SECURITIES AND EXCHANGE COMMISSION

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

ý                                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2002

 

 

o                                  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 000 - 32983

 


 

CBRE HOLDING, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

94-3391143

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer Identification Number)

 

 

 

355 South Grand Avenue, Suite 3100
Los Angeles, California

 

90071-1552

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(213) 613-3226

 

Not Applicable

(Registrant’s telephone number, including area code)

 

(Former name, former address and
formal fiscal year if changed since last report)

 


 

                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 ý  No o

 

            The number of shares of Class A and Class B common stock outstanding at April 30, 2002 was 1,708,227 and 12,624,813, respectively.

 

THIS FILING INCLUDES UNREVIEWED FINANCIAL STATEMENTS IN LIEU OF FINANCIAL STATEMENTS REVIEWED IN ACCORDANCE WITH RULE 10-01(D) OF REGULATION S-X PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION, BECAUSE WE WERE UNABLE TO OBTAIN SUCH A REVIEW FROM OUR FORMER AUDITOR, ARTHUR ANDERSEN LLP.  SEE “INFORMATION WITH RESPECT TO FINANCIAL STATEMENTS” IN THIS FILING FOR MORE INFORMATION.

 

 



 

 

CBRE HOLDING, INC.

 

FORM 10-Q

 

March 31, 2002

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.     Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2002 (Unaudited) and December 31, 2001

3

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2002, the period from February 20, 2001 (inception) through March 31, 2001 and the three months ended March 31, 2001 (Unaudited)

4

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and the three months ended March 31, 2001 (Unaudited)

5

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

25

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

25

 

 

 

Signatures

26

 

INFORMATION WITH RESPECT TO FINANCIAL STATEMENTS

 

This filing includes unreviewed financial statements in lieu of financial statements reviewed in accordance with Rule 10-01(d) of Regulation S-X promulgated by the Securities and Exchange Commission, because we were unable to obtain such a review from our former auditor, Arthur Andersen LLP.

 

We are currently actively seeking a new independent auditor.  We intend to have the new auditor review our financial statements for the quarterly period ended March 31, 2002 in accordance with Rule 10-01(d) of Regulation S-X promptly upon retention of such auditor.

 

No auditor has opined that the unreviewed financial statements set forth herein present fairly, in all material respects, the financial position, the results of operations, cash flows and the changes in shareholders’ equity of the Company for the quarterly period ended March 31, 2002 in accordance with generally accepted accounting principles.

 

2



 

CBRE HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

 

March 31,

 

December 31,

 

 

 

2002

 

2001

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

19,997

 

$

57,450

 

Receivables, less allowance for doubtful accounts of $12,324 and $11,748 at March 31, 2002 and December 31, 2001, respectively

 

128,942

 

156,434

 

Warehouse receivable

 

31,569

 

106,790

 

Prepaid expenses

 

10,913

 

8,325

 

Deferred taxes, net

 

32,010

 

32,155

 

Other current assets

 

9,460

 

8,493

 

Total current assets

 

232,891

 

369,647

 

 

 

 

 

 

 

Property and equipment, net

 

65,814

 

68,451

 

Goodwill

 

611,276

 

609,543

 

Other intangible assets, net of accumulated amortization of $5,118 and $3,153 at March 31, 2002 and December 31, 2001, respectively

 

36,242

 

38,117

 

Cash surrender value of insurance policies, deferred compensation plan

 

71,249

 

69,385

 

Investments in and advances to unconsolidated subsidiaries

 

45,439

 

42,535

 

Deferred taxes, net

 

52,630

 

54,002

 

Prepaid pension costs

 

13,301

 

13,588

 

Other assets

 

92,815

 

94,085

 

Total assets

 

$

1,221,657

 

$

1,359,353

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

90,050

 

$

82,982

 

Compensation and employee benefits payable

 

54,513

 

68,118

 

Accrued bonus and profit sharing

 

17,153

 

85,188

 

Income taxes payable

 

6,991

 

21,736

 

Short-term borrowings

 

 

 

 

 

Warehouse line of credit

 

31,569

 

106,790

 

Revolver and swingline credit facility

 

37,500

 

-

 

Other

 

47,678

 

48,828

 

Total short-term borrowings

 

116,747

 

155,618

 

Current maturities of long-term debt

 

10,291

 

10,223

 

Total current liabilities

 

295,745

 

423,865

 

 

 

 

 

 

 

Long-term debt:

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount of $3,214 and $3,263 at March 31, 2002 and December 31, 2001, respectively 

 

225,786

 

225,737

 

Senior secured term loans

 

218,637

 

220,975

 

16% senior notes, net of unamortized discount of $5,288 and $5,344 at March 31, 2002 and December 31, 2001, respectively 

 

59,712

 

59,656

 

Other long-term debt

 

12,947

 

15,695

 

Total long-term debt

 

517,082

 

522,063

 

Deferred compensation liability

 

106,929

 

105,104

 

Other liabilities

 

46,830

 

46,661

 

Total liabilities

 

966,586

 

1,097,693

 

Minority interest

 

4,436

 

4,296

 

Commitments and contingencies

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

Class A common stock; $0.01 par value; 75,000,000 shares authorized; 1,700,734 and 1,730,601 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively

 

17

 

17

 

Class B common stock; $0.01 par value; 25,000,000 shares authorized; 12,624,813 and 12,649,813 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively

 

126

 

127

 

Additional paid-in capital

 

239,760

 

240,541

 

Notes receivable from sale of stock

 

(643

)

(1,043

)

Accumulated earnings

 

11,331

 

17,426

 

Accumulated other comprehensive income

 

44

 

296

 

Total stockholders' equity

 

250,635

 

257,364

 

Total liabilities and stockholders' equity

 

$

1,221,657

 

$

1,359,353

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

CBRE HOLDING, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

Company

 

Predecessor

 

 

 

CBRE
Holding,
Inc.

 

CB Richard
Ellis Services,
Inc.

 

 

 

Three
Months
Ended
March 31,
2002

 

Three
Months
Ended
March 31,
2001

 

Revenue:

 

 

 

 

 

Leases

 

$

72,499

 

$

103,166

 

Sales

 

61,006

 

73,843

 

Property and facilities management fees

 

27,405

 

27,872

 

Consulting and referral fees

 

17,548

 

16,367

 

Appraisal fees

 

16,124

 

18,836

 

Loan origination and servicing fees

 

12,730

 

14,812

 

Investment management fees

 

11,675

 

8,549

 

Other

 

5,003

 

9,053

 

Total revenue

 

223,990

 

272,498

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Commissions, fees and other incentives

 

100,266

 

122,966

 

Operating, administrative and other

 

112,636

 

135,511

 

Depreciation and amortization

 

7,592

 

11,696

 

Merger-related and other nonrecurring charges

 

582

 

-

 

 

 

 

 

 

 

Operating income

 

2,914

 

2,325

 

Interest income

 

864

 

800

 

Interest expense

 

16,017

 

9,055

 

 

 

 

 

 

 

Loss before benefit for income tax

 

(12,239

)

(5,930

)

Benefit for income tax

 

(6,144

)

(3,084

)

 

 

 

 

 

 

Net loss

 

$

(6,095

)

$

(2,846

)

 

 

 

 

 

 

Basic loss per share

 

$

(0.40

)

$

(0.13

)

 

 

 

 

 

 

Weighted average shares outstanding for basic loss per share

 

15,050,633

 

21,309,550

 

 

 

 

 

 

 

Diluted loss per share

 

$

(0.40

)

$

(0.13

)

 

 

 

 

 

 

Weighted average shares outstanding for diluted loss per share

 

15,207,015

 

21,309,550

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



 

CBRE HOLDING, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Company

 

Predecessor

 

 

 

CBRE
Holding,
Inc.

 

CB Richard
Ellis Services,
Inc.

 

 

 

Three Months
Ended
March 31,
2002

 

Three Months
Ended

March 31,
2001

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(6,095

)

$

(2,846

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization excluding deferred financing costs

 

7,592

 

11,696

 

Deferred compensation deferrals

 

2,817

 

11,113

 

Gain on sale of properties, businesses and servicing rights

 

(365

)

(6,279

)

Decrease in receivables

 

25,998

 

27,920

 

Increase in cash surrender value of insurance policies, deferred compensation plan

 

(1,864

)

(8,064

)

Decrease in compensation and employee benefits and accrued bonus and profit sharing

 

(77,720

)

(100,714

)

Increase (decrease) in accounts payable and accrued expenses

 

9,798

 

(4,505

)

Decrease in income taxes payable

 

(14,734

)

(17,632

)

Decrease in other liabilities

 

(1,622

)

(11,664

)

Net change in other operating assets and liabilities

 

(351

)

(3,288

)

Net cash used in operating activities

 

(56,546

)

(104,263

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property and equipment

 

(2,145

)

(6,639

)

Proceeds from sale of properties, businesses and servicing rights

 

857

 

6,105

 

Acquisition of businesses including net assets acquired, intangibles and goodwill

 

(8,364

)

(1,115

)

Other investing activities, net

 

(1,678

)

1,113

 

Net cash used in investing activities

 

(11,330

)

(536

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from revolver and swingline credit facility

 

50,500

 

-

 

Repayment of revolver and swingline credit facility

 

(13,000

)

-

 

Repayment of senior notes and other loans, net

 

(3,195

)

(2,786

)

Repayment of senior secured term loans

 

(2,338

)

-

 

Proceeds from revolving credit facility

 

-

 

142,000

 

Repayment of revolving credit facility

 

-

 

(34,000

)

Other financing activities, net

 

(880

)

(274

)

Net cash provided by financing activities

 

31,087

 

104,940

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(36,789

)

141

 

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

57,450

 

20,854

 

Effect of exchange rate changes on cash

 

(664

)

(656

)

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

19,997

 

$

20,339

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest (none capitalized)

 

$

8,454

 

$

3,733

 

Federal and local income taxes, net

 

$

6,867

 

$

14,575

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



 

CBRE HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  Organization

 

CBRE Holding, Inc., a Delaware corporation, was incorporated on February 20, 2001 as Blum CB Holding Corporation.  On March 26, 2001, Blum CB Holding Corporation changed its name to CBRE Holding, Inc. (the Company).  The Company and its former wholly owned subsidiary, Blum CB Corporation (Blum CB), a Delaware corporation, were created to acquire all of the outstanding shares of CB Richard Ellis Services, Inc. (CBRE), an international real estate services firm. Prior to July 20, 2001, the Company was a wholly owned subsidiary of RCBA Strategic Partners, L.P. (RCBA Strategic), and is an affiliate of Richard C. Blum, a director of the Company and CBRE.

 

On July 20, 2001, the Company acquired CBRE (the merger) pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 31, 2001, among the Company, CBRE and Blum CB.  Blum CB was merged with and into CBRE, with CBRE being the surviving corporation.  The operations of the Company after the merger are substantially the same as the operations of CBRE prior to the merger.  In addition, the Company has no substantive operations other than its investment in CBRE.

 

2.  Basis of Preparation

 

The accompanying unaudited consolidated balance sheets as of March 31, 2002 and December 31, 2001, and the unaudited  consolidated statements of operations and cash flows for the three months ended March 31, 2002 and for the period from February 20, 2001 (inception) through March 31, 2001, reflect the consolidated balance sheets, results of operations and cash flows of the Company from inception and also include the consolidated financial statements of CBRE from the date of the merger which include all material adjustments required under the purchase method of accounting.  The Company had no operating or cash flow activity for the period from February 20, 2001 (inception) through March 31, 2001.  In addition, in accordance with Regulation S-X, CBRE is considered the predecessor to the Company.  As such, the historical financial statements of CBRE  prior to the merger are included in the accompanying unaudited consolidated financial statements, including the consolidated statement of operations for the three months ended March 31, 2001 and the consolidated statement of cash flows for the three months ended March 31, 2001 (collectively “Predecessor financial statements”). The Predecessor financial statements have not been adjusted to reflect the acquisition of CBRE by the Company. As such, the consolidated financial statements of the Company after the merger are not directly comparable to the Predecessor financial statements prior to the merger.

 

Unaudited pro forma results of the Company assuming the merger had occurred as of January 1, 2001 are presented below.  These pro forma results have been prepared for comparative purposes only and include certain adjustments, such as the elimination of amortization expense related to goodwill as a result of the implementation of SFAS No. 142, “Goodwill and Other Intangible Assets” and increased interest expense as a result of debt acquired to finance the merger.  These pro forma results do not purport to be indicative of what the operating results would have been, and may not be indicative of future operating results (in thousands, except share amounts):

 

 

 

Three Months
Ended
March 31

 

 

 

2001

 

Revenue

 

$

272,498

 

Operating income

 

$

6,066

 

Net loss

 

$

(4,490

)

Basic loss per share

 

$

(0.30

)

Diluted loss per share

 

$

(0.30

)

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation. In the opinion of management, all adjustments (consisting of normal recurring adjustments)  considered necessary for a fair presentation have been included.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ materially from those

 

6



 

estimates.  All significant inter-company transactions and balances have been eliminated, and certain reclassifications have been made to prior periods’ consolidated statements to conform to current period presentation.  The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2002.  The consolidated financial statements and notes to the consolidated financial statements, along with management’s discussion  and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the Company’s recent filing on form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, as of and for the period ended December 31, 2001.

 

3.  Investments in and Advances to Unconsolidated Subsidiaries

 

Condensed Statement of Operations (unaudited) for the unconsolidated subsidiaries accounted for using the equity method is as follows (in thousands):

 

 

 

Three Months Ended March 31

 

 

 

2002

 

2001

 

Revenue

 

$

80,331

 

$

69,649

 

Operating income

 

$

17,205

 

$

12,689

 

Net income

 

$

13,226

 

$

7,846

 

 

            The Company’s investment management business involves investing the Company’s own capital in certain real estate investments with clients, including its equity investments in CB Richard Ellis Strategic Partners, L.P., CB Richard Ellis Corporate Partners, L.L.C., and other co-investments.  The Company has provided investment management, property management, brokerage, appraisal and other professional services to these equity investees.

 

4.  Debt

 

            The Company has $229.0 million in aggregate principal amount of 11 ¼% Senior Subordinated Notes due June 15, 2011 (the Notes), which were issued and sold by Blum CB Corp. for approximately $225.6 million, net of discount, on June 7, 2001 and assumed by CBRE in connection with the merger.  The Notes require semi-annual payments of interest in arrears on June 15 and December 15, commencing on December 15, 2001, and are redeemable in whole or in part on or after June 15, 2006 at 105.625% of par on that date and at declining prices thereafter.  In addition, before June 15, 2004, the Company may redeem up to 35.0% of the originally issued amount of the Notes at 111 ¼% of par, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings.  In the event of a change of control, the Company is obligated to make an offer to purchase the Notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest.  The Notes are fully and unconditionally guaranteed on a senior subordinated basis by the Company and CBRE’s domestic subsidiaries.  The effective yield on the Notes is 11.5%.  The amount included in the accompanying unaudited consolidated balance sheets, net of unamortized discount, was $225.8 million at March 31, 2002.

 

            The Company also entered into a $325.0 million senior credit facility (the Credit Facility) with Credit Suisse First Boston (CSFB) and other lenders. The Credit Facility is jointly and severally guaranteed by the Company and its domestic subsidiaries and is secured by substantially all their assets.  The Credit Facility includes the Tranche A term facility of $50.0 million, maturing on July 20, 2007; the Tranche B term facility of $185.0 million, maturing on July 18, 2008; and the revolving line of credit of $90.0 million, including revolving credit loans, letters of credit and a swingline loan facility, maturing on July 20, 2007.  Borrowings under the senior secured credit facilities will bear interest at varying rates based on the Company’s option, at either LIBOR plus 3.25% or the alternate base rate plus 2.25%, in the case of the Tranche A and the revolving facility, and LIBOR plus 3.75% or the alternate base rate plus 2.75%, in the case of the Tranche B facility.  The alternate base rate is the higher of (1) CSFB’s prime rate or (2) the Federal Funds Effective Rate plus one-half of one percent. After delivery of the Company’s consolidated financial statements for the year ending December 31, 2001, the amount added to the LIBOR rate or the alternate base rate under the Tranche A and revolving facility will vary from 2.50% to 3.25% for LIBOR, and from 1.50% to 2.25% for the alternate base rate, as determined by reference to the Company’s ratios of total debt less available cash to EBITDA, as defined in the debt agreement.

 

7



 

            The Tranche A facility will fully amortize by July 20, 2007 through quarterly principal payments over 6 years, which total $7.5 million each year through June 30, 2003 and $8.75 million each year thereafter through July 20, 2007. The Tranche B facility requires quarterly principal payments of approximately $0.5 million, with the remaining outstanding principal due on July 18, 2008. The revolving line of credit requires the repayment of any outstanding balance for a period of 45 consecutive days commencing on any day as determined by the Company in the month of December of each year. The Company repaid its revolving credit facility as of December 1, 2001 and at March 31, 2002 had an outstanding line of credit of $37.5 million. The total amount outstanding under the credit facility included in senior secured term loans, current maturities of long-term debt and short-term borrowings in the accompanying consolidated balance sheets was $265.5 million at March 31, 2002.

 

            The Company issued an aggregate principal amount of $65.0 million of 16.0% Senior Notes due on July 20, 2011 (the Senior Notes).  The Senior Notes are unsecured obligations, senior to all current and future unsecured indebtedness, but subordinated to all current and future secured indebtedness of the Company.  Interest accrues at a rate of 16.0% per year and is payable quarterly in cash in arrears.  However, until July 2006, interest in excess of 12.0% may be paid in kind. Additionally, at any time, interest may be paid in kind to the extent CBRE’s ability to pay cash dividends is restricted by the terms of the Credit Facility.  The Company has paid in cash all interest payments required to date.  The Senior Notes are redeemable at the Company’s option, in whole or in part, at 116.0% of par commencing on July 20, 2001 and at declining prices thereafter. In the event of a change in control, the Company is obligated to make an offer to purchase all of the outstanding Senior Notes. The total amount included in the accompanying consolidated balance sheets was $59.7 million, net of unamortized discount, at March 31, 2002.

 

            The Senior Notes are solely the Company’s obligation to repay.  CBRE has neither guaranteed nor pledged any of its assets as collateral for the Senior Notes, and is not obligated to provide cashflow to the Company for repayment of these Senior Notes.  However, the Company has no substantive assets or operations other than its investment in CBRE to meet any required principal and interest payments on the Senior Notes.  The Company will depend on CBRE’s cash flows to fund principal and interest payments as they come due.

 

            The Senior Subordinated Notes, the senior credit facility and the Senior Notes all contain numerous restrictive covenants that, among other things, limit the Company’s ability to incur additional indebtedness, pay dividends or distributions to stockholders or repurchase capital stock or debt, make investments, sell assets or subsidiary stock, engage in transactions with affiliates, issue subsidiary equity and enter into consolidations or mergers.  The debt agreements require the Company to maintain certain minimum levels of net worth, a minimum coverage ratio of interest and certain fixed charges and a maximum leverage and senior leverage ratio of earnings before interest, taxes, depreciation and amortization to funded debt (all as defined in the agreements).  The agreements also restrict the payment of cash dividends and require the Company to pay a facility fee based on the total amount of the commitment.

 

            On March 12, 2002, Moody’s Investor Service downgraded the Company’s senior secured term loans and Senior Subordinated Notes to B1 from Ba3 and to B3 from B2, respectively.  This downgrade does not impact the Company’s ability to borrow or affect the Company’s interest rate for the senior secured term loans.  Standard and Poor’s ratings of the Company’s senior secured term loans and Senior Subordinated Notes are currently BB- and B, respectively.

 

            The Company has short-tem borrowings of $116.7 million and $155.6 million with related weighted average interest rates of 4.9% and 4.5% as of March 31, 2002 and December 31, 2001, respectively.

 

            A subsidiary of the Company has a credit agreement with Residential Funding Corporation (RFC).  The credit agreement provides for a revolving line of credit of up to $350.0 million through February 28, 2002, and $150.0 million for the period from March 1, 2002 through August 31, 2002, and bears interest at 1.0% over the RFC base rate.  The agreement expires on August 31, 2002. On April 20, 2002, the Company obtained a temporary line of credit increase of $210.0 million, resulting in a total line of credit equaling $360.0 million, which expires on July 31, 2002.  During the quarter ended March 31, 2002, the Company had a maximum of $110.8  million revolving line of credit principal outstanding.  At March 31, 2002, the Company had a $31.6 million warehouse line of credit outstanding, which is included in short-term borrowings in the accompanying consolidated balance sheets.  The Company also had a $31.6 million warehouse receivable.

 

            During 2001, the Company incurred certain non recourse debt through a joint venture in order to purchase property that is held for sale.  In February 2002, the maturity date on this non recourse debt was extended to September 18, 2002.

 

8



 

5.  Commitments and Contingencies

 

            Between November 12 and December 6, 2000, five putative class actions were filed in the Court of Chancery of the State of Delaware in and for New Castle County by various of CBRE’s stockholders against the Company, CBRE, its directors and the buying group which has taken CBRE private.  A similar action was also filed on November 17, 2000 in the Superior Court of the State of California in and for the County of Los Angeles.  These actions all alleged that the offering price for shares of CBRE’s common stock was unfair and inadequate and sought injunctive relief or rescission of the transaction and, in the alternative, money damages.

 

            The five Delaware actions were subsequently consolidated and a lead counsel appointed.  As of October 2, 2001, the parties to the Delaware litigation entered into a settlement agreement that was filed with the appropriate court in Delaware. On November 26, 2001, the Delaware court approved the settlement of the Delaware litigation, however, it reduced the fees payable to the lawyers for the plaintiffs.  The lawyers for the plaintiffs have filed an appeal solely from the award of fees, resulting in a final judgment as to the dismissal of the claims of the plaintiffs and barring further prosecution of such claims or the commencement of other actions based on such claims.  The actions in Delaware and California have been completely resolved, with the appeal from the Delaware award of fees being dismissed on February 1, 2002 and the California action being dismissed with prejudice on February 8, 2002.

 

            The Company is a party to a number of pending or threatened lawsuits arising out of, or incident to, its ordinary course of business.  Based on available cash and anticipated cash flows, the Company believes that the ultimate outcome of these lawsuits will not have an impact on the Company’s ability to carry on its operations.  Management believes that any liability that may result from disposition of these lawsuits will not have a material effect on the Company’s consolidated financial position or results of operations.

 

            An important part of the strategy for the Company’s investment management business involves investing the Company’s own capital in certain real estate investments with its clients. As of March 31, 2002, the Company had committed an additional $32.6 million to fund future co-investments.

 

6.  Comprehensive Loss

 

            Comprehensive loss consists of net loss and other comprehensive loss.  Accumulated other comprehensive loss consists of foreign currency translation adjustments.  The tax benefit associated with items included in other comprehensive loss for the Company was $0.2 million for the three months ended March 31, 2002 and $6.0 million for CBRE for the three months ended March 31, 2001. The following unaudited table provides a summary of the comprehensive loss (dollars in thousands):

 

 

 

Company

 

Predecessor

 

 

 

CBRE
Holding,
Inc.

 

CB Richard
Ellis Services,
Inc.

 

 

 

Three Months
Ended
March 31,
2002

 

Three Months
Ended

March 31,
2001

 

Net loss

 

$

(6,095

)

$

(2,846

)

Foreign currency translation loss, net of taxes

 

(252

)

(9,639

)

Comprehensive loss

 

$

(6,347

)

$

(12,485

)

 

7.  Per Share Information

 

            Basic loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding of 15,050,633 for the three months ended March 31, 2002. Diluted loss per share for the three months ended March 31, 2002 included the dilutive effect of contingently issuable shares of 156,382. 

 

9



 

 

            Basic loss per share for CBRE was computed by dividing the net loss for the three months ended March 31, 2001 by the weighted average number of common shares outstanding of 21,309,550.  As a result of operating losses incurred for the three months ended March 31, 2001, diluted weighted average shares outstanding do not give effect to common stock equivalents, as to do so would be anti-dilutive.

 

            Due to the change in equity structure as a result of the merger, the current year per share information is not comparable to that of the prior year.

 

8.  Fiduciary Funds

 

            The consolidated balance sheets do not include the net assets of escrow, agency and fiduciary funds, which amounted to $402.8 million and $373.2 million at March 31, 2002 and December 31, 2001, respectively.

 

9.  Guarantor and Nonguarantor Financial Statements

 

In connection with the merger with Blum CB, and as part of the financing of the merger, CBRE assumed an aggregate of $229.0 million in Senior Subordinated Notes due June 15, 2011.  These Notes are unsecured and rank equally in right of payment with any of the Company’s future senior subordinated unsecured indebtedness.  The Notes are effectively subordinated to indebtedness and other liabilities of the Company’s subsidiaries that are not guarantors of the Notes.  The Notes are guaranteed on a full, unconditional, joint and several basis by the Company, CBRE and CBRE’s wholly-owned domestic subsidiaries.

 

The following condensed consolidating financial information includes:

 

(1) Condensed consolidating balance sheets as of March 31, 2002 and December 31, 2001; condensed consolidating statements of operations for the three months ended March 31, 2002 and 2001; and condensed consolidating statements of cash flows for the three months ended March 31, 2002 and 2001 of (a) Holding, the parent, (b) CBRE, which is the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) the Company on a consolidated basis; and

 

(2) Elimination entries necessary to consolidate CBRE Holding, Inc., the parent, with CBRE and its guarantor and nonguarantor subsidiaries.

 

The Company had no activity related to the condensed consolidating statement of operations and condensed consolidating statement of cash flows for the period from February 20, 2001 (inception) through March 31, 2001.

 

Investments in consolidated subsidiaries are presented using the equity method of accounting.  The principal elimination entries eliminate investments in consolidated subsidiaries and inter-company balances and transactions.  In accordance with SFAS No. 142, “Goodwill and Other Intangibles,” all goodwill acquired in an acquisition shall be assigned to reporting units as of the date of acquisition.  The Company is currently evaluating the fair value of these reporting units and the applicable goodwill to be assigned.  As a result, the condensed consolidating balance sheet as of March 31, 2002 does not reflect this allocation of goodwill based upon the fair value of the Company’s reporting units.

 

10



 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2002

(Dollars in thousands)

(Company)

 

 

 

Parent

 

CBRE

 

Guarantor Subsidiaries

 

Nonguarantor Subsidiaries

 

Elimination

 

Consolidated Total

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12

 

$

184

 

$

14,213

 

$

5,588

 

$

-

 

$

19,997

 

Receivables, less allowance for doubtful accounts

 

40

 

24

 

62,546

 

66,332

 

-

 

128,942

 

Warehouse receivable

 

-

 

-

 

31,569

 

-

 

-

 

31,569

 

Prepaid and other current assets

 

23,109

 

19,393

 

8,062

 

10,189

 

(17,271

)

43,482

 

Total current assets

 

23,161

 

19,601

 

116,390

 

82,109

 

(17,271

)

223,990

 

Property and equipment, net

 

-

 

-

 

49,953

 

15,861

 

-

 

65,814

 

Goodwill

 

-

 

199,481

 

208,432

 

203,363

 

-

 

611,276

 

Other intangible assets, net

 

-

 

-

 

29,866

 

6,376

 

-

 

36,242

 

Cash surrender value of insurance policies, deferred compensation plan

 

-

 

71,249

 

-

 

-

 

-

 

71,249

 

Investment in and advances to unconsolidated subsidiaries

 

-

 

4,299

 

36,971

 

4,169

 

-

 

45,439

 

Investment in consolidated subsidiaries

 

261,691

 

65,436

 

158,347

 

-

 

(485,474

)

-

 

Inter-company loan receivable

 

-

 

486,957

 

-

 

-

 

(486,957

)

-

 

Deferred taxes, net

 

61,531

 

-

 

-

 

-

 

-

 

61,531

 

Prepaid pension costs

 

-

 

-

 

-

 

13,301

 

-

 

13,301

 

Other assets

 

7,078

 

23,458

 

15,707

 

46,572

 

-

 

92,815

 

Total assets

 

$

353,461

 

$

870,481

 

$

615,666

 

$

371,751

 

$

(989,702

)

$

1,221,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,022

 

$

10,413

 

$

39,254

 

$

38,361

 

$

-

 

$

90,050

 

Inter-company payable

 

17,271

 

-

 

-

 

-

 

(17,271

)

-

 

Compensation and employee benefits payable

 

-

 

-

 

30,652

 

23,861

 

-

 

54,513

 

Accrued bonus and profit sharing

 

-

 

-

 

6,789

 

10,364

 

-

 

17,153

 

Income taxes payable

 

6,991

 

-

 

-

 

-

 

-

 

6,991

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse line of credit

 

-

 

-

 

31,569

 

-

 

-

 

31,569

 

Revolving credit and swingline facility

 

-

 

37,500

 

-

 

-

 

-

 

37,500

 

Other

 

-

 

175

 

309

 

47,194

 

-

 

47,678

 

Total short-term borrowings

 

-

 

37,675

 

31,878

 

47,194

 

-

 

116,747

 

Current maturities of long-term debt

 

-

 

9,350

 

89

 

852

 

-

 

10,291

 

Total current liabilities

 

26,284

 

57,438

 

108,662

 

120,632

 

(17,271

)

295,745

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount

 

-

 

225,786

 

-

 

-

 

-

 

225,786

 

Senior secured term loans

 

-

 

218,637

 

-

 

-

 

-

 

218,637

 

16% senior notes, net of unamortized discount

 

59,712

 

-

 

-

 

-

 

-

 

59,712

 

Other long-term debt

 

-

 

-

 

12,440

 

507

 

-

 

12,947

 

Inter-company loan payable

 

-

 

-

 

413,973

 

72,984

 

(486,957

)

-

 

Total long-term debt

 

59,712

 

444,423

 

426,413

 

73,491

 

(486,957

)

517,082

 

Deferred compensation liability

 

-

 

106,929

 

-

 

-

 

-

 

106,929

 

Other liabilities

 

16,830

 

-

 

15,155

 

14,845

 

-

 

46,830

 

Total liabilities

 

102,826

 

608,790

 

550,230

 

208,968

 

(504,228

)

966,586

 


Minority interest

 

-

 

-

 

-

 

4,436

 

-

 

4,436

 


Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 


Stockholders' Equity:

 

250,635

 

261,691

 

65,436

 

158,347

 

(485,474

)

250,635

 

 

Total liabilities and stockholders' equity

 

$

353,461

 

$

870,481

 

$

615,666

 

$

371,751

 

$

(989,702

)

$

1,221,657

 

 

11



 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2001

(Dollars in thousands)

(Company)

 

 

 

Parent

 

CBRE

 

Guarantor
Subsidiaries

 

Nonguarantor
Subsidiaries

 

Elimination

 

Consolidated
Total

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3

 

$

931

 

$

42,204

 

$

14,312

 

$

-

 

$

57,450

 

Receivables, less allowance for doubtful accounts

 

47

 

71

 

70,343

 

85,973

 

-

 

156,434

 

Warehouse receivable

 

-

 

-

 

106,790

 

-

 

-

 

106,790

 

Prepaid and other current assets

 

23,254

 

12,465

 

6,321

 

8,353

 

(10,321

)

40,072

 

Total current assets

 

23,304

 

13,467

 

225,658

 

108,638

 

(10,321

)

360,746

 

Property and equipment, net

 

-

 

-

 

51,314

 

17,137

 

-

 

68,451

 

Goodwill

 

-

 

197,748

 

208,432

 

203,363

 

-

 

609,543

 

Other intangible assets, net

 

-

 

-

 

31,219

 

6,898

 

-

 

38,117

 

Cash surrender value of insurance policies, deferred compensation plan

 

-

 

69,385

 

-

 

-

 

-

 

69,385

 

Investment in and advances to unconsolidated subsidiaries

 

-

 

4,132

 

34,296

 

4,107

 

-

 

42,535

 

Investment in consolidated subsidiaries

 

274,402

 

65,690

 

168,974

 

-

 

(509,066

)

-

 

Inter-company loan receivable

 

-

 

465,173

 

-

 

-

 

(465,173

)

-

 

Deferred taxes, net

 

62,903

 

-

 

-

 

-

 

-

 

62,903

 

Prepaid pension costs

 

-

 

-

 

-

 

13,588

 

-

 

13,588

 

Other assets

 

7,320

 

24,387

 

14,739

 

47,639

 

-

 

94,085

 

Total assets

 

$

367,929

 

$

839,982

 

$

734,632

 

$

401,370

 

$

(984,560

)

$

1,359,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,022

 

$

4,236

 

$

37,325

 

$

39,399

 

$

-

 

$

82,982

 

Inter-company payable

 

10,321

 

-

 

-

 

-

 

(10,321

)

-

 

Compensation and employee benefits payable

 

-

 

-

 

44,192

 

23,926

 

-

 

68,118

 

Accrued bonus and profit sharing

 

-

 

-

 

56,821

 

28,367

 

-

 

85,188

 

Income taxes payable

 

21,736

 

-

 

-

 

-

 

-

 

21,736

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse line of credit

 

-

 

-

 

106,790

 

-

 

-

 

106,790

 

Other

 

-

 

178

 

309

 

48,341

 

-

 

48,828

 

Total short-term borrowings

 

-

 

178

 

107,099

 

48,341

 

-

 

155,618

 

Current maturities of long-term debt

 

-

 

9,350

 

129

 

744

 

-

 

10,223

 

Total current liabilities

 

34,079

 

13,764

 

245,566

 

140,777

 

(10,321

)

423,865

 

Long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount

 

-

 

225,737

 

-

 

-

 

-

 

225,737

 

Senior secured term loans

 

-

 

220,975

 

-

 

-

 

-

 

220,975

 

16% senior notes, net of unamortized discount

 

59,656

 

-

 

-

 

-

 

-

 

59,656

 

Other long-term debt

 

-

 

-

 

14,974

 

721

 

-

 

15,695

 

Inter-company loan payable

 

-

 

-

 

393,827

 

71,346

 

(465,173

)

-

 

Total long-term debt

 

59,656

 

446,712

 

408,801

 

72,067

 

(465,173

)

522,063

 

Deferred compensation liability

 

-

 

105,104

 

-

 

-

 

-

 

105,104

 

Other liabilities

 

16,830

 

-

 

14,575

 

15,256

 

-

 

46,661

 

Total liabilities

 

110,565

 

565,580

 

668,942

 

228,100

 

(475,494

)

1,097,693

 


Minority interest

 

-

 

-

 

-

 

4,296

 

-

 

4,296

 


Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 


Stockholders' Equity:

 

257,364

 

274,402

 

65,690

 

168,974

 

(509,066

)

257,364

 

 

Total liabilities and stockholders' equity

 

$

367,929

 

$

839,982

 

$

734,632

 

$

401,370

 

$

(984,560

)

$

1,359,353

 

 

 

12



 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2002

(Dollars in thousands)

(Company)

 

 

 

Parent

 

CBRE

 

Guarantor

Subsidiaries

 

Nonguarantor

Subsidiaries

 

Elimination

 

Consolidated
Total

 

Revenue

 

$

-

 

$

-

 

$

168,560

 

$

55,430

 

$

-

 

$

223,990

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions, fees and other incentives

 

-

 

-

 

71,655

 

28,611

 

-

 

100,266

 

Operating, administrative and other

 

100

 

2,211

 

79,884

 

30,441

 

-

 

112,636

 

Depreciation and amortization

 

-

 

-

 

5,201

 

2,391

 

-

 

7,592

 

Merger-related and other nonrecurring charges

 

-

 

582

 

-

 

-

 

-

 

582

 

Operating (loss) income

 

(100

)

(2,793

)

11,820

 

(6,013

)

-

 

2,914

 

Interest income

 

45

 

9,815

 

703

 

86

 

(9,785

)

864

 

Interest expense

 

2,794

 

10,467

 

9,355

 

3,186

 

(9,785

)

16,017

 

Equity losses of consolidated subsidiaries

 

(5,211

)

(3,371

)

(5,285

)

-

 

13,867

 

-

 

Loss before (benefit) provision for income tax

 

(8,060

)

(6,816

)

(2,117

)

(9,113

)

13,867

 

(12,239

)

(Benefit) provision for income tax

 

(1,965

)

(1,605

)

1,254

 

(3,828

)

-

 

(6,144

)

Net loss

 

$

(6,095

)

$

(5,211

)

$

(3,371

)

$

(5,285

)

$

13,867

 

$

(6,095

)

 

 

 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2001

(Dollars in thousands)

(Predecessor)

 

 

 

CBRE

 

Guarantor
Subsidiaries

 

Nonguarantor
Subsidiaries

 

Elimination

 

Consolidated
Total

 

Revenue

 

$

-

 

$

211,009

 

$

61,489

 

$

-

 

$

272,498

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Commissions, fees and other incentives

 

-

 

94,134

 

28,832

 

-

 

122,966

 

Operating, administrative and other

 

(421

)

100,072

 

35,860

 

-

 

135,511

 

Depreciation and amortization

 

-

 

7,851

 

3,845

 

-

 

11,696

 

Operating income (loss)

 

421

 

8,952

 

(7,048

)

-

 

2,325

 

Interest income

 

7,093

 

438

 

362

 

(7,093

)

800

 

Interest expense

 

7,852

 

6,467

 

1,829

 

(7,093

)

9,055

 

Equity losses of consolidated subsidiaries

 

(2,648

)

(4,360

)

-

 

7,008

 

-

 

Loss before (benefit) provision for income tax

 

(2,986

)

(1,437

)

(8,515

)

7,008

 

(5,930

)

(Benefit) provision for income tax

 

(140

)

1,211

 

(4,155

)

-

 

(3,084

)

Net loss

 

$

(2,846

)

$

(2,648

)

$

(4,360

)

$

7,008

 

$

(2,846

)

 

13



 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2002

(Dollars in thousands)

(Company)

 

 

 

 

Parent

 

CBRE

 

Guarantor
Subsidiaries

 

Nonguarantor
Subsidiaries

 

Consolidated
Total

 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

 

$

650

 

$

(1,240

)

$

(43,714

)

$

(12,242

)

$

(56,546

)

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

-

 

-

 

(1,622

)

(523

)

(2,145

)

Proceeds from sale of properties, businesses and servicing rights

 

-

 

-

 

727

 

130

 

857

 

Acquisition of businesses including net assets acquired, intangibles and goodwill

 

-

 

(8,339

)

(25

)

-

 

(8,364

)

Other investing activities, net

 

-

 

-

 

(1,733

)

55

 

(1,678

)

Net cash used in investing activities

 

-

 

(8,339

)

(2,653

)

(338

)

(11,330

)

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from revolver and swingline credit facility

 

-

 

50,500

 

-

 

-

 

50,500

 

Repayment of revolver and swingline credit facility

 

-

 

(13,000

)

-

 

-

 

(13,000

)

Repayment of senior notes and other loans, net

 

-

 

-

 

(2,534

)

(661

)

(3,195

)

Repayment of senior secured term loans

 

-

 

(2,338

)

-

 

-

 

(2,338

)

(Increase) decrease in intercompany receivables, net

 

-

 

(26,179

)

20,950

 

5,229

 

-

 

Other financing activities, net

 

(641

)

(151

)

(40

)

(48

)

(880

)

Net cash (used in) provided by financing activities

 

(641

)

8,832

 

18,376

 

4,520

 

31,087

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

9

 

(747

)

(27,991

)

(8,060

)

(36,789

)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

3

 

931

 

42,204

 

14,312

 

57,450

 

Effect of exchange rate changes on cash

 

-

 

-

 

-

 

(664

)

(664

)

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

12

 

$

184

 

$

14,213

 

$

5,588

 

$

19,997

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

Interest (none capitalized)

 

$

2,600

 

$

3,301

 

$

477

 

$

2,076

 

$

8,454

 

Federal and local income taxes

 

$

6,867

 

$

-

 

$

-

 

$

-

 

$

6,867

 

 

14



 

CBRE HOLDING, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2001

(Dollars in thousands)

(Predecessor)

 

 

 

 

CBRE

 

Guarantor
Subsidiaries

 

Nonguarantor
Subsidiaries

 

Consolidated
Total

 

CASH FLOWS USED IN OPERATING ACTIVITIES:

 

$

(20,976

)

$

(70,786

)

$

(12,501

)

$

(104,263

)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

-

 

(4,811

)

(1,828

)

(6,639

)

Proceeds from sale of properties, businesses and servicing rights

 

-

 

5,842

 

263

 

6,105

 

Acquisition of businesses including net assets acquired, intangibles and goodwill

 

-

 

(31

)

(1,084

)

(1,115

)

Other investing activities, net

 

215

 

3,146

 

(2,248

)

1,113

 

Net cash provided by (used in) investing activities

 

215

 

4,146

 

(4,897

)

(536

)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

142,000

 

-

 

-

 

142,000

 

Repayment of revolving credit facility

 

(34,000

)

-

 

-

 

(34,000

)

Repayment of senior notes and other loans, net

 

(1,157

)

(781

)

(848

)

(2,786

)

Decrease (increase) in intercompany receivables, net

 

(86,118

)

68,317

 

17,801

 

-

 

Other financing activities, net

 

184

 

(41

)

(417

)

(274

)

Net cash provided by financing activities

 

20,909

 

67,495

 

16,536

 

104,940

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

148

 

855

 

(862

)

141

 

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

62

 

7,558

 

13,234

 

20,854

 

Effect of exchange rate changes on cash

 

-

 

-

 

(656

)

(656

)

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

210

 

$

8,413

 

$

11,716

 

$

20,339

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DATA:

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

Interest (none capitalized)

 

$

3,292

 

$

395

 

$

46

 

$

3,733

 

Federal and local income taxes

 

$

14,575

 

$

-

 

$

-

 

$

14,575

 

 

 

10.  Industry Segments

 

                The Company reports its operations through three geographically organized segments:  (1) The Americas, (2) Europe, Middle East, and Africa (EMEA) and (3) Asia Pacific.  The Americas consist of the United States, Canada, Mexico, and operations located in Central and South America.  EMEA mainly consists of Europe, while Asia Pacific includes the operations in Asia, Australia and New Zealand.  Previously, the Company reported its segments based on the applicable type of revenue transaction.  The Americas’ prior year results include a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund contracts.  The following unaudited table summarizes the revenue and operating income (loss) by operating segment (dollars in thousands):

 

 

15



 

 

 

 

Company

 

Predecessor

 

 

 

CBRE
Holding,
Inc.

 

CB Richard
Ellis Services,
Inc.

 

 

 

Three Months Ended
March 31, 2002

 

Three Months Ended
March 31, 2001

 

Revenue

 

 

 

 

 

Americas

 

$

178,613

 

$

222,513

 

EMEA

 

30,073

 

33,280

 

Asia Pacific

 

15,304

 

16,705

 

 

 

$

223,990

 

$

272,498

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

Americas

 

$

8,147

 

$

8,777

 

EMEA

 

(3,014

)

(3,238

)

Asia Pacific

 

(2,219

)

(3,214

)

 

 

$

2,914

 

$

2,325

 

 

 

 

 

 

 

Interest income

 

864

 

800

 

Interest expense

 

16,017

 

9,055

 

 

 

 

 

 

 

Loss before benefit for income tax

 

$

(12,239

)

$

(5,930

)

 

16



 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Introduction -

 

On July 20, 2001, the Company acquired CB Richard Ellis Services, Inc. (CBRE), (the merger), pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 31, 2001 among the Company, CBRE and Blum CB Corp. (Blum CB), a wholly owned subsidiary of the Company.  Blum CB was merged with and into CBRE, with CBRE being the surviving corporation.  At the effective time of the merger, CBRE became a wholly owned subsidiary of the Company.

 

            The results of operations and cash flows of the Company for the three months ended March 31, 2001, represent the results of operations and cash flows of CBRE, the predecessor to the Company, as the Company had no operating or cash flow activity during this time period.  However, these results do not reflect any purchase accounting adjustments which are included in the current year results of the Company subsequent to the merger.  Due to the effects of purchase accounting applied as a result of the merger and the additional interest expense associated with the debt incurred to finance the merger, the results of operations of the Company may not be comparable in all respects to the results of operations for CBRE  prior to the merger.  However, the Company’s management believes a discussion of the operations is more meaningful by comparing the results of the Company with the results of CBRE.

 

Management’s discussion and analysis of financial condition, results of operations, liquidity and capital resources contained within this report on Form 10-Q is more clearly understood when read in conjunction with the Notes to the Consolidated Financial Statements.  The Notes to the Consolidated Financial Statements elaborate on certain terms that are used throughout this discussion and provide information about the Company and the basis of presentation used in this report on Form 10-Q.

 

Three Months Ended March 31, 2002 Compared to the Three Months Ended March 31, 2001

 

The Company reported a consolidated net loss of $6.1 million for the three months ended March 31, 2002, on revenue of $224.0 million compared to a consolidated net loss of $2.8 million on revenue of $272.5 million for the three months ended March 31, 2001.

 

Revenue on a consolidated basis decreased by $48.5 million or 17.8% during the three months ended March 31, 2002, compared to the three months ended March 31, 2001. This was mainly driven by a $30.7 million decrease in lease revenue and a $12.8 million decline in sales revenue during the current year.  The lower revenue is primarily attributable to the Company’s North American operation.  Other revenue also dropped by $4.1 million attributable primarily to the sale of mortgage fund contracts in March 2001.

 

Commissions, fees and other incentives on a consolidated basis totaled $100.3 million, a decrease of $22.7 million or 18.5% from the first quarter of 2001.  This decrease is primarily due to the lower sales and lease revenue within North America.  This also resulted in lower variable commission expense within this division as compared to prior year.  The decline is slightly offset by producer compensation within the international operations which is typically fixed in nature and does not decrease as a result of lower revenue.  As a result, commissions as a percentage of revenue decreased slightly to 44.8% in the current quarter, compared to 45.1% in the prior year quarter.

 

Operating, administrative and other on a consolidated basis was $112.6 million, a decrease of $22.9 million or 16.9% for the three months ended March 31, 2002, compared to the first quarter of the prior year.  This decrease is due to cost cutting measures and operational efficiencies put in place in May 2001.  An organizational restructure was also implemented after the merger transaction was completed that included the reduction of administrative staff in corporate and divisional headquarters and the scaling back of unprofitable operations.  In addition, bonus incentives and profit share declined due to the Company’s lower results.

 

Depreciation and amortization expense on a consolidated basis decreased by $4.1 million or 35.1% due primarily to the discontinuation of goodwill amortization after the merger, in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

 

            Merger-related and other nonrecurring charges on a consolidated basis were $0.6 million for the three months ended March 31, 2002 and primarily consists of costs for professional services related to the merger.

 

Consolidated interest expense was $16.0 million, an increase of $7.0 million or 76.9% for the three months ended March 31, 2002, as compared to the three months ended March 31, 2001.  This is attributable to the Company’s increased debt as a result of the merger.

 

17



 

Income tax benefit on a consolidated basis was $6.1 million for the three months ended March 31, 2002, as compared to $3.1 million for the three months ended March 31, 2001.  The income tax benefit and effective tax rate are not comparable between periods due to the merger.  In addition, the Company adopted SFAS No. 142, which includes the elimination of the amortization of goodwill created under such merger transactions.

 

Segment Operations

 

Subsequent to the merger transaction, the Company reorganized its business segments as part of its efforts to reduce costs and streamline its operations.  The Company now conducts and reports its operations through three geographically organized segments: (1) The Americas, (2) Europe, Middle East and Africa (EMEA), and (3) Asia Pacific.  The Americas consist of the United States, Canada, Mexico and operations located in Central and South America.  EMEA mainly consists of Europe, while Asia Pacific includes the operations in Asia, Australia and New Zealand.  Previously, the Company reported its segments based on the applicable type of revenue transaction.  The Americas’ prior year results include a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund contracts. The following unaudited table summarizes the revenue, cost and expenses, and operating income (loss) by operating segment for the three months ended March 31, 2002 and 2001:

 

18



 

 

 

Three Months Ended March 31

 

 

 

2002

 

2001

 

 

 

(Dollars in thousands)

 

Americas

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

178,613

 

$

222,513

 

Costs and expenses:

 

 

 

 

 

Commissions, fees and other incentives

 

77,611

 

100,322

 

Operating, administrative and other

 

86,782

 

105,019

 

Depreciation and amortization

 

5,491

 

8,395

 

Merger-related and other nonrecurring charges

 

582

 

 

 

 

 

 

 

 

Operating income

 

$

8,147

 

$

8,777

 

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges

 

$

14,220

 

$

17,172

 

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges, margin

 

8.0

%

7.7

%

 

 

 

 

 

 

EMEA

 

 

 

 

 

Revenue

 

$

30,073

 

$

33,280

 

Costs and expenses:

 

 

 

 

 

Commissions, fees and other incentives

 

14,516

 

14,387

 

Operating, administrative and other

 

17,458

 

20,029

 

Depreciation and amortization

 

1,113

 

2,102

 

 

 

 

 

 

 

Operating loss

 

$

(3,014

)

$

(3,238

)

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges

 

$

(1,901

)

$

(1,136

)

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges, margin

 

-6.3

%

-3.4

%

 

 

 

 

 

 

Asia Pacific

 

 

 

 

 

Revenue

 

$

15,304

 

$

16,705

 

Costs and expenses:

 

 

 

 

 

Commissions, fees and other incentives

 

8,139

 

8,257

 

Operating, administrative and other

 

8,396

 

10,463

 

Depreciation and amortization

 

988

 

1,199

 

 

 

 

 

 

 

Operating loss

 

$

(2,219

)

$

(3,214

)

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges

 

$

(1,231

)

$

(2,015

)

 

 

 

 

 

 

 

 

EBITDA, excluding merger-related and other nonrecurring charges, margin

 

-8.0

%

-12.1

%