01—Abstract
Summary
Summary of the 8-K filed February 24, 2003. Cited figures are marked; the original filing is the authoritative source.
CBRE Holding, Inc., the parent of CB Richard Ellis Services, filed this Form 8-K on February 21, 2003 to furnish its unaudited results for the fourth quarter and full year ended December 31, 2002 (Exhibit 99.1).
Q4 revenue rose 11.6% year over year to $376.5 milliona, and Q4 EBITDA (excluding merger-related and nonrecurring charges) increased 3.8% to $58.7 million. However, Q4 EBITDA margin contracted to 15.6% from 16.8%, as commissions and operating costs grew faster than revenue. For the full year, revenue was essentially flat at $1.17 billion versus $1.17 billion in 2001.
EBITDA grew 13.7% to $130.7 millionb, lifting the EBITDA margin to 11.2% from 9.8%. The company swung to net income of $18.7 million from a net loss of $16.6 million in 2001, though 2001 included $28.6 million in merger-related charges and 2002 benefited from lower depreciation and amortization. Interest expense rose to $60.5 million from $50.0 million, and the year-end balance sheet showed cash of $79.6 million, total assets of $1.34 billion, and goodwill and intangibles of $668 million.
The filing is a Regulation FD disclosure. The company also held a conference call with bondholders on the same day, which signals that the results were of particular interest to debt investors. Investors should note that the filing contains unaudited figures, and that EBITDA is a non-GAAP measure that excludes certain items.
02—Key points
Key Highlights
- Q4 2002 revenue grew 11.6% year over year to $376.5 million, up from $337.3 million in Q4 2001.
- Q4 2002 EBITDA (excluding merger and nonrecurring charges) rose 3.8% to $58.7 million, but EBITDA margin fell to 15.6% from 16.8%.
- Full-year 2002 revenue was flat at $1.17 billion, compared with $1.17 billion in 2001.
- Full-year 2002 EBITDA increased 13.7% to $130.7 million, and EBITDA margin improved to 11.2% from 9.8%.
- Full-year 2002 net income was $18.7 million, a turnaround from a net loss of $16.6 million in 2001.
- Interest expense increased to $60.5 million in 2002 from $50.0 million in 2001, a meaningful headwind for profitability.
- The company held a same-day conference call with bondholders, and the results are unaudited.
03—Questions
Frequently Asked Questions
How did CBRE perform in the fourth quarter of 2002?
Q4 2002 revenue was $376.5 million, up 11.6% from $337.3 million a year earlier. EBITDA excluding merger-related charges was $58.7 million, up 3.8%. Net income was $15.1 million, slightly below the $16.2 million reported in Q4 2001, and EBITDA margin declined to 15.6% from 16.8%.
Did CBRE return to profitability for the full year 2002?
Yes. The company reported full-year 2002 net income of $18.7 million, compared with a net loss of $16.6 million in 2001. The 2001 loss included $28.6 million in merger-related and other nonrecurring charges, and 2002 also benefited from lower depreciation and amortization of $24.6 million versus $37.9 million.
What are the main risks to CBRE's earnings highlighted by this filing?
Interest expense rose to $60.5 million in 2002 from $50.0 million, and the company carries substantial debt, including senior secured term loans and $225.9 million of 11¼% senior subordinated notes. Q4 EBITDA margin compression also indicates that cost growth outpaced revenue growth in the quarter. The company's forward-looking statements caution that results may vary materially from expectations.
Why is the company reporting EBITDA, and how should it be interpreted?
EBITDA is a non-GAAP measure that excludes interest, taxes, depreciation, and amortization, and the company's figures also exclude merger-related and nonrecurring charges. It is useful for comparing operating performance across periods and is commonly used by real estate services companies and debt investors. Investors should still reconcile it to GAAP net income, since it does not reflect interest costs, taxes, or capital spending.
04—Continue