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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

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
(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
  Name of Each Exchange on Which Registered
     
N.A.   N.A.

Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, $0.01 par value per share
Options to purchase Class A common stock


        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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.    o

        The number of shares of Class A and Class B common stock outstanding at February 28, 2002 was 1,710,109 and 12,624,813, respectively. The aggregate market value of such shares held by non-affiliates of the Registrant was $0.





PART I

Item 1. Business

Company Overview

        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. Information regarding this transaction is included in the "Liquidity and Capital Resources" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" and within Note 2 of the Notes to Consolidated Financial Statements, which are incorporated herein by reference.

        Nature of Operations.    CBRE Holding, Inc. is a holding company that conducts its operations primarily through direct and indirect operating subsidiaries. In the United States (US), the Company operates through CB Richard Ellis, Inc. and L.J. Melody, in the United Kingdom (UK) through CB Hillier Parker and in Canada through CB Richard Ellis Limited. CB Richard Ellis Investors, L.L.C. (CBRE Investors) and its foreign affiliates conduct business in the US, Europe and Asia. The Company operates through various subsidiaries in approximately 47 countries and pursuant to cooperation agreements in several additional countries. Approximately 75% of the Company's revenue is generated from the US and 25% is generated from the rest of the world. See Note 19 of the Notes to Consolidated Financial Statements for financial data relating to the Company's domestic and foreign operations, which are incorporated herein by reference.

        A significant portion of the Company's revenue is seasonal. Historically, this seasonality has caused its revenue, operating income, net income and cash flow from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year. The concentration of earnings and cash flow in the fourth quarter is due to an industry-wide focus of completing transactions by year-end, while incurring constant, non-variable expenses throughout the year. This has historically resulted in lower profits or a loss in the first and second quarters, with profits growing in each subsequent quarter.

Business Segments

        Subsequent to the merger, 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 US, 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 operated and reported its segments based on the applicable type of revenue transaction. This included the Transaction Management, Financial Services and Management Services segments.

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        Information regarding revenue and operating income or loss, attributable to each of the Company's business segments, is included in "Segment Operations" within the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and within Note 19 of the Notes to Consolidated Financial Statements, which are incorporated herein by reference. Information concerning the identifiable assets of each of the Company's business segments is set forth in Note 19 of the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Americas

        The Americas is the largest business segment in terms of revenue, earnings and cash flow. It includes the following major lines of businesses:

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EMEA

        The EMEA division has 48 offices spread over 22 countries, with its largest operations located in the UK, France, Spain, the Netherlands and Germany. This division produced $161.3 million in revenue during 2001, and managed over 80 million square feet of commercial space within Europe. Operations within the various countries typically provide, at a minimum, the following services: Brokerage, Investment Properties, Corporate Advisory, Asset Services, Facilities Management and Valuation/Appraisal services. Certain countries also provide Financial and Investment Management services. These services are provided to a wide range of clients and cover office, retail, leisure, industrial, logistics, biotechnology, telecommunications and residential property assets.

        The Company, operating as CB Hillier Parker in the UK, is one of the leading real estate services companies in this country. It provides a broad range of commercial property real estate services to investment, commercial and corporate clients located in London, as well as through its four regional offices in Birmingham, Manchester, Edinburgh and Glasgow. In France, the Company is a key market leader in Paris and provides a complete range of services to the commercial property sector, as well as some services to the residential property market. Headquartered in Madrid, the Company provides extensive coverage in Spain, operating through its offices in Barcelona, Valencia, Malaga, Marbella and Palma de Mallorca. The Company's Netherlands business is based in Amsterdam, while its German operations are located in Frankfurt, Munich, Berlin and Hamburg. With the exception of Investment Management, these countries provide a full range of services to the commercial property sector, with some residential property services. As of December 31, 2001, there were approximately 1,300 professional and support staff employed, of which about 700 were in the UK.

Asia Pacific

        The Asia Pacific division has 29 offices spread over 11 countries. The Company is one of only a few companies that can provide a full range of real estate services to large corporations throughout the region, including the following: Brokerage, Investment Management (in Japan only), Corporate Advisory, Valuation/Appraisal, Asset Services and Facilities Management, with approximately 150 million square feet under management. The CB Richard Ellis brand name is recognized throughout this region as one of the leading worldwide commercial real estate services firms. This division employs approximately 1,465 individuals. In Asia, the Company's principal operations are located in China (including Hong Kong), Singapore, South Korea and Japan. The Pacific includes Australia and New Zealand with principal offices located in Brisbane, Melbourne, Sydney, Auckland and Wellington.

Competitive Environment

        The market for the Company's commercial real estate business is both highly fragmented and competitive. Thousands of local commercial real estate brokerage firms and hundreds of regional commercial real estate brokerage firms have offices throughout the world. Most of the Company's competitors in Brokerage, and to a significant extent, Asset Services, are local or regional firms that are substantially smaller on an overall basis, but in some cases may be larger locally. The Company believes that the following companies have the ability to compete with it on a national, and in some cases, international basis: Jones Lang Lasalle Incorporated, Trammell Crow Company, Cushman and Wakefield, Inc., Grubb and Ellis and Insignia Financial Group.

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        The Company has several competitive advantages which have established it as a leader in the commercial real estate services industry. These advantages include:

        Global brand name.    The Company's reputation as one of the leading worldwide commercial real estate services firms is a major advantage for it in winning new business and further expanding its existing client base. The Company believes that generally large corporations, institutional owners and users of real estate recognize it as a provider of high quality, professional and multi-functional real estate services.

        Global presence.    Many corporations, based both in the US and internationally, have pursued growth opportunities on a global basis. As a result, these corporations favor real estate providers who are capable of providing services around the world. With approximately 221 offices in 47 countries around the world, the Company combines global reach with localized knowledge that enables it to provide world-class service to its numerous multi-national clients.

        Resources that empower.    The Company's proprietary data network gives its professionals instant access to the local and global market knowledge to meet its clients' needs. It also enables professionals to build cross-functional teams to work collaboratively on projects. With real-time access to state-of-the-art information systems, its professionals are empowered to support clients in achieving their own business goals.

        Full Service Provider.    The Company provides a full range of real estate services to meet the needs of its clients. These services include commercial real estate brokerage services, investment properties, corporate services, mortgage banking, investment management, valuation and appraisal services, real estate market research, property management/asset services and facilities management. The Company can combine a variety of services to expand and execute real estate strategies that meet and satisfy the needs of a diverse client base. The Company believes its combination of significant local market presence and diversified line of business platforms differentiates it from its competitors and provides it with a competitive advantage.

        Strong Relationships with Established Customers.    The Company has long-standing relationships with a number of major real estate investors, including Equity Residential Trust, Lend Lease, MetLife and RREEF. The Company's broad national and international presence has enabled it to develop extensive relationships with many leading corporations, including Ford Motor Company, GE Capital, JP Morgan Chase, Kodak, Lucent Technologies and Washington Mutual. In addition, the Company is well positioned to generate recurring revenue through the turnover of leases and properties for which it has previously acted as transaction manager. The Company's many years of strong local market presence have allowed it to develop significant repeat client relationships which are responsible for a large part of its business.

        L.J. Melody competes in the US with a large number of mortgage banking firms and institutional lenders as well as regional and national investment banking firms and insurance companies in providing its mortgage banking services. Appraisal and valuation services are provided by other international, national, local and regional appraisal firms and some international, national and regional accounting firms. CBRE Investors has numerous competitors including other real estate investment managers and investment banks.

        The Company's management services business competes for the right to manage properties controlled by third parties. The competitor may be the owner of the property, who is trying to decide the efficiency of outsourcing, or another management services company. Increasing competition in recent years has resulted in increased pressure to provide additional services at lower rates. The Company has mitigated that pressure by reducing the cost of delivery. The Company seeks to grow the management services business through assignments that provide synergies with the Company's other lines of business.

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Risk Factors

The success of the Company's business is significantly related to general economic conditions, and accordingly, its business could be harmed in the event of an economic slowdown or recession.

        During 2001, the Company was adversely affected by a slowdown in the global economy resulting in a deterioration of the commercial real estate market. This led to a decline in sales and leasing activities within the US, as well as lower than expected revenues in Europe and Asia. In addition, the Company's results were negatively impacted by merger-related costs, severance expenses related to the implementation of the Company's cost savings strategies, and the write-off of various e-investments. While these factors have been partially offset by a reduction in commission and operating expenses, the Company has experienced a measurable decline in operating income, cash flow and profitability during the twelve months ended December 31, 2001, relative to the same period of 2000.

        Moreover, in part because of the terrorist attacks on September 11, 2001 and the subsequent outbreak of hostilities, the economic climate in the US and abroad remains uncertain, which may have a further adverse effect on commercial real estate market conditions and, in turn, the Company's operating results.

        Periods of economic slowdown or recession in the United States and in other countries, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, can harm many segments of the Company's business. These economic conditions could result in a general decline in rents, which in turn would reduce revenue from property management fees and brokerage commissions derived from property sales and leases. In addition, these conditions could lead to a decline in sales prices as well as a decline in demand for funds invested in commercial real estate and related assets. An economic downturn or a significant increase in interest rates also may reduce the amount of loan originations and related servicing by the commercial mortgage banking business. If brokerage and mortgage banking businesses are negatively impacted, it is likely that the other lines of business will also suffer, due to the relationship among the various business lines. Further, as a result of the Company's debt level and the terms of the debt instruments entered into in connection with the merger and related transactions, the Company's vulnerability to adverse general economic conditions has become heightened.

The Company's substantial leverage and debt service obligations could harm its ability to operate the business, remain in compliance with debt covenants and make payments on the notes.

        The Company is highly leveraged after the closing of the merger and related transactions and has significant debt service obligations. For the year ended December 31, 2001, after giving effect to the merger and related transactions, on a pro forma basis, the Company's interest expense would have been $61.9 million. The Company's substantial level of indebtedness increases the possibility that it may be unable to generate cash sufficient to pay when due the principal of, interest on or other amounts due in respect to its indebtedness. In addition, the Company may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing its indebtedness. If the Company incurs additional debt, the risks associated with its substantial leverage, including its ability to service its debt, would increase.

        The Company's substantial debt could have other important consequences, including the following:

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        The Company cannot be certain that its earnings will be sufficient to allow it to pay principal and interest on its debt, and meet its other obligations. If the Company does not have sufficient earnings, it may be required to refinance all or part of its existing debt, sell assets, borrow more money or sell more securities. The Company cannot guarantee that it will be able to refinance its debt, sell assets, borrow money or sell more securities.

If the properties that the Company manages fail to perform, then its financial condition and results of operations could be harmed.

        The revenue the Company generates from its property and facilities management lines of business is generally a percentage of aggregate rent collections from properties, with many management agreements providing for a specified minimum management fee. Accordingly, the Company's success will be dependent in part upon the performance of the properties it manages and the performance of these properties will depend upon the following factors, among others, many of which are partially or completely outside of the Company's control:


The Company has numerous significant competitors, some of which may have greater financial resources than it does.

        The Company competes across a variety of business disciplines within the commercial real estate industry, including investment management, tenant representation, corporate services, construction and development management, property management, agency leasing, valuation and mortgage banking. In general, with respect to each of its business disciplines, the Company cannot assure that it will be able to continue to compete effectively, maintain its current fee arrangements or margin levels or not encounter increased competition. Each of the business disciplines in which it competes is highly

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competitive on an international, national, regional and local level. Although the Company is one of the largest real estate services firms in the world, its relative competitive position varies significantly across product and service categories and geographic areas. Depending on the product or service, the Company faces competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, investment managers and accounting firms. Many of its competitors are local or regional firms, which are substantially smaller than the Company. However, they may be substantially larger on a local or regional basis. The Company is also subject to competition from other large national and multinational firms.

        In addition to the Company's historical competitors, the advent of the Internet has introduced new ways of providing real estate services, as well as new competitors to the industry. The Company cannot currently predict who these competitors will be, nor can it predict what its response to them will be. The Company's response to competitive pressures could require significant capital resources, changes in the organization or technological changes. If the Company is not successful in developing a strategy to address the risks and to capture the related opportunities presented by technological changes and the emergence of e-business, its business, financial condition or results of operations could be harmed.

The Company's international operations subject it to social, political and economic risks of doing business in foreign countries.

        The Company conducts a substantial portion of its business, and a substantial number of its employees are located, outside of the US. In 2001, the Company generated approximately 25% of its revenue from operations outside the US. The international scope of its operations may lead to volatile financial results and difficulties in managing its businesses. Circumstances and developments related to international operations that could negatively affect its business, financial condition or results of operations include the following factors:

        The Company has committed additional resources to expand its worldwide sales and marketing activities, to globalize its service offerings and products in selected markets and to develop local sales and support channels. If the Company is unable to successfully implement these plans, to maintain adequate long-term strategies which successfully manage the risks associated with its global business or to adequately manage operational fluctuations, its business, financial condition or results of operations could be harmed.

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        In addition, the Company's international operations and, specifically, the ability of its non-US subsidiaries to dividend or otherwise to transfer cash among its subsidiaries, including transfers of cash to pay interest and principal on its senior notes, may be affected by limitations on imports, currency exchange control regulations, transfer pricing regulations and potentially adverse tax consequences, among other things.

The Company's revenue and earnings may be adversely affected by foreign currency fluctuations.

        The Company's revenue from non-US operations has been primarily denominated in the local currency where the associated revenue was earned. During its fiscal year ended December 31, 2001, approximately 25% of its business was transacted in currencies of foreign countries, the majority of which included the Euro, the British Pound Sterling, the Hong Kong Dollar, the Singapore Dollar and the Australian Dollar. Thus, the Company may experience significant fluctuations in revenues and earnings because of corresponding fluctuations in foreign currency exchange rates.

        The Company has made significant acquisitions of non-US companies and may acquire additional foreign companies in the future. As the Company increases its foreign operations, fluctuations in the value of the US Dollar relative to the other currencies in which the Company may generate earnings could materially adversely affect its business, operating results and financial condition. In addition, fluctuations in currencies relative to the US Dollar may make it more difficult to perform period-to-period comparisons of its reported results of operations. Due to the constantly changing currency exposures to which the Company will be subject and the volatility of currency exchange rates, it cannot assure that it will not experience currency losses in the future, nor can it predict the effect of exchange rate fluctuations upon future operating results.

        The Company's management may decide to use currency hedging instruments including foreign currency forward contracts, purchased currency options where applicable and borrowings in foreign currency. Economic risks associated with these hedging instruments include unexpected fluctuations in inflation rates impacting cash flow relative to paying down debt, and unexpected changes in the underlying net asset position. These hedging activities may not be effective.

The Company's growth has depended significantly upon acquisitions.

        A significant component of the Company's growth has occurred through acquisitions. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions. However, future acquisitions may not be available at advantageous prices or upon favorable terms and conditions. In addition, acquisitions involve risks that the businesses acquired will not perform in accordance with expectations and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect.

        The Company has had, and may experience in the future, significant difficulties in integrating operations acquired from other companies, including the diversion of management's attention from other business concerns and the potential loss of its key employees or those of the acquired operations. The Company believes that most acquisitions will have an adverse impact on operating income and net income during the first six months following the acquisition. In addition, during this time period, the Company believes that generally there will be significant one-time costs related to integrating information technology, accounting and management services and rationalizing personnel levels. Accordingly, the Company may not be able to effectively manage acquired businesses and some acquisitions may not have an overall benefit.

        The Company has numerous different accounting systems, each of which reports results in a different currency. If the Company is unable to fully integrate the accounting and other systems of the businesses it owns, it may not be able to effectively manage its acquired businesses. Moreover, the

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integration process itself may be disruptive to business as it requires coordination of geographically diverse organizations and implementation of new accounting and information technology systems.

A significant portion of the Company's operations are concentrated in California and its business could be harmed if an economic downturn occurs in the California real estate market.

        For the year ended December 31, 2001, approximately $223.0 million, or 29%, of the $768.2 million in total sales and lease revenue, including revenue from investment property sales, was generated from transactions originated in the State of California. As a result of the geographic concentration in California, a material downturn in the California commercial real estate markets or in the local economies in San Diego, Los Angeles or Orange County could harm the results of operations.

The Company's co-investment activities subject it to real estate investment risks which could cause fluctuations in earnings and cash flow.

        An important part of the strategy for the investment management business involves investing the Company's capital in certain real estate investments with its clients. As of December 31, 2001, the Company had committed an additional $36.1 million to fund future co-investments. Participation in real estate transactions through co-investment activity could increase fluctuations in earnings and cash flow. Other risks associated with these activities include:

The Company may incur liabilities related to its subsidiaries being general partners of numerous general and limited partnerships.

        The Company has subsidiaries which are general partners in numerous general and limited partnerships that invest in or manage real estate assets in connection with its co-investments, including several partnerships involved in the acquisition, rehabilitation, subdivision and sale of multi-tenant industrial business parks. Any subsidiary that is a general partner is potentially liable to its partners and for the obligations of its partnership, including those obligations related to environmental contamination of properties owned or managed by the partnership. If the Company's exposure as a general partner is not limited, or if the exposure as a general partner expands in the future, any resulting losses may harm the Company's business, financial condition or results of operations. The Company owns its general partnership interests through special purpose subsidiaries. The Company believes this structure will limit its exposure to the total amount it has invested in and the amount of notes from, or advances and commitments to, these special purpose subsidiaries. However, this limited exposure may be expanded in the future based upon, among other things, changes in operating practices, changes in applicable laws or the application of additional laws to the Company's business.

The Company's joint venture activities involve unique risks that are often outside of its control which, if realized, could harm its business.

        The Company has utilized joint ventures for large commercial investments, initiatives in Internet-related technology and local brokerage partnerships. In the future, the Company may acquire interests in additional limited and general partnerships and other joint ventures formed to own or develop real property or interests in real property. The Company has acquired and may acquire minority interests in joint ventures and may also acquire interests as a passive investor without rights to actively participate

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in management of the joint ventures. Investments in joint ventures involve additional risks, including the following:

        If a joint venture participant acts contrary to the Company's interest, it could harm the Company's business, results of operations and financial condition.

The Company's success depends upon the retention of its senior management, as well as its ability to attract and retain qualified and experienced employees.

        The Company's continued success is highly dependent upon the efforts of its executive officers and key employees. The only members of senior management that are parties to employment agreements are Raymond Wirta, the Chief Executive Officer, and Brett White, the President. If any of the key employees leave and the Company is unable to quickly hire and integrate a qualified replacement, business and results of operations may suffer. In addition, the growth of the business is largely dependent upon the Company's ability to attract and retain qualified personnel in all areas of the business, including brokerage and property management personnel. If the Company is unable to attract and retain these qualified personnel (particularly in foreign countries where there is limited operating history and brand recognition), growth may be limited, and business and operating results could suffer.

If the Company fails to comply with laws and regulations applicable to real estate brokerage and mortgage transactions and other segments of its business, it may incur significant financial penalties.

        Due to the broad geographic scope of the Company's operations and the numerous forms of real estate services performed, the Company is subject to numerous federal, state and local laws and regulations specific to the services performed. For example, the brokerage of real estate sales and leasing transactions requires the Company to maintain brokerage licenses in each state in which the Company operates. If the Company fails to maintain its licenses or conducts brokerage activities without a license, it may be required to pay fines or return commissions received or have licenses suspended. In addition, because the size and scope of real estate sale transactions has increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous state licensing regimes and the possible loss resulting from non-compliance have increased. Further, the laws and regulations applicable to the Company's business, both in the US and in foreign countries, also may change in ways that materially increase the costs of compliance.

The Company may have liabilities in connection with real estate brokerage and property management activities.

        As a licensed real estate broker, the Company, and its licensed employees, are subject to statutory due diligence, disclosure and standard-of-care obligations in connection with brokerage transactions. Failure to fulfill these obligations could subject the Company or its employees to litigation from parties who purchased, sold or leased properties they brokered or managed. The Company may become subject to claims by participants in real estate sales claiming that it did not fulfill the statutory obligations as a broker.

        In addition, in the Company's property management business, it hires and supervises third party contractors to provide construction and engineering services for its properties. While the Company's role is limited to that of a supervisor, it may be subjected to claims for construction defects or other similar actions. Adverse outcomes of property management litigation could negatively impact the Company's business, financial condition or results of operations.

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Employees

        At December 31, 2001, the Company had approximately 9,300 employees. The Company believes that relations with its employees are good.


Item 2. Properties

        The Company leases the following offices:

 
  Sales Offices
  Corporate Offices
  Total
Location            
Americas   142   2   144
Europe, Middle East and Africa   47   1   48
Asia Pacific   28   1   29
   
 
 
Total   217   4   221
   
 
 

        The Company does not own any offices, which is consistent with its strategy to lease instead of own. In general, these offices are fully utilized. There is adequate alternative office space available at acceptable rental rates to meet the Company's needs, although rental rates in some markets may negatively affect its profits in those markets.


Item 3. Legal Proceedings

        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.


Item 4. Submission of Matters to a Vote of Security Holders

        Not Applicable.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        (1)  The Company's common stock is not publicly traded on any exchange or in any market. At February 28, 2002, the Company had 73 record holders of its Class A common stock and nine record holders of its Class B common stock. The Company has not declared any cash dividends on its common stock. The Company's existing credit agreement restricts its ability to pay dividends on its common stock, and the Company does not expect to pay dividends in the near future.

        (2)  The following information pertains to CB Richard Ellis Services, Inc. (CBRE) common stock prior to the merger transaction with the Company. On July 20, 2001, the date of the merger, CBRE stockholders, except for a certain group of shareholders, received $16.00 in cash for each share of CBRE common stock that they owned. Refer to Note 2 of the Notes to Consolidated Financial Statements. CBRE's common stock commenced trading on the New York Stock Exchange (NYSE) on November 7, 1997 under the symbol "CBG." However, on July 20, 2001, following the merger, the common stock of CBRE was delisted from the NYSE. The following table sets forth, for the periods indicated, the high and low sales price per share of the common stock on the NYSE:

 
  Predecessor
 
  CB Richard Ellis Services, Inc.
 
  High
  Low
Year Ended December 31, 2001            
First Quarter   $ 15.69   $ 14.00
Second Quarter   $ 15.80   $ 14.08
July 1, 2001 through July 20, 2001   $ 15.99   $ 15.64

       

 
  High
  Low
Year Ended December 31, 2000            
First Quarter   $ 13.50   $ 10.19
Second Quarter   $ 11.44   $ 9.13
Third Quarter   $ 13.19   $ 9.38
Fourth Quarter   $ 15.63   $ 11.81

(3)
Since the incorporation of CBRE in March 1989, there have been no cash dividends declared on its common stock.


Item 6. Selected Financial Data

        The following selected financial data has been derived from the consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results

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of Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands except share data)

 
  Company
  Predecessor
  Predecessor
  Predecessor
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

   
   
   
   
   
 
 
   
  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20,
2001
(inception)
through
December 31,
2001 (1)

  CB Richard
Ellis Services,
Inc.

 
 
  Twelve
Months
Ended
December 31,
2000

  Twelve
Months
Ended
December 31,
1999

  Twelve
Months
Ended
December 31,
1998

  Twelve
Months
Ended
December 31,
1997

 
 
  Period from
January 1 to
July 20, 2001

 
STATEMENT OF OPERATIONS DATA(2):                                      
Revenue   $ 562,828   $ 607,934   $ 1,323,604   $ 1,213,039   $ 1,034,503   $ 730,224  
Operating income (loss)   $ 62,732   $ (14,174 ) $ 107,285   $ 76,899   $ 78,476   $ 59,088  
Interest expense, net   $ 27,290   $ 18,736   $ 39,146   $ 37,438   $ 27,993   $ 13,182  
Net income (loss)   $ 17,426   $ (34,020 ) $ 33,388   $ 23,282   $ 24,557   $ 24,397  
Basic EPS (3)   $ 2.22   $ (1.60 ) $ 1.60   $ 1.11   $ (0.38 ) $ 1.34  
Weighted average
shares outstanding
for basic EPS (3) (4)
    7,845,004     21,306,584     20,931,111     20,998,097     20,136,117     15,237,914  
Diluted EPS (3)   $ 2.20   $ (1.60 ) $ 1.58   $ 1.10   $ (0.38 ) $ 1.28  
Weighted average shares outstanding for diluted EPS (3) (4)     7,909,797     21,306,584     21,097,240     21,072,436     20,136,117     15,996,929  
OTHER DATA:                                      
EBITDA, excluding merger-related and other nonrecurring charges (5)   $ 81,372   $ 33,609   $ 150,484   $ 117,369   $ 127,246   $ 90,072  
Net cash provided by (used in) operating activities   $ 95,391   $ (118,898 ) $ 84,112   $ 74,011   $ 76,614   $ 80,835  
Net cash used in investing
activities
  $ (265,450 ) $ (13,471 ) $ (35,722 ) $ (26,767 ) $ (223,520 ) $ (18,018 )
Net cash provided by (used in) financing activities   $ 213,831   $ 126,230   $ (53,523 ) $ (37,721 ) $ 119,438   $ (64,964 )

       

 
  Company
  Predecessor
  Predecessor
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  December 31,
2001

  December 31,
2000

  December 31,
1999

  December 31,
1998

  December 31,
1997

BALANCE SHEET DATA:                              
Cash and cash equivalents   $ 57,450   $ 20,854   $ 27,844   $ 19,551   $ 47,181
Total assets   $ 1,359,353   $ 963,105   $ 929,483   $ 856,892   $ 500,100
Long-term debt   $ 522,063   $ 303,571   $ 357,872   $ 373,691   $ 146,273
Total liabilities   $ 1,097,693   $ 724,018   $ 715,874   $ 660,175   $ 334,657
Total stockholders' equity   $ 257,364   $ 235,339   $ 209,737   $ 190,842   $ 157,771
Number of shares outstanding (4)     14,380,414     20,605,023     20,435,692     20,636,134     18,768,200

(1)
The results include the activities of CB Richard Ellis Services, Inc., from July 20, 2001, the date of the merger.

(2)
The results include the activities of Koll from August 28, 1997, REI from April 17, 1998 and Hillier Parker from July 7, 1998. For the year ended December 31, 1998, basic and diluted loss per share include a deemed dividend of $32.3 million on the repurchase of the Company's preferred stock.

(3)
EPS represents earnings (loss) per share. See Per Share Information in Note 14 of Notes to Consolidated Financial Statements.

14


(4)
The 7,845,004 and the 7,909,797 represent the weighted average shares outstanding for basic and diluted earnings per share, respectively, from inception of the Company through December 31, 2001. These balances take into consideration the lower number of shares outstanding prior to the merger with CBRE. The 14,380,414 represents the outstanding number of shares at December 31, 2001.

(5)
EBITDA, excluding merger-related and other nonrecurring charges, represents earnings before interest expense, income taxes, depreciation and amortization of intangible assets relating to acquisitions, merger-related and other nonrecurring charges. Management believes that the presentation of EBITDA, excluding merger-related and other nonrecurring charges, will enhance a reader's understanding of the Company's operating performance and ability to service debt as it provides a measure of cash generated (subject to the payment of interest and income taxes) that can be used to service debt and for other required or discretionary purposes. Net cash that will be available for discretionary purposes represents remaining cash, after debt service and other cash requirements, such as capital expenditures, are deducted from EBITDA, excluding merger-related and other nonrecurring charges. EBITDA, excluding merger-related and other nonrecurring charges, should not be considered as an alternative to (i) operating income determined in accordance with GAAP or (ii) operating cash flow determined in accordance with GAAP. The Company's calculation of EBITDA, excluding merger-related and other nonrecurring charges, may not be comparable to similarly titled measures reported by other companies.

        EBITDA, excluding merger-related and other nonrecurring charges is calculated as follows (dollars in thousands):

 
  Company
  Predecessor
  Predecessor
  Predecessor
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

   
   
   
   
   
 
   
  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  February 20,
2001
(inception)
through
December 31,
2001

  CB Richard
Ellis Services,
Inc.

 
  Twelve
Months
Ended
December 31,
2000

  Twelve
Months
Ended
December 31,
1999

  Twelve
Months
Ended
December 31,
1998

  Twelve
Months
Ended
December 31,
1997

 
  Period from
January 1 to
July 20, 2001

Operating income (loss)   $ 62,732   $ (14,174 ) $ 107,285   $ 76,899   $ 78,476   $ 59,088
Add:                                    
  Depreciation and amortization     12,198     25,656     43,199     40,470     32,185     18,060
  Merger-related and other nonrecurring charges     6,442     22,127             16,585     12,924
   
 
 
 
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 81,372   $ 33,609   $ 150,484   $ 117,369   $ 127,246   $ 90,072
   
 
 
 
 
 

(6)
The Company has not declared any cash dividends on its common stock for the periods shown.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

        Management's discussion and analysis of financial condition, results of operations, liquidity and capital resources contained within this report on Form 10-K 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 our Company and the basis of presentation used in this report on Form 10-K.

        The Company is one of the world's largest global commercial real estate services firms in terms of revenue, offering a full range of services to commercial real estate occupiers, owners, lenders and investors. Operations are conducted through 221 offices located in 47 countries with approximately 9,300 employees. The Company has worldwide capabilities to assist buyers in the purchase and sellers in the disposition of commercial property, assist tenants in finding available space and owners in finding qualified tenants, provide valuation and appraisals for real estate property, assist in the placement of financing for commercial real estate, provide commercial loan servicing, provide research and consulting services, help institutional investors manage commercial real estate portfolios, provide

15



property and facilities management service and serve as the outsource service provider to corporations seeking to be relieved of the burden of managing their real estate operations.

        A significant portion of the Company's revenue is seasonal. Historically, this seasonality has caused the revenue, operating income, net income and cash flow from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year. The concentration of earnings and cash flow in the fourth quarter is due to an industry-wide focus of completing transactions at year-end while incurring constant, non-variable expenses throughout the year. This has led to lower profits or a loss in the first and second quarters, with profits growing in each subsequent quarter. In addition, the Company's operations are directly affected by actual and perceived trends in various national and economic conditions, including interest rates, the availability of credit to finance commercial real estate transactions and the impact of tax laws. The international operations are subject to political instability, currency fluctuations, and changing regulatory environments. To date, the Company does not believe that general inflation has had a material impact upon its operations. Revenue, commissions and other variable costs related to revenue are primarily affected by real estate market supply and demand rather than general inflation.

        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 (the merger agreement), 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, including the segment operations and cash flows, for the year ended December 31, 2001 have been derived by combining the results of operations and cash flows of the Company for the period from February 20, 2001 (inception) to December 31, 2001 with the results of operations and cash flows of CBRE, prior to the merger, from January 1, 2001 to July 20, 2001, the date of the merger, and are hereafter referred to as the Combined Company. In addition, the results of operations and cash flows of CBRE prior to the merger incorporated in the following discussion are the historical results and cash flows of CBRE, the predecessor to the Company. These CBRE results do not reflect any purchase accounting adjustments included in the results of the Combined Company after the merger and are thus not directly comparable. 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 Combined Company are not comparable in all respects to the results of operations prior to the merger. However, the Company's management believes a discussion of the operations is more meaningful by combining the results of the Company and CBRE since the Company's operating revenues and expenses have not been affected by the merger and splitting up the results between pre-and post-merger periods would make comparisons of the operating trends to the prior year not meaningful.

16



Results of Operations

        The following table sets forth items derived from the consolidated statements of operations for the years ended December 31, 2001, 2000 and 1999, presented in dollars and as a percentage of revenue:

 
  Year Ended December 31
 
 
  2001
  2000
  1999
 
 
  (Dollars in thousands)

 
Revenue:                                
  Leases   $ 441,217   37.8  % $ 539,419   40.8 % $ 448,091   36.9 %
  Sales     326,948   27.9     389,745   29.4     394,718   32.5  
  Property and facilities management fees     114,734   9.8     110,654   8.4     110,111   9.1  
  Consulting and referral fees     75,221   6.4     78,714   5.9     73,569   6.1  
  Appraisal fees     81,097   6.9     75,055   5.7     71,050   5.9  
  Loan origination and servicing fees     64,571   5.5     58,190   4.4     45,940   3.8  
  Investment management fees     45,548   3.9     42,475   3.2     28,929   2.4  
  Other     21,426   1.8     29,352   2.2     40,631   3.3  
   
 
 
 
 
 
 
  Total revenue     1,170,762   100.0     1,323,604   100.0     1,213,039   100.0  
Costs and expenses:                                
  Commissions, fees and other incentives     553,710   47.3     635,322   48.0     559,289   46.1  
  Operating, administrative and other     502,071   42.9     537,798   40.6     536,381   44.2  
  Depreciation and amortization     37,854   3.2     43,199   3.3     40,470   3.3  
  Merger-related and other nonrecurring charges     28,569   2.5              
   
 
 
 
 
 
 
Operating income     48,558   4.1     107,285   8.1     76,899   6.4  
Interest income     3,994   0.4     2,554   0.2     1,930   0.2  
Interest expense     50,020   4.3     41,700   3.2     39,368   3.3  
   
 
 
 
 
 
 
Income before provision for income tax     2,532   0.2     68,139   5.1     39,461   3.3  
Provision for income tax     19,126   1.6     34,751   2.6     16,179   1.3  
   
 
 
 
 
 
 
Net (loss) income   $ (16,594 ) (1.4 )% $ 33,388   2.5 % $ 23,282   2.0 %
   
 
 
 
 
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 114,981   9.8  % $ 150,484   11.4 % $ 117,369   9.7 %
   
 
 
 
 
 
 

        EBITDA, excluding merger-related and other nonrecurring charges is calculated as follows:

 
  Year Ended December 31
 
  2001
  2000
  1999
 
  (Dollars in thousands)

Operating income   $ 48,558   $ 107,285   $ 76,899
Add:                  
  Depreciation and amortization     37,854     43,199     40,470
  Merger-related and other nonrecurring charges     28,569        
   
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 114,981   $ 150,484   $ 117,369
   
 
 

17


Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

        The Combined Company reported a consolidated net loss of $16.6 million for the year ended December 31, 2001, on revenue of $1,170.8 million compared to consolidated net income of $33.4 million on revenue of $1,323.6 million for the year ended December 31, 2000. The 2001 results include a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund management contracts. The 2000 results include a $4.7 million nonrecurring pre-tax gain from the sale of certain non-strategic assets.

        Revenue on a consolidated basis decreased by $152.8 million or 11.5% during the year ended December 31, 2001, compared to the year ended December 31, 2000. This was mainly driven by a $98.2 million decrease in lease revenue and a $62.8 million decline in sales revenue during the current year. The lower revenue is primarily attributable to the Combined Company's North American operation. However, the European and Asian operations also experienced lower sales and lease revenue compared to the prior year. These decreases were slightly offset by a $6.4 million or 11.0% increase in loan origination and servicing fees, as well as an 8.1% increase in appraisal fees driven by increased refinancing activities due to a decline in interest rates in the US and increased fees in the European operation.

        Commissions, fees and other incentives on a consolidated basis totaled $553.7 million, a decrease of $81.6 million or 12.8% from prior year. This decrease is primarily due to the lower sales and lease revenue within North America. This decline in revenue also resulted in lower variable commission expense within this division as compared to prior year. This 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 47.3% for the current year, compared to 48.0% for the prior year.

        Operating, administrative and other on a consolidated basis was $502.1 million, a decrease of $35.7 million or 6.6% for the year ended December 31, 2001, compared to 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 Combined Company's lower results.

        Depreciation and amortization expense on a consolidated basis decreased by $5.3 million or 12.4% 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 $28.6 million in the current year. This included merger-related costs of $18.3 million, the write-off of assets, primarily e-business investments, of $7.2 million and severance costs of $3.1 million attributable to the Combined Company's cost reduction program instituted in May 2001.

        Consolidated interest expense was $50.0 million, an increase of $8.3 million or 19.9% for the year ended December 31, 2001, as compared to the year ended December 31, 2000. This is attributable to the Combined Company's increased debt as a result of the merger.

        Provision for income tax on a consolidated basis was $19.1 million for the year ended December 31, 2001, as compared to the provision for income tax of $34.8 million for the year ended December 31, 2000. The income tax provision 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.

18



Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

        The Company reported consolidated net income of $33.4 million for the year ended December 31, 2000, on revenue of $1,323.6 million compared to consolidated net income of $23.3 million on revenue of $1,213.0 million for the year ended December 31, 1999. The 2000 results include a $4.7 million nonrecurring pre-tax gain from the sale of certain non-strategic assets. The 1999 results include nonrecurring pre-tax gains from the sale of five non-strategic offices and a risk management operation totaling $8.7 million, as well as one time charges of approximately $10.2 million, the majority of which were severance costs related to the Company's reduction in workforce.

        Revenue on a consolidated basis increased by $110.6 million or 9.1% during the year ended December 31, 2000, compared to the year ended December 31, 1999. The US real estate market remained healthy in 2000, with relatively low interest and vacancy rates. As a result, lease revenue increased by $91.3 million or 20.4% during 2000. Investment management fees increased by $13.5 million or 46.8%, and loan origination and servicing fees were higher by $12.3 million or 26.7%. In addition, other revenue decreased by $11.3 million, primarily due to the contribution of an engineering services group into a separately owned joint venture, as well as the loss of revenue due to the sale of assets.

        Commissions, fees and other incentives on a consolidated basis totaled $635.3 million, an increase of $76.0 million or 13.6% for the year ended December 31, 2000, compared to the year ended December 31, 1999. Lease commissions increased significantly due to the higher lease revenue. In addition, the overall revenue growth resulted in higher variable commission expense as compared to 1999. Variable commissions increase as a percentage of revenue as certain earnings levels are met. During 2000, a greater number of high level producers earned a larger proportion of total revenue. This contributed to an increase in commissions as a percentage of revenue from 46.1% to 48.0% for 2000.

        Operating, administrative and other on a consolidated basis was $537.8 million, an increase of $1.4 million or 0.3% for the year ended December 31, 2000, compared to 1999. This increase was due to higher bonus incentives and profit share driven by the improved 2000 results, offset by lower salary requirements in North America. As a percentage of revenue, operating, administrative and other was 40.6% for the year ended December 31, 2000, compared to 44.2% for the year ended December 31, 1999. The decreased percentage was due to the focus on higher margin lines of business, as well as improved operational efficiency through cost containment measures.

        Consolidated interest expense was $41.7 million, an increase of $2.3 million or 5.9% for the year ended December 31, 2000, as compared to the year ended December 31, 1999. The increase resulted from higher interest rates for the revolving credit facility, offset in part by lower average borrowing levels during 2000. Overall, the Company reduced its outstanding long-term debt by $50.5 million or 13.8% as compared to December 31, 1999, helping to minimize the impact of the increased interest rates during 2000.

        Provision for income tax on a consolidated basis was $34.8 million for the year ended December 31, 2000, as compared to the provision for income tax of $16.2 million for the year ended December 31, 1999. The increase is mainly due to higher pre-tax income and a lower release of valuation allowances during 2000. The effective tax rate was 51% for 2000 as compared to 41% for 1999. The increase in the effective tax rate is primarily due to a decrease in the release of valuation allowances from $6.3 million in the year ended December 31, 1999 to $3.0 million in the year ended December 31, 2000. Valuation allowances for 2000 and 1999 were released as it became more likely than not that the Company would realize additional deferred tax assets.

19



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. This included the Transaction Management, Financial Services and Management Services segments. The Americas current year results include a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund contracts, as well as merger-related and other nonrecurring charges of $26.9 million. Prior year results include a $4.7 million nonrecurring pre-tax gain on the sale of certain non-strategic assets. The 1999 results include nonrecurring pre-tax gains from the sale of five non-strategic offices and a risk management operation totaling $8.7 million. Current year results for Asia Pacific include merger-related and other nonrecurring charges of $1.2 million. The following table summarizes the revenue, cost and expenses, and operating income (loss) by operating segment for the years ended December 31, 2001, 2000 and 1999:

20


 
  Year Ended December 31
 
 
  2001
  2000
  1999
 
 
  (Dollars in thousands)

 
Americas                                
Revenue:                                
  Leases   $ 386,801   41.6 % $ 472,148   43.9 % $ 395,927   40.3 %
  Sales     259,770   28.0     315,281   29.4     310,439   31.6  
  Property and facilities management fees     75,110   8.1     72,627   6.8     78,322   8.0  
  Consulting and referral fees     48,340   5.2     60,419   5.6     54,719   5.5  
  Appraisal fees     41,942   4.5     37,553   3.5     36,034   3.7  
  Loan origination and servicing fees     64,571   7.0     58,190   5.4     45,940   4.7  
  Investment management     35,544   3.8     32,528   3.0     25,107   2.5  
  Other     16,721   1.8     25,334   2.4     35,965   3.7  
   
 
 
 
 
 
 
  Total revenue     928,799   100.0     1,074,080   100.0     982,453   100.0  
Costs and expenses:                                
  Commissions, fees and other incentives     457,613   49.3     541,784   50.4     476,717   48.5  
  Operating, administrative and other     376,037   40.5     405,645   37.8     417,123   42.5  
  Depreciation and amortization     27,452   3.0     28,600   2.7     25,884   2.6  
  Merger-related and other nonrecurring charges     26,923   2.8              
   
 
 
 
 
 
 
Operating income   $ 40,774   4.4 % $ 98,051   9.1 % $ 62,729   6.4 %
   
 
 
 
 
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 95,149   10.2 % $ 126,651   11.8 % $ 88,613   9.0 %
   
 
 
 
 
 
 
EMEA                                
Revenue:                                
  Leases   $ 28,871   17.9 % $ 35,859   21.8 % $ 27,220   18.0 %
  Sales     48,502   30.1     57,381   34.9     57,532   38.1  
  Property and facilities management fees     22,884   14.2     21,113   12.8     19,859   13.1  
  Consulting and referral fees     21,889   13.6     16,316   9.9     17,206   11.4  
  Appraisal fees     29,266   18.1     26,374   16.0     22,592   14.9  
  Investment management     6,162   3.8     4,039   2.5     3,111   2.1  
  Other     3,732   2.3     3,457   2.1     3,646   2.4  
   
 
 
 
 
 
 
  Total revenue     161,306   100.0     164,539   100.0     151,166   100.0  
Costs and expenses:                                
  Commissions, fees and other incentives     63,343   39.3     60,247   36.6     53,258   35.3  
  Operating, administrative and other     81,726   50.6     85,116   51.7     75,012   49.6  
  Depreciation and amortization     6,492   4.0     9,837   6.0     10,227   6.7  
  Merger-related and other nonrecurring charges     451   0.3              
   
 
 
 
 
 
 
Operating income   $ 9,294   5.8 % $ 9,339   5.7 % $ 12,669   8.4 %
   
 
 
 
 
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 16,237   10.1 % $ 19,176   11.7 % $ 22,896   15.1 %
   
 
 
 
 
 
 
Asia Pacific                                
Revenue:                                
  Leases   $ 25,545   31.7 % $ 31,412   37.0 % $ 24,944   31.4 %
  Sales     18,676   23.1     17,083   20.1     26,747   33.7  
  Property and facilities management fees     16,740   20.8     16,914   19.9     11,930   15.0  
  Consulting and referral fees     4,992   6.2     1,979   2.3     1,644   2.1  
  Appraisal fees     9,889   12.3     11,128   13.1     12,424   15.6  
  Investment management     3,842   4.7     5,908   6.9     711   0.9  
  Other     973   1.2     561   0.7     1,020   1.3  
   
 
 
 
 
 
 
  Total revenue     80,657   100.0     84,985   100.0     79,420   100.0  
Costs and expenses:                                
  Commissions, fees and other incentives     32,754   40.6     33,291   39.2     29,314   36.9  
  Operating, administrative and other     44,308   54.9     47,037   55.3     44,246   55.7  
  Depreciation and amortization     3,910   4.9     4,762   5.6     4,359   5.5  
  Merger-related and other nonrecurring charges     1,195   1.5              
   
 
 
 
 
 
 
Operating (loss) income   $ (1,510 ) (1.9 )% $ (105 ) (0.1 )% $ 1,501   1.9 %
   
 
 
 
 
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 3,595   4.5 % $ 4,657   5.5 % $ 5,860   7.4 %
   
 
 
 
 
 
 

21


        EBITDA, excluding merger-related and other nonrecurring charges is calculated as follows:

 
  Year Ended December 31
 
  2001
  2000
  1999
 
  (Dollars in thousands)

Americas                  
Operating income   $ 40,774   $ 98,051   $ 62,729
Add:                  
  Depreciation and amortization     27,452     28,600     25,884
  Merger-related and other nonrecurring charges     26,923        
   
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 95,149   $ 126,651   $ 88,613
   
 
 

Europe

 

 

 

 

 

 

 

 

 
Operating income   $ 9,294   $ 9,339   $ 12,669
Add:                  
  Depreciation and amortization     6,492     9,837     10,227
  Merger-related and other nonrecurring charges     451        
   
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 16,237   $ 19,176   $ 22,896
   
 
 

Asia Pacific

 

 

 

 

 

 

 

 

 
Operating (loss) income   $ (1,510 ) $ (105 ) $ 1,501
Add:                  
  Depreciation and amortization     3,910     4,762     4,359
  Merger-related and other nonrecurring charges     1,195        
   
 
 
EBITDA, excluding merger-related and other nonrecurring charges   $ 3,595   $ 4,657   $ 5,860
   
 
 

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Americas

        Revenue decreased by $145.3 million or 13.5% for the year ended December 31, 2001, compared to the year ended December 31, 2000, primarily driven by the softening global economy, as well as the tragic events which began on September 11, 2001. Lease revenue decreased by $85.3 million and sales revenue declined by $55.5 million due to a lower number of transactions completed, as well as a lower average value per transaction, during the current year compared to the prior year. Consulting and referral fees also decreased by $12.1 million or 20.0% compared to the prior year. These declines were slightly offset by an increase in loan origination and servicing fees of $6.4 million, as well as higher appraisal fees of $4.4 million driven by increased refinancing activities due to the low interest rate environment in the US. Commissions, fees and other incentives decreased by $84.2 million or 15.5% for the year ended December 31, 2001, compared to the year ended December 31, 2000, caused primarily by the lower lease and sales revenue. The decline in revenue also resulted in lower variable commission expense. As a result, commissions as a percentage of revenue decreased from 50.4% for the prior year to 49.3% for the current year. Operating, administrative and other decreased by $29.6 million or 7.3% as a result of cost reduction and efficiency measures put in place during May 2001, as well as the organizational restructure implemented after the merger. Key executive bonuses and profit share also declined, due to the lower results.

EMEA

        Revenue decreased by $3.2 million or 2.0% for the year ended December 31, 2001, compared to the year ended December 31, 2000. This was mainly driven by lower sales and lease revenue due to the

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overall weakness in the European economy, particularly in France and Germany. This was slightly offset by higher consulting and referral fees within the United Kingdom (UK), as well as an overall increase in appraisal fees throughout Europe. Commissions, fees and other incentives increased by $3.1 million or 5.1% for the year ended December 31, 2001 compared to the year ended December 31, 2000 due primarily to a higher number of producers, mainly in the UK. Producer compensation in EMEA is typically fixed in nature and does not decrease with a decline in revenue. Operating, administrative and other decreased by $3.4 million or 4.0% for the year ended December 31, 2001 compared to the year ended December 31, 2000, mainly attributable to decreased executive bonuses and profit share due to the lower current year results.

Asia Pacific

        Revenue decreased by $4.3 million or 5.1% for the year ended December 31, 2001, compared to the year ended December 31, 2000. This was primarily driven by lower lease revenue due to the weak economy in China and Singapore. Operating, administrative and other decreased by $2.7 million or 5.8% for the year ended December 31, 2001, compared to the year ended December 31, 2000. The decrease is primarily due to lower personnel requirements and other cost containment measures put in place during May 2001, as well as the organizational restructure implemented after the merger.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Americas

        Revenue increased by $91.6 million or 9.3% for the year ended December 31, 2000, compared to the year ended December 31, 1999. This was primarily driven by a $76.2 million increase in lease revenue attributable to a greater number of transactions executed during 2000, as well as a larger average value per transaction. Loan origination and servicing fees increased by $12.3 million, of which $3.7 million is attributable to the acquisition of Boston Mortgage Capital Corporation in late 2000 and Eberhardt Company in late 1999. In addition, excluding any acquisitions, loan production fees increased by $5.9 million or 18.0% over 1999, while loan servicing fees increased by $2.7 million or 22.0%. Investment management fees also increased by 29.6% due to a higher volume of managed assets, as well as increased incentive fees from several properties. These increases were slightly offset by a $10.6 million decrease in other revenue mainly due to the contribution of an engineering services group into a separately owned joint venture, as well as the loss of revenue due to the sale of certain assets. Commissions, fees and other incentives increased by $65.1 million or 13.6% for the year ended December 31, 2000, compared to the year ended December 31, 1999, primarily due to the higher lease revenue. The increase in revenue also resulted in higher variable commission expense within this division as compared to 1999. During 1999, the commission program in the US was amended, providing an increasing percentage of commissions to producers as the amount of revenue earned increases. This variable commission component resulted in a producer achieving a higher percentage of commissions on a retroactive basis as each revenue target was met, motivating producers to reach higher revenue targets. This resulted in an increase in commissions as a percentage of revenue from 48.5% in 1999 to 50.4% for 2000. Operating, administrative and other decreased by $11.5 million or 2.8% as a result of lower personnel requirements due to cost reduction and operational efficiency measures undertaken in 2000. This was slightly offset by higher bonus incentives and profit share due to the more favorable results.

EMEA

        Revenue increased by $13.4 million or 8.8% for the year ended December 31, 2000, compared to the year ended December 31, 1999 driven primarily by higher lease and appraisal revenue. The increased lease revenue was attributable to strong performances in France and the UK, as well as expanded operations in the Netherlands and Spain. Commission, fees and other incentives increased by

23



$7.0 million or 13.1% for the year ended December 31, 2000 compared to the year ended December 31, 1999 due to increased producer bonuses, primarily in the UK, and higher lease commissions in France, attributable to the higher revenue. Operating, administrative and other increased by $10.1 million or 13.5% for the year ended December 31, 2000 compared to the year ended December 31, 1999, due primarily to increased personnel requirements in the UK.

Asia Pacific

        Revenue increased by $5.6 million or 7.0% for the year ended December 31, 2000, compared to the year ended December 31, 1999. The increase was primarily driven by higher lease revenue due to improved economies in China and in Australia. Investment management fees increased by $5.2 million due to property acquisition and incentive fees earned during 2000. Property and facilities management revenue increased by 41.8% mainly attributable to higher square footage managed in India and Australia. This was slightly offset by lower sales revenue mainly due to higher interest rates and a weak currency in Australia. Commissions, fees and other incentives increased by $4.0 million or 13.6% during 2000 due to higher producer salaries, primarily in Singapore. Operating, administrative and other increased by $2.8 million or 6.3% for the year ended December 31, 2000, compared to the year ended December 31, 1999, due to an expanded investment management operation in Asia during 2000.

Liquidity and Capital Resources

        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 (the merger agreement), 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.

        At the effective time of the merger, CBRE became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, each issued and outstanding share of common stock of CBRE was converted into the right to receive $16.00 in cash, except for: (i) shares of common stock of CBRE owned by the Company and Blum CB immediately prior to the merger, totaling 7,967,774 shares, which were cancelled, (ii) treasury shares and shares of common stock of CBRE owned by any of its subsidiaries which were cancelled, and (iii) shares of CBRE held by stockholders who perfect appraisal rights for such shares in accordance with Delaware law. All shares of common stock of CBRE outstanding prior to the merger were acquired by the Company, and these shares were subsequently cancelled. Immediately prior to the merger, the following, collectively referred to as the buying group, contributed to the Company all the shares of CBRE's common stock that he or it directly owned in exchange for an equal number of shares of Class B common stock of the Company: RCBA Strategic, FS Equity Partners III, L.P. (FSEP) a Delaware limited partnership, FS Equity Partners International, L.P. (FSEP International) a Delaware limited partnership, The Koll Holding Company, a California corporation, Frederic V. Malek, a director of the Company and CBRE, Raymond E. Wirta, the Chief Executive Officer and a director of the Company and CBRE, and Brett White, the President and a director of the Company and CBRE. Such shares of common stock of CBRE, which totaled 7,967,774 shares of common stock, were then cancelled. In addition, the Company offered to purchase for cash options outstanding to acquire common stock of CBRE at a purchase price per option equal to the greater of the amount by which $16.00 exceeded the exercise price of the option, if at all, or $1.00. In connection with the merger, CBRE purchased its outstanding options on behalf of the Company, which were recorded as merger-related and other nonrecurring charges by CBRE in the period from January 1, 2001 to July 20, 2001, and are not reflected in the accompanying consolidated statements of operations of the Company.

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        The funding to complete the merger, as well as the refinancing of substantially all of the outstanding indebtedness of CBRE, was obtained through (i) the cash contribution of $74.8 million from the sale of Class B common stock of the Company for $16.00 per share, (ii) the sale of shares of Class A common stock of the Company for $16.00 per share to employees and independent contractors of CBRE, (iii) the sale of 625,000 shares of Class A common stock of the Company to CalPERS for $16.00 per share, (iv) the issuance and sale by the Company of 65,000 units for $65.0 million to DLJ Investment Funding, Inc. and other purchasers, which units consist of $65.0 million in aggregate principal amount of 16% Senior notes due July 20, 2011 and 339,820 shares of Class A common stock of the Company, (v) the issuance and sale by Blum CB of $229.0 million in aggregate principal amount of 111/4% Senior Subordinated Notes due June 15, 2011 for $225.6 million (which were assumed by CBRE in connection with the merger) and (vi) borrowings by CBRE under a new $325.0 million senior credit agreement with Credit Suisse First Boston and other lenders.

        Following the merger, the common stock of CBRE was delisted from the New York Stock Exchange. CBRE also successfully completed a tender offer and consent solicitation for all of the outstanding principal amount of its 87/8% Senior Subordinated Notes due 2006 (the Subordinated Notes). The Subordinated Notes were purchased at $1,079.14 for each $1,000 principal amount of Notes, which included a consent payment of $30.00 per $1,000 principal amount of Subordinated Notes. The Company also repaid the outstanding balance of CBRE's existing revolving credit facility. The Company entered into the merger in order to enhance the flexibility to operate CBRE's existing businesses and to develop new ones.

        The Company has $229.0 million in aggregate principal amount of 111/4% 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 1111/4% 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 consolidated balance sheets, net of unamortized discount, was $225.7 million at December 31, 2001.

        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.

25



        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 December 31, 2001, the Company had no revolving line of credit principal outstanding. The total amount outstanding under the Tranche A and Tranche B facilities included in senior secured term loans and current maturities of long-term debt in the accompanying consolidated balance sheets was $230.3 million at December 31, 2001.

        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% per year and is payable quarterly in cash in arrears. However, until July 2006, interest in excess of 12% 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 December 31, 2001.

        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.

        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. During the year ended December 31, 2001, the Company had a maximum of $164.0 million revolving line of credit

26



principal outstanding. The Company had a participation agreement with RFC whereby RFC agreed to purchase a 99% participation interest in any eligible multifamily mortgage loans owned by the Company and outstanding at quarter-end (Participation Agreement). The Participation Agreement expired August 31, 2001. At December 31, 2001, the Company had a $106.8 million warehouse line of credit outstanding, which is included in short-term borrowings in the accompanying consolidated balance sheets. The Company also had a $106.8 million warehouse receivable. Subsequent to December 31, 2001, the warehouse line of credit was repaid with the proceeds from the warehouse receivable.

        During 2001, the Company incurred certain non recourse debt through a joint venture in order to purchase property which is expected to be sold later in 2002. In February 2002, the maturity date on this non recourse debt was extended to September 18, 2002.

        For information on the outstanding liability under the Deferred Compensation Plan, the expected timetable of repayment of long-term debt and the future minimum lease payments for non-cancelable operating and capital leases as of December 31, 2001, see Note 9, Note 10 and Note 11 of the Notes to Consolidated Financial Statements, respectively. In addition, see Note 11 for information on the Company's material commitments and contingencies.

        The Company believes it can satisfy its non-acquisition obligations, as well as working capital requirements and funding of investments, with internally generated cash flow, borrowings under the new revolving line of credit with CSFB or any replacement credit facilities. Material acquisitions, if any, that necessitate cash will require new sources of capital such as an expansion of the revolving credit facility and raising money by issuing additional debt or equity. The Company anticipates that its existing sources of liquidity, including cash flow from operations, will be sufficient to meet its anticipated non-acquisition cash requirements for the foreseeable future and in any event for the next twelve months and thereafter.

        Net cash used in operating activities totaled $23.5 million for the current year, a decrease of $60.6 million compared to the prior year. This decline was primarily due to lower net income adjusted for non-cash items. Cash paid for bonus and special incentives also exceeded prior year as the majority of the bonuses paid in the current year related to the prior year's more favorable performance. This was slightly offset by higher receipts for receivables, due to a continued emphasis on receivable collections.

        The Combined Company utilized $278.9 million in investing activities, an increase of $243.2 million over the prior year. This increase is primarily due to the acquisition of CBRE by the Company. Capital expenditures were comparable to prior year, but lower than 1999 by $8.4 million. Capital expenditures for 2001 primarily included the purchase of computer hardware and software and furniture and fixtures. Capital expenditures for 2000 mainly included the purchase of computer hardware and software. The higher purchases in 1999 related to the Company's efforts to prepare for the year 2000 computer hardware and software systems issues. The Company expects to have capital expenditures of approximately $22.0 million in 2002.

        Net cash provided by financing activities totaled $340.1 million for the year ended December 31, 2001, compared to cash used of $53.5 million for the year ended December 31, 2000. The cash provided in the current year was mainly attributable to the additional debt and equity financing required by the merger. The cash used in the prior year reduced the Company's outstanding long-term debt by $50.5 million.

Acquisitions

        During 2001, the Company acquired an operation in Mexico with an aggregate purchase price of approximately $1.7 million in cash. The Company also purchased the remaining ownership interests that

27



it did not already own in CB Richards Ellis/Hampshire, L.L.C. for a purchase price of approximately $1.8 million in cash.

        During 2000, the Company acquired five companies with an aggregate purchase price of $3.4 million in cash, $0.7 million in notes, plus additional payments over the next five years based on acquisition earnout agreements. These payments will supplement the purchase price and be recorded as additional goodwill, when paid, as applicable. The most significant acquisition in 2000 was the purchase of Boston Mortgage Capital Corporation (Boston Mortgage) through L.J. Melody, for $2.1 million, plus supplemental payments based on an acquisition earnout agreement. Boston Mortgage provides further mortgage banking penetration into the northeastern part of the US. It services approximately $1.8 billion in loans covering roughly 175 commercial properties throughout New England, New York and New Jersey.

        During 1999, the Company acquired four companies with an aggregate purchase price of approximately $13.8 million. The two significant acquisitions were Eberhardt Company which was acquired in September 1999 through L.J. Melody for approximately $7.0 million and Profi Nordic which was acquired in February 1999 through CBRE Profi Acquisition Corp., formerly Koll Tender III, for approximately $5.5 million.

Litigation

        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.

Euro Conversion Disclosure

        For the Company's European operation, a majority of the European Union member countries converted to a common currency, the "Euro," on January 1, 1999, with the remaining countries converting by January 2002. The costs related to the conversion did not have a material impact on the Company's financial results.

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Net Operating Losses

        The Company had US federal income tax net operating losses (NOLs) of approximately $9.5 million and $16.3 million at December 31, 2001 and 2000 respectively.

        The Company's ability to utilize NOLs of CBRE has been limited for the period from July 21, 2001 to December 31, 2001 and will be limited in subsequent years because CBRE experienced a change in ownership greater than 50% on July 20, 2001. As a result of the ownership change, the limitation was approximately $5.2 million of its NOLs for the period from July 21, 2001 through December 31, 2001 and will be approximately $11.4 million in year 2002 and in each subsequent year until fully utilized. The amount of NOLs is, in any event, subject to some uncertainty until the statute of limitations lapses after their utilization to offset taxable income.

Critical Accounting Policies

        The Company has identified revenue recognition and the principles of consolidation as critical accounting policies. The Company records real estate commissions on sales upon close of escrow or upon transfer of title. Real estate commissions on leases are generally recorded as income once the Company satisfies all obligations under the commission agreement. A typical commission agreement provides that the Company earns a portion of the lease commission upon the execution of the lease agreement by the tenant, while the remaining portion(s) of the lease commission is earned at a later date, usually upon tenant occupancy. The existence of any significant future contingencies will result in the delay of recognition of income until such contingencies are satisfied. For example, if the Company does not earn all or a portion of the lease commission until the tenant pays their first month's rent, and the lease agreement provides the tenant with a free rent period, the Company delays revenue recognition until cash rent is paid by the tenant. Investment management and property management fees are recognized when earned under the provisions of the related agreements. Appraisal fees are recorded after services have been rendered. Loan origination fees are recognized at the time the loan closes and the Company has no significant remaining obligations for performance in connection with the transaction, while loan servicing fees are recorded as principal and interest payments are collected from mortgagors. Other commissions and fees are recorded as income at the time the related services have been performed unless significant future contingencies exist.

        The Company consolidates majority owned investments and separately discloses the equity attributable to minority shareholders' interests in subsidiaries in the consolidated balance sheets. Investments in unconsolidated subsidiaries in which the Company has the ability to exercise significant influence over operating and financial policies, but does not control, are accounted for by using the equity method. Accordingly, the Company's share of the earnings of these equity basis companies is included in consolidated net income. All other investments held on a long-term basis are valued at cost less any permanent impairment in value.

New Accounting Pronouncements

        In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral established by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." In addition, this statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This statement is effective for all transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS No. 140 did not have a material impact on the Company's results of operations and financial position.

29


        In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires all business combinations to be accounted for by a single method—the purchase method. This statement is effective for all business combinations initiated after June 30, 2001. Accordingly, the Company accounted for the merger using the purchase method as prescribed by SFAS No. 141.

        In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. This statement is effective for fiscal years beginning after December 15, 2001, although early application is permitted for entities with fiscal years beginning after March 15, 2001. For acquisitions occurring after June 30, 2001, partial application of SFAS No. 142 is required, which includes the elimination of the amortization of goodwill created under such acquisitions and the requirement that intangible assets acquired be amortized in accordance with the provisions of SFAS No. 142. All other aspects of SFAS No. 142 must be applied under the timeframe discussed above. The Company has adopted the portion of this statement related to the elimination of the amortization of the goodwill created in the acquisition of CBRE and the amortization criteria for identifiable intangible assets acquired. The Company is currently evaluating the impact of the adoption of this statement in its entirety on its results of operations and financial position.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of leases. The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of its fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002, although earlier application is encouraged. The Company is currently evaluating the impact of the adoption of this statement on its results of operations and financial position.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The Company is currently evaluating the impact of the adoption of this statement on its results of operations and financial position.

Safe Harbor Statement Regarding Outlook and Other Forward-Looking Data

        Portions of this Form 10-K, including Management's Discussion and Analysis, contain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements

30



in this Form 10-K. Any forward-looking statements speak only as of the date of this report and the Company expressly disclaims any obligation to update or revise any forward-looking statements found herein to reflect any changes in the expectations or results or any change in events. Factors that could cause results to differ materially include, but are not limited to: commercial real estate vacancy levels; employment conditions and their effect on vacancy rates; property values; rental rates; any general economic recession domestically or internationally; and general conditions of financial liquidity for real estate transactions.

Report of Management

        The Company's management is responsible for the integrity of the financial data reported by it and its subsidiaries. Fulfilling this responsibility requires the preparation and presentation of consolidated financial statements in accordance with generally accepted accounting principles in the US. Management uses internal accounting controls, corporate-wide policies and procedures and judgment so that these statements reflect fairly the consolidated financial position, results of operations and cash flows of the Company.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        The Company's exposure to market risk consists of foreign currency exchange rate fluctuations related to international operations and changes in interest rates on debt obligations.

        Approximately 25% of the Company's business is transacted in local currencies of foreign countries. The Company attempts to manage its exposure primarily by balancing monetary assets and liabilities, and maintaining cash positions only at levels necessary for operating purposes. While the international results of operations as measured in dollars are subject to foreign exchange rate fluctuations, the related risk is not considered material. The Company routinely monitors its transaction exposure to currency rate changes, and enters into currency forward and option contracts to limit its exposure, as appropriate. Gains and losses on contracts are recognized in accordance with the provisions of SFAS No. 138, "Accounting For Certain Derivative Instruments and Certain Hedging Activities—an Amendment of SFAS No. 133, Accounting For Derivative Instruments and Hedging Activities." The Company does not engage in any speculative activities.

        The Company manages its interest expense by using a combination of fixed and variable rate debt. The Company's fixed and variable long-term debt at December 31, 2001 consisted of the following (in thousands):

Year of Maturity

  Fixed
Rate

  One Year
Yen Swap
+4.95%

  LIBOR
+1.0%

  LIBOR
+3.25%

  LIBOR
+3.75%

  Sterling
LIBOR
-1.5%

  Euro
Base Rate
+2.5%

  Total
 
2002   $ 1,182   $ 37,179   $ 106,790   $ 7,500   $ 1,850   $ 178   $ 11,162   $ 165,841  
2003     606             8,125     1,850             10,581  
2004     117             8,750     1,850             10,717  
2005     19             8,750     1,850             10,619  
2006     19             8,750     1,850             10,619  
Thereafter (1)     300,327             4,375     174,825             479,527  
   
 
 
 
 
 
 
 
 
  Total   $ 302,270   $ 37,179   $ 106,790   $ 46,250   $ 184,075   $ 178   $ 11,162   $ 687,904  
   
 
 
 
 
 
 
 
 
Weighted Average Interest Rate     12.1 %   5.1 %   3.4 %   5.7 %   6.2 %   3.0 %   6.8 %   8.3 %
   
 
 
 
 
 
 
 
 

(1)
Mainly includes the 111/4% Senior Subordinated Notes, the 16% Senior Notes and the senior secured term loans.

        The Company utilizes sensitivity analyses to assess the potential effect of its variable rate debt. If interest rates were to increase by 53 basis points, approximately 10% of the weighted average variable

31



rate at year end, the net impact would be a decrease of $0.9 million on annual pre-tax income and cash provided by operating activities for the period from February 20, 2001 (inception) to December 31, 2001.

        Based on dealers quotes, the estimated fair value of the Company's $225.7 million 111/4% Senior Subordinated Notes is $199.5 million at December 31, 2001. There was no trading activity for the 16% Senior Note which has an effective interest rate of 17.8% and is due in 2011. Its carrying value as of December 31, 2001 totaled $59.7 million. Estimated fair values for the senior secured term loans and the remaining long term debt are not presented because the Company believes that they are not materially different from book value, primarily because the majority of the remaining debt is based on variable rates that approximate terms that could be obtained at December 31, 2001.

32



Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

 
  Page
Report of Independent Public Accountants   34

Consolidated Balance Sheets at December 31, 2001 and 2000

 

35

Consolidated Statements of Operations for the period from February 20, 2001 (inception) through December 31, 2001, the period from January 1, 2001 to July 20, 2001, and for the twelve months ended December 31, 2000 and 1999

 

36

Consolidated Statements of Cash Flows for the period from February 20, 2001 (inception) through December 31, 2001, the period from January 1, 2001 to July 20, 2001, and for the twelve months ended December 31, 2000 and 1999

 

37

Consolidated Statements of Stockholders' Equity for the period from February 20, 2001 (inception) through December 31, 2001, the period from January 1, 2001 to July 20, 2001, and for the twelve months ended December 31, 2000 and 1999

 

38

Consolidated Statements of Comprehensive Income (Loss) for the period from February 20, 2001 (inception) through December 31, 2001, the period from January 1, 2001 to July 20, 2001, and for the twelve months ended December 31, 2000 and 1999

 

40

Notes to Consolidated Financial Statements

 

41

Quarterly Results of Operations and Other Financial Data (Unaudited)

 

83

FINANCIAL STATEMENT SCHEDULE:

 

 

Schedule II — Valuation and Qualifying Accounts

 

85


All other schedules are omitted because they are either not applicable, not required or the
information required is included in the Consolidated Financial Statements, including the notes thereto.

33


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of CBRE Holding, Inc.:

        We have audited the accompanying consolidated balance sheet of CBRE Holding, Inc., a Delaware corporation, (the Company) as of December 31, 2001 and the related consolidated statements of operations, cash flows, stockholders' equity and comprehensive income for the period from February 20, 2001 (inception) through December 31, 2001. We have also audited the accompanying consolidated balance sheet of CB Richard Ellis Services, Inc. (Predecessor) as of December 31, 2000, and the related consolidated statements of operations, cash flows, stockholders' equity and comprehensive (loss) income for the period from January 1, 2001 to July 20, 2001, and the twelve months ended December 31, 2000 and 1999. These financial statements and the schedule referred to below are the responsibility of the Company's and the Predecessor's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CBRE Holding, Inc. as of December 31, 2001, and the results of their operations and their cash flows for the period from February 20, 2001 (inception) through December 31, 2001, and the financial position of CB Richard Ellis Services, Inc. (the Predecessor) as of December 31, 2000 and the results of their operations and their cash flows for the period from January 1, 2001 to July 20, 2001 and the twelve months ended December 31, 2000 and 1999, in conformity with accounting principles generally accepted in the United States.

        Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.


 

 

 
    ARTHUR ANDERSEN LLP

 

 

 
Los Angeles, California
February 26, 2002
   

34


CBRE HOLDING, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 
  Company
  Predecessor
 
 
  CBRE
Holding, Inc.

  CB Richard Ellis
Services, Inc.

 
 
  December 31,
2001

  December 31,
2000

 
ASSETS              
Current Assets:              
  Cash and cash equivalents   $ 57,450   $ 20,854  
  Receivables, less allowance for doubtful accounts of $11,748 and $12,631 at December 31, 2001 and 2000, respectively     156,434     176,492  
  Warehouse receivable     106,790     416  
  Prepaid expenses     8,325     8,017  
  Deferred taxes, net     23,254     11,139  
  Other current assets     8,493     6,127  
   
 
 
    Total current assets     360,746     223,045  
Property and equipment, net     68,451     75,992  
Goodwill, net of accumulated amortization of $56,417 at December 31, 2000     609,543     423,975  
Other intangible assets, net of accumulated amortization of $3,153 and $289,038 at December 31, 2001 and 2000, respectively     38,117     46,432  
Cash surrender value of insurance policies, deferred compensation plan     69,385     53,203  
Investment in and advances to unconsolidated subsidiaries     42,535     41,325  
Deferred taxes, net     62,903     32,327  
Prepaid pension costs     13,588     25,235  
Other assets     94,085     41,571  
   
 
 
    Total assets   $ 1,359,353   $ 963,105  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current Liabilities:              
  Accounts payable and accrued expenses   $ 82,982   $ 83,673  
  Compensation and employee benefits payable     68,118     79,801  
  Accrued bonus and profit sharing     85,188     107,878  
  Income taxes payable     21,736     28,260  
  Short-term borrowings:              
    Warehouse line of credit     106,790     416  
    Other     48,828     8,799  
   
 
 
    Total short-term borrowings     155,618     9,215  
  Current maturities of long-term debt     10,223     1,378  
   
 
 
    Total current liabilities     423,865     310,205  
Long-term debt:              
  111/4% senior subordinated notes, net of unamortized discount of $3,263 at December 31, 2001     225,737      
  Senior secured term loans     220,975      
  16% senior notes, net of unamortized discount of $5,344 at December 31, 2001     59,656      
  87/8% senior subordinated notes, net of unamortized discount of $1,664 at December 31, 2000         173,336  
  Revolving credit facility         110,000  
  Other long-term debt     15,695     20,235  
   
 
 
    Total long-term debt     522,063     303,571  
Deferred compensation liability     105,104     80,503  
Other liabilities     46,661     29,739  
   
 
 
    Total liabilities     1,097,693     724,018  
Minority interest     4,296     3,748  
Commitments and contingencies              
Stockholders' Equity:              
  Preferred stock, $0.01 par value; 8,000,000 shares authorized; no shares issued or outstanding          
  Class A common stock; $0.01 par value; 75,000,000 shares authorized; 1,730,601 shares issued and outstanding at December 31, 2001; no shares issued or outstanding at December 31, 2000     17      
  Class B common stock; $0.01 par value; 25,000,000 shares authorized; 12,649,813 shares issued and outstanding at December 31, 2001; no shares issued or outstanding at December 31, 2000     127      
  Common stock; $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding at December 31, 2001; 20,605,023 shares issued and outstanding at December 31, 2000         217  
  Additional paid-in capital     240,541     364,168  
  Notes receivable from sale of stock     (1,043 )   (11,847 )
  Accumulated earnings (deficit)     17,426     (89,097 )
  Accumulated other comprehensive income (loss)     296     (12,258 )
  Treasury stock at cost, 1,072,155 shares at December 31, 2000         (15,844 )
   
 
 
    Total stockholders' equity     257,364     235,339  
   
 
 
    Total liabilities and stockholders' equity   $ 1,359,353   $ 963,105  
   
 
 

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

35


CBRE HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share data)

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
  CBRE Holding,
Inc.

  CB Richard Ellis Services, Inc.
  CB Richard Ellis Services, Inc.
  CB Richard Ellis Services, Inc.
 
  February 20, 2001 (inception) through December 31, 2001
  Period from January 1 to July 20, 2001
  Twelve Months Ended December 31, 2000
  Twelve Months Ended December 31, 1999
Revenue:                        
  Leases   $ 209,373   $ 231,844   $ 539,419   $ 448,091
  Sales     165,636     161,312     389,745     394,718
  Property and facilities management fees     52,868     61,866     110,654     110,111
  Consulting and referral fees     38,235     36,986     78,714     73,569
  Appraisal fees     38,126     42,971     75,055     71,050
  Loan origination and servicing fees     30,385     34,186     58,190     45,940
  Investment management fees     21,759     23,789     42,475     28,929
  Other     6,446     14,980     29,352     40,631
   
 
 
 
  Total revenue     562,828     607,934     1,323,604     1,213,039

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 
  Commissions, fees and other incentives     269,416     284,294     635,322     559,289
  Operating, administrative and other     212,040     290,031     537,798     536,381
  Depreciation and amortization     12,198     25,656     43,199     40,470
  Merger-related and other nonrecurring charges     6,442     22,127        
   
 
 
 
Operating income (loss)     62,732     (14,174 )   107,285     76,899
Interest income     2,427     1,567     2,554     1,930
Interest expense     29,717     20,303     41,700     39,368
   
 
 
 
Income (loss) before provision for income tax     35,442     (32,910 )   68,139     39,461
Provision for income tax     18,016     1,110     34,751     16,179
   
 
 
 
Net income (loss)   $ 17,426   $ (34,020 ) $ 33,388   $ 23,282
   
 
 
 
Basic earnings (loss) per share   $ 2.22   $ (1.60 ) $ 1.60   $ 1.11
   
 
 
 
Weighted average shares outstanding for basic earnings (loss) per share     7,845,004     21,306,584     20,931,111     20,998,097
   
 
 
 
Diluted earnings (loss) per share   $ 2.20   $ (1.60 ) $ 1.58   $ 1.10
   
 
 
 
Weighted average shares outstanding for diluted earnings (loss) per share     7,909,797     21,306,584     21,097,240     21,072,436
   
 
 
 

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

36


CBRE HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
 
  CBRE Holding,
Inc.

  CB Richard Ellis Services, Inc.
  CB Richard Ellis Services, Inc.
  CB Richard Ellis Services, Inc.
 
 
  February 20, 2001 (inception) through December 31, 2001
  Period from January 1 to July 20, 2001
  Twelve Months Ended December 31, 2000
  Twelve Months Ended December 31, 1999
 
CASH FLOWS FROM OPERATING ACTIVITIES:                          
Net income (loss)   $ 17,426   $ (34,020 ) $ 33,388   $ 23,282  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                          
  Depreciation and amortization excluding deferred financing costs     12,198     25,656     43,199     40,470  
  Amortization of deferred financing costs     1,316     1,152     2,069     1,696  
  Deferred compensation deferrals     16,151     16,447     43,557     25,932  
  Gain on sale of properties, businesses and servicing rights     (2,868 )   (10,009 )   (10,184 )   (9,865 )
  Equity interest in earnings of unconsolidated subsidiaries     (1,661 )   (2,854 )   (7,112 )   (7,528 )
  Provision for litigation, doubtful accounts and other     2,714     3,872     5,125     4,724  
  Deferred income tax benefit     (1,948 )   (1,569 )   (4,083 )   (12,688 )
(Increase) decrease in receivables     (18,379 )   26,970     (12,545 )   (37,640 )
Increase in cash surrender value of insurance policies, deferred compensation plan     (4,517 )   (11,665 )   (32,761 )   (20,442 )
Increase (decrease) in compensation and employee benefits and accrued bonus and profit sharing     64,677     (101,312 )   24,418     37,339  
(Decrease) increase in accounts payable and accrued expenses     (5,835 )   (5,491 )   (3,201 )   1,346  
Increase (decrease) in income taxes payable     13,578     (16,357 )   11,074     16,696  
(Decrease) increase in other liabilities     (5,203 )   (9,973 )   (9,553 )   7,583  
Net change in other operating assets and liabilities     7,742     255     721     3,106  
   
 
 
 
 
  Net cash provided by (used in) operating activities     95,391     (118,898 )   84,112     74,011  
CASH FLOWS FROM INVESTING ACTIVITIES:                          
Purchases of property and equipment     (10,558 )   (16,146 )   (26,921 )   (35,130 )
Proceeds from sale of inventoried property                 7,355  
Proceeds from sale of properties, businesses and servicing rights     2,108     9,544     17,495     12,072  
Purchase of investments     (1,081 )   (3,202 )   (23,413 )   (1,019 )
Investment in property held for sale     (40,174 )   (2,282 )        
Acquisition of businesses including net assets acquired, intangibles and goodwill     (214,702 )   (1,924 )   (6,561 )   (14,262 )
Other investing activities, net     (1,043 )   539     3,678     4,217  
   
 
 
 
 
  Net cash used in investing activities     (265,450 )   (13,471 )   (35,722 )   (26,767 )
CASH FLOWS FROM FINANCING ACTIVITIES:                          
Proceeds from revolver and swingline credit facility     113,750              
Repayment of revolver and swingline credit facility     (113,750 )            
Proceeds from senior secured term loans     235,000              
Repayment of senior secured term loans     (4,675 )            
Proceeds from non recourse debt related to property held for sale     37,179              
Repayment of 87/8% senior subordinated notes     (175,000 )            
Proceeds from 111/4% senior subordinated notes     225,629              
Proceeds from 16% senior subordinated notes     65,000              
Proceeds from revolving credit facility         195,000     179,000     165,000  
Repayment of revolving credit facility     (235,000 )   (70,000 )   (229,000 )   (172,000 )
Repayment of inventoried property loan                 (7,093 )
(Repayment of) proceeds from senior notes and other loans, net     (1,188 )   446     588     (12,402 )
Payment of deferred financing fees     (21,750 )   (8 )   (120 )   (1,750 )
Proceeds from issuance of common stock     92,156             480  
Repurchase of common stock     (100 )       (2,018 )   (4,986 )
Repayment of capital leases     (295 )   (253 )   (1,373 )   (1,340 )
Other financing activities, net     (3,125 )   1,045     (600 )   (3,630 )
   
 
 
 
 
  Net cash provided by (used in) financing activities     213,831     126,230     (53,523 )   (37,721 )
   
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     43,772     (6,139 )   (5,133 )   9,523  
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD     13,662     20,854     27,844     19,551  
  Effect of exchange rate changes on cash     16     (1,053 )   (1,857 )   (1,230 )
   
 
 
 
 
CASH AND CASH EQUIVALENTS, AT END OF PERIOD   $ 57,450   $ 13,662   $ 20,854   $ 27,844  
   
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                          
  Cash paid during the period for:                          
    Interest (none capitalized)   $ 26,126   $ 18,457   $ 38,352   $ 36,997  
   
 
 
 
 
    Federal and local income taxes, net   $ 5,061   $ 19,083   $ 27,607   $ 12,689  
   
 
 
 
 
Non-cash investing and financing activities:                          
    Fair value of assets acquired   $ (492,220 ) $ (105 ) $ (2,287 ) $ (5,916 )
    Fair value of liabilities assumed     719,829         41     2,983  
    Issuance of stock     148,641             2,362  
    Goodwill     (590,952 )   (1,819 )   (4,315 )   (13,691 )
   
 
 
 
 
    Net cash paid for acquisitions   $ (214,702 ) $ (1,924 ) $ (6,561 ) $ (14,262 )
   
 
 
 
 

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

37


CBRE HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)

 
  Company
 
 
  CBRE Holding, Inc.
 
 
  Common stock
Class A

  Common stock
Class B

  Additional paid-in capital
  Notes receivable
from sale of stock

  Accumulated
earnings

  Accumulated
other
comprehensive
income

  Total
 
Balance, February 20, 2001   $   $   $   $   $   $   $  
Net income                     17,426         17,426  
Contribution of deferred compensation plan stock fund units             18,771                 18,771  
Contribution of shares by certain shareholders of CB Richard Ellis Services, Inc         80     121,732                 121,812  
Net issuance of Class A common stock     17         27,672                 27,689  
Issuance of Class B common stock         47     72,366                 72,413  
Note receivable from employee stock incentive plan                 (1,043 )           (1,043 )
Foreign currancy translation gain, net                         296     296  
   
 
 
 
 
 
 
 
Balance, December 31, 2001   $ 17   $ 127   $ 240,541   $ (1,043 ) $ 17,426   $ 296   $ 257,364  
   
 
 
 
 
 
 
 

38


 
  Predecessor
 
 
  CB Richard Ellis Services, Inc.
 
 
  Common stock
  Additional paid-in
capital

  Notes receivable
from sale of stock

  Accumulated (deficit)
earnings

  Accumulated other comprehensive income (loss)
  Treasury stock
  Total
 
Balance, December 31, 1998   $ 211   $ 349,796   $ (5,654 ) $ (145,767 ) $ 1,139   $ (8,883 ) $ 190,842  
Net income                 23,282             23,282  
Common stock issued for incentive plans     2     2,534     (2,534 )               2  
Contributions, deferred compensation plan         2,094                     2,094  
Collection on, net of cancellation of notes receivable from employee stock incentive plan             101                 101  
Common stock options exercised         449                     449  
Amortization of cheap stock         312                     312  
Tax deduction from issuance of stock         708                     708  
Foreign currency translation loss, net                     (3,067 )       (3,067 )
Purchase of common stock                         (4,986 )   (4,986 )
   
 
 
 
 
 
 
 
Balance, December 31, 1999     213     355,893     (8,087 )   (122,485 )   (1,928 )   (13,869 )   209,737  
Net income                 33,388             33,388  
Common stock issued for incentive plans     4     4,310     (4,310 )               4  
Contributions, deferred compensation plan         2,729                     2,729  
Deferred compensation plan co-match         907                     907  
Collection on, net of cancellation of notes receivable from employee stock incentive plan         (550 )   550                  
Amortization of cheap and restricted stock         342                       342  
Tax deduction from issuance of stock         580                     580  
Foreign currency translation loss, net                     (10,330 )       (10,330 )
Purchase of common stock         (43 )               (1,975 )   (2,018 )
   
 
 
 
 
 
 
 
Balance, December 31, 2000     217     364,168     (11,847 )   (89,097 )   (12,258 )   (15,844 )   235,339  
Net loss                 (34,020 )           (34,020 )
Common stock issued for incentive plans         360                     360  
Contributions, deferred compensation plan         1,004                     1,004  
Deferred compensation plan co-match         492                     492  
Collection on, net of cancellation of notes receivable from employee stock incentive plan         (742 )   1,001                 259  
Amortization of cheap and restricted stock     1     210                     211  
Tax deduction from issuance of stock         1,479                     1,479  
Foreign currency translation loss, net                     (7,106 )       (7,106 )
Cancellation of common stock         (54 )                   (54 )
Cancellation of common stock and elimination of historical equity due to the merger     (218 )   (366,917 )   10,846     123,117     19,364     15,844     (197,964 )
   
 
 
 
 
 
 
 
Balance, July 20, 2001   $   $   $   $   $   $   $  
   
 
 
 
 
 
 
 

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

39


CBRE HOLDING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)

 
   
   
  Predecessor
  Predecessor
 
 
  Company
  Predecessor
 
 
  CB Richard Ellis Services, Inc.
  CB Richard Ellis Services, Inc.
 
 
  CBRE Holding,
Inc.

  CB Richard Ellis Services, Inc.
 
 
  Twelve Months Ended December 31, 2000
  Twelve Months Ended December 31, 1999
 
 
  February 20, 2001 (inception) through December 31, 2001
  Period from January 1 to July 20, 2001
 
Net income (loss)   $ 17,426   $ (34,020 ) $ 33,388   $ 23,282  
Other comprehensive income (loss), net of tax     296     (7,106 )   (10,330 )   (3,067 )
   
 
 
 
 
Comprehensive income (loss)   $ 17,722   $ (41,126 ) $ 23,058   $ 20,215  
   
 
 
 
 

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

40


CBRE HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

        The accompanying consolidated financial statements include the accounts of CBRE Holding, Inc. (the Company) and majority owned and controlled subsidiaries. The equity attributable to minority shareholders' interests in subsidiaries is shown separately in the balance sheets. All significant intercompany accounts and transactions have been eliminated in consolidation.

        The Company's investments in unconsolidated subsidiaries in which it has the ability to exercise significant influence over operating and financial policies, but does not control, are accounted for by using the equity method. Accordingly, the Company's share of the earnings of these equity basis companies is included in consolidated net income. All other investments held on a long-term basis are valued at cost less any permanent impairment in value.

        Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of less than three months. The Company controls certain cash and cash equivalents as an agent for its investment and property management clients. These amounts are not included in the consolidated balance sheets.

        The Company capitalizes expenditures that materially increase the life of the related assets and charges the cost of maintenance and repairs to expense. Upon sale or retirement, the capitalized costs and related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in operating income.

        Depreciation is computed primarily using the straight line method over estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized over the term of the respective leases, excluding options to renew. Equipment under capital leases is depreciated over the related term of the leases. The Company periodically reviews property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any of the significant assumptions inherent in this assessment materially change due to market, economics, and/or other factors, the recoverability is assessed based on the revised assumptions. If this analysis indicates that such assets are considered to be impaired, the impairment is recognized in the period the changes occur and is measured by the amount in which the carrying value exceeds the fair value of the asset.

        Goodwill represents the excess of the purchase price paid by the Company over the fair value of the tangible and intangible assets and liabilities of CB Richard Ellis Services, Inc. (CBRE) at July 20, 2001, the date of the merger. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," the goodwill balance is not being amortized, but instead will be subject to at least an annual assessment of impairment by applying a fair-value based test. Portions of SFAS No. 142 are effective for fiscal years beginning December 15, 2001. The Company will be implementing this standard within the required time period.

41


        Net other intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets ranging up to 10 years.

        Costs incurred in connection with the financing activities related to the merger with CBRE are deferred and amortized using the straight-line method over the terms of the related debt agreements ranging from 6 to 10 years. Amortization of these costs is charged to interest expense in the accompanying consolidated statements of operations. Total costs deferred and included in other assets in the accompanying consolidated balance sheet at December 31, 2001 were $23.3 million.

        Real estate commissions on sales are recorded as income upon close of escrow or upon transfer of title. Real estate commissions on leases are generally recorded as income once the Company satisfies all obligations under the commission agreement. A typical commission agreement provides that the Company earns a portion of the lease commission upon the execution of the lease agreement by the tenant, while the remaining portion(s) of the lease commission is earned at a later date, usually upon tenant occupancy. The existence of any significant future contingencies will result in the delay of recognition of income until such contingencies are satisfied. For example, if the Company does not earn all or a portion of the lease commission until the tenant pays their first month's rent, and the lease agreement provides the tenant with a free rent period, the Company delays revenue recognition until cash rent is paid by the tenant. Investment management and property management fees are recognized when earned under the provisions of the related agreements. Appraisal fees are recorded after services have been rendered. Loan origination fees are recognized at the time the loan closes and the Company has no significant remaining obligations for performance in connection with the transaction, while loan servicing fees are recorded as principal and interest payments are collected from mortgagors. Other commissions and fees are recorded as income at the time the related services have been performed unless significant future contingencies exist.

        The financial statements of subsidiaries located outside the United States (US) are generally measured using the local currency as the functional currency. The assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date and income and expenses are translated at the average monthly rate. The currency effects of translating the financial statements of these non-US operations of the Company are included in the "Accumulated other comprehensive income (loss)" component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in the results of operations. The aggregate transaction gains and losses included in the consolidated statements of operations are a $0.2 million loss, a $0.3 million gain, a $3.1 million loss and a $1.1 million gain for the period February 20, 2001 (inception) to December 31, 2001, the period January 1 to July 20, 2001, and the twelve months ended December 31, 2000 and 1999, respectively.

        Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Accumulated other comprehensive income (loss) consists of foreign currency translation adjustments. The tax expense (benefit) associated with items included in other comprehensive income (loss) was $0.2 million for the period from February 20, 2001 (inception) through December 31, 2001, $(4.4)

42


million for the period from January 1, 2001 through July 20, 2001, and $(6.5) million and $(1.9) million for the twelve months ended December 31, 2000 and 1999, respectively.

        The Company follows SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" in accounting for loan sales and acquisition of servicing rights. Under SFAS No. 140, the Company is required to recognize, at fair value, financial and servicing assets it has acquired control over and related liabilities it has incurred and amortize them over the period of estimated net servicing income or loss. Write-off of the assets is required when control is surrendered. The recording of these servicing rights at their fair value resulted in a gain, which is reflected in the consolidated statements of operations. Corresponding servicing assets of approximately $1.8 million and $0.7 million, at December 31, 2001 and 2000, respectively, are reflected in the consolidated balance sheets.

        The preparation of financial statements in conformity with generally accepted accounting principles in the US requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of certain revenues and expenses during the reporting periods. Actual results could differ from those estimates. Management believes that these estimates provide a reasonable basis for the fair presentation of its financial condition and results of operations.

        The Company has elected to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock-Based Compensation"and provide the pro forma disclosure requirements of SFAS No. 123, "Accounting for Stock Based Compensation" in the footnotes to its consolidated financial statements. SFAS No. 123 requires pro forma disclosure of net income and, if presented, earnings per share, as if the fair-value based method of accounting defined in this statement had been applied. APB Opinion No. 25 and related interpretations require accounting for stock compensation awards based on their intrinsic value as of the grant date.

        Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax basis of assets and liabilities and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

        In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral established by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets

43


and Extinguishments of Liabilities". In addition, this statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This statement is effective for all transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of SFAS No. 140 did not have a material impact on the Company's results of operations and financial position.

        In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises." SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires all business combinations to be accounted for by a single method—the purchase method. This statement is effective for all business combinations initiated after June 30, 2001. Accordingly, the Company accounted for the merger using the purchase method as prescribed by SFAS No. 141.

        In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment applying a fair-value based test. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the acquirer's intent to do so. This statement is effective for fiscal years beginning after December 15, 2001, although early application is permitted for entities with fiscal years beginning after March 15, 2001. For acquisitions occurring after June 30, 2001, partial application of SFAS No. 142 is required, which includes the elimination of the amortization of goodwill created under such acquisitions and the requirement that intangible assets acquired be amortized in accordance with the provisions of SFAS No. 142. All other aspects of SFAS No. 142 must be applied under the timeframe discussed above. The Company has adopted the portion of this statement related to the elimination of the amortization of the goodwill created in the acquisition of CBRE and the amortization criteria for identifiable intangible assets acquired. The Company is currently evaluating the impact of the adoption of this statement in its entirety on its results of operations and financial position.

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of leases. The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of its fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002, although earlier application is encouraged. The Company is currently evaluating the impact of the adoption of this statement on its results of operations and financial position.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. This statement is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application

44



encouraged. The Company is currently evaluating the impact of the adoption of this statement on its results of operations and financial position.

        Some reclassifications, which do not have an effect on net income, have been made to the 2000 and 1999 financial statements to conform to the 2001 presentation.

2.    Merger

        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 (the merger agreement) 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. As such, CBRE is considered the predecessor to the Company in accordance with Regulation S-X.

        At the effective time of the merger, CBRE became a wholly owned subsidiary of the Company. Pursuant to the terms of the merger agreement, each issued and outstanding share of common stock of CBRE was converted into the right to receive $16.00 in cash, except for: (i) shares of common stock of CBRE owned by the Company and Blum CB immediately prior to the merger, totaling 7,967,774 shares, which were cancelled, (ii) treasury shares and shares of common stock of CBRE owned by any of its subsidiaries, which were cancelled, and (iii) shares of CBRE held by stockholders who perfect appraisal rights for such shares in accordance with Delaware law. All shares of common stock of CBRE outstanding prior to the merger were acquired by the Company, and these shares were subsequently cancelled. Immediately prior to the merger, the following, collectively referred to as the buying group, contributed to the Company all the shares of CBRE's common stock that he or it directly owned in exchange for an equal number of shares of Class B common stock of the Company: RCBA Strategic FS Equity Partners III, L.P. (FSEP), a Delaware limited partnership, FS Equity Partners International, L.P. (FSEP International), a Delaware limited partnership, The Koll Holding Company, a California corporation, Frederic V. Malek, a director of the Company and CBRE, Raymond E. Wirta, the Chief Executive Officer and a director of the Company and CBRE, and Brett White, the President and a director of the Company and CBRE. Such shares of common stock of CBRE, which totaled 7,967,774 shares of common stock, were then cancelled. In addition, the Company offered to purchase for cash options outstanding to acquire common stock of CBRE at a purchase price per option equal to the greater of the amount by which $16.00 exceeded the exercise price of the option, if at all, or $1.00. In connection with the merger, CBRE purchased its outstanding options on behalf of the Company, which were recorded as merger related and other non recurring charges by CBRE in the period from January 1, 2001 to July 20, 2001, and are not reflected in the accompanying consolidated statement of operations of the Company.

        The funding to complete the merger, as well as the refinancing of substantially all of the outstanding indebtedness of CBRE, was obtained through: (i) the cash contribution of $74.8 million from the sale of Class B common stock of the Company for $16.00 per share, (ii) the sale of shares of Class A common stock of the Company for $16.00 per share to employees and independent contractors of CBRE, (iii) the sale of 625,000 shares of Class A common stock of the Company to CalPERS for $16.00 per share, (iv) the issuance and sale by the Company of 65,000 units for $65.0 million to DLJ Investment Funding, Inc. and other purchasers, which units consist of $65.0 million in aggregate principal amount of 16% Senior Notes due July 20, 2011 and 339,820 shares of Class A common stock

45



of the Company, (v) the issuance and sale by Blum CB of $229.0 million in aggregate principal amount of 111/4% Senior Subordinated Notes due June 15, 2011 for $225.6 million (which were assumed by CBRE in connection with the merger) and (vi) borrowings by CBRE under a new $325.0 million senior credit agreement with Credit Suisse First Boston and other lenders.

        Following the merger, the common stock of CBRE was delisted from the New York Stock Exchange. CBRE also successfully completed a tender offer and consent solicitation for all of the outstanding principal amount of its 87/8% Senior Subordinated Notes due 2006 (the Subordinated Notes). The Subordinated Notes were purchased at $1,079.14 for each $1,000 principal amount of Notes, which included a consent payment of $30.00 per $1,000 principal amount of Subordinated Notes. The Company also repaid the outstanding balance of CBRE's existing revolving credit facility. The Company entered into the merger in order to enhance the flexibility to operate CBRE's existing businesses and to develop new ones.

3.    Purchase Accounting

        The aggregate purchase price for the acquisition of CBRE was approximately $395.6 million, which includes: (1) shares of the Company's Class B common stock, valued at $16.00 per share, and warrants to acquire shares of the Company's Class B common stock, issued to members of the buying group in exchange for shares of common stock of CBRE contributed to the Company immediately prior to the merger and the cancellation of warrants to acquire common stock of CBRE; (2) $16.00 per share in cash paid to owners of common stock of CBRE, excluding shares owned by members of the buying group discussed above; (3) allocations in CBRE's deferred compensation plan (the DCP) from vested stock fund units, each of which was valued at $16.00 and which was entitled to one underlying share of CBRE common stock upon distribution from the DCP prior to the merger, to other investments alternatives available under the DCP, in each case at the election of the applicable participant; (4) vested stock fund units held in the DCP, each of which was valued at $16.00 and which were converted to the right to receive one underlying share of the Company's Class A common stock upon distribution from the DCP after the merger, that participants elected to continue to hold after the merger; (5) unvested stock fund units held in the DCP, each of which was valued at $16.00 and which were automatically converted to the right to receive one underlying share of the Company's Class A common stock upon distribution from the DCP after the merger, and (6) direct costs incurred in connection with the merger.

        The merger was accounted for as a purchase by the Company. Prior to the merger, no single member of the buying group, nor any combination thereof, controlled CBRE. After the completion of the merger, RCBA controls CBRE. The shares of common stock of CBRE directly owned by RCBA prior to the merger, which were included in the shares owned by the buying group contributed to the Company, have been valued at RCBA's book value in the determination of the purchase price. All other shares of common stock of CBRE acquired by the Company have been accounted for at fair value of $16.00 per share in the determination of the purchase price. As such the merger has been accounted for as a step purchase acquisition in accordance with SFAS No. 141, "Business Combinations," and the net assets of CBRE acquired by the Company have been adjusted to 86.5% of their estimated fair value.

        The preliminary purchase accounting adjustments of the Company have been recorded in the accompanying consolidated financial statements as of and for any periods subsequent to July 20, 2001. The excess of the purchase price paid by the Company over its preliminary estimates of the fair value of the assets and liabilities of CBRE at the date of merger was approximately $623.2 million and is reflected as goodwill in the accompanying consolidated balance sheets as of December 31, 2001. In

46



accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the new goodwill balance established as a result of the merger is not being amortized. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition. The Company is in the process of obtaining third party valuations of certain intangible assets, and determining the amount of goodwill to be allocated to each reporting unit. The Company is also in the process of finalizing the fair value of all other assets and liabilities as of the merger date.

Fair Value of Assets Acquired and Liabilities Assumed
At July 20, 2001
(Dollars in thousands)

Current assets   $ 193,055
Property and equipment, net     68,611
Other intangible assets, net     40,720
Investment in and advances to unconsolidated subsidiaries     38,117
Noncurrent deferred taxes, net     49,739
Prepaid pension costs     13,739
Other assets     88,239
   
  Total assets acquired     492,220
   
Current liabilities     185,571
Long-term debt     426,674
Other liabilities     104,775
Minority interest     2,809
   
  Total liabilities assumed     719,829
   
  Net liabilities assumed   $ 227,609
   

4.    Basis of Preparation

        The accompanying audited consolidated balance sheet as of December 31, 2001, and the consolidated statements of operations, cash flows and stockholders' equity for the period from February 20, 2001 (inception) through December 31, 2001, reflect the consolidated balance sheet, results of operations, cash flows and stockholders' equity of the Company from inception and also include the consolidated financial statements of CBRE from the date of the merger and include all material adjustments required under the purchase method of accounting. The purchase accounting adjustments have not been finalized (see Note 3). 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 audited consolidated financial statements, including the consolidated balance sheet, of CBRE as of December 31, 2000, the consolidated statements of operations for the period from January 1, 2001 to July 20, 2001 and for the twelve months ended December 31, 2000 and 1999, and the consolidated statements of cash flows for the period from January 1, 2001 to July 20, 2001 and for the twelve months ended December 31, 2000 and 1999 and the consolidated statements of stockholders' equity for the period from January 1 to July 20, 2001 and for the twelve months ended December 31, 2000 and 1999 (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.

47



        Unaudited pro forma results of the Company assuming the merger had occurred as of January 1, 2000 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. The 2001 proforma information excludes $18.3 million of merger-related and other nonrecurring charges. These pro forma results do not purport to be indicative of what operating results would have been, and may not be indicative of future operating results (in thousands, except share amounts):

 
  (Unaudited)
 
  Pro Forma Twelve Months Ended December 31
 
  2001
  2000
Revenue   $ 1,170,762   $ 1,323,604
Operating income   $ 73,838   $ 116,858
Net (loss) income   $ (3,546 ) $ 24,863
Basic (loss) earnings per share   $ (0.24 ) $ 1.65
Weighted average shares outstanding for basic (loss) earnings per share     15,082,362     15,082,362
Diluted (loss) earnings per share   $ (0.24 ) $ 1.65
Weighted average shares outstanding for diluted (loss) earnings per share     15,082,362     15,082,362

5.    Acquisitions and Dispositions

        During 2001, the Company acquired an operation in Mexico with an aggregate purchase price of approximately $1.7 million in cash. The Company also purchased the remaining ownership interests that it did not already own in CB Richard Ellis/Hampshire, L.L.C. for a purchase price of approximately $1.8 million in cash.

        During 2000, the Company acquired five companies with an aggregate purchase price of approximately $3.4 million in cash, $0.7 million in notes, plus additional payments over the next five years based on acquisition earnout agreements. These payments will supplement the purchase price and be recorded as additional goodwill when paid, as applicable. The most significant acquisition in 2000 was the purchase of Boston Mortgage Capital Corporation (Boston Mortgage), through L.J. Melody, for approximately $2.1 million, plus supplemental payments based on an acquisition earnout agreement. Boston Mortgage provides further mortgage banking penetration into the northeastern part of the US. It services approximately $1.8 billion in loans covering roughly 175 commercial properties throughout New England, New York and New Jersey.

        In February 2000, the Company sold certain non-strategic assets for cash proceeds of $8.4 million, resulting in a pre-tax gain of $4.7 million.

        During 1999, the Company acquired four companies with an aggregate purchase price of approximately $13.8 million. The two significant acquisitions were Eberhardt Company, which was acquired in September 1999 through L.J. Melody for approximately $7.0 million, and Profi Nordic, which was acquired in February 1999 through CBRE Profi Acquisition Corp. (formerly Koll Tender III) for approximately $5.5 million.

        During 1999, the Company sold five of its smaller non-strategic offices (Bakersfield and Fresno, California; Albuquerque, New Mexico; Reno, Nevada and Salt Lake City, Utah) for a total of approximately $7.0 million received in cash and notes. It also sold an insurance operation which was

48



used to help property management and other clients with complex insurance problems for $3.0 million in receivables. These sales resulted in a pre-tax gain of $8.7 million.

6.    Property and Equipment

        Property and equipment is stated at cost and consists of the following (in thousands):

 
  Company
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  December 31, 2001
  December 31, 2000
 
Leasehold improvements   $ 19,710   $ 17,354  
Furniture and equipment     126,864     128,678  
Equipment under capital leases     27,541     28,765  
   
 
 
      174,115     174,797  
Accumulated depreciation     (105,664 )   (98,805 )
   
 
 
  Property and equipment, net   $ 68,451   $ 75,992  
   
 
 

        Depreciation expense was $9.1 million for the period from February 20, 2001 (inception) through December 31, 2001, $12.6 million for the period from January 1, 2001 to July 20, 2001, and $19.2 million and $17.1 million for the twelve months ended December 31, 2000 and 1999, respectively.

7.    Investments in and Advances to Unconsolidated Subsidiaries

        Investments in and advances to unconsolidated subsidiaries as of December 31, 2001 and 2000 are as follows (in thousands):

 
   
  Company
  Predecessor
 
   
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  Interest
  December 31, 2001
  December 31, 2000
CB Commercial/Whittier Partners, LP   50.0 % $ 10,159   $ 10,173
CB Richard Ellis Strategic Partners, L.P   2.9 %   8,490     3,659
KB Opportunity Investors   45.0 %   4,499     988
Ikoma CB Richard Ellis KK   20.0 %   4,132     3,695
CB Richard Ellis Corporate Partners, LLC   9.1 %   3,855     2,510
CB Richard Ellis/Pittsburgh, L.P   50.0 %   1,108     6,261
Other   *     10,292     14,039
       
 
Total       $ 42,535   $ 41,325
       
 

*
Various interests with varying ownership rates.

49


        Combined condensed financial information for the entities accounted for using the equity method is as follows (in thousands):

        Condensed Statements of Operations Information:

 
  Company
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  Year Ended
December 31, 2000

  Year Ended
December 31, 1999

  Year Ended
December 31, 2001

Net revenue   $ 286,138   $ 241,902   $ 172,365
Income from operations     60,259     59,936     43,088
Net income     30,098     50,183     32,795

        Condensed Balance Sheets Information:

 
  Company
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  December 31, 2001
  December 31, 2000
Current assets   $ 92,427   $ 153,942
Noncurrent assets     866,224     777,718
Current liabilities     51,064     94,507
Noncurrent liabilities     392,357     302,530
Minority interest     265     519

        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 included in the table above. The Company has provided investment management, property management, brokerage, appraisal and other professional services to these equity investees and earned revenues of $15.4 million, $7.3 million and $2.3 million during the years ended December 31, 2001, 2000 and 1999, respectively.

50



8.    Other Assets

        The following table summarizes the items included in other assets (in thousands):

 
  Company
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  December 31, 2001
  December 31, 2000
Property held for sale   $ 42,456   $
Deferred financing costs, net     23,346    
Deposits     6,505     2,545
Cost investments     5,768     25,621
Notes receivable     4,895     8,187
Related party loans     4,841     4,741
Deferred compensation asset     3,520    
Other     2,754     477
   
 
Total   $ 94,085   $ 41,571
   
 

        Related party loans are primarily composed of recourse loans from employees, officers and certain shareholders of the Company, which are secured by the Company's common stock that is owned by the borrowers. These recourse loans are at varying principal amounts, require quarterly interest payments, bear interest at rates up to 10% per annum, and mature on various dates through 2010.

9.    Employee Benefit Plans

CBRE Holding, Inc., the Company

        Option Plans and Warrants.    As part of the merger, the Company issued 255,477 warrants to purchase shares of Class B common stock with an exercise price of $30.00 per share. These warrants expire August 27, 2007. The Company also issued 1,520,207 options to acquire Class A common stock at an exercise price of $16.00 per share. These options will vest and become exercisable in 20% increments over a five-year period ending on July 20, 2006. All options will become fully vested and exercisable upon change in control of the Company.

CB Richard Ellis Services, Inc., Predecessor

        Option Plans and Warrants.    At the effective time of the merger, each holder of an option to acquire CBRE's common stock, whether or not vested, had the right to receive, in consideration for the cancellation of his or her options, an amount per share of common stock equal to the greater of (A) the amount by which $16.00 exceeded the exercise price of the option, if any, or (B) $1.00 reduced in each case by applicable withholding taxes. Employees holding warrants to acquire shares of CBRE received $1.00 per share of common stock underlying the warrant. Warrants held by non-employees other than FS Equity Partners III, L.P. and FS Equity Partners International, L.P., who received warrants to acquire shares of the Company's Class B common stock, were cancelled, at no payment to such holders. As of December 31, 2001, there were no options or warrants outstanding to acquire CBRE's stock.

51


        The options and warrants outstanding prior to the merger were issued in connection with various acquisitions and had exercise prices that ranged from $10.00 to $36.75, with vesting periods that ranged up to 5 years and expired at various dates through August 2010.

        A summary of the status of the Company's and the Predecessor's option and warrant plans is presented in the table below:

 
  Company
 
  CBRE Holding, Inc.
 
  Shares
  Weighted
Average
Exercise Price

  Exercisable
Shares

  Weighted
Average
Exercise Price

  Weighted
Average Fair
Value of Options
and Warrants
Granted
During Year

Outstanding at February 20, 2001     $                
Granted   1,775,684     18.01                
Forfeited/Expired   (17,186 )   16.00                
   
 
 
 
 
Outstanding at December 31, 2001   1,758,498   $ 18.03     $   $ 1.86
   
 
 
 
 

52


 
  Predecessor
 
  CB Richard Ellis Services, Inc.
 
  Shares
  Weighted
Average
Exercise Price

  Exercisable
Shares

  Weighted
Average
Exercise Price

  Weighted
Average Fair
Value of Options
and Warrants
Granted
During Year

Outstanding at December 31, 1998   2,937,085   $ 23.18                
Granted   628,611     15.17                
Exercised   (58,000 )   10.00                
Forfeited/Expired   (432,340 )   31.64                
   
 
 
 
 
Outstanding at December 31, 1999   3,075,356     20.71   770,756   $ 21.86   $ 8.84
Granted   487,710     24.81                
Forfeited/Expired   (223,056 )   19.84                
   
 
 
 
 
Outstanding at December 31, 2000   3,340,010     21.25   1,824,665     23.90     6.72
Exercised   (86,521 )   12.89                
Forfeited/Expired   (93,370 )   20.27                
Paid and/or cancelled as a result of the merger   (3,160,119 )   21.50                
   
 
 
 
 
Outstanding at July 20, 2001     $     $   $
   
 
 
 
 

        Option and warrant plans outstanding at December 31, 2001 and their related weighted average price and life information is presented below:

 
  Outstanding Options
and Warrants

  Exercisable Options
and Warrants

Range of
Exercise Prices

  Number
Outstanding

  Weighted
Average
Remaining
Contractural Life

  Weighted
Average
Exercise Price

  Number
Exercisable

  Weighted
Average
Exercise Price

$16.00   1,503,021   9.58 yrs.   $ 16.00     $
$30.00   255,477   5.67 yrs.     30.00      
   
     
 
 
    1,758,498       $ 18.03     $
   
     
 
 

        Deferred Compensation Plan (the DCP).    In 1994, CBRE implemented the DCP. Under the DCP, a select group of management and highly compensated employees can defer the payment of all or a portion of their compensation (including any bonus). The DCP permits participating employees to make an irrevocable election at the beginning of each year to receive at some future date these deferred amounts invested in interest bearing accounts, which is an unsecured liability of the Company, in shares of common stock of the Company, which elections are recorded to stockholders' equity, or in insurance products which function like mutual funds, with the Company funding its obligation for deferrals in these insurance products.

        As part of the merger, the DCP was amended so that each stock fund unit was converted to the right to receive one share of Class A common stock of the Company. Each participant in the DCP who was a US employee or an independent contractor in specified states and had pre-merger vested stock fund units prior to the merger was permitted to make one of the following elections: (1) convert the

53



value of his or her vested stock fund units, based upon the value of $16.00 per stock unit, into any of the insurance mutual fund alternatives or the Interest Index Fund II provided under the DCP, (2) continue to hold the vested stock fund units in his or her account under the DCP, or (3) transfer amounts invested in insurance mutual fund alternatives into DCP stock fund units. In accordance with a change in control provision included in the terms of the DCP, stock fund units associated with the 1999 Company matching contribution, which were unvested prior to the merger, became vested upon completion of the merger, but remained as stock fund units. Vested stock fund units, including those that vested due to the change in control, are included in goodwill in the accompanying consolidated balance sheet as of December 31, 2001. The above accounting treatment is in accordance with Financial Interpretation Number (FIN) 44 "Accounting for Certain Transactions Involving Stock Compensation."

        Each stock fund unit that was unvested prior to the merger remained in participants' accounts, but after the merger was converted to the right to receive one share of Class A common stock of the Company. These unvested stock fund units have been accounted for as a deferred compensation asset. The deferred compensation asset will be amortized as compensation expense over the remaining vesting period for such stock fund units in accordance with FIN 44, with $0.9 million charged to compensation expense for the period from February 20, 2001 (inception) through December 31, 2001. The consolidated balance sheets include the unamortized balances totaling $2.0 million and $3.5 million in other current assets and other assets, respectively, as of December 31, 2001. After completion of the merger, no new deferrals are allowed in stock fund units.

        In 2001, the Company announced a match for the Plan Year 2000, effective July 2001, in the amount of $8.0 million to be invested in an interest bearing account on behalf of participants. The 2000 Company Match vests at 20% per year, and will be fully vested by December 2005. The related compensation expense will be amortized over the vesting period. CBRE, the Predecessor, charged $0.2 million to compensation expense for the period prior to the merger, with the Company expensing $0.7 million related to the period subsequent to the merger.

        Included in the Company's consolidated balance sheets is the accumulated non-stock liability at December 31, 2001 of $105.1 million and the assets (in the form of insurance proceeds) set aside to cover the liability of $69.4 million. In addition, the Company's deferred stock liability, included in stockholders' equity, totaled $18.8 million at December 31, 2001.

        As allowed under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its employee stock based compensation plans. Under this method the Company does not recognize compensation expense for options that were granted at or above the market price of the underlying stock on the date of grant. Had compensation expense been

54



determined consistent with SFAS No. 123, the Company's net income and per share information would have been reduced to the following pro forma amounts (in thousands except per share data):

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1, 2001
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

Net Income:                        
  As Reported   $ 17,426   $ (34,020 ) $ 33,388   $ 23,282
  Pro Forma     17,154     (36,778 )   30,393     19,039
Basic EPS:                        
  As Reported     2.22     (1.60 )   1.60     1.11
  Pro Forma     2.19     (1.73 )   1.45     0.91
Diluted EPS:                        
  As Reported     2.20     (1.60 )   1.58     1.10
  Pro Forma     2.17     (1.73 )   1.44     0.91

        Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.

        The fair value of each option grant and DCP company match is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

 
  Company
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  February 20, 2001
(inception) through
December 31, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

Risk-free interest rate   4.69%   6.52%   5.55%
Expected volatility   0.00%   58.06%   61.83%
Expected life   5 years   5 years   5 years

        There were no stock options granted by CB Richard Ellis Services, Inc. for the period from January 1, 2001 to July 20, 2001. Dividend yield is excluded from the calculation since it is the present intention of the Company to retain all earnings.

        The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's 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, the Company believes the Black-Scholes model does not necessarily provide a reliable single measure of the fair value of its employee stock options.

55



        Stock Purchase Plans.    Prior to the merger, CBRE had restricted stock purchase plans covering select key executives including senior management. A total of 500,000 and 550,000 shares of common stock were reserved for issuance under CBRE's 1999 and 1996 Equity Incentive Plans, respectively. The shares were issued to senior executives for a purchase price equal to the greater of $18.00 and $10.00 per share or fair market value, respectively. The purchase price for these shares was paid either in cash or by delivery of a full recourse promissory note. All promissory notes related to the 1999 Equity Incentive Plan were repaid as part of the merger. The majority of the notes related to the 1996 Equity Incentive Plan were also repaid, with the remaining unpaid outstanding balance as of December 31, 2001 included in the consolidated statements of stockholders' equity. As part of the merger, the CBRE shares related to these outstanding promissory notes were exchanged for shares of Class B common stock of the Company.

        Bonuses.    The Company has bonus programs covering select key employees, including senior management. Awards are based on the position and performance of the employee and the achievement of pre-established financial, operating and strategic objectives. The amounts charged to expense for bonuses were $18.0 million for the period from February 20, 2001 (inception) through December 31, 2001, $16.5 million for the period from January 1, 2001 to July 20, 2001, and $49.8 million and $44.3 million for the twelve months ended December 31, 2000, and 1999, respectively.

        Capital Accumulation Plan (the Cap Plan).    The Cap Plan is a defined contribution profit sharing plan under Section 401(k) of the Internal Revenue Code and is the Company's only such plan. Generally, an employee of the Company is eligible to participate in the plan if the employee is at least 21 years old. The Cap Plan provides for participant contributions as well as discretionary employer contributions. A participant is allowed to contribute to the Cap Plan from 1% to 15%, in whole percentages, of his or her compensation, subject to limits imposed by the U.S. Internal Revenue Code. Each year, the Company determines the amount of employer contributions, if any, it will contribute to the Cap Plan based on the performance and profitability of the Company's consolidated U.S. operations. The Company's contributions for a year are allocated to participants who are actively employed on the last day of the plan year in proportion to each participant's pre-tax contributions for that year, up to 5% of the participant's compensation. The Company expensed, in connection with the Cap Plan, $0.8 million for the period from February 20, 2001 (inception) through December 31, 2001, with no expense for the period from January 1, 2001 to July 20, 2001, and $2.2 million and $1.6 million for the twelve months ended December 31, 2000 and 1999, respectively.

        In connection with the merger, each share of common stock of CBRE formerly held by the Cap Plan and credited to participant accounts was exchanged for $16.00 in cash. In addition, the Cap Plan was amended to eliminate the common stock of CBRE as an investment option within the Cap Plan after July 20, 2001. The cash received for the shares of CBRE common stock was available for reinvestment in one or more of the investment alternatives available within the Cap Plan in accordance with the terms of the plan, including a new company stock fund in which employees could invest on a one time basis in Class A shares of common stock of the Company. Subsequent to the merger, participants are no longer entitled to purchase additional shares of CBRE Holding Class A or Class B common stock for allocation to their account balance.

        Pension Plan.    The Company, through the acquisition of Hillier Parker, maintains a contributory defined benefit pension plan to provide retirement benefits to existing and former Hillier Parker employees participating in the plan. It is the Company's policy to fund the minimum annual contributions required by applicable regulations. Pension expense totaled $1.4 million for the period February 20, 2001 (inception) through December 31, 2001, $0.9 million for the period January 1, 2001

56



to July 20, 2001, and $0.9 million and $1.9 million for the twelve months ended December 31, 2000 and 1999, respectively.

        The following sets forth a reconciliation of benefit obligation, plan assets, plan's funded status and amounts recognized in the accompanying consolidated balance sheets (in thousands):

 
  Company
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1 to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

 
Change in benefit obligation                    
Benefit obligation at beginning of period   $ 75,453   $ 71,076   $ 72,146  
Service cost     2,325     2,875     5,728  
Interest cost     2,059     2,316     4,026  
Plan participants' contributions     234     641     671  
Actuarial (gain) loss     (6,558 )   2,990     (4,680 )
Benefits paid     (408 )   (1,109 )   (1,343 )
Currency loss (gain)     1,313     (3,336 )   (5,472 )
   
 
 
 
Benefit obligation at end of period   $ 74,418   $ 75,453   $ 71,076  
   
 
 
 
Change in plan assets                    
Fair value of plan assets at beginning of period   $ 87,603   $ 103,688   $ 115,039  
Actual return on plan assets     (8,430 )   (12,675 )   (3,340 )
Company contributions     438     1,740     1,257  
Plan participants' contributions     234     641     671  
Benefits paid     (408 )   (1,109 )   (1,343 )
Currency gain (loss)     1,513     (4,682 )   (8,596 )
   
 
 
 
Fair value of plan assets at end of period   $ 80,950   $ 87,603   $ 103,688  
   
 
 
 
Funded status   $ 6,533   $ 12,150   $ 32,612  
Unrecognized net actuarial loss (gain)     6,566     12,106     (7,941 )
Company contributions in the post-measurement period     489         564  
   
 
 
 
Prepaid benefit cost   $ 13,588   $ 24,256   $ 25,235  
   
 
 
 

57


        Weighted average assumptions used in developing the projected benefit obligation were as follows:

 
  Company
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1 to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

 
Discount rate   6.00 % 6.00 % 6.00 %
Expected return on plan assets   8.00 % 7.50 % 7.75 %
Rate of compensation increase   4.50 % 4.75 % 5.00 %

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

 
  Company
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1 to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

 
Employer service cost   $ 2,325   $ 2,875   $ 5,728  
Interest cost on projected benefit obligation     2,059     2,316     4,026  
Expected return on plan assets     (2,945 )   (4,257 )   (8,395 )
Unrecognized net gain             (425 )
   
 
 
 
Net periodic benefit cost   $ 1,439   $ 934   $ 934  
   
 
 
 

58


10.  Debt

        Long-term debt consists of the following (in thousands):

 
  Company
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  December 31, 2001
  December 31, 2000
111/4% Senior Subordinated Notes, net of unamortized discount of $3.3 million at December 31, 2001, due in 2011   $ 225,737   $

Senior secured term loans, with interest ranging from 5.29% to 7.50% at December 31, 2001, due from 2001 through 2008

 

 

230,325

 

 


Warehouse Line of Credit, with interest at 1.0% over the Residential Funding Corporation (RFC) base rate with a maturity date of August 31, 2002

 

 

106,790

 

 

416

16% Senior Notes, net of unamortized discount of $5.3 million at December 31, 2001, due in 2011

 

 

59,656

 

 


Non recourse debt related to property held for sale with interest at one year Yen swap plus 4.95% and a maturity date of March 15, 2002

 

 

37,179

 

 


Westmark Senior Notes, with interest ranging from 9.0% to 10.0% through December 31, 2004 and at variable rates depending on the Company's credit facility rate thereafter, due from 2001 though 2010

 

 

14,863

 

 

15,502

Euro cash pool loan, with interest at Euro Base Rate plus 2.5% and no stated maturity date

 

 

11,162

 

 

6,946

87/8% Senior Subordinated Notes, net of unamortized discount of $1.6 million at December 31, 2000, due in 2006

 

 


 

 

173,336

Revolving credit facility, with interest ranging from 8.5% to 9.0% at December 31, 2000, due in 2003

 

 


 

 

110,000

REI Senior Notes, with variable interest rates based on Sterling LIBOR minus 1.5%, due in 2002

 

 

178

 

 

2,742

Capital lease obligations, mainly for autos and telephone equipment, with interest ranging from 6.8% to 8.9%, due through 2003

 

 

1,438

 

 

2,302

Other

 

 

576

 

 

2,920
   
 
 
Total

 

 

687,904

 

 

314,164
 
Less current maturities and short-term borrowings

 

 

165,841

 

 

10,593
   
 
 
Total long-term debt

 

$

522,063

 

$

303,571
   
 

59


        Annual aggregate maturities of long-term debt at December 31, 2001 are as follows (in thousands): 2002—$165,841; 2003—$10,581; 2004—$10,717; 2005—$10,619; 2006—$10,619; and $479,527 thereafter.

        The Company has $229.0 million in aggregate principal amount of 111/4% 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 1111/4% 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 consolidated balance sheets, net of unamortized discount, was $225.7 million at December 31, 2001.

        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.

        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 December 31, 2001, the Company had no revolving line of credit principal outstanding. The total amount outstanding under the Tranche A and Tranche B facilities included in senior secured term loans and current maturities of long-term debt in the accompanying consolidated balance sheets was $230.3 million at December 31, 2001.

        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

60



the Company. Interest accrues at a rate of 16% per year and is payable quarterly in cash in arrears. However, until July 2006, interest in excess of 12% 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 December 31, 2001.

        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 minumum levels of net worth, a minumum coverage ratio of interest and certain fixed charges and a maximum leverage and senior leverage ratio of earnings before interest, taxes, depreciation and amoritization 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.

        Effective July 20, 2001, the date of the merger, the Company repaid CBRE's existing revolving credit facility and the 87/8% Senior Subordinated Notes which were outstanding prior to the merger.

        The Company has short-tem borrowings of $155.6 million and $9.2 million with related weighted average interest rates of 4.5% and 7.3% as of December 31, 2001 and 2000, respectively.

        A subsidiary of the Company has a credit agreement with 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. During the year ended December 31, 2001, the Company had a maximum of $164.0 million revolving line of credit principal outstanding. The Company had a participation agreement with RFC whereby RFC agreed to purchase a 99% participation interest in any eligible multifamily mortgage loans owned by the Company and outstanding at quarter-end (Participation Agreement). The Participation Agreement expired August 31, 2001. At December 31, 2001, the Company had a $106.8 million warehouse line of credit outstanding, which is included in short-term borrowings in the accompanying consolidated balance sheets. The

61



Company also had a $106.8 million warehouse receivable. Subsequent to December 31, 2001, the warehouse line of credit was repaid with the proceeds from the 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.

11.  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.

        The following is a schedule by years of future minimum lease payments for noncancelable leases as of December 31, 2001 (in thousands):

 
  Capital
Leases

  Operating
Leases

2002   $ 861   $ 48,749
2003     591     42,709
2004         34,608
2005         30,767
2006         25,978
Thereafter         105,303
   
 
Total minimum payments required   $ 1,452   $ 288,114
   
 

        The interest portion of capital lease payments represents the amount necessary to reduce net minimum lease payments to present value calculated at the Company's incremental borrowing rate at

62



the inception of the leases. This totaled approximately $0.01 million at December 31, 2001, resulting in a present value of net minimum lease payments of $1.4 million. At December 31, 2001, $0.8 million and $0.6 million are included in current maturities of long-term debt and long-term debt, respectively. In addition, the total minimum payments for noncancelable operating leases have not been reduced by the minimum sublease rental income of $3.9 million due in the future under noncancelable subleases.

        Substantially all leases require the Company to pay maintenance costs, insurance and property taxes, and generally may be renewed for five year periods. The composition of total rental expense under noncancelable operating leases consisted of the following (in thousands):

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

 
Minimum rentals   $ 27,203   $ 32,831   $ 56,243   $ 51,467  
Less sublease rentals     (500 )   (551 )   (1,387 )   (928 )
   
 
 
 
 
    $ 26,703   $ 32,280   $ 54,856   $ 50,539  
   
 
 
 
 

        The Company has an agreement with Fannie Mae to fund the purchase of a $108.3 million loan portfolio using proceeds from its RFC line of credit. A 100% participation in the loan portfolio was subsequently sold to Fannie Mae with the Company retaining the credit risk on the first 2% of losses incurred on the underlying commercial mortgage loans. The Company collateralized a portion of its obligation to cover the first 2% of losses through a letter of credit in favor of Fannie Mae. The Company had a participation agreement with RFC whereby RFC agreed to purchase a 99% participation interest in any eligible multifamily mortgage loans owned by the Company and outstanding at quarter-end. This participation agreement expired on August 31, 2001.

        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 December 31, 2001, the Company had committed an additional $36.1 million to fund future co-investments.

63



12.  Income Taxes

        The tax provision (benefit) consisted of the following (in thousands):

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

 
Federal:                          
  Current   $ 11,747   $   $ 24,924   $ 14,403  
  Deferred tax     (3,252 )   (911 )   921     (1,417 )
  Reduction of valuation allowances     796         (3,000 )   (6,347 )
   
 
 
 
 
      9,291     (911 )   22,845     6,639  
State:                          
  Current     3,173     1,600     6,895     5,627  
  Deferred tax     (494 )   (658 )   (1,243 )   (1,411 )
   
 
 
 
 
      2,679     942     5,652     4,216  
Foreign:                          
  Current     10,137     1,079     7,015     8,837  
  Deferred tax     (4,091 )       (761 )   (3,513 )
   
 
 
 
 
      6,046     1,079     6,254     5,324  
   
 
 
 
 
    $ 18,016   $ 1,110   $ 34,751   $ 16,179  
   
 
 
 
 

        The following is a reconciliation, stated as a percentage of pre-tax income, of the US statutory federal income tax rate to the Company's effective tax rate on income from operations:

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

 
Federal statutory tax rate   35 % (35 )% 35  % 35  %
Permanent differences, including goodwill, meals, entertainment and other   5   25   11   15  
State taxes, net of federal benefit   5   2   6   9  
Foreign income taxes   4   11   4   4  
Change in valuation allowances   2     (5 ) (22 )
   
 
 
 
 
Effective tax rate   51 % 3  % 51  % 41  %
   
 
 
 
 

        The domestic component of income (loss) before provision for income tax included in the consolidated statements of operations was $22.5 million for the period from February 20, 2001 (inception) through December 31, 2001, $(23.0) million for the period January 1, 2001 to July 20, 2001, and $63.2 million and $32.0 million for the twelve months ended December 31, 2000 and 1999, respectively. The international component of income (loss) before provision for income tax was

64



$12.9 million for the period from February 20, 2001 (inception) through December 31, 2001, $(9.9) million for the period January 1, 2001 to July 20, 2001, and $4.9 million and $7.4 million for the twelve months ended December 31, 2000 and 1999, respectively.

        Cumulative tax effects of temporary differences are shown below at December 31, 2001 and 2000 (in thousands):

 
  Company
  Predecessor
 
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

 
 
  December 31, 2001
  December 31, 2000
 
Asset (Liability)              
Property and equipment   $ 16,665   $ 11,910  
Bad debts and other reserves     10,225     12,832  
Intangible amortization     (2,311 )   (15,736 )
Bonus, unexercised restricted stock, deferred compensation     53,418     35,343  
Partnership income     5,045     6,950  
Net operating loss (NOL) and alternative minimum tax credit carryforwards     3,778     6,134  
Unconsolidated affiliates     7,568     1,010  
All other, net     3,312     1,853  
   
 
 
Net deferred tax asset before valuation allowances     97,700     60,296  
Valuation allowances     (11,543 )   (16,830 )
   
 
 
  Net deferred tax asset   $ 86,157   $ 43,466  
   
 
 

        The Company had federal income tax NOLs of approximately $9.5 million at December 31, 2001, corresponding to $3.3 million of the Company's $97.7 million in net deferred tax assets before valuation allowances.

        The Company's ability to utilize NOLs of CBRE has been limited for the period from July 21, 2001 through December 31, 2001 and will be limited in subsequent years because CBRE experienced a change in ownership greater than 50% on July 20, 2001. As a result of the ownership change, the limitation was approximately $5.2 million of its NOLs for the period from July 21, 2001 through December 31, 2001 and will be approximately $11.4 million in year 2002 and in each subsequent year until fully utilized. The amount of NOLs is, in any event, subject to some uncertainty until the statute of limitations lapses after their utilization to offset taxable income. The NOL carryforwards expire in 2008.

        Management has determined that as of December 31, 2001, $11.5 million of deferred tax assets do not satisfy the recognition criteria set forth in SFAS No. 109. Accordingly, a valuation allowance has been recorded for this amount. Approximately $10.7 million of this valuation allowance relates to deferred tax assets acquired in the merger. Accordingly, goodwill will be reduced at such time as these deferred tax assets are realized.

        A deferred US tax liability has not been provided on the unremitted earnings of foreign subsidiaries because it is the intent of the Company to permanently reinvest these earnings. Undistributed earnings of foreign subsidiaries, which have been or are intended to be permanently invested in accordance with APB No. 23, "Accounting for Income Taxes—Special Areas," aggregated $36.7 million at December 31, 2001. The determination of the tax liability upon repatriation is not practicable.

65



13.  Shareholders' Equity

        The Company is authorized to issue 100,000,000 shares of common stock, including 75,000,000 shares of Class A common stock and 25,000,000 shares of Class B common stock, both with $0.01 par value per share. The holders of Class A common stock are entitled to one vote for each share. Holders of Class B common stock are entitled to ten votes for each share. There are no differences between the two classes of common stock other than number of votes. The holders of Class A and Class B common stock shall share equally on a per-share basis all dividends and other cash, stock or property distributions.

        Upon written request of any holder of Class B common stock, any shares will be automatically converted on a share-for-share basis into the same number of shares of Class A common stock. In addition, upon any transfer, sale, or other disposition, shares of Class B common stock shall be converted into shares of Class A common stock on a share-for-share basis, excluding the transfer to certain permitted Class B common stockholders. Also, upon completion of an underwritten public offering in which the Company becomes listed on a national securities exchange, all outstanding shares of Class B common stock shall automatically be converted into shares of Class A common stock on a share-for-share basis.

        As long as Class B common stock are outstanding, if a holder of Class B common stock purchases any shares of Class A common stock, the holder may convert on a share-for-share basis into the same number of shares of Class B common stock.

14.  Earnings Per Share Information

        Basic earnings (loss) per share was computed by dividing net income (loss) by the weighted average number of common shares outstanding during each period. The computation of diluted earnings (loss) per share further assumes the dilutive effect of stock options, stock warrants and other stock-based compensation programs.

        The following is a calculation of earnings (loss) per share (in thousands, except share data):

 
  Company
 
  CBRE Holding, Inc.
 
  February 20, 2001 (inception)
through
December 31, 2001

 
  Income
  Shares
  Per-
Share
Amount

Basic earnings per share:                
  Net income applicable to common stockholders   $ 17,426   7,845,004   $ 2.22
   
 
 
Diluted earnings per share:                
  Net income applicable to common stockholders   $ 17,426   7,845,004      
  Diluted effect of exercise of options outstanding              
  Diluted effect of stock-based compensation programs              
  Diluted effect of contingently issuable shares         64,793      
   
 
     
  Net income applicable to common stockholders   $ 17,426   7,909,797   $ 2.20
   
 
 

66


 
  Predecessor
  Predecessor
  Predecessor
 
  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  Period from
January 1
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

 
  Income
  Shares
  Per-
Share
Amount

  Income
  Shares
  Per-
Share
Amount

  Income
  Shares
  Per-
Share
Amount

Basic (loss) earnings per share:                                                
  Net (loss) income applicable to common stockholders   $ (34,020 ) 21,306,584   $ (1.60 ) $ 33,388   20,931,111   $ 1.60   $ 23,282   20,998,097   $ 1.11
   
 
 
 
 
 
 
 
 
Diluted (loss) earnings per share:                                                
  Net (loss) income applicable to common stockholders   $ (34,020 ) 21,306,584         $ 33,388   20,931,111         $ 23,282   20,998,097      
  Diluted effect of exercise of options outstanding                       35,594               74,339      
  Diluted effect of stock-based compensation programs                       130,535                    
   
 
       
 
       
 
     
  Net (loss) income applicable to common stockholders   $ (34,020 ) 21,306,584   $ (1.60 ) $ 33,388   21,097,240   $ 1.58   $ 23,282   21,072,436   $ 1.10
   
 
 
 
 
 
 
 
 

        The following items were not included in the computation of diluted earnings per share because their effect in the aggregate was anti-dilutive:

 
  Company
  Predecessor
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  February 20, 2001
(inception)
through
December 31, 2001

  Period from
January 1
to
July 20, 2001

  Twelve Months
Ended
December 31, 2000

  Twelve Months
Ended
December 31, 1999

Stock options                
  Outstanding   1,503,021   2,562,150   2,574,029   2,008,659
  Price ranges   $16.00   $0.38-$36.75   $11.81-$36.75   $16.38-$36.75
  Expiration ranges   7/20/11   6/8/04-8/31/10   6/8/04-8/31/10   6/8/04-5/31/09
Stock warrants                
  Outstanding   255,477   597,969   598,387   599,967
  Price   $30.00   $30.00   $30.00   $30.00
  Expiration date   8/27/07   8/28/04   8/28/04   8/28/04

        All options and warrants for the period from January 1, 2001 to July 20, 2001 are anti-dilutive as the Company reported a net loss. Any assumed exercise of options or warrants would be anti-dilutive as this would result in a lower loss per share.

15.  Fiduciary Funds

        The consolidated balance sheets do not include the net assets of escrow, agency and fiduciary funds, which amounted to $373.2 million and $357.7 million at December 31, 2001 and 2000, respectively.

67



16.  Disclosures About Fair Value of Financial Instruments

        Long-term Debt.    Based on dealers quotes, the estimated fair value of the Company's $225.7 million 111/4% Senior Subordinated Notes is $199.5 million at December 31, 2001. There was no trading activity for the 16% Senior Note which has an effective interest rate of 17.8% and is due in 2011. Its carrying value as of December 31, 2001 totaled $59.7 million (see Note 10).

        Estimated fair values for the Senior secured term loans and the remaining long-term debts are not presented because the Company believes that it is not materially different from book value, primarily because the majority of the Company's debt is based on variable rates.

17.  Nonrecurring Charges

        During the period from February 20, 2001 (inception) through December 31, 2001, the Company recorded other nonrecurring pre-tax charges totaling $6.4 million which mainly related to the write-off of e-business investments. During the period from January 1, 2001 to July 20, 2001, CBRE recorded merger-related and other nonrecurring charges of $22.1 million which includes merger-related costs of $16.4 million, severance costs of $2.8 million related to CBRE's cost reduction program instituted in May 2001, as well as the write-off of an e-investment of $2.9 million.

18.  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 December 31, 2001 and December 31, 2000; condensed consolidating statements of operations for the period from February 20, 2001 (inception) through December 31, 2001, the period from January 1, 2001 through July 20, 2001, and the twelve months ended December 31, 2000 and 1999; and condensed consolidating statements of cash flows for the period from February 20, 2001 (inception) to December 31, 2001, the period from January 1, 2001 to July 20, 2001, and the twelve months ended December 31, 2000 and 1999 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.

        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 December 31, 2001 does not reflect this allocation of goodwill based upon the fair value of the Company's reporting units.

68


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, net         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:                                    
  111/4% 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
   
 
 
 
 
 

69


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2000
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Elimination
  Consolidated Total
Current Assets:                              
  Cash and cash equivalents   $ 62   $ 7,558   $ 13,234   $   $ 20,854
  Receivables, less allowance for doubtful accounts     637     84,757     91,098         176,492
  Warehouse receivable         416             416
  Inter-company receivable         8,448         (8,448 )  
  Prepaid and other current assets     11,139     7,138     7,006         25,283
   
 
 
 
 
    Total current assets     11,838     108,317     111,338     (8,448 )   223,045
Property and equipment, net         55,100     20,892         75,992
Goodwill, net         213,131     210,844         423,975
Other intangible assets, net     5,964     36,267     4,201         46,432
Cash surrender value of insurance policies, deferred compensation plan     53,203                 53,203
Investment in and advances to unconsolidated subsidiaries     3,695     32,511     5,119         41,325
Investment in consolidated subsidiaries     228,021     187,887         (415,908 )  
Inter-company loan receivable     293,111             (293,111 )  
Deferred taxes, net     32,327                 32,327
Prepaid pension costs             25,235         25,235
Other assets     4,741     30,752     6,078         41,571
   
 
 
 
 
    Total assets   $ 632,900   $ 663,965   $ 383,707   $ (717,467 ) $ 963,105
   
 
 
 
 
Current Liabilities:                              
  Accounts payable and accrued expenses     2,720     33,730     47,223         83,673
  Inter-company payable             8,448     (8,448 )  
  Compensation and employee benefits payable         46,568     33,233         79,801
  Accrued bonus and profit sharing         86,708     21,170         107,878
  Income taxes payable     28,260                 28,260
  Short-term borrowings:                              
    Warehouse line of credit         416             416
    Other         1,853     6,946         8,799
   
 
 
 
 
    Total short-term borrowings         2,269     6,946         9,215
  Current maturities of long-term debt         473     905         1,378
   
 
 
 
 
    Total current liabilities     30,980     169,748     117,925     (8,448 )   310,205
Long-term debt:                              
  87/8% senior subordinated notes, net of unamortized discount     173,336                 173,336
  Revolving credit facility     110,000                 110,000
  Other long-term debt     2,742     16,111     1,382         20,235
  Inter-company loan payable         234,923     58,188     (293,111 )  
   
 
 
 
 
    Total long-term debt     286,078     251,034     59,570     (293,111 )   303,571
Deferred compensation liability     80,503                 80,503
Other liabilities         15,162     14,577         29,739
   
 
 
 
 
    Total liabilities     397,561     435,944     192,072     (301,559 )   724,018

Minority interest

 

 


 

 


 

 

3,748

 

 


 

 

3,748

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

235,339

 

 

228,021

 

 

187,887

 

 

(415,908

)

 

235,339
   
 
 
 
 
   
Total liabilities and stockholders' equity

 

$

632,900

 

$

663,965

 

$

383,707

 

$

(717,467

)

$

963,105
   
 
 
 
 

70


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 20, 2001 (INCEPTION) THROUGH DECEMBER 31, 2001
(Dollars in thousands)
(Company)

 
  Parent
  CBRE
  Guarantor Subsidiaries
  Nonguarantor Subsidiaries
  Elimination
  Consolidated Total
Revenue   $   $   $ 416,446   $ 146,382   $   $ 562,828
Costs and expenses:                                    
  Commissions, fees and other incentives             211,082     58,334         269,416
  Operating, administrative and other     500     3,391     139,792     68,357         212,040
  Depreciation and amortization             8,523     3,675         12,198
  Merger-related and other nonrecurring charges         2,144     3,530     768         6,442
   
 
 
 
 
 
Operating (loss) income     (500 )   (5,535 )   53,519     15,248         62,732
Interest income     1,135     19,270     370     561     (18,909 )   2,427
Interest expense     8,199     20,353     17,091     2,983     (18,909 )   29,717
Equity earnings of consolidated subsidiaries     22,721     27,952     8,605         (59,278 )  
   
 
 
 
 
 
Income before (benefit) provision for income tax     15,157     21,334     45,403     12,826     (59,278 )   35,442
(Benefit) provision for income tax     (2,269 )   (1,387 )   17,451     4,221         18,016
   
 
 
 
 
 
Net income   $ 17,426   $ 22,721   $ 27,952   $ 8,605   $ (59,278 ) $ 17,426
   
 
 
 
 
 

71


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1 TO JULY 20, 2001
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Elimination
  Consolidated Total
 
Revenue   $   $ 465,280   $ 142,654   $   $ 607,934  
Costs and expenses:                                
  Commissions, fees and other incentives         222,536     61,758         284,294  
  Operating, administrative and other     663     209,185     80,183         290,031  
  Depreciation and amortization         17,021     8,635         25,656  
  Merger-related and other nonrecurring charges     19,260     2,867             22,127  
   
 
 
 
 
 
Operating (loss) income     (19,923 )   13,671     (7,922 )       (14,174 )
Interest income     16,757     952     615     (16,757 )   1,567  
Interest expense     18,014     14,952     4,094     (16,757 )   20,303  
Equity losses of consolidated subsidiaries     (12,764 )   (12,435 )       25,199      
   
 
 
 
 
 
Loss before provision for income tax     (33,944 )   (12,764 )   (11,401 )   25,199     (32,910 )
Provision for income tax     76         1,034         1,110  
   
 
 
 
 
 
Net loss   $ (34,020 ) $ (12,764 ) $ (12,435 ) $ 25,199   $ (34,020 )
   
 
 
 
 
 

72


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Elimination
  Consolidated Total
Revenue   $   $ 1,027,359   $ 296,245   $   $ 1,323,604
Costs and expenses:                              
  Commissions, fees and other incentives         518,561     116,761         635,322
  Operating, administrative and other     2,380     378,912     156,506         537,798
  Depreciation and amortization         26,604     16,595         43,199
   
 
 
 
 
Operating (loss) income     (2,380 )   103,282     6,383         107,285
Interest income     32,969     1,389     876     (32,680 )   2,554
Interest expense     37,980     29,151     7,249     (32,680 )   41,700
Equity earnings (losses) of consolidated subsidiaries     37,585     (5,300 )       (32,285 )  
   
 
 
 
 
Income before (benefit) provision for income tax     30,194     70,220     10     (32,285 )   68,139
(Benefit) provision for income tax     (3,194 )   32,635     5,310         34,751
   
 
 
 
 
Net income (loss)   $ 33,388   $ 37,585   $ (5,300 ) $ (32,285 ) $ 33,388
   
 
 
 
 

73


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor Subsidiaries
  Nonguarantor Subsidiaries
  Elimination
  Consolidated Total
Revenue   $   $ 940,342   $ 272,697   $   $ 1,213,039
Costs and expenses:                              
  Commissions, fees and other incentives         455,661     103,628         559,289
  Operating, administrative and other     2,247     394,437     139,697         536,381
  Depreciation and amortization         23,839     16,631         40,470
   
 
 
 
 
Operating (loss) income     (2,247 )   66,405     12,741         76,899
Interest income     30,721     924     724     (30,439 )   1,930
Interest expense     35,351     27,852     6,604     (30,439 )   39,368
Equity earnings of consolidated subsidiaries     27,339     4,048         (31,387 )  
   
 
 
 
 
Income before (benefit) provision for income tax     20,462     43,525     6,861     (31,387 )   39,461
(Benefit) provision for income tax     (2,820 )   16,186     2,813         16,179
   
 
 
 
 
Net income   $ 23,282   $ 27,339   $ 4,048   $ (31,387 ) $ 23,282
   
 
 
 
 

74


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 20, 2001 (INCEPTION) TO DECEMBER 31, 2001
(Dollars in thousands)
(Company)

 
  Parent
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Elimination
  Consolidated Total
 
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES   $ 310   $ 5,947   $ 60,535   $ 28,599   $   $ 95,391  
CASH FLOWS FROM INVESTING ACTIVITIES:                                      
Purchases of property and equipment             (8,303 )   (2,255 )       (10,558 )
Proceeds from sale of properties, businesses and servicing rights             1,996     112         2,108  
Purchase of investments             (250 )   (831 )       (1,081 )
Investment in property held for sale                 (40,174 )       (40,174 )
Contribution to CBRE     (154,881 )               154,881      
Acquisition of businesses including net assets acquired, intangibles and goodwill         (212,369 )   (1,850 )   (483 )       (214,702 )
Other investing activities, net         (1 )   (1,700 )   658         (1,043 )
   
 
 
 
 
 
 
  Net cash used in investing activities     (154,881 )   (212,370 )   (10,107 )   (42,973 )   154,881     (265,450 )
CASH FLOWS FROM FINANCING ACTIVITIES:                                      
Proceeds from revolver and swingline credit facility         113,750                 113,750  
Repayment of revolver and swingline credit facility         (113,750 )               (113,750 )
Proceeds from senior secured term loans         235,000                 235,000  
Repayment of senior secured term loans         (4,675 )               (4,675 )
Proceeds from nonrecourse debt related to property held for sale                 37,179         37,179  
Repayment of 87/8% senior subordinated notes         (175,000 )               (175,000 )
Proceeds from 111/4% senior subordinated notes         225,629                 225,629  
Proceeds from 16% senior subordinated notes     65,000                     65,000  
Repayment of revolving credit facility         (235,000 )               (235,000 )
Repayment of senior notes and other loans, net             (1,185 )   (3 )       (1,188 )
Payment of deferred financing fees     (2,582 )   (19,168 )               (21,750 )
Proceeds from issuance of stock     92,156     154,881             (154,881 )   92,156  
Decrease (increase) in intercompany receivables, net         30,263     (6,981 )   (23,282 )        
Other financing activities, net         (5,535 )   (103 )   2,118         (3,520 )
   
 
 
 
 
 
 
  Net cash provided by (used in) financing activities     154,574     206,395     (8,269 )   16,012     (154,881 )   213,831  
   
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     3     (28 )   42,159     1,638         43,772  
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD         959     45     12,658         13,662  
Effect of exchange rate changes on cash                 16         16  
   
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, AT END OF PERIOD   $ 3   $ 931   $ 42,204   $ 14,312   $   $ 57,450  
   
 
 
 
 
 
 
SUPPLEMENTAL DATA:                                      
  Cash paid during the period for:                                      
    Interest (none capitalized)   $ 2,600   $ 22,562   $ 874   $ 90   $   $ 26,126  
    Federal and local income taxes   $ 5,061   $   $   $   $   $ 5,061  

75


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1 TO JULY 20, 2001
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Consolidated Total
 
CASH FLOWS USED IN OPERATING ACTIVITIES   $ (37,633 ) $ (52,031 ) $ (29,234 ) $ (118,898 )
CASH FLOWS FROM INVESTING ACTIVITIES:                          
Purchases of property and equipment         (12,641 )   (3,505 )   (16,146 )
Proceeds from sale of properties, businesses and servicing rights         9,105     439     9,544  
Purchase of investments         (2,500 )   (702 )   (3,202 )
Investment in property held for sale             (2,282 )   (2,282 )
Acquisition of businesses including net assets acquired, intangibles and goodwill         (31 )   (1,893 )   (1,924 )
Other investing activities, net     251     (524 )   812     539  
   
 
 
 
 
  Net cash provided by (used in) investing activities     251     (6,591 )   (7,131 )   (13,471 )
CASH FLOWS FROM FINANCING ACTIVITIES:                          
Proceeds from revolving credit facility     195,000             195,000  
Repayment of revolving credit facility     (70,000 )           (70,000 )
(Repayment of) proceeds from senior notes and other loans, net     (2,490 )   (1,656 )   4,592     446  
Payment of deferred financing fees     (8 )           (8 )
(Increase) decrease in intercompany receivables, net     (85,712 )   52,846     32,866      
Other financing activities, net     1,489     (81 )   (616 )   792  
   
 
 
 
 
  Net cash provided by financing activities     38,279     51,109     36,842     126,230  
   
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     897     (7,513 )   477     (6,139 )
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD     62     7,558     13,234     20,854  
Effect of exchange rate changes on cash             (1,053 )   (1,053 )
   
 
 
 
 
CASH AND CASH EQUIVALENTS, AT END OF PERIOD   $ 959   $ 45   $ 12,658   $ 13,662  
   
 
 
 
 
SUPPLEMENTAL DATA:                          
  Cash paid during the period for:                          
    Interest (none capitalized)   $ 17,194   $ 1,165   $ 98   $ 18,457  
    Federal and local income taxes   $ 19,083   $   $   $ 19,083  

76


CBRE HOLDING,INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor
Subsidiaries

  Nonguarantor
Subsidiaries

  Consolidated Total
 
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES   $ (30,270 ) $ 109,487   $ 4,895   $ 84,112  
CASH FLOWS FROM INVESTING ACTIVITIES:                          
Purchases of property and equipment         (17,828 )   (9,093 )   (26,921 )
Proceeds from sale of properties, businesses and servicing rights         16,926     569     17,495  
Purchase of investments         (20,316 )   (3,097 )   (23,413 )
Acquisition of businesses including net assets acquired, intangibles and goodwill         (4,959 )   (1,602 )   (6,561 )
Other investing activities, net     (177 )   6,336     (2,481 )   3,678  
   
 
 
 
 
  Net cash used in investing activities     (177 )   (19,841 )   (15,704 )   (35,722 )
CASH FLOWS FROM FINANCING ACTIVITIES:                          
Proceeds from revolving credit facility     179,000             179,000  
Repayment of revolving credit facility     (229,000 )           (229,000 )
Decrease (increase) in intercompany receivables, net     81,779     (82,424 )   645      
Other financing activities, net     (2,134 )   (5,951 )   4,562     (3,523 )
   
 
 
 
 
  Net cash provided by (used in) financing activities     29,645     (88,375 )   5,207     (53,523 )
   
 
 
 
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS     (802 )   1,271     (5,602 )   (5,133 )
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD     864     6,287     20,693     27,844  
Effect of exchange rate changes on cash             (1,857 )   (1,857 )
   
 
 
 
 
CASH AND CASH EQUIVALENTS, AT END OF PERIOD   $ 62   $ 7,558   $ 13,234   $ 20,854  
   
 
 
 
 
SUPPLEMENTAL DATA:                          
  Cash paid during the period for:                          
    Interest (none capitalized)   $ 35,464   $ 2,606   $ 282   $ 38,352  
    Federal and local income taxes   $ 27,607   $   $   $ 27,607  

77


CBRE HOLDING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(Dollars in thousands)
(Predecessor)

 
  CBRE
  Guarantor Subsidiaries
  Nonguarantor
Subsidiaries

  Consolidated Total
 
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES   $ (4,399 ) $ 56,398   $ 22,012   $ 74,011  
CASH FLOWS FROM INVESTING ACTIVITIES:                          
Purchases of property and equipment         (25,050 )   (10,080 )   (35,130 )
Proceeds from sale of inventoried property         7,355         7,355  
Proceeds from sale of properties, businesses and servicing rights         12,072         12,072  
Purchase of investments         (1,019 )       (1,019 )
Acquisition of businesses including net assets acquired, intangibles and goodwill     (550 )   (10,181 )   (3,531 )   (14,262 )
Other investing activities, net     (1,855 )   4,356     1,716     4,217  
   
 
 
 
 
  Net cash used in investing activities     (2,405 )   (12,467 )   (11,895 )   (26,767 )
CASH FLOWS FROM FINANCING ACTIVITIES:                          
Proceeds from revolving credit facility     165,000             165,000  
Repayment of revolving credit facility     (172,000 )           (172,000 )
Repayment of senior notes and other loans, net     (2,403 )   (3,498 )   (6,501 )   (12,402 )
Decrease (increase) in intercompany receivables, net     23,606     (23,269 )   (337 )    
Other financing activities, net     (6,734 )   (11,157 )   (428 )   (18,319 )
   
 
 
 
 
  Net cash provided by (used in) financing activities     7,469     (37,924 )   (7,266 )   (37,721 )
   
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS     665     6,007     2,851     9,523  
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD     199     280     19,072     19,551  
Effect of exchange rate changes on cash             (1,230 )   (1,230 )
   
 
 
 
 
CASH AND CASH EQUIVALENTS, AT END OF PERIOD   $ 864   $ 6,287   $ 20,693   $ 27,844  
   
 
 
 
 
SUPPLEMENTAL DATA:                          
  Cash paid during the period for:                          
    Interest (none capitalized)   $ 34,780   $ 1,874   $ 343   $ 36,997  
    Federal and local income taxes   $ 12,689   $   $   $ 12,689  

78


19. Industry Segments

        Subsequent to the merger, 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. This included the Transaction Management, Financial Services and Management Services segments. The Company's Americas results for the period from February 20, 2001 (inception) through December 31, 2001 include merger-related and other nonrecurring charges of $5.4 million. The results for the period from January 1, 2001 through July 20, 2001, include $21.5 million in merger-related and other nonrecurring charges, as well as a nonrecurring pre-tax gain of $5.6 million from the sale of mortgage fund contracts. Prior year results include a $4.7 million nonrecurring pre-tax gain on the sale of certain non-strategic assets. The 1999 results include nonrecurring pre-tax gains from the sale of five non-strategic offices and a risk management operation totaling $8.7 million. The following table summarizes the revenue and operating income (loss) by operating segment (dollars in thousands):

79


 
  Company
   
   
   
 
  Predecessor
  Predecessor
  Predecessor
 
  CBRE
Holding,
Inc.

 
  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

  CB Richard
Ellis Services,
Inc.

 
  February 20,
2001
(inception)
through
December 31,
2001

 
  Period
from
January 1
to
July 20, 2001

  Twelve
Months
Ended
December 31,
2000

  Twelve
Months
Ended
December 31,
1999

Revenue                        
  Americas                        
    Leases   $ 183,691   $ 203,110   $ 472,148   $ 395,927
    Sales     128,802     130,968     315,281     310,439
    Property and facilities management fees     34,134     40,976     72,627     78,322
    Consulting and referral fees     23,515     24,825     60,419     54,719
    Appraisal fees     19,553     22,389     37,553     36,034
    Loan origination and servicing fees     30,385     34,186     58,190     45,940
    Investment management fees     16,107     19,437     32,528     25,107
    Other     4,162     12,559     25,334     35,965
   
 
 
 
    Total revenue     440,349     488,450     1,074,080     982,453
  EMEA                        
    Leases     13,965     14,906     35,859     27,220
    Sales     27,353     21,149     57,381     57,532
    Property and facilities management fees     11,405     11,479     21,113