relations have generally prevailed between
LaSalle and its employees.
LaSalle has entered into an agreement with LPI Service Corporation
("LPISC"), a company controlled by a former employee of LaSalle, pursuant
to which LPISC provides the services of approximately 3,000 janitorial,
engineering and property maintenance workers for certain properties managed
by LaSalle. LaSalle has an option to purchase LPISC. Approximately 550 of
the employees of LPISC are members of labor unions.
<PAGE>
ITEM 2. PROPERTIES
LaSalle's principal executive office is located at 200 East Randolph
Drive, Chicago, Illinois, where LaSalle currently occupies over 100,000
square feet of office space pursuant to a lease that expires in February
2006. LaSalle has 10 United States corporate offices located in Atlanta,
Baltimore, Chicago, Columbus, Dallas, Denver, Los Angeles, New York, San
Francisco and Washington D.C. and ten international corporate offices
located in Amsterdam and Sydney, Beijing, London, Mexico City, New Delhi,
Paris, Toronto, Sao Paulo, Shanghai and Sydney. LaSalle's corporate
offices are each leased pursuant to agreements with terms ranging from
month-to-month to nine years. In addition, LaSalle has approximately 700
property and other offices throughout the United States. On-site property
management offices are generally located within properties under management
and are provided without cost.
ITEM 3. LEGAL PROCEEDINGS
LaSalle 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 LaSalle, the ultimate resolution of such litigation
matters will not have a material adverse effect on the financial position,
results of operations and liquidity of LaSalle.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of LaSalle's stockholders
during the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
LaSalle's Common Stock is listed for trading on the New York Stock
Exchange under the symbol "LAP."
As of February 26, 1999, there were approximately 3,000 beneficial
holders of the Company's Common Stock.
Trading of the Common Stock on the New York Stock Exchange began on
July 17, 1997. The following table sets forth the high and low sale prices
of the Common Stock as reported on the New York Stock Exchange.
1998 High Low
------ ------
First Quarter. . . . . . . . . . . . . . . . . . $36.81 $30.50
Second Quarter . . . . . . . . . . . . . . . . . $48.00 $31.38
Third Quarter. . . . . . . . . . . . . . . . . . $44.50 $32.69
Fourth Quarter . . . . . . . . . . . . . . . . . $32.69 $21.94
1997 High Low
------ ------
Third Quarter (July 17 through September 30) . . $36.69 $27.13
Fourth Quarter . . . . . . . . . . . . . . . . . $38.56 $28.50
LaSalle has not paid cash dividends on its common stock to date.
LaSalle intends to retain its earnings to support the expansion of the
business and therefore does not intend to pay cash dividends for the
foreseeable future. Any payment of future dividends and the amounts
thereof will be at the discretion of the Board of Directors and will depend
upon LaSalle's financial condition, earnings and other factors deemed
relevant by the Board of Directors.
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth summary historical consolidated and combined financial data for LaSalle. The
information should be read in conjunction with LaSalle's consolidated and combined financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
Adjusted Pro Forma Pro Forma
1998 1997 1996 1995 1994 Actual (1) (2) (2)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
($ in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Total revenue
(3). . . . . . . .$ 304,464 224,773 159,453 138,618 116,698 304,464 232,984 189,398
Total operating
expenses before
merger related
non-recurring
charges (3) . . . . 256,601 189,659 132,552 118,502 98,683 256,601 198,333 159,221
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income
before merger
related non-
recurring charges . . 47,863 35,114 26,901 20,116 18,015 47,863 34,651 30,177
Merger related
non-recurring
charges (1) . . . . . 10,021 -- -- -- -- 10,021 -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income . . 37,842 35,114 26,901 20,116 18,015 37,842 34,651 30,177
Interest expense . . . 4,153 3,995 5,730 3,806 5,159 4,153 1,000 1,075
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before
provision for
income taxes. . . . . 33,689 31,119 21,171 16,310 12,856 33,689 33,651 29,102
Net provision
for income taxes. . . 13,224 5,279 1,207 505 554 13,224 12,956 11,204
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings . . . . .$ 20,465 25,840 19,964 15,805 12,302 20,465 20,695 17,898
========== ========== ========== ========== ========== ========== ========== ==========
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998
Adjusted 1997 1996
Actual Pro Forma Pro Forma
1998 1997 1996 1995 1994 (1) (2) (2)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
($ in thousands, except share data)
Adjustments (1):
Merger related
non-recurring
charges. . . . . . . 10,021 -- --
Tax benefit
associated with
merger related
non-recurring
charges. . . . . . . (3,933) -- --
---------- ---------- ----------
Adjusted net
earnings (1) . . . . 26,533 20,695 17,898
========== ========== ==========
Basic earnings (4) (5) (5)
per common share. . .$ 1.26 1.50 1.28 1.10
========== ========== ========== ==========
Weighted average
shares outstanding. .16,215,478 16,200,000 16,215,478 16,200,000 16,200,000
========== ========== ========== ========== ==========
Diluted earnings (4) (5) (5)
per common share. . .$ 1.25 1.49 1.27 1.10
========== ========== ========== ==========
Diluted weighted
average shares
outstanding . . . . .16,387,721 16,329,613 16,387,721 16,329,555 16,329,555
========== ========== ========== ========== ==========
Other Data:
Adjusted EBITDA (6). .$ 61,318 44,207 32,317 24,356 20,866 61,318 44,407 37,624
Cash flows provided
by (used in):
Operating
activities. . . . . .$ 22,969 40,577 13,964 13,553 24,628 29,057 33,027 13,646
Investing
activities. . . . . . (239,096) (14,126) (32,478) (5,706) (4,885) (239,096) (14,367) (31,852)
Financing
activities. . . . . . 202,377 (3,128) 17,189 (12,365) (12,028) 202,377 (10,996) 37,605
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998
Adjusted 1997 1996
Actual Pro Forma Pro Forma
1998 1997 1996 1995 1994 (1) (2) (2)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
($ in thousands, except share data)
Investments under
management (7). . . .14,200,000 14,700,000 15,200,000 11,500,000 10,700,000 14,200,000 14,700,000 15,200,000
Total square feet-
facility manage-
ment (8). . . . . . . 188,000 98,900 66,700 66,700 50,600 188,000 98,900 97,500
Total square feet
under management
(9) . . . . . . . . . 400,500 202,700 131,600 125,700 102,400 400,500 202,700 200,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents. . . . . . . . . $ 16,941 30,660 7,207 8,322 12,840
Total assets . . . . . . . . . 490,921 219,887 156,614 115,001 107,055
Long-term debt . . . . . . . . 202,923 -- 55,551 40,805 41,028
Total liabilities. . . . . . . 321,349 72,990 132,367 100,004 93,898
Total partners'
capital (deficit)/
stockholders'
equity. . . . . . . . . . . . 169,572 146,897 24,247 14,997 13,157
<PAGE>
<FN>
(1) Adjusted Actual represents actual historical earnings of LaSalle
including the operating results for Compass since its acquisition, adjusted
for merger related non-recurring charges which consist of integration and
transition costs related to the Compass acquisition and non-capitalizable
merger related expenses associated with the pending merger with Jones Lang
Wootton. Management believes that Adjusted Actual is useful to investors
as a measure of operating performance, cash generation and ability to
service debt. However, Adjusted Actual should not be considered as an
alternative either to: (i) net earnings (determined in accordance with
GAAP); (ii) operating cash flow (determined in accordance with GAAP); or
(iii) liquidity.
(2) Pro forma results give effect to (i) the acquisition of Galbreath on
April 22, 1997, as adjusted for the tenant representation and investment
banking units which were not acquired, as if such acquisition had occurred
on January 1, 1996; (ii) the provision for income taxes as though LaSalle
and Galbreath were taxable entities as of January 1, 1996 at an effective
tax rate of 38.5%; and (iii) estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of LaSalle's long-term notes payable out of the proceeds of the
initial public offering as if the Offering had occurred on January 1, 1996.
(3) Historical revenue and operating expenses have been reclassified to
reflect personnel cost reimbursements received on property management or
specific client assignments on a net rather than gross basis. There was no
effect on operating income or net earnings as historically reported.
(4) Basic and diluted earnings per common share for 1997 are calculated
based on earnings for the period from conversion to corporate form,
July 22, 1997, through December 31, 1997.
(5) Pro forma basic earnings per common share are calculated based on the
16,200,000 shares outstanding upon completion of the initial public
offering. Pro forma diluted earnings per common share give further effect
to the impact of outstanding dilutive options in accordance with SFAS No.
128.
(6) Adjusted EBITDA represents earnings before interest expense, income
taxes, depreciation and amortization and merger related non-recurring
charges. Management believes that Adjusted EBITDA is useful to investors
as a measure of operating performance, cash generation and ability to
service debt. However, Adjusted EBITDA should not be considered as an
alternative either to: (i) net earnings (determined in accordance with
GAAP); (ii) operating cash flow (determined in accordance with GAAP); or
(iii) liquidity.
(7) Investments under management represents the aggregate fair market
value or cost basis of assets managed by the LaSalle Investment Management
segment as of the end of the periods reflected.
(8) Represents the total square footage of properties for which LaSalle
provided facility management services as of the end of the periods
reflected.
(9) Represents the total square footage of properties for which LaSalle
provided property management and leasing or facility services as of the end
of the periods reflected.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
LaSalle Partners Incorporated ("LaSalle") is a leading vertically
integrated global real estate services firm that provides leasing and
management services, financial and corporate services and investment
management services to corporations and other real estate owners and
investors worldwide. LaSalle has grown by expanding both its client base
and its range of services and products in anticipation of client needs.
LaSalle completed its initial public offering ("Offering") on July 22,
1997, raising net proceeds of $82.8 million which were used primarily to
repay its long-term debt and related interest of $63.5 million.
LaSalle has pursued a growth strategy that capitalizes on existing
client relationships and emerging industry trends. Historically, the four
key components of the growth strategy included 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.
During 1998, LaSalle generated nearly 50% of its fee based revenue
from clients utilizing services from multiple business units.
Additionally, LaSalle generated approximately 85% of its fee based revenue
from clients it had previously served.
Since late 1994, LaSalle 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.
The acquisition of Compass, which was combined with LaSalle's Leasing
and Management Services segment, created the largest real estate management
services company in the United States, adding approximately 200 million
square feet of property and facility management services assignments to
LaSalle's portfolio. LaSalle paid $180.0 million in cash for the
acquisition with provisions for an earnout payment of up to $77.5 million
over five years. The consideration, in addition to transaction costs of
approximately $3.2 million, were financed with a new $175.0 million
acquisition facility and borrowings on LaSalle's existing revolving credit
facility. LaSalle anticipates that transition and integration costs
related to the acquisition will total approximately $10.3 million on an
after-tax basis, of which $5.2 million were incurred as of December 31,
1998, with the remainder anticipated to be incurred during the first half
of 1999.
In October 1998, LaSalle and Jones Lang Wootton ("JLW") announced
their intent to merge operations. JLW is an employee owned international
real estate services firm with approximately 4,000 employees and operations
in 32 countries. The operations, headquartered in London, are managed
geographically with four main regions in Europe, Asia, Australasia and the
United States. JLW has a culture, long-term strategy and service
capability which is compatible with that of LaSalle and includes
approximately 280 million square feet under management and approximately
$6.3 billion in assets under management. LaSalle incurred merger related
transition and integration costs during 1998 totaling $.9 million on an
after-tax basis. A proxy statement soliciting approval has been
distributed to LaSalle's shareholders, and a special meeting has been set
for March 10, 1999. If LaSalle shareholder approval is received and the
other closing conditions are met, the transaction is expected to close
shortly after the meeting.
<PAGE>
LaSalle intends to continue to increase its level of 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 December 31, 1998, LaSalle had a total investment of
$53.0 million in 38 separate property or fund co-investments with
additional capital commitments of $6.7 million for future fundings of co-
investments.
Included in the investments noted above is an $18.8 million investment
in LaSalle Hotel Properties ("LHO"), a real estate investment trust, which
completed its initial public offering in April 1998. LHO was formed to own
hotel properties and to continue and expand the hotel investment activities
of LaSalle by investing particularly in upscale and luxury full service
hotels located primarily in major business and urban, resort and convention
markets. LaSalle provides advisory, acquisition and administrative
services to LHO for which it receives a base advisory fee calculated as a
percentage of net operating income, as well as performance fees based on
growth in funds from operations on a per share basis. Such performance
fees, if any, will be paid in the form of LHO common stock or units, at
LaSalle's option. LHO was formed with 10 hotels, nine of which LaSalle had
a nominal co-investment in and acted as the investment advisor for. In
accordance with the individual investment advisory agreements, LaSalle
earned and received performance fees totaling $15.2 million on the
disposition of certain of the assets which were shared between LaSalle's
Investment Management and Investment Banking units. LaSalle contributed
its ownership interests in the hotels as well as the related performance
fees to LHO for an effective ownership interest of approximately 6.4%.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUE
LaSalle's total revenue, after elimination of intersegment revenue,
grew $76.7 million, or 35.5%, to $304.5 million in 1998 from $224.8 million
in 1997. Increased revenues were driven in part, by the acquisitions of
Compass, Satulah and Galbreath, as well as by the completion of the LHO
initial public offering. In addition, growth was driven by strong capital
flows into the U.S. real estate market, in spite of a market correction
which occurred during the latter half of 1998, continued underlying demand
for real estate by users across the spectrum of property types, and
LaSalle's ability to cross-market real estate services to its clients.
These increases were partially offset by a decline in property
management, leasing and investment management fees from four of LaSalle's
multiple investor funds ("Commingled Funds") formed by LaSalle in the
1980s. The decline is a result of the disposition of the funds' assets, in
accordance with the strategic plan. These asset dispositions were completed
by December 1998. Revenue generated from these funds compared with total
revenue was .8% for 1998 and 4.5% for 1997.
Revenue for LaSalle's Leasing and Management Services segment, which
represented 44.4% of LaSalle's total revenue in 1998, increased $49.5
million, or 57.2%, to $136.1 million in 1998 from $86.6 million in 1997.
This increase was primarily due to the acquisitions of Compass, Satulah and
Galbreath and, to a lesser extent, as a result of higher volumes of leasing
activity, the addition of nine new facility services clients, new strategic
alliance relationships formed by the Project Management business and a
higher volume of projects being managed by the Development Services
business. These increases were partially offset by a decline in revenue
related to the sale of the Commingled Fund properties discussed previously.
<PAGE>
LaSalle's Financial and Corporate Services segment revenue, which
represented 26.6% of LaSalle's total revenue in 1998, increased $20.1
million, or 32.3%, to $82.4 million in 1998 from $62.3 million in 1997.
This record revenue resulted from an increased transaction volume
experienced by each of the segment's three business units. In addition,
the Tenant Representation business generated approximately 82.2% of its
revenues from strategic alliances with large corporations and professional
firms and signed on seven new alliances during 1998. Total revenue
generated from strategic alliances was up $6.5 million over 1997 levels.
The growth in revenue experienced by the Investment Banking business
includes incentive fees of $5.6 million related to the initial public
offering of LHO. These increases were partially offset by a decline in
revenue related to the sale of the Commingled Fund properties discussed
previously, in addition to the volatility in the capital markets during the
latter half of 1998.
LaSalle Investment Management segment revenue, which represented 29.0%
of LaSalle's total revenue in 1998, increased $10.7 million, or 13.8%, to
$88.3 million in 1998 from $77.6 million in 1997. The net gain in revenue
was primarily attributable to performance fees generated on the disposition
of certain assets under management in which LaSalle had a co-investment,
including certain hotel properties in connection with the formation of LHO,
and, to a lesser extent, to increased acquisition and advisory fees
generated on international fund activity and a higher volume of activity
performed by the securities business. These increases were partially
offset by a decline in revenue related to the sale of the Commingled Fund
properties discussed previously, in addition 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 and the reduction in publicly traded REIT values during the
latter half of 1998.
OPERATING EXPENSE
LaSalle's operating expenses, after elimination of intersegment
expenses, increased $77.0 million, or 40.6%, to $266.6 million in 1998 from
$189.7 million in 1997. Operating expenses include $10.0 million in merger
related non-recurring charges as a result of the Compass acquisition and
the proposed merger with JLW. LaSalle's operating expenses, exclusive of
these charges, totaled $256.6 million and represented an increase of $66.9
million, or 35.3%, over the prior year. As a percentage of total revenue,
operating expenses, exclusive of the merger related charges, remained
constant at approximately 84.3%.
Operating expenses for LaSalle's Leasing and Management Services
segment increased $48.1 million, or 61.1%, to $126.7 million in 1998 from
$78.6 million in 1997. This increase was primarily a result of the effects
of the Compass, Satulah and Galbreath acquisitions, including personnel and
facility costs and the 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 Financial and Corporate Services segment
increased $16.1 million, or 34.7%, to $62.6 million in 1998 from $46.4
million in 1997. The increase was primarily attributable to increased
incentive compensation earned by the Investment Banking and Tenant
Representation businesses, consistent with the increased levels of
operating income 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.
<PAGE>
Operating expenses for the LaSalle Investment Management segment
increased $3.5 million, or 5.2%, to $69.7 million in 1998 from $66.2
million in 1997. The increase was primarily a result of increased
incentive compensation, consistent with the increased level of operating
income generated, and, to a lesser extent, to costs associated with new
business initiatives. These increases were partially offset as a result of
a one-time reserve of $1.5 million established in late 1997 related to the
pending liquidation of a mid-1980 investment vehicle.
OPERATING INCOME
As a result of the factors noted above, LaSalle's operating income,
including merger related non-recurring changes of $10.0 million, increased
$2.7 million, or 7.7%, to $37.8 million in 1998 from $35.1 million in 1997.
Exclusive of the merger related charges, LaSalle's operating income
increased $12.7 million, or 36.3%. As a percentage of total revenue,
operating income, exclusive of merger related charges, remained constant at
15.6%.
INTEREST EXPENSE
Interest expense increased $.2 million, or 4.0%, to $4.2 million in
1998 from $4.0 million in 1997, principally as a result of the Compass
acquisition and the resulting borrowings on the new acquisition facility
and existing revolving credit facility, offset by the repayment of
LaSalle's long-term debt from the net proceeds of the Offering and the
subsequent repayment of outstanding debt under its working capital facility
in July 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $7.9 million to $13.2 million
in 1998 from $5.3 million in 1997 as a result of LaSalle's conversion from
partnership to corporate form in July 1997 and the resulting provision for
income taxes at an effective tax rate of 39.3% in 1998 and 38.5% in 1997.
This increase included the effects of the recognition of a $6.8 million tax
benefit in July 1997, in accordance with SFAS No. 109, as a result of
LaSalle recording a deferred tax asset arising from temporary differences
between the book and tax basis of its consolidated assets and liabilities
at the date of conversion to corporate form. In 1998, the provision for
taxes includes a tax benefit of approximately $3.9 million related to
merger related charges.
NET EARNINGS
Net earnings, including merger related charges of $6.1 million on an
after-tax basis, decreased $5.4 million, or 20.8% to $20.5 million in 1998
from $25.8 million in 1997. Exclusive of merger related charges, net
earnings increased slightly to $26.6 million. Net earnings, excluding
merger related charges, represented 8.7% of total revenue compared to 11.5%
in 1997. This decrease primarily reflects the increased tax provision in
1998 as a result of being a taxable entity for the entire year, and to a
lesser extent, the impact of amortization of intangibles related to recent
acquisitions.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
REVENUE
LaSalle's total revenue, after elimination of intersegment revenue
grew $65.3 million, or 41.0%, to $224.8 million in 1997 from $159.5 million
in 1996. Increased revenues were driven in part, by the acquisition of CIN
and Galbreath, and also by three additional factors: the strong U.S.
economy, increased inflow of capital to the real estate market, and
LaSalle's ability to cross-market real estate services to its clients. The
strong economy has led to job growth, which has fueled increased demand for
<PAGE>
real estate of all types. This increased demand has produced rising rental
rates and higher investment returns for owners, thereby attracting
investment capital to the market. The inflow of capital has led to a high
level of transaction activity, including disposition, acquisition, and
financing of real estate. LaSalle's ability to cross-market all of these
services to its clients has augmented the increased revenue generated by
higher activity levels.
These increases have been partially offset by a decline in property
management, leasing and investment management fees from four of LaSalle's
Commingled Funds discussed previously. Revenue generated from these funds
compared with total revenue was 4.5% for 1997 and 10.8% for 1996.
Revenue for LaSalle's Leasing and Management Services segment, which
represented 38.4% of LaSalle's total revenue in 1997, increased $27.0
million, or 45.3%, to $86.6 million in 1997 from $59.6 million in 1996.
This increase was primarily due to the acquisition of Galbreath with
approximately 67.5 million square feet under management and, to a lesser
extent, as a result of an increase in management and leasing fees generated
from a net additional 5.6 million square feet under management for LaSalle,
exclusive of the Galbreath portfolio. These increases were partially
offset by a decline in revenue related to the sale of the Commingled Fund
properties discussed previously.
LaSalle's Financial and Corporate Services segment revenue, which
represented 27.1% of LaSalle's total revenue in 1997, increased $18.4
million, or 41.9%, to $62.3 million in 1997 from $43.9 million in 1996.
This record revenue resulted primarily from a $12.7 million increase in
revenue from LaSalle's Investment Banking business. A number of
significant tenant representation transactions and a series of transactions
generated from the unit's strategic alliances, including two of LaSalle's
facility management clients, accounted for the majority of the $4.7 million
increase in tenant representation revenue. Approximately 81% of domestic
tenant representation revenue in 1997 was generated from strategic
alliances with large corporations or professional service firms.
LaSalle Investment Management segment revenue, which represented 34.5%
of LaSalle's total revenue in 1997, increased $20.4 million, or 35.6%, to
$77.6 million in 1997 from $57.2 million in 1996. The net gain in revenue
was primarily attributable to growth in LaSalle's European advisory
business resulting from the CIN acquisition and to increased performance
fees generated on the disposition of certain assets under management.
These increases were partially offset by a decline in revenue from four of
LaSalle's Commingled Funds discussed previously.
OPERATING EXPENSE
LaSalle's operating expenses, after elimination of intersegment
expenses increased $57.1 million, or 43.1%, to $189.7 million in 1997 from
$132.6 million in 1996. As a percentage of total revenue, operating
expenses increased to 84.4% in 1997 from 83.1% in 1996, primarily
reflecting the impact of goodwill amortization associated with the recent
acquisitions. All three of LaSalle's segments experienced higher levels of
compensation and benefits associated with increased staffing and higher
incentive compensation associated with LaSalle's increased operating
income.
Operating expenses for LaSalle's Leasing and Management Services
segment increased $30.2 million, or 62.3%, to $78.6 million in 1997 from
$48.4 million in 1996. This increase was primarily a result of increased
compensation and benefit costs, the effects of the Galbreath acquisition-
including personnel costs, amortization of intangibles resulting from the
acquisition, and transition and integration costs- and increased corporate
infrastructure costs as a result of higher staffing levels and technology
enhancements.
<PAGE>
Operating expenses for the Financial and Corporate Services segment
increased $13.0 million, or 38.8%, to $46.4 million in 1997 from $33.5
million in 1996. The increase was principally a result of increased
incentive compensation earned by the Investment Banking and Tenant
Representation businesses, consistent with the increased level of operating
income generated. In addition, the segment experienced higher employment
levels to meet the increased demand for services, and, to a lesser extent,
increased corporate infrastructure costs related to higher staffing levels
and technology enhancements.
Operating expenses for the LaSalle Investment Management segment
increased $14.4 million, or 27.8%, to $66.2 million in 1997 from $51.8
million in 1996. The increase was primarily a result of increased incentive
compensation, consistent with the increased level of operating income
generated, the effects of the CIN acquisition-including personnel costs and
amortization of intangibles resulting from the acquisition-and, to lesser
extents, to increased corporate infrastructure costs as a result of higher
staffing levels and technology enhancements, and a one-time reserve of $1.5
million established in late 1997 related to the pending liquidation of a
mid-1980 investment vehicle. These increases were partially offset by a
decrease in staffing levels from 1996 through unreplaced attrition and
redeployment of resources to other segments, in addition to reduced
employee relocation costs.
OPERATING INCOME
As a result of the factors noted above, LaSalle's operating income
increased $8.2 million, or 30.5%, to $35.1 million in 1997 from $26.9
million in 1996. As a percentage of total revenue, operating income
decreased to 15.6% in 1997 from 16.9% in 1996, primarily as a result of
increased amortization of intangible assets associated with the recent
acquisitions.
INTEREST EXPENSE
Interest expense decreased $1.7 million, or 30.3%, to $4.0 million in
1997 from $5.7 million in 1996, principally as a result of the repayment of
LaSalle's long-term debt from the net proceeds of the Offering and the
subsequent repayment of outstanding debt under its working capital facility
in July 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes increased $4.1 million to $5.3 million
in 1997 from $1.2 million in 1996 as a result of LaSalle's conversion from
partnership to corporate form in July 1997 and the resulting provision for
income taxes at an effective tax rate of 38.5%. This increase was offset
by the recognition of a $6.8 million tax benefit, in accordance with SFAS
No. 109, as a result of LaSalle recording a deferred tax asset arising from
temporary differences between the book and tax basis of its consolidated
assets and liabilities at the date of conversion to corporate form.
NET EARNINGS
Net earnings increased $5.9 million, or 29.4%, to $25.8 million in
1997 from $20.0 million in 1996. Net earnings in 1997 represented 11.5% of
total revenue, compared with 12.5% in the previous year as a result of
increased tax expense related to the conversion of LaSalle to corporate
form and the increased amortization expense related to intangible assets
associated with the recent acquisitions.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LaSalle meets its operating cash requirements primarily from operating
activities. No one client accounted for more than 10% of total revenue in
1998, 1997 and 1996. During 1998, cash flows provided by operations
totaled $23.0 million, a decrease of $17.6 million from 1997. This
decrease is primarily attributable to the acquisition of Compass and the
related increase in year end trade receivable balances as compared to the
prior year period, offset by an increase in accrued compensation in 1998.
In 1997, cash flows provided by operating activities increased $26.6
million over 1996 which was primarily attributable to strong second and
third quarter earnings in 1997 with cash being collected in that year as
compared to the strong fourth quarter generation of earnings experienced in
prior years.
LaSalle 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, LaSalle 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 LaSalle's current earnings and cash flow.
However, LaSalle's increased participation as a principal in real estate
investments could increase fluctuations in LaSalle'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, LaSalle will
not have complete discretion to control the timing of the disposition of
such investments.
Net cash used in investing activities was $239.1 million in 1998
compared with $14.1 million for 1997 and $32.5 million for 1996. The
increase in funds used was primarily related to the acquisitions of
Compass, for $180.0 million in cash, and Satulah, for $5.5 million in cash
in addition to a higher level of co-investment during 1998, including an
$18.8 million investment in LHO (net additional co-investment of $15.2
million). Finally, LaSalle experienced increased net capital expenditures
of $9.3 million primarily as a result of the continued implementation of a
new property accounting and information system by its Leasing and
Management Services segment and a new corporate accounting system in
addition to the on-going replacement of personal computers. The decrease in
cash used in investing activities in 1997 compared to 1996 is principally a
result of the acquisition of CIN in October 1996 for cash of $15.7 million,
and, to a lesser extent, expenditures on furniture and fixtures at
LaSalle's new corporate headquarters in 1996. The decreases in cash used
in investing activities were partially offset by an increase in funds used
for co-investment of $2.9 million.
Historically, LaSalle has financed its operations, acquisitions and
co-investments with internally generated funds, ownership equity and
borrowings under revolving credit facilities. In addition to LaSalle's
existing five year unsecured revolving credit facility of $150 million, in
September 1998, LaSalle obtained a $175 million credit facility (the
"Acquisition Facility") which is to be used exclusively to finance the
Compass acquisition. 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
LaSalle's subsidiaries. LaSalle 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, LaSalle is restricted
from, among other things, incurring certain levels of indebtedness to
lenders outside of the facilities and disposing of a significant portion of
<PAGE>
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. The Acquisition Facility was fully drawn on December 31, 1998 and
LaSalle had outstanding borrowings of $27.9 million on its revolving credit
facility. LaSalle's effective interest rate on its revolving credit
facility was 6.0%, 6.7% and 6.9% for the years ended December 31, 1998,
1997 and 1996, respectively. LaSalle's effective interest rate on its
Acquisition Facility was 6.1% during 1998.
Net cash provided by financing activities was $202.4 million for 1998
compared with net cash used in financing activities of $3.1 million in
1997. The change in financing cash flow was primarily a result of
increased borrowing in 1998 to fund the acquisition of Compass and
infrastructure investments. In 1997, LaSalle received net proceeds from
the Offering of $82.8 million, of which $63.5 million was used to repay
LaSalle's long-term notes payable and $14.5 million was used to repay
short-term indebtedness. LaSalle believes, based on current operating
plans that cash generated from operations and available borrowings will be
sufficient to meet its capital and liquidity requirements for the
foreseeable future.
DISPOSITION
On December 31, 1996, LaSalle completed the sale of its Construction
Management business, which specialized in the interior build-out of office
and retail space for tenants in the Chicago and Los Angeles markets, to a
former member of LaSalle's management. The business was sold in exchange
for a note of $9.1 million of which $8.5 million was outstanding at
December 31, 1998. The note, which is secured by the current and future
assets of the business, is due December 31, 2006. For financial reporting
purposes, LaSalle has not treated the transaction as a divestiture.
Principal and interest to be received under the note will be treated as a
reserve, if necessary, for any anticipated financial exposure under the
terms of the asset purchase agreement, with the remainder recognized as
income when principal and interest payments are received. Income
recognized during 1998 and 1997 totaled $1.2 million and $1.1 million,
respectively, compared with $1.3 million of revenue, reflected net of
related expenses, in 1996.
SEASONALITY
Historically, LaSalle's revenue, operating income and net earnings in
the first three calendar quarters are substantially lower than in the
fourth quarter. This seasonality is due to a calendar year-end focus on the
completion of transactions, which is consistent with the real estate
industry generally. In addition, an increasing percentage of LaSalle's
management contracts contain clauses providing for performance bonuses to
be received if LaSalle's Leasing and Management Services segment achieves
certain performance targets. Such incentive payments are generally earned
in the fourth quarter. In contrast, the LaSalle 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 LaSalle does not have complete discretion
over. LaSalle's non-variable operating expenses, which are treated as
expenses when incurred during the year, are relatively constant on a
quarterly basis. Therefore, LaSalle typically sustains a loss in the first
quarter of each calendar year, reports a small profit or loss in the second
and third quarters and records a substantial majority of LaSalle's earnings
in the fourth calendar quarter, barring the recognition of investment
generated performance fees. Results in 1998 and 1997 were stronger in the
second and third quarters compared with previous years as a result of
performance fees recognized by the LaSalle Investment Management segment
and the Investment Banking business as well as a higher level of
transactions completed by the Tenant Representation and Investment Banking
businesses as compared to prior years.
<PAGE>
INFLATION
LaSalle'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, LaSalle 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 LaSalle's 1997 and 1996 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 income or net earnings as historically reported.
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("FASB 133") becomes
effective for all fiscal quarters for fiscal years beginning after June 15,
1999 and is not expected to have a material impact on LaSalle'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. LaSalle 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, LaSalle has in place an awareness phase and
will continue this phase through December 31, 1999 to maintain a heightened
sense of awareness to the Year 2000 Issue. LaSalle 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, LaSalle 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.
Renovation and validation efforts have commenced throughout the Year
2000 program. 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 on schedule
for anticipated completion by mid-year 1999. The continuing 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.
<PAGE>
Management expects that the cost of additional modifications to
LaSalle'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 $2.8 million, including
approximately $1.4 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. LaSalle has incurred $.5 million in operating
expenses to date. Factors that could impact LaSalle'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, LaSalle's business, financial condition or
results of operations could be materially adversely affected.
The ability of third parties with whom LaSalle transacts business or
companies that LaSalle may acquire to adequately address their Year 2000
issues is outside LaSalle's control. At this time, LaSalle 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
LaSalle's business, financial condition, and results of operations.
Properties for which LaSalle 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. LaSalle 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. LaSalle 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 LaSalle. Plans for a complete millennium period staffing
and communication strategy are well underway to proactively address any
concerns.
Although LaSalle is not aware of any threatened claims related to the
Year 2000, LaSalle may become subject to litigation arising from such
claims and, depending on the outcome, such litigation could have a material
adverse affect on LaSalle. It is not clear whether LaSalle's insurance
coverage would be adequate to offset these and other business risks related
to the Year 2000.
PENDING MERGER
On October 22, 1998, LaSalle and 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 LaSalle's Board of Directors and the Board of Directors of the
JLW companies and the partnerships. Under the terms of the agreement,
LaSalle will issue up to 14.3 million shares of common stock and
approximately $6.2 million in cash (collectively the "Consideration"),
subject to a closing net worth adjustment.
<PAGE>
As a general matter, the accounting treatment for the Consideration
will be dependent on whether the recipient of the Consideration is a direct
or indirect owner of JLW prior to the merger. The accounting treatment
will be further dependent on vesting and restrictions associated with the
shares to be issued. Approximately 7.6 million shares, or 53% of the
shares to be issued, and $5.8 million in cash will be treated as purchase
consideration under APB Opinion No. 16, "Business Combinations". The
remaining 6.7 million shares, or 47%, and $.4 million in cash will be
treated as compensation expense in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees".
Of the shares subject to accounting under APB Opinion No. 25, 5.1
million shares will be treated as a fixed compensation award and 1.6
million shares will be treated as a variable compensation award. For the
fixed award, the value of the shares issued will be based on the stock
price on the date of issuance and will not be subject to change. For the
variable award, the value of the shares will also initially be based on the
stock price on the date of issuance; however, the value will be adjusted on
a quarterly basis to reflect changes in the stock price until such time as
the contingencies related to those shares are removed. All compensation
expense is anticipated to be recognized by December 31, 2000.
Based on the average closing stock price of $24.66 per share for the
five day period that includes the two trading days immediately preceding,
the trading day of, and the two trading days immediately following the date
of substantial completion of negotiations regarding the principal financial
terms of the merger with JLW (October 9, 1998) discounted at a rate of 20%
to account for transferability restrictions applicable to such shares, the
value of the shares subject to purchase accounting would be approximately
$186.9 million. This consideration, together with an anticipated cash
payment of $5.8 million and any capitalizable transaction costs, will be
allocated to the identifiable assets and liabilities being acquired with
any excess purchase price being allocated to goodwill and amortized to
expense on a straight-line basis over an estimated useful life of 40 years.
Based on a closing stock price of $31.50, as reported on the New York Stock
Exchange, Inc. composite tape on January 29, 1999 (a date just prior to the
distribution of the LaSalle Partners Incorporated Proxy Statement in
preparation for the March 10, 1999 special meeting), LaSalle expects to
incur compensation expense associated with the issuance of shares totaling
approximately $117.3 million and $93.4 million in the years ended
December 31, 1999 and 2000, respectively, assuming that the JLW companies
meet certain closing net worth requirements. Included in the total
estimated compensation expense of $210.7 million is expense of $49.2
million which will be subject to fluctuation based on quarterly changes in
the price of LaSalle's common stock. Management anticipates that this
compensation expense, $210.3 million of which represents a non-cash charge,
will cause the combined entity to report operating losses for those
periods.
The transaction has been approved by the LaSalle Board of Directors,
the Boards of Directors of the JLW companies and partnerships, and the JLW
shareholders and partners. Completion of the transaction is subject to
approval by LaSalle's shareholders, regulatory and tax clearances, and
other customary conditions. A proxy statement soliciting approval of the
merger has been mailed to shareholders, and a special meeting has been
scheduled for March 10, 1999. The transaction is expected to close in
early 1999, however, there can be no assurance that the transaction will be
completed.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
LaSalle is exposed to interest rate changes primarily as a result of
its lines of credit used to maintain liquidity and to fund capital
expenditures, acquisitions and expansion of LaSalle's real estate
investment portfolio and operations. LaSalle's interest rate risk
management objective is to limit the impact of interest rate changes on
earnings and cash flows and to lower its overall borrowing costs. To
achieve its objectives LaSalle borrows primarily at variable rates and
enters into derivative financial instruments such as interest rate swap
agreements when appropriate. LaSalle does not enter into derivative or
interest rate transactions for speculative purposes.
In September 1998, LaSalle obtained a $175.0 million credit facility
to finance the acquisition of Compass. This facility 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, which was 6.1%
for 1998.
In November 1997, LaSalle replaced its $70.0 million credit agreement,
which consisted of a short-term revolving line of credit and a long-term
facility, with a $150.0 million, five year unsecured revolving credit
facility. This facility bears variable rates of interest based on market
rates which were 6.0%, 6.7%, and 6.9% in 1998, 1997 and 1996, respectively.
LaSalle is also required to pay a commitment fee of .15% per annum on the
unused portion of the commitment.
As of December 31, 1998, the outstanding borrowings on the acquisition
and revolving credit facilities were $202.9 million. In addition, LaSalle
entered into interest rate swap agreements with a notional amount of $55.0
million providing for an average fixed interest rate of 4.73% through
September 21, 1999. Such interest rate swap agreements had an approximate
market value of $188,000. The carrying value of the debt approximates its
fair value.
FOREIGN CURRENCY RISK
LaSalle's functional currency is the U.S. dollar. LaSalle transacts
business in various foreign currencies, primarily in Europe. On a limited
basis, LaSalle enters into forward currency exchange contracts to manage
currency risks and reduce its exposure resulting from fluctuations in the
designated foreign currency associated with existing commitments, assets or
liabilities. There were no forward exchange contracts in effect at
December 31, 1998. LaSalle does not use foreign currency exchange
contracts for trading purposes.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of December 31, 1998 and 1997, it does not consider those
exposures or positions which could arise after that date. Moreover,
because firm commitments are not presented, the information presented has
limited predictive value. As a result, LaSalle's ultimate realized gain or
loss with respect to interest rate and foreign currency fluctuations will
depend on the exposures that arise during the period, LaSalle's hedging
strategies at the time and interest and foreign currency rates.
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
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 (i) LaSalle's Registration Statement (No. 333-25741) under the
caption "Risk Factors" and elsewhere, (ii) 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, (iii) LaSalle's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere, (iv) LaSalle's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 under the caption "Management's Discussions and
Analysis of Financial Condition and Results of Operations" and elsewhere,
(v) LaSalle's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, (vi) LaSalle's Current Report on Form 8-K, dated
August 31, 1998, (vii) LaSalle's Current Report on Form 8-K, dated
October 1, 1998, (viii) LaSalle's Current Report on Form 8-K, dated
October 22, 1998 (filed October 22, 1998), (ix) LaSalle's Current Report on
Form 8-K, dated October 22, 1998 (filed December 9, 1998), under the
captions "The Transactions," "The Purchase Agreements," "JLW Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the JLW Companies" and elsewhere, (x) LaSalle's Proxy Statement dated
February 4, 1999 under the captions "Risk Factors," "The Transactions,"
"The Purchase Agreements," "JLW Management's Discussion and Analysis of
Financial Condition and Results of Operations of the JLW Companies" and
elsewhere, (xi) LaSalle's Current Report on Form 8-K, dated February 22,
1999 (filed February 24, 1999), and (xii) other reports filed by LaSalle
with the United States Securities and Exchange Commission. 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. Statements
regarding parties other than LaSalle are based upon representations of such
other parties.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Page
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LASALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Report of KPMG LLP, Independent Auditors . . . . . . . . . . . . . 42
Consolidated Balance Sheets as of
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 43
Consolidated and Combined Statements of Earnings
For the Years Ended December 31, 1998, 1997 and 1996 . . . . . . 45
Consolidated and Combined Statements of Stockholders'
Equity For the Years Ended December 31,
1998, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated and Combined Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996 . . . . . . 49
Notes to Consolidated and Combined Financial Statements. . . . . . 52
Quarterly Results of Operations (Unaudited). . . . . . . . . . . . 75
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS:
II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . 78
All other schedules have been omitted since the required information
is presented in the financial statements and related notes or is not
applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and
Board of Directors of
LaSalle Partners Incorporated:
We have audited the accompanying consolidated balance sheets of
LaSalle Partners Incorporated and subsidiaries and their predecessors (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
and combined statements of earnings, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1998. In
connection with our audits of the Consolidated and Combined Financial
Statements, we have also audited the Financial Statement Schedule II -
Valuation and Qualifying Accounts for each of the years in the three-year
period ended December 31, 1998. These consolidated and combined financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated and combined financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
Consolidated and Combined Financial Statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/S/ KPMG LLP
Chicago, Illinois
February 15, 1999
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
($ in thousands, except share data)
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 16,941 30,660
Trade receivables, net of allowances of $3,978 and $2,679 in 1998
and 1997, respectively . . . . . . . . . . . . . . . . . . . . . . . 116,965 80,565
Notes receivable and advances to real estate ventures. . . . . . . . . 17,042 6,995
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,385 2,400
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,185 2,055
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 9,926 5,104
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 166,444 127,779
Property and equipment, at cost, less accumulated
depreciation of $35,859 and $28,993
in 1998 and 1997, respectively . . . . . . . . . . . . . . . . . . . . 28,773 16,098
Intangibles resulting from business acquisitions,
net of accumulated amortization of $11,961 and $5,698
in 1998 and 1997, respectively . . . . . . . . . . . . . . . . . . . . 229,437 50,366
Investments in real estate ventures. . . . . . . . . . . . . . . . . . . 52,976 18,080
Long-term receivables, net . . . . . . . . . . . . . . . . . . . . . . . 10,950 6,607
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341 957
-------- --------
$490,921 219,887
======== ========
<PAGE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
1998 1997
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 51,101 25,781
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . 58,398 40,163
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 8,324 6,100
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 117,823 72,044
Long-term liabilities:
Credit facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 202,923 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603 946
Commitments and contingencies
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 321,349 72,990
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
16,264,176 shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 162
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 123,543 121,778
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 44,792 24,327
Accumulated other comprehensive income . . . . . . . . . . . . . . . . 1,074 630
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 169,572 146,897
-------- --------
$490,921 219,887
======== ========
<FN>
See accompanying notes to consolidated and combined financial statements.
</TABLE>
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in thousands, except share data)
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Fee based services . . . . . . . . . . . . . . . . . $298,296 219,911 155,466
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . . . . . 3,911 3,238 3,220
Other income . . . . . . . . . . . . . . . . . . . . 2,257 1,624 767
-------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . 304,464 224,773 159,453
Operating expenses:
Compensation and benefits. . . . . . . . . . . . . . 172,982 123,281 89,252
Operating, administrative and other. . . . . . . . . 70,164 57,285 37,884
Depreciation and amortization. . . . . . . . . . . . 13,455 9,093 5,416
-------- -------- --------
Total operating expenses before merger
related non-recurring charges. . . . . . . . 256,601 189,659 132,552
Merger related non-recurring charges . . . . . . . . . 10,021 -- --
-------- -------- --------
Total operating expenses . . . . . . . . . . . 266,622 189,659 132,552
Operating income . . . . . . . . . . . . . . . . . . 37,842 35,114 26,901
Interest expense . . . . . . . . . . . . . . . . . . . 4,153 3,995 5,730
-------- -------- --------
Earnings before provision
for income taxes . . . . . . . . . . . . . . . . . 33,689 31,119 21,171
Net provision for income taxes . . . . . . . . . . . . 13,224 5,279 1,207
-------- -------- --------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 20,465 25,840 19,964
======== ======== ========
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments . . . . . . 444 (469) 1,099
-------- -------- --------
Comprehensive income . . . . . . . . . . . . $ 20,909 25,371 21,063
======== ======== ========
<PAGE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS - CONTINUED
1998 1997 1996
------------ ------------ ------------
Basic earnings per common share (1). . . . . . . . . . $ 1.26 1.50
========== ==========
Weighted average shares outstanding. . . . . . . . . . 16,215,478 16,200,000
========== ==========
Diluted earnings per common share (1). . . . . . . . . $ 1.25 1.49
========== ==========
Diluted weighted average shares outstanding. . . . . . 16,387,721 16,329,613
========== ==========
<FN>
(1) Earnings per share for 1997 is calculated based on earnings for the period from conversion to corporate
form, July 22, 1997, through December 31, 1997.
See accompanying notes to consolidated and combined financial statements.
</TABLE>
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in thousands, except share data)
<CAPTION>
Partners' Accumulated
Capital Other Com-
Common Stock Additional Retained (Deficit) prehensive
------------------- Paid-In Earnings Predecessor Income
Shares Amount Capital (Deficit) Partnerships (Loss) Total
---------- ------ ---------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 . . . . . . . . . . -- -- -- -- 14,997 -- 14,997
Net earnings. . . . . . -- -- -- -- 19,964 -- 19,964
Distributions . . . . . -- -- -- -- (11,813) -- (11,813)
Other . . . . . . . . . -- -- -- -- -- 1,099 1,099
---------- ------ -------- ------ ------- ------ --------
Balances at December 31,
1996 . . . . . . . . . . -- -- -- -- 23,148 1,099 24,247
Net earnings (through
July 21, 1997) . . . . -- -- -- -- 1,513 -- 1,513
Distributions . . . . . -- -- -- -- (14,835) -- (14,835)
Acquisition of
Galbreath common
stock. . . . . . . . . -- -- -- -- 29,292 -- 29,292
Effect of the
reorganization . . . . 12,200,000 $ 122 38,996 -- (39,118) -- --
Net proceeds from the
initial Offering . . . 4,000,000 40 82,782 -- -- -- 82,822
Other . . . . . . . . . -- -- -- -- -- (565) (565)
---------- ------ -------- ------ ------- ------ --------
Balances after the
reorganization and
initial Offering . . . . 16,200,000 162 121,778 -- -- 534 122,474
Net earnings (July 22,
1997 through
December 31, 1997). . -- -- -- 24,327 -- -- 24,327
Other . . . . . . . . . -- -- -- -- -- 96 96
---------- ------ -------- ------ ------- ------ --------
<PAGE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners' Accumulated
Capital Other Com-
Common Stock Additional Retained (Deficit) prehensive
------------------- Paid-In Earnings Predecessor Income
Shares Amount Capital (Deficit) Partnerships (Loss) Total
---------- ------ ---------- --------- ------------ ----------- ---------
Balances at December 31,
1997 . . . . . . . . . . 16,200,000 162 121,778 24,327 -- 630 146,897
Net earnings. . . . . . -- -- -- 20,465 -- -- 20,465
Shares issued under
stock purchase
plan. . . . . . . . . 64,176 1 1,765 -- -- -- 1,766
Other . . . . . . . . . -- -- -- -- -- 444 444
---------- ----- -------- ------ ------- ------ --------
Balances at December 31,
1998 . . . . . . . . . . 16,264,176 $ 163 123,543 44,792 -- 1,074 169,572
========== ===== ======== ====== ======= ====== ========
<FN>
See accompanying notes to consolidated and combined financial statements.
</TABLE>
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
($ in thousands)
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by (used in)
operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . $ 20,465 25,840 19,964
Reconciliation of net earnings to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . 13,455 9,093 5,416
Equity in earnings and gain on sale from
unconsolidated ventures. . . . . . . . . . . . . (3,911) (3,238) (3,220)
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . . . . . 4,009 2,640 986
Operating distributions from real estate
ventures . . . . . . . . . . . . . . . . . . . . 3,731 4,018 3,571
Amortization of deferred compensation. . . . . . . 229 -- --
Tax benefit on conversion to corporate form. . . . -- (6,842) --
Changes in:
Receivables. . . . . . . . . . . . . . . . . . . . (28,504) 9,631 (17,234)
Prepaid expenses and other assets. . . . . . . . . (3,760) 1,864 37
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . . . . . 17,255 (2,429) 4,444
---------- ---------- ----------
Net cash provided by
operating activities . . . . . . . . . . . 22,969 40,577 13,964
<PAGE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997 1996
------------ ------------ ------------
Cash flows provided by (used in) investing
activities:
Net capital additions--property and equipment. . . (15,592) (6,277) (10,790)
Acquisition of businesses, net of cash
acquired:
LaSalle Investment Management - CIN. . . . . . . -- -- (15,700)
Leasing and Management Services:
Compass. . . . . . . . . . . . . . . . . . . . (173,453) -- --
Satulah Group. . . . . . . . . . . . . . . . . (5,466) -- --
Cash balances assumed in Galbreath
acquisition. . . . . . . . . . . . . . . . . . . -- 1,008 --
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . . . . (51,347) (16,546) (9,270)
Distributions, repayments of advances
and sale of investments. . . . . . . . . . . . 6,762 7,689 3,282
---------- ---------- ----------
Net cash used in investing activities . . . (239,096) (14,126) (32,478)
Cash flows provided by (used in) financing
activities:
Proceeds from borrowings under acquisition
facility . . . . . . . . . . . . . . . . . . . . 175,000 -- --
Net borrowings (repayments) under working
capital facility. . . . . . . . . . . . . . . . . 27,377 (6,500) 23,000
Net borrowings (repayments) under long-term
notes payable . . . . . . . . . . . . . . . . . . -- (64,615) 6,002
Distributions to partners. . . . . . . . . . . . . -- (14,835) (11,813)
Net proceeds from the initial Offering . . . . . . -- 82,822 --
---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . 202,377 (3,128) 17,189
Effects of foreign currency translation
on cash balances. . . . . . . . . . . . . . . . . . 31 130 210
---------- ---------- ----------
<PAGE>
LA SALLE PARTNERS INCORPORATED
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED
1998 1997 1996
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . (13,719) 23,453 (1,115)
Cash and cash equivalents, January 1 . . . . . . . . 30,660 7,207 8,322
---------- ---------- ----------
Cash and cash equivalents, December 31 . . . . . . . $ 16,941 30,660 7,207
========== ========== ==========
<FN>
Supplemental disclosure of cash flow information ($ in thousands):
Interest paid was $3,215, $4,195 and $5,191 for the years ended December 31, 1998, 1997 and 1996, respectively.
Taxes paid were $2,881, $9,910 and $1,179 for the years ended December 31, 1998, 1997 and 1996, respectively.
On April 22, 1997, LaSalle acquired the common stock of Galbreath in exchange for a 17.5% limited partnership
interest valued at $29,292. Identifiable operating assets and liabilities and investments in real estate ventures
totaled $10,948, $14,099 and $1,500, respectively, in addition to cash of $1,008 as of the acquisition date.
LaSalle incurred transaction related expenses of $641. The increase in these assets and liabilities, excluding
cash acquired, and the resulting goodwill of $30,576 have not been reflected in the above Consolidated and
Combined Statements of Cash Flows.
See accompanying notes to consolidated and combined financial statements.
</TABLE>
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
($ in thousands, except share data)
(1) ORGANIZATION
LaSalle Partners Incorporated [successor to LaSalle Partners Limited
Partnership and LaSalle Partners Management Limited Partnership
(collectively, the "Predecessor Partnerships")] was incorporated in
Maryland on April 15, 1997, (collectively referred to as "LaSalle"). On
July 22, 1997, LaSalle 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 LaSalle, 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 LaSalle. 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, LaSalle's
financial statements include the financial positions and results of
operations of the Predecessor Partnerships at their historical basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
The consolidated and combined financial statements include the
accounts of LaSalle and their majority-owned-and-controlled partnerships
and subsidiaries. All material intercompany balances and transactions have
been eliminated in consolidation and combination.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
CASH HELD FOR OTHERS
LaSalle controls certain cash and cash equivalents as agents for its
investment and property management clients. Such amounts, which total
$241,673 and $270,997 at December 31, 1998 and 1997, respectively, are not
included in the accompanying Consolidated Balance Sheets.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CASH FLOWS
Cash and cash equivalents include demand deposits and investments in
U.S. Treasury instruments (generally held available for sale) with
maturities of three months or less. The combined carrying value of such
investments of $19,290 approximates their market value at December 31,
1997. There were no cash equivalents outstanding at December 31, 1998.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or change in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
INVESTMENTS IN REAL ESTATE VENTURES
LaSalle has limited and general partner interests in various real
estate ventures with interests generally ranging from less than 1% to 49.5%
which are accounted for using the equity method. In instances where
LaSalle exercises temporary control over co-investments, such investments
are accounted for under the equity method.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS
Intangibles resulting from business acquisitions are amortized on a
straight-line basis over the estimated lives (generally eight to 40 years)
of the related assets. LaSalle periodically evaluates the recoverability
of the carrying amount of intangibles resulting from business acquisitions
by assessing whether any impairment indications are present, including
substantial recurring operating deficits or significant adverse changes in
legal or economic factors that affect the businesses acquired. If such
analysis indicates impairment, the intangible asset would be adjusted in
the period such changes occurred based on its estimated fair value, which
is derived from expected cash flow of the businesses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
LaSalle's financial instruments include cash and cash equivalents,
receivables, accounts payable, notes payable and interest rate swap
agreements. The estimated fair value of cash and cash equivalents,
receivables, and payables approximates their carrying amounts due to the
short maturity of these instruments. The estimated fair value of LaSalle's
credit facilities approximates their carrying value due to their variable
interest rate terms. The fair value of interest rate swaps is estimated,
using third party quotes, as the amount that LaSalle would receive or pay
to execute a new agreement with terms identical to those remaining on the
current agreement, considering current interest rates.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries outside the United States,
except those subsidiaries located in highly inflationary economies, are
generally measured using the local currency as the functional currency. The
assets and liabilities of these subsidiaries are translated at the rates of
exchange at the balance sheet date. The resultant translation adjustments
are included as a separate component of stockholders' equity and
comprehensive income. Income and expense are translated at average monthly
rates of exchange. Gains and losses from foreign currency transactions are
included in net earnings. For subsidiaries operating in highly inflationary
economies, the associated gains and losses from balance sheet translation
adjustments are included in net earnings.
DERIVATIVE INSTRUMENTS
In 1998, LaSalle entered into interest rate swap agreements as a hedge
against certain debt liabilities in order to manage interest rate risk.
The amount associated with these activities is not considered material. As
of December 31, 1998, LaSalle had interest rate swap agreements in effect
with a notional amount of $55,000 with an approximate market value of $188.
Interest rate swap agreements are contracts that represent an exchange
of interest payments and the underlying principal balances of the assets or
liabilities are not affected. Net settlement amounts are reported as
adjustments to interest income or interest expense. Gains and losses from
the termination of interest rate swaps are deferred and amortized over the
remaining lives of the designated balance sheet assets or liabilities. If
the balance of the liability falls below that of the notional amount of the
derivative, the excess portion of the derivative is marked-to-market with a
corresponding effect on current earnings.
LaSalle also enters into forward currency exchange contracts on a
limited basis to manage currency risks and reduce its exposure resulting
from fluctuations in the designated foreign currency associated with
existing commitments, assets, or liabilities. The associated gains and
losses are deferred and are recognized in income upon settlement of the
related transaction. At December 31, 1997, LaSalle had forward exchange
contracts in effect with a notional value of $3,151 with approximately no
market value and carrying value. There were no forward exchange contracts
in effect at December 31, 1998.
LaSalle does not enter into derivative financial instruments for
trading or speculative purposes.
EARNINGS PER SHARE
Basic earnings per share were based on weighted average shares
outstanding of 16,215,478 for 1998 and 16,200,000 for 1997. Diluted
earnings per share for 1998 and for the period from conversion to corporate
form, July 22, 1997, through December 31, 1997 were based on weighted
average shares outstanding of 16,387,721 and 16,329,613, respectively,
which reflects an increase of 172,243 shares and 129,613 shares,
respectively, representing the dilutive effect of outstanding stock options
whose exercise price was less than the average market price of LaSalle's
stock for the period. Net earnings of $24,327 were used in the
calculations of 1997 basic and diluted earnings per share, and reflects
earnings for the period from conversion to corporate form, July 22, 1997,
through December 31, 1997.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
REVENUE RECOGNITION
Advisory and management fees are recognized in the period in which the
services are performed. Transaction commissions are recorded as income at
the time the related services are provided unless significant future
contingencies exist. Development services fees are generally recognized as
billed, which approximates the percentage of completion method of
accounting. Incentive fees are recorded in accordance with specific terms
of each compensation agreement and are typically tied to performance that
is measured at year end, the disposition of an asset, or at the conclusion
of a given project. Fees recognized in the current period that are
expected to be received beyond one year have been discounted to the present
value of future expected payments.
For financial statement presentation purposes, certain one-time
leasing commission payments, aggregating $10,776 in 1997, made to former
Galbreath employees related to contracts in progress at the acquisition
date have been presented as a reduction of related commission revenue.
DEPRECIATION
Depreciation and amortization is calculated for financial reporting
purposes using the straight-line method based on the estimated useful lives
of the assets. Furniture totaling $17,961 and $14,865 at December 31, 1998
and 1997, respectively, is depreciated over seven years. Computer equipment
and software totaling $33,347 and $19,423 at December 31, 1998 and 1997,
respectively, are depreciated over three to five years. Leasehold
improvements totaling $13,324 and $10,803 at December 31, 1998 and 1997,
respectively, are amortized over the lease periods ranging from one to 10
years.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK-BASED COMPENSATION
LaSalle grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. LaSalle follows the requirements of the Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" in
accounting for stock-based compensation, and accordingly, recognizes no
compensation expense for stock option grants, but provides the pro forma
disclosures required by the Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation".
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified to conform with
the 1998 presentation.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(3) ACQUISITIONS
On October 1, 1998, LaSalle acquired all of the common stock of the
following real estate service companies formerly owned by Lend Lease
Corporation ("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, LaSalle 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.
was a global real estate management firm, with operations across the United
States, United Kingdom, South America and Australia. LaSalle paid $180,000
in cash for all of the acquired companies ("Compass"). The purchase of the
companies also includes provisions for an earnout payment of up to $77,500
over five years. The acquisition was accounted for as a purchase and,
accordingly, operating results of this business subsequent to the date of
acquisition are included in the accompanying Consolidated and Combined
Statements of Earnings. The excess purchase price over the fair value of
the identifiable assets and liabilities acquired was $172,893, including
transaction costs, of which $34,579 was allocated to management contracts
which is being amortized on a straight-line basis over eight years and
$138,314 was allocated to goodwill which is being amortized on a straight-
line basis over 40 years based on LaSalle's estimate of useful lives.
On January 2, 1998, LaSalle acquired the project management business
of Satulah Group, Inc., a national project and facilities conversion
company with operations across the United States for $5,471 in cash. The
acquisition was accounted for as a purchase and, accordingly, operating
results of the business subsequent to the date of acquisition are included
in the accompanying Consolidated and Combined Statement of Earnings. The
excess purchase price over the fair value of the identifiable assets and
liabilities acquired was $5,421, including transaction costs, of which
$1,084 was allocated to management contracts which is being amortized on a
straight-line basis over three years and $4,337 was allocated to goodwill
which is being amortized on a straight-line basis over 40 years based on
LaSalle's estimate of useful lives.
On April 22, 1997, LaSalle acquired all of the common stock of
Galbreath, a property, facility and development management company. In
consideration for the stock, LaSalle issued a 17.5% limited partnership
interest in the Predecessor Partnerships to the former stockholders of
Galbreath. The acquisition was accounted for as a purchase and,
accordingly, operating results of this business subsequent to the date of
acquisition are included in the accompanying Consolidated and Combined
Statements of Earnings. The excess purchase price over the fair value of
the identifiable assets and liabilities acquired was $30,576, including
transaction costs, of which $6,115 was allocated to management contracts
that are being amortized on a straight-line basis over eight years and
$24,461 was allocated to goodwill which is being amortized on a straight-
line basis over 40 years based on LaSalle's estimate of useful lives.
On October 17, 1996, LaSalle acquired all of the common stock of CIN
Property Management Limited, a London, England investment and property
management private limited liability company, for $15,709 including
transaction expenses. The name of the entity was immediately changed to CIN
LaSalle Investment Management ("CIN"). The acquisition was accounted for as
a purchase and accordingly, operating results of this business subsequent
to the date of acquisition are included in the accompanying Consolidated
and Combined Statements of Earnings. The excess purchase price over the
fair value of the identifiable assets and liabilities acquired was $15,700,
of which $4,710 was allocated to advisory contracts which are being
amortized on a straight-line basis over five years and $10,990 was
allocated to goodwill that is being amortized on a straight-line basis over
a period of 20 years based on LaSalle's estimate of useful lives.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
The pro forma results of such acquisitions, with the exception of
Compass and Galbreath, are not material to LaSalle's consolidated and
combined financial statements (Note 7).
(4) PENDING MERGER
On October 22, 1998, LaSalle announced that it had reached a
definitive agreement to merge its operations with Jones Lang Wootton
("JLW"). The transaction, principally structured as a share exchange, has
been approved by the LaSalle Board of Directors, the Boards of Directors of
the JLW companies and partnerships, and the JLW shareholders and partners.
Completion of the transaction is subject to approval by LaSalle's
shareholders, regulatory and tax clearances, and other customary
conditions. A proxy statement soliciting approval of the merger has been
mailed to shareholders, and a special meeting has been scheduled for
March 10, 1999. Under the terms of the agreement, LaSalle will issue up to
14,254,116 shares of common stock, plus approximately $6,199 in cash,
subject to a closing net worth adjustment. The transaction is expected to
be accounted for as a purchase and to close in early 1999, however, there
can be no assurance that the transaction will be completed.
(5) DISPOSITION
Effective December 31, 1996, LaSalle sold its Construction Management
business and certain related assets to a former member of management for a
$9,100 note. The note, which is secured by the current and future assets of
the business, is due December 31, 2006 and bears interest at rates of 6.8%
to 10.0%, with interest payments due annually. Annual principal repayments
began in January 1998. The outstanding note totaled $8,500 as of
December 31, 1998.
Under the terms of the Asset Purchase Agreement, LaSalle has agreed to
provide certain administrative and financial services, at cost, beginning
in January 1997 and may provide certain financial assistance if necessary.
For financial reporting purposes, LaSalle has not treated the transaction
as a divestiture. The results of operations of the Construction Management
business will be accounted for similar to the equity method of accounting.
As such, principal and interest to be received under the note will be
treated as a reduction of such net assets and as a reserve, if necessary,
for any anticipated financial exposure under the terms of the Asset
Purchase Agreement with the remainder recognized as income.
Revenue recognized under the equity method totaled $1,257 and $1,100
for the years ended December 31, 1998 and 1997, respectively. Revenue
related to the Construction Management business for the year ended
December 31, 1996 totaled $5,678. For financial statement presentation
purposes, the 1996 revenue has been presented net of related expenses
totaling $4,407, as part of Fee Based Services revenue in the accompanying
Consolidated and Combined Statements of Earnings.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(6) BUSINESS SEGMENTS
On January 1, 1998, LaSalle adopted Statement of Financial Accounting
Standards No. 131 "Disclosures About Segments of an Enterprise and Related
Information." LaSalle's operations have been classified into three
business segments based upon the nature of services provided to customers:
Leasing and Management Services, Financial and Corporate Services and
LaSalle Investment Management. The Leasing and Management Services segment
provides three primary service capabilities: (i) property and facility
management and leasing for property owners; (ii) development services 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 Financial and
Corporate 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 LaSalle 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. LaSalle allocates all
expenses, other than interest and income taxes, as substantially all
expenses incurred benefit one or more of the segments. LaSalle measures
segment profitability based on segment operating income. Merger related
non-recurring charges are not allocated to segments.
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Summarized financial information by business segment for 1998, 1997 and 1996 is as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Leasing and Management Services
Revenue:
Property and facility management fees. . . . . . . $ 62,317 43,547 32,143
Leasing fees . . . . . . . . . . . . . . . . . . . 43,099 25,159 14,819
Development services . . . . . . . . . . . . . . . 11,229 8,853 5,825
Project management . . . . . . . . . . . . . . . . 17,479 7,994 6,297
Intersegment revenue . . . . . . . . . . . . . . . 1,046 195 200
Equity in earnings from unconsolidated ventures. . 47 340 --
Other income . . . . . . . . . . . . . . . . . . . 880 464 281
-------- -------- --------
136,097 86,552 59,565
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 119,079 75,039 46,794
Depreciation and amortization. . . . . . . . . . . 7,620 3,605 1,651
-------- -------- --------
Operating income . . . . . . . . . . . . . . $ 9,398 7,908 11,120
======== ======== ========
Financial and Corporate Services
Revenue:
Tenant representation. . . . . . . . . . . . . . . $ 42,558 33,485 28,793
Investment banking . . . . . . . . . . . . . . . . 27,058 19,401 6,664
Land fees. . . . . . . . . . . . . . . . . . . . . 9,591 5,955 4,536
Construction operations. . . . . . . . . . . . . . 1,257 1,100 1,271
Equity in earnings from unconsolidated ventures. . 322 476 1,380
Intersegment revenue . . . . . . . . . . . . . . . 1,307 1,464 1,000
Other income . . . . . . . . . . . . . . . . . . . 342 422 253
-------- -------- --------
82,435 62,303 43,897
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
1998 1997 1996
-------- -------- --------
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 61,231 45,240 32,410
Depreciation and amortization. . . . . . . . . . . 1,321 1,197 1,055
-------- -------- --------
Operating income . . . . . . . . . . . . . . $ 19,883 15,866 10,432
======== ======== ========
LaSalle Investment Management
Revenue:
Advisory fees. . . . . . . . . . . . . . . . . . . $ 77,306 70,817 52,217
Acquisition fees . . . . . . . . . . . . . . . . . 6,402 3,600 2,939
Equity in earnings from unconsolidated ventures. . 3,542 2,422 1,840
Other income . . . . . . . . . . . . . . . . . . . 1,035 738 195
-------- -------- --------
88,285 77,577 57,191
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . . . . . 65,189 61,946 49,132
Depreciation and amortization. . . . . . . . . . . 4,514 4,291 2,710
-------- -------- --------
Operating income . . . . . . . . . . . . . . $ 18,582 11,340 5,349
======== ======== ========
Total segment revenue. . . . . . . . . . . . . . . . . $306,817 226,432 160,653
Intersegment revenue eliminations. . . . . . . . . . . (2,353) (1,659) (1,200)
-------- -------- --------
Net segment revenue. . . . . . . . . . . . . $304,464 224,773 159,453
======== ======== ========
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
1998 1997 1996
-------- -------- --------
Total segment operating expenses . . . . . . . . . . . $258,954 191,318 133,752
Intersegment operating expense eliminations. . . . . . (2,353) (1,659) (1,200)
-------- -------- --------
Net segment operating expenses . . . . . . . $256,601 189,659 132,552
======== ======== ========
Total segment operating income . . . . . . . $ 47,863 35,114 26,901
Merger related non-recurring charges (1) . . 10,021 -- --
-------- -------- --------
Operating income . . . . . . . . . . . . . . $ 37,842 35,114 26,901
======== ======== ========
<FN>
(1) Merger related non-recurring charges consist of integration and transition costs related to the Compass
acquisition and non-capitalizable merger related expenses associated with the pending merger with Jones Lang
Wootton.
</TABLE>
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Identifiable assets by segment are those assets that are used by or
are a result of each segment's business. Corporate assets are principally
cash and cash equivalents, deferred tax assets, office furniture and
leasehold improvements.
The following table reconciles segment identifiable assets to
consolidated assets, investments in real estate ventures accounted for
under the equity method to consolidated investments in real estate ventures
and fixed asset expenditures to consolidated fixed asset expenditures.
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
<CAPTION> 1998 1997 1996
----------------------------- ------------------------------ -------
Invest- Invest-
ments Fixed ments Fixed Fixed
Identi- in Real Asset Identi- in Real Asset Asset
fiable Estate Expen- fiable Estate Expen- Expen-
Assets Ventures ditures Assets Ventures ditures ditures
------ -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Leasing and Management Services. . $287,965 1,172 9,299 66,943 961 2,606 2,102
Financial and Corporate
Services . . . . . . . . . . . . 57,284 5,887 1,385 38,464 776 532 1,079
LaSalle Investment Management. . . 98,060 45,917 1,540 53,468 16,343 624 1,079
Corporate. . . . . . . . . . . . . 47,612 -- 3,368 61,012 -- 2,515 6,530
-------- -------- -------- -------- -------- -------- --------
Consolidated . . . . . . . . . . . $490,921 52,976 15,592 219,887 18,080 6,277 10,790
======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
LaSalle maintains operations and provides services outside of the
United States. International revenue derived principally from Europe
aggregated $28,323, $25,621 and $7,676 in 1998, 1997 and 1996,
respectively. Identifiable assets of such operations aggregated $38,898,
$22,859 and $26,702 at December 31, 1998, 1997 and 1996, respectively.
(7) PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following Combined Pro Forma results for 1998 and 1997 give effect
to the acquisition of Compass as if it had occurred on January 1, 1997.
Compass Pro Forma results reflect historical operating results for the nine
months ended September 30, 1998 and the year ended December 31, 1997, as
adjusted for (i) the anticipated impact on the amortization of intangible
assets and goodwill resulting from the acquisition, (ii) incremental
interest expense resulting from borrowings used to fund the acquisition,
and (iii) income taxes for LaSalle and Compass as if both entities were
taxable for those periods at an effective tax rate of 39.2%.
LaSalle Pro Forma results for 1997 and 1996 give effect to (i) the
acquisition of Galbreath in April 1997, as adjusted for the Tenant
Representation and Investment Banking units which were not acquired, (ii)
the provision for income taxes as though LaSalle and Galbreath were taxable
entities 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 LaSalle's long-term debt out of the proceeds
of the initial public offering, as if these events occurred on January 1,
1996.
The pro forma adjustments are based upon available information and
certain assumptions that Management of LaSalle 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 years ended December 31, 1998, 1997 and 1996 had LaSalle
completed the acquisitions of Compass and 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 LaSalle.
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
------------------------------------ ------------------------------------ ----------
LaSalle Compass Combined LaSalle Compass Combined LaSalle
Historical Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Fee based services. $ 298,296 60,077 358,373 227,762 83,856 311,618 183,349
Equity in earnings
from unconsolidated
ventures . . . . . 3,911 -- 3,911 3,311 -- 3,311 3,792
Other income. . . . 2,257 1,308 3,565 1,911 948 2,859 2,257
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue. . 304,464 61,385 365,849 232,984 84,804 317,788 189,398
Operating expenses:
Compensation and
benefits . . . . . 172,982 36,282 209,264 128,365 46,053 174,418 104,294
Operating, adminis-
trative and other. 70,164 20,203 90,367 60,212 23,251 83,463 47,480
Depreciation and
amortization . . . 13,455 7,137 20,592 9,756 9,612 19,368 7,447
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses before
merger related
non-recurring
charges . . . . 256,601 63,622 320,223 198,333 78,916 277,249 159,221
Operating income
before merger
related non-
recurring
charges . . . . 47,863 (2,237) 45,626 34,651 5,888 40,539 30,177
Merger related non-
recurring charges. 10,021 -- 10,021 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating
income. . . . . 37,842 (2,237) 35,605 34,651 5,888 40,539 30,177
Interest expense . . 4,153 9,137 13,290 1,000 12,100 13,100 1,075
---------- ---------- ---------- ---------- ---------- ---------- ----------
<PAGE>
LA SALLE PARTNERS INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS - CONTINUED
1998 1997 1996
------------------------------------ ------------------------------------ ----------
LaSalle Compass Combined LaSalle Compass Combined LaSalle
Historical Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provi-
sion (benefit)
for income
taxes . . . . . 33,689 (11,374) 22,315 33,651 (6,212) 27,439 29,102
Net provision
(benefit) for
income taxes. . . . 13,224 (4,360) 8,864 12,956 (2,200) 10,756 11,204
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings
(loss). . . . . $ 20,465 (7,014) 13,451 20,695 (4,012) 16,683 17,898
========== ========== ========== ========== ========== ========== ==========
Basic earnings
per common
share . . . . . $ 1.26 0.83 1.28 1.03 1.10
========== ========== ========== ========== ==========
Weighted average
shares out-
standing. . . . 16,215,478 16,215,478 16,200,000 16,200,000 16,200,000
========== ========== ========== ========== ==========
Diluted earnings
per common
share . . . . . $ 1.25 0.82 1.27 1.02 1.10
========== ========== ========== ========== ==========
Diluted weighted
average shares
outstanding . . 16,387,721 16,390,111 16,329,555 16,337,102 16,329,555
========== ========== ========== ========== ==========
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Pro forma total revenue and operating expenses for Compass include
activities such as property management and leasing, facility management and
retail management. Adjustments to operating expenses reflect the
allocation of the purchase price to intangibles and goodwill, resulting in
reduced goodwill amortization expense of $6,676 and $1,160 for 1998 and
1997, respectively. As a result of LaSalle's borrowings of $180,000 to
fund the Compass acquisition, the incremental increase in interest expense
was $3,437 and $8,275 for 1998 and 1997, respectively. Finally, the pro
forma results for 1998 and 1997 include a decrease in the provision for
income taxes of $390 and $3,889, respectively, giving effect to LaSalle and
Compass as taxable entities at an effective tax rate of 39.2%. LaSalle's
Leasing and Management Services segment and Compass have duplicative
regional infrastructure through which cost synergies may be achieved, but
have not been reflected in the pro forma.
LaSalle anticipates that it will incur total integration and
transition costs of approximately $16,900 or $10,300 on an after-tax basis
which have been and will be charged to operations primarily in 1998 and the
first half of 1999. Merger related non-recurring charges incurred by
LaSalle in 1998 include integration and transition costs related to the
Compass acquisition and non-capitalizable merger associated with the
pending merger with Jones Lang Wootton.
Pro forma total revenue and operating expenses for Galbreath include
activities such as property management and leasing, facility management and
development management. Additional adjustments to operating expenses were
made for estimated incremental general and administrative costs associated
with operations as a public company totaling $563 and $750 for 1997 and
1996, respectively. As a result of the repayment of LaSalle's long-term
notes payable out of the proceeds of the Offering, the related actual
interest expense totaling $2,955 and $4,655 for 1997 and 1996,
respectively, has been eliminated in the pro forma results. The pro forma
results further include an additional provision for income taxes totaling
$7,677 and $9,787 for 1997 and 1996, respectively, giving effect to the
conversion of LaSalle and Galbreath to taxable entities.
(8) INVESTMENTS IN REAL ESTATE VENTURES
LaSalle has invested in certain real estate ventures that own and
operate commercial real estate. These investments include noncontrolling
general and limited partnership ownership interests generally ranging from
less than 1% to 49.5% of the respective ventures. LaSalle has made initial
capital contributions to the ventures and has remaining commitments to
certain ventures for additional capital contributions of approximately
$6,656 as of December 31, 1998. Substantially all venture interests are
held by corporate subsidiaries of LaSalle. Accordingly, LaSalle's exposure
to liabilities and losses of the ventures is limited to its initial and
remaining commitments. To the extent LaSalle's investment basis differs
from its share of the equity of an unconsolidated investment, such
difference is amortized over the depreciable lives of the investee's
investment assets.
Included in investment in real estate ventures is an $18,800
investment in LaSalle Hotel Properties ("LHO"), a real estate investment
trust, which completed its initial public offering in April 1998. LHO was
formed to own hotel properties and to continue and expand the hotel
investment activities of LaSalle by investing particularly in upscale and
luxury full service hotels located primarily in major business and urban,
resort and convention markets. LaSalle provides advisory, acquisition and
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
administrative services to LHO for which it receives a base advisory fee
calculated as a percentage of net operating income, as well as performance
fees based on growth in funds from operations on a per share basis. Such
performance fees, if any, are paid in the form of LHO common stock or
units, at LaSalle's option. LHO was formed with 10 hotels, nine of which
LaSalle had a nominal co-investment in and acted as the investment advisor
for. In accordance with the individual investment advisory agreements,
LaSalle earned and received performance fees totaling $15,200 on the
disposition of certain of the assets. LaSalle contributed its ownership
interests in the hotels as well as the related performance fees to LHO for
an effective ownership interest of approximately 6.4%.
Such investments have been accounted for under the equity method of
accounting in the accompanying Consolidated and Combined Financial
Statements. As such, LaSalle recognizes its share of the underlying profits
and losses of the ventures as revenue in the accompanying Consolidated and
Combined Statements of Earnings. LaSalle generally is entitled to operating
distributions in accordance with its respective ownership interests.
Summarized combined financial information for the above unconsolidated
ventures is presented below:
1998 1997 1996
---------- ---------- ----------
Balance Sheet:
Investments in real estate . . .$2,021,372 1,236,217
Total assets . . . . . . . . . .$2,513,483 1,406,236
========== ==========
Mortgage indebtedness. . . . . .$ 614,349 579,310
Total liabilities. . . . . . . .$ 977,194 631,807
========== ==========
Total equity . . . . . . . . . .$1,536,289 774,429
========== ==========
Investments in unconsolidated
ventures . . . . . . . . . . . . .$ 52,083 17,100
Statements of Operations:
Revenues . . . . . . . . . . . .$ 298,886 288,709 212,048
Net earnings . . . . . . . . . .$ 104,095 96,725 35,333
========== ========== ==========
Equity in earnings from
unconsolidated ventures. . . . . .$ 3,911 3,238 3,220
========== ========== ==========
During 1998 and 1997, LaSalle made loans to certain of these real
estate ventures, of which $15,498 and $4,716 was outstanding at
December 31, 1998 and 1997, respectively, and is included in notes and
other receivables in the accompanying Consolidated Balance Sheet. These
notes, which carry an interest rate of approximately 9.0%, are typically
repaid within one year. LaSalle also has investments that are accounted
for using the cost method that totaled $893 and $980 at December 31, 1998
and 1997, respectively. Certain of LaSalle's capital contributions to the
ventures are represented by notes payable that totaled $349 and $618 at
December 31, 1998 and 1997, respectively. Such notes are generally
interest bearing and mature in 2000.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(9) DEBT
CREDIT FACILITIES
In September 1998, LaSalle obtained a $175,000 credit facility (the
"Acquisition Facility") to finance the acquisition of Compass (note 3).
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. LaSalle's effective interest rate was
6.1% in 1998 and the outstanding balance on the Acquisition Facility was
$175,000 at December 31, 1998.
In November 1997, LaSalle replaced its $70,000 credit agreement, which
consisted of a short-term revolving line of credit and a long-term
facility, with a $150,000, five year unsecured revolving credit facility.
The facility is guaranteed by certain of LaSalle's subsidiaries and is
available for working capital, co-investment and acquisitions. The
facility bears variable rates of interest based on market rates and
requires LaSalle to pay a commitment fee of .15% per annum on the unused
portion of the commitment. LaSalle's effective interest rate was 6.0%,
6.7% and 6.9% in 1998, 1997 and 1996, respectively. The outstanding
balance on the facility at December 31, 1998 was $27,923. LaSalle had no
outstanding debt on the facility at December 31, 1997.
Under the terms of the Acquisition Facility and the revolving credit
facility, LaSalle 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, LaSalle 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.
SUBORDINATED LOANS
Subordinated loans consisted of Class A and Class B unsecured notes
payable to two former limited partners of the Predecessor Partnerships.
The amounts outstanding on the Class A and Class B notes, which were
$37,213 at December 31, 1996, were repaid out of the proceeds of the
Offering.
(10) LEASES
LaSalle leases office space in various buildings for its own use with
remaining lease terms at December 31, 1998 ranging from one to nine years.
The terms of these operating leases provide for LaSalle to pay base rent
and a share of increases in operating expenses and real estate taxes in
excess of defined amounts.
Minimum future lease payments (i.e., base rent) due in each of the
next five years ending December 31 are as follows:
AMOUNT
-------
1999 . . . . . . . . . . $ 8,777
2000 . . . . . . . . . . 8,063
2001 . . . . . . . . . . 7,412
2002 . . . . . . . . . . 6,328
2003 . . . . . . . . . . 5,257
Thereafter . . . . . . . 10,929
-------
$46,766
=======
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Rent expense was $9,812, $7,146 and $6,117, during 1998, 1997 and
1996, respectively.
(11) INCOME TAXES
For the period prior to the incorporation of the Predecessor
Partnerships, the accompanying Consolidated and Combined Statements of
Earnings include a federal and state income tax provision for wholly owned
corporate subsidiaries and a state tax provision for certain states that
require partnerships to pay income taxes. For the period January 1, 1997
through July 21, 1997, such amounts aggregated $1,112. No other provision
for income taxes was made for those periods as the liability for such taxes
would have been that of the respective partners of the Predecessor
Partnerships. As a result of LaSalle's conversion from partnership to
corporate form in July 1997, a tax benefit of $6,842 was recognized related
to deferred tax assets recorded in accordance with the provisions of SFAS
No. 109 arising from temporary differences between the book and tax basis
of LaSalle's assets and liabilities at the date of conversion.
For the year ended December 31, 1998 and for the period subsequent to
conversion in 1997, LaSalle's provision for income taxes aggregated $13,224
and $11,009, respectively, and consisted of the following:
1998 1997
-------------------------- --------------------------
Current Deferred Total Current Deferred Total
-------- -------- -------- -------- -------- --------
U.S. Federal . . . $11,843 (1,970) 9,873 3,930 2,656 6,586
State and local. . 2,819 (144) 2,675 823 1,000 1,823
Foreign. . . . . . 1,506 (830) 676 2,600 -- 2,600
------- ------ ------ ------ ------ ------
$16,168 (2,944) 13,224 7,353 3,656 11,009
======= ====== ====== ====== ====== ======
Income tax expense for 1998 and for the period subsequent to
conversion for 1997 differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to earnings before provision for income
taxes ($33,689 for the year ended December 31, 1998 and $28,596 for the
period July 22, 1997 through December 31, 1997) as a result of the
following:
1998 1997
------------------ ----------------
Computed "expected" tax
expense. . . . . . . . . . . $11,791 35.0% 10,009 35.0%
Increase (reduction) in
income taxes resulting
from:
State and local
income taxes, net
of federal income
tax benefit . . . . . . . 1,739 5.2% 1,185 4.1%
Amortization of non-
deductible goodwill . . . (1,182) (3.5%) (573) (2.0%)
Non-deductible expenses. . 807 2.4% 205 0.7%
Other, net . . . . . . . . 69 0.2% 183 0.7%
------- ----- ------ -----
$13,224 39.3% 11,009 38.5%
======= ===== ====== =====
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
Domestic and foreign earnings before provision for income taxes for
the year ended December 31, 1998 were $29,907 and $3,782, respectively.
Foreign earnings before provision for income taxes are not considered
material for 1997 and 1996.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
December 31,
--------------------- July 22,
1998 1997 1997
------- ------- ----------
Deferred Tax Assets:
Foreign tax credit
carryforwards. . . . . . . $ 3,800 2,600 --
Foreign loss carry-
forwards . . . . . . . . . 830 -- --
Accrued expenses . . . . . . 3,957 2,205 7,139
Property and equipment . . . 1,644 1,397 1,166
Allowances for
uncollectible accounts . . 3,238 2,208 2,208
Other. . . . . . . . . . . . 355 554 1,475
------- ------ ------
$13,824 8,964 11,988
======= ====== ======
Deferred Tax Liabilities:
Investments in real estate
ventures . . . . . . . . . $ 2,483 2,820 2,602
Other. . . . . . . . . . . . 716 1,065 651
------- ------ ------
$ 3,199 3,885 3,253
======= ====== ======
In connection with the Compass acquisition, LaSalle recorded deferred
tax assets of $2,602 as part of its purchase price allocation.
There is no valuation allowance for deferred tax assets as of
December 31, 1998 and 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 LaSalle
will realize the benefits of these deductible differences. The amount of
the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
As of December 31, 1998 and 1997, LaSalle has available $3,800 and
$2,600 of foreign tax credit carryforwards for U.S federal income tax
purposes, which expire in 2003 and 2002, respectively. There were also
foreign loss carryforwards at December 31, 1998 approximating $2,400 which
expire in 2003 and thereafter. Current income taxes payable and receivable
at December 31, 1998 and 1997 were $8,237 and $916, respectively.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
(12) STOCK OPTION AND STOCK COMPENSATION PLANS
RETIREMENT PLAN
LaSalle has a qualified profit sharing plan that incorporates IRC
Section 401(k) for its eligible employees. Contributions under the
qualified profit sharing plan are made via a combination of employer match
and an annual contribution on behalf of eligible employees. Included in
the accompanying Consolidated and Combined Statements of Earnings for the
years ended December 31, 1998, 1997 and 1996 are contributions of $1,750,
$1,652 and $1,009, respectively.
Related trust assets of the Plan are managed by trustees and are
excluded from the accompanying Consolidated and Combined Financial
Statements.
STOCK AWARD AND INCENTIVE PLAN
In 1997, LaSalle adopted a stock award and incentive plan that
provides for the granting of options to eligible participants of LaSalle to
purchase a specified number of shares of common stock. Under the plan, the
total number of shares of common stock available to be issued is 2,215,000.
There is a proposed amendment to the stock option plan which would increase
the total number of shares of common stock available to be issued to
4,160,000 which will be voted upon by shareholders at the special meeting
on March 10, 1999. The options are granted at the market value of common
stock at the date of grant. The options vest at such times and conditions
as the Compensation Committee of the Board of Directors of LaSalle
determines and sets forth in the award agreement. Such options granted in
1998 vest over a period of four to six years. Such options granted in 1997
vest over a period of one to six years. Certain 1997 options having a six-
year vesting period are subject to an accelerated vesting schedule based on
the future average stock price. At December 31, 1998 and 1997, there were
973,100 and 1,477,000 additional shares, respectively, available for grant
under the stock award and incentive plan. In January 1999, LaSalle issued
514,137 additional options.
The per share weighted-average fair value of options granted during
1998 and 1997 was $16.44 and $11.63 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average
assumptions:
1998 1997
---------- ----------
Expected dividend yield. . . . . . . 0.00% 0.00%
Risk-free interest rate. . . . . . . 4.95% 6.95%
Expected life. . . . . . . . . . . . 6 to 9 years 6 to 9 years
Expected volatility. . . . . . . . . 41.50% 16.50%
Contractual terms. . . . . . . . . . 7 to 10 years 7 to 10 years
LaSalle accounts for its stock option and compensation plans under the
provisions of SFAS No. 123, which allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income and net income
per share disclosures for employee option grants as if the fair-value-based
method defined in SFAS No. 123 had been applied. LaSalle has elected to
apply the provisions of APB No. 25 in accounting for its stock award and
incentive plan, and, accordingly, no compensation cost has been recognized
for its stock award and incentive plan in the Consolidated and Combined
Financial Statements. Had LaSalle determined compensation cost based upon
the fair value at the date of grant for its options as set forth under SFAS
No. 123, LaSalle's net earnings, basic earnings per common share and
diluted earnings per common share for the year ended December 31, 1998 and
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
for the period subsequent to conversion, July 22, 1997, through
December 31, 1997, would have been $15,689, $0.97, $0.96, and $23,924,
$1.48 and $1.47, respectively.
Stock option activity is as follows:
1998 1997
-------------------- ------------------
Shares Weighted- Shares Weighted-
(000) Average (000) Average
------- --------- ------ ---------
Outstanding at
beginning of year . . . . 738.0 $23.29 -- $ --
Granted. . . . . . . . . . 524.9 31.71 740.5 23.29
Exercised. . . . . . . . . -- -- -- --
Forfeited. . . . . . . . . (21.0) 29.56 (2.5) 23.00
------- -----
Outstanding at
end of year . . . . . . . 1,241.9 $26.75 738.0 $23.29
======= =====
At December 31, 1998 and 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$23.00-$43.88 and 7.6 years, and $23.00-$35.06 and 9.5 years, respectively.
At December 31, 1998 approximately 534,000 options were exercisable. None
of the options were exercisable at December 31, 1997.
OTHER STOCK COMPENSATION PROGRAMS
LaSalle maintains a Stock Compensation Program ("SCP") for eligible
employees. Under this plan, employee contributions for stock purchases
will be enhanced by LaSalle through an additional contribution of 15%.
Employee contributions vest immediately while LaSalle contributions are
subject to various vesting periods. The related compensation cost is
amortized to expense over the vesting period. As of December 31, 1998, no
shares have been issued under this plan.
In 1998, LaSalle adopted an Employee Stock Purchase Plan ("ESPP") for
eligible employees. Under this plan, employee contributions for stock
purchases will be enhanced by LaSalle through an additional contribution of
15%. Employee contributions and LaSalle contributions vest immediately.
As of December 31, 1998, 64,176 shares have been issued under this plan.
(13) TRANSACTIONS WITH AFFILIATES
Certain employees of LaSalle have an ownership interest in Diverse
Real Estate Holdings Limited Partnership ("Diverse"). Diverse has an
ownership interest in and operates investment assets, primarily as the
managing general partner of real estate ventures. Included in the
accompanying Consolidated Balance Sheets is a long-term receivable, net of
allowance, from Diverse totaling $1,663 at December 31, 1998 and 1997.
Certain officers of LaSalle are trustees for real estate funds that
were organized by a subsidiary. LaSalle earns advisory and management fees
for services rendered to the funds. Included in the accompanying
Consolidated and Combined Financial Statements are revenues of $2,285,
$4,209 and $10,306 for 1998, 1997 and 1996, respectively, as well as
receivables of $116 and $496 at December 31, 1998 and 1997, respectively,
related to such services.
<PAGE>
LA SALLE PARTNERS INCORPORATED
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - CONTINUED
LaSalle also earns fees and commissions for services rendered to
affiliates of Dai-ichi Life Property Holdings, Inc. and Galbreath Holdings,
LLC, two significant stockholders, real estate ventures in which LaSalle
has an equity interest, and ventures in which Diverse has an ownership
interest. Included in the accompanying Consolidated and Combined Financial
Statements are revenues from such affiliates of $45,867, $32,957 and
$18,866 for 1998, 1997 and 1996, respectively, as well as receivables for
reimbursable expenses and revenues as of December 31, 1998 and 1997 of
$9,320 and $6,159, respectively.
(14) COMMITMENTS AND CONTINGENCIES
LaSalle is a defendant in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that
are substantial in amount. Most of these litigation matters are covered by
insurance. In the opinion of management, the ultimate resolution of such
litigation matters will not have a material adverse effect on the financial
position, results of operations, or liquidity of LaSalle.
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited consolidated and
combined statements of earnings data for each of LaSalle's last eight
quarters. In the opinion of Management, this information has been presented
on the same basis as the audited consolidated and combined financial
statements appearing elsewhere in this report, and includes all
adjustments, consisting only of normal recurring adjustments and accruals,
that LaSalle considers necessary for a fair presentation. The unaudited
consolidated and combined quarterly information should be read in
conjunction with LaSalle's Consolidated and Combined Financial Statements
and the notes thereto. The operating results for any quarter are not
necessarily indicative of the results for any future period.
<PAGE>
</TABLE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
QUARTERLY INFORMATION
UNAUDITED
<CAPTION>
1998
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue (1):
Leasing and Management Services. . . . . . . . . . . $ 18,368 26,470 28,851 61,362 135,051
Financial and Corporate Services . . . . . . . . . . 9,358 18,694 20,045 33,031 81,128
LaSalle Investment Management. . . . . . . . . . . . 23,339 29,048 15,936 19,962 88,285
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 51,065 74,212 64,832 114,355 304,464
Operating income (loss) before merger
related non-recurring charges (1) (3). . . . . . . . (5,349) 12,220 8,229 32,763 47,863
Merger related non-recurring charges (3) . . . . . . . -- -- -- 10,021 10,021
-------- -------- -------- -------- --------
Operating income (loss) (1). . . . . . . . . . . . . . $ (5,349) 12,220 8,229 22,742 37,842
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (3,440) 7,310 4,806 11,789 20,465
Basic earnings (loss) per common share . . . . . . . . $ (0.21) 0.45 0.30 0.73 1.26
Diluted earnings (loss) per common share . . . . . . . $ (0.21) 0.45 0.29 0.72 1.25
1997
-------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1)(2):
Leasing and Management Services. . . . . . . . . . . $ 10,782 18,839 22,067 34,672 86,360
Financial and Corporate Services . . . . . . . . . . 4,527 14,339 12,996 28,975 60,837
LaSalle Investment Management. . . . . . . . . . . . 16,397 24,740 16,795 19,644 77,576
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 31,706 57,918 51,858 83,291 224,773
Operating income (loss) (1). . . . . . . . . . . . . . $ (3,272) 9,203 5,951 23,232 35,114
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (4,719) 6,940 7,610 16,009 25,840
Basic earnings per common share (4). . . . . . . . . . $ 0.51 0.99 1.50
Diluted earnings per common share (4). . . . . . . . . $ 0.51 0.98 1.49
<PAGE>
LA SALLE PARTNERS INCORPORATED
QUARTERLY INFORMATION - CONTINUED
<FN>
(1) Excludes intersegment revenue and intersegment expense.
(2) Historical management revenue and operating expenses have been
reclassified to reflect personnel cost reimbursements received on property
or specific client assignments on a net rather than gross basis. There was
no effect on operating income or net earnings as historically reported.
(3) Merger related non-recurring charges include integration and
transition costs related to the Compass acquisition and non-capitalizable
merger related expenses associated with the pending merger with Jones Lang
Wootton.
(4) Basic and diluted earnings per common share for 1997 are based on
earnings for the period from conversion to corporate form, July 22, 1997,
through December 31, 1997.
</TABLE>
<PAGE>
<TABLE>
LA SALLE PARTNERS INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
<CAPTION>
Additions
Balance at -------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Periods
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Accounts Receivable
Reserves . . . . . . . . . $ 2,679 4,009 107(A) 2,817(B) $3,978
1997
Accounts Receivable
Reserves . . . . . . . . . 1,900 2,640 1,530(C) 3,391(B) 2,679
1996
Accounts Receivable
Reserves . . . . . . . . . 1,900 986 -- 986(B) 1,900
(A) Represents reserve acquired as a result of the Compass acquisition.
(B) Includes primarily write-offs of uncollectible accounts
(C) Represents reserve acquired as a result of the Galbreath acquisition
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the material in the Company's Proxy Statement for the 1999 Annual Meeting
of Stockholders (the "Proxy Statement") under the captions "Election of
Directors," "Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the material in the Proxy Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the material appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements
See Index to Consolidated and Combined Financial
Statements in Item 8 of this report.
2. Financial Statement Schedule:
See Index to Consolidated and Combined Financial
Statements in Item 8 of this report.
3. Exhibits
A list of exhibits is set forth in the Exhibit Index
which immediately precedes the exhibits and which is incorporated by
reference herein.
(b) Reports on Form 8-K:
LaSalle filed the following Form 8-K's during the 1998
fourth quarter:
1. Form 8-K, to announce the closing of the Compass
acquisition, which Form 8-K, dated October 1, 1998, included the required
historical financial statements of the Compass businesses' acquired and pro
forma financial information on a combined basis.
2. Form 8-K, to announce the signing of the
definitive agreement with Jones Lang Wootton which Form 8-K, dated October
22, 1998, included the relevant press release as an exhibit.
3. Form 8-K, to provide transaction and financial
information regarding the merger with Jones Lang Wootton, which Form 8-K,
dated October 22, 1998 (and filed with the Securities and Exchange
Commission on December 9, 1998), included historical financial information
of each of the JLW Companies and the Compass Group and pro forma financial
information on a combined basis.
<PAGE>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
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 (i) LaSalle's Registration Statement (No. 333-25741) under the
caption "Risk Factors" and elsewhere, (ii) 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, (iii) LaSalle's quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere, (iv) LaSalle's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 under the caption "Management's Discussions and
Analysis of Financial Condition and Results of Operations" and elsewhere,
(v) LaSalle's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998 under the caption "Management's Discussions and Analysis of
Financial Condition and Results of Operations" and elsewhere, (vi)
LaSalle's Current Report on Form 8-K, dated August 31, 1998, (vii)
LaSalle's Current Report on Form 8-K, dated October 1, 1998, (viii)
LaSalle's Current Report on Form 8-K, dated October 22, 1998 (filed
October 22, 1998), (ix) LaSalle's Current Report on Form 8-K, dated
October 22, 1998 (filed December 9, 1998), under the captions "The
Transactions," "The Purchase Agreements," "JLW Management's Discussion and
analysis of Financial Condition and Results of Operations of the JLW
Companies" and elsewhere, (x) LaSalle's Proxy Statement dated February 4,
1999 under the captions "Risk Factors," "The Transactions," "The Purchase
Agreements," "JLW Management's Discussion and Analysis of Financial
Condition and Results of Operations of the JLW Companies" and elsewhere,
(xi) LaSalle's Current Report on Form 8-K, dated February 22, 1999 (filed
February 24, 1999), and (xii) other reports filed by LaSalle with the
United States Securities and Exchange Commission. LaSalle expressly
disclaims any obligations 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. Statements regarding parties other than
LaSalle are based upon representations of such other parties.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of LaSalle Partners
Incorporated, a Maryland corporation, and the undersigned Directors and
officers of LaSalle Partners Incorporated, hereby constitutes and appoints
Stuart L. Scott, Robert C. Spoerri, William E. Sullivan and Vivian I. Mumaw
its, his or her true and lawful attorneys-in-fact and agents, for it, him
or her and in its, his or her name, place and stead, in any and all
capacities, with full power to act alone, to sign any and all amendments to
this report, and to file each such amendment to this report, with all
exhibits thereto, and any and all documents in connection therewith, with
the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform any and all acts and things requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as it,
he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago, State of Illinois, on the 4th day of March, 1999.
LaSalle Partners Incorporated
/s/ STUART L. SCOTT
-----------------------------
By: Stuart L. Scott
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 4th day of March, 1999.
SIGNATURE TITLE
- --------- -----
/S/ STUART L. SCOTT
- --------------------------
Stuart L. Scott Chairman of the Board of
Directors and Chief Executive
Officer
(Principal Executive Officer)
/S/ ROBERT C. SPOERRI
- --------------------------
Robert C. Spoerri President, Chief Operating
Officer and Director
/S/ WILLIAM E. SULLIVAN
- --------------------------
William E. Sullivan Executive Vice President,
Chief Financial Officer,
Secretary and Director
(Principal Financial Officer)
/S/ DANIEL W. CUMMINGS
- --------------------------
Daniel W. Cummings Co-President--LaSalle Advisors
Capital Management, Inc. and
Director
/S/ CHARLES K. ESLER
- --------------------------
Charles K. Esler President and Chief Executive
Officer--LaSalle Partners
Management Services, Inc.
and Director
/S/ M. G. ROSE
- --------------------------
M. G. Rose President, Tenant Representation
Division--LaSalle Partners
Management Services, Inc.
and Director
<PAGE>
SIGNATURE TITLE
- --------- -----
/S/ LYNN C. THURBER
- --------------------------
Lynn C. Thurber Co-President--LaSalle Advisors
Capital Management, Inc. and
Director
/S/ EARL E. WEBB
- --------------------------
Earl E. Webb Managing Director, Investment
Banking Division, -- LaSalle
Partners Corporate & Financial
Services, Inc. and Director
/S/ DARRYL HARTLEY-LEONARD
- --------------------------
Darryl Hartley-Leonard Director
/S/ THOMAS C. THEOBALD
- --------------------------
Thomas C. Theobald Director
/S/ JOHN R. WALTER
- --------------------------
John R. Walter Director
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Subscription Agreement (Incorporated by reference to
Exhibit 2.01 to LaSalle's Registration Statement No. 333-25741).
2.2 Purchase and Sale Agreement, dated as of October 21,
1998, as amended, with respect to the acquisition by LaSalle Partners of
the JLW Parent Companies operating in Europe and the U.S.A. (the
"Europe/USA Agreement") (Incorporated by reference to Exhibit 10.1 to the
Current Report of LaSalle, dated October 22, 1998 (filed December 9,
1998)).
2.3 Purchase and Sale Agreement, dated as of October 21,
1998, as amended, with respect to the acquisition by LaSalle Partners of
the JLW Parent Companies operating in Australia and New Zealand (the
"Australasia Agreement") (Incorporated by reference to Exhibit 10.2 to the
Current Report of LaSalle, dated October 22, 1998 (filed December 9,
1998)).
2.4 Purchase and Sale Agreement, dated as of October 21,
1998, as amended, with respect to the acquisition by LaSalle Partners of
the JLW Parent Companies operating in Asia (the "Asia Agreement")
(Incorporated by reference to Exhibit 10.3 to the Current Report of LaSalle
dated October 22, 1998 (filed December 9, 1998)).
2.5 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among LaSalle Partners and each of the
shareholders selling equity interests in the JLW Parent Companies under the
Europe/USA Agreement (Incorporated by reference to Exhibit 10.4 to the
Current Report of LaSalle, dated October 22, 1998 (filed December 9,
1998)).
2.6 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among LaSalle Partners and each of the
shareholders selling equity interests in the JLW Parent Companies under the
Australasia Agreement (Incorporated by reference to Exhibit 10.5 to the
Current Report of LaSalle, dated October 22, 1998 (filed December 9,
1998)).
2.7 Form of Purchase and Sale Joinder Agreement, dated as of
October 21, 1998, by and among LaSalle Partners and each of the
shareholders selling equity interests in the JLW Parent Companies under the
Asia Agreement (Incorporated by reference to Exhibit 10.6 to the Current
Report of LaSalle, dated October 22, 1998 (filed December 9, 1998)).
2.8 Form of indemnity and Escrow Agreement, dated as of
October 21, 1998, by and among LaSalle Partners, certain subsidiaries of
LaSalle Partners and each of the shareholders selling equity interests in
the JLW Parent Companies under the Europe/USA Agreement, the Australasia
Agreement and the Asia Agreement (Incorporated by reference to Exhibit 10.7
to the Current Report of LaSalle, dated October 22, 1998 (filed December 9,
1998)).
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.9 Form of Stockholder Agreement, dated as of October 21,
1998, by and among LaSalle Partners and each of the persons receiving
shares of LaSalle Partners common stock under the Europe/USA Agreement, the
Australasia Agreement and the Asia Agreement (Incorporated by reference to
Exhibit 10.8 to the Current Report of LaSalle, dated October 22, 1998
(filed December 9, 1998)).
2.10 Form of Stockholder Agreement, dated as of October 21,
1998, by and among LaSalle Partners and each of the partners of DEL-LPL
Limited Partnership and DEL-LPAML Limited Partnership who is an employee of
LaSalle Partners and who will be receiving shares of LaSalle Partners
Common Stock in connection with the dissolution of DEL-LPL Limited
Partnership and DEL-LPAML Limited Partnership (Incorporated by reference to
Exhibit 10.9 to the Current Report of LaSalle, dated October 22, 1998
(filed December 9, 1998)).
3.1 Articles of Amendment and Restatement of LaSalle Partners
Incorporated (Incorporated by reference to Exhibit 3.1 to LaSalle's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
3.2 Amended and Restated Bylaws of LaSalle Partners
Incorporated (Incorporated by reference to Exhibit 3.2 to LaSalle's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
4.1 Form of certificate representing shares of Common Stock
(Incorporated by reference to Exhibit 4.01 to LaSalle's Registration
Statement No. 333-25741).
10.1 Multicurrency Credit Agreement, dated as of November 25,
1997, among LaSalle Partners Incorporated, the Guarantors party thereto,
the Banks from time to time party thereto and Harris Trust and Savings
Bank, as Agent.
10.2 First Amendment to LaSalle's $150,000,000 Multicurrency
Credit Agreement, dated as of September 21, 1998 (Incorporated by reference
to Exhibit 10.2 to LaSalle's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998).
10.3 $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 (Incorporated by
reference to Exhibit 10.1 to LaSalle's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998).
10.4 Contribution and Exchange Agreement, dated as of
April 21, 1997, by and among DEL-LPL Limited Partnership, DEL-LPAML Limited
Partnership, LaSalle Partners Limited Partnership, LaSalle Partners
Management Limited Partnership, The Galbreath Company, The Galbreath
Company of California, Inc., Galbreath Holdings, LLC and the Stockholders
of The Galbreath Company (Incorporated by reference to Exhibit 10.08 to the
Registrant's Registration Statement No. 333-25741).
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.5 Asset Purchase Agreement, dated as of December 31, 1996,
by and among LaSalle Construction Limited Partnership, LaSalle Partners
Limited Partnership, Clune Construction Company, L.P. and Michael T. Clune
(Incorporated by reference to Exhibit 10.10 to LaSalle's Registration
Statement No. 333-25741).
10.6 LaSalle Partners Incorporated 1997 Stock Award and
Incentive Plan (Incorporated by reference to Exhibit 99.2 to LaSalle's
Registration Statement No. 333-42193).
10.7 Amendment to the LaSalle Partners Incorporated 1997 Stock
Award and Incentive Plan (Incorporated by reference to Exhibit 10.1 to
LaSalle's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
10.8 LaSalle Partners Incorporated Employee Stock Purchase
Plan (Incorporated by reference to Exhibit 99.1 to LaSalle's Registration
Statement No. 333-42193).
10.9 First Amendment to the LaSalle Partners Incorporated
Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.2 to
LaSalle's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
10.10 Second Amendment to the LaSalle Partners Incorporated
Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.3 to
LaSalle's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998).
10.11 LaSalle Partners Incorporated Stock Compensation Program
(Incorporated by reference to Exhibit 99.3 to LaSalle's Registration
Statement No. 333-42193).
10.12 Description of Management Incentive Plan
10.13 Registration Rights Agreement, dated as of April 22,
1997, by and among the LaSalle Partners Incorporated, DEL-LPL Limited
Partnership, DEL-LPAML Limited Partnership, DSA-LSPL, Inc., DSA-LSAM, Inc.
and Galbreath Holdings, LLC (Incorporated by reference to Exhibit 10.14 to
LaSalle's Registration Statement No. 333-25741.)
10.14 Form of Indemnification Agreement with Executive Officers
and Directors
10.15 Consent Agreement, dated as of April 15, 1997, by and
among DSA-LSPL, Inc., DSA-LSAM, Inc., DEL-LPL Limited Partnership, DEL-
LPAML Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (Incorporated by reference to Exhibit 10.16 to LaSalle's
Registration Statement No. 333-25741.)
10.16 Consent Agreement, dated as of April 22, 1997, by and
among the Stockholders of The Galbreath Company and The Galbreath Company
of California, Inc., Galbreath Holdings, LLC, DEL-LPL Limited Partnership,
DEL-LPAML Limited Partnership, DEL/LaSalle Finance Company, L.L.C., LaSalle
Partners Limited Partnership and LaSalle Partners Management Limited
Partnership (Incorporated by reference to Exhibit 10.17 to LaSalle's
Registration Statement No. 333-25741.)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.17 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
(Incorporated by reference to Exhibit 2(a) to the Current Report of
LaSalle, dated October 1, 1998).
21.1 List of Subsidiaries
23.1 Consent of KPMG LLP, independent auditors
24.1 Power of Attorney (Set forth on page preceding signature
page of this report.)
27.1 Financial Data Schedule
EXHIBIT 21.1
- ------------
SUBSIDIARIES OF LASALLE
1. LaSalle Partners Management Services, Inc., a Maryland corporation
2. LaSalle Partners Corporate & Financial Services, Inc., a Maryland
corporation
3. LaSalle Partners (Illinois) Limited Partnership, an Illinois limited
partnership
4. LaSalle Advisors Capital Management, Inc., a Maryland corporation
5. LaSalle Partners International, Inc., a Delaware corporation
6. LaSalle Partners International, an unlimited liability company
incorporated in England and Wales
7. CIN LaSalle Investment Management, an unlimited liability company
incorporated in England and Wales
8. LaSalle Partners Co-Investment, Inc., a Maryland corporation
EXHIBIT 23.1
- ------------
Board of Directors
LaSalle Partners Incorporated:
We consent to incorporation by reference in the registration statement (No.
333-42193) on Form S-8 of LaSalle Partners Incorporated and subsidiaries of
our report dated February 15, 1999, relating to the consolidated balance
sheets of LaSalle Partners Incorporated and subsidiaries and their
predecessors as of December 31, 1998 and 1997, and the related consolidated
and combined statements of earnings, stockholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1998, and
related schedule, which report appears in the December 31, 1998, annual
report on Form 10-K of LaSalle Partners Incorporated and subsidiaries.
/S/ KPMG LLP
Chicago, Illinois
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 16,941
<SECURITIES> 0
<RECEIVABLES> 137,392
<ALLOWANCES> 3,978
<INVENTORY> 0
<CURRENT-ASSETS> 166,444
<PP&E> 28,773
<DEPRECIATION> 35,859
<TOTAL-ASSETS> 490,921
<CURRENT-LIABILITIES> 117,823
<BONDS> 0
<COMMON> 163
0
0
<OTHER-SE> 169,409
<TOTAL-LIABILITY-AND-EQUITY> 490,921
<SALES> 298,296
<TOTAL-REVENUES> 304,464
<CGS> 252,592
<TOTAL-COSTS> 256,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,009
<INTEREST-EXPENSE> 4,153
<INCOME-PRETAX> 33,689
<INCOME-TAX> 13,224
<INCOME-CONTINUING> 20,465
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,465
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.25
</TABLE>
