<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 23, 1999
(Date of Earliest Event Reported)
Commission File Number 1-14373
INSIGNIA FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 56-2084290
(State of Incorporation) (I.R.S. Employer Identification No.)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of Principal Executive Offices) (Zip Code)
(212) 984-8000
(Registrant's Telephone Number, Including Area Code)
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 8-K dated June 23,
1999 and filed on July 8, 1999 as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
(i) Financial Statements for Douglas Elliman Brokerage
for the years ended December 31, 1998 and 1997,
respectively, with Report of Independent Auditors,
and the period from January 1, 1999 to June 23, 1999
(unaudited) and six months ended June 30, 1998
(unaudited).
(b) Pro Forma Financial Information
(i) Unaudited Pro Forma Condensed Consolidated Statements
of Income for the six months ended June 30, 1999 and
the year ended December 31, 1998.
(c) Exhibits
The following are furnished as exhibits to this report:
Exhibit No.
10.1 Purchase Agreement, dated as of May 27, 1999, among
Douglas Elliman, Douglas Elliman, Inc. and Douglas
Elliman Insurance Brokerage Corp. as seller and DE
Acquisition, LLC as buyer. *
23.1 Consent of Ernst & Young LLP.
99.1 Press release dated June 23, 1999. *
---------------
* Previously filed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
--------------------------------
Adam B. Gilbert
Executive Vice President
DATE: August 31, 1999
<PAGE>
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Report of Independent Auditors
To the Owners
Douglas Elliman Brokerage
We have audited the accompanying balance sheets of Douglas Elliman Brokerage (a
division of Douglas Elliman, a New York general partnership) (the "Division")
as of December 31, 1998 and 1997, and the related statements of operations,
owners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Division at December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
New York, New York
August 6, 1999
<PAGE>
Douglas Elliman Brokerage
Balance Sheets
<TABLE>
<CAPTION>
JUNE 23, 1999 DECEMBER 31,
ASSETS (UNAUDITED) 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 14,619 $ 25,735 $ 15,472
Commissions receivable, less allowance for
doubtful accounts of $0 in 1999 and $143,133
in 1998 and 1997 1,064,644 886,460 1,096,526
Prepaid expenses and other assets 602,631 371,502 152,087
---------------- ------------- -----------
Total current assets 1,681,894 1,283,697 1,264,085
Commissions receivable - long term 514,107 638,200 389,572
Other assets 150,434 145,372 90,707
Property and equipment, net of accumulated
depreciation and amortization 3,682,346 3,572,735 3,042,845
Intangible assets, net of accumulated
amortization 2,268,578 2,473,353 2,894,583
=============== ============= ===========
Total assets $ 8,297,359 $ 8,113,357 $ 7,681,792
=============== ============= ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Brokers commission payable $ 670,201 $ 2,863,567 $ 2,776,852
Accounts payable 1,137,426 1,297,731 1,057,950
Accrued expenses and sundry liabilities 254,801 528,030 528,559
Current installments of notes payable 50,000 200,000 528,751
Current installments of capital leases
payable 227,601 293,317 275,627
---------------- ------------- -----------
Total current liabilities 2,340,029 5,182,645 5,167,739
Brokers commission payable - long term 292,414 365,279 232,338
Deferred rent expense 235,742 240,894 158,790
Notes payable - - 200,000
Capital leases payable 458,975 544,615 283,862
Other long term liabilities 111,544 97,215 130,418
---------------- ------------- -----------
Total liabilities 3,438,704 6,430,648 6,173,147
Commitments and contingencies
Owners' equity 4,858,655 1,682,709 1,508,645
---------------- ------------- -----------
Total liabilities and owners' equity $ 8,297,359 $ 8,113,357 $ 7,681,792
=============== ============= ===========
</TABLE>
See accompanying notes
<PAGE>
Douglas Elliman Brokerage
Statements of Operations
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO SIX MONTHS ENDED YEAR ENDED
JUNE 23, 1999 JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) (UNAUDITED) 1998 1997
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Brokerage commissions $ 39,222,478 $ 36,038,996 $ 75,770,533 $ 67,054,533
Consulting and other income 30,111 60,908 91,142 19,150
--------------------------------------------------------------------------
Total revenue 39,252,589 36,099,904 75,861,675 67,073,683
--------------------------------------------------------------------------
Expenses:
Commissions 22,384,326 20,142,287 43,840,542 38,859,916
Compensation and benefits 3,048,292 2,876,157 5,634,027 4,976,971
Consulting fees 329,826 217,290 791,239 479,014
Advertising, marketing and
promotional 2,612,182 2,848,916 5,492,455 4,648,392
Occupancy costs 1,215,851 1,108,440 2,245,895 1,987,667
Equipment rental, repairs and
maintenance 365,350 311,756 565,942 419,367
Postage and courier 276,219 260,695 561,483 487,380
Stationery and supplies 184,104 185,392 365,984 321,875
Telephone and related maintenance 602,324 635,140 1,112,000 960,462
Subscriptions, dues and licensing 96,402 45,930 98,656 135,893
Interest expense 42,593 50,469 106,424 98,258
New York City taxes 26,229 14,362 43,172 49,326
Other 305,668 401,743 1,182,620 937,269
General and administrative -
services 830,944 720,723 1,947,991 1,574,744
Depreciation and amortization 588,247 521,952 1,200,481 815,938
--------------------------------------------------------------------------
Total expenses 32,908,557 30,341,252 65,188,911 56,752,472
--------------------------------------------------------------------------
Net income $ 6,344,032 $ 5,758,652 $ 10,672,764 $ 10,321,211
==========================================================================
</TABLE>
See accompanying notes.
<PAGE>
Douglas Elliman Brokerage
Statement of Owners' Equity
Balance at December 31, 1996 $ 1,387,046
Net income for the year ended December 31, 1997 10,321,211
Distributions to owners (10,199,612)
------------------
Balance at December 31, 1997 1,508,645
Net income for the year ended December 31, 1998 10,672,764
Distributions to owners (10,498,700)
------------------
Balance at December 31, 1998 1,682,709
Net income for the period from January 1, 1999
to June 23, 1999 (unaudited) 6,344,032
Distributions to owners (unaudited) (3,168,086)
------------------
Balance at June 23, 1999 (unaudited) $ 4,858,655
==================
See accompanying notes.
<PAGE>
Douglas Elliman Brokerage
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JANUARY 1, 1999 ENDED YEAR ENDED
TO JUNE 30, 1998 DECEMBER 31,
JUNE 23, 1999
(UNAUDITED) (UNAUDITED) 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,344,032 $ 5,758,652 $ 10,672,764 $ 10,321,211
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 588,247 521,952 1,200,481 815,938
Deferred rent (5,152) 104,769 82,104 158,790
Bad debt - - - 143,133
Discount on receivables, net 989 13,250 26,501 12,676
Changes in assets and liabilities:
Commissions receivable (56,398) (530,795) (101,660) (341,190)
Prepaid expenses and other current assets (231,129) (36,204) (219,415) 158,591
Other assets (5,514) (10,582) (55,569) 755
Brokers commission payable (2,264,893) (949,867) 256,253 1,225,159
Accrued expenses and sundry liabilities (273,229) 22,138 (529) 243,576
Accounts payable (160,325) (121,606) 239,781 341,649
Other long term liabilities 14,329 (33,143) (33,203) 128,279
-----------------------------------------------------------------
Net cash provided by operating activities 3,950,957 4,738,564 12,067,508 13,208,567
-----------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment (492,631) (13,451) (694,275) (1,332,589)
Acquisition of intangible assets - - - (870,000)
-----------------------------------------------------------------
Net cash used in investing activities (492,631) (13,451) (694,275) (2,202,589)
-----------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments of capital lease obligations (151,356) (154,683) (335,519) (178,064)
Principal payments of notes payable (150,000) (345,583) (528,751) (624,093)
Distributions to owner (3,168,086) (4,188,988) (10,498,700) (10,199,612)
-----------------------------------------------------------------
Net cash used in financing activities (3,469,442) (4,689,254) (11,362,970) (11,001,769)
-----------------------------------------------------------------
Net (decrease) increase in cash (11,116) 35,859 10,263 4,209
Cash, beginning of period 25,735 15,472 15,472 11,263
=================================================================
Cash, end of period $ 14,619 $ 51,331 $ 25,735 $ 15,472
=================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 51,638 $ 47,844 $ 111,674 $ 66,189
=================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Equipment acquired under capital leases $ - $ 505,295 $ 613,962 $ 424,864
Note payable issued in connection with business
acquired $ - $ - $ - $ 750,000
</TABLE>
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Douglas Elliman is a New York general partnership (the "Partnership") which
provides residential and commercial leasing and brokerage services and related
services predominantly in New York, New Jersey and Connecticut.
BASIS OF PRESENTATION
The accompanying financial statements represent the accounts of the residential
brokerage division of Douglas Elliman ("Douglas Elliman Brokerage" or the
"Division"), which was sold to Insignia Financial Group, Inc. on June 23, 1999.
USE OF ESTIMATES
The preparation of the 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 period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation, including depreciation of assets subject to capital leases, is
computed over the useful lives of the assets which range from 5 to 7 years.
Leasehold improvements are amortized over the remaining life of the lease.
INTANGIBLE ASSETS
Non-compete agreements are amortized on a straight line basis over the six year
terms of the associated agreements. Goodwill is amortized on a straight line
basis over an estimated life of fifteen years.
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
Contingent payments made in connection with acquired businesses are generally
charged to operations as such payments relate to ongoing services provided by
the sellers of such acquired businesses.
REVENUE RECOGNITION
Leasing commission revenues are recognized when the leases are executed and all
significant contingencies have been satisfied. Brokerage commissions on sales
transactions are recognized upon closing of the associated sales transactions.
Leasing commissions receivable beyond one year have been discounted to their
present value. An allowance for doubtful accounts has been provided for
possible uncollectable amounts.
Leasing commissions payable are generally paid to brokers when the related
receivable is collected. Amounts payable beyond one year have been discounted
to their present value.
RENT EXPENSE
The Division accounts for leases pursuant to Financial Accounting Standards
Board Statement No. 13 which requires the recognition of deferred rent
concessions and stated increases in rent on a straight-line basis over the
lease term. Accordingly, rent expense for the period ended June 23, 1999, the
six months ended June 30, 1998, and the years ended December 31, 1998 and 1997
differed by approximately ($5,000) (unaudited), $105,000 (unaudited), $82,000
and $159,000, respectively, as compared to amounts due pursuant to the
underlying leases.
<PAGE>
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
Douglas Elliman Brokerage is a division of a partnership; accordingly the
accompanying financial statements do not include a provision for state and
federal income taxes since, pursuant to provisions of the Internal Revenue Code,
each item of income, gain, loss, deduction and credit is allocated to and
reportable by the partners of the partnership.
CASH AND CASH EQUIVALENTS
The Division considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
2. INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements as of and for the period ended
June 23, 1999 and the six months ended June 30, 1998 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the period ended
June 23, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JUNE 23, 1999 DECEMBER 31,
(UNAUDITED) 1998 1997
--------------------------------------------
Furniture and office equipment $ 3,888,312 $ 3,624,689 $ 2,400,220
Leasehold improvements 2,165,263 1,912,188 1,510,010
Construction in progress - - 318,410
--------------------------------------------
6,053,575 5,536,877 4,228,640
Less - Accumulated depreciation
and amortization (2,371,229) (1,964,142) (1,185,795)
============================================
$ 3,682,346 $ 3,572,735 $ 3,042,845
============================================
<PAGE>
3. PROPERTY AND EQUIPMENT (CONTINUED)
Included in furniture and office equipment is equipment acquired subject to
capital leases, with a cost of $1,505,450, $1,505,450 and $1,001,905 and
accumulated depreciation of $907,248, $741,527 and $492,663 at June 23, 1999,
December 31, 1998 and 1997, respectively.
4. COMMISSIONS RECEIVABLE - LONG TERM AND BROKERS COMMISSION PAYABLE -
LONG TERM
Commissions receivable - long term and brokers commission payable - long term
are as follows:
JUNE 23, 1999 DECEMBER 31,
(UNAUDITED) 1998 1997
--------------------------------------------
Gross commission receivable $ 729,976 $ 851,762 $ 540,036
Less: Unamortized discount (215,869) (213,562) (150,464)
--------------------------------------------
Net commission receivable $ 514,107 $ 638,200 $ 389,572
===========================================
Gross commission payable $ 417,598 $ 489,145 $ 319,607
Less: Unamortized discount (125,184) (123,866) (87,269)
============================================
Net commission payable $ 292,414 $ 365,279 $ 232,338
============================================
Long term commissions receivable and the related liability for brokers
commission payable are discounted using a rate of 8%.
5. NOTES PAYABLE
Effective July 30, 1996, the Division entered into an agreement to acquire all
the assets, properties and businesses of Ambrose-Mar Elia Co., Inc (see note
8). The acquisition was funded, in part, by a note which required 24 monthly
payments of $33,333 to be made beginning August 1, 1996. The note totaled
$752,248 and bore interest at 5.98%. The note has been paid in full as of
December 31, 1998. Interest expense relating to the note was $4,417
(unaudited), $4,582 and $25,907 for the six months ended June 30, 1998 and the
years ended December 31, 1998 and 1997, respectively.
Effective January 29, 1997, the Division entered into an agreement to purchase
all of the assets and business of J.I. Sopher Realty Inc. (see note 8). The
acquisition was funded, in part, by a note of $750,000 with interest at 7%,
payable in 30 monthly installments of $25,000 plus interest, beginning March 1,
1997. Interest expense relating to the note was $3,860 (unaudited), $14,438
(unaudited), $23,625 and $40,104 for the period ended June 23, 1999, the six
months ended June 30, 1998, and for the years ended December 31, 1998 and 1997,
respectively.
<PAGE>
6. CAPITAL LEASE OBLIGATIONS
Future minimum lease payments required under capital leases at December 31, 1998
are as follows:
Year ending December 31:
1999 $ 365,937
2000 221,142
2001 193,318
2002 159,833
2003 62,251
------------------
Total minimum lease payments 1,002,481
Less - Amount representing interest (164,549)
------------------
Total present value of minimum lease payments 837,932
Less - current portion (293,317)
------------------
Non-current portion $ 544,615
=================
7. RELATED PARTY TRANSACTIONS
The accompanying financial statements include the Division's allocable portion
of shared costs of administrative and support functions of the Partnership's
parent and affiliated entities which are shown as general and administrative -
services. The accompanying financial statements do not reflect any allocation
of investment income of the Partnership's parent and affiliated entities.
The Division engaged the services of the Milford Advertising Agency, an
affiliate of the Partnership's parent, in order to provide advertising and
related services. For the period ended June 23, 1999, the six months ended June
30, 1998, and the years ended December 31, 1998 and 1997, the cost of these
services amounted to approximately $251,000 (unaudited), $287,000 (unaudited),
$550,000 and $451,000, respectively.
The Division engaged the services of Timko Contracting Corp., an affiliate of
the Partnership's parent, in order to provide construction and related
services. For the period ended June 23, 1999, the six months ended June 30,
1998, and the years ended December 31, 1998 and 1997, the cost of these
services amounted to approximately $124,000 (unaudited), $60,000 (unaudited),
$169,000 and $259,000, respectively, of which approximately $114,000
(unaudited), $47,000 (unaudited), $159,000 and $251,000, respectively, were
recorded as capital improvements. As of June 23, 1999, December 31, 1998 and
1997, the Division owed Timko approximately $124,000 (unaudited), $102,000 and
$204,000, respectively, relating to these services.
<PAGE>
8. ACQUISITIONS
During 1996, the Division purchased the assets and businesses of two
residential brokerage companies, Douglas Van Riper, Inc. ("DVR") and
Ambrose-Mar Elia Co., Inc. ("Ambrose") which were accounted for using the
purchase method. The combined purchase price for the companies of $1,827,248
was allocated as follows:
Goodwill $ 927,248
Non-compete agreements 835,000
Pipeline contracts 35,000
Furniture and equipment 30,000
----------------
$ 1,827,248
================
Pursuant to the DVR purchase agreement, the Division is to pay the seller, for
the period April 1, 1996 through March 31, 2001, 20% of all net pretax profits
earned by the DVR operation, as defined in the agreement, less an overhead
allocation not to exceed 5% of annual revenues. The payments shall be made
annually on March 31 of the year following the year in which accrued. The DVR
operation incurred a loss for 1998 and 1997 and no payments were due. A payment
of $20,121 (unaudited) was made for the period ended March 31, 1999.
Pursuant to the Ambrose purchase agreement, the Division is to pay the seller,
for the period covering two years from August 1, 1996, 33% of all net pretax
profits earned by Ambrose, as defined in the agreement, less certain expenses,
as defined in the agreement, in connection with management and consultancy
services to be provided by the seller during such period. Payments of $314,782
and $66,764 were made in 1998 and 1997, respectively.
During 1997, the Division purchased the assets and businesses of two
residential brokerage companies, J.I. Sopher Realty Inc., ("Sopher") and Town
and Country Realty Inc., ("TC") which were accounted for using the purchase
method. The combined purchase price for the companies of $1,650,000 was
allocated as follows:
Goodwill $ 497,500
Non-compete agreements 1,122,500
Furniture and equipment 30,000
----------------
$ 1,650,000
================
Pursuant to the TC purchase agreement, the Division is to pay the seller, for
the period March 1, 1997 through February 28, 2002, 20% of all net pretax
profits earned by the TC operation, as defined in the agreement, less certain
expenses, as defined in the agreement. The payments shall be made annually on
February 28 of the year following the year in which accrued and any losses from
the operation will be carried forward to the next annual period. Payments of
$39,131 (unaudited) and $10,048 were made in 1999 and 1998, respectively.
<PAGE>
9. INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 23, 1999 DECEMBER 31,
(UNAUDITED) 1998 1997
--------------------------------------------------
Non-compete agreements $ 1,957,500 $ 1,957,500 $ 1,957,500
Goodwill 1,424,748 1,424,748 1,424,748
--------------------------------------------------
3,382,248 3,382,248 3,382,248
Less: accumulated
amortization (1,113,670) (908,895) (487,665)
==================================================
$ 2,268,578 $ 2,473,353 $ 2,894,583
==================================================
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Division leases office space under several operating leases having
termination dates ranging from March 1999 to December 2006. The leases provide
for additional rent payments based on increases in real estate taxes and
operating expenses over base period amounts.
Minimum future annual rental payments are approximately as follows:
Year ending December 31,
1999 $ 2,015,000
2000 1,751,000
2001 1,438,000
2002 1,302,000
2003 1,120,000
Thereafter 1,232,000
===================
$ 8,858,000
===================
LITIGATION
The Division is party to litigation arising out of the normal course of
business, none of which is expected to have a material adverse effect on the
financial position or results of operations of the Division.
11. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Division's management has assessed the year 2000 issue, and has developed
an action plan to address the issue. Management believes that its action plan
will be implemented and completed in a timely fashion, and that the year 2000
issue will not materially affect the Division's future operating results or
financial position.
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Statements of
Income for the six months ended June 30, 1999 and for the year ended December
31, 1998, give effect to the acquisitions of Douglas Elliman and St. Quintin
Holdings Limited ("St. Quintin") and related borrowings under Insignia's
revolving credit facility, as if effected at January 1, 1998.
Douglas Elliman, a residential real estate brokerage firm located in New
York City, was acquired by Insignia on June 23, 1999. Douglas Elliman commands
the number one market position for both residential sales and rentals in New
York City, according to the annual ranking of residential brokerage companies
nation-wide published by Real Trends. The base purchase price was approximately
$65 million paid in cash from borrowings under Insignia's revolving credit
facility. Additional purchase consideration of up to $10 million over the next
five years is contingent on the future performance of Douglas Elliman.
St. Quintin, a British real estate services firm headquartered in London,
was acquired by Insignia on March 5, 1999. The operations of St. Quintin have
been merged with the existing operations of Richard Ellis Group Limited
("REGL"). The combined entities now operate under the name Richard Ellis St.
Quintin ("RESQ") throughout the United Kingdom. The base purchase price paid
for St. Quintin was approximately $32 million. Additional purchase
consideration of up to approximately $12 million is contingent on the future
performance of St. Quintin. The purchase was funded with approximately $24.3
million in borrowings under Insignia's revolving credit facility, the issuance
of 305,981 shares of Insignia common stock and assumed options to purchase up
to 611,962 shares of Insignia common stock.
The pro forma statements have been prepared by management of Insignia and
are based on the historical financial statements of Insignia, Douglas Elliman
and St. Quintin, giving effect to the transactions under the purchase method of
accounting and to the assumptions and adjustments in the accompanying Notes to
Unaudited Pro Forma Condensed Consolidated Statements of Income. These pro
forma statements may not be indicative of the actual results that may have
occurred if the combinations had been in effect on the dates indicated or which
may be experienced in the future. These pro forma statements should be read in
conjunction with the historical financial statements and footnote disclosures
of (i) Insignia included on Form 10-K filed with the Securities and Exchange
Commission ("SEC") on March 31, 1999, (ii) Douglas Elliman Brokerage (included
elsewhere herein) and (iii) St. Quintin London Partnership Group and St.
Quintin Manchester Partnership included on Form 8-K/A dated March 5, 1999 and
filed with the SEC on May 19, 1999, respectively.
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (In
thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------- PRO FORMA
ST. DOUGLAS OTHER INCOME
INSIGNIA QUINTIN ELLIMAN ADJUSTMENT STATEMENT
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Real estate services $ 270,806 $ 6,281 $ 39,253 $ $ 316,340
--
Property operations 787 -- -- -- 787
Interest 2,262 78 -- (78) (a) 2,262
---------------- -------------- --------------- -------------- --------------
Total revenues 273,855 6,359 39,253 (78) 319,389
------------------------------- --------------- -------------- --------------
COSTS AND EXPENSES
Real estate services 250,911 8,450 32,252 (2,654) (b) 288,959
Property operations 262 -- -- -- 262
Administrative 4,627 -- -- -- 4,627
Interest 2,519 11 43 2,328 (c) 4,901
Property interest 329 -- -- -- 329
Depreciation 2,602 91 588 (485) (d) 2,796
Property depreciation 117 -- -- -- 117
Amortization of intangibles 10,921 -- -- 1,412 (e) 12,333
Merger related expenses 5,533 -- -- (5,533) (f) --
------------------------------- --------------- -------------- --------------
Total expenses 277,821 8,552 32,883 (4,932) 314,324
---------------- -------------- --------------- -------------- --------------
(3,966) (2,193) 6,370 4,854 5,065
Equity earnings in real estate ventures 1,922 -- -- -- 1,922
---------------- -------------- --------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES (2,044) (2,193) 6,370 4,854 6,987
Provision for income taxes 29 -- 26 3,439 (g) 3,494
---------------- -------------- --------------- -------------- --------------
NET INCOME (LOSS) $ (2,073) $ (2,193) $ 6,344 $ 1,415 $ 3,493
================ ============== =============== ============== ==============
Per share amounts - basic $ (0.10) $ 0.16
================ ==============
Per share amounts - assuming dilution $ (0.10) $ 0.15
================ ==============
Weighted average common shares and
assumed conversions 21,555 2,101 (h) 23,656
================ ============== ==============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998 (In
thousands, except per share data)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
PRO FORMA
DOUGLAS OTHER STATEMENT OF
INSIGNIA ST. QUINTIN ELLIMAN ADJUSTMENTS INCOME
-------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES
Real estate services $507,351 $ 40,035 $75,862 $ -- $ 623,248
Interest 3,196 789 -- (789(a) 3,196
Other 233 366 -- -- 599
-------------- -------------- ------------- ------------ ------------
Total revenues 510,780 41,190 75,862 (789) 627,043
-------------- -------------- ------------- ------------ ------------
COSTS AND EXPENSES
Real estate services 451,774 32,979 63,840 1,244(b) 549,837
Administrative 7,232 -- -- -- 7,232
Interest 1,378 23 106 6,082(c) 7,589
Depreciation 3,090 318 1,200 (995(d) 3,613
Amortization of intangibles 19,453 -- -- 3,777(e) 23,230
Provision for loss on subsidiary 2,300 -- -- -- 2,300
-------------- -------------- ------------- ------------ -------------
Total expenses 485,227 33,320 65,146 10,108 593,801
-------------- -------------- ------------- ------------ -------------
25,553 7,870 10,716 (10,897) 33,242
Equity losses in real estate ventures (1,896) -- -- -- (1,896)
Minority interests 371 -- -- -- 371
-------------- -------------- ------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 24,028 7,870 10,716 (10,897) 31,717
Provision for income taxes 12,975 366 43 3,051(g) 16,435
-------------- -------------- ------------- ------------ ------------
NET INCOME (LOSS) $ 11,053 $ 7,504 $10,673 $ (13,948) $ 15,282
============== ============== ============= ============ ============
Per share amounts - basic $ 0.52 $ 0.73
============ ============
Per share amounts - assuming dilution $ 0.50 $ 0.68
============ ============
Weighted average common shares and
assumed conversions 21,993 612(h) 22,605
=========== ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
INCOME INCREASE (DECREASE)
----------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
--------------------- ------------------
<S> <C> <C>
PRO FORMA ADJUSTMENTS
REVENUES
(a) St. Quintin distributed all its cash to its owners pursuant to the purchase agreement
with Insignia. The elimination of interest income is reflected as a pro forma adjustment $ (78) $ (789)
COSTS AND EXPENSES
(b) Reduction (increase) in real estate services expenses:
As part of the St. Quintin acquisition, an office lease not to be used is being
sublet. The applicable rent is removed from real estate services expense 242 1,490
As part of the Douglas Elliman acquisition, the present value of future lease
obligations pertaining to the difference between the rental rates pursuant to the
leases below current market rent was recorded as an asset. A pro forma adjustment
is made to reflect the applicable rent in real estate services expense (205) (483)
St. Quintin operated as a partnership. A pro forma adjustment is made to reflect
partners' salaries on the terms entered into at the time of the acquisition (163) (1,436)
The St. Quintin bonus plan was modified on the acquisition date. A pro forma
adjustment is made to adjust to the bonus amount as calculated in accordance with
this modification 2,780 (815)
--------------------- ------------------
2,654 (1,244)
--------------------- ------------------
(c) Represents (increase) decrease in interest expense:
Represents the pro forma adjustment for interest expense from $89.3 million in
borrowings on Insignia's revolving credit facility (approximately 7% per annum - a
1/8 of a percent variance in interest rates would result in a change in pro forma
interest of approximately $40,000 and $100,000 for the periods ended June 30, 1999
and December 31, 1998, respectively) (2,328) (6,008)
Interest expense on the present value obligation for the office lease described in
(b) above is reflected as a pro forma adjustment using a 9% present value discount
rate in calculating the liabilities (11) (97)
Represents the pro forma adjustment to eliminate interest expense on debt retired as
a condition to the acquisition 11 23
--------------------- ------------------
(2,328) (6,082)
--------------------- ------------------
(d) Represents the reduction of Douglas Elliman depreciation expense based on purchase
price allocated to property and equipment (5 yr.) 485 995
(e) Represents amortization of purchase price allocated to goodwill (25 yr.):
St. Quintin (215) (1,287)
Douglas Elliman (1,197) (2,490)
--------------------- ------------------
(1,412) (3,777)
(f) Represents the pro forma adjustment to eliminate one-time merger related expenses
attributable to the St. Quintin acquisition 5,533 --
--------------------- ------------------
Total cost and expense effect 4,932 (10,108)
--------------------- ------------------
(g) Income tax effect (3,439) (3,051)
--------------------- ------------------
ADJUSTMENT TO NET INCOME $ 1,415 $ (13,948)
===================== ==================
</TABLE>
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1999 1998
--------------------- ------------------
<S> <C> <C>
SHARE DATA (h) Weighted average common shares and assumed conversions:
Issuance of 305,981 shares of Insignia common stock in connection with the
St. Quintin acquisition 218 306
Potential assumed conversions, with respect to assumed options to purchase 611,962
shares of Insignia common stock in connection with the St. Quintin acquisition 224 306
Potential assumed conversions with respect to common stock equivalents of Insignia 1,659 --
--------------------- ------------------
2,101 612
===================== ==================
</TABLE>
NOTE 1
The statement of income of Insignia for the six months ended June 30, 1999
includes operating results for St. Quintin and Douglas Elliman for the
respective periods of ownership. The statements of income for St. Quintin and
Douglas Elliman for the six months ended June 30, 1999 represent historical
operating results for the periods prior to acquisition.
NOTE 2
The financial statements of St. Quintin have been translated from British
Pounds to Dollars using the following exchange rates: $1.6194 for the statement
of income for the six months ended June 30, 1999 and $1.6641 for the statement
of income for year ended December 31, 1998. These exchange rates have been
determined based on the estimated average rate for each period.
NOTE 3
The acquisition and subsequent operational merger with REGL is expected to
achieve significant operating synergies due primarily to accommodation savings
from subleased excess office space of REGL, and to a lesser extent, the
elimination of duplicated overhead costs. These synergies, which are not
reflected in the pro forma results presented, are estimated at more than $3
million annually.
NOTE 4
Certain items in this report may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve known and unknown risks, uncertainties and other factors
which may cause these pro forma financial statements to be materially different
from future results or achievements expressed or implied by such
forward-looking statements. You can identify such statements by the fact that
they do not relate strictly to historical or current facts. Actual results will
be affected by a variety of risks and factors, including, without limitation,
economic conditions, real estate risks and financing risks.
All such forward-looking statements speak only as of the date of this
report. Insignia expressly disclaims any obligation or undertaking to
release publicly any updates of revisions to any forward-looking statements
contained herein to reflect any change in Insignia's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
<PAGE>
(C) EXHIBITS
10.1 Purchase Agreement, dated as of May 27, 1999, among Douglas Elliman,
Douglas Elliman, Inc. and Douglas Elliman Insurance Brokerage Corp. as
seller and DE Acquisition, LLC as buyer. *
23.1 Consent of Ernst & Young LLP
99.1 Press release dated June 23, 1999. *
- -------------------
* Previously filed.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated August 6, 1999 with respect to
the financial statements of Douglas Elliman Brokerage for the years ended
December 31, 1998 and 1997 included in the Form 8-K/A of Insignia Financial
Group, Inc.
/s/ Ernst & Young LLP
New York, New York
August 30, 1999
