UNITED STATES
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 September 30, 2005

 

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 001 – 32205

 

CB RICHARD ELLIS GROUP, 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)

 

 

 

100 N. Sepulveda Boulevard, Suite 1050

 

 

El Segundo, California

 

90245

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(310) 606-4700

 

 

(Registrant’s telephone number, including area code)

 

(Former name, former address and

 

 

former 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

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes
o No ý.

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o No ý.

 

The number of shares of Class A common stock outstanding at October 31, 2005 was 73,219,447.

 

 



 

FORM 10-Q

 

September 30, 2005

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at September 30, 2005 (Unaudited) and December 31, 2004

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004 (Unaudited)

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (Unaudited)

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

 

Item 2.

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

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signatures

 

 

2



 

CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

 

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

284,571

 

$

256,896

 

Restricted cash

 

5,962

 

9,213

 

Receivables, less allowance for doubtful accounts of $17,716 and $14,811 at September 30, 2005 and December 31, 2004, respectively

 

355,882

 

394,062

 

Warehouse receivable

 

146,480

 

138,233

 

Prepaid expenses

 

32,904

 

26,586

 

Deferred tax assets, net

 

25,657

 

23,122

 

Property held for sale

 

37,188

 

 

Other current assets

 

18,341

 

15,583

 

Total Current Assets

 

906,985

 

863,695

 

Property and equipment, net

 

133,439

 

137,703

 

Goodwill

 

841,449

 

821,508

 

Other intangible assets, net of accumulated amortization of $99,946 and $95,373 at September 30, 2005 and December 31, 2004, respectively

 

109,919

 

113,653

 

Deferred compensation assets

 

142,690

 

102,578

 

Investments in and advances to unconsolidated subsidiaries

 

98,255

 

83,501

 

Deferred tax assets, net

 

83,998

 

78,471

 

Other assets, net

 

63,966

 

70,527

 

Total Assets

 

$

2,380,701

 

$

2,271,636

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

193,009

 

$

185,877

 

Compensation and employee benefits payable

 

181,249

 

150,721

 

Accrued bonus and profit sharing

 

210,698

 

271,020

 

Income taxes payable

 

19,346

 

 

Short-term borrowings:

 

 

 

 

 

Warehouse line of credit

 

146,480

 

138,233

 

Debt related to property held for sale

 

29,216

 

 

Other

 

16,983

 

21,736

 

Total short-term borrowings

 

192,679

 

159,969

 

Current maturities of long-term debt

 

11,911

 

11,954

 

Other current liabilities

 

17,807

 

29,547

 

Total Current Liabilities

 

826,699

 

809,088

 

 

 

 

 

 

 

Long-Term Debt:

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount of $1,702 and $2,337 at September 30, 2005 and December 31, 2004, respectively

 

162,967

 

205,032

 

Senior secured term loan

 

256,400

 

265,250

 

9¾% senior notes

 

130,000

 

130,000

 

Other long-term debt

 

2,673

 

602

 

Total Long-Term Debt

 

552,040

 

600,884

 

Deferred compensation liability

 

166,463

 

160,281

 

Pension liability

 

25,625

 

27,871

 

Other liabilities

 

100,400

 

107,639

 

Total Liabilities

 

1,671,227

 

1,705,763

 

Commitments and contingencies

 

 

 

Minority interest

 

6,568

 

5,925

 

Stockholders’ Equity:

 

 

 

 

 

Class A common stock; $0.01 par value; 325,000,000 shares authorized; 73,144,131 and 71,031,429 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively

 

731

 

710

 

Additional paid-in capital

 

537,868

 

513,801

 

Notes receivable from sale of stock

 

(121

)

(433

)

Accumulated earnings

 

188,103

 

66,174

 

Accumulated other comprehensive loss

 

(23,675

)

(20,304

)

Total Stockholders’ Equity

 

702,906

 

559,948

 

Total Liabilities and Stockholders’ Equity

 

$

2,380,701

 

$

2,271,636

 

 

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

 

3



 

CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

744,198

 

$

574,999

 

$

1,954,627

 

$

1,566,907

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of services

 

380,943

 

300,711

 

987,680

 

797,544

 

Operating, administrative and other

 

255,706

 

213,226

 

720,657

 

643,016

 

Depreciation and amortization

 

11,665

 

12,340

 

32,853

 

40,001

 

Merger-related charges

 

 

4,040

 

 

25,574

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

95,884

 

44,682

 

213,437

 

60,772

 

Equity income from unconsolidated subsidiaries

 

3,628

 

4,826

 

21,648

 

10,120

 

Interest income

 

413

 

1,262

 

5,916

 

4,099

 

Interest expense

 

13,840

 

15,509

 

40,812

 

53,934

 

Loss on extinguishment of debt

 

624

 

17,066

 

7,386

 

21,075

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before provision for income taxes

 

85,461

 

18,195

 

192,803

 

(18

)

Provision for income taxes

 

28,525

 

6,300

 

70,874

 

1,690

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

56,936

 

$

11,895

 

$

121,929

 

$

(1,708

)

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share

 

$

0.77

 

$

0.17

 

$

1.65

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic income (loss) per share

 

74,177,337

 

71,446,359

 

73,834,169

 

66,006,231

 

 

 

 

 

 

 

 

 

 

 

Diluted income (loss) per share

 

$

0.74

 

$

0.16

 

$

1.59

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for diluted income (loss) per share

 

76,777,271

 

75,184,418

 

76,444,808

 

66,006,231

 

 

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

 

4



 

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

121,929

 

$

(1,708

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

32,853

 

40,001

 

Amortization and write-off of deferred financing costs

 

4,703

 

10,094

 

Amortization and write-off of long-term debt discount

 

635

 

3,274

 

Deferred compensation deferrals

 

18,852

 

12,764

 

Write-off of impaired investments

 

 

2,990

 

Gain on sale of servicing rights and other assets

 

(3,534

)

(5,789

)

Equity income from unconsolidated subsidiaries

 

(21,648

)

(10,120

)

Distributions of earnings from unconsolidated subsidiaries

 

13,307

 

8,142

 

Provision for doubtful accounts

 

3,644

 

2,304

 

Deferred income taxes

 

3,289

 

(132

)

Decrease in receivables

 

28,215

 

37,465

 

Increase in deferred compensation assets

 

(40,112

)

(3,072

)

(Increase) decrease in prepaid expenses and other assets

 

(11,192

)

9,132

 

Increase (decrease) in accounts payable and accrued expenses

 

3,865

 

(22,185

)

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

 

(25,125

)

(41,843

)

Increase (decrease) in income tax payable

 

26,925

 

(7,861

)

(Decrease) increase in other liabilities

 

(24,725

)

6,946

 

Tenant concessions received

 

2,428

 

10,632

 

Other operating activities, net

 

2,471

 

1,305

 

Net cash provided by operating activities

 

136,780

 

52,339

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(24,788

)

(38,087

)

Acquisition of businesses including net assets acquired, intangibles and goodwill, net of cash acquired

 

(29,137

)

(16,784

)

Investment in property held for sale

 

(65,774

)

 

Contributions to unconsolidated subsidiaries, net of capital distributions

 

(6,520

)

(13,348

)

Proceeds from the sale of servicing rights and other assets

 

3,023

 

5,607

 

Proceeds from sale of property held for sale

 

28,289

 

50,401

 

Decrease in restricted cash

 

3,152

 

5,040

 

Other investing activities, net

 

1,844

 

2,258

 

Net cash used in investing activities

 

(89,911

)

(4,913

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from revolver and swingline credit facility

 

 

186,750

 

Repayment of revolver and swingline credit facility

 

 

(186,750

)

Proceeds from debt related to property held for sale

 

53,543

 

 

Repayment of debt related to property held for sale

 

(23,310

)

(42,048

)

Repayment of senior secured term loan

 

(8,850

)

(17,500

)

Repayment of euro cash pool loan and other loans, net

 

(1,519

)

(9,809

)

Repayment of 9¾% senior notes

 

 

(70,000

)

Repayment of 11¼% senior subordinated notes

 

(42,700

)

(21,631

)

Repayment of 16% senior notes

 

 

(38,316

)

Proceeds from issuance of common stock, net

 

 

135,000

 

Proceeds from exercise of stock options

 

6,584

 

7,991

 

Payment of deferred financing fees

 

(318

)

(3,942

)

Other financing activities, net

 

(744

)

(1,466

)

Net cash used in financing activities

 

(17,314

)

(61,721

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

29,555

 

(14,295

)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

256,896

 

163,881

 

Effect of currency exchange rate changes on cash

 

(1,880

)

(1,661

)

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

284,571

 

$

147,925

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

33,066

 

$

56,846

 

Income taxes, net of refunds

 

$

37,224

 

$

11,462

 

 

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

 

5



 

CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

1.              Nature of Operations

 

CB Richard Ellis Group, Inc. (formerly known as CBRE Holding, Inc.), a Delaware corporation (which may be referred to in this Quarterly Report on Form 10-Q as “we,” “us,” and “our”), was incorporated on February 20, 2001 and was created to acquire all of the outstanding shares of CB Richard Ellis Services, Inc. (CBRE), an international commercial real estate services firm. Prior to July 20, 2001, we were a wholly owned subsidiary of Blum Strategic Partners, L.P. (Blum Strategic), formerly known as RCBA Strategic Partners, L.P., which is an affiliate of Richard C. Blum, a director of CBRE and our company.

 

On July 20, 2001, we acquired all of the outstanding stock of CBRE pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 31, 2001, among CBRE, Blum CB Corp. (Blum CB) and us. Blum CB was merged with and into CBRE with CBRE being the surviving corporation (the 2001 Merger). In July 2003, our global position in the commercial real estate services industry was further solidified as CBRE acquired Insignia Financial Group, Inc.  We have no substantive operations other than our investment in CBRE.

 

On June 15, 2004, we completed the initial public offering of shares of our Class A common stock (the IPO).  In connection with the IPO, we issued and sold 7,726,764 shares of our Class A common stock and received aggregate net proceeds of approximately $135.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us.  Also in connection with the IPO, selling stockholders sold an aggregate of 16,273,236 shares of our Class A common stock and received net proceeds of approximately $290.6 million, after deducting underwriting discounts and commissions.  On July 14, 2004, selling stockholders sold an additional 229,300 shares of our Class A common stock to cover over-allotments of shares by the underwriters and received net proceeds of approximately $4.1 million, after deducting underwriting discounts and commissions.  Lastly, on December 13, 2004, we completed a secondary public offering that provided further liquidity for some of our stockholders.  We did not receive any of the proceeds from the sales of shares by the selling stockholders on June 15, 2004, July 14, 2004 and December 13, 2004.

 

We offer a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets globally under the “CB Richard Ellis” brand name. Our business is focused on several service competencies, including strategic advice and execution assistance for property leasing and sales; forecasting; valuations; origination and servicing of commercial mortgage loans, facilities and project management and real estate investment management. We generate revenues both on a per project or transaction basis and from annual management fees.

 

2.              Insignia Acquisition

 

On July 23, 2003, pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 28, 2003 (the Insignia Acquisition Agreement), by and among us, CBRE, Apple Acquisition Corp. (Apple Acquisition), a Delaware corporation and wholly owned subsidiary of CBRE, and Insignia Financial Group, Inc. (Insignia), Apple Acquisition was merged with and into Insignia (the Insignia Acquisition). Insignia was the surviving corporation in the Insignia Acquisition and at the effective time of the Insignia Acquisition became a wholly owned subsidiary of CBRE.

 

The aggregate purchase price for the acquisition of Insignia was approximately $329.5 million, which includes: (1) $267.9 million in cash paid for shares of Insignia’s outstanding common stock, at $11.156 per share, (2) $38.2 million in cash paid for Insignia’s outstanding Series A preferred stock and Series B preferred stock at $100.00 per share plus accrued and unpaid dividends, (3) cash payments of $7.9 million to holders of Insignia’s vested and unvested warrants and options and (4) $15.5 million of direct costs incurred in connection with the acquisition, consisting mostly of legal and accounting fees.

 

6



 

The Insignia Acquisition gave rise to the consolidation and elimination of some Insignia duplicate facilities and redundant employees as well as the termination of certain contracts as a result of a change of control of Insignia. As a result, we have accrued certain liabilities in accordance with Emerging Issues Task Force (EITF) Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.”  These remaining liabilities assumed in connection with the Insignia Acquisition consist of the following and are included in the accompanying consolidated balance sheets (dollars in thousands):

 

 

 

Liability Balance

 

 

 

 

 

 

 

at

 

 

 

 

 

 

 

December 31, 2004

 

2005 Utilization

 

To be Utilized

 

Lease termination costs

 

$

23,977

 

$

(2,784

)

$

21,193

 

Legal settlements anticipated

 

9,285

 

(1,549

)

7,736

 

Severance

 

5,479

 

(3,516

)

1,963

 

Costs associated with exiting contracts

 

1,395

 

(1,207

)

188

 

 

 

$

40,136

 

$

(9,056

)

$

31,080

 

 

3.              Basis of Presentation

 

The accompanying 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, but do not include all disclosures required under accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. 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 GAAP 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 estimates. All significant inter-company transactions and balances have been eliminated, and certain reclassifications have been made to prior periods’ consolidated financial statements to conform to the current period presentation. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2005. The consolidated financial statements and notes to consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2004.

 

4.              Stock-Based Compensation

 

Prior to 2003, we accounted for our employee stock-based compensation plans under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related Financial Accounting Standards Board (FASB) interpretations.  Accordingly, compensation cost for employee stock options was measured as the excess, if any, of the estimated market price of our Class A common stock at the date of grant over the amount an employee was required to pay to acquire the stock.

 

In the fourth quarter of 2003, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” prospectively to all employee awards granted, modified or settled after January 1, 2003, as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment of FASB Statement No. 123.”  Awards under our stock-based compensation plans vest over four or five-year periods.  Therefore, the cost related to stock-based employee compensation included in the determination of net income (loss) for the three and nine months ended September 30, 2005 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.

 

In accordance with SFAS No. 123, we estimate the fair value of our options using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility and the expected life of the options.  As our Class A common stock was not freely tradeable on a national securities exchange or an over-the-counter market prior to the completion of the IPO, an

 

7



 

effectively zero percent volatility was utilized for all periods ending prior to the IPO.  The dividend yield is excluded from the calculation, as it is our present intention to retain all earnings.

 

The following table illustrates the effect on net income (loss) and income (loss) per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except share data):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) as reported

 

$

56,936

 

$

11,895

 

$

121,929

 

$

(1,708

)

Add: Stock-based employee compensation expense included in reported net income (loss), net of the related tax effect

 

960

 

114

 

1,884

 

220

 

Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of the related tax effect

 

(749

)

(310

)

(2,430

)

(697

)

Pro forma net income (loss)

 

$

57,147

 

$

11,699

 

$

121,383

 

$

(2,185

)

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.77

 

$

0.17

 

$

1.65

 

$

(0.03

)

Pro forma

 

$

0.77

 

$

0.16

 

$

1.64

 

$

(0.03

)

Diluted income (loss) per share:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.74

 

$

0.16

 

$

1.59

 

$

(0.03

)

Pro forma

 

$

0.74

 

$

0.16

 

$

1.59

 

$

(0.03

)

 

The weighted average fair value of options granted by us was $17.23 and $8.07 for the three months ended September 30, 2005 and 2004, respectively, and $16.90 and $8.05 for the nine months ended September 30, 2005 and 2004, respectively.  The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, utilizing the following weighted average assumptions:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

4.02

%

3.20

%

3.99

%

3.20

%

Expected volatility

 

40.00

%

40.00

%

40.00

%

30.00

%

Expected life

 

4 years

 

4 years

 

4 years

 

4 years

 

 

Option valuation models require the input of subjective assumptions including the expected stock price volatility.  Because our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, we do not believe that the Black-Scholes model necessarily provides a reliable single measure of the fair value of our employee stock options.

 

8



 

5.              Fair Value of Financial Instruments

 

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets.  Fair value is defined as the amount at which an instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale.  The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

Cash and Cash Equivalents and Restricted Cash:  These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months.  The carrying amount approximates fair value due to the short-term maturities of these instruments.

 

Receivables, less allowance for doubtful accounts:  Due to their short-term nature, fair value approximates carrying value.

 

Warehouse Receivable:  Due to the short-term nature, fair value approximates carrying value.  Fair value is determined based on the terms and conditions of funded mortgage loans and generally reflects the value of the Washington Mutual Bank, FA (WaMu) warehouse line of credit outstanding (See Note 9).

 

Short-Term Borrowings:  The majority of this balance represents the WaMu warehouse line of credit.  Due to the short-term maturities and variable interest rates of these instruments, fair value approximates carrying value  (See Note 9).

 

111/4 % Senior Subordinated Notes:  Based on dealers’ quotes, the estimated fair value of the 11¼% senior subordinated notes was $179.5 million and $236.4 million at September 30, 2005 and December 31, 2004, respectively.  Their actual carrying value totaled $163.0 million and $205.0 million at September 30, 2005 and December 31, 2004, respectively (See Note 9).

 

93/4 % Senior Notes:  Based on dealers’ quotes, the estimated fair value of the 93/4% senior notes was $143.3 million and $148.2 million at September 30, 2005 and December 31, 2004, respectively.  Their actual carrying value totaled $130.0 million at September 30, 2005 and December 31, 2004  (See Note 9).

 

Senior Secured Term Loan & Other Long-Term Debt:  Estimated fair values approximate respective carrying values because the substantial majority of these instruments are based on variable interest rates (See Note 9).

 

6.              Restricted Cash

 

Included in the accompanying consolidated balance sheets as of September 30, 2005 and December 31, 2004, is restricted cash of $6.0 million and $9.2 million, respectively, which primarily consists of cash pledged to secure the guarantee of certain short-term notes issued in connection with previous acquisitions by Insignia in the United Kingdom (U.K.).

 

7.              Goodwill and Other Intangible Assets

 

The changes in the carrying amount of goodwill for us and each of our segments (See Note 17 for a description of our segments) for the nine months ended September 30, 2005 are as follows (dollars in thousands):

 

 

 

Americas

 

EMEA

 

Asia Pacific

 

Global
Investment
Management

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2005

 

$

578,310

 

$

202,160

 

$

7,381

 

$

33,657

 

$

821,508

 

Purchase accounting adjustments related to acquisitions

 

(8,149

)

27,891

 

199

 

 

19,941

 

Balance at September 30, 2005

 

$

570,161

 

$

230,051

 

$

7,580

 

$

33,657

 

$

841,449

 

 

9



 

Other intangible assets totaled $109.9 million and $113.7 million, net of accumulated amortization of $99.9 million and $95.4 million, as of September 30, 2005 and December 31, 2004, respectively, and are comprised of the following (dollars in thousands):

 

 

 

As of September 30, 2005

 

As of December 31, 2004

 

 

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

 

 

 

 

 

 

 

 

 

 

Unamortizable intangible assets

 

 

 

 

 

 

 

 

 

Trademarks

 

$

63,700

 

 

 

$

63,700

 

 

 

Trade name

 

19,826

 

 

 

19,826

 

 

 

 

 

$

83,526

 

 

 

$

83,526

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

Backlog

 

$

72,661

 

$

(72,399

)

$

72,149

 

$

(72,149

)

Management contracts

 

26,583

 

(16,356

)

27,486

 

(14,756

)

Loan servicing rights

 

21,070

 

(7,187

)

20,057

 

(5,786

)

Other

 

6,025

 

(4,004

)

5,808

 

(2,682

)

 

 

$

126,339

 

$

(99,946

)

$

125,500

 

$

(95,373

)

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

209,865

 

$

(99,946

)

$

209,026

 

$

(95,373

)

 

In accordance with SFAS No. 141, “Business Combinations,” trademarks of $63.7 million were separately identified as a result of the 2001 Merger. As a result of the Insignia Acquisition, a $19.8 million trade name was separately identified, which represents the Richard Ellis trade name in the U.K. that was owned by Insignia. Both the trademarks and the trade name have indefinite useful lives and accordingly are not being amortized.

 

The majority of the backlog represents the fair value of Insignia’s net revenue backlog as of July 23, 2003, which was acquired as part of the Insignia Acquisition. This backlog consisted of the net commissions receivable on Insignia’s revenue producing transactions, which were at various stages of completion prior to the Insignia Acquisition. This intangible asset was amortized as cash was received or upon final closing of these pending transactions.  As of December 31, 2004, the backlog acquired as part of the Insignia Acquisition was fully amortized.

 

Management contracts are primarily comprised of property management contracts in the United States (U.S.), the U.K., France and other European operations, as well as valuation services and fund management contracts in the U.K. These management contracts are being amortized over estimated useful lives of up to ten years.

 

Loan servicing rights represent the fair value of servicing assets in our mortgage brokerage line of business in the U.S., the majority of which were acquired as part of the 2001 Merger. The loan servicing rights are being amortized over estimated useful lives of up to ten years.

 

Other amortizable intangible assets mainly represent other intangible assets acquired as a result of the Insignia Acquisition including an intangible asset recognized for other non-contractual revenue acquired in the U.S. as well as franchise agreements and a trade name in France. These other intangible assets are being amortized over estimated useful lives of up to 20 years.

 

Amortization expense related to intangible assets was $2.0 million and $4.3 million for the three months ended September 30, 2005 and 2004, respectively, and $5.7 million and $15.6 million for the nine months ended September 30, 2005 and 2004, respectively.  The estimated annual amortization expense for each of the years ended December 31, 2005 through December 31, 2009 approximates $7.2 million, $5.4 million, $4.8 million, $3.6 million and $3.0 million, respectively.

 

10



 

8.              Investments in and Advances to Unconsolidated Subsidiaries

 

Investments in and advances to unconsolidated subsidiaries are accounted for under the equity method of accounting. Combined condensed financial information for these entities is as follows (dollars in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$

128,770

 

$

168,126

 

$

326,090

 

$

404,460

 

Operating income

 

$

6,565

 

$

37,601

 

$

47,053

 

$

93,136

 

Net income

 

$

75,904

 

$

51,039

 

$

191,687

 

$

125,138

 

 

Our Global Investment Management segment involves investing our own capital in certain real estate investments with clients. We have provided investment management, property management, brokerage and other professional services to these equity investees on an arm’s length basis and earned revenues from these unconsolidated subsidiaries.

 

In June 2005, CBRE Realty Finance, Inc. (CBRE Realty Finance), a real estate investment trust, was formed and is managed by our wholly owned subsidiary, CBRE Melody (formerly known as L.J. Melody & Company).  On June 9, 2005, we received 300,000 shares of restricted stock and an option to purchase 500,000 shares of restricted stock from CBRE Realty Finance that vest in three equal annual installments.  The principal business activity of CBRE Realty Finance is to originate, acquire, invest in, finance and manage a diversified portfolio of commercial real estate-related loans and securities.  As of September 30, 2005, CBRE Realty Finance had total assets of $338.2 million and total equity of $282.7 million.  CBRE Realty Finance is a variable interest entity as defined in FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN No. 46R).  In accordance with FIN No. 46R, CBRE Realty Finance is not consolidated in our consolidated financial statements because we are not its primary beneficiary.  Our maximum exposure to loss is limited to our equity investment in CBRE Realty Finance, which was approximately $16.9 million as of September 30, 2005.

 

9.              Debt

 

Since 2001, we have maintained a credit agreement with Credit Suisse First Boston (CSFB) and other lenders to fund strategic acquisitions and to provide for our working capital needs.  On April 23, 2004, we entered into an amendment to our previously amended and restated credit agreement that included a waiver generally permitting us to prepay, redeem, repurchase or otherwise retire up to $30.0 million of our existing indebtedness and provided for the refinancing of all outstanding amounts under our previous credit agreement as well as the amendment and restatement of our credit agreement upon the completion of our initial public offering.  On June 15, 2004, in connection with the completion of our IPO, we completed the refinancing of all amounts outstanding under our amended and restated credit agreement and entered into a new amended and restated credit agreement which became effective in connection with such refinancing.  On November 15, 2004, we entered into a first amendment to our new amended and restated credit agreement, which reduced the interest rate spread of our term loan and increased flexibility on certain restricted payments and investments.  On May 10, 2005, we entered into a second amendment to our amended and restated credit agreement (the Credit Agreement), which relaxed the mandatory prepayment clause of the initial credit agreement by permitting us to keep cash otherwise required to be used to pay down principal, so long as our leverage ratio is below 2.5 to 1.0.

 

Our current Credit Agreement includes the following:  (1) a term loan facility of $295.0 million, requiring quarterly principal payments of $2.95 million beginning December 31, 2004 through December 31, 2009 with the balance payable on March 31, 2010; and (2) a $150.0 million revolving credit facility, including revolving credit loans, letters of credit and a swingline loan facility, all maturing on March 31, 2009.   Our Credit Agreement also permits us to make additional borrowings under the term loan facility of up to $25.0 million, subject to the satisfaction of customary conditions.

 

Borrowings under the term loan facility bear interest at varying rates based, at our option, on either LIBOR plus 2.00% or the alternate base rate plus 1.00%.  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.  The potential increase of up to $25.0 million for the term

 

11



 

loan facility would bear interest either at the same rate as the current rate for the term loan facility or, in some circumstances as described in the Credit Agreement, at a higher or lower rate.  The total amount outstanding under the term loan facility included in the senior secured term loan and current maturities of long-term debt balances in the accompanying consolidated balance sheets was $268.2 million and $277.1 million as of September 30, 2005 and December 31, 2004, respectively.

 

Borrowings under the revolving credit facility bear interest at varying rates based at our option, on either the applicable LIBOR plus 2.00% to 2.50% or the alternate base rate plus 1.00% to 1.50%, in both cases as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement).  As of September 30, 2005 and December 31, 2004, we had no revolving credit facility principal outstanding.  As of September 30, 2005, letters of credit totaling $14.6 million were outstanding, which letters of credit primarily relate to our subsidiaries’ outstanding indebtedness as well as operating leases and reduce the amount we may borrow under the revolving credit facility.

 

Borrowings under the Credit Agreement are jointly and severally guaranteed by us and substantially all of our domestic subsidiaries and are secured by a pledge of substantially all of our domestic assets. Additionally, the Credit Agreement requires us to pay a fee based on the total amount of the unused revolving credit facility commitment.

 

In May 2003, in connection with the Insignia Acquisition, CBRE Escrow, Inc. (CBRE Escrow), a wholly owned subsidiary of CBRE, issued $200.0 million in aggregate principal amount of 9¾% senior notes, which are due May 15, 2010. CBRE Escrow merged with and into CBRE, and CBRE assumed all obligations with respect to the 9¾% senior notes in connection with the Insignia Acquisition.  The 9¾% senior notes are unsecured obligations of CBRE, senior to all of its current and future unsecured indebtedness, but subordinated to all of CBRE’s current and future secured indebtedness. The 9¾% senior notes are jointly and severally guaranteed on a senior basis by us and substantially all of our domestic subsidiaries. Interest accrues at a rate of 9¾% per year and is payable semi-annually in arrears on May 15 and November 15. The 9¾% senior notes are redeemable at our option, in whole or in part, on or after May 15, 2007 at 104.875% of par on that date and at declining prices thereafter. In addition, before May 15, 2006, we were permitted to redeem up to 35.0% of the originally issued amount of the 9¾% senior notes at 109¾% of par, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings, which we elected to do. During July 2004, we used a portion of the net proceeds we received from our IPO to redeem $70.0 million in aggregate principal amount, or 35.0%, of our 9¾% senior notes, which also required the payment of a $6.8 million premium and accrued and unpaid interest through the date of redemption.  Additionally, we wrote off $3.1 million of unamortized deferred financing costs in connection with this redemption.  In the event of a change of control (as defined in the indenture governing our 9¾% senior notes), we are obligated to make an offer to purchase the 9¾% senior notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest.  The amount of the 9¾% senior notes included in the accompanying consolidated balance sheets was $130.0 million as of September 30, 2005 and December 31, 2004.

 

In June 2001, in connection with the 2001 Merger, Blum CB issued $229.0 million in aggregate principal amount of 11¼% senior subordinated notes due June 15, 2011 for approximately $225.6 million, net of discount. CBRE assumed all obligations with respect to the 11¼% senior subordinated notes in connection with the 2001 Merger.  The 11¼% senior subordinated notes are unsecured senior subordinated obligations of CBRE and rank equally in right of payment with any of CBREs’ existing and future unsecured senior subordinated indebtedness but are subordinated to any of CBREs’ existing and future senior indebtedness.  The 11¼% senior subordinated notes are jointly and severally guaranteed on a senior subordinated basis by us and substantially all of our domestic subsidiaries. The 11¼% senior subordinated notes require semi-annual payments of interest in arrears on June 15 and December 15 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, we were permitted to redeem up to 35.0% of the originally issued amount of the notes at 111¼% of par, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings, which we did not do.  In the event of a change of control (as defined in the indenture governing our 11¼% senior subordinated notes), we are obligated to make an offer to purchase the 11¼% senior subordinated notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest.  In May and June 2004, we repurchased $21.6 million in aggregate principal amount of our 11¼% senior subordinated notes in the open market. We paid $3.1 million of premiums and wrote off $0.9 million of unamortized deferred financing costs and unamortized discount in connection with these open market purchases.   During the nine months ended September 30, 2005, we repurchased an additional $42.7 million in aggregate principal amount of our 11¼% senior subordinated notes in the open market.  We paid an aggregate of $5.9 million of premiums and

 

12



 

wrote off $1.5 million of unamortized deferred financing costs and unamortized discount in connection with these open market purchases.  The amount of the 11¼% senior subordinated notes included in the accompanying consolidated balance sheets, net of unamortized discount, was $163.0 million and $205.0 million as of September 30, 2005 and December 31, 2004, respectively.

 

Our Credit Agreement and the indentures governing our 9¾% senior notes and our 11¼% senior subordinated notes each contain numerous restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. Our Credit Agreement also currently requires us to maintain a minimum coverage ratio of interest and certain fixed charges and a maximum leverage and senior secured leverage ratio of EBITDA (as defined in the Credit Agreement) to funded debt.

 

We had short-term borrowings of $192.7 million and $160.0 million with weighted average interest rates of 4.6% and 3.7% as of September 30, 2005 and December 31, 2004, respectively.

 

Our wholly owned subsidiary, CBRE Melody, has a credit agreement with WaMu for the purpose of funding mortgage loans that will be resold.   This credit agreement was previously with Residential Funding Corporation (RFC).  On December 1, 2004, we and RFC entered into a Fifth Amended and Restated Warehousing Credit and Security Agreement (warehouse line of credit), which provides for a warehouse line of credit of up to $250.0 million, bears interest at one-month LIBOR plus 1.0% and expired on September 1, 2005. This agreement provided for the ability to terminate the warehousing commitment as of any date on or after March 1, 2005, upon not less than thirty days advance written notice. On December 13, 2004, we and RFC entered into the First Amendment to the Fifth Amended and Restated Warehousing Credit and Security Agreement whereby the warehousing commitment was temporarily increased to $315.0 million, effective December 20, 2004. This temporary increase was for the period from December 20, 2004 to and including January 20, 2005. On March 1, 2005, we and RFC signed a consent letter, which approved the assignment to and assumption of the Fifth Amended and Restated Credit and Security Agreement by WaMu.  On August 23, 2005, we entered into a second amendment to the warehouse line of credit, which extended the agreement with WaMu until November 1, 2005.  On October 28, 2005, we executed a third amendment to the warehouse line of credit, which further extended the agreement with WaMu until December 1, 2005.  During the nine months ended September 30, 2005, we had a maximum of $184.5 million warehouse line of credit principal outstanding.  As of September 30, 2005 and December 31, 2004, we had a $146.5 million and a $138.2 million warehouse line of credit outstanding, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. Additionally, we had $146.5 million and $138.2 million of mortgage loans held for sale (warehouse receivable), which represented mortgage loans funded through the line of credit that, while committed to be purchased, had not yet been purchased as of September 30, 2005 and December 31, 2004, respectively, which are also included in the accompanying consolidated balance sheets.

 

During 2005, in conjunction with the acquisitions of properties held for sale in our European investment management business, we entered into debt agreements with ING Real Estate Finance N.V. (ING Real Estate) and The Royal Bank of Scotland (RBS).  The agreement with ING Real Estate related to a property held for sale in Germany and provided for the borrowing of 19.0 million euros of acquisition indebtedness and 5.1 million euros of construction/upgrade financing.  The 19.0 million principal had a floating rate component with respect to 8.0 million euros and a fixed rate component with respect to 11.0 million euros.  The floating rate was tied to the three-month Euribor rate plus 0.95%.  The fixed rate was equal to the Euro Interest Rate Swap Rate plus 1.05% for up to three years.  The 5.1 million euros construction financing principal accrued interest based upon the aforementioned indices in both fixed and floating rate components.  During the quarter ended September 30, 2005, we completed the sale of the German property held for sale and utilized the proceeds from the sale to repay all of the related debt.  The agreement with RBS relates to two properties held for sale in France and provides for the borrowing of 24.1 million euros.  Interest accrues at a rate based on the three-month Euribor rate plus 1.20% and is payable quarterly in arrears.  This debt matures on August 16, 2009; however, the debt agreement provides for a one-year extension based on the meeting of certain conditions (as defined in the debt agreement).  The debt agreement also provides for the mandatory repayment of the debt in certain circumstances, including upon sale of the aforementioned related property held for sale as well as in the event of a change of control (as defined in the debt agreement).  The operating results related to these properties held for sale were not significant for the periods ended September 30, 2005.  The amount of debt included in the accompanying consolidated balance sheets related to the French properties held for sale was $29.2 million as of September 30, 2005.

 

13



 

In connection with our acquisition of Westmark Realty Advisors in 1995, we issued approximately $20.0 million in aggregate principal amount of senior notes.  The Westmark senior notes are redeemable at the discretion of the note holders and have final maturity dates of June 30, 2008 and June 30, 2010. On January 1, 2005, the interest rate on all of the Westmark senior notes was adjusted to equal the interest rate in effect with respect to amounts outstanding under our Credit Agreement.  On May 31, 2005, with the exception of one note holder, we entered into an amendment to eliminate a letter of credit requirement and adjust the interest rate to equal the interest rate in effect with respect to amounts outstanding under our Credit Agreement plus twelve basis points.   The amount of the Westmark senior notes included in short-term borrowings in the accompanying consolidated balance sheets was $11.6 million and $12.1 million as of September 30, 2005 and December 31, 2004, respectively.

 

Insignia, which we acquired in July 2003, issued loan notes as partial consideration for previous acquisitions of businesses in the U.K. The acquisition loan notes are payable to the sellers of the previously acquired U.K. businesses and are secured by restricted cash deposits in approximately the same amount. The acquisition loan notes are redeemable semi-annually at the discretion of the note holder and have a final maturity date of April 2010. As of September 30, 2005 and December 31, 2004, $5.2 million and $8.5 million, respectively, of the acquisition loan notes were outstanding and are included in short-term borrowings in the accompanying consolidated balance sheets.

 

A significant number of our subsidiaries in Europe have had a euro cash pool loan since 2001, which is used to fund their short-term liquidity needs. The euro cash pool loan is an overdraft line for our European operations issued by HSBC Bank. The euro cash pool loan has no stated maturity date and bears interest at varying rates based on a base rate as defined by HSBC Bank plus 2.5%. As of September 30, 2005 and December 31, 2004, there were no amounts outstanding under this facility.

 

10.  Commitments and Contingencies

 

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. Our management believes that any liability imposed upon us that may result from disposition of these lawsuits will not have a material effect on our consolidated financial position or results of operations.

 

We had an outstanding letter of credit totaling $0.8 million as of September 30, 2005, excluding letters of credit related to our subsidiaries’ outstanding indebtedness and operating leases.  The $0.8 million outstanding letter of credit is a Fannie Mae letter of credit executed by CBRE Melody and expires on December 10, 2005. However, we are obligated to renew this letter of credit until our obligation to cover potential credit losses is satisfied.

 

We had guarantees totaling $1.7 million as of September 30, 2005, which primarily consisted of an obligation to Fannie Mae.  The guarantee obligation related to the agreement with Fannie Mae will expire in December 2007.

 

An important part of the strategy for our investment management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2% to 5% of the equity in a particular fund.  As of September 30, 2005, we had committed $59.0 million to fund future co-investments.

 

11.                               Comprehensive Income (Loss)

 

Comprehensive income (loss) consists of net income (loss) and other comprehensive (loss) gain. In the accompanying consolidated balance sheets, accumulated other comprehensive loss consists of foreign currency translation adjustments and minimum pension liability adjustments. Foreign currency translation adjustments exclude any income tax effect given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.

 

14



 

The following table provides a summary of comprehensive income (loss) (dollars in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

56,936

 

$

11,895

 

$

121,929

 

$

(1,708

)

Foreign currency translation (loss) gain

 

(507

)

156

 

(3,371

)

(2,645

)

Comprehensive income (loss)

 

$

56,429

 

$

12,051

 

$

118,558

 

$

(4,353

)

 

12.                               Earnings (Loss) Per Share

 

Earnings (loss) per share (EPS) is accounted for in accordance with SFAS No. 128, “Earnings Per Share.”  Basic EPS is computed by dividing net income (loss) by the weighted average number of common shares outstanding during each period.  Where appropriate, the computation of diluted EPS further assumes the dilutive effect of potential common shares, which include stock options, stock warrants and certain contingently issuable shares.  Contingently issuable shares represent unvested stock fund units in the deferred compensation plan.  The following is a calculation of earnings (loss) per share (dollars in thousands, except share data):

 

 

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

 

 

Income

 

Shares

 

Per
Share
Amount

 

Income

 

Shares

 

Per
Share
Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stockholders

 

$

56,936

 

74,177,337

 

$

0.77

 

$

11,895

 

71,446,359

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income applicable to common stockholders

 

$

56,936

 

74,177,337

 

 

 

$

11,895

 

71,446,359

 

 

 

Dilutive effect of contingently issuable shares

 

 

 

 

 

 

1,184,170

 

 

 

Dilutive effect of incremental stock options

 

 

2,599,934

 

 

 

 

2,553,889

 

 

 

Net income applicable to common stockholders

 

$

56,936

 

76,777,271

 

$

0.74

 

$

11,895

 

75,184,418

 

$

0.16

 

 

15



 

 

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

 

 

Income

 

Shares

 

Per
Share
Amount

 

Loss

 

Shares

 

Per
Share
Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

121,929

 

73,834,169

 

$

1.65

 

$

(1,708

)

66,006,231

 

$

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

121,929

 

73,834,169

 

 

 

$

(1,708

)

66,006,231

 

 

 

Dilutive effect of incremental stock options

 

 

2,610,639

 

 

 

 

 

 

 

Net income (loss) applicable to common stockholders

 

$

121,929

 

76,444,808

 

$

1.59

 

$

(1,708

)

66,006,231

 

$

(0.03

)

 

As a result of operating losses incurred for the nine months ended September 30, 2004, dilutive weighted average shares outstanding did not give effect to potential common shares of 5,444,418, as to do so would have been anti-dilutive.

 

13.                               Fiduciary Funds

 

The accompanying consolidated balance sheets do not include the net assets of escrow, agency and fiduciary funds, which are held by us on behalf of clients and which amounted to $865.0 million and $676.3 million at September 30, 2005 and December 31, 2004, respectively.

 

14.                               Pensions

 

Net periodic pension cost consisted of the following (dollars in thousands):

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1,386

 

$

1,808

 

$

4,193

 

$

4,938

 

Interest cost

 

3,040

 

2,791

 

9,413

 

8,409

 

Expected return on plan assets

 

(3,381

)

(3,170

)

(10,471

)

(9,477

)

Amortization of prior service costs

 

(116

)

(85

)

(359

)

(191

)

Amortization of unrecognized net gain

 

189

 

274

 

586

 

1,109

 

Net periodic pension cost

 

$

1,118

 

$

1,618

 

$

3,362

 

$

4,788

 

 

We contributed an additional $1.4 million and $4.1 million to fund our pension plans during the three and nine months ended September 30, 2005, respectively.  We expect to contribute a total of $5.2 million to fund our pension plans for the year ended December 31, 2005.

 

16



 

15.                               Merger-Related Charges

 

We recorded merger-related charges of $4.0 million and $25.6 million for the three and nine months ended September 30, 2004 in connection with the Insignia Acquisition. These charges primarily related to the exit of facilities that were occupied by us prior to the Insignia Acquisition as well as the termination of employees, both of which became duplicative as a result of the Insignia Acquisition. We recorded charges for the exit of these facilities as premises were vacated and for redundant employees as these employees were terminated, both in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Additionally, we recorded consulting costs, which represented fees paid to outside parties for nonrecurring services relating to the combination of Insignia’s financial systems and businesses with ours. The remaining liability associated with items previously charged to merger-related costs in connection with the Insignia Acquisition consisted of the following (dollars in thousands):

 

 

 

Liability Balance

 

 

 

 

 

 

 

at

 

 

 

 

 

 

 

December 31, 2004

 

2005 Utilization

 

To be Utilized

 

Lease termination costs

 

$

25,920

 

$

(5,718

)

$

20,202

 

 

17



 

16.       Guarantor and Nonguarantor Financial Statements

 

The 9¾% senior notes are jointly and severally guaranteed on a senior basis by us and substantially all of our domestic subsidiaries.  In addition, the 11¼% senior subordinated notes are jointly and severally guaranteed on a senior subordinated basis by us and substantially all of our domestic subsidiaries (See Note 9 for additional information on the 9¾% senior notes and the 11¼% senior subordinated notes).

 

The following condensed consolidating financial information includes:

 

(1) Condensed consolidating balance sheets as of September 30, 2005 and December 31, 2004; condensed consolidating statements of operations for the three and nine months ended September 30, 2005 and 2004; and condensed consolidating statements of cash flows for the nine months ended September 30, 2005 and 2004, of (a) CB Richard Ellis Group as the parent, (b) CBRE as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) CB Richard Ellis Group on a consolidated basis; and

 

(2) Elimination entries necessary to consolidate CB Richard Ellis Group as the parent, with CBRE and its guarantor and nonguarantor subsidiaries.

 

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.

 

18



 

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2005
(Dollars in thousands)

 

 

 

 

 

 

 

Guarantor

 

Nonguarantor

 

 

 

Consolidated

 

 

 

Parent

 

CBRE

 

Subsidiaries

 

Subsidiaries

 

Elimination

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11

 

$

47,462

 

$

202,803

 

$

34,295

 

$

 

$

284,571

 

Restricted cash

 

 

 

5,399

 

563

 

 

5,962

 

Receivables, less allowance for doubtful accounts

 

5

 

 

140,886

 

214,991

 

 

355,882

 

Warehouse receivable (a)

 

 

 

146,480

 

 

 

146,480

 

Property held for sale

 

 

 

 

37,188

 

 

37,188

 

Other current assets

 

25,657

 

2,215

 

15,840

 

33,190

 

 

76,902

 

Total Current Assets

 

25,673

 

49,677

 

511,408

 

320,227

 

 

906,985

 

Property and equipment, net

 

 

 

82,132

 

51,307

 

 

133,439

 

Goodwill

 

 

 

553,513

 

287,936

 

 

841,449

 

Other intangible assets, net

 

 

 

85,836

 

24,083

 

 

109,919

 

Deferred compensation assets

 

 

142,690

 

 

 

 

142,690

 

Investments in and advances to unconsolidated subsidiaries

 

 

6,159

 

76,173

 

15,923

 

 

98,255

 

Investments in consolidated subsidiaries

 

537,134

 

426,929

 

307,758

 

 

(1,271,821

)

 

Inter-company loan receivable

 

92,988

 

634,126

 

 

 

(727,114

)

 

Deferred tax assets, net

 

83,998

 

 

 

 

 

83,998

 

Other assets, net

 

266

 

19,082

 

31,256

 

13,362

 

 

63,966

 

Total Assets

 

$

740,059

 

$

1,278,663

 

$

1,648,076

 

$

712,838

 

$

(1,998,935

)

$

2,380,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

 

$

13,899

 

$

72,388

 

$

106,722

 

$

 

$

193,009

 

Compensation and employee benefits payable

 

 

 

126,144

 

55,105

 

 

181,249

 

Accrued bonus and profit sharing

 

 

 

121,430

 

89,268

 

 

210,698

 

Income taxes payable

 

19,346

 

 

 

 

 

19,346

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse line of credit (a)

 

 

 

146,480

 

 

 

146,480

 

Debt related to property held for sale

 

 

 

 

29,216

 

 

29,216

 

Other

 

 

 

16,807

 

176

 

 

16,983

 

Total short-term borrowings

 

 

 

163,287

 

29,392

 

 

192,679

 

Current maturities of long-term debt

 

 

11,800

 

 

111

 

 

11,911

 

Other current liabilities

 

17,807

 

 

 

 

 

17,807

 

Total Current Liabilities

 

37,153

 

25,699

 

483,249

 

280,598

 

 

826,699

 

Long-Term Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount

 

 

162,967

 

 

 

 

162,967

 

Senior secured term loan

 

 

256,400

 

 

 

 

256,400

 

9¾% senior notes

 

 

130,000

 

 

 

 

130,000

 

Inter-company loan payable

 

 

 

672,368

 

54,746

 

(727,114

)

 

Other long-term debt

 

 

 

 

2,673

 

 

2,673

 

Total Long-Term Debt

 

 

549,367

 

672,368

 

57,419

 

(727,114

)

552,040

 

Deferred compensation liability

 

 

166,463

 

 

 

 

166,463

 

Pension liability

 

 

 

 

 

 

 

25,625

 

 

 

25,625

 

Other liabilities

 

 

 

65,530

 

34,870

 

 

100,400

 

Total Liabilities

 

37,153

 

741,529

 

1,221,147

 

398,512

 

(727,114

)

1,671,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interest

 

 

 

 

6,568

 

 

6,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

702,906

 

537,134

 

426,929

 

307,758

 

(1,271,821

)

702,906

 

Total Liabilities and Stockholders’ Equity

 

$

740,059

 

$

1,278,663

 

$

1,648,076

 

$

712,838

 

$

(1,998,935

)

$

2,380,701

 

 


(a)  Although CBRE Melody is included among our domestic subsidiaries, which jointly and severally guarantee our 9¾% senior notes and 11¼% senior subordinated notes, all warehouse receivables funded under the WaMu line of credit are pledged to WaMu, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

19



 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2004

(Dollars in thousands)

 

 

 

 

 

 

 

Guarantor

 

Nonguarantor

 

 

 

Consolidated

 

 

 

Parent

 

CBRE

 

Subsidiaries

 

Subsidiaries

 

Elimination

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,496

 

$

2,806

 

$

216,463

 

$

34,131

 

$

 

$

256,896

 

Restricted cash

 

 

 

8,735

 

478

 

 

9,213

 

Receivables, less allowance for doubtful accounts

 

9

 

 

135,117

 

258,936

 

 

394,062

 

Warehouse receivable (a)

 

 

 

138,233

 

 

 

138,233

 

Other current assets

 

26,065

 

178

 

19,925

 

19,123

 

 

65,291

 

Total Current Assets

 

29,570

 

2,984

 

518,473

 

312,668

 

 

863,695

 

Property and equipment, net

 

 

 

82,714

 

54,989

 

 

137,703

 

Goodwill

 

 

 

561,589

 

259,919

 

 

821,508

 

Other intangible assets, net

 

 

 

88,544

 

25,109

 

 

113,653

 

Deferred compensation assets

 

 

102,578

 

 

 

 

102,578

 

Investments in and advances to unconsolidated subsidiaries

 

 

8,676

 

56,191

 

18,634

 

 

83,501

 

Investments in consolidated subsidiaries

 

410,107

 

252,964

 

206,810

 

 

(869,881

)

 

Inter-company loan receivable

 

71,006

 

797,432

 

 

 

(868,438

)

 

Deferred tax assets, net

 

78,471

 

 

 

 

 

78,471

 

Other assets, net

 

 

23,681

 

31,808

 

15,038

 

 

70,527

 

Total Assets

 

$

589,154

 

$

1,188,315

 

$

1,546,129

 

$

686,357

 

$

(1,738,319

)

$

2,271,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

 

$

5,845

 

$

67,664

 

$

112,368

 

$

 

$

185,877

 

Compensation and employee benefits payable

 

 

 

92,652

 

58,069

 

 

150,721

 

Accrued bonus and profit sharing

 

 

 

151,800

 

119,220

 

 

271,020

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse line of credit (a)

 

 

 

138,233

 

 

 

138,233

 

Other

 

 

 

21,540

 

196

 

 

21,736

 

Total short-term borrowings

 

 

 

159,773

 

196

 

 

159,969

 

Current maturities of long-term debt

 

 

11,800

 

 

154

 

 

11,954

 

Other current liabilities

 

29,206

 

 

 

341

 

 

29,547

 

Total Current Liabilities

 

29,206

 

17,645

 

471,889

 

290,348

 

 

809,088

 

Long-Term Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

11¼% senior subordinated notes, net of unamortized discount

 

 

205,032

 

 

 

 

205,032

 

Senior secured term loan

 

 

265,250

 

 

 

 

265,250

 

9¾% senior notes

 

 

130,000

 

 

 

 

130,000

 

Inter-company loan payable

 

 

 

751,259

 

117,179

 

(868,438

)

 

Other long-term debt

 

 

 

 

602

 

 

602

 

Total Long-Term Debt

 

 

600,282

 

751,259

 

117,781

 

(868,438

)

600,884

 

Deferred compensation liability

 

 

160,281

 

 

 

 

160,281

 

Other liabilities

 

 

 

70,017

 

65,493

 

 

135,510

 

Total Liabilities

 

29,206

 

778,208

 

1,293,165

 

473,622

 

(868,438

)

1,705,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minority interest

 

 

 

 

5,925

 

 

5,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

559,948

 

410,107

 

252,964

 

206,810

 

(869,881

)

559,948

 

Total Liabilities and Stockholders’ Equity

 

$

589,154

 

$

1,188,315

 

$

1,546,129

 

$

686,357

 

$