<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 3, 1996
CB COMMERCIAL HOLDINGS, INC.
-------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-18525 52-1616016
--------------- ----------------- -----------------
(STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER
JURISDICTION OF NUMBER) IDENTIFICATION NO.)
INCORPORATION)
533 SOUTH FREMONT AVENUE - LOS ANGELES, CALIFORNIA 90071
- -------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (213) 613-3123
-----------------
N/A
------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following are furnished as exhibits to this report:
10.1* Stock Purchase Agreement dated as of June 27, 1996 among CB
Commercial Real Estate Group, Inc. and CB Commercial Mortgage
Company, Inc., on the one hand, and Lawrence J. Melody and John
M. Bradley, on the other hand.
10.2* Stock Purchase Agreement dated as of June 27, 1996 among CB
Commercial Real Estate Group, Inc. and CB Commercial Mortgage
Company, Inc., on the one hand, and Lawrence J. Melody, on the
other hand.
23* Consent of Arthur Andersen LLP
99.1* Financial statements for L.J. Melody & Company for the year ended
December 31, 1995, together with the report of Arthur
Andersen LLP with respect thereto.
99.2* Financial statements for L.J. Melody & Company of California for
the year ended December 31, 1995, together with the report
of Arthur Andersen LLP with respect thereto.
99.3 Financial statements for L.J. Melody & Company for the six months
ended June 30, 1996 and 1995.
99.4 Financial statements for L.J. Melody & Company of California for
the six months ended June 30, 1996 and 1995.
99.5 Pro forma combined balance sheet as of June 30, 1996 and
statements of operations for the year ended December 31,
1995 and the six months ended June 30, 1996.
______________________________
* Previously filed
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
CB COMMERCIAL HOLDINGS, INC.
Date: September 13, 1996 By: /s/ WALTER V. STAFFORD
---------------------------
Walter V. Stafford
Senior Executive Vice President
<PAGE>
L. J. Melody & Company
Balance Sheet
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
1996
----
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents 375,706
Investment in mutual funds, at fair value 2,403,590
Accounts receivable and other current assets 480,178
Short-term investment in note receivable -
----------
Total current assets 3,259,474
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 147,590
NOTES RECEIVABLE FROM OFFICER -
OTHER ASSETS, net 44,856
----------
Total assets 3,451,920
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits 159,735
Accounts payable and accrued expenses 127,575
Warehouse credit line -
---------
Total current liabilities 287,310
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock 135,000
Unrealized depreciation on investment in mutual funds (75,021)
Retained earnings 3,104,631
----------
3,164,610
Total liabilities and shareholders' equity 3,451,920
==========
</TABLE>
<PAGE>
L. J. Melody & Company
Statement of Operations
For the Six Months Ended June 30, 1996
(Unaudited)
1996
----
REVENUES:
Loan placement and brokerage 958,096
Loan servicing and asset management 987,016
Other income 350,846
----------
2,295,958
EXPENSES:
Salaries and other compensation 2,536,662
General and administrative 920,922
Depreciation and amortization 35,711
----------
3,493,295
NET LOSS (1,197,337)
RETAINED EARNINGS AT BEGINNING OF PERIOD 4,766,968
DISTRIBUTIONS TO SHAREHOLDERS (465,000)
----------
RETAINED EARNINGS AT END OF PERIOD 3,104,631
==========
<PAGE>
L. J. Melody & Company
Statement of Cash Flows
For the Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
1996
----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (1,197,337)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 35,711
Equity in loss of joint venture 22,187
Loss on disposal of equipment 148,877
Reinvestment of dividends on investment in mutual funds (62,375)
Origination of multifamily mortgage loans for sale (20,550,000)
Proceeds from sales of multifamily mortgage loans 27,950,000
Changes in operating assets and liabilities-
Accounts receivable and other current assets 244,998
Accrued employee benefits (344,335)
Accounts payable and accrued expenses (473,141)
-----------
Net cash provided by (used in) operating activities 5,774,585
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -
Payments received on notes receivable from officers 361,749
Purchase of other assets (4,092)
-----------
Net cash provided by (used in) investing activities 357,657
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders (465,000)
Payment of dividends -
Advances on warehouse line 20,550,000
Payments on warehouse line (27,950,000)
-----------
Net cash provided by (used in) financing activities (7,865,000)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,732,758)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,108,464
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 375,706
===========
</TABLE>
<PAGE>
L. J. MELODY & COMPANY
----------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1996
-------------
(Unaudited)
1. SIGNIFICANT ACCOUNTING MATTERS:
-------------------------------
L. J. Melody & Company (the Company) is a commercial mortgage banker and SEC-
registered investment adviser. The Company services commercial mortgages and
manages real estate investments for institutional clients. As of June 30, 1996,
the Company was servicing loans for others with principal balances aggregating
approximately $1.9 billion. During the six month period ended June 30, 1996,
approximately 25 percent of loan servicing and asset management fees and 40
percent of loan placement and brokerage fees were earned from one of the
Company's investors. In addition, approximately 10 percent of loan placement
and brokerage fees and 45 percent of loan servicing and asset management fees
were earned from two separate investors. The Company primarily operates in the
Southwestern United States; however, it pursues mortgage banking operations in
other areas of the country as they arise. L. J. Melody Investments, Inc., a
majority-owned subsidiary, operates as a commercial mortgage broker doing
business in Colorado. The following is a summary of significant accounting
matters.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiary. Minority interest amounts relating to such
subsidiary are not material to the financial statements. All significant
intercompany transactions and balances have been eliminated upon consolidation.
In the opinion of management, the accompanying consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of financial position and results of
operation.
The consolidated financial statements for the interim period have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
not misleading.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standard Regarding Impairment
- --------------------------------------------
In March 1995 the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Effective
January 1, 1996, the Company adopted SFAS No. 121. The adoption of this standard
did not have a material effect on the Company's financial position or results of
operations.
<PAGE>
New Accounting Standard Regarding Accounting for Transfers and Servicing of
- ---------------------------------------------------------------------------
Financial Assets and Extinguishment of Liabilities
- --------------------------------------------------
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. This
statement is required to be adopted by the Company in fiscal 1997. Management
of the Company has not yet determined the impact, if any, that the adoption of
this statement will have on the Company's financial position or results of
operations.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of cash and money market mutual funds, the
fair value of which approximates cost. The Company considers all investments
with an original maturity of less than three months to be cash equivalents.
Investments in Mutual Funds
- ---------------------------
The Company accounts for its investments in mutual funds in accordance with SFAS
No. 115, "Accounting for Investments in Debt and Equity Securities," whereby
investments classified as "available for sale" are reported at fair value, with
unrealized appreciation and depreciation excluded from earnings and reported as
a separate component of shareholders' equity. During the six months ended June
30, 1996, interest received on the Company's investments of $62,375 was
reinvested in the mutual funds. Additionally, unrealized
appreciation/depreciation on investments reflected as a separate component of
shareholders' equity decreased $101,711 during the six months ended June 30,
1996.
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are carried at cost. Direct costs incurred
in connection with software development for internal use are capitalized.
Depreciation and amortization are computed using the straight-line or double-
declining methods over the assets' estimated useful lives, which range from
three to ten years.
Loan Placement and Brokerage Revenues
- -------------------------------------
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction. Loan
placement and brokerage expenses are charged to income as incurred.
Loan Servicing and Asset Management Revenues
- --------------------------------------------
Loan servicing revenue represents a participation in interest collections on
loans serviced for investors, normally based upon a stipulated percentage of the
outstanding monthly principal balance of such loans. These revenues are
credited to income as monthly principal and interest payments are collected from
mortgagors, and expenses of loan servicing are charged to income as incurred.
Federal Income Taxes
- --------------------
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders include
the Company's taxable income or loss in their individual tax returns.
<PAGE>
2. INVESTMENT IN JOINT VENTURE:
----------------------------
In June 1994 the Company entered into a joint venture with W. L. Case Holding
Company (Case), an Ohio corporation, to form WLC Real Estate Finance L.L.C.
(WLC), a Delaware limited liability company. WLC was formed for the purpose of
developing and originating mortgage loans under programs developed by certain
lenders. The Company and Case each contributed $100,000 for 50 percent
interests in WLC. Case applied to Freddie Mac and received approval as a
Multifamily Program Plus Seller/Servicer. In connection therewith, the Company
signed an agreement effectively guaranteeing the performance of Case to Freddie
Mac of any and all obligations, as defined, up to a maximum amount of
$1,000,000. WLC has entered into an exclusive mortgage correspondent agreement
dated December 1, 1994, whereby WLC will serve as Case's exclusive mortgage
correspondent in connection with the origination, underwriting and closing of
commercial and multifamily mortgage loans for certain lenders.
WLC is jointly managed by Case and the Company and, accordingly, is accounted
for under the equity method of accounting. During the six months ended June 30,
1996, the Company recorded equity in losses of WLC of approximately $22,000,
representing its pro rata share of WLC's net loss. Such amount has been
included as a component of other income on the accompanying consolidated
statements of operations while the Company's net investment in the joint venture
of approximately $13,000 at June 30, 1996, has been included as a component of
other assets in the accompanying consolidated balance sheet.
3. WAREHOUSE CREDIT LINE:
----------------------
During 1994, the Company entered into a warehouse credit line (the Line) with a
bank to provide funding for 99 percent of the principal balance of multifamily
loans originated and warehoused for sale to Freddie Mac. Under the terms of the
Line, interest is paid on outstanding borrowings at the Freddie Mac-required net
yield as specified in the Freddie Mac purchase contract issued to the Company
and borrowings are repaid upon purchase of the notes receivable from Freddie
Mac. The Line includes covenants which require the Company to meet certain
ratios and levels of tangible net worth and debt coverage and maintain a minimum
loan servicing portfolio. As of June 30, 1996, the Company was in compliance
with the covenants contained in the Line. At June 30, 1996, no amount was
outstanding under the line.
4. RELATED-PARTY TRANSACTIONS:
---------------------------
At June 30, 1995, the Company had unsecured notes receivable from two officers
(who are also shareholders of the Company) in the amounts of $363,245 and
$16,622. The outstanding borrowings have maturity dates ranging from December
31, 1995, to December 31, 1999, and bear interest ranging from 7.5 percent to 9
percent payable annually in arrears. The Company recognized $14,622 of interest
income on these notes for the six months ended June 30, 1996. In May 1996 the
notes, including accrued interest, were repaid in full.
L. J. Melody & Company of California (LJMCal) is owned 99 percent by one of the
shareholders of the Company. The Company provides loan servicing on certain
loans obtained by LJMCal for which services the Company earned $130,608 during
the six months ended June 30, 1996. The Company also provides accounting and
other administrative services for LJMCal for which the Company received $36,000
during the six months ended June 30, 1996.
5. REGULATORY REQUIREMENTS:
------------------------
The Company is a Department of Housing and Urban Development (HUD) approved
Title II mortgagee as well as a Freddie Mac-approved Multifamily Program Plus
Seller/Servicer. The Company is subject to the minimum net worth requirements of
HUD and Freddie Mac. At June 30, 1996, the Company's net worth, as calculated in
accordance with HUD and Freddie Mac guidelines, was in excess of the minimum
required net worth. Additionally, as of June 30, 1996, the Company carried
errors and omission insurance coverage of $5,000,000 and fidelity bond insurance
coverage of $4,000,000, which are in excess of the minimum required insurance
coverage of each program.
<PAGE>
As a Freddie Mac Multifamily Program Plus Seller/Servicer, the Company is
obligated to advance funds to ensure the timely payment of insurance and taxes
on loans serviced on behalf of Freddie Mac. Advances are recovered through
subsequent collections from the borrower or from Freddie Mac in the event of
default by the borrower. At June 30, 1996, no amount was outstanding for
advances made by the Company for insurance and taxes on behalf of Freddie Mac.
6. SUBSEQUENT EVENT:
-----------------
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc. (CB
Commercial), acquired all of the outstanding capital stock of the Company and of
LJMCal. The aggregate purchase price for the Company and LJMCal was $12.7
million, of which $9 million was paid in cash provided from working capital of
CB Commercial and the remainder in senior and contingent promissory notes. On
July 9, 1996, CB Mortgage merged into the Company, with the Company surviving
the merger. As a result of the merger, LJMCal became a wholly owned subsidiary
of the Company, and it is intended that at the end of 1996 LJMCal will be merged
into the Company.
<PAGE>
L. J. Melody & Company of California
Balance Sheet
June 30, 1996
(Unaudited)
1996
----
CURRENT ASSETS:
Cash and cash equivalents 257,892
Accounts receivable and other current assets 78,753
---------
Total current assets 336,645
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 169,060
OTHER ASSETS:
Employment agreements and covenants not to compete, net 63,787
Purchased loan servicing rights and related assets, 372,135
---------
Total assets 941,627
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued employee benefits 197,491
Accounts payable and accrued expenses 69,755
---------
Total current liabilities 267,246
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Voting common stock 1,000
Non-voting common stock -
Additional paid-in capital 1,179,974
Retained earnings (506,593)
---------
674,381
Total liabilities and shareholders' equity 941,627
===========
<PAGE>
L. J. Melody & Company of California
Statement of Operations
For the Six Months Ended June 30, 1996
(Unaudited)
1996
----
REVENUES:
Loan placement and brokerage 942,981
Loan servicing 326,798
Other income (loss) (3,350)
----------
1,266,429
EXPENSES:
Salaries and other compensation 1,074,529
General and administrative 624,358
Depreciation and amortization 128,382
----------
1,827,269
NET LOSS (560,840)
==========
<PAGE>
L. J. Melody & Company of California
Statement of Cash Flows
For the Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
1996
----
<S> <C>
OPERATING ACTIVITIES:
Net Loss (560,840)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 128,382
Loss on disposal on equipment 28,626
Changes in operating assets and liabilities-
Accounts receivable and other current assets 1,089,436
Accrued employee benefits (227,116)
Accounts payable and accrued expenses (60,860)
----------
Net cash provided by (used in) operating activities 397,628
INVESTING ACTIVITIES:
Purchase of other assets -
Purchase of equipment (93,863)
----------
Net cash used in investing activities (93,863)
FINANCING ACTIVITIES:
Repurchase of non-voting common stock -
Distributions to shareholders (227,273)
----------
Net cash used in financing activities (227,273)
----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 76,492
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 181,400
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 257,892
===========
</TABLE>
<PAGE>
L. J. MELODY & COMPANY OF CALIFORNIA
------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1996
-------------
(Unaudited)
1. SIGNIFICANT ACCOUNTING MATTERS:
-------------------------------
L. J. Melody & Company of California (the Company) is a commercial mortgage
banker and servicer of commercial mortgages. As of June 30, 1996, the Company
was servicing loans for others with principal balances aggregating approximately
$1.6 billion. Approximately 50 percent of loan placement and brokerage revenue
and 70 percent of loan servicing revenue were earned from one investor. In
addition, approximately 10 percent of loan placement and brokerage revenue and
25 percent of loan servicing revenue were earned from two separate investors.
The Company primarily operates in Southern California and Arizona; however, it
pursues mortgage banking operations in other areas of the country as they arise.
The following is a summary of the Company's significant accounting matters.
Basis of Presentation
- ---------------------
The financial statements for the interim period have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information not
misleading. In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of financial position
and results of operation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities, if any, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standard Regarding Impairment
- --------------------------------------------
In March 1995 the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement established the recognition and measurement standards related to the
impairment of long-lived assets. Effective January 1, 1996, the Company adopted
SFAS No. 121. The adoption of this standard did not have a material effect on
the Company's financial position or results of operations.
New Accounting Standard Regarding Accounting for Transfers and Servicing of
- ---------------------------------------------------------------------------
Financial Assets and Extinguishment of Liabilities
- --------------------------------------------------
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. This
statement is required to be adopted by the Company in fiscal 1997. Management
of the Company has not yet determined the impact, if any, that the adoption of
the Company has not yet determined the impact, if any, that the adoption of this
statement will have on the Company's financial position or results of
operations.
<PAGE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of cash and money market mutual funds. Cash
equivalents are carried at cost, which approximates fair value. The Company
considers all investments with an original maturity of less than three months to
be cash equivalents.
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are carried at cost. Depreciation and
amortization are computed using the straight-line or double declining balance
methods over the assets' estimated useful lives, which range from three to ten
years.
Purchased Loan Servicing Rights
- -------------------------------
The cost of purchased loan servicing rights is being amortized in proportion to
and over the period of estimated servicing income and on a straight-line basis.
Adjustments are made for unexpected loan prepayments as they occur.
Employment Agreements
and Covenants Not to Compete
- ----------------------------
Capitalized costs relating to employment agreements and covenants not to compete
are amortized on a straight-line basis over the term of the related agreement.
Loan Placement and Brokerage
- ----------------------------
Revenue from loan placement and brokerage is recognized at the time that a
noncontingent commitment is obtained and the Company has no significant
remaining obligations for performance in connection with the transaction.
Related expenses are charged to income as incurred.
Loan Servicing
- --------------
Loan servicing revenue represents a participation in interest collections on
loans serviced for investors, normally based upon a stipulated percentage of the
outstanding monthly principal balance of such loans. These revenues are
credited to income as monthly principal and interest payments are collected from
mortgagors, and expenses of loan servicing are charged to income as incurred.
Income Taxes
- ------------
The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to federal income tax. The shareholders include
the Company's taxable income or loss in their individual tax returns. For
California state income tax purposes, the Company is taxed under Subchapter S
status.
2. RELATED-PARTY TRANSACTIONS:
---------------------------
L. J. Melody & Company provides loan servicing on certain loans obtained by the
Company and also provides administrative services for which the Company paid
$130,608 during the six months ended June 30, 1996.
3. SUBSEQUENT EVENT:
-----------------
Effective July 1, 1996, CB Commercial Mortgage Company, Inc. (CB Mortgage), a
wholly owned subsidiary of CB Commercial Real Estate Group, Inc. (CB
Commercial), acquired all of the outstanding capital stock of the Company and of
L. J. Melody & Company (LJMCo), an affiliate of the Company that is owned 67
percent by the majority shareholder of the Company. The aggregate purchase price
for the Company and LJMCo was $12.7 million, of which $9 million was paid in
cash provided from working capital of CB Commercial and the remainder in senior
and contingent promissory notes. On July 9, 1996, CB Mortgage merged into LJMCo,
with the LJMCo surviving the merger. As a result of the merger, the Company
became a wholly owned subsidiary of LJMCo, and it is intended that at the end of
1996 the Company will be merged into LJMCo.
<PAGE>
CB COMMERCIAL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of June 30, 1996,
and combined statements of operations for the six months ended June 30, 1996,
and the year ended December 31, 1995 ("the pro forma financial statements") give
effect to the acquisitions of Westmark Realty Advisors L.L.C., a Delaware
limited liability company ("Westmark"), L.J. Melody & Company, a Texas
corporation, and L.J. Melody & Company of California, a Texas corporation
(together, "Melody"), by CB Commercial Holdings, Inc. and Subsidiaries ("CB
Commercial") (together with Westmark and Melody, the "Company") as if the Melody
acquisition occurred on June 30, 1996, in the combined balance sheet and as if
both acquisitions occurred on January 1, 1995, in the combined statement of
operations. The pro forma statements also reflect the effects of the financing
obtained to conclude the acquisition, as well as certain other related
assumptions. The Company has determined initially that the $34.5 million
(Westmark) and $10.5 million (Melody) in goodwill arising from the acquisitions
should be amortized on a straight-line basis over an estimated useful life of 30
years. The Company recognizes that a 30 year period could be viewed as longer
than that generally used for service businesses and may be subject to challenge.
In addition, the Company intends to periodically evaluate the significant
assumptions inherent in the recoverability of this asset and record any
impairment in the period such changes occur.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management believes are reasonable. The
acquisitions have been accounted for by CB Commercial as purchases. The
adjustments included in the pro forma financial statements represent the effects
of the Company's preliminary determination and allocation of the purchase price
to the fair value of the assets and liabilities acquired, based upon currently
available information. There can be no assurance that the actual effects will
not differ significantly from the pro forma adjustments reflected in the pro
forma financial statements.
The pro forma financial statements are not necessarily indicative of either
future results of operations or results that might have been achieved if the
acquisitions had been consummated as of the dates indicated. The pro forma
financial statements should be read in conjunction with the historical
consolidated financial statements and footnotes of CB Commercial, Westmark, and
Melody, and CB Commercial's Current Report on Form 8-K dated July 3, 1996.
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------------
CB Commercial L.J. Melody
Holdings Inc. L.J. Melody & Company
And Subsidiaries & Company of California
---------------- --------------- -------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $27,451 $175 $200
Receivables, less allowance for doubtful
accounts 29,739
Prepaid expenses 7,828 86 29
---------- ------ -----
Total current assets 65,018 261 229
Property and equipment, net 42,972 148 169
Other intangible assets, net 9,370 432
Goodwill, net 58,373 4
Inventoried property 7,355
Deferred tax asset
Other assets, net 6,675 13 24
---------- ------ -----
Total assets 189,763 422 858
========= ======= =======
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Compensation and employee benefits 23,566 227 245
Accounts payable and accrued expenses 17,778 91 38
Senior revolving credit line 16,323
Current maturities of long-term debt 11,002
Current portion of Melody notes
Reserve for bonus and profit sharing 5,805
Current portion of capital lease obligations 2,592
---------- ------ -----
Total current liabilities 77,066 318 283
---------- ------ -----
Long-term debt, less current maturities
Senior term loans 142,172
Senior subordinated term loans 82,108
Melody notes
Inventoried property loan 7,470
Other long-term debt 3,275
---------- ------ -----
Total long-term debt 235,025 0 0
---------- ------ -----
Other long-term liabilities 28,679
---------- ------ -----
Total liabilities 340,770 318 283
---------- ------ -----
Commitments and contingencies
Stockholders' Equity (Deficit)
Preferred stock, $0.01 par value 40
Common stock, $0.01 par value 95 104
Common stock options outstanding 263
Additional paid-in capital 112,116 575
Accumulated deficit (263,521)
---------- ------ -----
Total stockholders' equity (deficit) (151,007) 104 575
---------- ------ -----
Total liabilities and stockholders' equity (deficit) $189,763 $422 $858
========== ====== =====
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
------------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ($9,000)(b) $18,826
Receivables, less allowance for doubtful
accounts 29,739
Prepaid expenses 7,943
-------- ---------
Total current assets (9,000) 56,508
Property and equipment, net - 43,289
Other intangible assets, net 3,296 (b) 13,098
Goodwill, net 10,510 (b)
(5,250)(a) 63,637
Inventoried property 7,355
Deferred tax asset 5,250 (a)
(1,528)(b) 3,722
Other assets, net 6,712
-------- ---------
Total assets 3,278 194,321
======== =========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Compensation and employee benefits 24,038
Accounts payable and accrued expenses 290 (b) 18,197
Senior revolving credit line 16,323
Current maturities of long-term debt 11,002
Current portion of Melody notes 1,500 (b) 1,500
Reserve for bonus and profit sharing 5,805
Current portion of capital lease obligations 2,592
-------- ----------
Total current liabilities 1,790 79,457
-------- ----------
Long-term debt, less current maturities
Senior term loans 1,500 (b) 143,672
Senior subordinated term loans 82,108
Melody notes -
Inventoried property loan 7,470
Other long-term debt 667 (b) 3,942
-------- ----------
Total long-term debt 2,167 237,192
-------- ----------
Other long-term liabilities - 28,679
-------- ----------
Total liabilities 3,957 345,328
-------- ----------
Commitments and contingencies
Stockholders' Equity (Deficit)
Preferred stock, $0.01 par value 40
Common stock, $0.01 par value (104)(b) 95
Common stock options outstanding 263
Additional paid-in capital (575)(b) 112,116
-------- ----------
Accumulated deficit (263,521)
Total stockholders' equity (deficit) (679) (151,007)
-------- ----------
Total liabilities and stockholders' equity (deficit) $3,278 $194,321
======== ==========
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
--------------------------------------------
CB Commercial L.J. Melody
Holdings Inc. L.J. Melody & Company Pro Forma Pro Forma
And Subsidiaries & Company of California Adjustments Combined
---------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Operating revenues $243,423 $2,161 $1,256 $246,840
Interest income 1,021 135 10 1,166
----------- -------- -------- -------- ----------
244,444 2,296 1,266 - 248,006
----------- -------- -------- -------- ----------
Costs and Expenses:
Commissions, fees and other costs 110,852 2,537 1,075 (1,070) (c) 113,394
Operating and administrative 115,135 921 624 233 (d) 116,913
Interest 11,547 - - 216 (e) 11,763
Depreciation and amortization 4,894 35 128 355 (f) 5,412
----------- -------- -------- -------- ----------
242,428 3,493 1,827 (266) 247,482
----------- -------- -------- -------- ----------
Income before provision for income taxes 2,016 (1,197) (561) 266 524
Provision for income taxes 390 - (287) (g) 103
----------- -------- -------- -------- ----------
Net Income $1,626 ($1,197) ($561) $553 $421
========== -------- -------- -------- ==========
Per share date
Net income per common and common
equivalent share outstanding $0.12 $0.03
========== ==========
Weighted average common and common
equivalent shares outstanding 13,449,967 13,449,967
========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
CB Commercial Westmark L.J. Melody
Holdings Inc. Realty L.J. Melody & Company
And Subsidiaries Advisors L.L.C. & Company of California
Year Ended Six Months Ended Year Ended Year Ended
December 31, 1995 June 30, 1995 December 31, 1995 December 31, 1995
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $468,287 $10,887 $6,866 $3,471
Interest income 1,847 36 208 8
----------------- ----------------- ----------------- ------------------
470,134 10,923 7,074 3,479
----------------- ----------------- ----------------- ------------------
Costs and Expenses:
Commissions, fees and other costs 219,603 - 4,453 2,093
Operating and administrative 207,383 9,285 1,417 976
Interest 23,267 19
Depreciation and amortization 11,631 163 165 273
----------------- ----------------- ----------------- ------------------
461,884 9,467 6,035 3,342
----------------- ----------------- ----------------- ------------------
Income before provision for income taxes 8,250 1,456 1,039 137
Provision for income taxes 841
----------------- ----------------- ----------------- ------------------
Net Income 7,409 1,456 1,039 137
================= ================= ================= ==================
Per share date
Net income per common and common
equivalent share outstanding $0.56
=================
Weighted average common and common
equivalent shares outstanding 13,168,975
=================
<CAPTION>
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
<S> <C> <C>
Revenues:
Operating revenues $489,511
Interest income 2,099
----------- ---------
- 491,610
----------- ---------
Costs and Expenses:
Commissions, fees and other costs 226,149
Operating and administrative 50 (h)
96 (i)
82 (j)
467 (d) 219,756
Interest 2,794 (k) 26,080
Depreciation and amortization 17 (l)
2,253 (m) 14,502
----------- ---------
5,759 486,487
----------- ---------
Income before provision for income taxes (5,759) 5,123
Provision for income taxes 2 (n) 843
(623) (g) (623)
----------- ---------
Net Income (5,138) 4,903
=========== =========
Per share date
Net income per common and common
equivalent share outstanding $0.37
=========
Weighted average common and common
equivalent shares outstanding 13,168,975
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(Amounts in thousands)
(a) Reflects deferred tax asset recognized as a result of Melody
acquisition.
(b) Reflects the purchase accounting adjustments for the Melody acquisition
along with the related financing and elimination of Melody's equity.
(c) Reflects reversal of accrual for one-time bonus compensation to Melody
employees recorded prior to the acquisition.
(d) Reflects compensation expense for Larry Melody's employment agreement
entered into in connection with the acquisition.
(e) Reflects interest on debt financing of acquisition.
(f) Reflects the amortization of $9,000 in net intangible assets and
goodwill of Melody. Period of amortization ranges from three years to 30
years.
(g) Reflects deferred tax benefit of certain pro forma adjustments relating
to Melody purchase accounting entries, consisting of additional
compensation expense, interest expense and amortization of intangible
assets.
(h) Reflects elimination of Westmark's historical amortization of deferred
leasing concessions.
(i) Reflects increased compensation resulting from new employment agreements
with certain Westmark executives.
(j) Reflects occupancy rent on a straight-line basis from date of Westmark
acquisition.
(k) Reflects interest on debt financing ($2,251 for Westmark and $543 for
Melody) of acquisitions.
(l) Reflects increase in depreciation expense associated with reducing the
useful life of Westmark's computers from 5 to 3 years.
(m) Reflects the amortization of $41,400 and $9,000 in net intangible assets
and goodwill for Westmark and Melody, respectively. Amortization is
$1,544 and $709 for Westmark and Melody, respectively. Period of
amortization ranges from three years to 30 years.
(n) Reflects the additional minimum tax resulting from combined operations
of Westmark.
