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 March 31, 2004
| ¨ | 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 000-32983
CB RICHARD ELLIS GROUP, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 94-3391143 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 865 South Figueroa Street, Suite 3400 Los Angeles, California |
90017 | |
| (Address of principal executive offices) | (Zip Code) | |
| (213) 613-3226 | ||
| (Registrant’s telephone number, including area code) | (Former name, former address and former fiscal three months 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 ¨ No x.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x.
The number of shares of Class A and Class B common stock outstanding at May 4, 2004 was 7,764,867 and 57,815,844 respectively.
FORM 10-Q
March 31, 2004
2
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 54,254 | $ | 163,881 | ||||
| Restricted cash |
15,165 | 14,899 | ||||||
| Receivables, less allowance for doubtful accounts of $16,408 and $16,181 at March 31, 2004 and December 31, 2003, respectively |
272,574 | 322,416 | ||||||
| Warehouse receivable |
72,725 | 230,790 | ||||||
| Prepaid expenses |
28,899 | 22,854 | ||||||
| Deferred tax assets, net |
65,438 | 57,681 | ||||||
| Other current assets |
33,705 | 26,461 | ||||||
| Total Current Assets |
542,760 | 838,982 | ||||||
| Property and equipment, net |
117,340 | 113,569 | ||||||
| Goodwill |
825,679 | 819,558 | ||||||
| Other intangible assets, net of accumulated amortization of $82,362 and $73,449 at March 31, 2004 and December 31, 2003, respectively |
123,694 | 131,731 | ||||||
| Deferred compensation assets |
81,111 | 76,389 | ||||||
| Investments in and advances to unconsolidated subsidiaries |
73,354 | 68,361 | ||||||
| Deferred tax assets, net |
30,216 | 32,179 | ||||||
| Other assets, net |
125,581 | 132,712 | ||||||
| Total Assets |
$ | 1,919,735 | $ | 2,213,481 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Accounts payable and accrued expenses |
$ | 188,725 | $ | 189,787 | ||||
| Compensation and employee benefits payable |
143,997 | 148,874 | ||||||
| Accrued bonus and profit sharing |
83,161 | 200,343 | ||||||
| Short-term borrowings: |
||||||||
| Warehouse line of credit |
72,725 | 230,790 | ||||||
| Revolver and swingline credit facility |
13,250 | — | ||||||
| Other |
27,846 | 39,347 | ||||||
| Total short-term borrowings |
113,821 | 270,137 | ||||||
| Current maturities of long-term debt |
11,252 | 11,285 | ||||||
| Other current liabilities |
12,642 | 12,991 | ||||||
| Total Current Liabilities |
553,598 | 833,417 | ||||||
| Long-Term Debt: |
||||||||
| 11¼% senior subordinated notes, net of unamortized discount of $2,764 and $2,827 at March 31, 2004 and December 31, 2003, respectively |
226,236 | 226,173 | ||||||
| Senior secured term loan |
285,000 | 287,500 | ||||||
| 9¾% senior notes |
200,000 | 200,000 | ||||||
| 16% senior notes, net of unamortized discount of $2,560 and $2,844 at March 31, 2004 and December 31, 2003, respectively |
35,756 | 35,472 | ||||||
| Other long-term debt |
43,500 | 42,275 | ||||||
| Total Long-Term Debt |
790,492 | 791,420 | ||||||
| Deferred compensation liability |
144,996 | 138,037 | ||||||
| Pension liability |
38,917 | 35,998 | ||||||
| Other liabilities |
72,712 | 75,024 | ||||||
| Total Liabilities |
1,600,715 | 1,873,896 | ||||||
| Minority interest |
6,860 | 6,656 | ||||||
| Commitments and contingencies |
||||||||
| Stockholder’s Equity: |
||||||||
| Class A common stock; $0.01 par value; 325,000,000 shares authorized; 8,204,241 and 8,185,323 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
82 | 82 | ||||||
| Class B common stock; $0.01 par value; 100,000,000 shares authorized; 57,815,844 shares issued and outstanding at March 31, 2004 and December 31, 2003 |
578 | 578 | ||||||
| Additional paid-in capital |
361,586 | 361,472 | ||||||
| Notes receivable from sale of stock |
(4,388 | ) | (4,680 | ) | ||||
| Accumulated (deficit) earnings |
(15,119 | ) | 1,449 | |||||
| Accumulated other comprehensive loss |
(28,267 | ) | (23,780 | ) | ||||
| Treasury stock at cost, 439,374 and 416,874 shares at March 31, 2004 and December 31, 2003, respectively |
(2,312 | ) | (2,192 | ) | ||||
| Total Stockholders’ Equity |
312,160 | 332,929 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 1,919,735 | $ | 2,213,481 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
$ | 440,992 | $ | 263,724 | ||||
| Costs and expenses: |
||||||||
| Cost of services |
224,222 | 123,599 | ||||||
| Operating, administrative and other |
199,251 | 126,175 | ||||||
| Depreciation and amortization |
16,831 | 6,171 | ||||||
| Merger-related charges |
9,960 | — | ||||||
| Operating (loss) income |
(9,272 | ) | 7,779 | |||||
| Equity income from unconsolidated subsidiaries |
2,526 | 3,063 | ||||||
| Interest income |
2,307 | 1,075 | ||||||
| Interest expense |
20,679 | 14,324 | ||||||
| Loss before benefit for income taxes |
(25,118 | ) | (2,407 | ) | ||||
| Benefit for income taxes |
(8,550 | ) | (1,060 | ) | ||||
| Net loss |
$ | (16,568 | ) | $ | (1,347 | ) | ||
| Basic and diluted loss per share |
$ | (0.24 | ) | $ | (0.03 | ) | ||
| Weighted average shares outstanding for basic and diluted loss per share |
67,680,255 | 45,087,657 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (16,568 | ) | $ | (1,347 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
16,831 | 6,171 | ||||||
| Amortization of deferred financing costs |
1,662 | 824 | ||||||
| Deferred compensation deferrals |
4,863 | 2,111 | ||||||
| Gain on sale of servicing rights and other assets |
(518 | ) | (809 | ) | ||||
| Equity income from unconsolidated subsidiaries |
(2,526 | ) | (3,063 | ) | ||||
| Provision for doubtful accounts |
929 | 152 | ||||||
| Deferred income tax benefit |
(8,508 | ) | (772 | ) | ||||
| Decrease in receivables |
46,988 | 21,169 | ||||||
| (Increase) decrease in deferred compensation assets |
(4,722 | ) | 246 | |||||
| Decrease (increase) in prepaid expenses and other assets |
28 | (2,365 | ) | |||||
| Decrease in compensation and employee benefits payable and accrued bonus and profit sharing |
(120,613 | ) | (77,994 | ) | ||||
| (Decrease) increase in accounts payable and accrued expenses |
(2,721 | ) | 1,112 | |||||
| Decrease in income taxes payable |
(4,414 | ) | (15,728 | ) | ||||
| Increase (decrease) in other liabilities |
502 | (742 | ) | |||||
| Other operating activities, net |
1,420 | 274 | ||||||
| Net cash used in operating activities |
(87,367 | ) | (70,761 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures, net of concessions received |
(10,406 | ) | (4,000 | ) | ||||
| Acquisition of businesses including net assets acquired, intangibles and goodwill |
(7,069 | ) | (22 | ) | ||||
| Other investing activities, net |
(1,623 | ) | 1,528 | |||||
| Net cash used in investing activities |
(19,098 | ) | (2,494 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from revolver and swingline credit facility |
47,500 | 33,750 | ||||||
| Repayment of revolver and swingline credit facility |
(34,250 | ) | (20,250 | ) | ||||
| Repayment of senior secured term loan |
(2,500 | ) | (2,338 | ) | ||||
| (Repayment of) proceeds from euro cash pool and other loans, net |
(12,802 | ) | 68 | |||||
| Other financing activities, net |
(151 | ) | 526 | |||||
| Net cash (used in) provided by financing activities |
(2,203 | ) | 11,756 | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS |
(108,668 | ) | (61,499 | ) | ||||
| CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD |
163,881 | 79,701 | ||||||
| Effect of currency exchange rate changes on cash |
(959 | ) | 1,168 | |||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD |
$ | 54,254 | $ | 19,370 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
| Cash paid during the period for: |
||||||||
| Interest, net of amount capitalized |
$ | 5,882 | $ | 5,823 | ||||
| Income taxes, net of refunds |
$ | 3,529 | $ | 14,532 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Nature of Operations |
CB Richard Ellis Group, Inc., formerly known as CBRE Holding, Inc. (which may be referred to in this Form 10-Q as “we,” “us,” and “our”), offers a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets globally under the “CB Richard Ellis” brand name. Our business is focused on several service competencies, including strategic advice and execution assistance for property leasing and sales, forecasting, valuations, origination and servicing of commercial mortgage loans, facilities and project management and real estate investment management. We generate revenues both on a per project or transaction basis and from annual management fees.
CB Richard Ellis Group, Inc. was incorporated on February 20, 2001 and was created to acquire all of the outstanding shares of CB Richard Ellis Services, Inc. (CBRE), an international real estate services firm. Prior to July 20, 2001, we were a wholly owned subsidiary of Blum Strategic Partners, L.P., which is an affiliate of Richard C. Blum, a director of CBRE and our company.
On July 20, 2001, we acquired all of the outstanding stock of CBRE pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 31, 2001, among CBRE, Blum CB Corp. (Blum CB) and us. Blum CB was merged with and into CBRE with CBRE being the surviving corporation (the 2001 Merger). On July 23, 2003, our global position in the commercial real estate services industry was further solidified as CBRE acquired Insignia Financial Group, Inc.
| 2. | Insignia Acquisition |
On July 23, 2003, pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 28, 2003 (the Insignia Acquisition Agreement), by and among us, CBRE, Apple Acquisition Corp. (Apple Acquisition), a Delaware corporation and wholly owned subsidiary of CBRE, and Insignia Financial Group, Inc. (Insignia), Apple Acquisition was merged with and into Insignia (the Insignia Acquisition). Insignia was the surviving corporation in the Insignia Acquisition and at the effective time of the Insignia Acquisition became a wholly owned subsidiary of CBRE.
The aggregate preliminary purchase price for the acquisition of Insignia was approximately $328.6 million, which includes: (1) $267.9 million in cash paid for shares of Insignia’s outstanding common stock, at $11.156 per share, (2) $38.2 million in cash paid for Insignia’s outstanding Series A preferred stock and Series B preferred stock at $100.00 per share plus accrued and unpaid dividends, (3) cash payments of $7.9 million to holders of Insignia’s vested and unvested warrants and options and (4) $14.6 million of direct costs incurred in connection with the acquisition, consisting mostly of legal and accounting fees.
The preliminary purchase accounting adjustments related to the Insignia Acquisition have been recorded in the accompanying consolidated financial statements as of, and for periods subsequent to, July 23, 2003. The final valuation of the net assets acquired is expected to be completed as soon as practicable, but no later than one year from the acquisition date. Given the size and complexity of the acquisition, the fair valuation of certain assets is still preliminary. Additionally, adjustment to the estimated liabilities assumed in connection with the Insignia Acquisi