Note: This Form 10-Q/A is filed for the purpose of including the Financial
Data Schedule attached hereto as Exhibit 27. The referenced Exhibit 27 is the
only change from the Company's prior Form 10-Q filed with the Commission on
August 12, 1997.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE PERIOD ENDED JUNE 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from........to........
Commission file number 0-19066
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3591193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089 29602
Greenville, South Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (864) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
As of July 31, 1997, there were outstanding 29,165,441 shares of Class A
Common Stock.
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
FORM 10-Q/A
QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
Page No.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
three and six months ended June 30, 1997 and 1996 2
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Cash Flow
for the six months ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II OTHER INFORMATION:
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
a) Income Statement
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES
Fee based services $83,854 $40,350 $149,276 $ 77,187
Interest 1,007 669 1,741 1,588
Other 108 558 281 1,145
Apartment property revenues 1,646 1,521 3,229 3,399
86,615 43,098 154,527 83,319
COSTS AND EXPENSES
Fee based services 67,049 28,572 118,766 55,516
Administrative 1,958 1,794 4,240 3,707
Apartment property 784 816 1,516 1,844
Interest 1,565 3,031 3,198 5,935
Apartment property interest 372 325 744 732
Depreciation and amortization 8,218 4,893 15,304 9,481
Apartment property depreciation 241 224 480 493
80,187 39,655 144,248 77,708
Equity earnings - limited partnership interests 569 887 3,636 2,341
Minority interest in consolidated subsidiaries (2,707) (60) (6,285) (262)
INCOME BEFORE INCOME TAXES 4,290 4,270 7,630 7,690
Provision for income taxes 1,716 1,622 3,052 2,922
NET INCOME $ 2,574 $ 2,648 $ 4,578 $ 4,768
Net income per share $ .08 $ .08 $ .14 $ .15
Weighted average common shares
outstanding and dilutive common
stock equivalents 32,310,291 1,238,659 32,525,228 30,023,895
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
b) Balance Sheet
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 77,083 $ 54,614
Receivables 58,536 46,040
Property and equipment 13,339 12,083
Investments in real estate limited partnerships and other securities 147,824 150,863
Apartment property 21,749 22,125
Property management contracts 121,654 122,915
Costs in excess of net assets of acquired businesses 77,279 75,627
Other assets 12,760 8,135
Total assets $ 530,224 $ 492,402
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 6,965 $ 1,711
Commissions payable 26,937 18,736
Accrued and sundry liabilities 37,725 40,741
Notes payable 39,374 49,840
Non-recourse mortgage note payable 19,300 19,300
Total liabilities 130,301 130,328
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely debt securities of
the Company 143,978 144,169
Minority interest in consolidated subsidiaries 31,535 --
Stockholders' Equity:
Common stock, class A, par value $.01 per share - authorized
100,000,000 shares, issued and outstanding 29,162,541 (1997)
and 28,857,097 (1996) shares 292 289
Additional paid-in capital 191,581 189,657
Retained earnings 32,537 27,959
Total stockholders' equity 224,410 217,905
Total liabilities and stockholders' equity $ 530,224 $ 492,402
<FN>
NOTE: The Balance Sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
c) Statement of Cash Flow
INSIGNIA FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,578 $ 4,768
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 15,304 9,481
Apartment property depreciation 480 493
Equity in earnings of partnerships (3,636) (2,341)
Minority interest in consolidated subsidiaries 6,285 262
Changes in operating assets and liabilities:
Accounts receivable (9,222) (1,053)
Other assets (3,815) (963)
Accrued compensation (3,077) (2,171)
Accounts payable and accrued expenses 4,207 4,289
Commissions payable 8,201 --
Net cash provided by operating activities 19,305 12,765
INVESTING ACTIVITIES
Increase in restricted cash -- (1,325)
Additions to property and equipment, net (2,507) (2,773)
Payments made for acquisition of management contracts
and acquired businesses (8,312) (32,230)
Proceeds from Balcor dispositions 4,069 --
Purchase of real estate limited partnership interests (22,831) (69,771)
Distributions from partnerships 29,579 5,317
Advances made under note agreements (12,265) (1,689)
Investment in apartment property, net of acquired cash -- (7,789)
Collections on notes receivable 1,263 15,087
Net cash (used in) investing activities (11,004) (95,173)
FINANCING ACTIVITIES
Proceeds from issuance of common stock of subsidiary 31,710 --
Payments on notes payable (11,543) (1,074)
Payments on non-recourse mortgage notes -- (274)
Payments of dividends on trust based convertible preferred securities (5,001) --
Payment of preferred stock dividend -- (281)
Proceeds from exercise of stock options 1,769 1,305
Proceeds from notes payable -- 90,816
Distributions made to minority interests (1,571) (432)
Debt and stock issuance costs (1,196) (132)
Net cash provided by investing activities 14,168 89,928
Increase in cash and cash equivalents 22,469 7,520
Cash and cash equivalents at beginning of period 54,614 49,846
Cash and cash equivalents at end of period $ 77,083 $ 57,366
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.Insignia Financial Group, Inc. (the "Company" or "Insignia") is a Delaware
corporation incorporated in July 1990. The Company is a fully integrated
real estate services company specializing in the ownership and operation of
securitized real estate assets throughout the United States. As a full
service real estate management organization, Insignia performs property
management, asset management, investor services, partnership accounting, real
estate investment banking and real estate brokerage services for various
types of property owners.
2.The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. 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 three and six month periods ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1996.
3.The calculation of earnings per common share is based on the weighted average
number of shares of common stock outstanding during the year and common stock
equivalents of dilutive common stock options and warrants. Fully diluted
earnings per share is not presented since the affect of dilution is less than
3%. See Exhibit 11 for the calculations of primary and fully diluted
earnings per share and the applicable adjustments to net income.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per Share.
FAS 128, which is required to be adopted on December 31, 1997, will change
the method currently used to compute earnings per share. Under the new
requirements, the current primary earnings per share will be replaced by
basic earnings per share, which excludes all dilutive common stock
equivalents. The impact is expected to result in an increase in earnings per
share of $.01 and $.02 for the three and six month periods ended June 30,
1997 and June 30, 1996. The impact of FAS 128 on the calculation of fully
diluted earnings per share for these periods is not expected to be material.
4.The following is a summary of the Company's material contingencies as of June
30, 1997:
Chipain, Tom, et al., v. Walton Street Capital Acquisition II, LLC, et al.
In May 1996, Walton Street Capital Acquisition II, MLLC ("Walton Street"),
together with certain Insignia affiliates, commenced tender offers for
limited partner interests in ten real estate limited partnerships syndicated
by The Balcor Company ("Balcor"). In May 1996, certain persons claiming to
be holders of limited partner interests commenced a lawsuit in the Circuit
Court of Cook County, Illinois, County Department, Chancery Division, on
behalf of themselves, on behalf of a putative class of plaintiffs, and, as
amended, derivatively on behalf of the Balcor-syndicated partnerships,
challenging the actions of the defendants (including Insignia, an Insignia
officer and certain affiliates, Walton Street and the general partners of the
Balcor-syndicated partnerships) in connection with the tender offers and
certain other matters.
The complaint, as amended, contained allegations that the tender offers were
inadequate and coercive based, in part, upon information allegedly obtained
by Insignia in violation of its fiduciary duties. Defendants promptly moved
to dismiss the complaint and on June 5, 1996 the court dismissed the
complaint as to Insignia and Walton Street, with leave to replead. On June
11, 1996 plaintiffs filed an amended class and derivative action complaint,
repeating the same allegations as in their initial complaint, and recasting
some as derivative, rather than direct class, claims. Defendants moved to
dismiss the amended complaint and on June 18, 1996, the court again dismissed
plaintiffs' amended complaint as to Insignia and Walton Street.
On June 14, 1996 a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint,
entitled Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al.,
contained substantially the same allegations as the Chipain complaints and
asserted additionally that the tender offers violated certain state
securities and consumer statutes. Pursuant to the court's orders
consolidating the Chipain and Dee complaints with another action which does
not name Insignia, a new amended and consolidated class and derivative action
complaint was filed on July 25, 1996. The plaintiffs in the Chipain action
are not parties to this latest complaint.
On August 16, 1996 Insignia moved to dismiss the amended and consolidated
class and derivative action complaint. The motion was heard by the court on
September 27, 1996 at which time the court granted leave to the plaintiff to
(i) withdraw its pending complaint and (ii) serve a second amended and
consolidated class and derivative action complaint. On October 8, 1996
plaintiffs filed a second amended and consolidated class and derivative
action complaint which added claims of alleged antitrust injury and unjust
enrichment. On October 25, 1996 Insignia moved to dismiss the second amended
and consolidated class action complaint. That motion was heard by the court
in December 1996.
On December 18, 1996 the court issued a decision granting Insignia's motion
to dismiss. By order dated January 7, 1997 the court dismissed the second
amended and consolidated class action complaint with prejudice. Plaintiffs
filed a notice of appeal in the Dee action on February 14, 1997.
The Company understands that the United States Department of Housing and
Urban Development ("HUD") has filed a civil lawsuit against one of the third
party, unaffiliated owners of affordable housing to which the Company
provides management services. The complaint alleges that the owner,
Associated Financial Corporation ("AFC") of Los Angeles, California, whose
chairman is A. Bruce Rozet, had improperly received monies from 17 properties
managed by the Company over a period of approximately six years. The
allegations include statutory violations which could, if proven, give rise to
double and treble damages as well as civil penalties for false filings. The
Company was not named as a defendant in the suit. The Company has no
ownership interest in any of the properties or partnerships that are the
subject of the complaint and is not affiliated with AFC. The Company has
managed approximately 75 properties (approximately 8,600 units) for AFC since
1991 when the Company succeeded to the existing management contract portfolio
as part of its acquisition of substantially all of the assets of U.S. Shelter
Corporation. The Company believes that it earns approximately $1.6 million
per year in EBITDA from the management of the entire portfolio of AFC
properties. HUD has stated that the payments to AFC from 1990 - April 1995
at issue aggregate nearly $5 million.
The Company has received assurances over the course of the past several years
that its activities were in compliance with laws and regulations applicable
to the Company's role as property manager. The Company does not believe the
matters at issue will have a material adverse effect on its financial
condition. Moreover, in connection with the Company's acquisition of
materially all the assets of U.S. Shelter Corporation, the Company received
certain representations, warranties and indemnities from the seller which
included the propriety of the subject contract. The Company has given notice
to the seller that the Company intends to seek indemnification for this
matter should the Company incur any loss, damage or expense related thereto.
The Company cannot predict whether or not the seller will contest such
indemnification.
The Company and certain subsidiaries are defendants in lawsuits arising in
the ordinary course of business. Such lawsuits are primarily insured claims
arising from accidents at managed properties. Claims may demand substantial
compensatory and punitive damages.
Management believes that the aforementioned lawsuits will be resolved without
material loss to the Company or its subsidiaries.
5.Acquisitions
The Company completed the acquisition of four property management and
brokerage companies during the six month period ending June 30, 1997. On
February 28, 1997, the Company completed the purchase of Rostenberg-Doern,
Inc. and HMB Property Services, Inc. The Company closed the purchase of
Frain, Camins & Swartchild, Inc. on April 1, 1997 and the Related Management
Company of Florida on April 29, 1997. The aggregate purchase price paid for
these businesses was approximately $18.1 million consisting of $14.3 million
in management contract rights, $3.6 million of costs in excess of assets
acquired, and $158,000 for purchased capital items. The acquisitions were
financed with notes aggregating approximately $8.5 million with the remainder
paid from cash on hand. Assuming certain qualified revenue requirements are
met, collective contingent payments of up to approximately $5.8 million could
be paid to the sellers of these acquired businesses.
6.Amended and Restated Credit Agreement.
In the first quarter of 1997, the Company completed an amendment to its
revolving credit facility, increasing the credit limit from $200 million to
$275 million. The amended revolving credit facility involves a syndicate of
15 national and international financial institutions. The Company currently
has $33 million outstanding under the credit facility.
7.Trust Based Convertible Preferred Securities
In November 1996, Insignia Financing I, a Delaware trust and a wholly owned
subsidiary of the Company (the "Trust"), issued and sold 2,990,000 shares of
Trust Based Convertible Preferred Securities (the "Securities") with an
aggregate liquidation amount of $149.5 million, sold pursuant to exemptions
under the Securities Act of 1933, as amended, and the rules thereunder. All
of the outstanding common securities of the Trust are owned by the Company.
The sole asset of the Trust is the $154.1 million principal amount of 6.5%
convertible subordinated debentures of the Company due September 30, 2016.
The Company has certain obligations relating to the Securities which amount
to a full and unconditional guarantee of the Trust's obligations under the
Securities. The debentures issued and the common securities purchased by the
Company are eliminated in the balance sheet. The Securities bear interest at
the rate of 6.5% per annum, with quarterly distributions payable in arrears.
The Company has the option to defer interest payments from time to time, not
to exceed 20 consecutive quarters. The Company has made distributions of
approximately $5.0 million for the six months ended June 30, 1997, which are
reflected in minority interest in the consolidated statement of income. The
Securities are convertible into the Company's Class A Common Stock at $26.50
per share beginning 60 days after the Securities first issuance date through
September 30, 2016, or upon the Company's option to redeem the Securities
after November 1, 1999. The Securities are structured such that the
distributions are tax deductible to the Company.
8.Other Matters
Stock repricing and Related Amendments
On April 18, 1997, the Company approved the repricing of certain employee
stock options issued over the prior year. The 274,900 options involved were
issued primarily to new employees joining the Company through acquisitions,
and no options issued to members of senior management were subject to
repricing. The Company believes that this repricing is important to its
employee retention and incentive programs. The repriced options have an
exercise price of $17.50 per share over the five year vesting period, compared
to a weighted average exercise price of $23.65 prior to repricing. On April
30, 1997, the Company approved amendments to the Certificate of Incorporation,
as amended, authorizing 50,000,000 additional shares of Class A Common Stock,
par value $0.01 per share, and to the 1992 Stock Incentive Plan increasing the
aggregate number of shares of Common Stock authorized from 4,666,666 to
5,250,000.
Private Placement
During the three month period ending June 30, 1997, Insignia Properties Trust
("IPT"), a controlled and majority owned REIT affiliate of the Company,
received commitments for the purchase of $52 million in common stock of IPT
through a private placement offering. At June 30, 1997, $31.6 million has
been collected on these commitments, which are reflected in minority interest
on the consolidated balance sheet. The remaining balance of the subscriptions
were received after the end of the quarter.
Purchase of limited partnership interests
On June 17, 1997, the Company completed, for approximately $15 million, the
purchase of limited partnership interests in partnerships controlled by IPT.
Those interests were contributed to IPT, effective June 30, 1997, for common
stock of IPT.
9.During the first six months of 1997, the Company had the following changes
in the equity accounts:
a) Exercise of 214,355 stock options and 143,600 warrants representing 305,444
shares of Class A Common Stock at exercise prices ranging from $1.88 to
$13.69 per share. The exercise of 93,600 warrants, through a cashless
exchange, resulted in the issuance of 41,089 shares.
b) Net income of $4,578,000 for the six months ended June 30, 1997.
c) Accrued compensation of $160,000 relating to restricted stock awards.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
The Company posted strong results for the three and six month periods ended
June 30, 1997. The Company uses Net EBITDA as a primary indicator of financial
performance and Net EBITDA increased 36% to $15.9 million for the quarter and
41% to $30.2 million for the six months, in comparison to 1996. Net EBITDA is
defined as earnings before interest, taxes, depreciation and amortization
("EBITDA") combined with funds from operations ("FFO") less interest expense and
earnings allocable to preferred securities. Additionally, EBITDA for the
service company increased 42% to $16 million and 37% to $28.3 million for the
three and six months ended June 30, 1997 while FFO increased 13% and 46% for the
three and six months to $4 million and $10.1 million, respectively.
During the six months ended June 30, 1997, the Company has completed the
acquisitions of 1) Rostenberg-Doern Company, Inc., effective February 28, 1997;
2) HMB Property services, Inc., also effective February 28, 1997; 3) Frain
Camins & Swartchild, Inc., effective April, 1 1997; and 4) the Related
Management Company of Florida, effective April 29, 1997. These businesses were
acquired for an aggregate purchase price of approximately $18.1 million with
$8.3 million paid from cash on hand, $8.5 million in notes and $1.3 in assumed
liabilities. Additional contingent payments of up to approximately $5.8 million
could be paid to the sellers of these acquired businesses, assuming certain
qualified revenue requirements are met. These acquisitions in aggregate
increased the Company's commercial portfolio by approximately 14.4 million
square feet and the residential portfolio by approximately 10,300 units,
bringing the totals to 2,600 properties, 270,000 residential units and 146.7
million commercial square feet managed at June 30, 1997.
Cash and cash equivalents at June 30, 1997 increased 41% or $22.5 million
over December 31, 1996. The increased cash holdings are primarily due to the
collection of $31.6 million in the second quarter by Insignia Properties Trust
("IPT"), a controlled affiliate of the Company, from a private placement
offering, in conjunction with the receipt of $29.6 million in distributions from
partnerships in which the Company holds limited partnership interests (through
IPT, co-investments and other limited partnership interests). These cash
receipts are offset by $22.8 million paid for additional limited partnership
interests, $8.3 million paid for acquisitions and $11.5 million paid on
outstanding notes.
Receivables increased 27% from $46 million at December 31, 1996 to $58.5
million at June 30, 1997. The increase is primarily due to increased leasing
activity transactions which are to be collected at future dates as defined in
the terms of the individual brokerage agreements.
FFO attributable to real estate investments increased 13% for the three month
period from $3.6 million to $4 million and 46% for the six month period from $7
million to $10.1 million. FFO attributable to IPT for the three and six month
periods increased 4% to $3.6 million and 28% to $8.6 million compared to 1996.
FFO from co-investments for the three and six month periods increased 247% to
$476,000 and 499% to $1.6 million compared to 1996. The significant increases
in FFO attributable to co-investments is due primarily to the heavy investment
activity in 1997 resulting in twelve co-investments ventures at June 30, 1997 in
comparison to one for the same periods of 1996. The $648,000 decrease in co-
investment FFO in the second quarter of 1997, compared to the first quarter of
1997, is reflective of the increased interest costs from refinanced debt
balances on one of the ventures in particular (which resulted in $16.1 million
in cash distributions to the Company and its venture partner), as well as,
increased major maintenance expenditures of approximately $300,000.
The Company's investments in real estate limited partnerships and other
securities decreased 2% from $150.9 million at December 31, 1996 to $147.8
million at June 30, 1997. Contributing to the decrease is the receipt of $29.6
million in distributions from the partnerships in which the Company holds
limited partnership interests (through IPT, co-investments and other limited
partnership interests), net of additional purchases of $22.8 million in limited
partnership interests and $3.6 million in equity earnings recognized for the six
months ended June 30, 1997.
Management contracts decreased 1% from $122.9 million at December 31, 1996 to
$121.7 at June 30, 1997. Acquisition activity for the six months ended June 30,
1997 resulted in approximately $14.3 million in additional management contract
bases. These acquisition purchases are offset by approximately $11.8 million in
amortization expense coupled with total collections of approximately $4.1
million in disposition fees from the sale of real estate in limited partnerships
syndicated by The Balcor Company ("Balcor").
Accrued and sundry liabilities decreased 7% from $40.7 million at December
31, 1996 to $37.7 million at June 30, 1997. This decrease is due primarily to
the payment of accrued bonuses in the first quarter of 1997. This reduction is
offset by the $1.2 million increase in acquisition liabilities related to 1997
acquisitions in addition to incentive accruals for the six months ended June 30,
1997.
Results of Operations
For the three and six month periods ended June 30, 1997, the Company showed
significant increases in all major components of operational results due
primarily to acquisitions in the commercial segment over the past twelve months.
Net EBITDA increased 36% and 41% for three and six month periods of 1997 in
comparison to the prior year. Net EBITDA per common share increased 32% to $.49
for the three months and 29% to $.93 for the six months. Financial expenses,
including interest and trust based preferred dividends increased 33% from $3.1
million to $4.1 million for the three month period and 34% from $6.1 million to
$8.2 million for the six month period.
Total revenue increased $43.5 million, a 101% increase over 1996, for the
three months and $71.2 million, a 85% increase over 1996, for the six months.
Fee based service revenue increased 108% to $83.9 million and 93% to $149.3
million for the three and six months of 1997 over 1996. The increase in both
periods was primarily due to the Edward S. Gordon Company, Incorporated and
Paragon Group acquisitions, which occurred on June 30, 1996, and a number of
smaller acquisitions. In addition to the growth from acquisitions, net gains in
the volume of new management assignments were 9,100 and 12,000 apartments units
and 8.1 million and 13.6 million square feet of commercial space for the three
and six month periods ending June 30, 1997 compared to net gains of 3,500 and
2,900 apartment units and 2.9 million and 3.0 million square feet of commercial
space for the comparable periods of 1996.
Interest income increased 51% to $1 million and 10% to $1.7 million for the
three and six months ended June 30, 1997, in comparison to the prior year.
These increases are primarily due to higher average interest bearing cash
balances.
Revenue from apartment property increased 8% for the three month period and
decreased 5% for the six month period ended June 30, 1997. These fluctuations
result from the sale of a property subsequent to the first quarter of 1996,
coupled with an increase in revenues of approximately $400,000 by the sole
remaining asset which contributes to this type of revenue. Apartment property
expense, interest and depreciation remained relatively constant for the three
and six month periods ended June 30, 1997 compared to 1996.
Fee based service expense increased 135% to $67 million and 114% to $118.8
million for the three and six months of 1997 over 1996. Consistent with fee
based service revenue, fee based expense for both periods increased
significantly in the commercial segment as a direct result of the commercial
acquisitions occurring over the past twelve months. The financial services
segment shows increases in fee based service expense of 71% to $2.8 million and
34% to $4.5 million for the three and six month periods ended June 30, 1997.
These increases are attributable to heightened co-investment and acquisition
activity in the second quarter of 1997.
Administrative expenses increased 9% or $164,000 and 14% or $533,000 for the
three and six month periods of 1997 compared to 1996. The Company continues to
show the ability to efficiently absorb acquisitions into its existing corporate
infrastructure with minimal increases in administrative expenses.
Interest expense decreased 48% or $1.5 million and 46% or $2.7 million for
the three and six month periods of 1997 compared to 1996. This decrease is
directly attributable to the reduction in borrowing from $123.6 million at June
30, 1996, to $39.4 million at June 30, 1997.
Depreciation and amortization increased 68% to $8.2 million and 61% to $15.3
million for the three and six months ended June 30, 1997. This increase is
consistent with the growth of the Company over the past twelve months
attributable to acquisitions. These acquisitions, at or subsequent to June 30,
1996, have resulted in significant purchases of amortizable assets resulting in
a corresponding increase in amortization expense.
Equity earnings decreased 36% or $318,000 for the three month period and
increased 55% or $1.3 million for the six month period ended June 30, 1997, as
compared to 1996. The second quarter decrease is largely attributable to
increases in major maintenance expenses for 1997 compared to 1996 for the
partnerships controlled by IPT. The increase for the six month period is
primarily due to: 1) equity earnings from investments in co-investment
partnerships (no comparable investments existed in 1996); 2) the pro-rata
ownership of National Properties Investors partnerships in 1996 due to the
purchase of NPI in the first quarter of 1996 compared to full ownership in 1997;
and 3) the improved results of the IPT controlled partnerships as discussed in
the Financial Condition section on FFO above.
Minority interest in consolidated subsidiaries increased $2.6 million and
$6.0 million for the three and six month periods ended June 30, 1997. Minority
interest as of June 30, 1997, consists of dividends paid of $5.0 million on
trust based convertible preferred securities and $1.3 million in charges
resulting from distributions made by a majority owned subsidiary to the holders
of minority equity interests (which resulted in negative equity by the minority
owner). Generally accepted accounting principles requires such charges to be
taken by the majority owner on the presumption that the negative equity of the
minority owner on a historical book value basis cannot be recovered by the
majority owner.
The income tax provision increased 6% to $1.7 million and 4% to $3.1 million
for the three and six month periods of 1997 compared to 1996. This increase is
due primarily to an increase in the effective tax rate from 38% to 40% because
of changes in assets and their tax bases as determined by the structure of the
purchase agreements for acquisitions completed over the past twelve months and
higher state tax rates where these acquisitions occurred.
Primarily as a result of the foregoing, net income remained relatively flat
for the three and six month periods ended June 30, 1997 as compared to 1996.
Liquidity and Capital Resources
The Company has several sources available for capital, primarily cash
generated from operations, distributions from IPT and co-investment
partnerships, and available credit under the $275 million revolving credit
facility. At June 30, 1997, a total of $33 million was outstanding under this
facility. As a result of the Company's ability to generate cash from
operations, and such additional sources, the cash balances grew from $54.6
million at December 31, 1996 to $77.1 million at June 30, 1997. The Company
uses net EBITDA as an indicator of its working capital generated from
operations. Net EBITDA increased 36% from $11.7 million to $15.9 million for
the three months and 41% from $21.5 million to $30.2 million for the six months
ended June 30, 1997. The following chart specifically identifies the sources of
net EBITDA and how the numbers are derived for each period.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Fee based services revenues $83,854 $40,350 $149,276 $77,187
Interest 1,007 669 1,741 1,588
Other 108 558 281 1,145
$84,969 $41,577 $151,298 $79,920
Fee based services expenses 67,049 28,572 118,766 55,516
Administrative and other 1,958 1,794 4,240 3,707
EBITDA - service company $15,962 $11,211 $ 28,292 $20,697
FFO
Insignia Properties Trust 3,556 3,428 8,575 6,691
Co-investments and other 476 137 1,564 261
Total FFO 4,032 3,565 10,139 6,952
Combined EBITDA and FFO 19,994 14,776 38,431 27,649
Interest expense (1,565) (3,031) (3,198) (5,935)
Trust based preferred dividends (2,572) (91) (5,001) (199)
Net EBITDA $15,857 $11,654 $ 30,232 $21,515
With the working capital generated through the operations of the Company and
the availability under the revolving credit facility, the Company feels its
capital resources are adequate. The Company's funding needs are reassessed as
acquisitions are identified and pursued.
Subsequent Events
Business Combination
On July 21, 1997, Angeles Mortgage Investment Trust ("AMIT") and IPT
announced the execution of definitive agreements to effect a non-taxable merger
of the two entities. The resulting combined entity would be owned approximately
70% by the Company.
AMIT, which trades on the American Stock Exchange, is in the business of
originating, acquiring and servicing its own loan portfolio, which is primarily
secured by real estate properties. AMIT currently holds 25 assets which are
comprised of loans and real estate with an aggregate net asset value of
approximately $43 million at March 31, 1997.
Stock Repurchase
The Board of Directors of the Company approved the repurchase of outstanding
common stock of the Company in amounts up to $50 million. On July 18, 1997, the
Company obtained the approval of its requisite lenders to amend its revolving
credit facility to permit such repurchases. The amount of repurchases which
could be completed within the existing financial covenants of the credit
facility is approximately $40 million. No repurchases have been made to date.
Other
Certain items discussed in this quarterly report may constitute forward-
looking statements within the meaning of the Private Litigation Reform Act of
1995 and as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this quarterly report.
The Company 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 the Company's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 4 in Notes to Condensed Consolidated Financial Statements, Part I, Item
1, of Form 10-Q for June 30, 1997 for the details on outstanding issues. Also,
see Registrants' Annual Report on Form 10-K for the year ended December 31,
1996.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on April 30, 1997, at
10:00 a.m., Eastern time, to vote on the following items:
1. Election of seven (7) directors, all of which were elected
Number of % of
Name Share Approving Votes Cast
Andrew L. Farkas 21,076,157 99.4
Robert J. Denison 21,075,908 99.4
Robin L. Farkas 21,073,799 99.4
Merrill M. Halpern 21,076,034 99.4
Robert G. Koen 21,075,904 99.4
Michael I. Lipstein 21,053,311 99.3
Buck Mickel 21,072,846 99.4
2. The approval of an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares from 50 million to 100 million.
For 19,739,220 (68.1% of shares outstanding)
Against 791,098
Abstain 668,441
21,198,759
3. The approval of an amendment to the Insignia 1992 Stock Incentive Plan
increasing the aggregate number of shares of Common Stock authorized from
4,666,666 to 5,250,000.
For 18,656,890 (88.0% of shares present)
Against 2,529,535
Abstain 12,334
21,198,759
4. The approval of bonus plans for two key executive officers.
For 18,007,234 (84.9% of votes cast)
Against 135,485
Abstain 15,861
Withhold authority 3,040,179
21,198,759
5. The ratification of the selection of Ernst & Young, LLP as independent
auditors of the accounts of the Company for the year 1997.
For 21,069,208 (99.4% of votes cast)
Against 124,737
Abstain 4,814
21,198,759
There were no other matters brought to a vote before the security holders.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement Re: Computation of earnings per share.
b) Reports on Form 8-K
1. Form 8-K dated April 1, 1997 and filed April 17, 1997 disclosing
Registrant's acquisition of Frain Camins & Swartchild, Inc.
2. Form 8-K dated April 3, 1997 and filed May 14, 1997 disclosing
Registrant's non-binding agreement with Angeles Mortgage Investment
Trust ("AMIT") to effect a combination of AMIT and Insignia Properties
Trust.
3. Form 8-K dated April 14, 1997 and filed April 16, 1997 disclosing
Registrant's major expansion of its operations in the Phoenix, Arizona
area.
4. Form 8-K dated April 29, 1997 and filed May 14, 1997 disclosing
Registrant's acquisition of the Related Management Company of Florida.
5. Form 8-K dated May 5, 1997 and filed May 14, 1997 disclosing
Registrant's acquisition of Radius Retail Advisors, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
by: /s/Andrew L. Farkas
--- -------------------
Andrew L. Farkas
Chairman and Chief Executive Officer
by: /s/James A. Aston
--- -----------------
James A. Aston
Chief Financial Officer
DATED: August 12, 1997
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Thousands of Dollars, except share data)
<S> <C> <C> <C> <C>
PRIMARY
Average common shares outstanding 29,105 27,853 29,036 26,893
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price 3,205 3,386 3,489 3,131
Total 32,310 31,239 32,525 30,024
Net income $ 2,574 $ 2,648 $ 4,578 $ 4,768
Preferred dividends -- (91) -- (199)
Adjusted net income $ 2,574 $ 2,557 $ 4,578 $ 4,569
Per share amount $ .08 $ .08 $ .14 $ .15
FULLY DILUTED
Average common shares outstanding 29,105 27,853 29,036 26,893
Net effect of dilutive stock options and warrants
based on the treasury stock method using
the greater of the average market price
or the ending market price 3,312 3,612 3,595 3,473
Total 32,417 31,465 32,631 30,366
Net income $ 2,574 $ 2,648 $ 4,578 $ 4,768
Preferred dividends -- (91) -- (199)
Adjusted net income $ 2,574 $ 2,557 $ 4,578 $ 4,569
Per share amount $ .08 $ .08 $ .14 $ .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
This schedule contains summary financial information extracted from the
Insignia Financial Group, Inc. June 30, 1997 Form 10-Q/A and is qualified in its
entirety by reference to such 10-Q/A filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 77,083
<SECURITIES> 0
<RECEIVABLES> 58,536
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,339
<DEPRECIATION> 0
<TOTAL-ASSETS> 530,224
<CURRENT-LIABILITIES> 0
<BONDS> 58,674
0
0
<COMMON> 292
<OTHER-SE> 224,118
<TOTAL-LIABILITY-AND-EQUITY> 530,224
<SALES> 0
<TOTAL-REVENUES> 154,527
<CGS> 0
<TOTAL-COSTS> 118,766
<OTHER-EXPENSES> 21,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,942
<INCOME-PRETAX> 7,630
<INCOME-TAX> 3,052
<INCOME-CONTINUING> 0
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<NET-INCOME> 4,578
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
