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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: March 14, 2003
(Date of earliest event reported)
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Commission File Number 1-14373
INSIGNIA FINANCIAL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 56-2084290
(State of Incorporation) (I.R.S. Employer Identification No.)
200 PARK AVENUE, NEW YORK, NEW YORK 10166
(Address of Principal Executive Offices) (Zip Code)
(212) 984-8033
(Registrant's Telephone Number, Including Area Code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 14, 2003, Insignia Financial Group, Inc. ("Insignia or the
"Company") completed the sale of its New York-based residential businesses,
Insignia Residential Group, LLC ("IRG") and Insignia Douglas Elliman, LLC
("IDE"), to Montauk Battery Realty, LLC. IRG is the sole member of IDE. Montauk
Battery Realty, LLC is located on Long Island, New York and its principal owners
are New Valley Corp. (NASDAQ: NVAL) and Dorothy Herman, chief executive officer
of Prudential Long Island Realty. The total purchase price of $71.75 million was
paid or is payable as follows: (i) $66.75 million paid in cash to Insignia at
the closing of the transaction; (ii) $500,000 in cash held in escrow on the
closing date and up to another $500,000 held in escrow pending receipt of
specified commissions; and (iii) the assumption by the buyer of up to $4.0
million in existing contingent earn-out payment obligations of IDE. The escrowed
amounts are available to secure Insignia's indemnity obligations under the
purchase and sale agreement. Any amounts remaining in escrow on March 14, 2004
and not securing previously made indemnity claims will be released to Insignia.
IDE, founded in 1911 and acquired by Insignia in June 1999, provides sales
and rental services in the New York City residential cooperative, condominium
and rental apartment market. IDE also operates in upscale suburban markets in
Long Island (Manhasset, Locust Valley and Port Washington/Sands Point). IDE has
approximately 950 employees, including 830 brokers, in 12 offices in the New
York City area. IRG provides property management services. It operates the
largest manager of cooperative condominium and rental apartments in the New York
metropolitan area, providing full service third-party fee management for more
than 250 properties, comprising approximately 60,000 residential units. These
residential businesses collectively produced service revenues in 2002, 2001 and
2000 of $133.7 million, $119.2 million and $134.1 million, respectively.
Insignia recognized a net gain of approximately $3.8 million (net of $4.8
million of applicable income taxes) in connection with the sale. The gain on
sale and the operations of these businesses will be reported in discontinued
operations for financial reporting purposes in the first quarter of 2003. On
March 14, 2003, Insignia paid down $67.0 million on its senior revolving credit
facility, decreasing outstanding senior borrowings thereunder to $28.0 million.
Also, the committed amount under the senior credit facility was reduced from
$230.0 million to $165.0 million.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Pro Forma Financial Information:
(i) Unaudited Pro Forma Consolidated Statement of Operations for the
year ended December 31, 2002.
(ii) Unaudited Pro Forma Consolidated Balance Sheet as of December 31,
2002.
(iii) Notes to Unaudited Pro Forma Consolidated Financial Statements.
(c) Exhibits
The following are furnished as exhibits to this report:
Exhibit No.
10.1 Purchase and Sale Agreement, dated as of March 14, 2003, by and
among Insignia, Insignia/ESG, Inc., Insignia Residential Group,
Inc., Insignia IP, Inc. and Montauk Battery Realty, LLC. *
99.1 Press release dated March 17, 2003.
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* Previously filed as Exhibit No. 10.1(n) to the Company's Form 10-K
for the year ended December 31, 2002, filed with the Securities and
Exchange Commission on March 21, 2003.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Adam B. Gilbert
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Adam B. Gilbert
Executive Vice President
DATE: March 31, 2003
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 2002 and Unaudited Pro Forma Consolidated Balance
Sheet as of December 31, 2002 give effect to the sale of Insignia Douglas
Elliman ("IDE") and Insignia Residential Group ("IRG") to Montauk Battery
Realty, LLC as of March 14, 2003 and related repayment on Insignia's senior
revolving credit facility, as if effected at that date, in the case of the pro
forma consolidated balance sheet, or on January 1, 2002, in the case of the pro
forma consolidated statement of operations.
The financial terms of the sale include a total sales price of $71.75
million, consisting of a payment in cash to Insignia of $66.75 million at
closing, a potential $1.0 million held in escrow that is receivable one year
from closing and the assumption by the buyer of up to $4.0 million in existing
earn-out obligations of IDE. Payment of the existing earn-outs by the buyer is
contingent upon the 2003 and 2004 performance of the IDE business. Collection of
the $1.0 million receivable is contingent upon the satisfaction of certain
conditions with respect to indemnity obligations of Insignia and receipt by the
buyer of specified brokerage commissions.
Insignia's gain on the sale is approximately $3.8 million (net of $4.8
million of applicable income taxes), which is net of approximately $2.8 million
of direct disposition costs. The disposition costs include $2.1 million of
contractual amounts payable to certain members of Insignia's senior management
and discretionary payments to management of the sold businesses. Simultaneous
with closing, Insignia paid down $67.0 million on its senior revolving credit
facility, decreasing outstanding senior borrowings thereunder to $28.0 million.
Also, the committed amount under the senior credit facility was reduced from
$230.0 million to $165.0 million. For 2002, these sold businesses collectively
produced services revenues and pre-tax income of $133.7 million and $7.9
million, respectively.
The unaudited pro forma financial statements have been prepared by
management of Insignia and are based on the historical consolidated financial
statements of Insignia and the sold businesses, giving effect to the transaction
and to the assumptions and adjustments in the accompanying Notes to Unaudited
Pro Forma Consolidated Financial Statements. The balance sheet and statement of
operations for Insignia as of and for the year ended December 31, 2002 shown
below have been derived from the audited consolidated financial statements at
that date but does not include all the information required by accounting
principles generally accepted in the United States for complete financial
statements. These pro forma financial statements should be read in conjunction
with the historical consolidated financial statements and footnote disclosures
of Insignia included on Form 10-K filed with the Securities and Exchange
Commission on March 21, 2003.
INSIGNIA FINANCIAL GROUP, INC.
(I) UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(In thousands, except per share data)
HISTORICAL PRO FORMA
----------------- STATEMENT
INSIGNIA RESIDENTIAL OTHER ADJUSTMENTS OF OPERATIONS
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REVENUES (a)
Real estate services $ 711,235 $ (133,691) $ - $ 577,544
Property operations 9,195 - - 9,195
Equity earnings in unconsolidated ventures 3,482 - - 3,482
Other income, net 793 - - 793
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724,705 (133,691) - 591,014
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COSTS AND EXPENSES
Real estate services 647,459 (121,383) - 526,076
Property operations 7,264 - - 7,264
Administrative 14,344 - - 14,344
Depreciation 17,588 (3,673) - 13,915
Property depreciation 1,920 - - 1,920
Amortization of intangibles 5,153 (747) - 4,406
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693,728 (125,803) - 567,925
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Operating Income (loss) 30,977 (7,888) - 23,089
OTHER INCOME AND EXPENSES
Interest income 3,951 (15) - 3,936
Interest expense (8,870) 16 3,015 (b) (5,839)
Property interest expense (2,122) - - (2,122)
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Income (loss) from continuing operations before
income taxes 23,936 (7,887) 3,015 19,064
Income tax (expense) benefit (10,719) 2,998 (1,296) (c) (9,017)
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Income (loss) from continuing operations 13,217 (4,889) 1,719 10,047
Preferred stock dividends (2,173) - - (2,173)
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Income from continuing operations available to
common shareholders $ 11,044 $ (4,889) $ 1,719 $ 7,874
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PER COMMON SHARE AMOUNTS:
Income from continuing operations
Basic $ 0.48 $ 0.34
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Assuming dilution $ 0.47 $ 0.33
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Weighted average common shares and
assumed conversions
Basic 23,122 - 23,122
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Assuming dilution 23,691 - 23,691
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See Notes to Unaudited Pro Forma Consolidated Financial Statements.
INSIGNIA FINANCIAL GROUP, INC.
(II) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
(In thousands)
HISTORICAL PRO FORMA
---------- OTHER BALANCE
INSIGNIA RESIDENTIAL ADJUSTMENTS SHEET
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ASSETS (a) (d)
Cash and cash equivalents $ 111,513 $ (66) $ (3,080) $ 108,367
Receivables, net of allowance 155,321 (2,479) - 152,842
Restricted cash 21,518 - - 21,518
Property and equipment 55,614 (11,766) - 43,848
Real estate investments, net 134,135 - - 134,135
Goodwill 289,561 34,117 - 255,444
Acquired intangible assets 17,611 (11,999) - 5,612
Deferred taxes 47,609 (4,037) - 43,572
Other assets, net 39,957 (2,177) 1,200 38,980
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Total assets $ 872,839 $ (66,641) $ (1,880) $ 804,318
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 13,743 $ (2,535) $ - $ 11,208
Commissions payable 63,974 (564) - 63,410
Accrued incentives 52,324 - - 52,324
Accrued and sundry 117,990 (2,844) 4,796 119,942
Deferred taxes 15,795 (949) - 14,846
Notes payable 126,889 - (67,000) 59,889
Real estate mortgage notes 66,795 - - 66,795
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Total liabilities 457,510 (6,892) (62,204) 388,414
Stockholders' Equity:
Preferred stock, par value $ .01 per share 4 - - 4
Common stock, par value $ .01 per share 232 - - 232
Additional paid-in capital 437,622 - - 437,622
Notes receivable for common stock (1,193) - - (1,193)
Accumulated deficit (16,241) (59,749) 60,324 (15,666)
Accumulated other comprehensive loss (5,095) - - (5,095)
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Total stockholders' equity 415,329 (59,749) 60,324 415,904
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Total liabilities and stockholders' equity $ 872,839 $ (66,641) $ (1,880) $ 804,318
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See Notes to Unaudited Pro Forma Consolidated Financial Statements.
INSIGNIA FINANCIAL GROUP, INC.
(III) NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA NOTES
(a) Represents the removal of the combined historical assets and liabilities
and statement of operations of IDE and IRG as of and for the year ended
December 31, 2002, as included in Insignia's audited consolidated financial
statements (filed on Form 10-K with the Securities and Exchange Commission
on March 21, 2003).
(b) Represents the removal of historical interest charges attributed to the
$67.0 million senior debt pay down at an estimated average rate of
approximately 4.5% for the year ended December 31, 2002. Interest on the
borrowed funds in 2002 was based on LIBOR plus 2.5%.
(c) Income taxes are provided on the pro forma interest expense adjustment at
the effective tax rate of 43%.
(d) Represents the adjustment to reflect payments of $67.0 million on the
senior credit facility and $2.8 million in disposition costs, net of
closing proceeds received totaling $66.75 million. In addition, adjustments
are made to record an estimated $1.2 million of additional proceeds
receivable upon final settlement of certain indemnity and other matters and
the current income tax effect of the gain on sale.
OTHER NOTES
Insignia's net gain is approximately $3.8 million from the sale of the
residential businesses. The gain on sale and operations of the sold businesses
will be reported in discontinued operations for financial reporting purposes in
the first quarter of 2003. The table below sets forth a calculation of the gain
on sale.
(In thousands)
TOTAL SALE PRICE $ 71,750
Less:
Contingent earn-out assumed
by buyer (4,000)
Indemnity holdback (1,000)
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CLOSING PROCEEDS 66,750
Less:
Disposition costs (2,830)
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NET CASH PROCEEDS 63,920
Other proceeds receivable 1,200
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TOTAL PROCEEDS 65,120
Net assets of sold businesses (56,499)
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Pre-tax gain on sale 8,621
Income tax expense (4,796)
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NET GAIN $ 3,825
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In connection with the sale, the buyer assumed up to $4.0 million of
earn-out obligations of IDE, which payment is dependent upon achievement of
certain future financial performance measures for the 2003 and 2004 years.
Disposition costs include an estimated $700,000 in professional fees and $2.1
million of contractual amounts payable to certain members of the Company's
senior management and discretionary payments to management of the sold
businesses. Other proceeds receivable of $1.2 million (shown above) consist of
$500,000 in cash held in escrow at closing and an estimated $700,000 collectible
upon final settlement of certain other closing assets and liabilities.