<PAGE>
=========================================================================
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, 1999
[_] 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)
200 North Sepulveda Boulevard
El Segundo, California 90245-4380
(Address of principal executive offices) (Zip Code)
(310) 563 - 8600 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 29, 1999 was
20,684,495.
1
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998...........................3
Unaudited Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998 and for the nine months ended September 30, 1999 and 1998............................4
Unaudited Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998................................................................................5
Notes to Consolidated Condensed Financial Statements.............................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................................22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................................................................23
Signatures.................................................................................................................24
</TABLE>
2
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
A S S E T S
-----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................................ $ 25,122 $ 19,551
Receivables, less allowance of $13,273 and $13,348 for doubtful accounts
at September 30, 1999 and December 31, 1998......................................... 143,448 131,512
Deferred taxes....................................................................... 2,886 3,529
Prepaid expenses..................................................................... 9,215 13,459
Other assets......................................................................... 17,048 8,353
--------- ---------
Total current assets................................................................ 197,719 176,404
Property and equipment, net........................................................... 62,808 58,366
Goodwill, net of accumulated amortization of $38,118 and $25,060 at
September 30, 1999 and December 31, 1998............................................. 445,244 445,124
Other intangible assets, net of accumulated amortization of $273,931 and $268,497
at September 30, 1999 and December 31, 1998.......................................... 57,821 63,913
Prepaid pension expenses.............................................................. 27,287 28,241
Deferred taxes........................................................................ 21,693 23,100
Investment in and advances to unconsolidated subsidiaries............................. 37,322 31,633
Other assets, net..................................................................... 21,265 30,111
--------- ---------
Total assets........................................................................ $ 871,159 $ 856,892
========= =========
L I A B I L I T I E S A N D S T O C K H O L D E R S' E Q U I T Y
--------------------------------------------------------------------
Current Liabilities:
Compensation and employee benefits................................................... $ 89,326 $ 66,245
Accounts payable and accrued expenses................................................ 66,633 105,027
Reserve for bonus and profit sharing................................................. 24,542 39,270
Current maturities of long-term debt................................................. 3,846 12,343
Current portion of capital lease obligations......................................... 1,644 2,862
--------- ---------
Total current liabilities........................................................... 185,991 225,747
Long-term debt:
Senior term loans.................................................................... 231,502 183,502
Senior subordinated notes, less unamortized discount of $1,946 and $2,099 at
September 30, 1999 and December 31, 1998............................................ 173,054 172,901
Other long-term debt................................................................. 8,671 17,288
--------- ---------
Total long-term debt................................................................ 413,227 373,691
Other long-term liabilities........................................................... 71,467 60,737
--------- ---------
Total liabilities................................................................... 670,685 660,175
Minority interest..................................................................... 4,150 5,875
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value; 8,000,000 shares authorized; no shares issued or
outstanding
Common stock, $0.01 par value; 100,000,000 shares authorized; 20,686,995 and
20,636,134 shares issued and outstanding at September 30, 1999 and
December 31, 1998.................................................................. 213 211
Additional paid-in capital........................................................... 355,030 349,796
Notes receivable from sale of stock.................................................. (8,087) (5,654)
Accumulated deficit.................................................................. (139,516) (145,767)
Accumulated other comprehensive income (loss)........................................ (639) 1,139
Treasury stock at cost, 626,900 and 488,900 shares at September 30, 1999 and
December 31, 1998................................................................... (10,677) (8,883)
--------- ---------
Total stockholders' equity.......................................................... 196,324 190,842
--------- ---------
Total liabilities and stockholders' equity.......................................... $ 871,159 $ 856,892
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Leases................................................ $ 111,430 $ 97,763 $ 295,957 $ 252,654
Sales................................................. 106,695 93,770 268,704 253,463
Property and facilities management fees............... 26,689 23,838 80,516 58,814
Consulting and referral fees.......................... 18,612 19,515 54,044 41,340
Appraisal fees........................................ 15,018 13,983 45,334 31,661
Loan origination and servicing fees................... 10,247 11,750 26,682 27,625
Realty advisor fees................................... 7,854 7,348 20,723 23,755
Other................................................. 10,473 5,836 25,426 14,902
----------- ----------- ----------- -----------
Total revenue......................................... 307,018 273,803 817,386 704,214
Costs and Expenses:
Commissions, fees and other incentives................ 137,709 119,959 351,317 315,271
Operating, administrative and other................... 139,262 117,909 394,404 309,700
Merger-related and other nonrecurring charges......... - - - 16,585
Depreciation and amortization......................... 10,001 9,337 29,963 22,086
----------- ----------- ----------- -----------
Operating income......................................... 20,046 26,598 41,702 40,572
Interest income.......................................... 791 703 1,861 1,968
Interest expense......................................... 10,294 9,628 29,670 21,359
----------- ----------- ----------- -----------
Income before provision for income tax................... 10,543 17,673 13,893 21,181
Provision for income tax................................. 5,895 7,534 7,642 10,257
----------- ----------- ----------- -----------
Net income............................................... $ 4,648 $ 10,139 $ 6,251 $ 10,924
=========== =========== =========== ===========
Deemed dividend on preferred stock....................... $ - $ - $ - $ 32,273
----------- ----------- ----------- -----------
Earnings (loss) applicable to common stockholders........ $ 4,648 $ 10,139 $ 6,251 $ (21,349)
=========== =========== =========== ===========
Basic earnings (loss) per share.......................... $ 0.22 $ 0.49 $ 0.30 $ (1.07)
=========== =========== =========== ===========
Weighted average shares outstanding for basic earnings
(loss) per share........................................ 21,098,757 20,692,573 21,021,512 19,917,773
=========== =========== =========== ===========
Diluted earnings (loss) per share........................ $ 0.22 $ 0.48 $ 0.30 $ (1.07)
=========== =========== =========== ===========
Weighted average shares outstanding for diluted
earnings (loss) per share............................... 21,162,334 21,101,324 21,103,139 19,917,773
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 6,251 $ 10,924
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization excluding deferred financing costs................... 29,963 22,086
Deferred compensation.............................................................. 13,691 11,375
Deferred taxes..................................................................... 1,334 5,706
Loss on disposition of property.................................................... 1,902 83
Increase in receivables............................................................. (13,436) (15,605)
Decrease in compensation and employee benefits payable.............................. (10,200) (22,637)
(Decrease) increase in accounts payable and accrued expenses........................ (14,691) 10,945
Net change in other operating assets and liabilities................................ (12,105) 4,209
-------- ---------
Net cash provided by operating activities........................................ 2,709 27,086
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment................................................. (19,213) (18,040)
Proceeds from sale of inventoried property.......................................... 7,355 -
Increase in intangible assets and goodwill.......................................... (3,364) (14,603)
Acquisition of businesses including net assets acquired, intangibles
and goodwill....................................................................... (10,353) (159,822)
Decrease (increase) in investments in/advances to unconsolidated subsidiaries....... 4,605 (8,461)
Other investing activities, net..................................................... (252) 1,130
-------- ---------
Net cash used in investing activities............................................ (21,222) (199,796)
-------- ---------
Cash flows from financing activities:
Proceeds from senior term loans..................................................... 146,000 268,000
Repayment of senior term loans...................................................... (98,000) (208,000)
Proceeds from senior subordinated notes............................................. - 172,804
Repayment of inventoried property loan.............................................. (7,093) (377)
Repayment of other loans............................................................ (10,388) (7,753)
Payment of dividends payable........................................................ - (5,000)
Repurchase of preferred stock....................................................... - (72,418)
Repurchase of common stock.......................................................... (1,794) -
Repayment of capital leases......................................................... (1,037) (1,354)
Other financing activities, net..................................................... (3,079) 2,908
-------- ---------
Net cash provided by financing activities........................................ 24,609 148,810
-------- ---------
Net increase (decrease) in cash and cash equivalents.................................. 6,096 (23,900)
Cash and cash equivalents, at beginning of period..................................... 19,551 47,181
Effect of exchange rate changes on cash............................................... (525) 156
-------- ---------
Cash and cash equivalents, at end of period........................................... $ 25,122 $ 23,437
======== =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest (none capitalized)........................................................ $ 25,302 $ 13,522
Income taxes....................................................................... $ 9,957 $ (435)
</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
(Unaudited)
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., CB Commercial Limited (the United
Kingdom holding company, formerly known as REI Limited ("REI") 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 ("HP"), 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 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 to commercial real estate tenants, owners and investors through
approximately 250 offices worldwide including but not limited to the United
States, Argentina, Australia, Brazil, Belgium, Canada, France, Germany, Hong
Kong, India, Italy, the Netherlands, New Zealand, People's Republic of China,
Portugal, Singapore, Spain, Switzerland, Taiwan and the United Kingdom. In July
1999, the Company undertook a reorganization that will streamline operations and
result in a change in its segment reporting from four to three segments. The
Company's services under this new segmentation include (i) brokerage services
whereby the Company facilitates the sale and lease of properties, transaction
management and advisory services, investment property transactions, including
acquisitions and sales on behalf of investors ("Transaction Management"); (ii)
capital market activities, including mortgage banking, brokerage and servicing,
investment management and advisory services, real estate market research and
valuation and appraisal services ("Financial Services"); and (iii) facilities
management services to corporate real estate users, and property management and
related services ("Management 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
government entities, and individuals.
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.
Acquisitions. Refer to the Company's financial statements included in the
Annual Report on Form 10-K for the year ended December 31, 1998 for a discussion
of the Company's acquisitions prior to 1999. In 1999 the Company's only
acquisition has been the acquisition of Eberhardt company by L.J. Melody in
September 1999 for $6.0 million.
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, 1999. 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 nine months ended September 30, 1998, assuming
the REI acquisition, which constituted the Company's only material acquisition
year to date, had occurred on January 1, 1998, would have been as follows
(amounts in thousands, except per share data):
<TABLE>
<S> <C>
Revenue...................................... $720,528
Net income................................... 1,953
Net loss applicable to common stockholders... (30,320)
Loss per share
Basic...................................... (1.48)
Diluted.................................... (1.48)
</TABLE>
6
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
Net loss applicable to common stockholders includes a deemed dividend of
$32.3 million on the repurchase of the Company's preferred stock. 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, 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 ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, 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. 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. Other Current Assets
In September 1999, the Company sold its Los Angeles headquarters building at
a minimal loss. Other current assets include $7.7 million in receivables from
the sale.
4. Goodwill and Other Intangible Assets
Goodwill at September 30, 1999 consisted of $426.1 million related to the
1995 through 1999 acquisitions which is being amortized over an estimated useful
life of 30 years and $19.1 million related to the Company's original acquisition
in 1989 which is being amortized over an estimated useful life of 40 years.
Other intangible assets at September 30, 1999 included approximately $7.2
million of deferred financing costs and $50.6 million of intangibles other than
goodwill stemming from the 1995 through 1999 acquisitions.
5. 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 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. Effective May 1, 1999, the Company
revised the DCP to add insurance products which function like mutual funds as an
investment alternative and to fund the Company's obligation for deferrals
invested in such insurance products. The Company received proceeds of
approximately $1.6 million related to additional insurance products. For the
nine months ended September 30, 1999, approximately $13.2 million and $1.1
million were deferred in cash (including interest) and stock, respectively. The
accumulated deferrals at September 30, 1999, were approximately $30.1 million in
cash (including interest and capital appreciation) and $11.1 million in stock
for a total of $41.2 million, all of which was charged to expense in the period
of deferral.
7
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company, through the HP acquisition, maintains a contributory defined
benefit pension plan ("DBP") to provide retirement benefits to former HP
employees participating in the plan. The Company's funding policy for DBP is to
make the minimum annual contributions required by applicable regulations.
Reference is made to Note 6 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
for further discussion. At September 30, 1999, DBP plan assets exceeded DBP
plan liabilities by approximately $27.3 million and the net prepaid pension
asset is reflected in the accompanying balance sheet.
6. 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 $215.0 million at September 30, 1999 which is included in the accompanying
balance sheet. Interest rate alternatives include Bank of America's reference
rate plus 1.00% and LIBOR plus 2.00%. The weighted average rate on the amounts
outstanding at September 30, 1999 was 7.68%.
The revolving credit facility contains numerous restrictive covenants that,
among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest coverage.
The Company and the banks recently executed an amendment to the revolving credit
facility reducing the facility to $350.0 million, eliminating the mandatory
reduction on December 31, 1999, and revising some of the covenants.
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. The amount included in the
accompanying balance sheet for the Subordinated Notes less unamortized discount
was $173.1 million at September 30, 1999.
7. Income Taxes
The provisions for income taxes for the nine month periods ended September
30, 1999 and 1998 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. In accordance with APB opinion No.
23, no U.S. taxes have been provided on earnings of foreign subsidiaries because
it is the intent of the Company to permanently re-invest the unremitted earnings
of foreign subsidiaries. Reference is made to Note 10 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 for a discussion of the Company's deferred
taxes including net operating loss carryforwards.
8. Commitments and Contingencies
In December 1996, GMH Associates, Inc. ("GMH") filed a lawsuit against
Prudential Realty Group ("Prudential") and the Company in Superior Court of
Pennsylvania, Franklin County, alleging various contractual and tort claims
against Prudential, the seller of a large office complex, and the Company, its
agent in the sale, contending that Prudential breached its agreement to sell the
property to GMH, breached its duty to negotiate in good faith, conspired with
the Company to conceal from GMH that Prudential was negotiating to sell the
property to another purchaser and that Prudential and the Company misrepresented
that there were no other negotiations for the sale of the property. Following a
non-jury trial, the court rendered a decision in favor of GMH and against
Prudential and the Company, awarding GMH $20.3 million in compensatory damages,
against Prudential and the Company jointly and severally, and $10.0 million in
punitive damages, allocating the punitive damage award $7.0 million as against
Prudential and $3.0 million as against
8
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
the Company. Following the denial of motions by Prudential and the Company for a
new trial, a judgment was entered on December 3, 1998. Prudential and the
Company have filed an appeal of the judgment. The Company believes that it has
adequate insurance coverage for the compensatory portion of the judgment and
adequate reserves for the punitive portion, as well as potential indemnity
claims against Prudential for the entire judgment.
In August 1993, a former commissioned sales person of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergen 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. On March 9, 1999 the
appellate court ruled in the Company's favor, reversed the trial court decision
and ordered a new trial. In June of 1999, the Supreme Court of New Jersey
agreed to review the Appellate Court's decision and a hearing for this purpose
has been set for November 30, 1999. Based on available reserves, 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.
The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. Based on available
cash and anticipated cash flows, the Company believes that the ultimate outcome
will not have an impact on the Company's ability to carry on its operations.
Management believes that any liability to the Company that may result from
disposition of these lawsuits will not have a material effect on the
consolidated financial position or results of operations of the Company.
9. Stockholders' Equity
The translation of foreign currencies into U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average exchange rate
for the period. The cumulative gains or losses resulting from translations are
included in stockholders' equity.
10. Comprehensive Income
Effective January 1, 1998, the Company adopted 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, 1999, total
comprehensive income was $4.5 million which includes foreign currency
translation loss of $1.8 million. 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.
11. Per Share Information
Basic and diluted 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. When
the Company has a net loss applicable to common stockholders for a particular
reporting period, the stock options and warrants outstanding are excluded from
the computation of diluted loss per share as they are anti-dilutive.
9
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
The following is a calculation of basic and diluted earnings (loss) per share
(in thousands, except share and per share data):
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------ ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Net income.......................................... $4,648 21,098,757 $0.22 $ 10,139 20,692,573 $ 0.49
====== ========== ===== ======== ========== =========
Diluted earnings per share
Net income.......................................... $4,648 21,098,757 $ 10,139 20,692,573
Diluted effect of exercise of options outstanding... 63,577 408,751
------ ---------- -------- ----------
Earnings applicable to common stockholders.......... $4,648 21,162,334 $0.22 $ 10,139 21,101,324 $ 0.48
====== ========== ===== ======== ========== =========
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------
1999 1998
-------------------------------- ----------------------------------
Per-Share Income Per-Share
Income Shares Amount (Loss) Shares Amount
------ ---------- --------- -------- ---------- ---------
Basic earnings (loss) per share
Net income.......................................... $6,251 $ 10,924
Deemed dividend on preferred stock repurchase....... - (32,273)
------ --------
Earnings (loss) applicable to common stockholders... $6,251 21,021,512 $0.30 $(21,349) 19,917,773 $(1.07)
====== ========== ===== ======== ========== =========
Diluted earnings (loss) per share
Earnings (loss) applicable to common stockholders... $6,251 21,021,512 $(21,349) 19,917,773
Diluted effect of exercise of options outstanding... 81,627 -
------ ---------- -------- ----------
Earnings (loss) applicable to common stockholders... $6,251 21,103,139 $0.30 $(21,349) 19,917,773 $(1.07)
====== ========== ===== ======== ========== =========
</TABLE>
The following items were not included in the computation of diluted earnings
(loss) per share because their effect was anti-dilutive for the quarters ended
September 30:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- -----------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Stock options
Outstanding......... 2,081,032 1,574,676 1,955,355 2,993,477
Price ranges........ $ 16.38-$36.75 $ 31.00-$38.50 $ 18.04-$36.75 $ 0.38-$38.50
Expiration ranges... 6/8/04-5/31/09 4/21/07-7/22/08 4/15/06-5/31/09 4/18/99-7/22/08
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
</TABLE>
12. 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 1999 presentation.
10
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(Unaudited)
13. Industry Segments
In July 1999, the Company announced that it changed its segment reporting
from four segments to three segments. Prior periods were restated to conform to
the new segmentation. The three segments are Transaction Management, Management
Services and Financial Services. The factors for determining the reportable
segments were based on the type of service and client. Each business segment
requires and is responsible for executing a unique marketing and business
strategy. Transaction Management consists of commercial property sales and
leasing services, transaction management and advisory services, investment
property services (acquisitions and sales on behalf of investors). Management
Services consists of facilities and property management and related services.
Financial Services consists of mortgage loan origination and servicing through
L.J. Melody, investment management and advisory services through CB Richard
Ellis Investors, L.L.C., capital markets activities, valuation and appraisal
services and real estate market research. The following tables summarize the
revenue, cost and expenses, and operating income by operating segment for the
periods ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue (1)
Transaction Management.......................... $225,244 $197,507 $582,568 $520,679
Financial Services.............................. 42,947 42,289 122,699 99,168
Management Services............................. 38,827 34,007 112,119 84,367
-------- -------- -------- --------
$307,018 $273,803 $817,386 $704,214
======== ======== ======== ========
Operating income (loss)
Transaction Management.......................... $ 25,192 $ 22,927 $ 45,582 $ 53,619
Financial Services.............................. (3,157) 1,365 (1,933) 685
Management Services............................. (1,989) 2,306 (1,947) 2,853
Merger-related and other nonrecurring charges... - - - (16,585)
-------- -------- -------- --------
20,046 26,598 41,702 40,572
Interest income.................................. 791 703 1,861 1,968
Interest expense................................. 10,294 9,628 29,670 21,359
-------- -------- -------- --------
Income before provision for income tax........... $ 10,543 $ 17,673 $ 13,893 $ 21,181
======== ======== ======== ========
Geographic Information
Revenue
United States................................... $237,954 $226,869 $633,591 $ 629,410
All other countries............................. 69,064 46,934 183,795 74,804
-------- -------- -------- ---------
$307,018 $273,803 $817,386 $ 704,214
======== ======== ======== =========
</TABLE>
(1) Certain revenue types disclosed on the income statement may not be derived
directly from amounts shown in this table.
11
<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 250 offices worldwide including but not limited to the United
States, Argentina, Australia, Brazil, Belgium, Canada, France, Germany, Hong
Kong, India, Italy, the Netherlands, New Zealand, People's Republic of China,
Portugal, Singapore, Spain, Switzerland, Taiwan, and the United Kingdom. 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 U.S. real estate broker to being a diversified global
real estate services firm. The Company's brokerage business, commercial
property sales and leasing, transaction management and advisory services,
investment property transactions, including acquisitions and sales on behalf of
investors ("Transaction Management") is one of the largest such businesses in
the United States.
As part of its strategic emphasis in developing a worldwide business, the
Company has, since the beginning of 1995, completed multiple 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 and non-tax deductible 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 (a portion of 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 Transaction Management, which constitutes a substantial majority
of the Company's revenue, is 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. Approximately 52.0% of the costs and expenses associated with
Transaction Management are directly correlated to revenue while approximately
20.0% of the costs and expenses of Management Services and Financial Services,
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.
12
<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. Beginning in late 1998, some signs indicated that this recovery had
reached a plateau in North America although management does not believe that
this is the case. 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>
Three Months ended September 30, Nine Months Ended September 30,
------------------------------------- --------------------------------------
1999 1998 1999 1998
----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Revenue:
Leases........................... $111,430 36.3% $ 97,763 35.7% $295,957 36.2% $252,654 35.9%
Sales............................ 106,695 34.7 93,770 34.3 268,704 32.9 253,463 36.0
Property and facilities
management fees................. 26,689 8.7 23,838 8.7 80,516 9.9 58,814 8.3
Consulting and referral fees..... 18,612 6.1 19,515 7.1 54,044 6.6 41,340 5.9
Appraisal fees................... 15,018 4.9 13,983 5.1 45,334 5.5 31,661 4.5
Loan origination and servicing
fees............................ 10,247 3.3 11,750 4.3 26,682 3.3 27,625 3.9
Realty advisor fees.............. 7,854 2.6 7,348 2.7 20,723 2.5 23,755 3.4
Other............................ 10,473 3.4 5,836 2.1 25,426 3.1 14,902 2.1
-------- ----- -------- ----- -------- ----- -------- -----
Total revenue.................... 307,018 100.0% 273,803 100.0% 817,386 100.0% 704,214 100.0%
Costs and expenses:
Commissions, fees and other
incentives...................... 137,709 44.8 119,959 43.8 351,317 42.9 315,271 44.8
Operating, administrative
and other....................... 139,262 45.4 117,909 43.1 394,404 48.3 309,700 44.0
Merger-related and other
nonrecurring charges............ - - - - - - 16,585 2.3
Depreciation and amortization.... 10,001 3.3 9,337 3.4 29,963 3.7 22,086 3.1
-------- ----- -------- ----- -------- ----- -------- -----
Operating income.................. 20,046 6.5 26,598 9.7 41,702 5.1 40,572 5.8
Interest income................... 791 0.3 703 0.3 1,861 0.2 1,968 0.3
Interest expense.................. 10,294 3.4 9,628 3.5 29,670 3.6 21,359 3.0
-------- ----- -------- ----- -------- ----- -------- -----
Income before provision for
income tax....................... 10,543 3.4 17,673 6.5 13,893 1.7 21,181 3.1
Provision for income tax.......... 5,895 1.9 7,534 2.8 7,642 0.9 10,257 1.5
-------- ----- -------- ----- -------- ----- -------- -----
Net income........................ $ 4,648 1.5% $ 10,139 3.7% $ 6,251 0.8% $ 10,924 1.6%
======== ===== ======== ===== ======== ===== ======== =====
EBITDA excluding merger-related
and other nonrecurring charges... $ 30,047 9.8% $ 35,935 13.1% $ 71,665 8.8% $ 79,243 11.3%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
The Company reported a consolidated net income of $4.6 million, or $0.22
diluted earnings per share for the three months ended September 30, 1999 on
revenues of $307.0 million compared to a consolidated net income of $10.1
million, or $0.48 diluted earnings per share on revenues of $273.8 million for
the three months ended September 30, 1998. To improve operating results the
Company implemented a reduction in force program geared primarily towards
managers which on a full year basis is expected to reduce expenses by $14.0
million (approximately $4 million in 1999). The quarter result includes proceeds
from an insurance policy of $1.6 million and a charge of approximately $1.1
million from the recently announced restructuring.
13
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
Revenues on a consolidated basis were $307.0 million, an increase of $33.2
million or 12.1% for the three months ended September 30, 1999, compared to the
three months ended September 30, 1998. The overall increase reflected the
continued improvement of the real estate market, although at a slower pace. The
improved market resulted in higher property values, higher rental rates and
increased activity, which translated into increases in brokerage sales and lease
transactions, and investment properties transactions closed for the three months
ended September 30, 1999. The Company continued to benefit from its global
market presence by leveraging the ability to deliver comprehensive real estate
services into new businesses. However, revenues for the third quarter continue
to be affected by the liquidity problems which began in September of 1998 in the
global capital markets in general and the Commercial Mortgage-Backed Securities
("CMBS") market in particular.
Commissions, fees and other incentives on a consolidated basis were $137.7
million, an increase of $17.8 million or 14.8% for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998. 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 44.8% for the
three months ended September 30, 1999, compared to 43.8% for the three months
ended September 30, 1998.
Operating, administrative and other on a consolidated basis was $139.3
million, an increase of $21.4 million or 18.1% for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998. As a
percentage of revenue, operating, administrative and other were 45.4% for the
three months ended September 30, 1999 compared to 43.1% for the three months
ended September 30, 1998. The increase in amount and percentage is primarily due
to an overall increase in overhead expenses and the sale of the Company's
headquarters building at a minimal loss.
Consolidated interest income was $0.8 million, an increase of $0.1 million or
12.5% for the three months ended September 30, 1999 as compared to the three
months ended September 30, 1998.
Consolidated interest expense was $10.3 million, an increase of $0.7 million
or 6.9% for the three months ended September 30, 1999, as compared to the three
months ended September 30, 1998. The increase primarily resulted from the
renewal of certain senior term loans at a higher borrowing rate.
Provision for income tax on a consolidated basis was $5.9 million for the
three months ended September 30, 1999, as compared to the provision for income
tax of $7.5 million for the three months ended September 30, 1998. The decrease
is primarily due to the decrease in income before provision for income tax. The
effective tax rate increased in 1999, primarily as a result of additional
nonamortizable goodwill from recent acquisitions. In early 1998 the Company
repurchased its outstanding preferred stock which triggered a limitation on the
annual amount of net operating loss ("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 was $30.0 million for the three months ended September 30, 1999, as
compared to $35.9 million for the three months ended September 30, 1998. 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, 1999 Compared to Nine Months Ended September 30,
1998
The Company reported a consolidated net income of $6.3 million, or $0.30
diluted earnings per share for the nine months ended September 30, 1999 on
revenues of $817.4 million compared to a consolidated net income of $10.9
million on revenues of $704.2 million for the nine months ended September 30,
1998. 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.
Revenues on a consolidated basis were $817.4 million, an increase of $113.2
million or 16.1% for the nine months
14
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
ended September 30, 1999, compared to the nine months ended September 30, 1998.
The overall increase reflected the full contribution from REI and HP and various
other 1998 acquisitions, and the continued improvement of the real estate
market. The improved market resulted in higher property values, higher rental
rates and increased activity, which translated into increases in brokerage sales
and lease transactions, closed for the nine months ended September 30, 1999. The
Company continued to benefit from its global market presence by leveraging the
ability to deliver comprehensive real estate services into new businesses.
However, revenues year to date continue to be affected by the liquidity problems
which began in September of 1998 in the global capital markets in general and
the CMBS market in particular.
Commissions, fees and other incentives on a consolidated basis were $351.3
million, an increase of $36.0 million or 11.4% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. 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.
Operating, administrative and other on a consolidated basis was $394.4
million, an increase of $84.7 million or 27.4% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. The
increase in amount is primarily due to the acquisitions of REI and HP, which
have higher fixed operating expenses.
Consolidated interest income was $1.9 million, a decrease of $0.1 million or
5.4% for the nine months ended September 30, 1999, as compared to the nine
months ended September 30, 1998.
Consolidated interest expense was $29.7 million, an increase of $8.3 million
or 38.9% for the nine months ended September 30, 1999, as compared to the nine
months ended September 30, 1998. The increase primarily resulted from the
renewal of certain senior term loans at a higher borrowing rate.
Provision for income tax on a consolidated basis was $7.6 million for the
nine months ended September 30, 1999, as compared to the provision for income
tax of $10.3 million for the nine months ended September 30, 1998. The decrease
is primarily due to the decrease in income before provision for income tax. The
effective tax rate increased in 1999, primarily as a result of additional
nonamortizable goodwill from recent acquisitions. 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 was $71.7 million for the nine months ended September 30, 1999, as
compared to $79.2 million for the nine months ended September 30, 1998. 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.
15
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
Segment Operations
The Company provides integrated real estate services through three global
business segments. The three segments are Transaction Management, Management
Services and Financial Services. The factors for determining the reportable
segments were based on the type of service and client. Each business segment
requires and is responsible for executing a unique marketing and business
strategy. Transaction Management consists of commercial property sales and
leasing services, transaction management and advisory services, investment
property services (acquisitions and sales on behalf of investors). Management
Services consists of facilities and property management and related services.
Financial Services consists of mortgage loan origination and servicing through
L.J. Melody, investment management and advisory services through CB Richard
Ellis Investors, L.L.C., capital markets activities, valuation and appraisal
services and real estate market research. The following tables summarize the
revenue, cost and expenses, and operating income by operating segment for the
three months ended September 30, 1999 and 1998 and the nine months ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------- -------------------------------------
1999 1998 1999 1998
-------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Transaction Management
Revenue:
Leases................................... $105,893 47.0% $ 93,433 47.3% $280,866 48.2% $240,584 46.2%
Sales.................................... 103,890 46.1 91,107 46.1 261,510 44.9 246,780 47.4
Other consulting and referral fees (1)... 15,461 6.9 12,967 6.6 40,192 6.9 33,315 6.4
-------- ------- -------- ------- -------- ----- -------- -----
Total revenue............................ $225,244 100.0% $197,507 100.0% $582,568 100.0% $520,679 100.0%
Costs and expenses:
Commissions, fees and other incentives... 119,717 53.2 105,041 53.2 305,206 52.4 278,497 53.5
Operating, administrative and other...... 75,509 33.5 65,558 33.2 218,165 37.5 179,604 34.5
Depreciation and amortization............ 4,826 2.1 3,981 2.0 13,615 2.3 8,959 1.7
-------- ------- -------- ------- -------- ----- -------- -----
Operating income (2)...................... $ 25,192 11.2% $ 22,927 11.6% $ 45,582 7.8% $ 53,619 10.3%
======== ======= ======== ======= ======== ===== ======== =====
EBITDA.................................... $ 30,018 13.3% $ 26,908 13.6% $ 59,197 10.1% $ 62,578 12.0%
======== ======= ======== ======= ======== ===== ======== =====
Financial Services
Revenue:
Appraisal fees........................... $ 14,730 34.3% $ 14,389 34.0% $ 44,129 36.0% $ 31,911 32.2%
Loan origination and servicing fees...... 10,247 23.9 11,750 27.8 26,680 21.7 27,625 27.8
Realty advisor fees...................... 7,338 17.1 7,496 17.7 19,765 16.1 23,281 23.5
Other (1)................................ 10,632 24.7 8,654 20.5 32,125 26.2 16,351 16.5
-------- ------- -------- ------- -------- ----- -------- -----
Total revenue............................ $ 42,947 100.0% $ 42,289 100.0% $122,699 100.0% $ 99,168 100.0%
Costs and expenses:
Commissions, fees and other incentives... 14,858 34.6 12,437 29.4 36,966 30.1 28,140 28.4
Operating, administrative and other...... 28,442 66.2 25,407 60.1 78,406 63.9 62,844 63.4
Depreciation and amortization............ 2,804 6.5 3,080 7.3 9,260 7.6 7,499 7.5
-------- ------- -------- ------- -------- ----- -------- -----
Operating income (loss) (2)............... $ (3,157) (7.3)% $ 1,365 3.2% $ (1,933) (1.6)% $ 685 0.7%
======== ======= ======== ======= ======== ===== ======== =====
EBITDA.................................... $ (353) (0.8)% $ 4,445 10.5% $ 7,327 6.0% $ 8,184 8.2%
======== ======= ======== ======= ======== ===== ======== =====
Management Services
Revenue:
Property management fees................. $ 19,706 50.7% $ 20,054 59.0% $ 60,712 54.2% $ 46,085 54.6%
Facilities management fees............... 5,961 15.4 3,857 11.3 16,725 14.9 11,497 13.6
Leases................................... 5,364 13.8 4,165 12.3 14,809 13.2 11,837 14.0
Sales.................................... 1,547 4.0 1,205 3.5 3,727 3.3 3,909 4.7
Other (1)................................ 6,249 16.1 4,726 13.9 16,146 14.4 11,039 13.1
-------- ------- -------- ------- -------- ----- -------- -----
Total revenue............................ $ 38,827 100.0% $ 34,007 100.0% $112,119 100.0% $ 84,367 100.0%
Costs and expenses:
Commissions, fees and other incentives... 3,134 8.1 2,481 7.3 9,145 8.1 8,634 10.2
Operating, administrative and other...... 35,311 90.9 26,944 79.2 97,833 87.3 67,252 79.7
Depreciation and amortization............ 2,371 6.1 2,276 6.7 7,088 6.3 5,628 6.7
-------- ------- -------- ------- -------- ----- -------- -----
Operating income (loss) (2)............... $ (1,989) (5.1)% $ 2,306 6.8% $ (1,947) (1.7)% $ 2,853 3.4%
======== ======= ======== ======= ======== ===== ======== =====
EBITDA.................................... $ 382 1.0% $ 4,582 13.5% $ 5,141 4.6% $ 8,481 10.1%
======== ======= ======== ======= ======== ===== ======== =====
Merger-related and other
nonrecurring charges...................... $ - $ - $ - $ 16,585
======== ======= ======== ========
Total operating income..................... $ 20,046 $26,598 $ 41,702 $ 40,572
======== ======= ======== ========
Total EBITDA excluding merger-related and
other nonrecurring charges................ $ 30,047 $35,935 $ 71,665 $ 79,243
======== ======= ======== ========
</TABLE>
- ---------
(1) Revenue is allocated by material line of business specific to each segment.
"Other" includes types of revenue that have not been broken out separately
due to their immaterial balances.
(2) Segment operating income excludes merger-related and other nonrecurring
charges.
16
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Transaction Management
Revenue increased by $27.7 million or 14.0% for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998, due
primarily to the continued improvement of the real estate market. The improved
market resulted in higher property values, higher rental rates and increased
activity, which translated into increases in brokerage sales and lease
transactions and investment properties transactions, closed for the three months
ended September 30, 1999. Commissions, fees and other incentives increased by
$14.7 million or 14.0% for the three months ended September 30, 1999, compared
to the three months ended September 30, 1998. As a percentage of revenue,
commissions, fees and other incentives were 53.2% for the three months ended
September 30, 1999 and 1998. The increase in amount is due to increased
revenues, which resulted in higher commission eligibility levels, and, thus,
higher commission. Operating, administrative, and other increased by $10.0
million or 15.2% for the three months ended September 30, 1999, compared to the
three months ended September 30, 1998. The increase in the amount is a result
of additional overhead expenses. Depreciation and amortization increased by $0.8
million or 21.2% for the three months ended September 30, 1999 as compared to
the three months ended September 30, 1998.
Financial Services
Revenue increased by $0.7 million or 1.6% for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998.
Commissions, fees and other incentives increased by $2.4 million or 19.5% for
the three months ended September 30, 1999, compared to the three months ended
September 30, 1998. As a percentage of revenue, commissions, fees and other
incentives were 34.6% for the three months ended September 30, 1999 compared to
29.4% for the three months ended September 30, 1998. The increase in amount and
percentage of revenue is primarily due to higher commission eligibility levels
outside the U.S. Operating, administrative, and other increased by $3.0 million
or 11.9% for the three months ended September 30, 1999, compared to the three
months ended September 30, 1998. Depreciation and amortization decreased by
$0.3 million or 9.0% for the three months ended September 30, 1999, as compared
to the three months ended September 30, 1998.
Management Services
Revenue increased by $4.8 million or 14.2% for the three months ended
September 30, 1999, compared to the three months ended September 30, 1998,
primarily due to growth in the facilities management business. Commissions, fees
and other incentives increased by $0.7 million or 26.3% for the three months
ended September 30, 1999 compared to the three months ended September 30, 1998,
primarily due to increased revenues. As a percentage of revenue, commissions,
fees and other incentives were 8.1% for the three months ended September 30,
1999 compared to 7.3% for the three months ended September 30, 1998. Operating,
administrative and other increased by $8.4 million or 31.1% for the three months
ended September 30, 1999, compared to the three months ended September 30, 1998,
primarily related to increased overhead expenses. As a percentage of revenue,
operating, administrative and other were 90.9% for the three months ended
September 30, 1999 compared to 79.2% for the three months ended September 30,
1998. The increase in operating, administrative and other as a percentage of
revenue is primarily due to the building of the facilities management
infrastructure in response to the revenue growth. Depreciation and amortization
increased by $0.1 million or 4.2% for the three months ended September 30, 1999,
as compared to the three months ended September 30, 1998.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September
30, 1998
Transaction Management
Revenue increased by $61.9 million or 11.9% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998, due to
the full contribution of REI and HP and various other 1998 acquisitions, and the
continued improvement of the real estate market. Commissions, fees and other
incentives increased by $26.7 million or 9.6% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998,
primarily due to increased revenues, which resulted in higher commission
eligibility levels, and, thus, higher commissions. Operating, administrative,
and other increased by $38.6 million or 21.5% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. The
increase in the amount is primarily due to the inclusion of REI and HP and
various other 1998 acquisitions. Depreciation and amortization increased by
$4.7 million or 52.0% for the nine months ended September 30, 1999, as compared
to the nine months ended September
17
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
30, 1998, primarily as a result of additional investments in hardware and
software to support the increase in new business.
Financial Services
Revenue increased by $23.5 million or 23.7% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998. The
increase in revenue is primarily due to the appraisal and valuation services
which includes the full contribution from REI and HP and various other 1998
acquisitions. Commissions, fees and other incentives increased by $8.8 million
or 31.4% for the nine months ended September 30, 1999, compared to the nine
months ended September 30, 1998. The increase is primarily a result of the
revenue increase and the resulting higher commission eligibility levels from the
REI and HP contribution. Operating, administrative, and other increased by $15.6
million or 24.8% for the nine months ended September 30, 1999, compared to the
nine months ended September 30, 1998, primarily as a result of increased
overhead expenses and the integration of REI and HP and various other 1998
acquisitions. Depreciation and amortization increased by $1.8 million or 23.5%
for the nine months ended September 30, 1999, as compared to the nine months
ended September 30, 1998, primarily related to the additional investment in
hardware and software to support the increase in new business and the
acquisitions of REI and HP and various other 1998 acquisitions.
Management Services
Revenue increased by $27.8 million or 32.9% for the nine months ended
September 30, 1999, compared to the nine months ended September 30, 1998,
primarily due to growth in the property and facilities management businesses and
the full contribution from REI and HP and various other 1998 acquisitions.
Commissions, fees and other incentives increased by $0.5 million or 5.9% for the
nine months ended September 30, 1999 compared to the nine months ended September
30, 1998. Operating, administrative, and other increased $30.6 million or 45.5%
for the nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998, primarily related to the acquisitions of REI and HP, which
have higher fixed operating expenses, and increases in overhead expenses.
Depreciation and amortization increased by $1.5 million or 25.9% for the nine
months ended September 30, 1999, as compared to the nine months ended September
30, 1998, primarily related to the acquisitions of REI and HP and various other
1998 acquisitions.
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 certain working
capital requirements, the Company had additional net borrowings of $48.0
million under the revolving credit facility, during the nine months ended
September 30, 1999. The Company's EBITDA was $71.7 million and $79.2 million
for the nine months ended September 30, 1999 and 1998, respectively. The
decrease in EBITDA reflects the continuing liquidity problems in the global
capital markets as discussed in Results of Operations and a possible slowdown in
the volume of transactions.
Net cash provided by operating activities was $2.7 million for the nine
months ended September 30, 1999, compared to $27.1 million for the nine months
ended September 30, 1998. The change is primarily due to changes in components
of operating assets and liabilities, including the additional insurance products
and sale of properties, the increase in compensation costs accrued in 1999 due
to timing, and the decrease in the merger-related and other nonrecurring costs
accrued in 1998.
Net cash used in investing activities was $21.2 million for the nine months
ended September 30, 1999, compared to $199.8 million for the nine months ended
September 30, 1998. The change is primarily due to a lower level of acquisition
of businesses, the sale of the inventoried property, and the absence in 1999 of
the supplemental purchase price payments included in 1998 in connection with a
1995 acquisition.
Net cash provided by financing activities was $24.6 million for the nine
months ended September 30, 1999, compared to $148.8 million used in financing
activities for the nine months ended September 30, 1998. The decrease primarily
results from increases in repayments of the inventoried property loan, other
loans and lower 1999 net borrowings from 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
18
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
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 $215.0 million at September 30, 1999
which is included in the accompanying balance sheet. Interest rate alternatives
include Bank of America's reference rate plus 1.00% and LIBOR plus 2.00%. The
weighted average rate on amounts outstanding at September 30, 1999 was 7.68%.
The revolving credit facility contains numerous restrictive covenants that,
among other things, limit the Company's ability to incur or repay other
indebtedness, make advances or loans to subsidiaries and other entities, make
capital expenditures, incur liens, enter into mergers or effect other
fundamental corporate transactions, sell its assets, or declare dividends. In
addition, the Company is required to meet certain ratios relating to its
adjusted net worth, level of indebtedness, fixed charges and interest coverage.
The Company and the banks recently executed an amendment to the revolving credit
facility reducing the facility to $350.0 million, eliminating the mandatory
reduction on December 31, 1999, and revising some of the covenants.
The Company expects to have capital expenditures ranging from $25.0 million
to $30.0 million in 1999. 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, if any, 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 September 1, 1999, the Company announced that its Board of Directors
authorized a repurchase program under which it would purchase up to $5.0 million
of its common stock. The purchases would be made from time to time either in
the open market or through privately negotiated transactions. To date, the
Company purchased 138,000 shares of common stock for approximately $1.8 million.
Year 2000 Issues Update
As fully discussed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, the Company is replacing and upgrading all of its
affected hardware and software to ensure continued operations beyond December
31, 1999. Although, there can be no assurances, the Company believes that its
proprietary accounting systems, information technology and embedded systems will
be Y2K compliant by the end of 1999.
To date, the Company estimates that it has spent approximately $11.0 million
for the Y2K issue. The Company does not track the cost and time that its own
internal employees spend on the Y2K project. Except as noted above,
management's assessment of the status of the Year 2000 project and its
contingency plans remain unchanged from that described in the Company's 1998
Annual Report on Form 10-K.
Even though the Company has completed an assessment of risk with respect to
third-party suppliers and clients, the Company cannot conclusively determine
that such risk could have a material adverse impact on the Company's result of
operations, liquidity or financial condition. The risks include, but are not
limited to, temporary failure of one or more infrastructure services provided by
third-party suppliers such as bank and payroll transaction processes, utilities
and transportation services; loss of real-time processing capability by the
Company's internal information systems; and interruption of commerce with
customers or suppliers that experience Y2K-related failures within their
businesses.
The Company's plans to address the Year 2000 issues are based on management's
current estimates and are subject to the aforementioned uncertainties that could
cause the actual results to differ materially from these plans.
Euro Conversion Disclosure
The Company does not expect the introduction of the Euro to have a
significant impact on its market or the manner in which it conducts business,
and believes the related impact on the Company's financials is not material.
Approximately six percent of the Company's 1998 business was transacted in the
participating member countries. The
19
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
Company is currently using the legacy currencies to conduct business in these
member countries.
The Company is in the process of replacing or upgrading the affected hardware
and software to allow for dual-currency reporting during the transition period,
and issues related but not limited to converting amounts and rounding. The
Company anticipates these system upgrades will be fully functional prior to the
end of the transition period.
Litigation
In December 1996, GMH Associates, Inc. ("GMH") filed a lawsuit against
Prudential Realty Group ("Prudential") and the Company in Superior Court of
Pennsylvania, Franklin County, alleging various contractual and tort claims
against Prudential, the seller of a large office complex, and the Company, its
agent in the sale, contending that Prudential breached its agreement to sell the
property to GMH, breached its duty to negotiate in good faith, conspired with
the Company to conceal from GMH that Prudential was negotiating to sell the
property to another purchaser and that Prudential and the Company misrepresented
that there were no other negotiations for the sale of the property. Following a
non-jury trial, the court rendered a decision in favor of GMH and against
Prudential and the Company, awarding GMH $20.3 million in compensatory damages,
against Prudential and the Company jointly and severally, and $10.0 million in
punitive damages, allocating the punitive damage award $7.0 million as against
Prudential and $3.0 million as against the Company. Following the denial of
motions by Prudential and the Company for a new trial, a judgment was entered on
December 3, 1998. Prudential and the Company have filed an appeal of the
judgment. The Company believes that it has adequate insurance coverage for the
compensatory portion of the judgment and adequate reserves for the punitive
portion, as well as potential indemnity claims from Prudential for the entire
judgment.
In August 1993, a former commissioned sales person of the Company filed a
lawsuit against the Company in the Superior Court of New Jersey, Bergen 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. On March 9, 1999 the
appellate court ruled in the Company's favor, reversed the trial court decision
and ordered a new trial. In June of 1999, the Supreme Court of New Jersey agreed
to review the Appellate Court's decision and a hearing for this purpose has been
set for November 30, 1999. Based on available reserves, 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.
The Company is a party to a number of pending or threatened lawsuits arising
out of, or incident to, its ordinary course of business. Based on available
cash and anticipated cash flows, the Company believes that the ultimate outcome
will not have an impact on the Company's ability to carry on its operations.
Management believes that any liability to the Company that may result from
disposition of these lawsuits will not have a material effect on the
consolidated financial position or results of operations of the Company.
Net Operating Losses
The Company had U.S. federal income tax NOLs of approximately $70.8 million
as of December 31, 1998, corresponding to $24.8 million of the Company's $53.3
million in net deferred tax assets before valuation allowance.
The ability of the Company to utilize NOLs was limited in 1998 and will be in
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 be able to use approximately $26.0
million of its NOL in 1999 and in each subsequent year. The amount of NOLs is,
in any event, subject to uncertainty until the statute of limitations lapses
after their utilization to offset taxable income.
Segment Reporting
In July 1999, the Company announced that it changed its segment reporting from
four segments to three segments. Prior periods have been restated to conform to
the new segmentation.
20
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
New Accounting Pronouncements
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information during the six months 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 did not have a material impact on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every 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.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, which deferred the effective date of SFAS No. 133 for one
year. SFAS No. 137 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. 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.
In 1999, the Company adopted Statement of Position ("SOP") 98-5, Reporting
on the Costs of Start-up Activities. SOP 98-5, which requires costs of start-up
activities and organization costs to be expensed as incurred. The adoption of
this statement did not have a material impact on the Company's financial
statements.
21
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES (continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk consists of foreign currency exchange
rate fluctuations related to international operations and changes in interest
rates on debt obligations.
Approximately 20.0% of the Company's business is transacted in local
currencies of foreign countries. The Company attempts to manage its exposure
primarily by balancing monetary assets and liabilities, and maintaining cash
positions only at levels necessary for operating purposes. While the Company's
international results of operations as measured in dollars are subject to
foreign exchange rate fluctuations, the related risk is not considered material.
The Company routinely monitors its transaction exposure to currency rate
changes, and enters into currency forward and option contracts to limit such
exposure, as appropriate. Gains and losses on contracts are deferred until the
transaction being hedged is finalized. At September 30, 1999, the Company had
no outstanding contracts. The Company does not engage in any speculative
activities.
The Company manages its interest expense by using a combination of fixed and
variable rate debt. The Company utilizes sensitivity analyses to assess the
potential effect of its variable rate debt. If interest rates were to increase
by 70 basis points (approximately 10.0% of the Company's weighted-average
variable rate at September 30, 1999) the net impact would not result in a
material change in the Company's interest expense or the fair value of the
Company's debt obligation.
REGARDING OUTLOOK AND OTHER FORWARD-LOOKING DATA
Portions of the Quarterly Report, including Management's Discussion and
Analysis, contain forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the Company's actual results and performance in
future periods to be materially different from any future results or performance
suggested in forward-looking statements in this release. Such forward-looking
statements speak only as of the date of this report and the Company expressly
disclaims any obligation to update or revise any forward-looking statements
found herein to reflect any changes in 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; employment
conditions and their effect on vacancy rates; property values; rental rates; any
general economic recession domestically or internationally; and general
conditions of financial liquidity for real estate transactions.
22
<PAGE>
CB RICHARD ELLIS SERVICES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (filed only with the SEC)
(b) Report on Form 8-K
The registrant filed a Current Report on Form 8-K dated November 12,
1999 concerning the Company's press release announcing the results of
operations for the three and nine months ended September 30, 1999
23
<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 12, 1999 /s/ Ronald J. Platisha
--------------------------------
Ronald J. Platisha
Executive Vice President,
Financial Operations
24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ------------------------------------------------------
<S> <C>
27 Financial Data Schedule (filed only with the SEC)
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 25,122
<SECURITIES> 0
<RECEIVABLES> 156,721
<ALLOWANCES> 13,273
<INVENTORY> 0
<CURRENT-ASSETS> 197,719
<PP&E> 153,793
<DEPRECIATION> 90,985
<TOTAL-ASSETS> 871,159
<CURRENT-LIABILITIES> 185,991
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 196,111
<TOTAL-LIABILITY-AND-EQUITY> 871,159
<SALES> 817,386
<TOTAL-REVENUES> 817,386
<CGS> 0
<TOTAL-COSTS> 775,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,670
<INCOME-PRETAX> 13,893
<INCOME-TAX> 7,642
<INCOME-CONTINUING> 6,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,251
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
