SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 9, 1996
(Date of earliest event reported)
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-19066 13-3591193
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification
Number)
One Insignia Financial Plaza
Post Office Box 1089
Greenville, South Carolina 29602
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (864) 239-1000
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Pro Forma Condensed Consolidated Financial Statements (Unaudited)
<PAGE>
(a) Pro Forma Condensed Consolidated Financials
Insignia Financial Group, Inc. and Subsidiaries
Convertible Preferred Securities Offering
On November 1 and 6, 1996, Insignia Financing I, a Delaware business trust (the
"Trust"), issued and sold (the "Convertible Preferred Securities Offering")
2,990,000 of its 6 1/2% Trust Convertible Preferred Securities with an aggregate
liquidation amount of $149.5 million (the "Convertible Preferred Securities").
All of the outstanding common securities of the Trust, with an aggregate
liquidation value of approximately $4.6 million (the "Common Securities"), are
owned by the Company which entitles it to designate the trustees of the Trust.
The Convertible Preferred Securities were sold to Lehman Brothers, Dillon, Read
& Co. Inc., Goldman, Sachs & Co. and A.G. Edwards & Sons, Inc. (the "Initial
Purchasers") for an aggregate purchase price of $149.5 million. The Company paid
the Initial Purchasers a commission of 3% of the aggregate purchase price. The
Initial Purchasers resold the Convertible Preferred Securities (i) to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")) in compliance with Rule 144A, (ii) to other
institutional "accredited investors" (as defined in Rule 501(A) (1), (2), (3) or
(7) under the Securities Act) in compliance with Regulation D under the
Securities Act and (iii) outside the United States to persons other than U.S.
persons in reliance on Regulation S under the Securities Act. The Convertible
Preferred Securities may be converted at the option of the holder after December
30, 1996 into shares of Common Stock at the rate of 1.8868 shares of Common
Stock for each Convertible Preferred Security (equivalent to a conversion price
of $26.50 per share of Common Stock). The Convertible Preferred Securities and
the Common Securities represent undivided beneficial interests in the assets of
the Trust, which consist of approximately $154.1 million aggregate principal
amount of the Company's 6 1/2% Convertible Subordinated Debentures due September
30, 2016.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996 and Pro Forma Condensed Consolidated Statements of Income for
the year ended December 31, 1995 and the nine months ended September 30, 1996
give effect to the sale by the Trust of the Convertible Preferred Securities and
the application of the estimated net proceeds therefrom. The Pro Forma Condensed
Consolidated Statement of Income for the year ended December 31, 1995 also gives
effect to the acquisition of all of the issued and outstanding stock of
O'Donnell Property Services, Inc. ("O'Donnell"), the consummation of the
acquisition of the property management business of Douglas Elliman-Gibbons &
Ives and Kreisel Company, Inc. (collectively known as "DEK"), the acquisition of
National Property Investors, Inc., its property management affiliates and
general partner and certain limited partner interests in affiliated real estate
limited partnerships (collectively, "NPI"), the acquisition of the business and
substantially all the assets of Edward S. Gordon Company, Incorporated and its
affiliates ("ESG"), and the acquisition of the commercial real estate services
business of Paragon Group, Inc. ("Paragon"), including borrowings under the
Company's revolving credit facility in connection therewith, and the acquisition
of limited partner interests in six partnerships that were formerly affiliated
with U.S. Shelter Corporation (collectively, the "Shelter Properties
Partnerships"), Consolidated Capital Properties III ("CCP III") and Consolidated
Capital Properties IV ("CCP IV"), as if effected at the beginning of such
period. The Pro Forma Condensed Consolidated Statement of Income for the year
ended December 31, 1995 also gives effect to the sale by Insignia of 3,850,000
shares of Common Stock and the application of the net proceeds therefrom as if
effected at the beginning of such period. The Pro Forma Condensed Consolidated
Statement of Income for the nine months ended September 30, 1996 also gives
effect to the NPI acquisition, the ESG acquisition and the Paragon acquisition,
including borrowings under the Company's revolving credit facility in connection
therewith, as if effected at the beginning of each period.
The pro forma statements have been prepared by management of Insignia based
upon the financial statements of Insignia, NPI, ESG, Paragon, the Shelter
Properties Partnerships, CCP III, CCP IV, O'Donnell, and Kreisel Company, Inc.
and the unaudited accounting records of Douglas Elliman-Gibbons & Ives. These
pro forma statements may not be indicative of results had the combination been
in effect on the dates indicated or of results which may be obtained in the
future. In each acquisition by Insignia, the acquired business has its own
overhead structure which includes executive management, accounting, and
management information costs. A significant portion of these overhead costs
historically has been eliminated upon acquisition as they have been absorbed
into Insignia's existing systems, thereby taking advantage of such operating
economies of scale. This elimination of duplicate management, accounting, and
information systems has allowed Insignia to improve operating margins and
provide better operating results than would be reflected on a pro forma basis.
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
September 30, 1996
(Thousands of Dollars, except share data)
<TABLE>
<CAPTION>
Preferred Pro Forma
Insignia Issuance Balance Sheet
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 60,131 $ -- $ 60,131
Restricted cash 642 -- 642
Receivables 14,292 -- 14,292
Commissions receivable 16,582 -- 16,582
Property and equipment 11,282 -- 11,282
Investments in real estate limited partnerships 124,898 -- 124,898
Property management contracts 133,827 -- 133,827
Apartment properties 25,178 -- 25,178
Costs in excess of net assets of acquired businesses 76,474 -- 76,474
Other assets 8,583 -- 8,583
----- -----
Total Assets $471,889 $ -- $471,889
======== ========= ========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 2,602 $ -- $ 2,602
Commissions payable 9,257 -- 9,257
Accrued and sundry liabilities 24,604 -- 24,604
Deferred taxes 13,661 -- 13,661
Non-recourse mortgage notes payable 20,408 -- 20,408
Notes payable 185,182 (144,515)(a) 40,667
------- -------- ------
Total liabilities 255,714 (144,515) 111,199
------- -------- -------
Redeemable convertible preferred stock -- 144,515(a) 144,515
Minority interests in consolidated subsidiaries 2,762 -- 2,762
Stockholders' Equity:
Common stock, Class A, par value $.01 per share 288 -- 288
Additional paid-in capital 188,710 -- 188,710
Retained earnings 24,415 -- 24,415
------ ------
Total stockholders' equity 213,413 -- 213,413
------- -------
Total liabilities and stockholders' equity $471,889 $ -- $471,889
======== ========= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(a) The proceeds of this offering, net of costs of issuance in the amount of
$4,985,000, are intended to be used to pay down amounts outstanding under
the Revolving Credit Facility and to retire certain other notes payable.
Notes Preferred
Payable Issuance
(Thousands of Dollars)
Net proceeds of this Offering $(144,515) $144,515
--------- --------
Change in respective item $(144,515) $144,515
--------- --------
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income (Unaudited)
For the Nine Months Ended September 30, 1996
(Thousands of Dollars, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Preferred Income
Insignia ESG Paragon Adjustments Issuance Statement
<S> <C> <C> <C> <C> <C>
Revenues
Fee based services $140,117 $ 46,778 $ 8,635 $ 627(a) $ -- $196,157
Interest 2,193 20 1 (8)(a) -- 2,206
Other 1,597 -- 556 3 (a) -- 2,156
Apartment property revenues 5,297 -- -- 434 (a) -- 5,731
----- --- -----
149,204 46,798 9,192 1,056 -- 206,250
Costs and Expenses
Fee based services 106,570 39,974 7,440 89 (c) -- 154,073
Administrative 5,681 4,149 1,559 (2,715)(b) -- 8,674
Apartment property expenses 2,838 -- -- 237 (c) -- 3,075
Deferred compensation and
stock option plan -- 37,664 -- (37,664)(d) -- --
Interest 10,244 677 751 1,548 (e) (8,929)(i) 4,291
Apartment property interest 1,698 -- -- 94 (c) -- 1,792
Depreciation and amortization 16,189 1,447 628 1,750 (f) -- 20,014
Apartment property depreciation 769 -- -- 63 (c) -- 832
--- -- ---
143,989 83,911 10,378 (36,598) (8,929) 192,751
Equity earnings - limited
partnership interest 3,072 -- -- 111 (g) -- 3,183
Minority interests in
consolidated subsidiaries (190) -- -- (19)(g) (7,475)(i) (7,684)
---- --- ------ ------
Income before income taxes 8,097 (37,113) (1,186) 37,746 1,454 8,998
Provision for income taxes 3,077 (3,528) -- 3,318 (h) 553 (i) 3,420
----- ------ ----- --- -----
Net Income $ 5,020 $(33,585) $(1,186) $34,428 $ 901 $ 5,578
======== ======== ======= ======= ======= ========
Earnings per common share $0.15 $0.17
===== =====
Weighted average common shares
outstanding and dilutive
common stock equivalents 31,107,789 1,093,619(j) 32,201,408
========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
<TABLE>
<CAPTION>
Insignia Financial Group, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income (Unaudited)
For the Year Ended December 31, 1995
(Thousands of Dollars, except share and per share data)
Pro Forma
Pro Forma Preferred Income
Insignia ESG NPI NPI II NPI IV DEK O'Donnell Paragon Adjustments Issuance Statement
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Fee based services $118,828 $92,064 $17,715 $ -- $ -- $14,840 $5,335 $ 19,255 $ -- $ -- $268,037
Interest 2,780 84 366 -- -- -- -- 3 (625)(a) -- 2,608
Other 1,424 -- -- -- -- -- -- 831 -- -- 2,255
Apartment property
revenues -- -- -- 1,133 6,164 -- -- -- -- -- 7,297
----- ----- -----
123,032 92,148 18,081 1,133 6,164 14,840 5,335 20,089 (625) -- 280,197
Costs and Expenses
Fee based services 85,707 76,882 7,892 -- -- 13,760 2,039 12,918 (275)(c) -- 198,923
Administrative 8,020 9,486 -- -- -- -- 483 3,408 (6,178)(b) -- 15,219
Apartment property
expenses -- -- -- 947 2,945 -- -- -- -- -- 3,892
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 -- -- 550 -- 1,516 2,919(e)(12,056)(i) 6,118
Apartment property
interest -- -- -- 121 1,538 -- -- -- -- -- 1,659
Depreciation and
amortization 3,493 2,476 1,649 -- -- 823 86 1,844 5,886(f) -- 26,257
Apartment property
depreciation -- -- -- 211 989 -- -- -- (87)(c) -- 1,113
--- --- --- -----
115,269 90,457 15,342 1,279 5,472 15,133 2,608 19,686 991 (12,056) 254,181
------- ------ ------ ----- ----- ------ ----- ------ --- ------- -------
Equity earnings -
limited partnership
interests 2,461 -- 15,544 -- -- -- -- -- (8,951)(g) -- 9,054
Minority interests in
consolidated
subsidiaries (131) -- (7,964) -- -- -- -- -- (2,558)(g)(9,967)(i)(20,620)
---- ------ ------ ------ -------
Income before income
taxes 10,093 1,691 10,319 (146) 692 (293) 2,727 403 (13,125) 2,089 14,450
Provision for income
taxes 3,835 641 (47) -- -- -- -- -- 268(h) 794(i) 5,491
----- --- --- --- --- -----
Income before
extraordinary item $6,258 $ 1,050 10,366 $ (146) $ 692 $ (293) $ 2,727 $ 403 $(13,393) $ 1,295 $ 8,959
======== ======== ======= ========== ======= ======= ======= ========= ======== ======= =========
Earnings per common
shares before
extraordinary
item $0.22 $0.29
===== =====
Weighted average common
shares outstanding
and dilutive
common stock
equivalents 22,681,158 3,952,055(j) 26,633,213
========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
The table below summarizes the adjustments to the historical statements of
income (a) for the year ended December 31, 1995 giving effect to (i) the
consummation of the NPI acquisition, (ii) the O'Donnell acquisition and the
acquisition of the limited partnership interests in the Shelter Properties
Partnerships, (iii) the DEK acquisition, (iv) the ESG acquisition and (v) the
Paragon acquisition, and borrowings under the Revolving Credit Facility in
connection therewith, and (b) for the nine months ended September 30, 1996
giving effect to the ESG, NPI and Paragon acquisitions, in each case as if
effected at the beginning of such period.
<TABLE>
<CAPTION>
Income Increase Income Increase
(Decrease) (Decrease) For the
For The Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
(Thousands of Dollars)
Pro Forma Adjustments
<S> <C> <C>
Revenues
(a) Represents a reduction in interest income earned
on cash balances of ESG $ (84) $ (20)
Represents a reduction in interest income earned on
cash balances of NPI -- 12
Represents reduced interest income on cash used to
acquire limited partnership interests in tender offers (541) --
Represents 21 days of revenue in January 1996 prior to
the actual acquisition of NPI
Fee based services -- 627
Apartment property revenues -- 434
Other -- 3
-
(625) 1,056
Costs and Expenses
(b) Represents ESG acquisition pro forma administrative
services expenses 6,178 2,715
(c) Represents NPI, DEK, and O'Donnell pro forma expenses
(Excluding depreciation and amortization reflected below)
Fee based services 275 (89)
Apartment property expenses -- (237)
Apartment property interest -- (94)
Apartment property depreciation 87 (63)
(d) Deferred compensation and stock option plan 1,274 37,664
(e) Represents pro forma interest adjustment related to the
Revolving Credit Facility (5,386) (1,548)
Stock offering proceeds used to pay down debt (see j) 3,480 --
Amortization of Revolving Credit Facility cost (1,013) --
------
Total interest effect (2,919) (1,548)
</TABLE>
<PAGE>
(a) Pro Forma Condensed Consolidated Financials (Continued)
Insignia Financial Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
(Continued)
<TABLE>
<CAPTION>
Income Increase Income Increase
(Decrease) (Decrease) For the
For The Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
(Thousands of Dollars)
<S> <C> <C>
(f) Represents reductions (increases) in:
Amortization of purchase price allocated to
management contracts 1,649 --
Depreciation of property and equipment 4,320 2,075
Depreciation of property and equipment (145) (72)
Amortization of management contract (8,027) (1,911)
Amortization of non-competition agreement and Goodwill (3,683) (1,842)
------ ------
Total amortization and depreciation effect (5,886) (1,750)
------ ------
Total cost and expense effect $ (991) $36,598
(g) Represents the purchase of partnership interests in the Shelter
Properties Partnerships, CCP III and CCP IV, the retention
by NPI of its interests in five partnerships, the consolidation
of two partnerships previously reported by NPI on the
equity method and adjustments to reflect the amortization
of Insignia's purchase price in excess of its proportionate
share of partnership book value $(8,951) $ 111
Represents minority interest in consolidated limited partnerships
and joint ventures holding limited partnership interests (2,558) (19)
(h) Income tax effect (268) (3,318)
---- ------
Net increase (decrease) to income (13,393 34,428
======= ======
Debt and Equity Issuances
(i) Representing the following:
Interest on and amortization of issuance cost associated
with Convertible Preferred Securities (9,967) (7,475)
Reduction of interest expense on debt repayment 12,056 8,929
------ -----
2,089 1,454
Income tax effect (794) (553)
---- ----
Adjustment to income before extraordinary item $ 1,295 $ 901
======== =========
(j) Adjustment to weighted average common shares outstanding
gives effect to Insignia's 1995 common stock offering 3,111,643 --
Increase in weighted average common shares outstanding
and dilutive common stock equivalents as a result of
assumption of ESG options 840,412 1,093,619
------- ---------
3,952,055 1,093,619
========= =========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to the signed on its behalf by the
undersigned hereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By:
--------------------------------------
John K. Lines
General Counsel and Secretary
Date: December 9, 1996
