Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information is based on the historical financial statements of CBRE Holding, Inc. (the Company) and Insignia Financial Group, Inc. (Insignia), which was acquired by the Company on July 23, 2003 (the Insignia Acquisition). As applicable, the pro forma amounts presented also give effect to (1) the sale of Insignias real estate investment assets, which are referred to as the real estate investment assets, to Island Fund I, LLC immediately prior to the closing of the Insignia Acquisition in a sale transaction for net cash consideration of $36.9 million and (2) the sale by Insignia of its residential real estate services subsidiaries, Insignia Douglas Elliman LLC and Insignia Residential Group LLC, which are referred to as the residential real estate services subsidiaries, to Montauk Battery Realty, LLC on March 14, 2003 for net proceeds of $64.8 million in cash, after transaction costs. The unaudited pro forma combined balance sheet as of June 30, 2003 gives effect to the Insignia Acquisition and the related transactions as if they had occurred on June 30, 2003. The unaudited pro forma combined statements of operations for the twelve months ended December 31, 2002 and the six months ended June 30, 2003 give effect to the Insignia Acquisition and the related transactions as if they had occurred on January 1, 2002. All of the transactions described above are collectively referred to as the pro forma transactions.
This unaudited pro forma combined financial information is presented for informational purposes only and does not purport to represent what the Companys results of operations or financial position actually would have been had the Insignia Acquisition and the related transactions in fact occurred on the dates specified, nor does the information purport to project the Companys results of operations or financial position for any future period or at any future date. All pro forma adjustments are based on preliminary estimates and assumptions and are subject to revision upon finalization of the purchase accounting for the Insignia Acquisition and the related transactions.
Once the Company has completed the valuation studies necessary to finalize the required purchase price allocations in connection with the Insignia Acquisition and identified any changes necessary to conform Insignias financial presentation to its own, the unaudited pro forma combined financial information will be subject to adjustment. Such adjustments will likely result in changes to the unaudited pro forma combined balance sheet and the unaudited pro forma combined statements of operations to reflect, among other things, the final allocation of the purchase price. There can be no assurance that such changes will not be material.
The unaudited pro forma combined financial information does not reflect any adjustments for synergies that the Company expects to realize commencing upon consummation of the Insignia Acquisition. No assurances can be made as to the amount of cost savings or revenue enhancements, if any, that may be realized.
The unaudited pro forma combined financial information should be read in conjunction with the historical consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations of the Company in its June 30, 2003 Quarterly Report on Form 10-Q and December 31, 2002 Annual Report on Form 10-K and the historical consolidated financial statements of Insignia included in Exhibit 99.1 of the Form 8-K of which this Exhibit 99.3 forms a part and the historical consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations of Insignia in its December 31, 2002 Annual Report on Form 10-K and Form 10-K/A.
1
CBRE HOLDING, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of June 30, 2003
(in thousands, except per share data)
Historical |
Pro Forma Adjustments |
Pro Forma |
||||||||||||||||||
CBRE Holding |
Insignia |
Disposition of Real Estate Investment Assets (a) |
Insignia Acquisition |
|||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 21,163 | $ | 55,991 | $ | 35,329 | $ | (20,183 | )(b)(d) | $ | 92,300 | |||||||||
Restricted cash |
1,855 | 21,153 | (6,599 | ) | | 16,409 | ||||||||||||||
Receivables, net of allowance |
154,224 | 133,082 | (1,577 | ) | | 285,729 | ||||||||||||||
Warehouse receivable |
138,240 | | | | 138,240 | |||||||||||||||
Prepaid expenses |
19,623 | 10,547 | (93 | ) | (1,334 | )(c) | 28,743 | |||||||||||||
Deferred tax assets, net |
19,758 | | | | 19,758 | |||||||||||||||
Other current assets |
14,143 | | | | 14,143 | |||||||||||||||
Total current assets |
369,006 | 220,773 | 27,060 | (21,517 | ) | 595,322 | ||||||||||||||
Cash held in escrow |
200,000 | | | (200,000 | )(d) | | ||||||||||||||
Property and equipment, net |
68,959 | 42,140 | (147 | ) | (5,587 | )(e) | 105,365 | |||||||||||||
Goodwill |
577,137 | 260,565 | | (83,333 | )(c)(f)(g) | 754,369 | ||||||||||||||
Other intangible assets, net |
89,494 | 4,684 | | 97,990 | (h) | 192,168 | ||||||||||||||
Deferred compensation assets |
69,533 | | | | 69,533 | |||||||||||||||
Investment in and advances to unconsolidated subsidiaries |
57,691 | | | | 57,691 | |||||||||||||||
Real estate investments, net |
| 131,411 | (128,373 | ) | | 3,038 | ||||||||||||||
Deferred tax assets, net |
35,972 | 62,086 | (2,922 | ) | (19,016 | )(i) | 76,120 | |||||||||||||
Other assets |
94,109 | 12,590 | (1,501 | ) | 7,867 | (j) | 113,065 | |||||||||||||
Total assets |
$ | 1,561,901 | $ | 734,249 | $ | (105,883 | ) | $ | (223,596 | ) | $ | 1,966,671 | ||||||||
LIABILITIES & STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable and accrued expenses |
$ | 98,096 | $ | 50,120 | $ | (7,659 | ) | $ | 22,621 | (k) | $ | 163,178 | ||||||||
Compensation and employee benefits payable |
61,491 | 61,693 | (7 | ) | | 123,177 | ||||||||||||||
Accrued bonus and profit sharing |
49,853 | 13,958 | (431 | ) | | 63,380 | ||||||||||||||
Income taxes payable |
| 3,609 | | | 3,609 | |||||||||||||||
Short Term Borrowings: |
||||||||||||||||||||
Warehouse line of credit |
138,240 | | | | 138,240 | |||||||||||||||
Revolver and swingline credit facility |
11,250 | 11,250 | ||||||||||||||||||
Other short term borrowings |
56,149 | | | | 56,149 | |||||||||||||||
Total short-term borrowings |
205,639 | | | | 205,639 | |||||||||||||||
Current maturities of long term debt |
10,760 | | | 750 | (l) | 11,510 | ||||||||||||||
Total current liabilities |
425,839 | 129,380 | (8,097 | ) | 23,371 | 570,493 | ||||||||||||||
Long-term Liabilities: |
||||||||||||||||||||
Senior secured term loans |
206,013 | | | 74,250 | (l) | 280,263 | ||||||||||||||
Notes Payable |
| 43,000 | | (43,000 | )(l) | | ||||||||||||||
Real estate mortgage notes |
| 71,986 | (71,986 | ) | | | ||||||||||||||
9¾% senior notes of CB Richard Ellis Services |
200,000 | | | | 200,000 | |||||||||||||||
11¼% senior subordinated notes of CB Richard Ellis Services |
226,055 | | | | 226,055 | |||||||||||||||
16% senior notes of CBRE Holding |
63,344 | | | | 63,344 | |||||||||||||||
Other long-term debt |
12,320 | | | | 12,320 | |||||||||||||||
Total long-term debt |
707,732 | 114,986 | (71,986 | ) | 31,250 | 781,982 | ||||||||||||||
Deferred compensation liability |
112,741 | 17,229 | | | 129,970 | |||||||||||||||
Deferred tax liabilities |
| 23,396 | (752 | ) | (22,644 | )(i) | | |||||||||||||
Other liabilities |
56,836 | 28,763 | | 26,856 | (m) | 112,455 | ||||||||||||||
Total liabilities |
1,303,148 | 313,754 | (80,835 | ) | 58,833 | 1,594,900 | ||||||||||||||
Minority interest |
6,081 | | | | 6,081 | |||||||||||||||
Stockholders Equity: |
||||||||||||||||||||
Preferred Stock, $0.01 par value, 20,000,000 shares authorized, 250,000 Series A shares and 125,000 Series B shares issued and outstandingactual, no shares issued and outstanding pro forma |
| 4 | | (4 | )(n) | | ||||||||||||||
Class A common stock; $0.01 par value; 75,000,000 shares authorized; 2,687,988 issued and outstanding (including treasury shares) pro forma. |
18 | | | 9 | (n) | 27 | ||||||||||||||
Class B common stock; $0.01 par value; 25,000,000 shares authorized; 12,624,813 shares issued and outstandingactual, 19,271,948 shares issued and outstanding pro forma |
127 | | | 66 | (n) | 193 | ||||||||||||||
Common Stock, par value $.01 per share80,000,000 shares authorized, 24,082,121 shares issued and outstanding, net of 1,502,600 shares held in treasuryactual, no shares issued and outstanding pro forma |
| 241 | | (241 | )(n) | | ||||||||||||||
Additional paid-in capital |
241,475 | 443,101 | | (323,176 | )(n) | 361,400 | ||||||||||||||
Notes receivable from sale of stock |
(4,762 | ) | (1,006 | ) | | 1,006 | (n) | (4,762 | ) | |||||||||||
Accumulated earnings (deficit) |
39,978 | (24,104 | ) | (25,048 | ) | 42,170 | (n) | 32,996 | ||||||||||||
Accumulated other comprehensive income (loss) |
(22,272 | ) | 2,259 | | (2,259 | )(n) | (22,272 | ) | ||||||||||||
Treasury stock at cost |
(1,892 | ) | | | | (1,892 | ) | |||||||||||||
Total stockholders equity |
252,672 | 420,495 | (25,048 | ) | (282,429 | ) | 365,690 | |||||||||||||
Total liabilities & stockholders equity |
$ | 1,561,901 | $ | 734,249 | $ | (105,883 | ) | $ | (223,596 | ) | $ | 1,966,671 | ||||||||
The accompanying notes are an integral part of these financial statements.
2
Notes to Unaudited Pro Forma Combined Balance Sheet
as of June 30, 2003
(a) | Reflects the sale of the real estate investment assets to Island Fund I, LLC for net cash consideration of approximately $36.9 million, which gives effect to selling expenses and the assumption by Island Fund I, LLC of certain contingent obligations. This disposition was completed immediately prior to the closing of the Insignia Acquisition. Accordingly, the difference between the net proceeds from the disposition of the real estate investment assets and their historical book value has been recorded as an adjustment to Insignias historical equity. |
Cash and cash equivalents of $35.3 million related to the disposition of the real estate investment assets consist of the following:
(in thousands) |
||||
Historical cash and cash equivalents related to disposed real estate investment assets |
$ | (1,541 | ) | |
Net proceeds from the sale of the real estate investment assets |
36,870 | |||
Cash and cash equivalentsreal estate investment asset dispositions |
$ | 35,329 | ||
(b) | Reflects the net effect of the pro forma transactions on cash and cash equivalents as follows: |
(in thousands) |
||||
Sources: |
||||
Additional tranche B term loan borrowings (note (l)) |
$ | 75,000 | ||
9 3/4% senior notes due May 15, 2010 |
200,000 | |||
Equity contribution from the Companys stockholders (note (n)) |
120,000 | |||
Total sources |
$ | 395,000 | ||
Uses: |
||||
Purchase of outstanding shares of Insignia (24,108,533 shares at $11.156 per share, net of repayment of notes receivable from sale of stock, notes (f)) |
$ | (266,903 | ) | |
Purchase of Series A and Series B preferred shares of Insignia (375,000 shares at $100.00 per share plus accrued and unpaid dividends, notes (f)) |
(38,244 | ) | ||
Settlement of outstanding stock options and warrants of Insignia (note (f)) |
(7,923 | ) | ||
Change of control, severance payments and other |
(23,168 | ) | ||
Payment of transaction costs, net of financing costs (note (f)) |
(16,598 | ) | ||
Repayment of Insignias senior credit facility (note (l)) |
(28,000 | ) | ||
Repayment of Insignias subordinated credit facility (note (l)) |
(15,000 | ) | ||
Payment of financing costs (note (j)) |
(19,347 | ) | ||
Total uses |
(415,183 | ) | ||
Change in cash and cash equivalents |
$ | (20,183 | ) | |
The Company anticipates incurring approximately $213.3 million in expenditures associated with the pro forma transactions. These expenditures include change of control payments, employee severance, facilities closure costs, retention payments, integration costs, financing costs, capital expenditures and other transaction costs. The payment schedule for, and accounting treatment of, such costs is expected to be as follows:
Paid By Closing |
Paid Over Time |
Total Costs | |||||||
(in thousands) | |||||||||
Record as goodwill |
$ | 41,100 | $ | 54,620 | $ | 95,720 | |||
Expense as incurred |
1,300 | 74,800 | 76,100 | ||||||
Record as deferred financing costs/property and equipment |
19,347 | 11,000 | 30,347 | ||||||
Payout of deferred compensation liability |
| 11,100 | 11,100 | ||||||
Total |
$ | 61,747 | $ | 151,520 | $ | 213,267 | |||
The pro forma cash and cash equivalents balance of $92.3 million as of June 30, 2003 is higher than what the Company would have had historically as of June 30, 2003. This excess cash balance is the result of the borrowing at the closing of the Insignia Acquisition and related transactions of the entire $75.0 million principal balance of the additional tranche B term loan and the release from escrow at the closing of the Insignia Acquisition and related transactions of the net proceeds from the offering of $200.0 million in aggregate principal amount of the 9¾% senior notes for purposes of the accompanying unaudited pro forma combined balance sheet. In addition, the Company has not assumed the application of the $36.9 million in net proceeds from the sale of the real estate investment assets for any particular use. The Company anticipates the incurrence of non-recurring expenditures associated with the integration of Insignias businesses and expects that this excess cash will be utilized to fund these integration costs.
3
(c) | Represents the adjustment to reflect the reclassification of transaction costs related to the Insignia Acquisition paid by the Company through June 30, 2003 (increase to goodwill). |
(d) | In accordance with the terms of the indenture governing the Companys $200.0 million in aggregate principal amount 9¾% senior notes, the proceeds from the sale of these notes were placed in escrow until the close of the Insignia Acquisition. This adjustment reflects the reclassification of these proceeds to cash. |
(e) | Represents adjustment to acquired property and equipment to reflect its estimated fair market value as of the date of the Insignia Acquisition. |
(f) | The Insignia Acquisition is being accounted for under the purchase method of accounting. Accordingly, the total purchase price is being allocated to the assets acquired and the liabilities assumed based upon their respective estimated fair values. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities in the unaudited pro forma combined balance sheet based on the Companys preliminary assessment. The final allocation of the purchase price may result in significant differences from the pro forma amounts included in this unaudited pro forma combined financial information. |
The following represents the calculation of the purchase price of the Insignia Acquisition and the excess purchase price over the estimated fair value of net assets acquired:
(in thousands) |
||||
Purchase of outstanding shares of Insignia, net (24,108,533 shares at $11.156 per share) |
$ | 266,903 | ||
Purchase of Series A and Series B preferred shares of Insignia (375,000 shares at $100.00 per share plus accrued and unpaid dividends) |
38,244 | |||
Settlement of outstanding stock options and warrants of Insignia |
7,923 | |||
Transaction costs, net of financing costs |
20,300 | |||
Total purchase price |
333,370 | |||
Less: estimated fair value of net assets acquired (see table below) |
(156,138 | ) | ||
Excess purchase price over estimated fair value of net assets acquired |
$ | 177,232 | ||
Preliminary allocation of the purchase price to the assets and liabilities of Insignia is comprised of the following:
(in thousands) | |||
Assets: |
|||
Current assets |
$ | 247,833 | |
Property and equipment |
36,406 | ||
Other intangible assets |
102,674 | ||
Other assets |
9,629 | ||
Deferred tax assets, net |
40,148 | ||
Total assets |
$ | 436,690 | |
Liabilities: |
|||
Current liabilities |
$ | 116,084 | |
Liabilities incurred in connection with the Insignia Acquisition |
75,420 | ||
Notes payable |
43,000 | ||
All other liabilities |
46,048 | ||
Total liabilities |
280,552 | ||
Estimated fair value of net assets acquired |
$ | 156,138 | |
4
(g) | The adjustments to goodwill are comprised of the following: |
(in thousands) |
||||
Insignia historical goodwill |
$ | (260,565 | ) | |
Less: Excess purchase price over estimated fair value of net assets acquired |
177,232 | |||
Net pro forma adjustments to goodwill |
$ | (83,333 | ) | |
(h) | The adjustments to other intangible assets are comprised of the following: |
(in thousands) |
||||
Fair value of Insignias net revenue backlog as of June 30, 2003 |
$ | 50,000 | ||
Fair value of definite life intangible assets |
27,674 | |||
Fair value of Richard Ellis trade name in the United Kingdom |
25,000 | |||
Write-off of the historical book value of Insignias intangible assets |
(4,684 | ) | ||
Net pro forma adjustments to other intangible assets |
$ | 97,990 | ||
Fair value of Insignias net revenue backlog as of June 30, 2003 represents the estimated backlog of Insignias revenue producing transactions acquired by the Company in the Insignia Acquisition. The backlog consists of commissions receivable on Insignias revenue producing transactions, which were at various stages of completion prior to the Insignia Acquisition. Purchase accounting rules under generally accepted accounting principles in the United States require these commissions to be recorded as an intangible asset purchased. This asset will be amortized as cash is received upon final closing of these pending transactions.
Definite life intangible assets are primarily comprised of property management contracts in the United States, the United Kingdom, France and other European operations, which will be amortized over their estimated useful lives of up to seven years. The Richard Ellis trade name in the United Kingdom, which was owned by Insignia prior to the Insignia Acquisition, is assumed to have an indefinite life and accordingly will not be amortized. The trade name will be subject to at least an annual review for impairment.
(i) | Represents the net adjustment to reflect the tax effect of the pro forma adjustments at applicable statutory rates. Deferred taxes are subject to the final appraisal and purchase price allocation to assets and liabilities other than goodwill. The adjustment also includes the reclassification of $22.6 million of Insignias deferred tax liabilities as a reduction to deferred tax assets to conform to the Companys presentation. |
(j) | The adjustments to other assets are comprised of the following: |
(in thousands) |
||||
Financing costs associated with debt issued in connection with the pro forma transactions |
$ | 19,347 | ||
Fair value of Insignias below market leases |
1,602 | |||
Write-off of deferred financing costs of the Companys prior credit facility |
(6,982 | ) | ||
Write-off of deferred financing costs of Insignias debt to be repaid |
(1,616 | ) | ||
Other |
(4,484 | ) | ||
Net pro forma adjustments to other assets |
$ | 7,867 | ||
Financing costs represent the Companys estimate of transaction fees and costs directly attributable to the debt financings related to the pro forma transactions. Costs will be allocated to each debt instrument based on specific identification or as a percentage of face value, as appropriate. Such costs will be amortized over the term of the appropriate debt instrument.
5
(k) | The adjustments to accounts payable and accrued expenses are comprised of the following: |
(in thousands) |
||||
Write-off of Insignias existing net deferred revenue |
$ | (5,199 | ) | |
Accrued severance and other contractual obligations |
17,252 | |||
Accrued facilities closure costs |
8,200 | |||
Accrued transaction costs |
2,368 | |||
Net pro forma adjustment to accounts payable and accrued expenses |
$ | 22,621 | ||
The Company has recorded as a component of the Insignia purchase price the estimated costs associated with an involuntary plan of termination of certain of Insignias employees. This plan was implemented concurrently with the closing of the Insignia Acquisition. The Company has also recorded as a component of the Insignia purchase price the estimated cost to exit duplicate facilities of Insignia. These accruals have been recorded in accordance with EITF 95-3.
(l) | Reflects the incurrence and repayment of debt as follows: |
(in thousands) |
||||
Non-current portion: |
||||
Additional tranche B term loan borrowings |
$ | 74,250 | ||
Repayment of Insignias revolving credit facility |
(28,000 | ) | ||
Repayment of Insignias subordinated credit facility |
(15,000 | ) | ||
Adjustment to non-current portion of long-term debt |
$ | 31,250 | ||
Current portion: |
||||
Current portion of additional tranche B term loan borrowings |
$ | 750 | ||
Adjustment to current portion of long-term debt |
$ | 750 | ||
In connection with the Insignia Acquisition, the Company entered into an amended and restated credit agreement with Credit Suisse First Boston (CSFB) and other lenders. The Companys previous credit facility was, and the amended and restated credit agreement continues to be, jointly and severally guaranteed by the Company and its wholly owned domestic subsidiaries and secured by substantially all of their assets. The amended and restated credit agreement includes a tranche A term facility of $50.0 million (which was fully drawn in connection with the acquisition of CB Richard Ellis Services, Inc. by the Company in 2001 (the 2001 Merger)), maturing on July 20, 2007; a tranche B term facility of $260.0 million ($185.0 million of which was drawn in connection with the 2001 Merger and $75.0 million of which was drawn in connection with the Insignia Acquisition), maturing on July 18, 2008; and a revolving line of credit of $90.0 million, including revolving credit loans, letters of credit and a swingline loan facility, maturing on July 20, 2007. After the amendment and restatement, borrowings under the tranche A and revolving facility bear interest at varying rates based, at the Companys option, on either the applicable LIBOR plus 3.00% to 3.75% or the alternate base rate plus 2.00% to 2.75%, in both cases as determined by reference to the ratio of total debt less available cash to EBITDA, which are defined in the amended and restated credit agreement. Pursuant to the amended and restated credit agreement, borrowings under the tranche B facility bear interest at varying rates based, at the Companys option, on either the applicable LIBOR plus 4.25% or the alternate base rate plus 3.25%. The alternate base rate is the higher of (1) CSFBs prime rate or (2) the Federal Funds Effective Rate plus one-half of one percent.
(m) | The adjustments to other long term liabilities are comprised of the following: |
(in thousands) |
||||
Accrued facilities closure costs |
$ | 20,900 | ||
Accrued severance and other contractual obligations |
5,900 | |||
Fair value adjustment for Insignias above market leases |
2,525 | |||
Write-off of Insignias existing net deferred rent expense |
(2,469 | ) | ||
Net pro forma adjustment to other long term liabilities |
$ | 26,856 | ||
6
(n) | Represents the elimination of Insignias historical equity (after adjustments for dispositions) and the issuance of 852,865 shares of Class A common stock, $0.01 par value per share, of the Company and 6,647,135 shares of Class B common stock, $0.01 par value per share, of the Company to certain stockholders of the Company as follows: |
(in thousands) |
||||
Elimination of Insignias equity: |
||||
Insignias historical preferred stock |
$ | (4 | ) | |
Insignias historical common stock |
(241 | ) | ||
Insignias additional paid-in capital |
(443,101 | ) | ||
Repayment of notes receivable from sale of stock |
1,006 | |||
Insignias accumulated deficit |
49,152 | |||
Insignias accumulated other comprehensive income |
(2,259 | ) | ||
Pro forma adjustments to Insignias historical equity |
$ | (395,447 | ) | |
Adjustments to the Companys equity: |
||||
Issuance of Class A common stock |
$ | 9 | ||
Issuance of Class B common stock |
66 | |||
Additional paid-in capital |
119,925 | |||
Accumulated earnings (write off of deferred financing costs of prior credit facility) |
(6,982 | ) | ||
Pro forma adjustments to the Companys equity |
$ | 113,018 | ||
Net pro forma adjustments to equity |
$ | (282,429 | ) | |
The net decrease in additional paid-in capital of $323.2 million is comprised of the elimination of Insignias additional paid-in capital of $443.1 million, offset by the increase in additional paid-in capital of $119.9 million associated with the equity issued to stockholders of the Company. Certain stockholders of the Company provided $120.0 million in equity to fund a portion of the Insignia Acquisition through the purchase of 852,865 shares of Class A common stock, $0.01 par value per share, of the Company and 6,647,135 shares of Class B common stock, $0.01 par value per share, of the Company, in each case at $16.00 per share in cash.
7
CBRE HOLDING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 2002
(in thousands, except share data)
Historical |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||||
CBRE Holding |
Insignia |
Dispositions (a) |
Insignia Acquisition |
|||||||||||||||||
Revenue |
$ | 1,170,277 | $ | 721,223 | $ | (147,338 | ) | $ | | $ | 1,744,162 | |||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of services |
554,942 | | | | 554,942 | |||||||||||||||
Operating, administrative and other |
493,949 | | | | 493,949 | |||||||||||||||
Cost and expensesInsignia |
| 669,067 | (137,651 | ) | 222 | (b) | 531,638 | |||||||||||||
Depreciation and amortization |
24,614 | 24,661 | (6,413 | ) | 317 | (c) | 43,179 | |||||||||||||
Equity income from unconsolidated subsidiaries |
(9,326 | ) | (3,482 | ) | 3,482 | | (9,326 | ) | ||||||||||||
Merger-related charges |
36 | | | | 36 | |||||||||||||||
1,064,215 | 690,246 | (140,582 | ) | 539 | 1,614,418 | |||||||||||||||
Operating income |
106,062 | 30,977 | (6,756 | ) | (539 | ) | 129,744 | |||||||||||||
Interest income |
3,272 | 3,951 | (44 | ) | | 7,179 | ||||||||||||||
Interest expense |
60,501 | 10,992 | (2,138 | ) | 20,983 | (d) | 90,338 | |||||||||||||
Income from continuing operations before provision for income tax |
48,833 | 23,936 | (4,662 | ) | (21,522 | ) | 46,585 | |||||||||||||
Provision for income taxes |
30,106 | 10,719 | (2,103 | ) | (8,609 | )(e) | 30,113 | |||||||||||||
Income from continuing operations |
$ | 18,727 | $ | 13,217 | $ | (2,559 | ) | $ | (12,913 | ) | $ | 16,472 | ||||||||
Basic earnings per share from continuing operations |
$ | 1.25 | $ | 0.73 | ||||||||||||||||
Weighted average shares outstanding for basic earnings per share |
15,025,308 | 22,525,308 | (f) | |||||||||||||||||
Diluted earnings per share from continuing operations |
$ | 1.23 | $ | 0.72 | ||||||||||||||||
Weighted average shares outstanding for diluted earnings per share |
15,222,111 | 22,722,111 | (f) |
The accompanying notes are an integral part of these financial statements.
8
Notes to Unaudited Pro Forma Combined Statements of Operations
for the Twelve Months Ended December 31, 2002
(a) | Reflects the elimination of the historical results of (1) the residential real estate services subsidiaries, which were sold to Montauk Battery Realty, LLC on March 14, 2003, and (2) the real estate investment assets, which were sold to Island Fund I, LLC immediately prior to the closing of the Insignia Acquisition. For purposes of the unaudited pro forma combined statement of operations, these dispositions were assumed to have occurred on January 1, 2002. |
(b) | This adjustment represents incremental pro forma deferred rent expense resulting from the recalculation of deferred rent expense from the assumed Insignia Acquisition closing date of January 1, 2002. |
(c) | This increase is comprised of pro forma amortization expense related to Insignias property management contracts established in purchase accounting over their estimated useful lives of up to seven years, partially offset by the reversal of Insignias historical amortization expense. In addition, depreciation expense was adjusted as a result of fair value adjustments to property and equipment. |
(d) | The increase in pro forma interest expense as a result of the pro forma transactions is summarized as follows: |
(in thousands) |
||||
Interest on $200.0 million in aggregate principal amount senior notes at 9¾% per annum |
$ | 19,500 | ||
Interest on $75.0 million in additional tranche B term loan borrowings at LIBOR plus 4.25% (1) |
4,573 | |||
Additional 0.50% interest rate margin on existing senior secured term loan facilities |
1,249 | |||
Incremental revolving credit facility loans at LIBOR plus 3.75% (1) (2) |
1,092 | |||
Amortization of deferred financing costs over the term of each respective debt instrument |
2,995 | |||
Incremental commitment and administration fees |
231 | |||
Subtotal |
29,640 | |||
Less: historical interest expense of Insignia |
(5,760 | ) | ||
Less: historical amortization of deferred financing costs of the Company (prior credit facility) |
(1,711 | ) | ||
Less: historical amortization of deferred financing costs of Insignia |
(1,186 | ) | ||
Subtotal |
(8,657 | ) | ||
Net increase in interest expense |
$ | 20,983 | ||
(1) | For purposes of the calculations above, LIBOR is based on the average three month LIBOR rate for fiscal year 2002. |
(2) | The incremental revolving credit facility loans reflect the difference between Insignias outstanding revolving credit facility balance as of December 31, 2002 of $95.0 million and the amounts outstanding in excess of $95.0 million during 2002 (the amount that was repaid from the proceeds of the pro forma transactions). Such excess was assumed to be financed under the Companys existing credit facility at LIBOR plus 3.75%. |
(e) | Represents the tax effect of the pro forma adjustments included in notes (a) through (d) above at the respective statutory rates, excluding some items that are permanently non-deductible for tax purposes. |
(f) | Reflects the pro forma number of weighted average shares giving effect to the 852,865 shares of Class A common stock of the Company and 6,647,135 shares of Class B common stock of the Company issued in connection with the Insignia Acquisition. |
9
CBRE HOLDING, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003
(in thousands, except share data)
Historical |
Pro Forma Adjustments |
Pro Forma |
||||||||||||||||||
CBRE Holding |
Insignia |
Disposition of Real Estate Investment Assets (a) |
Insignia Acquisition |
|||||||||||||||||
Revenue |
$ | 585,441 | $ | 285,606 | $ | (5,481 | ) | $ | | $ | 865,566 | |||||||||
Costs and expenses: |
||||||||||||||||||||
Cost of services |
276,665 | | | | 276,665 | |||||||||||||||
Operating, administrative and other |
263,596 | | | | 263,596 | |||||||||||||||
Cost and expensesInsignia |
| 280,850 | (7,631 | ) | 122 | (b) | 273,341 | |||||||||||||
Depreciation and amortization |
12,500 | 8,946 | (788 | ) | 1,022 | (c) | 21,680 | |||||||||||||
Equity (income) loss from unconsolidated subsidiaries |
(6,864 | ) | 3,318 | (3,318 | ) | | (6,864 | ) | ||||||||||||
Merger-related charges |
3,310 | 4,885 | | (4,885 | )(d) | 3,310 | ||||||||||||||
549,207 | 297,999 | (11,737 | ) | (3,741 | ) | 831,728 | ||||||||||||||
Operating income (loss) |
36,234 | (12,393 | ) | 6,256 | 3,741 | 33,838 | ||||||||||||||
Interest income |
1,776 | 1,646 | | (260 | )(e) | 3,162 | ||||||||||||||
Interest expense |
31,264 | 4,134 | (841 | ) | 8,531 | (f) | 43,088 | |||||||||||||
Income (loss) from continuing operations before provision (benefit) for income tax |
6,746 | (14,881 | ) | 7,097 | (5,050 | ) | (6,088 | ) | ||||||||||||
Provision (benefit) for income taxes |
2,921 | (5,208 | ) | 2,923 | (2,020 | )(g) | (1,384 | ) | ||||||||||||
Income (loss) from continuing operations |
$ | 3,825 | $ | (9,673 | ) | $ | 4,174 | $ | (3,030 | ) | $ | (4,704 | ) | |||||||
Basic earnings (loss) per share from continuing operations |
$ | 0.25 | $ | (0.21 | ) | |||||||||||||||
Weighted average shares outstanding for basic earnings (loss) per share |
15,035,075 | 22,535,075 | ||||||||||||||||||
Diluted earnings (loss) per share from continuing operations |
$ | 0.25 | $ | (0.21 | ) | |||||||||||||||
Weighted average shares outstanding for diluted earnings (loss) per share |
15,321,994 | 22,535,075 | ||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
10
Notes to Unaudited Pro Forma Combined Statements of Operations
for the Six Months Ended June 30, 2003
(a) | Reflects the elimination of the historical results of the real estate investment assets, which were sold to Island Fund I, LLC immediately prior to the closing of the Insignia Acquisition. For purposes of the unaudited pro forma combined statement of operations, these dispositions were assumed to have occurred on January 1, 2002. |
(b) | This adjustment represents incremental pro forma deferred rent expense resulting from the recalculation of deferred rent expense from the assumed Insignia Acquisition closing date of January 1, 2002. |
(c) | This increase is comprised of pro forma amortization expense related to Insignias property management contracts established in purchase accounting over their estimated useful lives of up to seven years, partially offset by the reversal of Insignias historical amortization expense. In addition, depreciation expense was adjusted as a result of fair value adjustments to property and equipment. |
(d) | Per Rule 11-02 of Regulation S-X, the pro forma combined statement of operations shall disclose income (loss) from continuing operations before nonrecurring charges or credits directly attributable to the transaction. Accordingly, this adjustment removes such charges for the pro forma combined statement of operations. Insignias historical merger costs represent professional fees incurred related to the Insignia Acquisition. |
(e) | Represents the reversal of historical interest income earned by CB Richard Ellis Services on the net proceeds from the $200.0 million in aggregate principal amount 9¾% senior notes held in escrow from May 22, 2003 through July 23, 2003, the date of the closing of the Insignia Acquisition. The net proceeds held in escrow were released to CB Richard Ellis Services upon consummation of the acquisition. |
(f) | The increase in pro forma interest expense as a result of the pro forma transactions is summarized as follows: |
(in thousands) |
||||
Interest on $200.0 million in aggregate principal amount senior notes at 9¾% per annum |
$ | 9,750 | ||
Interest on $75.0 million in additional tranche B term loan borrowings at LIBOR plus 4.25% (1) |
2,100 | |||
Additional 0.50% interest rate margin on existing senior secured term loan facilities |
580 | |||
Amortization of deferred financing costs over the term of each respective debt instrument |
1,497 | |||
Incremental commitment and administration fees |
174 | |||
Subtotal |
14,101 | |||
Less: historical interest expense of the Company for $200.0 million in aggregate principal amount 9¾% senior notes |
(2,167 | ) | ||
Less: historical interest expense of Insignia |
(1,667 | ) | ||
Less: historical amortization of deferred financing costs of the Company (prior credit facility & 9¾% senior notes) |
(1,001 | ) | ||
Less: amortization of deferred financing costs of Insignia |
(735 | ) | ||
Subtotal |
(5,570 | ) | ||
Net increase in interest expense |
$ | 8,531 | ||
(1) | For purposes of the calculations above, LIBOR is based on the average three month LIBOR rate for the six months ended June 30, 2003. |
(g) | Represents the tax effect of the pro forma adjustments included in notes (a) through (f) above at the respective statutory rates, excluding some items that are permanently non-deductible for tax purposes. |
(h) | Reflects the pro forma number of weighted average shares giving effect to the 852,865 shares of Class A common stock of the Company and 6,647,135 shares of Class B common stock of the Company issued in connection with the Insignia Acquisition. |
11