FORM 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of it Report on Form 8-K dated July 1,
1996 filed on July 12, 1996 as set forth in the pages attached hereto:
Item 7 Financial Statements and Exhibits
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, thereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ James A. Aston
-----------------------
James A. Aston
Chief Financial Officer
DATE: September 13, 1996
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Combined Financial Statements for Edward S. Gordon Company, Inc.
and Edward S. Gordon Company of New Jersey, Inc. as of December
31, 1995, 1994, and 1993 with report of Independent Auditors
(b) Pro Forma Condensed Consolidated Financial Statements (Unaudited)
(c) Exhibits
Reference is made to Form 8-K Item 7(c) dated July 1, 1996 and
filed July 12, 1996 for a list of exhibits which are incorporated
hereby by reference.
<PAGE>
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
EDWARD S. GORDON COMPANY, INC. and
EDWARD S. GORDON COMPANY of NEW JERSEY, INC.
COMBINED FINANCIAL STATEMENTS
For the years ended
December 31, 1995, 1994 and 1993
<PAGE>
EDWARD S. GORDON COMPANY, INC. and
EDWARD S. GORDON COMPANY of NEW JERSEY, INC.
Index to COMBINED FINANCIAL STATEMENTS
Page(s)
---------
Report of Independent Accountants 1
Combined Financial Statements:
Combined Balance Sheets, December 31, 1995 and 1994 2
Combined Statements of Operations for the years
ended December 31, 1995, 1994 and 1993 3
Combined Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993 4
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 5
Notes to Combined Financial Statements 6-12
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder of
Edward S. Gordon Company, Inc. and
Edward S. Gordon Company of New Jersey, Inc.:
We have audited the accompanying combined balance sheets of EDWARD S. GORDON
COMPANY, INC. and EDWARD S. GORDON COMPANY of NEW JERSEY, INC. (the "Company")
as of December 31, 1995 and 1994, and the related combined statements of
operations, stockholders' equity and cash flows for the three years ended
December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial position of Edward S. Gordon
Company, Inc. and Edward S. Gordon Company of New Jersey, Inc. as of
December 31, 1995 and 1994, and the combined results of their operations and
their cash flows for the years ended December 31, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
New York, New York
April 1, 1996.
<PAGE>
EDWARD S. GORDON COMPANY, INC. and
EDWARD S. GORDON COMPANY of NEW JERSEY, INC.
Combined Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS: 1995 1994
--------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,042,671 $ 804,712
Accounts receivable, net of allowance for
uncollectible accounts of $998,000 in 1995 and $720,000
in 1994 41,430,209 37,687,975
Notes receivable from employees, net of allowance
for uncollectible accounts of $678,000 in 1995
and $378,000 in 1994 2,340,706 2,750,621
Other current assets 2,406,408 252,629
--------------- ----------------
Total current assets 47,219,994 41,495,937
--------------- ----------------
Fixed assets:
Furniture, fixtures and transportation
equipment 16,526,099 14,791,520
Leasehold improvements 3,851,904 3,666,234
--------------- ----------------
20,378,003 18,457,754
Less, accumulated depreciation and
amortization (10,301,983) (12,204,636)
--------------- -----------
Net fixed assets 10,076,020 6,253,118
--------------- ----------------
Accounts receivable - noncurrent, net of discount of
$1,096,000 in 1995 and $944,000 in 1994 4,250,042 4,603,584
Other assets 654,234 528,130
--------------- ----------------
$ 62,200,290 $ 52,880,769
=============== ================
<FN>
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY: 1995 1994
--------------- ---------------
Current liabilities:
Commissions payable:
Related parties $ 734,270 $ 4,035,769
Salespersons 18,470,222 12,281,880
Co-brokers 2,442,761 3,070,325
Demand note payable - bank 5,600,000 8,275,000
Accounts payable and accrued expenses 3,584,269 1,657,165
Accrued expenses - related parties 500,000 1,072,000
Deferred compensation payable 2,615,000 1,341,000
Deferred income taxes 1,648,113 1,647,150
Taxes payable 1,250,000
Other 335,605 400,000
--------------- ---------------
Total current liabilities 35,930,240 35,030,289
--------------- ---------------
Other liabilities:
Commissions payable - noncurrent:
Related parties, net of discount of $19,000 in 1995
and $94,000 in 1994 72,183 456,362
Salespersons, net of discount of $482,000 in 1995
and $306,000 in 1994 1,875,070 1,485,800
Co-brokers, net of discount of $57,000 in 1995
and $82,000 in 1994 221,933 399,278
Long-term debt 7,500,000
Deferred income taxes 450,142 52,207
Deferred rent payable 1,829,079 2,185,047
--------------- ---------------
Total other liabilities 11,948,407 4,578,694
--------------- ---------------
Total liabilities 47,878,647 39,608,983
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Edward S. Gordon Company, Inc. common stock, $.01 par value;
authorized 1,400,000 shares; issued 1,236,000 shares; outstanding
710,000 shares 12,360 12,360
Edward S. Gordon Company of New Jersey, Inc. common stock,
$.01 par value; authorized 5,000,000 shares; issued 1,587,000 shares;
outstanding 710,000 shares in 1995 and 1,105,000 shares in 1994 15,870 15,870
Additional paid-in capital 1,799,821 1,799,821
Retained earnings 17,592,558 16,542,701
Less, Treasury stock, at cost:
Edward S. Gordon Company, Inc., 526,000 shares (5,098,566) (5,098,566)
Edward S. Gordon Company of New Jersey, Inc.,
877,000 shares in 1995 and 482,000 shares in 1994 (400) (400)
--------------- ---------------
Total stockholders' equity 14,321,643 13,271,786
--------------- ---------------
$ 62,200,290 $ 52,880,769
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS of OPERATIONS
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue:
Revenue before co-brokers' commissions $ 97,193,603 $ 104,973,015 $ 71,205,126
Co-brokers' commissions (5,129,023) (8,696,977) (5,175,090)
--------------- ---------------- ----------------
Net revenue 92,064,580 96,276,038 66,030,036
Salespersons' commissions 39,562,989 40,180,629 26,432,223
-------------- ---------------- ----------------
52,501,591 56,095,409 39,597,813
--------------- ---------------- ----------------
Expenses:
Payroll and related benefits 32,804,688 33,692,677 24,783,134
Professional fees 1,607,314 1,411,811 906,048
Rent 4,181,664 4,558,599 4,895,717
Depreciation and amortization 2,476,200 1,788,749 1,889,748
General and administrative 9,486,178 9,941,765 9,330,445
--------------- ---------------- ----------------
50,556,044 51,393,601 41,805,092
--------------- ---------------- ----------------
Department income (loss) 1,945,547 4,701,808 (2,207,279)
--------------- ---------------- ----------------
Other income (expenses):
Interest and dividend income 84,259 58,676 201,171
Interest expense (339,072) (396,362) (781,993)
Sublease income 209,604 401,823
Loss on write-off of investment (45,000)
-------------- ---------------- ----------------
Other expenses, net (254,813) (128,082) (223,999)
--------------- ---------------- ----------------
Income (loss) before provision
for income taxes 1,690,734 4,573,726 (2,431,278)
-------------- ---------------- ----------------
Provision (benefit) for income taxes:
Current 241,979 396,653 229,629
Deferred 398,898 408,582 (381,290)
-------------- ---------------- ----------------
640,877 805,235 (151,661)
-------------- ---------------- ----------------
Net income (loss) $ 1,049,857 $ 3,768,491 (2,279,617)
=============== ================ ================
<FN>
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS of STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
Edward S. Gordon
Edward S. Gordon Company of Edward S. Gordon
Company, Inc. New Jersey, Inc. Edward S. Gordon Company of Total
Common Stock Common Stock Additional Company, Inc. New Jersey, Inc. Stock-
$.01 Par Value $.01 Par Value Paid-in Retained Treasury Stock Treasury Stock holders'
Shares Amount Shares Amount Capital Earnings Shares Amount Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
January 1,
1993 1,236,000 $ 12,360 1,587,000 $ 15,870 $1,799,821 $21,060,253 526,000 $(5,098,566) 482,000 $ (400) $17,789,338
Net loss (2,279,617) (2,279,617)
Distribution (6,006,426) (6,006,426)
Balance
December
31, 1993 1,236,000 12,360 1,587,000 15,870 1,799,821 12,774,210 526,000 (5,098,566) 482,000 (400) 9,503,295
Net income 3,768,491 3,768,491
Balance
December
31, 1994 1,236,000 12,360 1,587,000 15,870 1,799,821 16,542,701 526,000 (5,098,566) 482,000 (400) 13,271,786
Net income 1,049,857 1,049,857
Conversion
of common
stock 395,000
Balance
December
31, 1995 1,236,000 $ 12,360 1,587,000 $15,870 $1,799,821 $17,592,558 526,000 $(5,098,566) 877,000 $(400) $14,321,643
</TABLE>
<PAGE>
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,049,857 $ 3,768,491 $ (2,279,617)
-------------- -------------- --------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,476,200 1,788,749 1,889,748
Discount on non-current commission receivables
and payables 76,248 (18,975) 480,610
Write-off of investment 45,000
Contribution of investment bonds 192,620 75,000
Provision for uncollectible accounts 1,016,523 17,510 681,968
Deferred income taxes 398,898 408,582 (381,290)
Straight-line rent adjustment (355,968) (568,900) (235,454)
Deferred compensation 1,274,000 1,341,000
Income tax reserve (1,250,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (3,819,024) (10,525,161) 2,071,479
Increase in employee notes receivable and other
current assets (2,482,209) (69,183) (2,666,843)
Decrease in other assets 1,504,360
Increase in commissions payable 2,162,931 4,320,417 1,059,994
Increase in accounts payable, accrued expenses
and other liabilities 1,290,709 (174,664) 79,129
(Decrease) increase in income taxes payable (40,160) 37,693
-------------- -------------- --------------
Total adjustments 788,308 (3,328,165) 4,641,394
-------------- -------------- --------------
Net cash provided by operating activities 1,838,165 440,326 2,361,777
-------------- -------------- --------------
Cash flows from investing activities:
Repayment of advance to stockholder 100,000
Advance to stockholder 2,445,000)
Purchases of artwork (5,640)
Capital expenditures (6,299,102) (389,456) (708,672)
Proceeds from sales of fixed assets 6,500
Purchases of investment bonds (126,104) (10,000) (110,000)
-------------- -------------- --------------
Net cash used in investing activities (6,425,206) (392,956) (3,169,312)
-------------- -------------- --------------
Cash flows from financing activities:
Demand note payable borrowings 5,600,000 8,275,000 8,200,000
Payments on demand note payable (8,275,000) (8,200,000) (7,333,000)
Long-term debt borrowings 7,500,000
-------------- -------------- --------------
Net cash provided by financing activities 4,825,000 75,000 867,000
-------------- -------------- --------------
Net increase in cash and cash equivalents 237,959 122,370 59,465
Cash and cash equivalents, at beginning of year 804,712 682,342 622,877
-------------- -------------- --------------
Cash and cash equivalents, at end of year $ 1,042,671 $ 804,712 $ 682,342
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 237,824 $ 415,337 $ 341,383
Income taxes 309,155 483,723 104,948
<FN>
Supplemental disclosure of non-cash investing
and financing activities:
1) During 1993, the Company made a deemed distribution of $6,006,426 to a
stockholder by reducing the advance due from that stockholder.
The accompanying notes are an integral part of the combined financial
statements.
</FN>
</TABLE>
<PAGE>
Notes to Combined Financial Statements
1. Summary of Significant Accounting Policies:
Principles of combination:
The accompanying combined financial statements include the accounts of
Edward S. Gordon Company, Inc. and Edward S. Gordon Company of New Jersey,
Inc. (together, the "Company"). These financial statements have been
prepared on a combined basis because each company is owned and controlled
by the same stockholder and are in the same industry. Inter-entity accounts
and transactions are eliminated in the combination.
Commission income and expense:
The income of the Company is derived principally from commissions in
connection with the leasing of commercial office space, consulting
services, property management services and the sale of properties primarily
in the New York City metropolitan area. Income and the related commission
expense are recognized upon the signing of a lease or sales document.
Imputed Interest:
Interest has been imputed on non-current commissions receivable and payable
arising during the years ended December 31, 1995, 1994 and 1993 at rates of
9%, 8% and 6%, respectively.
Fixed assets:
Fixed assets are recorded at cost and are being depreciated over their
estimated useful lives, which range from 5 to 13 years, principally by the
straight-line and double-declining-balance methods. Leasehold improvements
are amortized by the straight-line method over the lesser of their
estimated useful lives or the remaining lease terms. Fixed assets are
written off in the year after they have become fully depreciated.
During 1995, the Company traded in a fixed asset for another fixed asset
("new asset") for which it received a trade-in value. The basis of the new
asset has been reduced by the deferred gain of $3,013,000.
Income taxes:
The Company has elected, for federal and state income tax purposes, to be
treated under the provisions of the Internal Revenue Code as an "Electing
Small Business Corporation" ("S" Corporation). An "S" Corporation is
generally not subject to federal or state income taxes.
However, the Company is subject to New York City income taxes. Therefore,
the effective income tax rate is substantially less than the statutory
federal income tax rate. The annual corporate income, whether distributed
or not, is taxed currently to the individual stockholders according to
their ownership interest in the shares of the respective "S" Corporation.
For income tax purposes, the Company utilizes the cash receipts and
disbursements method, whereas the accrual method is used for financial
reporting. Deferred New York City corporation income taxes are reflected in
the financial statements primarily to recognize the effects of these
different methods. No provision is reflected for income tax liabilities of
individual stockholders related to their share of the Company's income.
<PAGE>
Notes to Combined Financial Statements, Continued
Cash and cash equivalents:
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
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 revenue and expenses
during the reported period. The most significant estimates and assumptions
relate to the realizability of accounts receivable and the recoverability
of fixed assets. Actual results could differ from those estimates.
New Pronouncements:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets To Be Disposed Of." This
statement addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and used. This statement will be effective for the Company in fiscal
year 1996. This statement, when adopted, is not expected to have a material
effect on the Company's statements of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." This statement establishes fair value-based financial
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity instruments or by
incurring a liability to its supplier in amounts based on the price of its
common stock or other equity instruments. This statement will be effective
for the Company in fiscal year 1996. This statement, when adopted, is not
expected to have a material effect on the Company's statements of position
or operations.
2. Line of Credit:
The Company has a $10,000,000 line of credit which is due on demand, of
which $5,600,000 and $8,275,000 is outstanding at December 31, 1995 and
1994, respectively. The interest rate on the line of credit was prime
(8.5%) at December 31, 1995 and prime less .25% (8.25%) at December 31,
1994. The line of credit is collateralized by accounts receivable and is
guaranteed by the stockholder of the Company.
<PAGE>
Notes to Combined Financial Statements, Continued
3. Long-Term Debt:
The following is a summary of notes payable outstanding at December 31, 1995:
Amount Balance
Original Maturity Due At December 31,
Principal Date Maturity 1995
- ---------------- ----------- -------------- ----------------
$ 4,000,000 (A) 12/12/00 $ 4,000,000 $ 4,000,000
3,000,000 (B) 12/12/00 3,000,000 3,000,000
500,000 (C) 12/12/00 500,000 500,000
----------------
$ 7,500,000
================
(A) Interest rate is variable (LIBOR plus 1.25%).
(B) Interest rate is fixed at 6.86%.
(C) Interest rate is fixed at 6.64%.
The notes are collateralized by certain fixed assets which have an approximate
carrying amount of $6,318,435 at December 31, 1995.
4. Income Taxes:
Deferred income taxes arise from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the combined
financial statements. At December 31, 1995 and 1994, the components of the
net deferred income tax liability is as follows:
1995 1994
------------ -----------
Assets:
Allowance for uncollectible accounts $ 87,818 $ 62,500
Accounts payable and accrued expenses 409,571 138,916
Deferred compensation payable 261,000 134,000
Commissions payable 2,167,456 1,966,710
Deferred rent payable 179,553 213,738
------------- ------------
3,105,398 2,515,864
------------- ------------
Liabilities:
Fixed assets 562,238 86,486
Accounts receivable 4,224,919 3,981,155
Other assets 416,496 147,580
------------- -------------
5,203,653 4,215,221
------------- -------------
Net deferred tax liability $ 2,098,255 $ 1,699,357
=============== ==============
Continued
<PAGE>
Notes to Combined Financial Statements, Continued
The Company has recorded a current and noncurrent deferred tax liability of
$1,648,113 and $450,142, respectively, at December 31, 1995 and $1,647,150
and $52,207, respectively, at December 31, 1994.
5. Commitments and Contingencies:
a. The Company is leasing office space under the terms of various leases,
which have been accounted for as operating leases. These obligations
extend for various period through June 2005. One of the leases
provides the option to extend the term for two successive periods of
five years each. The Company was granted an abatement of rent at the
beginning of one of the lease obligations for nine months, during
which time no rent payments were required or made. For financial
statement purposes, the total rent due under this lease has been
allocated ratably over its term.
Rent expense was $4,181,664 in 1995, $4,558,599 in 1994 and $4,895,717
in 1993. Sublease income for 1994 and 1993 amounted to $209,604 and
$401,823, respectively. The leases require the Company to pay a
proportionate share of real estate tax and operating expense
increments, which amounted to $849,071, $800,971 and $848,654 for
1995, 1994 and 1993, respectively.
The Company's obligations under these operating leases as of December
31, 1995 for the next five years and thereafter are as follows:
Year Ending
------------------
1996 $ 3,814,352
1997 3,814,352
1998 3,692,780
1999 3,389,845
2000 3,260,300
Thereafter 14,619,901
---------------
Total minimum payments required $ 32,591,530
===============
b. The Company acts as trustee in connection with property that it
manages and other services that it renders. The funds held in trust
and not reflected on the accompanying combined balance sheets amounted
to $35,888,352 and $33,945,707 at December 31, 1995 and 1994,
respectively.
c. The Company had recorded, at December 31, 1994 and 1993, a $1,250,000
reserve for potential assessments that could result from a New York
State sales tax audit. The audit was completed in 1995 and no
assessment was made against the Company. Accordingly, the reserve of
$1,250,000 was reversed and has been reflected as a reduction of
general and administrative expenses in the accompanying 1995 combined
statements of operations.
<PAGE>
Notes to Combined Financial Statements, Continued
d. The Company is involved in litigation and disputes which are normal in
the real estate leasing industry. Management is of the opinion that
the ultimate liability, if any, resulting from litigation, will not
have a material adverse effect on the Company's combined financial
condition or results of operations.
6. Related Parties:
a. The Company subleased office space to a business partially owned by a
person related to a stockholder of the Company. The sublease expired
on February 28, 1994.
b. Amounts owed to certain employees for stock they sold back to the
Company amounted to $200,000 at December 31, 1995 and $400,000 at
December 31, 1994, and is included in other current liabilities.
7. Savings Plan:
The Company has a contributory savings plan for the benefit of its
employees. It is the intention of the Company that this plan meet all
requirements for profit-sharing plan qualification under Sections 401(a)
and 401(b) of the Internal Revenue Code. Employees may make contributions
of up to 16% of their compensation. The Company makes a matching
contribution equal to a maximum of 50% of the first 6% of employee
compensation. Participants are always 100% vested in their contributions
while they vest at 20% per year in regards to the Company matching
contribution for each year that they perform over 1,000 hours of service.
For the years ended December 31, 1995, 1994 and 1993, the Company's
matching contribution was $340,362, $208,572 and $197,884, respectively.
8. Stock Options and Deferred Compensation Agreement:
In 1994, the Company amended and restated its stock option and deferred
compensation agreement ("Agreement") with certain employees. The Agreement
grants stock options to purchase an aggregate of 2,954,000 shares of the
Company's common stock. There is no limit on the amount of options
available for grant. The options, which do not expire, fully vest only upon
the occurrence of certain defined events (an "Event"). The exercise price
of the options is based upon the calculated fair market value of the
Company's common stock on the stock option grant date. At December 31,
1995, the exercise prices per share range from $5.75 to $13.28 for Edward
S. Gordon Company, Inc. and from $0.00 to $0.126 for Edward S. Gordon
Company of New Jersey, Inc. The Company has the right to prohibit the
exercise of the options by giving the option holder written notice prior to
the commencement of the exercise period. In the event that the Company
prohibits the exercise of stock it must pay the option holder an amount
equal to the excess of the fair market value of the consideration which the
option holder would have received with respect to the shares upon the
consummation of the Event over the exercise price of the shares. The
Company has also granted the same employees receiving stock options the
<PAGE>
Notes to Combined Financial Statements, Continued
right to receive deferred compensation equal to their pro-rata share of
defined profit and loss upon termination of employment. For certain option
holders, the right to receive deferred compensation vests in increments of
20% on the anniversary of the grant in each of the subsequent five years.
See Note 1.
Information with respect to stock options granted is as follows:
Options outstanding, January 1, 1993 662,000
Granted 195,000
Forfeited (17,500)
-----------
Options outstanding, December 31, 1993 839,500
Granted 1,814,500
-----------
Options outstanding, December 31, 1994 2,654,000
Granted 350,000
Forfeited (50,000)
-----------
Options outstanding, December 31, 1995 2,954,000
===========
During 1995, to facilitate tax requirements for certain states, the
majority shareholder of the Company requested the minority shareholders of
Edward S. Gordon Company of New Jersey, Inc. to exchange 395,000 shares of
common stock for 350,000 stock options. The options are convertible back
into common stock of Edward S. Gordon Company of New Jersey, Inc. at a zero
exercise price.
9. Concentration of Risk:
Business and Credit Concentration:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. No
customer accounted for more than 10% of the Company's total accounts
receivable at December 31, 1995. Accounts receivable from two customers at
December 31, 1994 aggregated more than 10% of the Company's total accounts
receivable and amounted to $9,827,052. The Company generally does not
require collateral or other security in support of these financial
instruments with credit risk. The Company believes it mitigates these risks
by dealing with a large number of customers and their familiarity with the
real estate leasing industry.
Financial Risk:
The Company maintains its cash and cash equivalents at five financial
institutions which management believes are of high quality.
Geographic Concentration:
The Company's revenue is generated primarily in the New York City
metropolitan area. This concentration imposes on the Company certain risks,
which include local economic conditions, that are not within management's
control.
<PAGE>
Notes to Combined Financial Statements, Continued
10. Fair Value of Financial Instruments:
Cash and cash equivalents, non-current accounts receivable, non-current
commissions payable and variable rate and fixed-rate notes payable are
reflected in the accompanying balance sheet at amounts considered by
management to reasonably approximate fair value. Management estimates the
fair value of its long-term fixed rate notes payable using discounted cash
flow analysis based upon the Company's current borrowing rate for debt with
similar maturities.
11. Subsequent Event:
Effective June 30, 1996, the Company agreed to sell certain fixed assets,
contracts and the Company name to the Insignia Financial Group Inc. (the
"Acquiror") for $49,300,000 in cash, $24,450,000 in common stock options of
the Acquiror plus a contingent purchase price feature. This transaction
falls under the definition of an Event in the stock option and deferred
compensation agreement (Note 8). Therefore, the outstanding stock options
became fully vested upon the consummation of the sale. The Company,
however, prohibited the exercise of the stock options by giving the option
holders written notice before the commencement of the exercise period and
paying the option holders an amount equal to the excess of the fair market
value of the consideration which the option holders would have received if
the exercise of the stock options were not prohibited over the exercise
price of the shares. This payment amounted to $40,278,570.
<PAGE>
(b) Pro Forma Condensed Financials
Insignia Financial Group, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On June 30, 1996 ("Closing Date"), Insignia Financial Group, Inc.
("Insignia" or the "Company") acquired substantially all of the assets of Edward
S. Gordon Co., Inc. and Edward S. Gordon Co. of New Jersey, Inc. ("ESG"),
pursuant to an Asset and Stock Purchase Agreement (the "Agreement") dated as of
June 17, 1996 among Insignia Financial Group, Inc., Insignia Buyer Corporation,
Edward S. Gordon Company, Incorporated, Edward S. Gordon Company of New Jersey,
Inc. and Edward S. Gordon. The assets acquired included leases for office space
at four locations where ESG operates its commercial real estate business,
together with related furniture, fixtures and equipment. The Company intends to
continue such use of the acquired assets.
The purchase price was $73.8 million of which $49.3 million was paid in
cash at closing, and the balance, which was determined through arms-length
negotiations, paid through the assumption of existing ESG stock options. The
cash portion of the purchase price was financed by borrowing under the Company's
syndicated credit facility with First Union National Bank of South Carolina as
Administrative Agent; and Lehman Commercial Paper, Inc., as Syndication Agent.
ESG provides commercial property management services for approximately 25.5
million square feet of office space, primarily in the New York metropolitan
area. The Company also provides commercial leasing, tenant representation, and
corporate consulting services for properties and tenants primarily in the New
York, New Jersey and Connecticut markets, as well as investment sales of
commercial properties nationally. ESG will operate as a wholly-owned subsidiary
of Insignia.
Insignia acquired substantially all of the assets of National Property
Investors, Inc. ("NPI") and certain of its affiliates for an aggregate purchase
price of approximately $116 million effective January 22, 1996. The Condensed
Consolidated Balance Sheet and Pro Forma Statement of Income herein also include
the effect of this acquisition. The NPI acquisition was previously reported on
by the filing of Form 8-K on February 5, 1996.
The debt instrument used to finance the ESG and NPI acquisitions bear
interest at LIBOR plus 2.25 percent. A 1/8 percentage point change in the prime
rate would have approximately a $89,000 and $178,000 effect on earnings for the
six months ended June 30, 1996, and for the year ended December 31, 1995,
respectively.
<PAGE>
(b) Pro Forma Condensed Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
The following Condensed Consolidated Balance Sheet as of June 30, 1996, and
Pro Forma Condensed Consolidated Statements of Income for the six months ended
June 30, 1996, and the year ended December 31, 1995, gives effect to the
acquisitions of substantially all the assets of ESG and NPI by Insignia, as
effected at such date, in the case of the balance sheet, or at the beginning of
such periods, in the case of such pro forma statements of income. The pro forma
information is based on the historical financial statements of Insignia, ESG and
NPI, giving effect to the transactions under the purchase method of accounting
and the assumptions and adjustments in the accompanying Notes to Unaudited Pro
Forma Condensed Consolidated Financial Statements. Since the ESG acquisition was
effected as of June 30, 1996 and the NPI acquisition was prior to June 30, 1996
the historical Condensed Consolidated Balance Sheet as of June 30, 1996 properly
included such acquisitions.
The pro forma statements have been prepared by management of Insignia based
upon the financial statements of Insignia, ESG and NPI. These pro forma
statements may not be indicative of the results that actually would have
occurred if the combination had been in effect on the dates indicated or which
may be obtained in the future. The pro forma financial statements should be read
in conjunction with the financial statements and notes of Insignia which were
included in Form 10-K filed March 20, 1996 which is incorporated herein by
reference, of ESG included elsewhere herein, and NPI which were included in Form
S-3 filed on September 1, 1995.
<PAGE>
(b) Pro Forma Condensed Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
June 30, 1996
(Thousands of Dollars, except share data)
Assets
Cash and cash equivalents $ 57,366
Restricted cash 7,607
Receivables 19,101
Property and equipment 10,204
Real estate limited partnership interests 127,266
Apartment properties 25,309
Property management contracts 142,704
Costs in excess of net assets of acquired businesses 76,946
Other assets 7,217
-----
Total Assets $473,720
========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 2,491
Accrued and sundry liabilities 27,158
Deferred taxes payable 13,661
Acquisitions payable 73,924
Notes payable 123,556
Non-recourse mortgage notes payable 17,832
------
Total liabilities 258,622
=======
Minority interests in consolidated subsidiaries 2,690
Stockholders' Equity:
Common stock, Class A, par value $.01 per share authorized
50,000,000 shares, issued and outstanding 28,677,904 287
Additional paid-in capital 187,958
Retained earnings 24,163
------
Total stockholders' equity 212,408
-------
Total liabilities and stockholders' equity $473,720
========
See Notes to Unaudited Condensed Consolidated Balance Sheet and Notes to
Unaudited Pro Forma Condensed Consolidated Statements of Income
<PAGE>
(b) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Balance Sheet
The acquisition of the ESG was consummated at the end of the second
quarter; thus, the acquisition is reflected in Insignia's balance sheet at June
30, 1996. The NPI acquisition is also reflected on Insignia's June 30, 1996
balance sheet.
<PAGE>
<TABLE>
<CAPTION>
(b) Pro Forma Condensed Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statements of Income (Unaudited)
For the Six Months Ended June 30, 1996
(Thousands of Dollars, except share and per share data)
Pro Forma
Pro Forma Income
<S> <C> <C> <C> <C>
Insignia ESG Adjustments Statement
Revenues
Fee based services $77,193 $46,778 $ 627(a) $124,598
Apartment property revenues 3,399 -- 434(a) 3,833
Interest 1,588 20 (8)(a) 1,600
Other 1,139 -- 3(a) 1,142
83,319 46,798 1,056 131,173
Costs and Expenses
Fee based services 55,516 39,974 89(c) 95,579
Apartment property expenses 1,844 -- 237(c) 2,081
Administrative services 3,707 4,149 (2,715)(b) 5,141
Deferred compensation and stock option plan-- 37,664 (37,664)(d) --
Termination of employment agreement -- -- -- --
Interest 5,935 677 1,981(e) 8,593
Apartment property interest 732 -- 94(c) 826
Depreciation and amortization 9,481 1,447 1,058(f) 11,986
Apartment property depreciation 493 -- 63(c) 556
77,708 83,911 (36,857) 124,762
Equity earnings - limited
partnership interests 2,341 -- 111(c) 2,452
Minority interests in
consolidated subsidiaries (262) -- (19)(c) (281)
Income before income taxes 7,690 (37,113) 38,005 8,582
Provision (benefit) for income taxes 2,922 (3,528) 3,867(g) 3,261
Net Income (Loss) $ 4,768 $(33,585) $34,138 $ 5,321
Earnings per common share $0.15 $0.16
Weighted average common shares outstanding
and dilutive common
stock equivalents 30,023,895 1,093,648 31,117,543
<FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(b) Pro Forma Condensed Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statements of Income (Unaudited)
For the Year Ended December 31, 1995
(Thousands of Dollars, except share and per share data)
Pro Forma
Pro Forma Income
Insignia ESG NPI NPI II NPI IV Adjustments Statement
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Fee based services $118,828 $92,064 $17,715 $ -- $ -- $ -- $228,607
Apartment property revenues -- -- -- 1,133 6,164 -- 7,297
Interest 2,780 84 366 -- -- (84)(a) 3,146
Other 1,424 -- -- -- -- -- 1,424
----- -----
123,032 92,148 18,081 1,133 6,164 (84) 240,474
------- ------ ------ ----- ----- --- -------
Costs and Expenses
Fee based services 85,707 76,882 7,892 -- -- -- 170,481
Apartment property expenses -- -- -- 947 2,945 -- 3,892
Administrative services 8,020 9,486 -- -- -- (6,178)(b) 11,328
Deferred compensation and
stock option plan -- 1,274 -- -- -- (1,274)(d) --
Termination of employment
agreement 1,000 -- -- -- -- -- 1,000
Interest 7,049 339 5,801 -- -- 3,081(e) 16,270
Apartment property interest -- -- -- 121 1,538 -- 1,659
Depreciation and amortization 13,493 2,476 1,649 -- -- 4,676(f) 22,294
Apartment property depreciation -- -- -- 211 989 (87)(c) 1,113
115,269 90,457 15,342 1,279 5,472 218 228,037
Equity earnings - limited
partnership interests 2,461 -- 15,544 -- -- (9,358)(c) 8,647
Minority interests in
consolidated subsidiaries (131) -- (7,964) -- -- (2,537)(c) (10,632)
Income before income taxes 10,093 1,691 10,319 (146) 692 (12,197) 10,452
Provision for income taxes 3,835 641 (47) -- -- (458)(g) 3,971
Net Income before extraordinary item $ 6,258 $ 1,050 $10,366 $ (146) $ 692 $(11,739) $ 6,481
Earnings per common share
before extraordinary item $0.22 $ 0.20
Weighted average common shares
outstanding and dilutive
common stock equivalents 22,681,158 3,952,055(h) 26,633,213
<FN>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(b) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
The pro forma effects of the ESG and NPI acquisitions to income are
described below:
Income Income
Increase (Decrease) Increase (Decrease)
For the Six For the
Months Ended Year Ended
June 30, 1996 December 31, 1995
<S> <C> <C> <C> <C>
(a)Revenues
Reduction in interest income earned by ESG $ (20) $ (84)
NPI interest for 21 days (Note 1 below) 12 n/a
Net interest revenue (8)
NPI revenues for 21 days (Note 1 below
Fee based services 627 n/a
Apartment properties revenues 434 n/a
Other 3 n/a
1,056 (84)
(b)Administrative savings (Note 2 below) 2,715 6,178
(c)NPI expenses excluding depreciation and amortization in (f)
below, equity earnings, and minority interest
Fee based services (89)
Apartment property expenses (237)
Apartment property interest (94)
Apartment property depreciation (63) 87
Equity earnings 111 (9,358)
Minority interest (19) (2,537)
(d)Deferred compensation and stock option plan compensation
savings (Note 3 below) 37,664 1,274
(e)Interest on Credit Facility at 8.25% (1,981) (5,600)
Stock offering proceeds used to pay down debt (see h)
3,480
Amortization of Credit Facility Cost (961)
Net interest adjustment (1,981) (3,081)
(f)Depreciation and amortization
Reduction in:
Depreciation of property and equipment 1,447 2,476
Amortization of management contract 1,649
Increases in:
Depreciation of property and equipment (40) (80)
Amortization of management contract (960) (5,712)
Non-compete agreement (217) (433)
Cost in excess of net assets acquired (1,288) (2,576)
Total Depreciation and amortization (1,058) (4,676)
Net increase (decrease) to income before income taxes 38,005 (12,197)
(g)Income tax effects (3,867) 458
Net increase (decrease) to income $34,138 $(11,739)
<FN>
(h) The adjustment to weighted average common shares outstanding gives effect
to Insignia's 1995 stock offering (3,111,643 shares) and the issuance of
840,412 shares of common stock with respect to the ESG acquisition.
</FN>
</TABLE>
<PAGE>
(b) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
Note 1 National Property Investors, Inc.:
The pro forma statement of income for the period ended December 31,
1995 reflects Insignia's operations as if the NPI acquisition was
consummated effective January 1, 1995. NPI's audited statements of
income are on a fiscal year ended June 30; the pro forma income
statement represents NPI's results of operations (unaudited) for the
year ended December 31, 1995. The adjustment column on the pro forma
statement of income for the period ended June 30, 1996 includes
adjustments to Insignia's operations for the 21 days of NPI operations
before the acquisition was consummated on January 22, 1996.
Note 2 Administrative savings:
ESG incurred expenses for executive bonuses and personnel expenses;
the administrative savings is generally attributable to not incurring
these expenses on an ongoing basis.
Note 3 Deferred compensation and stock option plan compensation savings:
The acquisition transaction met the definition of an event in the ESG
stock option and deferred compensation agreement; therefore, ESG's
outstanding stock options became fully vested upon consummation of the
sale. However, ESG prohibited the exercise of the stock options by
giving the option holders written notice before the commencement of
the exercise period and paying the option holders an amount equal to
the excess of the fair market value of the consideration which the
option holders would have received if the exercise of the options were
not prohibited over the exercise of the shares. The subsequent payment
is represented in ESG's Condensed Combined Balance Sheet at June 30,
1996 (Unaudited) as $40,278,570 due to deferred compensation and stock
option participants. The amounts above represent the deferred
compensation and stock option plan expense incurred during each period
and are not indicative of ongoing operations.
