01—Abstract
Summary
Summary of the 8-K filed August 9, 2002. Cited figures are marked; the original filing is the authoritative source.
CBRE Holding, Inc., the parent of CB Richard Ellis Services, Inc., filed this Form 8-K on August 7, 2002 to furnish its unaudited results for the three and six months ended June 30, 2002 (Exhibit 99.1).
Second-quarter revenue was flat at $284.9 milliona versus $284.8 million a year earlier, while six-month revenue fell 8.7% to $508.9 million from $557.3 million. Profitability improved sharply: Q2 operating income rose to $29.3 million from $3.5 million, and the company posted net income of $7.3 million versus a net loss of $2.3 million in the prior-year quarter. Management highlighted EBITDA excluding merger-related and nonrecurring charges of $33.4 million for the quarter, up 62.8%, and $44.5 million for the first half, up 28.8%.
EBITDA is a non-GAAP measure, and the comparison is helped by lower operating expenses and a steep drop in depreciation and amortization, along with the absence of prior-year merger charges. The balance sheet shows more stress. Cash fell to $18.0 millionb from $57.4 million at year-end 2001, and the company drew $30.0 million on its revolver.
Interest expense rose to $14.9 millionc in Q2 from $11.1 million, reflecting higher debt costs, and six-month interest expense was $30.9 million versus $20.2 million. Total liabilities were $1.02 billion against total assets of $1.36 billion, with $225.8 million of 11 1/4% senior subordinated notes and senior secured term loans outstanding. Management also scheduled a bondholder conference call for August 7, 2002, signaling that the audience for these results is primarily debt investors.
Investors should weigh the improved operating trend against the thin liquidity position and rising interest burden. The filing is brief and contains no new guidance beyond standard forward-looking statement cautions, which refer readers to the 2001 Form 10-K and 10-Q filings. The unaudited figures remain subject to review, and the EBITDA presentation excludes items that may be meaningful to equity and credit holders.
02—Key points
Key Highlights
- Q2 2002 revenue was flat at $284.9 million versus $284.8 million in Q2 2001, while six-month revenue declined 8.7% to $508.9 million.
- Q2 2002 EBITDA excluding merger-related and nonrecurring charges rose 62.8% to $33.4 million, with EBITDA margin improving to 11.7% from 7.2%.
- Operating income increased to $29.3 million in Q2 2002 from $3.5 million a year earlier, driven by a 8.0% reduction in operating, administrative and other costs and a sharp drop in depreciation and amortization.
- The company returned to profitability in Q2 2002 with net income of $7.3 million, compared with a net loss of $2.3 million in Q2 2001; six-month net income was $1.2 million versus a $5.1 million loss.
- Interest expense increased to $14.9 million in Q2 2002 from $11.1 million, and cash declined to $18.0 million from $57.4 million at year-end 2001 after a $30.0 million revolver draw.
- Total liabilities of $1.02 billion, including senior secured term loans and $225.8 million of 11 1/4% senior subordinated notes, remain a significant leverage burden against $334.5 million of total stockholders' equity including mezzanine notes.
- Management held a bondholder conference call on August 7, 2002, indicating that the primary audience for these results is debt investors.
03—Questions
Frequently Asked Questions
Did CBRE's revenue grow in the second quarter of 2002?
Revenue was essentially flat, at $284.9 million in Q2 2002 compared with $284.8 million in Q2 2001. For the six months, revenue declined 8.7% year over year to $508.9 million, so the company's top-line recovery had not yet materialized on a cumulative basis.
What drove the improvement in EBITDA and profitability?
Operating, administrative and other costs fell by about $10.5 million in Q2, depreciation and amortization dropped from $11.4 million to $4.1 million, and the company incurred only $23 thousand in merger-related charges versus $5.6 million in the prior year. Commissions also declined modestly. EBITDA excluding those charges rose to $33.4 million from $20.5 million, although this is a non-GAAP measure that management defines and that does not appear in GAAP statements.
Is the company's liquidity position a concern?
Liquidity appears tighter. Cash and equivalents fell from $57.4 million at December 31, 2001 to $18.0 million at June 30, 2002, and the company drew $30.0 million on its revolving credit facility. Investors should review the 10-Q and the revolver terms to assess available capacity and covenant headroom.
How is rising interest expense affecting the company?
Interest expense increased to $14.9 million in Q2 2002 from $11.1 million a year earlier, and to $30.9 million for six months from $20.2 million. This increase absorbs much of the operating improvement and is a key factor in the company's pre-tax income of only $2.7 million for the first half.
Why did CBRE release these results through a bondholder call?
The company's debt, including its 11 1/4% senior subordinated notes and senior secured term loans, is the primary capital structure component that the Company communicates with. The scheduled August 7, 2002 call with bondholders and the release of the results via Form 8-K under Regulation FD suggest that debt investors are a key audience for this disclosure. The filing does not provide additional forward guidance.
04—Continue