<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
- -----
Exchange Act of 1934
For the quarterly period ended September 30, 1998
_____ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from___________________ to _________________
Commission File Number 001 - 12231
CB RICHARD ELLIS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1616016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
533 South Fremont Avenue
Los Angeles, California 90071-1712
(Address of principal executive offices) (Zip Code)
(213) 613 - 3123 Not Applicable
(Registrant's telephone (Former name, former address and formal
number, including area code) fiscal year if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No___.
---
Number of shares of common stock outstanding at October 31, 1998 was 21,075,034.
1
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December 31, 1997......... 3
Unaudited Consolidated Statements of Operations for the three months ended
September 30, 1998 and 1997 and for the nine months ended September 30, 1998 and 1997.......... 4
Unaudited Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997.............................................................. 5
Notes to Consolidated Condensed Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................... 26
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................ 27
Signatures............................................................................................... 28
</TABLE>
2
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 23,437 $ 47,181
Receivables, less allowance of $11,670 and $8,427 for doubtful accounts
at September 30, 1998 and December 31, 1997, respectively................. 119,971 77,658
Deferred taxes............................................................. 3,036 2,890
Prepaid expenses........................................................... 14,028 9,142
Other assets............................................................... 17,329 8,419
--------- ---------
Total current assets...................................................... 177,801 145,290
Property and equipment, net................................................. 62,588 50,309
Goodwill, net of accumulated amortization of $21,324 and $13,561 at
September 30, 1998 and December 31, 1997, respectively..................... 415,497 196,358
Other intangible assets, net of accumulated amortization of $265,699 and
$261,519 at September 30, 1998 and December 31, 1997, respectively......... 58,432 43,026
Prepaid pension expenses.................................................... 26,720 -
Inventoried property........................................................ 7,355 7,355
Deferred taxes.............................................................. 25,188 34,967
Other assets, net........................................................... 32,805 22,795
--------- ---------
Total assets.............................................................. $ 806,386 $ 500,100
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Compensation and employee benefits......................................... $ 51,432 55,712
Accounts payable and accrued expenses...................................... 87,141 57,032
Reserve for bonus and profit sharing....................................... 27,766 33,538
Current maturities of long-term debt....................................... 9,089 4,679
Current portion of capital lease obligations............................... 3,305 1,655
--------- ---------
Total current liabilities................................................. 178,733 152,616
--------- ---------
Long-term debt, less current maturities:
Senior term loans.......................................................... 196,502 136,551
Senior subordinated notes, less unamortized discount of $2,148 at
September 30, 1998........................................................ 172,852 -
Other long-term debt....................................................... 21,146 9,722
--------- ---------
Total long-term debt...................................................... 390,500 146,273
--------- ---------
Other long-term liabilities................................................. 54,365 35,768
--------- ---------
Total liabilities......................................................... 623,598 334,657
--------- ---------
Minority interest........................................................... 5,752 7,672
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value, 4,000,000 shares outstanding as of
December 31, 1997......................................................... - 40
Common stock, $0.01 par value, 20,718,899 and 18,768,200 shares
outstanding as of September 30, 1998 and December 31, 1997, respectively.. 207 188
Additional paid-in capital................................................. 339,373 333,981
Notes receivable from sale of stock........................................ (5,832) (5,956)
Currency translation adjustment............................................ 2,846 (158)
Accumulated deficit........................................................ (159,558) (170,324)
--------- ---------
Total stockholders' equity................................................ 177,036 157,771
--------- ---------
Total liabilities and stockholders' equity................................ $ 806,386 $ 500,100
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue.................................................. $ 273,803 $ 177,520 $ 704,214 $ 469,542
Costs and Expenses:
Commissions, fees and other incentives................ 113,559 87,588 310,641 237,716
Operating, administrative and other................... 124,309 69,046 314,330 185,642
Merger-related and other nonrecurring charges......... - 12,924 16,585 12,924
Depreciation and amortization......................... 9,337 6,098 22,086 12,272
----------- ----------- ----------- -----------
Operating income......................................... 26,598 1,864 40,572 20,988
Interest income.......................................... 703 740 1,968 1,959
Interest expense......................................... 9,628 4,158 21,359 12,007
----------- ----------- ----------- -----------
Income (loss) before provision (benefit) for income tax
and extraordinary items............................... 17,673 (1,554) 21,181 10,940
Provision (benefit) for income tax....................... 7,534 (569) 10,257 4,786
----------- ----------- ----------- -----------
Income (loss) before extraordinary items................. 10,139 (985) 10,924 6,154
Extraordinary items, net................................. - 951 - 951
----------- ----------- ----------- -----------
Net income (loss)........................................ $ 10,139 $ (1,936) $ 10,924 $ 5,203
=========== =========== =========== ===========
Preferred stock dividend................................. $ - $ 1,000 $ - $ 3,000
Deemed dividend on preferred stock....................... $ - $ - $ 32,273 $ -
----------- ----------- ----------- -----------
Net income (loss) applicable to common stockholders...... $ 10,139 $ (2,936) $ (21,349) $ 2,203
=========== =========== =========== ===========
Basic earnings (loss) per share.......................... $ 0.49 $ (0.19) $ (1.07) $ $0.16
=========== =========== =========== ===========
Weighted average shares outstanding for basic earnings
per share............................................... 20,692,573 15,419,930 19,917,773 14,011,922
=========== =========== =========== ===========
Diluted earnings (loss) per share........................ $ 0.48 $ (0.19) $ (1.07) $ 0.15
=========== =========== =========== ===========
Weighted average shares outstanding for diluted
earnings per share...................................... 21,101,324 15,419,930 19,917,773 14,662,536
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................................. $ 10,924 $ 5,203
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................................................. 22,086 12,272
Deferred compensation...................................................................... 11,375 4,170
Deferred taxes............................................................................. 5,706 4,067
(Increase) decrease in receivables.......................................................... (15,605) 7,523
Decrease in compensation and employee benefits payable...................................... (22,637) (13,541)
Increase in accounts payable and accrued expenses........................................... 10,945 3,593
Net change in other operating assets and liabilities........................................ 3,726 2,493
--------- --------
Net cash provided by operating activities................................................. 26,520 25,780
--------- --------
Cash flows from investing activities:
Purchases of property and equipment......................................................... (18,040) (3,890)
Increase in intangible assets and goodwill.................................................. (14,603) (7,360)
Increase in short term investments.......................................................... - (5,000)
Acquisition of businesses including net assets acquired, intangibles
and goodwill............................................................................... (159,822) 3,216
Decrease (increase) in investments in/advances to unconsolidated
subsidiaries............................................................................... (8,461) 369
Other investing activities, net............................................................. 1,130 2,349
--------- --------
Net cash used in investing activities..................................................... (199,796) (10,316)
--------- --------
Cash flows from financing activities:
Proceeds from senior revolving credit line.................................................. - 16,000
Repayment of senior revolving credit line................................................... - (16,000)
Proceeds from senior term loan.............................................................. 268,000 155,000
Repayment of senior term loans.............................................................. (208,000) (55,415)
Proceeds from senior subordinated notes..................................................... 172,804 -
Repayment of senior subordinated term loans................................................. - (65,872)
Proceeds from other loans................................................................... - 125
Repayment of other loans.................................................................... (8,130) (52,213)
Payment of dividends payable................................................................ (5,000) -
Repurchase of preferred stock............................................................... (72,418) -
Repayment of capital leases................................................................. (1,354) (2,131)
Other financing activities, net............................................................. 3,474 (663)
--------- --------
Net cash provided (used in) by financing activities....................................... 149,376 (21,169)
--------- --------
Net decrease in cash and cash equivalents.................................................... (23,900) (5,705)
Cash and cash equivalents, at beginning of period............................................ 47,181 49,328
Effect of exchange rate changes on cash...................................................... 156 -
--------- --------
Cash and cash equivalents, at end of period.................................................. $ 23,437 $ 43,623
========= ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest (none capitalized)................................................................ $ 13,522 $ 10,919
Income taxes (refunds)..................................................................... (435) 1,934
Non-cash investing and financing activities:
Equipment acquired under capital leases..................................................... - 822
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
ORGANIZATION. CB Richard Ellis Services, Inc. ("CB Richard Ellis") or (the
"Company") is a holding company that conducts its operations primarily through
its subsidiaries CB Richard Ellis, Inc., REI Limited ("REI," the United Kingdom
holding company, now known as CB Commercial Limited, for the various Richard
Ellis companies operating outside the United Kingdom and the United States),
L.J. Melody & Company ("L.J. Melody"), CB Richard Ellis Investors, L.L.C. and CB
Hillier Parker Limited, the United Kingdom holding company for operations within
the United Kingdom. On November 25, 1996, CB Richard Ellis completed an initial
public offering (the "Offering") of 4,347,000 shares of common stock, par value
$.01 per share (the "Common Stock"). The net proceeds from the Offering of
$79.5 million were used to repay a portion of CB Richard Ellis' then outstanding
senior secured indebtedness and senior subordinated indebtedness.
NATURE OF OPERATIONS. The Company provides a full range of real estate
services worldwide to commercial real estate tenants, owners and investors
through approximately 215 offices in 29 countries including the United States,
Canada, United Kingdom, Netherlands, France, Spain, Brazil, Australia, New
Zealand, Hong Kong (including Taiwan and the People's Republic of China) and
Singapore. The Company's services include (i) brokerage services whereby the
Company facilitates the sale and lease of properties ("Brokerage Services");
(ii) transaction management, advisory services and facilities management
services to corporate real estate users ("Corporate Services"); (iii) property
management services ("Management Services"); and (iv) capital market activities,
including mortgage banking, brokerage and servicing, investment management and
advisory services, investment property transactions (including acquisitions and
sales on behalf of investors), real estate market research and valuation and
appraisal services (collectively "Financial Services"). The Company's diverse
client base includes local, national and multinational corporations, financial
institutions, pension funds and other tax exempt entities, local, state and
national governmental entities, and individuals.
A substantial component of the Company's revenues is transactional in
nature and as a result is subject to seasonality. Historically, the Company's
revenues and particularly net income in the first two calendar quarters have
been generally lower than in the third and fourth calendar quarters due to
seasonal fluctuations, which is consistent with the industry generally. However,
approximately 45.0% to 50.0% of the Company's expenses are made up of
commissions which are variable and directly correlated to revenues. In the first
quarter of any calendar year, the Company has historically sustained a loss or
marginal income. The Company's non-variable operating expenses, which are
treated as expenses when incurred during the year, are relatively constant in
total dollars on a quarterly basis. As a consequence of the seasonality of
revenues and the relatively constant level of quarterly expenses, a substantial
majority of the Company's operating income and net income has historically been
realized in the third and fourth calendar quarters.
ACQUISITIONS. Refer to the Company's financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 1997 for a discussion
of the Company's acquisitions prior to 1998.
On January 31, 1998 the Company, through L.J. Melody, acquired certain
assets of North Coast Mortgage Company, a regional mortgage banking firm for
cash payments of approximately $3.0 million, contingent notes of approximately
$0.3 million bearing interest at 6.5% with principal payments starting in
February 1999 and approximately $0.6 million in deferred cash compensation to
certain key executives and producers payable in three annual installments
beginning in February 1999. The acquisition was accounted for as a purchase. The
purchase price has largely been allocated to intangibles and goodwill, which
will be amortized on a straight line basis over their estimated useful lives of
7 and 30 years, respectively. The $0.6 million of deferred cash compensation
will be accounted for as compensation over the term of the agreements as the
payment of the compensation is contingent upon certain key executives' and
producers' continued employment with the Company.
On February 1, 1998 the Company, through L.J. Melody, acquired all of the
issued and outstanding stock of Cauble and Company of Carolina, a regional
mortgage banking firm for approximately $2.2 million, including cash payments of
approximately $1.8 million and a note payable of approximately $0.4 million
bearing interest at 9.0% with quarterly principal payments starting in April
1998. The acquisition was accounted for as a purchase. The purchase price has
largely been allocated to intangibles and goodwill, which will be amortized on a
straight line basis over their estimated useful lives of 7 and 30 years,
respectively.
6
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
On April 17, 1998 the Company purchased all of the outstanding shares of
REI, an international commercial real estate services firm operating under the
name Richard Ellis in major commercial real estate markets worldwide (excluding
the United Kingdom). The acquisition was accounted for as a purchase. On a
preliminary basis, the purchase price has largely been allocated to goodwill,
which will be amortized on a straight line basis over an estimated useful life
of 30 years. The purchase price for REI was approximately $103.0 million of
which approximately $52.7 million was paid in cash and notes and approximately
$50.3 million was paid in shares of the Company's Common Stock. In addition, the
Company assumed approximately $14.4 million of long-term debt and minority
interest. The Company incurred a one-time charge of $8.6 million associated with
the acquisition and integration of REI including costs associated with the
Company's name change which impacted the Company's results of operations for the
quarter ended June 30, 1998. For the year ended December 31, 1997, REI had
revenues of approximately $118.0 million.
On May 1, 1998 the Company, through L.J. Melody, acquired Shoptaw-James,
Inc., a regional mortgage banking firm for approximately $6.3 million in cash
and approximately $2.7 million in contingent notes bearing interest at 9.0% with
three annual payments beginning May 1999. The acquisition was accounted for as a
purchase. The $2.7 million in notes will be accounted for as compensation over
their term as payment is contingent upon certain key executives' and producers'
continued employment with the Company. The purchase price has largely been
allocated to intangibles and goodwill which will be amortized on a straight line
basis over their estimated useful lives of 7 and 30 years, respectively.
On May 31, 1998 the Company acquired Mathews Click and Associates, a
property sales, leasing, and management firm, for approximately $10.0 million in
cash and a potential supplemental payment of $1.9 million payable to the sellers
over a period of two years. The acquisition was accounted for as a purchase. The
purchase price and supplemental payment, which is contingent upon operating
results, will be allocated to intangibles and goodwill which will be amortized
on a straight line basis over their estimated useful lives of 7 and 30 years,
respectively.
On July 1, 1998 the Company increased its ownership percentage in CB
Commercial/Arnheim & Neely, an existing partnership formed in September 1996,
which then combined with the Galbreath Company Mid-Atlantic to form CB Richard
Ellis/Pittsburgh, LP. The purchase price of the Company's interest in the
combined enterprise was $5.7 million.
On July 7, 1998 the Company acquired the business of Hillier Parker May and
Rowden ("Hillier Parker"), a commercial property services partnership operating
in the United Kingdom. The acquisition was accounted for as a purchase. The
purchase price for Hillier Parker included approximately $63.9 million in cash
and $7.1 million in shares of the Company's Common Stock. In addition, the
Company adopted a special incentive compensation plan for senior Hillier Parker
employees with a potential payout over three years of approximately $12.5
million and assumed various annuity obligations of approximately $15.0 million.
On a preliminary basis, the purchase price has largely been allocated to
goodwill which will be amortized on a straight line basis over its estimated
useful life of 30 years.
On September 22, 1998 the Company purchased the approximately 73.0%
interest that it did not already own in CB Commercial Real Estate Group of
Canada, Inc. The Company acquired the remaining interest for approximately $14.3
million in cash. The acquisition was accounted for as a purchase. The purchase
price will largely be allocated to intangibles and goodwill which will be
amortized on a straight line basis over their estimated useful lives of 5 and 30
years, respectively.
7
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The assets and liabilities of certain acquired companies, along with the
related goodwill, intangibles and indebtedness, are reflected in the
accompanying consolidated financial statements as of September 30, 1998. The
results of operations of the acquired companies are included in the consolidated
results from the dates they were acquired. The unaudited pro forma results of
operations of the Company for the three months ended September 30, 1997 and
1998, and the nine months ended September 30, 1997 and 1998, assuming the Koll
Real Estate Services ("Koll") and REI acquisitions, which constitute the
Company's only material acquisitions, had occurred on January 1, 1997, would
have been as follows (amounts in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $273,803 $225,525 $720,528 $636,251
Net income (loss)....................... 10,139 (20,215) 1,953 (20,047)
Net income (loss) applicable to common
stockholders........................... 10,139 (21,215) (30,320) (23,047)
Income (loss) per share
Basic................................ 0.49 (0.97) (1.48) (1.12)
Diluted.............................. 0.48 (0.97) (1.48) (1.12)
</TABLE>
The pro forma results do not necessarily represent results which would have
occurred if the acquisitions had taken place on the date assumed above, nor are
they indicative of the results of future combined operations. The amounts are
based upon certain assumptions and estimates, and do not reflect any benefit
from economies which might be achieved from combined operations. Further, Koll
historical results for the first eight months of 1997 and REI historical results
for the first three months of 1998 include certain nonrecurring adjustments.
2. IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of ("SFAS No. 121"), in March 1995. In
accordance with SFAS No. 121, long-lived assets and certain intangibles held and
used by the Company will be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Effective June 30, 1998, the Company wrote down the carrying value
of the Company's headquarters' building to its estimated fair market value. The
write-down of $8.0 million was triggered by the Company's decision to sell its
building and relocate its headquarters.
Further, the Company periodically evaluates the recoverability of the
carrying amount of goodwill and other intangible assets in accordance with SFAS
No. 121. In this assessment, the Company considers macro market conditions and
trends in the Company's relative market position, its capital structure, lender
relationships and the estimated undiscounted future cash flows associated with
these assets. If any of the significant assumptions inherent in this assessment
materially change due to market, economic and/or other factors, the
recoverability is assessed based on the revised assumptions and resultant
undiscounted cash flows. If such analysis indicates impairment, it would be
recorded in the period such changes occur based on the fair value of the
goodwill and other intangible assets.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at September 30, 1998 consisted of $396.6 million related to the
1995 through 1998 acquisitions which is being amortized over an estimated useful
life of 30 years and $19.8 million related to the Company's original acquisition
in 1989 which is being amortized over an estimated useful life of 40 years.
8
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Other intangible assets at September 30, 1998 included approximately $8.2
million of deferred financing costs and $50.2 million of intangibles stemming
from the 1995 through 1998 acquisitions.
4. EMPLOYEE BENEFIT PLANS
In 1994 the Company implemented the Deferred Compensation Plan ("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 amounts deferred at a future date
either in cash, which accrues at a rate of interest determined in accordance
with the DCP and is an unsecured long term liability of the Company, or in newly
issued shares of Common Stock of the Company which elections are recorded as
additions to Stockholders' Equity. For the nine months ended September 30,
1998, approximately $7.4 million and $3.9 million were deferred in cash
(including interest) and stock, respectively. The accumulated deferrals as of
September 30, 1998, were approximately $14.1 million in cash (including
interest) and $8.5 million in stock for a total of $22.6 million, all of which
was charged to expense in the period of deferral.
During 1998, the Company granted stock options in connection with its
various stock option plans with exercise prices equal to fair market value at
date of grant ranging from $14.95 to $38.50 per share. The vesting periods for
these options range from approximately three to five years, expiring in 2008.
In June 1998, under the 1996 Equity Incentive Plan, a key employee
purchased 25,000 shares of common stock at fair market value by delivery of a
full recourse promissory note.
In June 1998, the Company issued 75,064 shares of its common stock with a
fair value at date of issuance of approximately $2,890,000 pursuant to the
Company's Capital Accumulation Plan for the year ended December 31, 1997.
The Company, through the acquisition of Hillier Parker, maintains a
contributory defined benefit pension plan ("DBP") to provide retirement benefits
to former Hillier Parker employees participating in the plan. The Company's
funding policy for DBP is to make the minimum annual contributions required by
applicable regulations. As of September 30, 1998, DBP plan assets exceed DBP
plan liabilities by approximately $26.7 million and the net prepaid pension
asset is reflected in the accompanying balance sheet.
5. DEBT
In May 1998, the Company amended its revolving credit facility with a group
of banks to provide up to $400.0 million for five years, subject to mandatory
reductions of $40.0 million, $80.0 million and $80.0 million on December 31,
1999, 2000 and 2001, respectively. The amount outstanding under this facility
was $180.0 million as of September 30, 1998 which is included in the
accompanying balance sheet. Interest rate alternatives include Bank of
America's reference rate plus 0.50% and LIBOR plus 1.50%. The weighted average
rate on the amounts outstanding at September 30, 1998 was 7.35%.
In May 1998, the Company sold $175.0 million of 8.875% Senior Subordinated
Notes ("Subordinated Notes") due on June 1, 2006. The Subordinated Notes are
redeemable in whole or in part after June 1, 2002 at 104.438% of par on that
date and at declining prices thereafter. On or before June 1, 2001, up to 35.0%
of the issued amount may be redeemed at 108.875% of par plus accrued interest
solely with the proceeds from an equity offering.
6. INCOME TAXES
The provisions for income taxes for the nine month periods ended September
30, 1998 and 1997 were computed in accordance with Interpretation No. 18 of APB
opinion No. 28 on reporting taxes for interim periods and were based on
projections of total year pre-tax income. The Company anticipates that the
amortization of goodwill will provide a tax benefit to offset any actual or
deemed distributions of earnings from its foreign subsidiaries. In addition,
the foreign
9
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries have invested or will invest indefinitely any earnings not so
distributed in accordance with paragraph 12 of APB opinion No. 23. As a result,
no U.S. taxes have been provided on earnings of foreign subsidiaries. Reference
is made to Note 9 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a
discussion of the Company's deferred taxes including net operating loss
carryforwards.
7. COMMITMENTS AND CONTINGENCIES
In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergin County,
alleging gender discrimination and wrongful termination by the Company. On
November 20, 1996 a jury returned a verdict against the Company, awarding $6.5
million in general and punitive damages to the plaintiff. Subsequently, the
trial court awarded the plaintiff $638,000 in attorneys' fees and costs.
Following denial by the trial court of the Company's motions for new trial,
reversal of the verdict and reduction of damages, the Company filed an appeal of
the verdict and requested a reduction of damages and an appellate ruling is
expected in late 1998 or early 1999. The Company has established reserves for
this case, and management believes the reserves are adequate as of September 30,
1998. Based on available cash and anticipated cash flows, the Company believes
that the ultimate outcome will not have an impact on the Company's ability to
carry on its operations.
8. STOCKHOLDERS' EQUITY
On January 27, 1998 the Company purchased all 4.0 million of its existing
convertible preferred shares which could have been converted into approximately
2.56 million common shares, based on the Company's prevailing stock price on
that date. The preferred shares carried a dividend requirement of $.25 per share
per quarter. The total cost to purchase the preferred shares was $77.4 million,
including $5.0 million of previously accrued dividends and certain stock
options. The shares were originally issued in conjunction with the Company's
acquisition by management in 1989.
9. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting of Comprehensive Income.
Comprehensive income is a measure of all changes in equity of the Company that
result from recognized transactions and other economic events of the period
excluding investments in or distributions from the Company. All components of
comprehensive income are reported under the provisions of SFAS No. 130. For the
nine months ended September 30, 1998, total comprehensive income was $13.7
million which includes foreign currency translation income of $2.8 million.
10. PER SHARE INFORMATION
Basic earnings (loss) per share was computed by dividing net income (loss),
less preferred dividend requirements as applicable, 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, during periods when preferred stock was outstanding
and was dilutive, the conversion of the preferred stock. When the Company is in
a net loss position for a particular reporting period, the stock options and
warrants outstanding are excluded as they are anti-dilutive.
10
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)
The following is a calculation of earnings (loss) per share (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
Quarter Ended September 30,
-------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------
Income Per-Share Per-Share
(Loss) Shares Amount Income Shares Amount
--------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net income (loss)...................... $ 10,139 20,692,573 $(1,936) 15,419,930
Preferred stock dividend............... - (1,000)
-------- -------
Income (loss) applicable to common
stockholders.......................... $ 10,139 $ 0.49 $(2,936) $(0.19)
======== ====== ======= =========
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) applicable to common
stockholders.......................... $ 10,139 20,692,573 $(2,936) 15,419,930
Diluted effect of exercise of options
outstanding........................... 408,751 -
-------- ---------- ------- ----------
Income (loss) applicable to common
stockholders.......................... $ 10,139 21,101,324 $ 0.48 $(2,936) 15,419,930 $(0.19)
======== ========== ====== ======= ========== =========
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------------
1998 1997
-------------------------------- -------------------------------
Income Per-Share Per-Share
(Loss) Shares Amount Income Shares Amount
-------- ---------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net income............................. $ 10,924 19,917,773 $ 5,203 14,011,922
Deemed dividend on preferred stock
repurchase............................ (32,273) -
Preferred stock dividend............... - (3,000)
-------- -------
Income (loss) applicable to common
stockholders.......................... $(21,349) $(1.07) $ 2,203 $ 0.16
======== ====== ======= =========
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) applicable to common
stockholders.......................... $(21,349) 19,917,773 $ 2,203 14,011,922
Diluted effect of exercise of options
outstanding........................... - 650,614
-------- ---------- ------- ----------
Income (loss) applicable to common
stockholders.......................... $(21,349) 19,917,773 $(1.07) $ 2,203 14,662,536 $ 0.15
======== ========== ====== ======= ========== =========
</TABLE>
11
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENNSED FINANCIAL STATEMENTS (CONTINUED)
The following items were not included in the computation of diluted earnings
per share because their effect was anti-dilutive:
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
------------------------------------ -------------------------------
1998 1997 1998 1997
------------------ ---------------- ------------------ -----------
<S> <C> <C> <C> <C>
Stock options
Outstanding..................... 1,574,676 1,892,928 2,993,477 250,000
Price ranges.................... $ 31.00-$38.50 $ 0.38-$36.75 $ 0.38-$38.50 $ 36.75
Expiration ranges............... 4/21/07-7/22/08 4/18/99-4/21/07 4/18/99-7/22/08 4/21/07
Stock warrants
Outstanding..................... 599,967 599,967 599,967 599,967
Price........................... $ 30.00 $ 30.00 $ 30.00 $ 30.00
Expiration...................... 8/28/04 8/28/04 8/28/04 8/28/04
Convertible preferred shares
Number of common shares at the
applicable conversion ratio... - 2,400,000 - 2,400,000
</TABLE>
11. RECLASSIFICATION
Certain reclassifications, which do not have any effect on net income, have
been made to certain prior period financial statements to conform to the
September 1998 presentation.
12. SUBSEQUENT EVENTS
On October 1, 1998 the Company increased borrowings under the amended
revolving credit facility by $20.0 million to purchase the remaining ownership
interests that it did not already own in the Richard Ellis Australia and New
Zealand businesses (Victoria, Queensland, Sydney, Auckland and Wellington). On
a preliminary basis, the purchase price will largely be allocated to goodwill
which will be amortized over its estimated useful life of 30 years.
On October 15, 1998 the Company announced that its board of directors had
approved a repurchase program under which it will begin purchasing up to $10.0
million of its common stock. As of November 10, 1998 the Company had purchased
approximately 338,900 shares at a weighted average price of $19.01 per share.
On October 20, 1998 the Company, through L.J. Melody, purchased Carey,
Brumbaugh, Starman, Phillips, and Associates, Inc., a regional mortgage banking
firm, for approximately $5.6 million in cash, a note payable of $2.2 million
bearing interest at 9.0% with three annual payments beginning October 1999, and
$0.2 million of deferred cash compensation to certain key executives. The
acquisition was accounted for as a purchase. The purchase price will largely be
allocated to intangibles and goodwill which will be amortized over their
estimated useful lives of 7 and 30 years, respectively.
In October 1998 the Company offered all employees under the 1990 Stock
Option Plan who hold options that expire in April 1999 a loan equal to 100% of
the total exercise price plus 40% of the difference between the current market
value of the shares and the exercise price. Loan proceeds were applied towards
the total exercise price and payroll withholding taxes. The loans are evidenced
by full recourse promissory notes having a maturity of five years at an interest
rate of 6.0%. Interest is due annually, while the principal is due the earlier
of five years or the sale of the shares. The shares issued under this offering
may not be sold until after 18 months from the date of issuance. A total of
405,000 shares were issued under this offering for a total loan amount of $5.3
million.
12
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION -
CB Richard Ellis Services, Inc. through its direct and indirect subsidiaries
(collectively the "Company") provides real estate services through approximately
215 offices worldwide. Over the course of the last five years the Company, in
recognition of a rapidly changing structural and economic environment, has
changed from being almost exclusively a traditional real estate broker to being
a diversified real estate services firm. Its outsourcing, transaction
management, advisory services and facilities management services to corporate
real estate user services (referred to as "Corporate Services"), property
management services ("Management Services") and capital market activities,
including mortgage banking, brokerage and servicing, investment management and
advisory services, investment property transactions (including acquisitions and
sales on behalf of investors), real estate market research and valuation and
appraisal services (collectively "Financial Services") are either the largest or
one of the largest such businesses in the United States and in the aggregate
accounted for more than $306.7 million in 1997 revenue. The Company's core
brokerage business, commercial property sales and leasing ("Brokerage Services")
accounted for approximately $423.5 million in 1997 revenue and is one of the
largest such businesses in the United States.
As part of its strategic emphasis in developing its business worldwide and
tactical emphasis in enhancing geographic market penetration, the Company has,
since the beginning of 1995, completed 13 acquisitions, an $87.0 million public
offering of common stock and a $175.0 million offering of senior subordinated
notes. The Company is continually assessing acquisition opportunities as part
of its growth strategy. Because of the substantial non-cash goodwill and
intangible amortization charges incurred by the Company in connection with
acquisitions subject to purchase accounting and because of interest expense
associated with acquisition financing, past acquisitions have and future
acquisitions may adversely affect net income. In addition, during the first six
months following an acquisition, the Company believes there are generally
significant one-time costs relating to integrating information technology,
accounting and management services and rationalizing personnel levels (which the
Company intends to reflect as a statement of operations charge or as part of the
purchase price at the time of the acquisition as appropriate). Management's
strategy is to pursue acquisitions that are expected to be accretive to income
before interest expense and provision for amortization of goodwill and
intangibles, if any, and to operating cash flows (excluding the costs of
integration).
Revenue from Brokerage Services and the investment properties component of
Financial Services, which constitutes a substantial majority of the Company's
revenue, is largely transactional in nature and subject to economic cycles.
However, the Company's significant size, geographic coverage, number of
transactions and large continuing client base tend to minimize the impact of
economic cycles on annual revenue and create what the Company believes is
equivalent to a recurring stream of revenue. Between 55.0% and 60.0% of the
costs and expenses associated with Brokerage Services and the investment
properties component of Financial Services are directly correlated to revenue
while approximately 30.0% of the costs and expenses of Corporate Services,
Management Services and Financial Services, excluding investment properties, are
directly correlated to revenue.
A significant portion of the Company's revenue is seasonal. Historically,
this seasonality has caused the Company's revenue, operating income and net
income to be lower in the first two calendar quarters and higher in the third
and fourth calendar quarters of each year. 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. To date, the Company does not believe that general inflation has had a
material impact upon its operations. Revenues, commissions and other variable
costs related to revenues are primarily affected by real estate market supply
and demand rather than general inflation.
13
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
RESULTS OF OPERATIONS -
Since 1992, the Company's results have benefitted from its ability to take
advantage of a significant and ongoing recovery in U.S. commercial real estate
markets and the generally rising occupancy and rental levels, and, as a result,
property values as well as from significant expansion into international
markets. Since brokerage fees are typically based upon a percentage of
transaction value, and property management fees are typically based upon a
percentage of total rent collections, recent occupancy and rental rate increases
at the property level have generated an increase in brokerage and property
management fees to the Company. The following unaudited table sets forth items
derived from the Company's Consolidated Statements of Operations for each of the
periods presented in dollars and as a percentage of revenue.
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
-------------------------------- -----------------------------------
1998 1997 1998 1997
-------------- ---------------- ---------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............................... $273,803 100.0% $177,520 100.0% $704,214 100.0% $469,542 100.0%
Costs and expenses:
Commissions, fees and other
incentives.................. 113,559 41.5 87,588 49.3 310,641 44.1 237,716 50.6
Operating, administrative
and other................... 124,309 45.4 69,046 38.9 314,330 44.6 185,642 39.5
Merger-related and other
nonrecurring costs.......... - - 12,924 7.3 16,585 2.4 12,924 2.8
Depreciation and amortization.. 9,337 3.4 6,098 3.4 22,086 3.1 12,272 2.6
-------- ----- -------- ----- -------- ----- -------- -----
Operating income...................... 26,598 9.7 1,864 1.1 40,572 5.8 20,988 4.5
Interest income....................... 703 0.3 740 0.4 1,968 0.3 1,959 0.4
Interest expense...................... 9,628 3.5 4,158 2.3 21,359 3.0 12,007 2.6
-------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before provision
(benefit) for income tax and
extraordinary items............... 17,673 6.5 (1,554) (0.8) 21,181 3.1 10,940 2.3
Provision (benefit) for income tax.... 7,534 2.8 (569) (0.2) 10,257 1.5 4,786 1.0
-------- ----- -------- ----- -------- ----- -------- -----
Income (loss) before extraordinary
items............................. 10,139 3.7 (985) (0.6) 10,924 1.6 6,154 1.3
Extraordinary items, net.............. - - 951 0.5 - - 951 0.2
-------- ----- -------- ----- -------- ----- -------- -----
Net income (loss)..................... $ 10,139 3.7% $ (1,936) (1.1)% $ 10,924 1.6% $ 5,203 1.1%
======== ===== ======== ===== ======== ===== ======== =====
EBITDA excluding merger-related
and other nonrecurring costs...... $ 35,935 13.1% $ 20,886 11.8% $ 79,243 11.3% $ 46,184 9.9%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997
The Company reported CONSOLIDATED NET INCOME of $10.1 million for the
quarter ended September 30, 1998, on revenues of $273.8 million. The net income
applicable to common stockholders was $10.1 million, or $0.48 diluted earnings
per share for the quarter ended September 30, 1998.
REVENUES on a consolidated basis were $273.8 million, an increase of $96.3
million or 54.2% for the quarter ended September 30, 1998, compared to the
quarter ended September 30, 1997. The overall increase reflected a continued
improvement in the commercial real estate markets across the U.S. and the full
contribution from Koll Real Estate Services ("Koll"), REI Limited ("REI") and
Hillier Parker ("HP"). This improvement reflected both the Company's position
and increasing consumer confidence in the U.S. economy and, in particular, real
estate assets and improving real estate market liquidity. However, during the
month of September 1998, the Company experienced a slowdown in investment sales
which it believes is attributable to the perceived crisis in global financial
markets. The Company believes that investment sales could be adversely impacted
in the fourth quarter of 1998 if the financial markets continue to be in
disarray and that mortgage originations in the conduit markets, which are a part
of the global financial markets, could also be adversely affected in the fourth
quarter.
14
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis were $113.6
million, an increase of $26.0 million or 29.7% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997. The increase in
these costs is attributable to the increase in revenue since most of the
Company's sales professionals are compensated based on revenue. As a percentage
of revenue, commissions fees and other incentives were 41.5% for the quarter
ended September 30, 1998, compared to 49.3% for the quarter ended September 30,
1997. The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily due to the acquisition of Koll which has a higher
percentage of base management fee revenue which has no related commission
expense and REI and HP which generally do not operate under a commission based
program.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis was $124.3
million, an increase of $55.3 million or 80.0% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997. As a percentage of
revenue, operating, administrative and other were 45.4% for the quarter ended
September 30, 1998 compared to 38.9% for the quarter ended September 30, 1997.
The increase in amount and percentage is primarily due to increased operating
activity and the acquisition of Koll, REI and HP, which have higher fixed
operating expenses. Due to the integration of Koll, REI and HP, operating,
administrative and other as a percentage of revenue has increased, while
commissions, fees and other incentives as a percentage of revenue has decreased.
CONSOLIDATED INTEREST INCOME was $0.7 million for the quarters ended
September 30, 1998 and 1997. CONSOLIDATED INTEREST EXPENSE was $9.6 million, an
increase of $5.5 million or 131.6% for the quarter ended September 30, 1998, as
compared to the quarter ended September 30, 1997. The increase in interest
expense resulted from the issuance of senior subordinated notes and increased
revolving credit facility borrowings which were used for the repurchase of the
Company's preferred stock, to acquire businesses, and for payments on other
indebtedness.
PROVISION FOR INCOME TAX on a consolidated basis was $7.5 million, an
increase of $8.1 million for the quarter ended September 30, 1998, as compared
to the quarter ended September 30, 1997. The increase in tax expense is
attributable to increased earnings which include international earnings from
various foreign jurisdictions. In early 1998 the Company repurchased its
outstanding preferred stock which triggered a limitation on the annual amount of
NOL it can use to offset future U.S. taxable income. This limitation does not
affect the way taxes are reported for financial reporting purposes, but it will
affect the timing of the actual amount of taxes paid on an annual basis.
EBITDA, EXCLUDING MERGER-RELATED AND OTHER NONRECURRING COSTS was $35.9
million for the quarter ended September 30, 1998, as compared to $20.9 million
for the quarter ended September 30, 1997. EBITDA effectively removes the impact
of certain non-cash and nonrecurring charges on income such as depreciation and
the amortization of intangible assets relating to acquisitions, merger-related
and other nonrecurring charges, extraordinary items, and income taxes.
Management believes that the presentation of EBITDA will enhance a reader's
understanding of the Company's operating performance and ability to service debt
as it provides a measure of cash (subject to the payment of interest and income
taxes) generated that can be used by the Company to service its debt and other
required or discretionary purposes. Net cash that will be available to the
Company for discretionary purposes represents remaining cash after debt service
and other cash requirements, such as capital expenditures, are deducted from
EBITDA. EBITDA 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.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
The Company reported CONSOLIDATED NET INCOME of $10.9 million for the nine
months ended September 30, 1998, on revenues of $704.2 million. The net loss
applicable to common stockholders, including the deemed dividend resulting from
the accounting treatment of the preferred stock repurchase, was $21.3 million,
or $1.07 diluted loss per share for the nine months ended September 30, 1998.
Excluding the deemed dividend and merger-related and other nonrecurring charges
of $16.6 million, and related tax effect, diluted earnings would have been $0.96
per share.
REVENUES on a consolidated basis were $704.2 million, an increase of $234.7
million or 50.0% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997. The overall increase reflected a
continued improvement in the commercial real estate markets across the U.S., a
full contribution from Koll and a partial contribution from REI and HP. This
improvement reflected both the Company's position and increasing consumer
confidence in the U.S. economy and, in particular, real estate assets and
improving real estate market liquidity.
15
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
COMMISSIONS, FEES AND OTHER INCENTIVES on a consolidated basis were $310.6
million, an increase of $72.9 million or 30.7% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997. The
increase in these costs is attributable to the increase in revenue since most of
the Company's sales professionals are compensated based on revenue. As a
percentage of revenue, commissions fees and other incentives were 44.1% for the
nine months ended September 30, 1998, compared to 50.6% for the nine months
ended September 30, 1997. The decrease in commissions, fees and other
incentives as a percentage of revenue is primarily due to the acquisition of
Koll, which has a higher percentage of base management fee revenue which has no
related commission expense and REI which generally does not operate under a
commission based program.
OPERATING, ADMINISTRATIVE AND OTHER on a consolidated basis was $314.3
million, an increase of $128.7 million or 69.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997. As a
percentage of revenue, operating, administrative and other were 44.6% for the
nine months ended September 30, 1998 compared to 39.5% for the nine months ended
September 30, 1997. The increase in amount and percentage is primarily due to
increased operating activity and the acquisition of Koll and REI which have
higher fixed operating expenses. Due to the integration of Koll and the partial
integration of REI and HP, operating, administrative and other as a percentage
of revenue has increased, while commissions, fees and other incentives as a
percentage of revenue has decreased.
MERGER-RELATED AND OTHER NONRECURRING CHARGES were $16.6 million for the nine
months ended September 30, 1998. These charges represent $3.8 million of costs
associated with the REI acquisition and integration, $4.8 million related to
name change costs, and $8.0 million related to the write down in the carrying
value of the Company headquarters' building to its estimated fair market value.
The Company intends to sell and relocate from its current headquarters'
building.
CONSOLIDATED INTEREST INCOME was $2.0 million for the nine months ended
September 30, 1998 and 1997. CONSOLIDATED INTEREST EXPENSE was $21.4 million,
an increase of $9.4 million or 77.9% for the nine months ended September 30,
1998, as compared to the nine months ended September 30, 1997. The increase
resulted from the issuance of senior subordinated notes and increased revolving
credit facility borrowings which were used for the repurchase of the Company's
preferred stock, to acquire businesses, and for payments on other indebtedness.
PROVISION FOR INCOME TAX on a consolidated basis was $10.3 million, an
increase of $5.5 million or 114.3% for the nine months ended September 30, 1998,
as compared to the nine months ended September 30, 1997. The increase in tax
expense is attributable to increased earnings which include international
earnings from various foreign jurisdictions. In early 1998 the Company
repurchased its outstanding preferred stock which triggered a limitation on the
annual amount of NOL it can use to offset future U.S. taxable income. This
limitation does not affect the way taxes are reported for financial reporting
purposes, but it will affect the timing of the actual amount of taxes paid on an
annual basis.
EBITDA, EXCLUDING MERGER-RELATED AND OTHER NONRECURRING COSTS was $79.2
million for the nine months ended September 30, 1998, as compared to $46.2
million for the nine months ended September 30, 1997. EBITDA effectively
removes the impact of certain non-cash and nonrecurring charges on income such
as depreciation and the amortization of intangible assets relating to
acquisitions, merger-related and other nonrecurring charges, extraordinary
items, and income taxes. Management believes that the presentation of EBITDA
will enhance a reader's understanding of the Company's operating performance and
ability to service debt as it provides a measure of cash (subject to the payment
of interest and income taxes) generated that can be used by the Company to
service its debt and other required or discretionary purposes. Net cash that
will be available to the Company for discretionary purposes represents remaining
cash after debt service and other cash requirements, such as capital
expenditures, are deducted from EBITDA. EBITDA 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.
16
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
SEGMENT OPERATIONS
The Company provides integrated real estate services through four global
business units. The four units are Brokerage Services, Corporate Services,
Management Services and Financial Services. Brokerage Services consists of
commercial property sales and leasing. Corporate Services consists of
outsourcing, transaction management, advisory services and facilities
management. Management Services consists of property management. Financial
Services consists of mortgage loan origination and servicing, appraisal,
investment property, realty advisory and capital markets businesses. The
following tables summarize the revenue, costs and expenses, and operating income
(loss) by operating segment for the quarters ended September 30, 1998 and 1997
and the nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
-------------------------------------- -------------------------------------------
1998 1997 1998 1997
------------------- ----------------- -------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BROKERAGE SERVICES
Revenue..................................... $136,435 100.0% $102,676 100.0% $372,014 100.0% $281,858 100.0%
Costs and expenses:
Commissions, fees and other incentives.... 71,469 52.4 57,280 55.8 196,229 52.8 157,977 56.0
Operating, administrative and other....... 50,697 37.1 33,007 32.2 131,878 35.4 95,539 33.9
Depreciation and amortization............. 3,228 2.4 3,633 3.5 7,254 1.9 6,548 2.3
-------- ------ -------- ------ -------- ------ -------- -----
Operating income............................ $ 11,041 8.1% $ 8,756 8.5% $ 36,653 9.9% $ 21,794 7.8%
======== ====== ======== ====== ======== ====== ======== =====
EBITDA...................................... $ 14,269 10.5% $ 12,389 12.1% $ 43,907 11.8% $ 28,342 10.1%
======== ====== ======== ====== ======== ====== ======== =====
CORPORATE SERVICES
Revenue..................................... $ 20,330 100.0% $ 10,300 100.0% $ 50,104 100.0% $ 22,554 100.0%
Costs and expenses:
Commissions, fees and other incentives.... 6,326 31.1 5,016 48.7 18,069 36.1 11,895 52.8
Operating, administrative and other....... 11,049 54.4 4,880 47.4 30,697 61.2 10,047 44.5
Depreciation and amortization............. 626 3.0 179 1.7 1,743 3.5 305 1.3
-------- ------ -------- ------ -------- ------ -------- -----
Operating income (loss)..................... $ 2,329 11.5% $ 225 2.2% $ (405) (0.8) $ 307 1.4%
======== ====== ======== ====== ======== ====== ======== =====
EBITDA...................................... $ 2,955 14.5% $ 404 3.9% $ 1,338 2.7% $ 612 2.7%
======== ====== ======== ====== ======== ====== ======== =====
MANAGEMENT SERVICES
Revenue..................................... $ 34,163 100.0% $ 16,133 100.0% $ 85,641 100.0% $ 38,017 100.0%
Costs and expenses:
Commissions, fees and other incentives.... 5,951 17.4 4,642 28.8 19,301 22.6 13,758 36.2
Operating, administrative and other....... 22,869 67.0 10,175 63.0 57,151 66.7 21,052 55.4
Depreciation and amortization............. 1,908 5.6 670 4.2 4,478 5.2 986 2.6
-------- ------ -------- ------ -------- ------ -------- -----
Operating income............................ $ 3,435 10.0% $ 646 4.0% $ 4,711 5.5% $ 2,221 5.8%
======== ====== ======== ====== ======== ====== ======== =====
EBITDA...................................... $ 5,343 15.6% $ 1,316 8.2% $ 9,189 10.7% $ 3,207 8.4%
======== ====== ======== ====== ======== ====== ======== =====
FINANCIAL SERVICES
Revenue..................................... $ 82,875 100.0% $ 48,411 100.0% $196,455 100.0% $127,113 100.0%
Costs and expenses:
Commissions, fees and other incentives.... 29,813 36.0 20,650 42.7 77,042 39.2 54,086 42.6
Operating, administrative and other....... 39,694 47.9 20,984 43.3 94,604 48.2 59,004 46.4
Depreciation and amortization............. 3,575 4.3 1,616 3.3 8,611 4.4 4,433 3.5
-------- ------ -------- ------ -------- ------ -------- -----
Operating income............................ $ 9,793 11.8% $ 5,161 10.7% $ 16,198 8.2% $ 9,590 7.5%
======== ====== ======== ====== ======== ====== ======== =====
EBITDA...................................... $ 13,368 16.1% $ 6,777 14.0% $ 24,809 12.6% $ 14,023 11.0%
======== ====== ======== ====== ======== ====== ======== =====
MERGER-RELATED AND OTHER NONRECURRING COSTS.. $ - $ 12,924 $ 16,585 $ 12,924
======== ======== ======== ========
TOTAL OPERATING INCOME....................... $ 26,598 $ 1,864 $ 40,572 $ 20,988
======== ======== ======== ========
TOTAL EBITDA EXCLUDING MERGER-RELATED AND
OTHER NONRECURRING COSTS.................... $ 35,935 $ 20,886 $ 79,243 $ 46,184
======== ======== ======== ========
</TABLE>
Segment operating income (loss) excludes interest income, interest expense,
merger-related and other nonrecurring costs and provision for income taxes.
17
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CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1997
BROKERAGE SERVICES
Revenue increased by $33.8 million or 32.9% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997, due to the continued
improvement of the real estate market and the contributions from REI and HP.
The strong market resulted in higher property values, higher rental rates and
increased activity, which translated to increases in both the total number and
size of brokerage sales and lease transactions closed for the quarter ended
September 30, 1998, as compared to the quarter ended September 30, 1997.
Commissions, fees and other incentives increased by $14.2 million or 24.8% for
the quarter ended September 30, 1998, compared to the quarter ended September
30, 1997, primarily due to increased revenues, which resulted in higher
commission eligibility levels and, thus, higher commissions. As a percentage of
revenue, commissions, fees and other incentives were 52.4% for the quarter ended
September 30, 1998 compared to 55.8% for the quarter ended September 30, 1997.
The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily due to the integration of REI and HP which generally do not
operate under a commission based program. Operating, administrative, and other
increased by $17.7 million or 53.6% for the quarter ended September 30, 1998,
compared to the quarter ended September 30, 1997. The increase in the amount is
primarily a result of business promotion expenses, additional personnel
requirements and office operations expenses, which contributed to the increase
in revenue, the integration of REI and HP including salaries related to revenue
generation and incentive compensation based on increased operating results.
Depreciation and amortization decreased by $0.4 million or 11.1% for the quarter
ended September 30, 1998, as compared to the quarter ended September 30, 1997,
primarily as a result of the write-off of Langdon Rieder acquisition goodwill of
$2.1 million in 1997 offset in part by 1998 additional investments in hardware
and software to support the increase in new business and the acquisition
goodwill of REI and HP.
CORPORATE SERVICES
Revenue increased by $10.0 million or 97.4% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997, primarily due to the
contribution from Koll, REI and HP as well as an increase in the total number
and size of corporate services sales and lease transactions closed for the
quarter ended September 30, 1998, compared to the quarter ended September 30,
1997. Commissions, fees and other incentives increased by $1.3 million or 26.1%
for the quarter ended September 30, 1998 compared to the quarter ended September
30, 1997, but decreased as a percentage of revenue from 48.7% to 31.1% primarily
because the base contract management fee revenues, which increased as a result
of the acquisition of Koll, REI and HP, do not have corresponding commission
expenses. Operating, administrative, and other increased $6.2 million or 126.4%
for the quarter ended September 30, 1998, compared to the quarter ended
September 30, 1997, primarily related to the acquisition of Koll, REI and HP
which have higher fixed operating expenses, additional personnel requirements
and business promotion expenses. In addition, the Company made ongoing
infrastructure investments to expand the corporate services business with the
combination of REI and HP. As a percentage of revenue, operating,
administrative and other were 54.3% for the quarter ended September 30, 1998
compared to 47.4% for the quarter ended September 30, 1997. The increase in
operating, administrative and other as a percentage of revenue is primarily due
to the integration of Koll, REI and HP. Depreciation and amortization increased
by $0.4 million or 249.7% for the quarter ended September 30, 1998, as compared
to the quarter ended September 30, 1997, primarily related to the acquisition of
Koll, REI and HP.
MANAGEMENT SERVICES
Revenue increased by $18.0 million or 111.8% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997 primarily due to the
contribution from Koll, REI and HP. Commissions, fees and other incentives
increased by $1.3 million or 28.2% for the quarter ended September 30, 1998,
compared to the quarter ended September 30, 1997, but decreased as a percentage
of revenue from 28.8% to 17.4% primarily because the base contract management
fee revenues, which increased as a result of the acquisitions of Koll, REI and
HP, do not have corresponding commission expenses. Operating, administrative,
and other increased $12.7 million or 124.8% for the quarter ended September 30,
1998, compared to the quarter ended September 30, 1997. As a percentage of
revenue, operating, administrative and other were 66.9% for the quarter ended
September 30, 1998 compared to 63.0% for the quarter ended September 30, 1997.
The increase in amount and percentage is primarily due to the integration of
Koll, REI and HP. Depreciation and amortization increased by $1.2 million or
184.8% for the quarter ended September 30, 1998 compared to the quarter ended
September 30, 1997, primarily related to the acquisition of Koll, REI and HP.
18
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
FINANCIAL SERVICES
Revenue increased by $34.5 million or 71.2% for the quarter ended September
30, 1998, compared to the quarter ended September 30, 1997. The increase in
revenue is primarily due to an increase in the total number and size of
investment properties and mortgage banking transactions closed for the quarter
ended September 30, 1998, compared to the quarter ended September 30, 1997, an
increase in valuation and appraisal services revenue related to heightened real
estate market liquidity and the full contribution from Koll, REI and HP.
Commissions, fees and other incentives increased by $9.2 million or 44.4% for
the quarter ended September 30, 1998, compared to the quarter ended September
30, 1997. The increase is primarily a result of the revenue increase and the
resulting higher commission eligibility levels in investment properties,
mortgage banking and valuation and appraisal services. As a percentage of
revenue, commissions, fees and other incentives were 36.0% for the quarter ended
September 30, 1998 compared to 42.7% for the quarter ended September 30, 1997.
The decrease in commissions, fees and other incentives as a percentage of
revenue is primarily due to the integration of REI and HP which do not operate
under commission based programs. Operating, administrative, and other increased
by $18.7 million or 89.2% for the quarter ended September 30, 1998, compared to
the quarter ended September 30, 1997, primarily as a result of business
promotion expenses and additional personnel requirements, which contributed to
the increase in revenue, and the integration of Koll and REI. Depreciation and
amortization increased by $2.0 million or 121.2% for the quarter ended September
30, 1998, as compared to the quarter ended September 30, 1997, primarily related
to the additional investment in hardware and software to support the increase in
new business and the acquisition of Koll, REI and HP.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
BROKERAGE SERVICES
Revenue increased by $90.2 million or 32.0% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997, due to
the continued improvement of the real estate market and the partial contribution
from REI and HP. The strong market resulted in higher property values, higher
rental rates and increased activity, which translated to increases in both the
total number and size of brokerage sales and lease transactions closed for the
nine months ended September 30, 1998, as compared to the nine months ended
September 30, 1997. Commissions, fees and other incentives increased by $38.3
million or 24.2% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997, primarily due to increased revenues, which
resulted in higher commission eligibility levels and, thus, higher commissions.
As a percentage of revenue, commissions, fees and other incentives were 52.8%
for the nine months ended September 30, 1998 compared to 56.0% for the quarter
ended September 30, 1997. The decrease in commissions, fees and other
incentives as a percentage of revenue is primarily due to the integration of REI
and HP which generally do not operate under a commission based program.
Operating, administrative, and other increased by $36.3 million or 38.0% for the
nine months ended September 30, 1998, compared to the nine months ended
September 30, 1997. The increase in the amount is primarily a result of
additional personnel requirements and business promotion and office operations
expenses, which contributed to the increase in revenue, the integration of REI
and incentive compensation based on increased operating results. Depreciation
and amortization increased by $0.7 million or 10.8% for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997,
primarily as a result of additional investments in hardware and software to
support the increase in new business and the acquisition of REI and HP, offset
in part by the write-off of Langdon Rieder acquisition goodwill of $2.1 million
in 1997.
CORPORATE SERVICES
Revenue increased by $27.6 million or 122.2% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997,
primarily due to the contribution from Koll and an increase in the total number
and size of corporate services sales and lease transactions closed for the nine
months ended September 30, 1998, compared to the nine months ended September 30,
1997. Commissions, fees and other incentives increased by $6.2 million or 51.9%
for the nine months ended September 30, 1998 compared to the nine months ended
September 30, 1997, but decreased as a percentage of revenue from 52.7% to 36.1%
primarily because the base contract management fee revenues, which increased as
a result of the acquisition of Koll, do not have corresponding commission
expenses. Operating, administrative, and other increased $20.7 million or
205.5% for the nine months ended September 30, 1998, compared to the nine months
ended September 30, 1997, primarily related to the acquisition of Koll, which
has higher fixed operating expenses, additional personnel requirements, business
promotion expenses and the investment made in infrastructure to expand corporate
services business from the combination with REI. As a percentage of revenue,
19
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
operating, administrative and other were 61.2% for the nine months ended
September 30, 1998 compared to 44.5% for the nine months ended September 30,
1997. The increase in operating, administrative and other as a percentage of
revenue is primarily due to the full integration of Koll and the partial
integration of REI and HP. Depreciation and amortization increased by $1.4
million or 471.5% for the nine months ended September 30, 1998, as compared to
the nine months ended September 30, 1997, primarily related to the acquisition
of Koll, REI and HP.
MANAGEMENT SERVICES
Revenue increased by $47.6 million or 125.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997
primarily due to the contribution from Koll. Commissions, fees and other
incentives increased by $5.5 million or 40.3% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997, but
decreased as a percentage of revenue from 36.2% to 22.6% primarily because the
base contract management fee revenues, which increased as a result of the
acquisition of Koll, do not have corresponding commission expenses. Operating,
administrative, and other increased $36.1 million or 171.5% for the nine months
ended September 30, 1998, compared to the nine months ended September 30, 1997.
As a percentage of revenue, operating, administrative and other were 66.7% for
the nine months ended September 30, 1998 compared to 55.4% for the nine months
ended September 30, 1997. The increase in amount and percentage is primarily
due to the full integration of Koll and the partial integration of REI and HP.
Depreciation and amortization increased by $3.5 million or 354.2% for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997, primarily related to the acquisition of Koll and REI.
FINANCIAL SERVICES
Revenue increased by $69.3 million or 54.6% for the nine months ended
September 30, 1998, compared to the nine months ended September 30, 1997. The
increase in revenue is primarily due to an increase in the total number and size
of investment properties and mortgage banking transactions closed for the nine
months ended September 30, 1998, compared to the nine months ended September 30,
1997, an increase in valuation and appraisal services revenue related to
heightened real estate market liquidity and the full contribution of Koll and
the partial contribution of REI and HP. Commissions, fees and other incentives
increased by $23.0 million or 42.4% for the nine months ended September 30,
1998, compared to the nine months ended September 30, 1997. The increase is
primarily a result of the revenue increase and the resulting higher commission
eligibility levels in investment properties, mortgage banking and valuation and
appraisal services. Operating, administrative, and other increased by $35.6
million or 60.3% for the nine months ended September 30, 1998, compared to the
nine months ended September 30, 1997, primarily as a result of business
promotion expenses and additional personnel requirements, which contributed to
the increase in revenue, and the full integration of Koll and the partial
integration of REI and HP. Depreciation and amortization increased by $4.2
million or 94.2% for the nine months ended September 30, 1998, as compared to
the nine months ended September 30, 1997, primarily related to the additional
investment in hardware and software to support the increase in new business and
the acquisition of Koll, REI and HP.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and non-acquisition
related capital expenditures primarily with internally generated funds and
borrowings under a revolving credit facility. In order to fund the preferred
stock repurchase, business acquisitions and other working capital requirements,
the Company borrowed approximately $172.8 million through the issuance of senior
subordinated notes and had additional net borrowings of $60.0 million under the
revolving credit facility, during the nine months ended September 30, 1998. The
Company's EBITDA, excluding merger-related and other nonrecurring costs, was
$79.2 million and $46.2 million for the nine months ended September 30, 1998 and
1997, respectively. The improvement in EBITDA reflects the overall period to
period revenue growth discussed in Results of Operations.
EBITDA effectively removes the impact of certain non-cash and nonrecurring
charges on income such as depreciation and the amortization of intangible assets
relating to acquisitions, merger-related and other nonrecurring charges,
extraordinary items and income taxes. Management believes that the presentation
of EBITDA will enhance a reader's understanding of the Company's operating
performance and ability to service debt as it provides a measure of cash
(subject to the payment of interest and income taxes) generated that can be used
by the Company to service its debt and other required or discretionary purposes.
Net cash that will be available to the Company for discretionary purposes
20
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
represents remaining cash after debt service and other cash requirements, such
as capital expenditures, are deducted from EBITDA. EBITDA 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.
Net cash provided by operating activities was $26.5 million for the nine
months ended September 30, 1998, compared to $25.8 million for the nine months
ended September 30, 1997. The change is primarily due to higher incentive
payments resulting from improved operating performances in 1997 and changes in
components of operating assets and liabilities.
Net cash used in investing activities was $199.8 million for the nine months
ended September 30, 1998, compared to $10.3 million for the nine months ended
September 30, 1997. The increase primarily resulted from the acquisitions of
businesses including REI and HP, an increase in purchases of property and
equipment and additional supplemental purchase price payments in connection with
a 1995 acquisition.
Net cash provided by financing activities was $149.4 million for the nine
months ended September 30, 1998, compared to cash used in financing activities
of $21.2 million for the nine months ended September 30, 1997. The increase
primarily resulted from an increase in borrowings from the revolving credit
facility and issuance of the senior subordinated notes offset in part by the
payment for the repurchase of the Company's preferred stock and periodic
repayments of the revolving credit facility.
In May 1998, the Company amended its revolving credit facility with a group
of banks to provide up to $400.0 million for five years, subject to mandatory
reductions of $40.0 million, $80.0 million and $80.0 million on December 31,
1999, 2000 and 2001, respectively. The amount outstanding under this facility
was $180.0 million as of September 30, 1998. Interest rate alternatives include
Bank of America's reference rate plus 0.50% and LIBOR plus 1.50%. The weighted
average rate on amounts outstanding at September 30, 1998 was 7.35%.
In May 1998, the Company sold $175.0 million of 8.875% Senior Subordinated
Notes due on September 1, 2006. The Senior Subordinated Notes are redeemable in
whole or in part after September 1, 2002. On or before September 1, 2001, 35.0%
of the issued amount may be redeemed at 108.875% of par plus accrued interest
solely with the proceeds from an equity offering.
Effective October 1996, a dividend on the Company's preferred stock was
reinstated and a conversion feature was added. The $0.25 per share quarterly
dividend on the Company's preferred stock accrued from October 1, 1996 through
December 31, 1997, and resulted in a cost of $1.0 million per quarter. In
January 1998 the Company purchased all 4.0 million shares of its preferred
stock. The total cost to purchase the preferred shares was $77.4 million,
including $5.0 million of previously accrued dividends and certain stock
options. This transaction reduced income available to common stockholders in
the first quarter of 1998 by $32.3 million, which represents the excess of the
redemption price over book value and is considered, in accordance with GAAP, a
dividend to preferred stockholders for the purpose of calculating earnings per
share.
The Company expects to have capital expenditures ranging from $20.0 million
to $25.0 million in 1998. The Company expects to use net cash provided by
operating activities for the next several years primarily to fund capital
expenditures for computer related purchases, acquisitions, including earnout
payments, and to make required principal payments under the Company's
outstanding indebtedness. The Company believes that it can satisfy its non-
acquisition obligations as well as working capital requirements from internally
generated cash flow, borrowings under the amended revolving credit facility or
any replacement credit facilities. Material future acquisitions that require
cash will require new sources of capital such as an expansion of the amended
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 the Company's
anticipated non-acquisition cash requirements for the foreseeable future and in
any event for at least the next twelve months.
On October 15, 1998 the Company announced that its board of directors had
approved a repurchase program under which it will begin purchasing up to $10.0
million of its common stock. As of November 10, 1998 the Company had purchased
approximately 338,900 shares at a weighted average price of $19.01 per share.
21
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
YEAR 2000 ISSUES
The Company has assessed and continues to assess the impact of the Year 2000
("Y2K") on its information technology (IT) and non-IT systems and is in the
process of replacing or upgrading the affected hardware and software. Y2K
problems exist because many computer systems and applications currently use only
two-digits to designate a year, which may cause date sensitive systems to
recognize the year 2000 as 1900 or not at all. The Company's proprietary and
client accounting systems, other IT systems and embedded (elevator, HVAC, and
other non-IT) systems are all potentially subject to problems relating to the
inability of such systems to appropriately interpret the upcoming calendar year
"2000" and beyond.
Some of the Company's systems include hardware and packaged software recently
purchased from vendors who have represented that these systems are Y2K
compliant. The Company has created an integration team to test all of its
significant software and to determine whether embedded technology is Y2K
compliant. The Company believes that Y2K issues for certain of its acquired
businesses, including those in Canada and Australia, are more serious than Y2K
issues in the United States and Europe. The local management and the integration
team are developing compliance plans for these acquired business locations. The
Company has completed installation of certain of its client accounting systems
and expects to complete installation of compliant proprietary accounting systems
by the end of 1999. Although there are no assurances any of the systems will be
compliant by the end of 1999, the Company believes that its proprietary
accounting systems, information technology and embedded systems will be Y2K
compliant by the end of 1999. The Company, like many other companies, will incur
expenditures over this time to address this issue, and cost specifically
associated with modifying internal-use software for Y2K compliance will be
expensed as incurred. To date, the Company estimates that it has spent
approximately $4.0 million to address the Y2K issue which includes replacing and
upgrading the affected hardware and software. The Company estimates
approximately $7.0 million of remaining costs to fully address the Y2K issue.
The Company relies on a number of vendors and suppliers, including banks,
telecommunication providers, and other providers of goods and services. The
inability of these third parties to conduct their business for a significant
period of time due to the Year 2000 issue could have a material adverse impact
on the Company's operations. The Company's reliance on single vendor source
suppliers, however, is minimal. An assessment to determine whether all of its
vendors and suppliers are Y2K compliant is scheduled to be complete by the end
of 1998. In addition, certain of the Company's clients, particularly many of
its management services clients, require the Company to utilize client provided
IT systems in connection with the Company's provision of services. An assessment
to determine whether these clients' systems are Y2K compliant, and if not, a
development of a compliance plan, is currently underway.
The Company is continuing to assess potential Y2K risks associated with each
of its systems. A project team working with each system is responsible for
development of contingency plans that will address these risks. At this time,
the Company believes costs incurred in responding to other parties' Y2K computer
system deficiencies, together with the cost of any required modifications to the
Company's systems, will not have a material impact on the Company's results of
operations or financial condition. However, the Company believes that a failure
to correct a material Y2K problem could result in an interruption of, or a
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the uncertainty inherent in the Y2K
risks and the Company's incomplete assessment of the risks, particularly with
respect to third-party suppliers and clients, the Company is unable to determine
at this time whether the consequences of Y2K compliance failures will have a
material adverse impact on the Company's results of operations, liquidity or
financial condition.
ACQUISITIONS
On October 20, 1998 the Company, through L.J. Melody, purchased Carey,
Brumbaugh, Starman, Phillips, and Associates, Inc., a regional mortgage banking
firm, for approximately $5.6 million in cash, a note payable of $2.2 million
bearing interest at 9.0% with three annual payments beginning October 1999, and
$0.2 million of deferred cash compensation to certain key executives. The
acquisition was accounted for as a purchase. The purchase price will largely be
allocated to intangibles and goodwill which will be amortized over their
estimated useful lives of 7 and 30 years, respectively.
On October 1, 1998 the Company purchased the remaining ownership interests
that it did not already own in the
22
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
Richard Ellis Australia and New Zealand businesses (Victoria, Queensland,
Sydney, Auckland and Wellington). The costs for the remaining interest was $20.0
million in cash. On a preliminary basis, the purchase price will largely be
allocated to goodwill which will be amortized over its estimated useful life of
30 years.
On September 22, 1998 the Company purchased the approximately 73.0% interest
that it did not already own in CB Commercial Real Estate Group of Canada, Inc.
The Company acquired the remaining interest for approximately $14.3 million in
cash. The acquisition was accounted for as a purchase. The purchase price will
largely be allocated to intangibles and goodwill which will be amortized on a
straight line basis over their estimated useful lives of 5 and 30 years,
respectively.
On July 7, 1998 the Company acquired the business of Hillier Parker, a
commercial property services partnership operating in the United Kingdom. The
acquisition was accounted for as a purchase. The purchase price for Hillier
Parker included approximately $63.9 million in cash and $7.1 million in shares
of the Company's Common Stock. In addition, the Company adopted a special
incentive compensation plan for senior Hillier Parker employees with a potential
payout over three years of approximately $12.5 million and assumed various
annuity obligations of approximately $15.0 million. On a preliminary basis, the
purchase price has largely been allocated to goodwill which will be amortized on
a straight line basis over its estimated useful life of 30 years.
On July 1, 1998 the Company increased its ownership percentage in CB
Commercial/Arnheim & Neely, an existing partnership formed in September 1996,
which combined with the Galbreath Company Mid-Atlantic to form CB Richard
Ellis/Pittsburgh, LP. The total purchase price of the Company's interest in the
combined enterprise was $5.7 million.
On May 31, 1998 the Company acquired Mathews Click and Associates, a property
sales, leasing, and management firm, for approximately $10.0 million in cash and
a potential supplemental payment of $1.9 million payable to the sellers over a
period of two years. The acquisition was accounted for as a purchase. The
purchase price and supplemental payment, which is contingent upon operating
results, will be allocated to intangibles and goodwill which will be amortized
on a straight line basis over their estimated useful lives of 7 and 30 years,
respectively.
On May 1, 1998 the Company, through L.J. Melody, acquired Shoptaw-James,
Inc., a regional mortgage banking firm for approximately $6.3 million in cash
and approximately $2.7 million in contingent notes bearing interest at 9.0% with
three annual payments beginning May 1999. The acquisition was accounted for as
a purchase. The $2.7 million notes will be accounted for as compensation over
the term of the notes as the payment of these notes are contingent upon certain
key executives' and producers' continued employment with the Company. The
purchase price has largely been allocated to intangibles and goodwill which will
be amortized on a straight line basis over their useful lives of 7 and 30 years,
respectively.
On April 17, 1998 the Company purchased all of the outstanding shares of REI,
an international commercial real estate services firm operating under the name
Richard Ellis in major commercial real estate markets worldwide (excluding the
United Kingdom). The acquisition was accounted for as a purchase. On a
preliminary basis, the purchase price has largely been allocated to goodwill,
which will be amortized on a straight line basis over an estimated useful life
of 30 years. The purchase price for REI was approximately $103.0 million of
which approximately $52.7 million was paid in cash and notes and approximately
$50.3 million was paid in shares of the Company's Common Stock. In addition,
the Company assumed approximately $14.4 million of long-term debt and minority
interest. The Company incurred a one-time charge of $8.6 million associated
with the acquisition and integration of REI including costs associated with the
Company's name change. For the year ended December 31, 1997, REI had revenues
and EBITDA of approximately $118.0 million and $11.7 million, respectively.
On February 1, 1998 the Company, through L.J. Melody, acquired all of the
issued and outstanding stock of Cauble and Company of Carolina, a regional
mortgage banking firm for approximately $2.2 million, including cash payments of
approximately $1.8 million and a note payable of approximately $0.4 million
bearing interest at 9.0% with principal payments starting in April 1998. The
acquisition was accounted for as a purchase. The purchase price has been
allocated to intangibles and goodwill, which will be amortized on a straight
line basis over their estimated useful lives of 7 and 30 years, respectively.
On January 31, 1998 the Company, through L.J. Melody, acquired certain assets
of North Coast Mortgage Company, a regional mortgage banking firm for cash
payments of approximately $3.0 million, contingent notes of approximately $0.3
million bearing interest at 6.5% with principal payments starting in February
1999, and approximately
23
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
$0.6 million in deferred cash compensation to certain key executives and
producers payable in three annual installments beginning in February 1999. The
acquisition was accounted for as a purchase. The purchase price has largely been
allocated to intangibles and goodwill, which will be amortized on a straight
line basis over their estimated useful lives of 7 and 30 years, respectively.
The $0.6 million of deferred cash compensation will be accounted for as
compensation over the term of the agreements as the payment of the compensation
are contingent upon certain key executives' and producers' continued employment
with the Company.
RECENT LITIGATION
In August 1993, a former commissioned salesperson of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergin County,
alleging gender discrimination and wrongful termination by the Company. On
November 20, 1996 a jury returned a verdict against the Company, awarding $6.5
million in general and punitive damages to the plaintiff. Subsequently, the
trial court awarded the plaintiff $638,000 in attorneys' fees and costs.
Following denial by the trial court of the Company's motions for new trial,
reversal of the verdict and reduction of damages, the Company filed an appeal of
the verdict and requested a reduction of damages and an appellate ruling is
expected in late 1998 or early 1999. The Company has established reserves for
this case, and management believes the reserves are adequate as of September 30,
1998. Based on available cash and anticipated cash flows, the Company believes
that the ultimate outcome will not have an impact on the Company's ability to
carry on its operations.
NET OPERATING LOSSES
The Company had U.S. federal income tax NOLs of approximately $133.6 million
as of December 31, 1997, corresponding to $46.8 million of the Company's $67.8
million in net deferred tax assets before valuation allowance, of which $29.9
has been reserved through valuation allowances. The valuation allowances were
based on management's conclusion regarding the realizability of this deferred
tax asset on a more likely than not basis, as defined in Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. In reaching
this conclusion, management considered the Company's past operating results, the
current year events and trends, including the impact, if any, of the
acquisitions that were concluded during the year and other factors. Management
evaluates the appropriateness of all or part of these valuation allowances on a
periodic basis and if the Company concludes there is a change with respect to
realizability, any necessary adjustments are made at that time.
The ability of the Company to utilize NOLs to offset income in the U.S. will
be limited in 1998 and subsequent years as a result of the Company's 1996 public
offering, the 1997 Koll acquisition and the 1998 repurchase of preferred stock
which cumulatively caused a more than 50.0% change of ownership within a three
year period. As a result of the limitation, the Company will only be able to
use approximately $26.0 million of its U.S. NOL in 1998 and each subsequent
year. The availability of NOLs is, in any event, subject to uncertainty since
their validity is not reviewed by the Internal Revenue Service until such time
as they are utilized to offset taxable income.
NEW ACCOUNTING PRONOUNCEMENTS
The Company plans to adopt SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information during the quarter ended December 31, 1998.
SFAS 131 requires the use of the "management approach" for segment reporting,
which is based on the way the chief operating decision maker organizes segments
within a company for making operating decisions and assessing performance. The
adoption of this statement is not expected to have a material impact on the
Company's financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5, which is effective for financial statements for fiscal
years beginning after December 15, 1998, requires costs of start-up activities
and organization costs to be expensed as incurred. The adoption of this
statement is not expected to have a material impact on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every
24
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 must be applied to (a) derivative instruments and (b)
certain derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of its adoption of
SFAS No. 133. Based on derivative instruments outstanding, SFAS No. 133 is not
anticipated to have a significant impact on earnings or other components of
comprehensive income.
25
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risks includes changes in the value of
certain investments, changes in interest rates on debt obligations and
fluctuations in rates of exchange relating to its business outside the U.S. The
Company is an investment manager for and an investor in certain limited
partnerships. The amount of exposure arising from capital at risk in these
investments is considered immaterial. Interest rate risk is evaluated by
estimating the impact of possible interest rate changes on the results of
operations. On that basis, the impact is considered to be immaterial. While
the Company operates in 29 countries outside the U.S., exposure to changes in
foreign exchange rates is limited by the fact that the net monetary assets
subject to devaluation risk are not significant. There were no material
derivatives outstanding at September 30, 1998.
REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of the Quarterly Report, including Management's Discussion and
Analysis, are forward-looking and involve known and unknown risks, uncertainties
and other factors that may cause the Company's actual results and performance in
future periods to be materially different from any future results or performance
suggested in the forward-looking statements in this report. Such forward-
looking statements speak only as of the date of this report. The Company
expressly disclaims any obligation to update or revise any forward-looking
statements found herein to reflect any changes in Company 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; property values; rental rates; any general economic recession
domestically or internationally; and not successfully completing any capital
expenditure or acquisition.
26
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following are furnished as exhibits to this report:
10.1 Amendment No. 1 to the Amended and Restated Credit Agreement
dated May 20, 1998 among CB Richard Ellis Services, Inc.; Wells
Fargo Bank, N.A.; The Bank of Nova Scotia; Credit Lyonnais Los
Angeles Branch; Dresdner Bank AG, New York Branch; Keybank
National Association; The Long-Term Credit Bank of Japan, Ltd.,
Los Angeles Agency; and other financial institutions party to
the agreement
27 Financial Data Schedule (filed only with the SEC)
99 Press release dated November 11, 1998 concerning the Company's
results of operations for the quarter and nine months ended
September 30, 1998
(B) REPORTS ON FORM 8-K
(i) Form 8-K dated July 1, 1998 filing the REI Limited financial
statements for the year ended December 31, 1997 and for the
quarter ended March 31, 1998.
(ii) Form 8-K dated July 7, 1998 announcing the completion of the
Company's acquisition of Hillier Parker May & Rowden ("Hillier
Parker"), a London-based commercial property services firm. The
Company also disclosed the issuance of equity securities
pursuant to Regulation S in connection with the acquisition of
Hillier Parker.
(iii) Form 8-K dated September 22, 1998 announcing the Company's
acquisition of ownership interests in its businesses located in
Canada, Australia and New Zealand which it did not already own.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CB RICHARD ELLIS SERVICES, INC.
Date: November 13, 1998 /s/ Debra L. Morris
-----------------------------------
Debra L. Morris
Senior Vice President,
Global Chief Accounting Officer
28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ -----------------------------------------------------
<S> <C>
10.1 Amendment No. 1 to the Amended and Restated Credit
Agreement dated May 20, 1998 among CB Richard Ellis
Services, Inc.; Wells Fargo Bank, N.A.; The Bank of
Nova Scotia; Credit Lyonnais Los Angeles Branch;
Dresdner Bank AG, New York Branch; Keybank National
Association; The Long-Term Credit Bank of Japan, Ltd.,
Los Angeles Agency; and other financial institutions
party to the agreement
27 Financial Data Schedule (filed only with the SEC)
99 Press release dated November 11, 1998 concerning the
Company's results of operations for the quarter and
nine months ended September 30, 1998
</TABLE>
29
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
TO AMENDED AND RESTATED
CREDIT AGREEMENT
________________________________
AMENDMENT NO. 1 (this "Amendment") dated as of September 1, 1998, to
---------
the Amended and Restated Credit Agreement dated as of May 20, 1998 (the "Credit
------
Agreement"), among CB RICHARD ELLIS SERVICES, INC., a Delaware corporation (the
- ---------
"Company"), the BANKS signatories hereto (as such term is defined in the Credit
-------
Agreement), WELLS FARGO BANK, N.A., THE BANK OF NOVA SCOTIA and CREDIT LYONNAIS
LOS ANGELES BRANCH, as senior managing agents for the Banks, BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Bank and as Agent, and
DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH, KEYBANK NATIONAL
ASSOCIATION and THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY,
as Co-Agents.
RECITALS
--------
A. The Company has requested that the Credit Agreement be amended as
set forth herein and each of the Agent, the Issuing Bank and the Banks signatory
hereto is willing to agree to such amendments subject to the terms and
conditions hereinafter set forth.
B. Section 11.01 of the Credit Agreement provides that the Credit
Agreement may be amended after the Closing Date with the written consent of the
Company, and, in certain circumstances, the Required Banks.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
SECTION 1. RELATION TO THE CREDIT AGREEMENT; DEFINITIONS.
1.1 Relation to Credit Agreement. This Amendment constitutes an integral
----------------------------
part of the Credit Agreement.
1.2 Capitalized Terms. For all purposes of this Amendment, capitalized
-----------------
terms used herein without definition shall have the meanings specified in the
Credit Agreement, as said agreement shall be in effect on the Effective Date
after giving effect to this Amendment.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT.
2.1 Amendment to Section 1.01 of the Credit Agreement.
-------------------------------------------------
(a) Section 1.01 of the Credit Agreement is amended to add the
following definition, in alphabetical order:
"Amendment" means Amendment No. 1 to Amended and Restated Credit
---------
Agreement dated as of September 1, 1998 by and among the Company, the
Banks signatories thereto, the Issuing Bank, the Senior Managing
Agents, the Co-Agents signatories thereto and the Agent.
(b) Section 1.01 of the Credit Agreement is amended by deleting the
definition of "Consolidated EBITDA" in its entirety and replacing it with the
following:
"Consolidated EBITDA" means, for any period for which the amount
-------------------
thereof is to be determined, the Consolidated Net Income of such
Person for such period plus (A) the aggregate amounts deducted in
----
determining such Consolidated Net Income in respect of (i) Interest
Expense for such period (including deferred financing costs not paid
in cash), (ii) income and other taxes measured by income or profits
for such period, (iii) Depreciation Expense for such period, and (iv)
Amortization Expense for such period, plus (B) only with respect to
----
any determination thereof on or prior to December 31, 1997, the lesser
of (i) the amount deducted in determining such Consolidated Net Income
of such Person representing transaction fees incurred by the Company
with respect to the Merger and this Agreement, and (ii) $21,000,000,
plus (C) any noncash losses on the sale (or other disposition) or
----
write down
-2-
<PAGE>
of investments or fixed or capital assets and minus any gains on the
sale or other disposition of investments or fixed or capital assets
and noncash extraordinary income, in each case in accordance with
GAAP; provided, that, solely for purposes of determining compliance
-------- ----
with Sections 8.08, 8.09 and 8.10 (and not with respect to the
definition of the term "Applicable Margin" or with respect to the
determination of the Applicable Margin pursuant to the Pricing Grid
attached hereto as Annex A), the term "Consolidated EBITDA" shall
-------
exclude, for the respective period for which the amount thereof is to
be determined, the non-recurring pre-tax charges for the fiscal
quarter ending June 30, 1998 in an aggregate amount of up to
$16,585,000, consisting of the following charges: (i) approximately
$8,000,000 with respect to the write down value of the Company's
corporate office building; (ii) approximately $4,800,000 with respect
to the Company's name change from CB Commercial Real Estate Services
Group, Inc. to CB Richard Ellis Services, Inc.; and (iii)
approximately $3,800,000 with respect to merger related expenses.
2.2 Amendment to Exhibit C to the Credit Agreement. Exhibit C to the
----------------------------------------------
Credit Agreement shall be amended by deleting Schedule 2 to such exhibit in its
entirety and replacing it with Exhibit A to this Amendment.
SECTION 3. REPRESENTATION AND WARRANTIES OF THE COMPANY.
3.1 Representations and Warranties. To induce each of the Agent, the
------------------------------
Issuing Bank and the Banks to execute and deliver this Amendment, the Company
represents and warrants (which representations and warranties shall survive the
execution and delivery of this Amendment) to each of the Agent, the Issuing Bank
and the Banks that:
(a) Authority. This Amendment has been duly authorized, executed
and delivered by it and this Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally;
(b) Validity of Amendment. The Loan Documents, as amended by this
Amendment, constitute the legal, valid and binding obligations, contracts and
agreements of the Company enforceable against it in accordance with their
respective
-3-
<PAGE>
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or limiting creditors' rights generally;
(c) Authorization; No Violation. The execution, delivery and
performance by the Company of this Amendment (i) has been duly authorized by all
requisite corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body or
agency, and (iii) will not (A) violate (1) any provision of law, statute, rule
or regulation or its certificate of incorporation or bylaws, (2) any order of
any court or any rule, regulation or order of any other agency or government
binding upon it, or (3) any provision of any material indenture, agreement or
other instrument to which it is a party or by which its properties or assets are
or may be bound, or (B) result in a breach or constitute (alone or with due
notice or lapse of time or both) a default under any indenture, agreement or
other instrument referred to in clause (iii)(A)(3) of this Section 3.1(c);
(d) No Default or Event of Default. As of the date hereof and after
giving effect to this Amendment, no Default or Event of Default has occurred
which is continuing;
(e) All Other Representations and Warranties. All the
representations and warranties contained in Section VI of the Credit Agreement
are true and correct in all materials respects with the same force and effect as
if made by the Company on and as of the date hereof (except as to the extent
that any such representations or warranties relate to a specific prior date or
period).
SECTION 4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.
4.1 Effective Date. This Amendment shall not become effective until, and
--------------
shall become effective when, each and every one of the following conditions
shall have been satisfied or waived by the Agent, the Issuing Bank and the
Required Banks (the "Effective Date"); provided, however, that upon the
-------------- -------- -------
satisfaction of such conditions, the amendments to the Credit Agreement set
forth in Section 2 hereof shall be deemed effective as of June 30, 1998.
(a) Execution of Counterparts. Counterparts of this Amendment shall
-------------------------
have been executed and delivered by each of the Company, the Guarantors, the
Agent, the Issuing Bank and the Required Banks.
-4-
<PAGE>
(b) Representations True; No Event of Default. The Company shall
-----------------------------------------
have delivered to the Agent an Officer's Certificate, dated the Effective Date,
certifying that the representations and warranties of the Company contained
herein shall be true on and as of the Effective Date (except as to the extent
that any such representations or warranties relate to a specific prior date or
period) and that there exists no Event of Default or Default, assuming for this
purpose that this Amendment had been effective from and after June 30, 1998.
(c) Consents. The Company shall have delivered to the Agent an
---------
Officer's Certificate, dated the Effective Date, certifying that any necessary
consents, waivers, approvals, authorizations, registrations, filings and
notifications in connection with the authorization, execution and delivery of
this Amendment have been obtained or made and are in full force and effect.
(d) Proceedings, Instruments, etc. All proceedings and actions taken
------------------------------
on or prior to the Effective Date in connection with the transactions
contemplated by this Amendment and all instruments incident thereto shall be in
form and substance satisfactory to the Agent and its special counsel, and the
Agent and its special counsel shall have received copies of all documents that
it or they may request in connection with such proceedings, actions and
transactions (including, without limitation, copies of court documents,
certifications, and evidence of the correctness of the representations and
warranties contained herein and certifications and evidence of the compliance
with the terms and the fulfillment of the conditions of this Amendment) in the
form and substance satisfactory to the Agent and its special counsel.
SECTION 5. PAYMENT OF AGENT'S COUNSEL FEES AND EXPENSES.
5.1 The Company agrees to pay upon demand, the reasonable fees and
expenses of Paul, Hastings, Janofsky & Walker, LLP, special counsel to the
Agent, in connection with the negotiation, preparation, approval, execution and
delivery of this Amendment.
SECTION 6. CONSENT OF GUARANTORS.
6.1 Each Guarantor hereby consents to the terms of this Amendment and
hereby confirms and agrees that its Guaranty is, and shall continue to be, in
full force and effect and is hereby ratified and confirmed in all respects.
-5-
<PAGE>
SECTION 7. MISCELLANEOUS.
7.1 Cross-References. References in this Amendment to any Section are,
-----------------
unless otherwise specified, to such Section of this Amendment.
7.2 Instrument Pursuant to Existing Credit Agreement;
-------------------------------------------------
Limited Amendment. This Amendment is executed pursuant to Section
------------------
11.01 of the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered, and applied in accordance with all of the
terms and provisions of the Credit Agreement, including Section 11.01 thereof.
Except as expressly amended, any conditions of the Credit Agreement shall remain
unamended and unwaived. The amendments set forth herein shall be limited
precisely as provided for herein to the provisions expressly amended herein and
shall not be deemed to be a waiver of, amendment of, consent to or modification
of any other term or provision of any other document or of any transaction or
further action on the part of the Company or the Guarantors which would require
the consent of any Bank, the Issuing Bank or the Agent under the Credit
Agreement.
7.3. Successors and Assigns. This Amendment shall be binding upon and
-----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
7.4 Counterparts. This Amendment may be executed simultaneously in two or
-------------
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute together but one and the same instrument.
7.5 Governing Law. This Amendment shall be governed by and construed in
--------------
accordance with the laws of the State of California.
[remainder of page intentionally left blank]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CB RICHARD ELLIS SERVICES, INC.
By: /s/ JOHN C. HAECKEL
-----------------------------------------
Name: John C. Haeckel
Title: Vice President and Chief Financial
Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ GINA MEADOR
-----------------------------------------
Name: Gina Meador
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Issuing Bank
By: /s/ THERESE A. FONTAINE
-----------------------------------------
Name: Therese A. Fontaine
Title: Vice President
-7-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ THERESE A. FONTAINE
-----------------------------------------
Name: Therese A. Fontaine
Title: Vice President
WELLS FARGO BANK, N.A.
By: /s/ CINDY SULLIVAN
-----------------------------------------
Name: Cindy Sullivan
Title: RVP
THE BANK OF NOVA SCOTIA
By: /s/ MAARTY VAN OTTERLOO
-----------------------------------------
Name: Maarty Van Otterloo
Title: Senior Relationship Manager
CREDIT LYONNAIS LOS ANGELES
BRANCH
By: /s/ ROBERT J. IVOSEVICH
-----------------------------------------
Name: Robert J. Ivosevich
Title: Senior Vice President
-8-
<PAGE>
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN BRANCH
By: /s/ BEVERLY G. CASON
-----------------------------------------
Name: Beverly G. Cason
Title: Vice President
By: /s/ JOHN W. SWEENEY
-----------------------------------------
Name: John W. Sweeney
Title: Assistant Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ MARY K. YOUNG
-----------------------------------------
Name: Mary K. Young
Title: Commercial Banking Officer
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By: /s/
-----------------------------------------
Name:
Title:
-9-
<PAGE>
THE BANK OF NEW YORK
By: /S/ REBECCA LEVINE
-----------------------------------------
Name: Rebecca Levine
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ DAN DOBRJANSKYJ
-----------------------------------------
Name: Dan Dobrjanskyj
Title: Assistant Vice President
By: /s/ ANTHONY HEYMAN
-----------------------------------------
Name: Anthony Heyman
Title: Assistant Vice President
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By:
-----------------------------------------
Name:
Title:
-10-
<PAGE>
LASALLE NATIONAL BANK
By: /s/ LISA J. CUNNINGHAM
-----------------------------------------
Name: Lisa J. Cunningham
Title: First Vice President
MELLON BANK, N.A.
By: /s/ L. C. IVEY
-----------------------------------------
Name: L. C. Ivey
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES AGENCY
By: /s/ HIROAKI KOSEKI
-----------------------------------------
Name: Hiroaki Koseki
Title: Deputy General Manager
NATIONAL CITY BANK
By: /s/ BARRY C. ROBINSON
-----------------------------------------
Name: Barry C. Robinson
Title: Vice President
-11-
<PAGE>
THE SAKURA BANK, LIMITED
By: /s/ YASUHIRO TERADA
-----------------------------------------
Name: Yasuhiro Terada
Title: Senior Vice President
NATEXIS BANQUE-BFCE
By: /s/ DANIEL TOUFFU
-----------------------------------------
Name: Daniel Touffu
Title: First VP and Regional Manager
By: /s/ PEYMAN PARHAMI
-----------------------------------------
Name: Peyman Parhami
Title: Assistant Treasurer
-12-
<PAGE>
The foregoing Amendment is
consented to and accepted:
CB RICHARD ELLIS, INC.
a Delaware corporation
By: /s/ WALTER V. STAFFORD
--------------------------------------
Name: Walter V. Stafford
Title: Senior Executive Vice President
General Counsel
KOLL MANAGEMENT SERVICES, INC.,
a Delaware corporation
By: /s/ WALTER V. STAFFORD
--------------------------------------
Name: Walter V. Stafford
Title: Vice President
WESTMARK REAL ESTATE ACQUISITION
PARTNERSHIP, L.P.
a Delaware limited partnership
By: CB Richard Ellis, Inc., General Partner
By: /s/ WALTER V. STAFFORD
--------------------------------------
Name: Walter V. Stafford
Title: Senior Executive Vice President
General Counsel
-13-
<PAGE>
L.J. MELODY & COMPANY,
a Texas corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Treasurer
CB RICHARD ELLIS CORPORATE FACILITIES MANAGEMENT, INC.,
a Delaware corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Assistant Treasurer
KOLL INVESTMENT MANAGEMENT, INC.,
a California corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Vice President and Assistant
Treasurer
-14-
<PAGE>
CBC FREMONT, INCORPORATED,
a Delaware corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
CBS INVESTMENT REALTY, INC.,
an Arizona corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
KOLL PARTNERSHIPS I, INC.,
a Delaware corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
KOLL PARTNERSHIPS II, INC.,
a Delaware corporation
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
-15-
<PAGE>
KOLL/CC&F MANAGEMENT SERVICES,
a California general partnership
By: Koll Management Services,
Inc., Partner
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
By: Koll Von Karman, Inc., Partner
By: /s/ JOHN C. HAECKEL
--------------------------------------
Name: John C. Haeckel
Title: Senior Executive Vice President,
Chief Financial Officer and Treasurer
-16-
<PAGE>
EXHIBIT A
---------
SCHEDULE 2 TO COMPLIANCE CERTIFICATE
------------------------------------
[Date]
In determining compliance with the provisions identified in paragraph
(4) above, the following calculations have been made:
A. LIENS (Section 8.01)
-----
<TABLE>
<S> <C>
1. Liens consisting of judgment or judicial attachment liens, provided
that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Company and its
Subsidiaries do not exceed $7,500,000:
$____________
2. Liens on assets of corporations which become Subsidiaries after the
date of this Agreement; provided however, that such Liens existed at
-------- -------
the time the respective corporations became Subsidiaries and were not
created in anticipation thereof; provided, that all such Liens in the
--------
aggregate at any time outstanding for such Subsidiaries do not exceed
$15,000,000:
$____________
3. Purchase money security interests on any property acquired or held by
the Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; provided, that
-------- ----
(i) any such Lien attaches to such property concurrently with or
within 20 days after the acquisition thereof, (ii) such Lien attaches
solely to the property so acquired in such transaction, (iii) the
principal amount of the debt secured thereby does not exceed 100% of
the cost of such property, and (iv) the principal amount of the
Indebtedness secured by any and all such purchase money security
interests shall not at any time exceed $5,000,000:
$____________
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
4. Liens on the assets of any direct or indirect Subsidiary of the
Company created or acquired in connection with a Permitted Acquisition
and Liens on assets acquired by such Subsidiary in a Permitted
Acquisition, which Liens secure Indebtedness permitted by Section
8.05(c) in connection with such Permitted Acquisition (but not
including any refinancing thereof), in an amount not to exceed
$10,000,000 in the aggregate:
$____________
B. SALES OF ASSETS (Section 8.03)
---------------
1. Sales, transfers, conveyances, leases or other dispositions of assets,
or contributions of assets pursuant to Section 8.03(a)(v):
$____________
Line B1 may not exceed $5,000,000 during any one fiscal year.
C. MERGERS, CONSOLIDATIONS AND ACQUISITIONS (Section 8.04(d))
----------------------------------------
1. Total Consideration for all Acquisitions made during the consecutive
twelve (12) month period up to and including the last day of the
computation period (including, in determining such Total Consideration,
Acquisitions in connection with Joint Ventures in excess of $5,000,000 in
the aggregate in accordance with clause (g) of the definition of "Permitted
Investments"). [NOTE: COMPANY --DISCLOSE ANY ACQUISITIONS REQUIRED BY THE
PROVISO SET FORTH IN SECTION 8.04(d)(viii).]
Line C1 may not exceed $100,000,000 during any consecutive twelve (12)
month period; provided that it may not exceed $400,000,000 if such
additional Total Consideration in excess of $100,000,000 is financed
by the issuance of new equity securities of the Company or its
Subsidiaries as indicated herein.
$____________ [Note:
Itemize debt and
equity in
connection with
each Acquisition.]
2. Minimum Liquidity of at least $25,000,000 after giving effect to each
such Acquisition.
$____________
3. EBITDA of each acquired Person for the preceding twelve (12) month
period from the date of each Acquisition.
$____________/1/
</TABLE>
- ------------------------
/1/ MUST BE A POSITIVE NUMBER FOR EACH SUCH ACQUISITION.
A-2
<PAGE>
<TABLE>
<S> <C>
D. INDEBTEDNESS (Section 8.05)
------------
1. Subordinated Debt pursuant to Section 8.05 not to exceed $300,000,000
at any time.
$____________
2. Additional Indebtedness of the Company and its Subsidiaries in an
aggregate amount not to exceed $50,000,000 at any time.
$____________
E. CONSOLIDATED LEVERAGE RATIO (Section 8.08)
---------------------------
1. Indebtedness on the last day of the computation period:
$____________
2. Consolidated EBITDA:
a. Consolidated Net Income for the computation period:
$____________
b. Interest Expense for the computation period (including deferred
financing costs not paid in cash):
$____________
c. Taxes on Consolidated Net Income or profits for the computation
period:
$____________
d. Depreciation and amortization for the computation period:
$____________
e. Transaction fees incurred with respect to Merger and Credit
Agreement (not greater than $21 million) (for periods on or prior
to December 31, 1997):
$____________
f. Non-cash losses on sale or other disposition of investments or
fixed or capital assets or non-cash write down of investments or
fixed or capital assets:
$____________
g. Merger-related and other non-recurring charges reported for
quarter ending June 30, 1998 (excluding items reported on line f
above) as permitted by the Amendment:
$____________
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
h. Gains on sale or other disposition of investments or fixed or
capital assets and non-cash extraordinary income:
$____________
i. Consolidated EBITDA (Lines E2a + E2b + E2c + E2d + E2e + E2f +
E2g less Line E2h)/2/:
----
$
============
3. Leverage Ratio (Line E1 divided by Line E2i):
============
to 1:00
4. Maximum Permitted Leverage Ratio: 4.00 to 1.00
F. INTEREST COVERAGE RATIO (Section 8.09)
-----------------------
1. Consolidated EBITDA:
a. Consolidated Net Income for the computation period:
$____________
b. Interest Expense for the computation period (including deferred
financing costs not paid in cash):
$____________
c. Taxes on Consolidated Net Income or profits for the computation
period:
$____________
d. Depreciation Expense and Amortization Expense for the computation
period:
$____________
e. Transaction fees incurred with respect to Merger and Credit
Agreement (not greater than $21 million) (for periods on or prior
to December 31, 1997):
$____________
</TABLE>
- -----------------------
/2/ FOR THE PURPOSES OF CALCULATING CONSOLIDATED EBITDA, ITEMS E2b THROUGH E2h
SHALL BE ADDED BACK OR SUBTRACTED, AS THE CASE MAY BE, ONLY TO THE EXTENT
UTILIZED IN ARRIVING AT CONSOLIDATED NET INCOME AS SET FORTH IN E2a.
A-4
<PAGE>
<TABLE>
<S> <C>
f. Non-cash losses on sale or other disposition of investments or
fixed or capital assets or non-cash write down of investments or
fixed or capital assets:
$____________
g. Merger-related and other non-recurring charges reported for
quarter ending June 30, 1998 (excluding items reported on line f
above) as permitted by the Amendment:
$____________
h. Gains on sale or other disposition of investments or fixed or
capital assets and non-cash extraordinary income:
$____________
i. Consolidated EBITDA (Lines F1a + F1b + F1c +F1d +F1e + F1f + F1g
less Line F1h)/3/:
----
$
============
2. Interest Expense for such computation period:
$____________
3. Interest Coverage Ratio (Line E1 divided by Line E2):
============
to 1:00
</TABLE>
4. Minimum Required Interest Coverage Ratio:
Fiscal Quarters
ending in Fiscal Years Maximum Ratio
---------------------- -------------
From the Closing Date through
September 30, 1998 3.50:1.00
December 31, 1998 and thereunder 4.00:1.00
G. MINIMUM EBITDA (Section 8.10)
--------------
1. Consolidated EBITDA:
- ----------------------
/3/ FOR THE PURPOSES OF CALCULATING CONSOLIDATED EBITDA, ITEMS F1b THROUGH F1h
SHALL BE ADDED BACK OR SUBTRACTED, AS THE CASE MAY BE, ONLY TO THE EXTENT
UTILIZED IN ARRIVING AT CONSOLIDATED NET INCOME AS SET FORTH IN F1a.
A-5
<PAGE>
<TABLE>
<S> <C>
a. Consolidated Net Income for the computation period (including
deferred financing costs not paid in cash):
$____________
b. Interest Expense for the computation period:
$____________
c. Taxes on Consolidated Net Income or profits for the computation
period:
$____________
d. Depreciation and amortization for the computation period:
$____________
e. Transaction fees incurred with respect to Merger and Credit
Agreement (not greater than $21 million) (for periods on or prior
to December 31, 1997):
$____________
f. Non-cash losses on sale or other disposition of investments or
fixed or capital assets or non-cash write down of investments or
fixed or capital assets:
$____________
g. Merger-related and other non-recurring charges reported for
quarter ending June 30, 1998 (excluding items reported on line f
above) as permitted by the Amendment:
$____________
h. Gains on sale or other disposition of investments or fixed or
capital assets and non-cash extraordinary income:
$____________
i. Consolidated EBITDA (Lines G1a + G1b + G1c + G1d + G1e + G1f +
G1g less Line G1h)/4/:
----
$
============
</TABLE>
/4/ FOR THE PURPOSES OF CALCULATING CONSOLIDATED EBITDA, ITEMS G1b THROUGH G1h
SHALL BE ADDED BACK OR SUBTRACTED, AS THE CASE MAY BE, ONLY TO THE EXTENT
UTILIZED IN ARRIVING AT CONSOLIDATED NET INCOME AS SET FORTH IN G1a.
A-6
<PAGE>
H. CONSOLIDATED NET WORTH (Section 8.11)
----------------------
<TABLE>
<S> <C>
1. Consolidated Net Income for each Fiscal Quarter (beginning with the
Fiscal Quarter ended June 30, 1998) in which Consolidated Net Income
is greater than zero (Line Bla):
$____________
2. 70% of Line 1:
$____________
3. Net proceeds of any equity securities issued by the Company or any of
its Subsidiaries for each Fiscal Quarter (beginning with the Fiscal
Quarter ended June 30, 1998):
$____________
4. 70% of Line 3:
$____________
5. Add $82,000,000
$____________
6. Consolidated Net Worth for each Fiscal Quarter (beginning with the
Fiscal Quarter ended June 30, 1998):
$____________
7. Required Minimum Consolidated Tangible Net Worth:
a. Lines H2+ H4 + H5: $____________
b. Line H7a less Line H6: $____________
----
Line H6b must not be less than zero.]
</TABLE>
I. RESTRICTED PAYMENTS (Section 8.13)
-------------------
1. Consolidated Net Income for each Fiscal Quarter:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998 __________ + _________ + _________ + _________
1999 __________ + _________ + _________ + _________
2000 __________ + _________ + _________ + _________
2001 __________ + _________ + _________ + _________
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C>
a. Sum of above Consolidated Net Income in quarters where greater
-------
than zero:
$____________
b. Sum of above Consolidated Net Income in quarters where less than
----
zero:
$____________
2. 25% of Line B1a:
$____________
3. Aggregate amount paid by Company for the purchase or redemption of its
capital stock after December 31, 1997:
$____________
4. Aggregate amount of dividends paid by the Company on its common stock after
December 31, 1997:
$____________
5. Line I2 minus Lines I3 and also less Line B4:
----
$____________
Line 5 must be greater than zero unless
Line 3 and Line 4 both equal zero.
Maximum additional amount available for stock purchases and redemptions and
dividends is set forth in Line 5.
J. CAPITAL EXPENDITURES (Section 8.14)
--------------------
1. Depreciation Expense for immediately preceding consecutive twelve (12)
month period:
$____________
2. 200% of Line 1:
$____________
3. Capital Expenditures in the consecutive twelve (12) month period including
the last day of the computation period:
$____________
Line E3 may not exceed Line E2.
</TABLE>
A-8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,437
<SECURITIES> 0
<RECEIVABLES> 131,641
<ALLOWANCES> 11,670
<INVENTORY> 0
<CURRENT-ASSETS> 177,801
<PP&E> 128,617
<DEPRECIATION> 66,029
<TOTAL-ASSETS> 806,386
<CURRENT-LIABILITIES> 178,733
<BONDS> 0
0
0
<COMMON> 207
<OTHER-SE> 176,829
<TOTAL-LIABILITY-AND-EQUITY> 806,386
<SALES> 704,214
<TOTAL-REVENUES> 704,214
<CGS> 0
<TOTAL-COSTS> 663,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,359
<INCOME-PRETAX> 21,181
<INCOME-TAX> 10,257
<INCOME-CONTINUING> 10,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,924
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
<PAGE>
EXHIBIT 99
[LETTERHEAD OF CB RICHARD ELLIS]
P R E S S R E L E A S E
- --------------------
FOR IMMEDIATE RELEASE -- November 11, 1998
<TABLE>
<S> <C> <C>
For further information:
At the Company At the Financial Relations Board
Joseph Fitzpatrick Karen Taylor Stephanie Mishra
Corporate Communications General Information Investor/Analyst Contact
(213) 613-3033 (310) 442-0599 (415) 986-1591
</TABLE>
CB RICHARD ELLIS POSTS STRONG THIRD QUARTER RESULTS
. 54% revenue and 72% EBITDA gains
. 20% EPS growth - in line with consensus expectations
. Growth across business segments
Los Angeles, CA (November 11, 1998)
CB Richard Ellis (NYSE:CBG), the world leader in commercial real estate
services, today released third quarter financial results and reported strong
growth in revenues, EBITDA, and EPS over prior year levels. A 54% increase in
revenues, a 72% EBITDA increase and a 20% increase in EPS, before nonrecurring
items, highlighted the report.
Chairman and Chief Executive Officer Jim Didion commented, "We are very pleased
with the gains we achieved on a combined basis, the performance of each of our
businesses and the tremendous strides we have made in firmly establishing
ourselves in the global marketplace." Didion further explained that EBITDA grew
more rapidly than revenues during the period, evidencing the productivity and
leverage the company can deliver through its scale and global infrastructure.
From a cash flow perspective, Didion noted, "Our cash flow was on target during
the period, and earnings per share ("EPS") were in line with analysts'
estimates, notwithstanding additional interest costs incurred during the three
months, due to timing of acquisition closings and differing expectations as to
amortization costs."
Didion continued, "As we look to the close of 1998, and the current uncertainty
in the capital markets, we continue to expect a good performance overall. While
investment sales and mortgage originations may be negatively affected, our other
businesses are on track and the historic strength of the fourth quarter in this
industry should drive activity levels and resulting revenues."
- more -
<PAGE>
CB Richard Ellis News Release
November 11, 1998
Page 2
"While current market conditions lead to near-term uncertainty, CB Richard Ellis
is the strongest firm in the industry in terms of both performance and market
positioning, and we're expecting to deliver over $1 billion in revenues this
year coupled with substantial profitability," declared Didion. Didion
reiterated that the company expects a slowdown in investment property
transactions which may continue into the first half of 1999, and some moderation
in mortgage originations given the turmoil in the financial markets.
Didion explained that results this quarter relative to the prior year include
the contribution from a number of acquisitions concluded since the start of the
third quarter of last year, specifically REI Ltd. in April 1998, London-based
Hillier Parker in July 1998, and Koll Real Estate Services ("Koll") in August
1997.
As anticipated, the company reported higher debt levels during the period due
primarily to the financing of Hillier Parker and the purchase of remaining local
ownership interests of its Australian and Canadian businesses. Didion commented
that debt levels should begin to ratchet down now that the pace of acquisition
activity has slowed and the global network is in place. According to Didion,
over the next few years, internal expansion will be the main driver of the
company's growth, rather than acquisitions, and the company's strong cash flow
will be used to reduce current debt levels. Approximately $75 million in debt
is targeted for repayment during 1999, based on current market expectations.
STOCK BUYBACK PROGRAM UNDERWAY
The company confirmed that it continues to believe that its shares are
undervalued and expects to continue repurchasing shares from time to time under
its $10 million stock repurchase program. The buyback program was initiated on
October 16th and is in effect through December 31st. The company has purchased
approximately 338,900 shares of common stock to date. At September 30, 1998, the
company had 20.7 million shares of common stock outstanding.
CONSOLIDATED RESULTS
For the quarter ended September 30, 1998, consolidated revenues increased 54% to
$273.8 million from $177.5 million in the 1997 third quarter. EBITDA increased
72% to $35.9 million compared with $20.9 million in 1997 (before merger-related
and other nonrecurring charges). The company reported net income applicable to
common shareholders of $10.1 million, or $0.48 per share, versus a net loss
applicable to common shareholders of $2.9 million, or $0.19 per share in the
comparable year ago quarter. Net income applicable to common shareholders in
1998 was $10.1 million, or $0.48 per share, in the third quarter, compared to
net income before the effect of merger-related and other non-recurring charges
of $6.5 million, or $0.40 per share during the 1997 third quarter.
For the nine months ended September 30, 1998, consolidated revenues advanced 50%
to $704.2 million, up from $469.5 million in the comparable period of 1997.
EBITDA excluding merger-related and other nonrecurring charges improved 72% to
$79.2 million from $46.2 million in the
- more -
<PAGE>
CB Richard Ellis News Release
November 11, 1998
Page 3
comparable period of 1997. Due to the deemed dividend associated with accounting
for the January 1998 repurchase of its preferred stock, the company reported a
net loss applicable to common shareholders of $21.3 million in 1998 versus
income of $2.2 million in the comparable year-ago period. Net income applicable
to common shareholders prior to adjustments rose to $19.7 million, or $0.96 per
share, from $11.6 million, or $0.79 per share, in the corresponding prior year
period.
Year-to-date results include April 18 (date of acquisition) through September
30, 1998 results for REI; approximately three months contribution from Hillier
Parker and the full nine month contribution from Koll, for which only one month
was included in the prior year. Additionally, the one-time charges for the 1998
nine month period recorded in the second quarter totaling $16.6 million consist
of costs associated with the REI acquisition and integration ($3.8 million); the
change in the company's name to CB Richard Ellis ($4.8 million); and the write-
down in the carrying value of the company's headquarters building ($8.0
million), all of which were anticipated. One-time charges for the comparable
period in 1997 included merger-related and other nonrecurring charges of $16.0
million related to the Koll acquisition and concurrent refinancing.
MARKET FUNDAMENTALS ARE STRONG
Despite the recent disruption in the U.S. capital markets, which has affected
some investment sales transactions and loan originations, the company believes
real estate market fundamentals in the United States and Europe, the company's
two primary markets, remain strong. Representative of the industry's strength,
in the U.S. office space sector the national vacancy rate for office space
dropped 20 basis points to 9% for the third quarter, compared to 9.2% last
quarter, according to Torto Wheaton Research, CB Richard Ellis' Boston based
real estate econometric forecasting and consulting firm.
Continued strong demand for office space fueled the declining vacancy rate in
the U.S. The outlook for the remainder of 1998 continues to be favorable with
healthy market fundamentals continuing.
Although national economic growth may be slower in 1999, the company believes
there is only low probability of an economic recession or long-term activity
slowdown occurring, particularly in the U.S. real estate economy, where
inflation remains low, interest rates are low and softening, vacancy rates are
at 10+ year lows, and there is little sign of over building on a national basis.
The company believes the current financial turmoil may in fact be limiting the
amount of new supply entering the market in 1999 and beyond, thereby keeping
demand and supply in relative balance.
SEGMENT RESULTS
For the third quarter, each business segment generated solid revenue growth and
increases in EBITDA relative to the comparable prior year period. Didion stated,
"We also benefited from an
- more -
<PAGE>
CB Richard Ellis News Release
November 11, 1998
Page 4
industry environment which was relatively strong during the earlier part of the
quarter. And, although global economic conditions became unsettled midway
through the period, with most weakened economic conditions in Asia and the
American capital markets, we were able to deliver strong results, indicative of
our ability to capture increased market share despite changing external
conditions."
RELATIVE GAINS
For the quarter ended September 30, 1998, CB Richard Ellis generated revenue
gains of 33% in Brokerage Services, which advanced to $136.4 million; 97% in
Corporate Services, which rose to $20.3 million; 112% in Management Services,
which improved to $34.2 million; and 71% in Financial Services, which increased
to $82.9 million.
BROKERAGE SERVICES (50% OF REVENUES; GREW 33%)
The company's core business, Brokerage Services (commercial property sales and
leasing), contributed 50% to consolidated revenues for the third quarter.
Brokerage revenues increased 33% to $136.4 million, up from $102.7 million in
the comparable 1997 quarter, attributable to appreciation in rents and increased
transaction volume. EBITDA advanced 15% for the quarter.
Brett White, President, Brokerage Services, North America, said, "Our
performance this quarter reflects our ability to rapidly consolidate market
share from both our national and regional competitors. We believe this is
because we are clearly being differentiated by our clients as offering a broader
service menu than our competitors." White remained confident about growth
prospects for the remainder of the 1998 and into next year, stating, "We believe
that in the majority of real estate markets around the country, supply and
demand are in balance, favoring stable if not appreciating rents and prices.
And, in general, our transaction mix is well dispersed by client type and
transaction size. This diversity helps insulate us from changing market
conditions, including those in the credit markets."
Brokerage revenues from the Company's international operations contributed to
the overall gains, with strong year-over-year performance in Europe and South
America, and relatively flat results in Asia Pacific notwithstanding the
depressed economies throughout the region. The Company expects solid gains
internationally, both near term and long term, due to its unique positioning as
the only commonly owned and commonly managed global network.
CORPORATE SERVICES (7% OF REVENUES; GREW 97%)
Corporate Services provides transaction management, advisory services and
facilities management on a regional, national and international basis, and
constitutes a "one-stop" shop for major corporate clients. Revenues advanced 97%
to represent 7% of total revenues. The bulk of the revenue growth is
attributable to the Koll and REI acquisitions. Approximately 110 million square
feet of corporate facilities are now under management, a 31% increase year to
date. EBITDA for the quarter was $3.0
- more -
<PAGE>
CB Richard Ellis News Release
November 11, 1998
Page 5
million, representing a 631% increase from last year, although margins remain
low due to continuing investments in skilled and experienced people and systems
in the business. The company reported that its client base has grown, counting
over 100 major multinational and national corporations as clients.
Gary Beban, Senior Executive Managing Director, Global Corporate Advisory
Services, said, "We made great strides with our client base as we have seen
continued interest and active participation by corporate real estate departments
embracing and enhancing outsourcing and service delivery techniques. And, our
client and account management teams are concentrating on improving the
consistency of our practices with established accounts and integrating
complementary functions as required, all of which helps us generate strong
results."
"Corporate Services performance from activity overseas continues to increase as
corporations apply strategies designed to adjust production capacities to
fluctuating market conditions. While industries such as telecom and financial
services may be bringing some space back onto the market due to merger and
consolidation activities, technology and consumer product suppliers are still
maximizing their use of space, creating activity," commented Beban.
MANAGEMENT SERVICES (13% OF REVENUES; GREW 112%)
Management Services provides a wide range of property management services and
manages 371 million square feet of property worldwide for hundreds of clients.
Revenue advanced 112% to $34.2 million, compared to $16.1 million in the
previous third quarter, to represent 13% of total revenues. EBITDA for the
quarter grew at a faster rate, 306% to $5.3 million. Performance results for the
current quarter reflect the inclusion of results from Koll, Mathews Click
(acquired in June 1998); and Hillier Parker (acquired in July 1998) for the full
three months; whereas the 1997 third quarter included just one month of Koll
results.
According to Jana Turner, President, Institutional Management Services, North
America, "We are pleased with our quarterly results which are attributable to
both organic growth and the impact of acquisitions. Our nationwide platform has
allowed us to leverage our good product mix by applying it to our management
services portfolios across multiple markets. Our intent is to stay focused on
building our sources of fee income, such as from The Service Direct Advantage (a
tenant and client services program) and our strategic engineering group, which
have both experienced strong demand from new clients and existing clients."
FINANCIAL SERVICES (30% OF REVENUES; GREW 71%)
Financial Services offers a broad range of products and services to Wall Street,
institutional, corporate and offshore investors. Growth was realized across all
services, including investment property acquisitions and sales, mortgage
banking, valuation/appraisal, asset management and real estate market research.
The company further reported its assets under management for hard-asset funds,
loan funds, and mutual funds grew in terms of the aggregate value of existing
funds and
- more -
<PAGE>
CB Richard Ellis News Release
November 11, 1998
Page 6
broader product offerings. Revenue from the Financial Services segment
contributed 30% to consolidated quarterly revenues and increased 71% during the
third quarter versus the comparable year-ago quarter. EBITDA advanced 97% for
the quarter over last year's third quarter.
Ray Wirta, Chief Operating Officer of the company and Chairman, North America,
stated, "Revenues reflect strong growth quarter to quarter, with top line growth
in all financial services activities during the third quarter. While turmoil in
the CMBS markets will have some effect on the full year results for the L.J.
Melody & Company mortgage brokerage operations, it is well ahead of last year's
third quarter and we are still expecting to exceed prior year results." Wirta
noted the company has been in the commercial mortgage origination and servicing
businesses since 1935, and the bulk of its activity is classic insurance company
correspondency lending. The company takes no balance sheet risk in this business
so the volatility of spreads over treasuries is not a factor in its
profitability.
FORWARD-LOOKING STATEMENTS
This release may contain forward-looking statements as well as historical
information. Forward-looking statements, which are included in accordance with
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, may involve known and unknown risks, uncertainties and other factors that
may cause the company's actual results and performance in future periods to be
materially different from any future results or performance suggested by the
forward-looking statements in this release. Such forward-looking statements
speak only as of the date of this release. The company expressly disclaims any
obligation to update or revise any forward-looking statements found herein to
reflect any changes in company expectations or results or any change in events.
CB Richard Ellis (NYSE:CBG) is the world's leading real estate services company.
Headquartered in Los Angeles with over 9,000 employees worldwide, the company
serves real estate owners, investors and occupiers through over 200 principal
offices in 29 countries. Services include property sales and leasing, property
management, corporate advisory services and facilities management, mortgage
banking, investment management, capital markets, appraisal/valuation and
research and consulting. CB Commercial and REI Limited, which merged in April
1998 to form CB Richard Ellis, and Hillier Parker, which was acquired in July
1998, had combined 1997 revenues of $1.0 billion.
For more information on CB Richard Ellis Services, Inc. (via facsimile and at no
cost), call 1-800-PRO-INFO and dial client code "CBG". If calling from outside
the United States, please dial 1-732-544-2850.
# # #
<PAGE>
CB RICHARD ELLIS SERVICES, INC
OPERATING RESULTS
For the Three Months Ended September 30, 1998 with Comparative
Figures for the Similar Period in 1997
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended September 30,
----------------------------------------------------------
Consolidated 1998 1997 Difference % Change
- ------------ ------------- -------------- ------------- ---------
<S> <C> <C> <C> <C>
Revenue....................................................... $ 273,803 $ 177,520 $ 96,283 54.2 %
Costs and expenses:
Commissions, fees and other incentives....................... 113,559 87,588 25,971 29.7 %
Operating, administrative and other.......................... 124,309 69,046 55,263 80.0 %
Merger-related and other nonrecurring charges................ - 12,924 (12,924) (100.0)%
Depreciation and amortization................................ 9,337 6,098 3,239 53.1 %
----------- ---------- --------- --------
Operating income.............................................. 26,598 1,864 24,734 1,326.9 %
Interest income............................................... 703 740 (37) (5.0)%
Interest expense.............................................. 9,628 4,158 5,470 131.6 %
----------- ---------- --------- --------
Income (loss) before provision (benefit) for income tax....... 17,673 (1,554) 19,227 1,237.3 %
Provision (benefit) for income tax............................ 7,534 (569) 8,103 1,424.1 %
----------- ---------- --------- --------
Net income (loss) before extraordinary items.................. 10,139 (985) 11,124 1,129.3 %
Extraordinary items........................................... - 951 (951) (100.0)%
----------- ---------- --------- --------
Net income (loss)............................................. $ 10,139 $ (1,936) $ 12,075 623.7 %
Dividend on preferred stock................................... $ - $ 1,000 $ (1,000) (100.0)%
----------- ---------- --------- --------
Net income (loss) applicable to common stockholders........... $ 10,139 $ (2,936) $ 13,075 445.3 %
=========== ========== ========= ========
Basic earnings (loss) per share............................... $ 0.49 $ (0.19) $ 0.68 357.9 %
=========== ========== ========= ========
Number of shares used in computing basic
earnings (loss) per share................................... 20,692,573 15,419,930 5,272,643 34.2 %
=========== ========== ========== ========
Diluted earnings (loss) per share............................. $ 0.48 $ (0.19) $ 0.67 352.6 %
=========== ========== ========== ========
Number of shares used in computing
diluted earnings (loss) per share........................... 21,101,324 15,419,930 5,681,394 36.8 %
=========== ========== ========== ========
Adjusted diluted earnings per share (1)....................... $ 0.48 $ 0.40 $ 0.08 20.0 %
=========== ========== ========== ========
Number of shares used in computing
adjusted diluted earnings per share (1)..................... 21,101,324 16,231,034 4,870,290 30.0 %
=========== ========== ========== ========
EBITDA excluding merger-related and other
nonrecurring charges........................................ $ 35,935 $ 20,886 $ 15,049 72.1 %
=========== ========== ========== ========
</TABLE>
(1) Excludes the effect of merger-related and other nonrecurring charges, net of
tax effect.
<PAGE>
CB RICHARD ELLIS SERVICES, INC
OPERATING RESULTS BY BUSINESS SEGMENT
For the Three Months Ended September 30, 1998 with Comparative Figures for the
Similar Period in 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter ended September 30,
----------------------------------------------------------------
1998 1997 Difference % Change
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Brokerage Services
- -------------------
Revenue ..................................................... $ 136,435 $ 102,676 $ 33,759 32.9 %
Costs and expenses:
Commissions, fees and other incentives .............. 71,469 57,280 14,189 24.8 %
Operating, administrative and other ................. 50,697 33,007 17,690 53.6 %
Depreciation and amortization ....................... 3,228 3,633 (405) (11.1)%
---------- ---------- ---------- --------
Operating income ............................................ $ 11,041 $ 8,756 $ 2,285 26.1 %
========= ========= ========= =======
EBITDA ...................................................... $ 14,269 $ 12,389 $ 1,880 15.2 %
========= ========= ========= =======
EBITDA Margin ............................................... 10.5% 12.1%
========= =========
EBITDA as a percent of consolidated EBITDA .................. 39.7% 59.4%
========= =========
Corporate Services
- ------------------
Revenue ..................................................... $ 20,330 $ 10,300 $ 10,030 97.4 %
Costs and expenses:
Commissions, fees and other incentives ............. 6,326 5,016 1,310 26.1 %
Operating, administrative and other ................. 11,049 4,880 6,169 126.4 %
Depreciation and amortization ....................... 626 179 447 249.7 %
---------- ---------- ---------- --------
Operating income ............................................ $ 2,329 $ 225 $ 2,104 935.1 %
========= ========= ========= =======
EBITDA ...................................................... $ 2,955 $ 404 $ 2,551 631.4 %
========= ========= ========= =======
EBITDA Margin ............................................... 14.5% 3.9%
========= =========
EBITDA as a percent of consolidated EBITDA .................. 8.2% 1.9%
========= =========
Management Services
- -------------------
Revenue ..................................................... $ 34,163 $ 16,133 $ 18,030 111.8 %
Costs and expenses:
Commissions, fees and other incentives .............. 5,951 4,642 1,309 28.2 %
Operating, administrative and other ................. 22,869 10,175 12,694 124.8 %
Depreciation and amortization ....................... 1,908 670 1,238 184.8 %
---------- ---------- ---------- --------
Operating income ............................................ $ 3,435 $ 646 $ 2,789 431.7 %
========= ========= ========= =======
EBITDA ...................................................... $ 5,343 $ 1,316 $ 4,027 306.0 %
========= ========= ========= =======
EBITDA Margin ............................................... 15.6% 8.2%
========= =========
EBITDA as a percent of consolidated EBITDA .................. 14.9% 6.3%
========= =========
Financial Services
- ------------------
Revenue ..................................................... $ 82,875 $ 48,411 $ 34,464 71.2 %
Costs and expenses:
Commissions, fees and other incentives .............. 29,813 20,650 9,163 44.4 %
Operating, administrative and other ................. 39,694 20,984 18,710 89.2 %
Depreciation and amortization ....................... 3,575 1,616 1,959 121.2 %
---------- ---------- ---------- --------
Operating income ............................................ $ 9,793 $ 5,161 $ 4,632 89.8 %
========= ========= ========= =======
EBITDA ...................................................... $ 13,368 $ 6,777 $ 6,591 97.3 %
========= ========= ========= =======
EBITDA Margin ............................................... 16.1% 14.0%
========= =========
EBITDA as a percent of consolidated EBITDA .................. 37.2% 32.4%
========= =========
Merger-related and other nonrecurring charges $ - $ 12,924 $ (12,924)
- --------------------------------------------- ========= ========= =========
</TABLE>
<PAGE>
CB RICHARD ELLIS SERVICES, INC
OPERATING RESULTS
For the Nine Months Ended September 30, 1998 with Comparative Figures for the
Similar Period in 1997
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------------------------------------
Consolidated 1998 1997 Difference % Change
- ------------ ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue................................................. $ 704,214 $ 469,542 $ 234,672 50.0 %
Costs and expenses:
Commissions, fees and other incentives............... 310,641 237,716 72,925 30.7 %
Operating, administrative and other.................. 314,330 185,642 128,688 69.3 %
Merger-related and other nonrecurring charges........ 16,585 12,924 3,661 28.3 %
Depreciation and amortization........................ 22,086 12,272 9,814 80.0 %
----------- ----------- ----------- -------
Operating income........................................ 40,572 20,988 19,584 93.3 %
Interest income......................................... 1,968 1,959 9 0.5 %
Interest expense........................................ 21,359 12,007 9,352 77.9 %
----------- ----------- ----------- -------
Income before provision for income tax.................. 21,181 10,940 10,241 93.6 %
Provision for income tax................................ 10,257 4,786 5,471 114.3 %
----------- ----------- ----------- -------
Net income before extraordinary items................... 10,924 6,154 4,770 77.5 %
Extraordinary items..................................... - 951 (951) (100.0) %
----------- ----------- ----------- -------
Net income.............................................. $ 10,924 $ 5,203 $ 4,770 91.7 %
Dividend on preferred stock............................. $ 32,273 (1) $ 3,000 $ 29,273 975.8 %
----------- ----------- ----------- -------
Net income (loss) applicable to common stockholders..... $ (21,349) $ 2,203 $ (23,552) (1,069.1) %
=========== =========== =========== =======
Basic earnings (loss) per share......................... $ (1.07) $ 0.16 $ (1.23) (768.8) %
=========== =========== =========== =======
Number of shares used in computing basic
earnings (loss) per share............................ 19,917,773 14,011,922 5,905,851 42.1 %
=========== =========== =========== =======
Diluted earnings (loss) per share....................... $ (1.07) $ 0.15 $ (1.22) (813.3) %
=========== =========== =========== =======
Number of shares used in computing
diluted earnings per share........................... 19,917,773 14,662,536 5,255,237 35.8 %
=========== =========== =========== =======
Adjusted diluted earnings per share (2)................. $ 0.96 $ 0.79 $ 0.17 21.5 %
=========== =========== =========== =======
Number of shares used in computing
adjusted diluted earnings per share (2)............... 20,454,938 14,662,536 5,792,402 39.5 %
=========== =========== =========== =======
EBITDA excluding merger-related and other
nonrecurring charges.................................. $ 79,243 $ 46,184 $ 33,059 71.6 %
=========== =========== =========== =======
</TABLE>
(1) Deemed dividend associated with the repurchase of preferred stock
(2) Excludes the effect of deemed dividend associated with the repurchase of
preferred stock and merger-related and other nonrecurring charges, net of
tax effect.
<PAGE>
CB RICHARD ELLIS SERVICES, INC
OPERATING RESULTS BY BUSINESS SEGMENT
For the Nine Months Ended September 30, 1998 with
Comparative Figures for the Similar Period in 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------------------------------------
1998 1997 Difference % Change
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Brokerage Services
- ------------------
Revenue....................................................... $372,014 $281,858 $90,156 32.0%
Costs and expenses:
Commissions, fees and other incentives................ 196,229 157,977 38,252 24.2%
Operating, administrative and other................... 131,878 95,539 36,339 38.0%
Depreciation and amortization......................... 7,254 6,548 706 10.8%
-------- -------- ------- ------
Operating income.............................................. $ 36,653 $ 21,794 $14,859 68.2%
======== ======== ======= ======
EBITDA........................................................ $ 43,907 $ 28,342 $15,565 54.9%
======== ======== ======= ======
EBITDA Margin................................................. 11.8% 10.1%
======== ========
EBITDA as a percent of consolidated EBITDA.................... 55.4% 61.4%
======== ========
Corporate Services
- ------------------
Revenue....................................................... $ 50,104 $ 22,554 $27,550 122.2%
Costs and expenses:
Commissions, fees and other incentives................ 18,069 11,895 6,174 51.9%
Operating, administrative and other................... 30,697 10,047 20,650 205.5%
Depreciation and amortization......................... 1,743 305 1,438 471.5%
-------- -------- ------- ------
Operating income (loss)....................................... $ (405) $ 307 $ (712) (231.9)%
======== ======== ======= ======
EBITDA........................................................ $ 1,338 $ 612 $ 726 118.6%
======== ======== ======= ======
EBITDA Margin................................................. 2.7% 2.7%
======== ========
EBITDA as a percent of consolidated EBITDA.................... 1.7% 1.3%
======== ========
Management Services
- -------------------
Revenue....................................................... $ 85,641 $ 38,017 $47,624 125.3%
Costs and expenses:
Commissions, fees and other incentives................ 19,301 13,758 5,543 40.3%
Operating, administrative and other................... 57,151 21,052 36,099 171.5%
Depreciation and amortization......................... 4,478 986 3,492 354.2%
-------- -------- ------- ------
Operating income.............................................. $ 4,711 $ 2,221 $ 2,490 112.1%
======== ======== ======= ======
EBITDA........................................................ $ 9,189 $ 3,207 $ 5,982 186.5%
======== ======== ======= ======
EBITDA Margin................................................. 10.7% 8.4%
======== ========
EBITDA as a percent of consolidated EBITDA.................... 11.6% 6.9%
======== ========
Financial Services
- ------------------
Revenue....................................................... $196,455 $127,113 $69,342 54.6%
Costs and expenses:
Commissions, fees and other incentives................ 77,042 54,086 22,956 42.4%
Operating, administrative and other................... 94,604 59,004 35,600 60.3%
Depreciation and amortization......................... 8,611 4,433 4,178 94.2%
-------- -------- ------- ------
Operating income.............................................. $ 16,198 $ 9,590 $ 6,608 68.9%
======== ======== ======= ======
EBITDA........................................................ $ 24,809 $ 14,023 $10,786 76.9%
======== ======== ======= ======
EBITDA Margin................................................. 12.6% 11.0%
======== ========
EBITDA as a percent of consolidated EBITDA.................... 31.3% 30.4%
======== ========
Merger-related and other nonrecurring charges................. $ 16,585 $ 12,924 $ 3,661
- --------------------------------------------- ======== ======== =======
</TABLE>
<PAGE>
CB RICHARD ELLIS SERVICES, INC
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,437 $ 47,181
Other current assets 154,364 98,109
Property and equipment, net 62,588 50,309
Goodwill and other intangible assets, net 473,929 239,384
Other assets, net 92,068 65,117
--------- ---------
Total assets $ 806,386 $ 500,100
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturites of long-term debt $ 9,089 $ 4,679
Other current liabilities 169,644 147,937
Long-term debt, less current maturities 390,500 146,273
Other long-term liabilities 54,365 35,768
--------- ---------
Total liabilities 623,598 334,657
Minority Interest 5,752 7,672
Stockholders' Equity
Contributed capital 333,748 328,253
Accumulated deficit (156,712) (170,482)
--------- ---------
Total stockholders' equity 177,036 157,771
--------- ---------
Total liabilities and stockholders' equity $ 806,386 $ 500,100
========= =========
</TABLE>
