UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 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 1-13145 LASALLE PARTNERS INCORPORATED ----------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 36-4150422 ------------------------- --------------------------------- (State or other jurisdic- (IRS Employer Identification No.) tion of incorporation or organization) 200 East Randolph Drive, Chicago, IL 60601 - --------------------------------------- ---------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312/782-5800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class November 13, 1998 ----- ----------------- Common Stock ($0.01 par value) 16,230,358
TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements . . . . . . . . . . . . . . . 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . 26 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 26 Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 26 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 27
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LA SALLE PARTNERS INCORPORATED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ($ in thousands, except share data) (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ----------- ASSETS - ------ Current assets: Cash and cash equivalents . . . . . . . $ 15,214 30,660 Trade receivables, net. . . . . . . . . 69,616 80,565 Notes receivable. . . . . . . . . . . . 16,144 6,995 Other receivables . . . . . . . . . . . 6,489 2,400 Prepaid expenses. . . . . . . . . . . . 2,006 2,055 Deferred tax benefit. . . . . . . . . . 5,104 5,104 -------- --------- Total current assets. . . . . . 114,573 127,779 Property and equipment, at cost, less accumulated depreciation of $33,610 and $28,993 in 1998 and 1997, respectively. . . . . . . . . 23,360 16,098 Intangibles resulting from business acquisitions, net of accumulated amortization of $8,997 and $5,698 in 1998 and 1997, respectively. . . . . . . . . . . . . . 53,120 50,366 Investments in real estate ventures . . . 50,965 18,080 Long-term receivables, net. . . . . . . . 8,014 6,607 Other assets, net . . . . . . . . . . . . 2,845 957 -------- ---------- $252,877 219,887 ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities . . . . . . . . . $ 27,150 25,781 Accrued compensation. . . . . . . . . . 32,822 40,163 Other liabilities . . . . . . . . . . . 6,296 6,100 -------- ---------- Total current liabilities . . . 66,268 72,044 Long-term credit facility . . . . . . . . 28,442 -- Other long-term liabilities . . . . . . . 1,134 946 Commitments and contingencies -------- ---------- Total liabilities . . . . . . . 95,844 72,990
LA SALLE PARTNERS INCORPORATED CONSOLIDATED BALANCE SHEETS - CONTINUED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ($ in thousands, except share data) (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ----------- Stockholders' equity: Common stock, $.01 par value per share, 100,000,000 shares authorized; 16,230,358 shares issued and outstanding . . . . . . . . . . . . . 162 162 Additional paid-in capital. . . . . . . 122,696 121,778 Retained earnings . . . . . . . . . . . 33,003 24,327 Accumulated other comprehensive income. . . . . . . . . . . . . . . . 1,172 630 -------- ---------- Total stockholders' equity. . . 157,033 146,897 -------- ---------- $252,877 219,887 ======== ========== See accompanying notes to consolidated financial statements.
<TABLE> LA SALLE PARTNERS INCORPORATED CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 ($ in thousands, except share data) (UNAUDITED) <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- -------- --------- -------- <S> <C> <C> <C> <C> Revenue: Fee-based services. . . . . . . . . . . . . . . . $ 63,611 51,310 186,067 138,697 Equity in earnings from unconsolidated ventures . . . . . . . . . . . . 466 109 2,340 1,848 Other income. . . . . . . . . . . . . . . . . . . 755 439 1,702 937 -------- -------- -------- -------- Total revenue . . . . . . . . . . . . . . . 64,832 51,858 190,109 141,482 Operating expenses: Compensation and benefits . . . . . . . . . . . . 37,739 29,515 116,775 86,112 Operating, administrative and other . . . . . . . 16,265 13,851 50,057 36,993 Depreciation and amortization . . . . . . . . . . 2,599 2,541 8,177 6,495 -------- -------- -------- -------- Total operating expenses. . . . . . . . . . 56,603 45,907 175,009 129,600 -------- -------- -------- -------- Operating income. . . . . . . . . . . . . . 8,229 5,951 15,100 11,882 Interest expense. . . . . . . . . . . . . . . . . . 413 283 992 3,859 -------- -------- -------- -------- Earnings before provision (benefit) for income taxes . . . . . . . . . . . . 7,816 5,668 14,108 8,023 Net provision (benefit) for income taxes. . . . . . 3,010 (1,942) 5,432 (1,808) -------- -------- -------- -------- Net earnings. . . . . . . . . . . . . . . . $ 4,806 7,610 8,676 9,831 ======== ======== ======== ========
LA SALLE PARTNERS INCORPORATED CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- ---------- ---------- ---------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments. . . . . $ 244 (488) 542 (1,053) ---------- ---------- ---------- ---------- Comprehensive income. . . . . . . . . . . . . . . . $ 5,050 7,122 9,218 8,778 ========== ========== ========== ========== Basic earnings per common share (1) . . . . . . . . $ 0.30 0.51 0.54 0.51 =========== ========== ========== ========== Weighted average shares outstanding . . . . . . . . 16,230,358 16,200,000 16,210,340 16,200,000 ========== ========== ========== ========== Diluted earnings per common share (1) . . . . . . . $ .29 0.51 0.53 0.51 ========== ========== ========== ========== Diluted weighted average shares outstanding . . . . 16,446,906 16,306,171 16,403,225 16,306,171 ========== ========== ========== ========== <FN> (1) Earnings per share for 1997 is calculated based on earnings for the period from incorporation, July 22, 1997 through September 30, 1997. See accompanying notes to consolidated and combined financial statements. </TABLE>
<TABLE> LA SALLE PARTNERS INCORPORATED CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY PERIODS ENDED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ($ in thousands, except share data) (UNAUDITED) <CAPTION> Partners' Capital Effect of Common Stock Additional Retained (Deficit) Cumulative ------------------- Paid-In Earnings Predecessor Translation Shares Amount Capital (Deficit) Partnerships Adjustment Total ---------- ------ ---------- --------- ------------ ----------- --------- <S> <C> <C> <C> <C> <C> <C> <C> Balances at January 1, 1997. . . . . . . . . . -- -- -- -- $ 23,148 1,099 24,247 Net earnings (through July 21, 1997). . . . -- -- -- -- 1,513 -- 1,513 Distributions. . . . . -- -- -- -- (14,835) -- (14,835) Acquisition of the Galbreath Company common stock. . . . . -- -- -- -- 29,292 -- 29,292 Effect of the reorganization. . . . 12,200,000 $ 122 38,996 -- (39,118) -- -- Net proceeds from the initial Offering. . . 4,000,000 40 82,782 -- -- -- 82,822 Other. . . . . . . . . -- -- -- -- -- (565) (565) ---------- ------ -------- ------ ------- ------ -------- Balances after the reorganization and initial Offering. . . . 16,200,000 162 121,778 -- -- 534 122,474 Net earnings (July 22, 1997 through December 31, 1997) . -- -- -- 24,327 -- -- 24,327 Other. . . . . . . . . -- -- -- -- -- 96 96 ---------- ------ -------- ------ ------- ------ -------- Balances at December 31, 1997. . . . . . . . . . 16,200,000 162 121,778 24,327 -- 630 146,897 Net earnings . . . . . -- -- -- 8,676 -- -- 8,676 Shares issued under stock purchase plan. 30,358 -- 918 -- -- -- 918 Other. . . . . . . . . -- -- -- -- -- 542 542 ---------- ------ -------- ------ ------- ------ -------- Balances at September 30, 1998. . . 16,230,358 $ 162 122,696 33,003 -- 1,172 157,033 ========== ====== ======== ====== ======= ====== ======== <FN> See accompanying notes to consolidated and combined financial statements. </TABLE>
LA SALLE PARTNERS INCORPORATED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 ($ in thousands) (UNAUDITED) 1998 1997 -------- -------- Cash flows from operating activities: Net earnings. . . . . . . . . . . . . . . . . $ 8,676 9,831 Reconciliation of net earnings to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . 8,177 6,495 Equity in earnings from unconsolidated ventures. . . . . . . . . . . . . . . . . (2,340) (1,848) Provision for loss on receivables and other assets. . . . . . . . . . . . . . . 1,218 1,659 Operating distributions from real estate ventures . . . . . . . . . . . . . 2,585 2,562 Deferred compensation amortization. . . . . 143 -- Foreign exchange loss . . . . . . . . . . . 106 -- Loss (gain) on disposition of property and equipment . . . . . . . . . . . . . . (39) (196) Tax benefit on SFAS No. 109 Conversion. . . -- (5,037) Changes in: Receivables . . . . . . . . . . . . . . . . 5,683 29,366 Prepaid expenses and other assets . . . . . (1,066) (268) Accounts payable, accrued liabilities and accrued compensation. . . . . . . . . . . (4,841) (25,428) -------- -------- Net cash provided by operating activities. . . . . . . . . 18,302 17,136 Cash flows provided by (used in) investing activities: Net capital additions - property and equipment . . . . . . . . . . . . . . . . . (11,921) (3,376) Acquisition of business-Satulah Group, Inc. . (5,465) -- Proceeds from disposition of property and equipment . . . . . . . . . . . . . . . 170 224 Cash balances assumed in Galbreath acquisition . . . . . . . . . . . . . . . . -- 1,008 Investments in real estate ventures: Capital contributions and advances to real estate ventures. . . . . . . . . . . (45,965) (9,002) Distributions, repayments of advances and sale of investments . . . . . . . . . 826 5,800 -------- -------- Net cash used in investing activities. . . . . . . . . . . . . . (62,355) (5,346) Cash flows provided by (used in) financing activities: Net borrowings under credit facility. . . . . 28,442 (71,115) Distributions to partners . . . . . . . . . . -- (14,835) Net proceeds from the initial offering. . . . -- 83,056 -------- -------- Net cash provided by (used in) financing activities. . . . . . . . . 28,442 (2,894) Effects of foreign currency translation on cash balances. . . . . . . . . . . . . . . 165 (186) -------- --------
LA SALLE PARTNERS INCORPORATED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - CONTINUED 1998 1997 -------- -------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . (15,446) 8,710 Cash and cash equivalents, January 1. . . . . . 30,660 7,207 -------- -------- Cash and cash equivalents, September 30 . . . . $ 15,214 15,917 ======== ======== Supplemental disclosure of cash flow information: Interest paid was $935 and $4,058 for the periods ended September 30, 1998 and 1997, respectively. Taxes paid were $1,930 and $847 for the periods ended September 30, 1998 and 1997, respectively. See accompanying notes to consolidated and combined financial statements.
LA SALLE PARTNERS INCORPORATED NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 AND 1997 ($ in thousands, except share data) (UNAUDITED) Readers of this quarterly report should refer to the Company's audited financial statements for the year ended December 31, 1997, which are included in the Company's 1997 Form 10-K, filed with the Securities and Exchange Commission, as certain footnote disclosures which would substan- tially duplicate those contained in such audited financial statements have been omitted from this report. (1) ORGANIZATION LaSalle Partners Incorporated [successor to LaSalle Partners Limited Partnership and LaSalle Partners Management Limited Partnership (collectively, the "Predecessor Partnerships")] was incorporated in Maryland on April 15, 1997, (collectively referred to as the "Company"). On July 22, 1997, the Company completed an initial public offering (the "Offering") of 4,000,000 shares of LaSalle Partners Incorporated common stock, $.01 par value per share (the "Common Stock"). In addition, all of the partnership interests held in the Predecessor Partnerships were contributed to the Company, pursuant to agreements among the general and limited partners, in exchange for an aggregate of 12,200,000 shares of common stock. The contribution occurred immediately prior to the closing of the Offering. The 4,000,000 shares were offered at $23 per share, aggregating $82,822, net of offering costs, of which $63,490 was used to retire long-term debt and related interest. The Predecessor Partnerships were subject to a reorganization as part of the incorporation of the Company. Due to the existence of a paired share arrangement between the Predecessor Partnerships and between the former general partners of the Predecessor Partnerships, as well as the existence of identical ownership before and after the incorporation of the Predecessor Partnerships, such transactions were accounted for in a manner similar to the accounting used for a pooling of interests. Thus, the Company's financial statements include the financial positions and results of operations of the Predecessor Partnerships at their historical basis. (2) INTERIM INFORMATION The consolidated and combined financial statements as of September 30, 1998 and for the three and nine month periods ended September 30, 1998 and 1997 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated and combined financial statements for these interim periods have been included. The results for the periods ended September 30, 1998 and 1997 are not necessarily indicative of the results to be obtained for the full fiscal year. (3) EARNINGS PER SHARE Basic earnings per common share was based on weighted average shares outstanding of 16,230,358 and 16,210,340 for the three and nine month periods ended September 30, 1998, respectively. Diluted earnings per common share was based on weighted average shares outstanding of 16,446,906 and 16,403,225 for the three and nine month periods ended September 30, 1998, respectively, which reflects increases of 216,548 and 192,885 shares primarily representing the dilutive effect of outstanding stock options whose exercise price was less than the average market price of the Company's stock for the period and, to a lesser extent, the dilutive effect of shares to be issued under the Company's employee stock benefit plans.
(4) BUSINESS SEGMENTS The Company's operations have been classified into three business segments: Management Services, Corporate and Financial Services and Investment Management. The Management Services segment provides three primary service capabilities: (i) property and facility management and leasing for property owners; (ii) development management for both investors and real estate users seeking to develop new buildings or renovate existing facilities; and (iii) project management of tenant improvements in both owner-occupied and leased space. The Corporate and Financial Services segment provides transaction and advisory services through three primary service capabilities, including: (i) tenant representation for corporations and professional services firms; (ii) investment banking services to address the financing, acquisition, and disposition needs of real estate owners; and (iii) land acquisition services for owners and users of land. The Investment Management segment provides real estate investment management services to institutional investors, corporations and high net worth individuals. Total revenue by industry segment includes revenue derived from services provided to other segments. Operating income represents total revenue less direct and indirect allocable expenses. The Company allocates all expenses, other than interest and income taxes, as substantially all expenses incurred benefit one or more of the segments. Summarized unaudited financial information by business segment for the three and nine month periods ended September 30, 1998 and 1997 is as follows:
<TABLE> <CAPTION> SEGMENT OPERATING RESULTS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- -------- --------- -------- <S> <C> <C> <C> <C> Management Services: Revenue: Property and facility management fees . . . . . $ 12,527 10,694 33,879 28,347 Leasing fees. . . . . . . . . . . . . . . . . . 9,051 7,179 19,990 13,178 Development management fees . . . . . . . . . . 2,591 2,148 6,786 4,892 Project management fees . . . . . . . . . . . . 4,361 1,889 12,361 4,985 Intersegment revenue. . . . . . . . . . . . . . 193 25 399 75 Other income. . . . . . . . . . . . . . . . . . 321 157 673 286 --------- ------- ------- ------- 29,044 22,092 74,088 51,763 Operating expenses: Compensation, operating and administrative expenses . . . . . . . . . . . . . . . . . . . 27,251 21,580 78,624 53,092 Depreciation and amortization . . . . . . . . . 1,263 961 3,880 2,402 --------- ------- ------- ------- Operating income (loss) . . . . . . . . . . . $ 530 (449) (8,416) (3,731) ========= ======= ======= ======= Corporate and Financial Services: Revenue: Tenant representation fees. . . . . . . . . . . $ 10,784 7,600 20,965 18,084 Investment banking fees . . . . . . . . . . . . 6,278 3,678 20,832 9,590 Land fees . . . . . . . . . . . . . . . . . . . 2,696 1,147 5,304 2,939 Construction operations . . . . . . . . . . . . 250 225 807 635 Equity in earnings from unconsolidated ventures (47) 249 (53) 431 Intersegment revenue. . . . . . . . . . . . . . 429 -- 529 392 Other income. . . . . . . . . . . . . . . . . . 84 97 242 183 --------- ------- ------- ------- 20,474 12,996 48,626 32,254 Operating expenses: Compensation, operating and administrative expenses . . . . . . . . . . . . . . . . . . . 14,288 9,592 41,357 27,333 Depreciation and amortization . . . . . . . . . 316 323 926 870 --------- ------- ------- ------- Operating income. . . . . . . . . . . . . . . $ 5,870 3,081 6,343 4,051 ========= ======= ======= =======
SEGMENT OPERATING RESULTS THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ 1998 1997 1998 1997 --------- -------- --------- -------- Investment Management: Revenue: Advisory fees . . . . . . . . . . . . . . . . . $ 14,228 15,512 61,620 54,145 Acquisition fees. . . . . . . . . . . . . . . . 845 1,238 3,524 1,902 Equity in earnings from unconsolidated ventures 513 (140) 2,393 1,417 Other income. . . . . . . . . . . . . . . . . . 350 185 786 468 --------- ------- ------- ------- 15,936 16,795 68,323 57,932 Operating expenses: Compensation, operating and administrative expenses 13,087 12,219 47,779 43,147 Depreciation and amortization . . . . . . . . . . 1,020 1,257 3,371 3,223 --------- ------- ------- ------- Operating income. . . . . . . . . . . . . . . $ 1,829 3,319 17,173 11,562 ========= ======= ======= ======= Total segment revenue . . . . . . . . . . . . . . . $ 65,454 51,883 191,037 141,949 Intersegment revenue eliminations . . . . . . . . . (622) (25) (928) (467) --------- ------- ------- ------- Total revenue . . . . . . . . . . . . . . . . $ 64,832 51,858 190,109 141,482 ========= ======= ======= ======= Total segment operating expenses. . . . . . . . . . $ 57,225 45,932 175,937 130,067 Intersegment operating expense eliminations . . . . (622) (25) (928) (467) --------- ------- ------- ------- Total operating expenses. . . . . . . . . . . $ 56,603 45,907 175,009 129,600 ========= ======= ======= ======= Total operating income. . . . . . . . . . . . $ 8,229 5,951 15,100 11,882 ========= ======= ======= ======= </TABLE>
(5) PRO FORMA FINANCIAL INFORMATION The following pro forma consolidated and combined statements of earnings give effect to the acquisition of the common stock of Galbreath, as adjusted for the Tenant Representation and Investment Banking units which were not acquired, the provision for income taxes as though the Company and Galbreath were taxable entities at an effective tax rate of 38.5%, the conversion of the Company to corporate form and the initial public offering, including the receipt and application of the net proceeds therefrom to repay long-term indebtedness and related interest, as if these events occurred on January 1, 1997. The pro forma adjustments are based upon available information and certain assumptions that management of the Company believes are reasonable. The pro forma consolidated and combined financial statements are not necessarily indicative of what the actual results of operations would have been for the three and nine month periods ended September 30, 1997 had the Company completed the acquisition of the Galbreath common stock and consummated its conversion to corporate form and the Offering transactions as of the dates indicated nor does it purport to represent the future financial position or results of operations of the Company. The three and nine month periods ended September 30, 1998 represent the Company's actual results of operations.
<TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ------------------------ ACTUAL PRO FORMA ACTUAL PRO FORMA 1998 1997 1998 1997 --------- -------- --------- -------- <S> <C> <C> <C> <C> Revenue: Fee-based services. . . . . . . . . . . . . . . . $ 63,611 51,310 186,067 146,548 Equity in earnings from unconsolidated ventures . 466 109 2,340 1,921 Other income. . . . . . . . . . . . . . . . . . . 755 439 1,702 1,224 ---------- ---------- ---------- ---------- Total revenue . . . . . . . . . . . . . . . . . 64,832 51,858 190,109 149,693 Operating expenses: Compensation and benefits . . . . . . . . . . . . 37,739 29,515 116,775 91,196 Operating, administrative and other . . . . . . . 16,265 14,039 50,057 39,920 Depreciation and amortization . . . . . . . . . . 2,599 2,541 8,177 7,158 ---------- ---------- ---------- ---------- Total operating expenses. . . . . . . . . . . . 56,603 46,095 175,009 138,274 ---------- ---------- ---------- ---------- Operating income. . . . . . . . . . . . . . . . 8,229 5,763 15,100 11,419 Interest expense. . . . . . . . . . . . . . . . . . 413 135 992 864 ---------- ---------- ---------- ---------- Earnings before provision for income taxes. . . 7,816 5,628 14,108 10,555 Net provision for income taxes. . . . . . . . . . . 3,010 2,167 5,432 4,063 ---------- ---------- ---------- ---------- Net earnings. . . . . . . . . . . . . . . . . . $ 4,806 3,461 8,676 6,492 ========== ========== ========== ========== Basic earnings per common share . . . . . . . . . . $ 0.30 0.21 0.54 0.40 ========== ========== ========== ========== Weighted average shares outstanding . . . . . . . . 16,230,358 16,200,000 16,210,340 16,200,000 ========== ========== ========== ========== Diluted earnings per common share . . . . . . . . . $ 0.29 0.21 0.53 0.40 ========== ========== ========== ========== Diluted weighted average shares outstanding . . . . 16,446,906 16,329,096 16,403,225 16,329,032 ========== ========== ========== ========== </TABLE>
FOOTNOTE 5 - CONTINUED Pro forma total revenue and operating expenses for Galbreath include activities such as property management and leasing, facility management and development management. Additional adjustments to operating expenses were made for estimated incremental general and administrative costs associated with operations as a public company totaling $187 and $563 for the three and nine month periods ended September 30, 1997, respectively. As a result of the repayment of the Company's long-term notes payable out of the proceeds of the Offering, the related actual interest expense totaling $148 and $2,995 for the three and nine month periods ended September 30, 1997, respectively, has been eliminated in the pro forma results. The pro forma results further include an additional provision for income taxes totaling $4,109 and $5,871 for the three and nine month periods ended September 30, 1997, respectively, giving effect to the conversion of the Company and Galbreath to taxable entities. (6) DEBT In addition to its existing five year unsecured revolving credit facility of $150,000, the Company obtained a $175 million credit facility (the "Acquisition Facility") in September 1998 which is to be used exclusively to fiance the acquisition of Compass (note 7). The Acquisition Facility, which is placed with a syndicate of seven banks, has a one year term with two six month extensions and bears a variable rate of interest based on market rates. Under the terms of the revolving credit facility and the Acquisition Facility (collectively, the "Facilities"), the Company must maintain a certain level of consolidated net worth and ratio of funded debt to earnings before interest expense, income taxes, depreciation and amortization expense, and must meet a minimum fixed charge coverage ratio. Additionally, the Company is restricted from, among other things, incurring certain levels of indebtedness to lenders outside of the Facilities, disposing of a significant portion of its assets, and is subject to lender approval on certain levels of co-investment. As of September 30, 1998, there were no outstanding borrowings on the Acquisition Facility. The Company had $28,442 of outstanding borrowings on its revolving credit facility at September 30, 1998, compared with no outstanding borrowings at December 31, 1997. (7) SUBSEQUENT EVENTS - ACQUISITIONS On October 1, 1998, the Company acquired all of the common stock of the following real estate service companies (collectively referred to as "Compass") formerly owned by Lend Lease Corporation Limited ("Lend Lease"): Compass Management and Leasing, Inc. and its wholly owned subsidiaries, The Yarmouth Group Property Management, Inc., and ERE Yarmouth Retail, Inc. (formerly Compass Retail, Inc.). On October 31, 1998, the Company also acquired Compass Management and Leasing (Australia) Pty Limited, the Lend Lease property and facility management business in Australia. The Company paid $180,000 in cash for all of the acquired companies, which it financed via borrowings on its Facilities. The purchase of the companies also includes provisions for an earnout payment of up to $77,500 over five years.
FOOTNOTE 7 - CONTINUED On October 22, 1998, the Company and Jones Lang Wootton ("JLW") announced that they reached a definitive agreement to merge their operations. JLW is an employee owned business and provides a wide range of real estate advisory, transactional and asset management services to local, national and international clients in both the private and public sectors with more than 4,000 employees located in 32 countries throughout Europe, Asia, North America, and Australia. The transaction, which is principally structured as a share exchange, has been approved by the Company's Board of Directors and the Boards of Directors of the JLW companies and partnerships. Under the terms of the agreement, the Company will issue up to 14.3 million shares of common stock, plus approximately $6,000 in cash, subject to a closing net worth adjustment. The transaction is expected to close in early 1999 and is subject to acceptance of the exchange offer by JLW shareholders and partners, approval by the Company's shareholders, regulatory and tax clearances, and other customary conditions, and there can be no assurance it will be completed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW LaSalle Partners Incorporated is a leading vertically integrated global real estate services firm that provides management services, corporate and financial services and investment management services to corporations and other real estate owners and investors worldwide. The Company has grown by expanding both its client base and its range of services and products in anticipation of client needs. The Company completed its initial public offering ("Offering") on July 22, 1997, raising net proceeds of $82.8 million which were used primarily to repay the Company's long-term debt and related interest of $63.5 million. The Company has pursued a growth strategy that capitalizes on existing client relationships and emerging industry trends. The key components of the growth strategy include expanding client relationships to increase the range of services currently provided in addition to developing new client relationships, broadening its international presence and selectively pursuing strategic acquisitions and co-investment opportunities. Since late 1994, the Company has completed the following strategic acquisitions: Alex. Brown Kleinwort Benson Realty Advisors Corporation, a real estate investment advisor, in November 1994; CIN Property Management, a London-based investment advisor, in October 1996; The Galbreath Company, a property and development management company, in April 1997; the project management business of Satulah Group Inc., a project management/facilities conversion company, in January 1998; and Compass Management and Leasing and certain of its affiliates, a property management and leasing, facility management and project management company with operations in the United States, United Kingdom, Australia and Brazil, in October 1998. Additionally, in October 1998 the Company and Jones Lang Wootton, an employee owned international real estate services firm with operations in Europe, Asia, Australia and the United States announced their intent to merge operations. The Company intends to continue to increase its co-investment with its investment management clients. This strategy should serve to grow the assets under management, generate returns on investment and create potential opportunities to provide services related to the acquisition, financing, property management, leasing and disposition of such investments. As of September 30, 1998, the Company had a total investment of $51.0 million in 41 separate property or fund co-investments with additional capital commitments of $14.5 million for future fundings of co- investments. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 REVENUE The Company's total revenue, after elimination of intersegment revenue, grew $13.0 million, or 25.0%, to $64.8 million for the three months ended September 30, 1998 and grew $48.6 million, or 34.4%, to $190.1 million for the nine months ended September 30, 1998 from the prior year periods. Despite recent volatile conditions in the economy and activity declines in the domestic real estate and capital markets, increased revenues for both periods were driven primarily by the strong U.S. economy; significant inflows of capital to the real estate market for most of the nine months ended September 30, 1998; an ongoing trend toward consolidation in many financial services businesses; and the Company's ability to cross- market real estate services to its clients.
These increases have been partially offset by a decline in property management, disposition, leasing and investment management fees from four multiple investor funds ("Commingled Funds") formed by the Company in the 1980s. The decline is a result of the current and continuing disposition of the funds' assets, in accordance with the strategic plan. These asset dispositions are expected to be substantially completed by the end of 1998. Revenue generated from these funds compared with total revenue was approximately 1% for the three and nine months ended September 30, 1998 and approximately 6% for the prior year periods. Revenue for the Company's Management Services segment, which represented 44.5% and 38.8%, respectively, of the Company's total revenue for the three and nine months ended September 30, 1998, increased $7.0 million, or 31.5%, to $29.0 million for the three months ended September 30, 1998 and increased $22.3 million, or 43.1%, to $74.1 million for the nine months ended September 30, 1998 from the prior year periods. Increases in revenue were primarily a result of higher volumes of leasing activity and the acquisition of Galbreath and Satulah and, to a lesser extent, to increases in property and facility management fees, strategic alliance relationships formed by the Project Management business, and a higher volume of development projects being managed by the Development Management business. These increases were partially offset by a decline in revenue related to the sale of the Commingled Fund properties discussed previously. The Company's Corporate and Financial Services segment revenue, which represented 30.9% and 25.3%, respectively, of the Company's total revenue for the three and nine months ended September 30, 1998, increased $7.5 million, or 57.5%, to $20.5 million for the three months ended September 30, 1998 and increased $16.4 million, or 50.8%, to $48.6 million for the nine months ended September 30, 1998 over the prior year periods. The increase in revenue for both periods was primarily attributable to an increased volume of corporate finance, investment sales and private equity activity, slightly offset by a reduction in performance fees generated during the third quarter of 1998 as compared to the third quarter of 1997 and augmented for the nine month period in 1998 by performance fees generated on the disposition of certain hotel properties in connection with the formation of the LaSalle Hotel Properties REIT in the second quarter of 1998. In addition, the Company experienced increased transaction volume by both its Tenant Representation and Land units during the periods. These increases were partially offset by a decline in revenue related to the sale of the Commingled Fund properties discussed previously. The Company's Investment Management segment revenue, which represented 24.6% and 35.9%, respectively, of the Company's total revenue for the three and nine months ended September 30, 1998, decreased $0.9 million, or 5.1%, to $15.9 million for the three months ended September 30, 1998 and increased $10.4 million, or 17.9%, to $68.3 million for the nine months ended September 30, 1998 from the prior year periods. The decrease in revenue for the third quarter of 1998 was primarily attributable to a decrease in performance fees generated as compared to the prior year period, in addition to the decline in revenue from four of the Company's Commingled Funds discussed previously. To a lesser extent, the decrease can be attributed to the transition of approximately $1.0 billion in assets under management related to the CalPERS portfolio to the client's new investment advisor during the third quarter of 1998. These decreases for the third quarter of 1998 were partially offset by increased equity earnings from the segment's co-investment holdings as well as international acquisition fees. The 1998 year to date gain in revenue was primarily attributable to performance fees generated on the disposition of certain assets under management, including certain hotel properties in connection with the formation of the LaSalle Hotel Properties ("LHO") in the second quarter of 1998, and, to a lesser extent, to the higher volume of activity performed by the securities unit and increased acquisition fees generated on international fund activity. These increases were partially offset by a decline in revenue from four of the Company's Commingled Funds discussed previously.
OPERATING EXPENSE The Company's operating expenses, after elimination of intersegment expenses, increased $10.7 million, or 23.3%, to $56.6 million for the three months ended September 30, 1998 and increased $45.4 million, or 35.0%, to $175.0 million for the nine months ended September 30, 1998 from the prior year periods. Operating expenses represented 87.3% and 92.1% of total revenue, respectively, for the three and nine month periods ended September 30, 1998 which is consistent with the prior year periods. Increased operating expense levels reflect the (i) increased accrual for incentive compensation as a result of higher operating profits from the prior year periods; (ii) increased personnel and other operating costs associated with staffing levels necessary to support new business initiatives and increased business activity; (iii) personnel and other operating costs associated with the acquisition of Galbreath and Satulah, including the amortization of goodwill and intangibles; and, (iv) personnel and infrastructure costs related to public reporting and technology enhancements. Operating expenses for the Company's Management Services segment increased $6.0 million, or 26.5% to $28.5 million for the three months ended September 30, 1998 and increased $27.0 million or 48.7% to $82.5 million for the nine months ended September 30, 1998 over the prior year periods. These increases were primarily a result of the effects of the Galbreath and Satulah acquisitions, including personnel costs and amortization of intangibles resulting from the acquisitions, higher compensation and benefit costs associated with increased staffing to support new business initiatives and incremental corporate infrastructure costs as a result of higher staffing levels and technology enhancements. Operating expenses for the Corporate and Financial Services segment increased $4.7 million, or 47.3%, to $14.6 million for the three months ended September 30, 1998 and increased $14.1 million, or 49.9%, to $42.3 million for the nine months ended September 30, 1998 over the prior year periods. The increases principally reflect the accrual incentive compensation resulting from the increased level of operating profits generated, in addition to increased personnel and other operating costs associated with staffing levels necessary to support new business initiatives and the increased business activity. Operating expenses for the Investment Management segment increased $0.6 million, or 4.7%, to $14.1 million for the three months ended September 30, 1998 and increased $4.8 million, or 10.3%, to $51.2 million for the nine months ended September 30, 1998 over the prior year periods. The increase for the three months ended September 30, 1998 was primarily attributable to the new international office opened in the Netherlands subsequent to the third quarter of 1997. The increase for the nine months ended September 30, 1998 was substantially a result of increased accruals for incentive compensation, consistent with the increased level of operating profits generated for the period as compared to the prior year. OPERATING INCOME As a result of the factors noted above, the Company's operating income increased $2.3 million, or 38.3%, to $8.2 million for the three months ended September 30, 1998 and increased $3.2 million, or 27.1%, to $15.1 million for the nine months ended September 30, 1998 over the prior year periods. As a percentage of total revenue, the Company's operating income remained relatively constant compared to the prior year period at 12.7% and 7.9% for the three and nine months ended September 30, 1998, respectively.
INTEREST EXPENSE Interest expense increased $0.1 million to $0.4 million for the three months ended September 30, 1998 and decreased $2.9 million to $1.0 million for the nine months ended September 30, 1998 from the prior year periods. The decrease for the nine months ended September 30, 1998 is principally a result of the repayment of the Company's long-term debt from the net proceeds of the Offering. PROVISION FOR INCOME TAXES The provision for income taxes increased $5.0 million to $3.0 million for the three months ended September 30, 1998 and increased $7.2 million to $5.4 million for the nine months ended September 30, 1998 from the prior year periods. The increases are a result of a $5.0 million tax benefit recorded by the Company during the third quarter of 1997 upon its conversion from partnership to corporate form in July 1997, in addition to the resulting provision for income taxes at an effective tax rate of 38.5%. NET EARNINGS As a result of the factors discussed previously, the Company's net earnings decreased $2.8 million, or 36.8%, to $4.8 million for the three months ended September 30, 1998 and decreased $1.2 million, or 11.7%, to $8.7 million for the nine months ended September 30, 1998 from the prior year periods. PRO FORMA RESULTS Pro forma results for the three and nine months ended September 30, 1997 give effect to (i) the acquisition of Galbreath, as adjusted for the Tenant Representation and Investment Banking units which were not acquired, as if the acquisition occurred on January 1, 1997; (ii) the provision for income taxes as though the Company and Galbreath were both taxable entities as of January 1, 1997 at an effective tax rate of 38.5%; and (iii) estimated incremental general and administrative costs associated with operations as a public company and the repayment of the Company's long-term notes payable out of the proceeds of the Offering as if the Offering occurred on January 1, 1997. The Company's actual historical revenue for the three and nine months ended September 30, 1998 of $64.8 million and $190.1 million, respectively, compare to $51.9 million and $149.7 million for the prior year periods on a pro forma basis. The Company's operating expenses for the three and nine months ended September 30, 1998 on an actual historical basis were 87.3% and 92.1% of revenue, respectively, compared to 88.9% and 92.4% for the prior year periods on a pro forma basis. As a result of the factors previously discussed, the Company's actual historical net income increased $1.3 million to $4.8 million for the three months ended September 30, 1998 and increased $2.2 million to $8.7 million for the nine months ended September 30, 1998 from the prior year periods on a pro forma basis. LIQUIDITY AND CAPITAL RESOURCES The Company meets its cash requirements primarily from operating activities. No one client accounts for more than 10% of the Company's total revenue. During the nine months ended September 30, 1998, cash flows provided by operating activities totaled $18.3 million, an increase of $1.2 million over the prior year period. The increase in operating cash flows is primarily attributable to increased incentive fees generated which are typically paid upon closing of the related transaction.
The Company continues to pursue co-investment opportunities with its investment management clients, for which the holding period typically ranges from three to seven years. Such co-investments are represented by non-controlling general partner and limited partner interests. In addition to its share of investment returns, the Company typically earns investment management fees, and in some cases, property management and leasing fees on these investments. The equity earnings from these co-investments have had a relatively small impact on the Company's current earnings and cash flow. However, the Company's increased participation as a principal in real estate investments could increase fluctuations in the Company's net earnings and cash flow as a result of the timing and magnitude of the gains or losses and potential incentive participation fees, if any, to be recognized on the disposition of the assets. In certain of these investments, the Company will not have complete discretion to control the timing of the disposition of such investments. Net cash used in investing activities was $62.4 million for the nine months ended September 30, 1998 compared with $5.3 million for the prior year period. The increased usage of $57.0 million is primarily attributable to a higher level of co-investment during 1998, including an $18.9 million investment in LHO (net additional co-investment of $15.2 million) in April 1998. In addition, the Company acquired the project management business of the Satulah Group Inc. in January 1998 for $5.5 million in cash. Finally, the Company experienced increased net capital expenditures of $8.5 million primarily as a result of the continued customization and implementation of a new property accounting and information system by its Management Services segment and a new corporate accounting system in addition to the on-going replacement of personal computers. The Company anticipates that future capital expenditures will continue to exceed prior year levels as a result of technology enhancements that are currently in progress. Historically, the Company has financed its operations, acquisitions and co-investments with internally generated funds, ownership equity and borrowings under revolving credit facilities. In addition to the Company's existing five year unsecured revolving credit facility of $150 million, in September 1998, the Company obtained a $175 million credit facility (the "Acquisition Facility") which is to be used exclusively to finance the acquisition of certain businesses from Lend Lease as described under Subsequent Events - Acquisitions. The new facility, which is placed with a syndicate of seven banks, has an initial term of one year with two six month extensions. The revolving credit facility is available for working capital, co-investment, and acquisitions. The facilities are guaranteed by certain of the Company's subsidiaries. The Company must maintain a certain level of consolidated net worth and ratio of funded debt to EBITDA, and must meet a minimum fixed charge coverage ratio. Additionally, the Company is restricted from, among other things, incurring certain levels of indebtedness to lenders outside of the facilities and disposing of a significant portion of its assets, and is subject to lender approval on certain levels of co-investment. The facilities bear variable rates of interest based on market rates. There were no borrowings as of and for the nine months ended September 30, 1998 on the Acquisition Facility. The Company had outstanding borrowings of $28.4 million as of September 30, 1998 on its revolving credit facility. The Company's effective interest rate on its revolving credit facility was 5.8% and 6.7% for the nine months ended September 30, 1998 and 1997, respectively.
Net cash provided by financing activities was $28.4 million for the nine months ended September 30, 1998 compared with net cash used of $2.9 million in the prior year period. The increase in cash flows is primarily a result of the Company's conversion to corporate form in July 1997 and the elimination of partnership distributions which were made to its partners during 1997 in accordance with partnership agreements for which no like dividends were made during 1998. To a lesser extent the increase in cash flows are due to increased borrowings on the Company's revolving credit facility to fund increased co-investment activity and capital expenditures as previously discussed. The Company believes, based on current operating plans, that cash generated from operations and available borrowings will be sufficient to meet its capital and liquidity requirements for the foreseeable future. SEASONALITY Historically, the Company's revenue, operating profits and net earnings in the first three calendar quarters are substantially lower than in the fourth quarter. This seasonality is due to a calendar year-end focus on the completion of transactions, which is consistent with the real estate industry generally. In contrast, the Company's Investment Management segment earns performance fees on client's returns on their real estate investments. Such performance fees are generally earned when the asset is disposed of, the timing of which the Company does not have complete discretion over. The Company's non-variable operating expenses, which are treated as expenses when incurred during the year, are relatively constant on a quarterly basis. Therefore, the Company typically sustains a loss in the first quarter of each calendar year, typically reports a small profit or loss in the second and third quarters and records a substantial majority of the Company's earnings in the fourth calendar quarter, barring the recognition of investment generated performance fees. INFLATION The Company's operations are directly affected by various national and local economic conditions, including interest rates, the availability of credit to finance real estate transactions and the impact of tax laws. To date, the Company does not believe that general inflation has had a material impact on its operations, as revenue, commissions, and other variable costs related to revenue are primarily impacted by real estate supply and demand rather than general inflation. OTHER MATTERS ACCOUNTING MATTERS In an attempt to align its operating results with those presented by similar companies within the industry, certain amounts have been reclassified in the Company's 1997 revenue and operating expenses to reflect direct personnel cost reimbursements received on property or specific client assignments on a net, rather than a gross, basis. There was no effect on operating profits or net earnings as historically reported. Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" becomes effective for fiscal years beginning after December 15, 1997 and is not expected to have a material impact on the Company's financial statements. Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" becomes effective for all fiscal quarters for fiscal years beginning after June 15, 1999 and is not expected to have a material impact on the Company's financial statements.
YEAR 2000 ISSUES The "Year 2000 Issue" is the result of computer programs and systems having been designed and developed to use two digits, rather than four, to define the applicable year. As a result, these computer programs and systems may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, pay invoices or engage in similar normal business activities. The Company has defined five key phases in addressing the Year 2000 Issue: awareness, assessment, renovation, validation and implementation. Under the guidance of a Year 2000 program team, who's strategy is supported by senior management, the Company has substantially completed its awareness phase and will continue this phase through December 31, 1999 to maintain a heightened sense of awareness to the Year 2000 Issue. The Company conducts its business primarily with commercial software purchased from third-party vendors and has significantly upgraded its information systems capabilities over the last two years and is in the process of finalizing the roll-out of new property and client accounting systems. In conducting the assessment phase, the Company is reviewing the year 2000 compliance of these systems in addition to creating an inventory of all other applications, systems software and hardware including the related impact of the Year 2000 Issue. Completion of the assessment phase is anticipated to be in early 1999. Based upon the results of the assessment phase, the Company will determine the appropriate levels of renovation and validation that will be required. As a result of the significant recent upgrades of the critical business systems, the renovation process of converting, replacing or eliminating selected platforms, applications, databases and utilities, as well as the validation process of testing and verifying, is anticipated to be completed by mid-year 1999. The implementation phase, which involves returning the tested systems to operational status and the development of contingency plans for critical business systems, is also anticipated to be completed by mid-year 1999. Management expects that the cost of additional modifications to the Company's software to meet Year 2000 requirements will not be material. The total anticipated costs related to the phases previously discussed is currently projected to be approximately $2.7 million, including approximately $1.3 million of operating expenses associated with testing and other matters and $1.4 million of capital expenditures, primarily representing system upgrades which provide operational benefits above and beyond Year 2000 compliance. The Company has incurred $.2 million in operating expenses to date. Factors that could impact the Company's ability to make the necessary modifications or replacements include, but are not limited to, the availability and cost of trained personnel and the ability of such personnel to locate and correct all relevant computer codes. If such modifications are not completed on a timely basis or are more costly to implement than anticipated, the Company's business, financial condition or results of operations could be materially adversely affected. The ability of third parties with whom the Company transacts business or companies that the Company may acquire to adequately address their Year 2000 issues is outside the Company's control. At this time, the Company is in the process of reviewing the Year 2000 compliance of its major suppliers and customers. There can be no assurance that the failure to adequately address Year 2000 issues will not have a material adverse effect on the Company's business, financial condition, and results of operations. Properties for which the Company provides management services rely on a variety of third party suppliers to provide critical operating services. These suppliers may utilize systems and embedded technologies to control the operation of building systems such as utilities, lighting, security, elevators, heating, ventilating and air conditioning systems. The Company is in the process of obtaining assurances from suppliers as to their Year
2000 compliance and preparing contingency plans, including the identification of alternative suppliers. The Company does not control these third party suppliers, and for some suppliers, such as utility companies, there may be no feasible alternative suppliers available. The failure to these suppliers' systems could have a material adverse effect on the operations of the affected property, and widespread failures could have a material adverse effect on the Company. Although the Company is not aware of any threatened claims related to the Year 2000, the Company may become subject to litigation arising from such claims and, depending on the outcome, such litigation could have a material adverse affect on the Company. It is not clear whether the Company's insurance coverage would be adequate to offset these and other business risks related to the Year 2000. SUBSEQUENT EVENTS - ACQUISITIONS On October 1, 1998, the Company acquired all of the common stock of the following real estate service companies formerly owned by Lend Lease Corporation Limited ("Lend Lease"): Compass Management and Leasing, Inc. and its wholly owned subsidiaries; The Yarmouth Group Property Management, Inc.; and ERE Yarmouth Retail, Inc. (formerly Compass Retail, Inc.). On October 31, 1998, the Company also acquired Compass Management and Leasing (Australia) Pty Limited, the Lend Lease property and facility management business in Australia. Atlanta-based Compass Management and Leasing, Inc. is a global real estate management firm, with operations across the United States, United Kingdom, South America and Australia. The Company paid $180,000 in cash for all of the acquired companies. The purchase of the companies also includes provisions for an earnout payment of up to $77.5 million over five years. The acquisition was accounted for as a purchase and, accordingly, operating results for the Compass business will be included in the Company's results subsequent to the date of acquisition. On October 22, 1998, the Company and Jones Lang Wootton ("JLW") announced that they reached a definitive agreement to merge their operations. JLW, which is headquartered in London, provides a wide range of real estate advisory, transactional and asset management services to local, national and international clients in both the private and public sectors. JLW is an employee owned company and has more than 4,000 employees located in 32 countries throughout Europe, Asia, North America, and Australia. The transaction, which is principally structured as a share exchange, has been approved by the Company's Board of Directors and the Board of Directors of the JLW companies and the partnerships. Under the terms of the agreement, the Company will issue up to 14.3 million shares of common stock and approximately $6.0 million in cash, subject to a closing net worth adjustment. The transaction, which is expected to close in early 1999, is subject to acceptance of the exchange offer by Jones Lang Wootton shareholders and partners, approval by LaSalle shareholders, regulatory and tax clearances, and other customary conditions. There can be no assurance that the transaction will be completed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Most of these matters are covered by insurance. In the opinion of the Company, the ultimate resolution of such litigation matters will not have a material adverse effect on the financial position, results of operations and liquidity of the Company. ITEM 5. OTHER MATTERS On October 22, 1998, Lizanne Galbreath resigned from the Board of Directors. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain statements in this filing and elsewhere (such as in reports, other filings with the Securities and Exchange Commission, press releases, presentations and communications by the Company or its management and written and oral statements) may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, achievements, plans and objectives of the Company to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. Such factors are discussed in the Company's Registration Statement (No. 333-25741), under "Risk Factors" and elsewhere, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, in Item 1. "Business", Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere, and in other reports filed by the Company with the Securities and Exchange Commission. These factors include, among other things, the following: (i) the impact of general economic conditions and the real estate economic climate on the Company's business and results of operations; (ii) the risk that property management and investment management agreements will be terminated prior to expiration or not renewed; (iii) the dependence of the Company's revenue from property management and leasing services on the performance of the properties managed by the Company; (iv) the risks inherent in pursuing a selective acquisition strategy; (v) the concentration of the Company's business in properties in central business districts; (vi) the risks associated with the co-investment activities of the Company; (vii) the seasonal nature of the Company's revenue, operating income and net earnings; and (viii) the competition faced by the Company in a variety of business disciplines within the commercial real estate industry. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements to reflect any changes in events or circumstances or in the Company's expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) A list of exhibits is set forth in the Exhibit Index which immediately precedes the exhibits and which is incorporated by reference herein. (b) A Current Report on Form 8-K, dated August 31, 1998, reporting the definitive agreement for the Company to acquire two Lend Lease real estate services businesses, was filed during the quarter ended September 30, 1998.
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 thereunto duly authorized. LASALLE PARTNERS INCORPORATED Dated: November 13, 1998 BY:/S/ WILLIAM E. SULLIVAN ------------------------------ William E. Sullivan Executive Vice President and Chief Financial Officer (Authorized Officer, Principal Financial Officer and Principal Accounting Officer)
EXHIBIT INDEX Exhibit Number Description - ------- ----------- 10.1 $175,000,000 Credit Agreement, dated as of September 21, 1998, among LaSalle Partners Incorporated, the Guarantors Party Thereto, the Lenders Party Thereto, Harris Trust and Savings Bank, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, and The First National Bank of Chicago, as Administrative Agent. 10.2 First Amendment to the Company's $150,000,000 Multicurrency Credit Agreement, dated as of September 21, 1998. 10.3 Second Amendment to the LaSalle Partners Incorporated Employee Stock Purchase Plan. 27.1 Financial Data Schedule.