-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RrsRKjpRdSzTOjj6FFr7/7F3xhzi7U1XGj3kkunptxDCptjRSZ31BqU/EPzNum/H zLnCzuZu4f7t+3dupQYToA== 0000898430-98-002506.txt : 19980702 0000898430-98-002506.hdr.sgml : 19980702 ACCESSION NUMBER: 0000898430-98-002506 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980701 ITEM INFORMATION: FILED AS OF DATE: 19980701 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CB RICHARD ELLIS SERVICES INC CENTRAL INDEX KEY: 0000852203 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521616016 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12231 FILM NUMBER: 98659182 BUSINESS ADDRESS: STREET 1: 533 S FREMONT AVE CITY: LOS ANGELES STATE: CA ZIP: 90071-1798 BUSINESS PHONE: 2136133123 MAIL ADDRESS: STREET 1: 533 S FREMONT AVE CITY: LOS ANGELES STATE: CA ZIP: 90071-1798 FORMER COMPANY: FORMER CONFORMED NAME: CB COMMERCIAL HOLDINGS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CB ACQUISITION CORP DATE OF NAME CHANGE: 19890731 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 1, 1998 CB RICHARD ELLIS SERVICES, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 001-12231 52-1616016 - ------------------ ---------------- ------------------ (STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER JURISDICTION OF NUMBER) IDENTIFICATION NO.) INCORPORATION) 533 SOUTH FREMONT AVENUE, LOS ANGELES, CALIFORNIA 90071 ------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (213) 613-3123 --------------- - -------------------------------------------------------------------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) REI Limited financial statements for the year ended December 31, 1997 (audited) and for the quarter ended March 31, 1998 (unaudited). -2- REI Limited Financial statements for the year ended 31 December 1997 together with unaudited statements for the period ended 31 March 1998 Registered No: 1833422 Independent accountants' report TO THE BOARD OF DIRECTORS AND SHARE OWNERS OF REI LIMITED: We have audited the accompanying consolidated balance sheet of REI Limited and subsidiaries as of 31 December 1997 and the related consolidated profits and cash flows for the year ended 31 December 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United Kingdom and the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of REI Limited and subsidiaries as of 31 December 1997 and the results of their operations and their cash flows for the year ended 31 December 1997, in conformity with generally accepted accounting principles in the United Kingdom. ARTHUR ANDERSEN CHARTERED ACCOUNTANTS 1 Surrey Street London WC2R 2PS 29 June 1998 Consolidated profit and loss account
UNAUDITED YEAR 3 MONTHS ENDED 31 ENDED 31 DECEMBER MARCH 1998 1997 NOTES (POUNDS)'000 (POUNDS)'000 TURNOVER 2 9,734 70,372 Operating expenses (14,521) (66,576) Other operating income 6 177 1,224 __________ __________ OPERATING (LOSS)/PROFIT 6 (4,610) 5,020 Income from interests in associated undertakings 257 253 Investment income 7 114 221 Interest payable and similar charges 8 (228) (1,124) __________ __________ (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 3, 4 (4,467) 4,370 Taxation 9 (79) (2,856) __________ __________ (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (4,546) 1,514 Minority interests 48 (1,246) __________ __________ (LOSS)/PROFIT FOR THE FINANCIAL PERIOD (4,498) 268 Dividends - - __________ __________ RETAINED (LOSS)/PROFIT FOR THE PERIOD 18, 19 (4,498) 268 __________ __________
There is no difference between the (loss)/profit on ordinary activities before taxation and the retained (loss)/profit for the period stated above, and their historical cost equivalents. Turnover, other operating income and operating expenses relate wholly to continuing operations. Statement of total recognised gains and losses
UNAUDITED YEAR 3 MONTHS ENDED 31 ENDED 31 DECEMBER MARCH 1998 1997 NOTES (POUNDS)'000 (POUNDS)'000 Retained (loss)/profit for the period (4,498) 268 Transfers in respect of employee share scheme 1,000 - Exchange differences taken to reserves 19 370 (437) __________ __________ TOTAL GAINS AND LOSSES RECOGNISED DURING THE PERIOD (3,128) (169) __________ __________
The accompanying notes are an integral part of these financial statements. Consolidated balance sheet
UNAUDITED 31 MARCH 31 DECEMBER NOTES 1998 1997 (Pounds)'000 (Pounds)'000 FIXED ASSETS Tangible assets 10 4,236 4,278 Investments 11 1,385 1,161 ____________ ____________ 5,621 5,439 ____________ ____________ Current assets Debtors: amounts falling due after one year 12 279 306 Debtors: amounts falling due within one year 12 16,644 23,050 Cash at bank and in hand 13 7,799 10,580 ____________ ____________ 24,722 33,936 ____________ ____________ CREDITORS: amounts falling due within one year 14 (23,652) (28,324) ____________ ____________ NET CURRENT ASSETS 1,070 5,612 ____________ ____________ TOTAL ASSETS LESS CURRENT LIABILITIES 6,691 11,051 ____________ ____________ Creditors: amounts falling due after more than one year 15 (7,835) (7,829) ____________ ____________ NET (LIABILITIES)/ASSETS (1,144) 3,222 ____________ ____________ Called up equity share capital 17 78 56 Share premium account 18 6,678 5,054 Profit and loss account 18 8,804 11,932 ____________ ____________ 15,560 17,042 Goodwill write-off reserve 18 (17,457) (15,732) ____________ ____________ EQUITY SHAREHOLDER'S FUNDS 19 (1,897) 1,310 Minority interests 753 1,912 ____________ ____________ (1,144) 3,222 ____________ ____________
The financial statements on pages 3 to 24 were approved by the Board of Directors on 29 June 1998 and were signed on its behalf by: B.D. White Director The accompanying notes are an integral part of this consolidated balance sheet. Consolidated cashflow
UNAUDITED YEAR 3 MONTHS ENDED 31 ENDED 31 DECEMBER MARCH 1998 1997 NOTES (POUNDS)'000 (POUNDS)'000 NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES 25 (2,475) 7,389 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 98 205 Interest paid (189) (940) Dividends received from associated undertakings 31 172 Dividends received from other investments - 16 Interest element of finance lease payments (26) (184) Dividends paid to minority interests (37) (774) __________ __________ NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (123) (1,505) __________ __________ TAXATION UK ACT recovered - 102 Overseas tax paid (180) (2,547) __________ __________ TAX PAID (180) (2,445) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (390) (1,732) Sale of tangible fixed assets 28 235 Purchase of fixed asset investments - (419) __________ __________ NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (362) (1,916) __________ __________ MANAGEMENT OF LIQUID RESOURCES Cash placed on short-term deposit (598) (41) __________ __________ NET CASH OUTFLOW FROM MANAGEMENT OF LIQUID RESOURCES (598) (41) __________ __________ NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (3,738) 1,482 __________ __________ FINANCING Capital element of finance lease payments (28) (112) Issue of share capital 1,646 56 Inception of finance leases 110 - New secured bank loans (662) 2,066 __________ __________ NET CASH INFLOW FROM FINANCING 1,066 2,010 __________ __________ (DECREASE)/INCREASE IN CASH DURING THE PERIOD 25 (2,672) 3,492 __________ __________
The accompanying notes are an integral part of this consolidated cashflow statement. Notes to the financial statements 1 PRINCIPAL ACCOUNTING POLICIES The financial statements have been prepared in accordance with applicable accounting standards in the United Kingdom. A summary of the principal group accounting policies, which have been applied consistently throughout the year, is set out below. These financial statements have been prepared for inclusion in the public filings of CB Richard Ellis Services, Inc. The results for the period to 31 March 1998 are unaudited. As permitted by the SEC, company only information in respect of REI Limited is not included within these financial statements, and footnote disclosures relating to the period ended 31 March 1998 are limited and unaudited. a) Basis of accounting The financial statements have been prepared under the historical cost convention, modified to include the revaluation of certain fixed asset investments. b) Basis of consolidation The group financial statements consolidate the financial statements of REI Limited and its subsidiary undertakings. Where necessary the financial statements of the subsidiary undertakings are adjusted to conform with the group's accounting policies. The results of subsidiary undertakings are included from the date of acquisition. c) Associated undertakings The group's share of profits less losses of associated undertakings is included in the consolidated profit and loss account and the group's share of their net assets is included in the consolidated balance sheet. d) Goodwill Goodwill represents the difference between the value of a business or company acquired, as represented by the fair value of the consideration paid, and the fair value of the separable tangible net assets acquired. Goodwill arising on consolidation is written off to reserves. e) Turnover Turnover represents fees to clients excluding sales taxes. Turnover is recognised when the provision of services is completed or, where relevant, at the point when a contract for the underlying property transaction, on which fees are earned, becomes irrevocable. f) Deferred taxation Deferred taxation is provided under the liability method on all timing differences only to the extent that they are expected to reverse in the future without being replaced. g) Pension costs The group does not operate their own pension schemes but contribute to the personal pension plans of certain employees at rates based upon current salary. These annual contributions are charged against profits in the year in which they arise. Notes the financial statements (continued) 1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) h) Tangible fixed assets and depreciation Tangible fixed assets are stated at cost, net of depreciation, government grants and provision for permanent diminution in value. Depreciation is provided so as to write off the cost or valuation, less estimated residual values, of all tangible fixed assets, over their expected useful lives, principally using a reducing balance basis at the following annual rates: Leasehold improvements - over the term of the lease Fixtures and fittings - 10% - 20% Computer and office equipment - 10% - 33 1/3% Motor vehicles - 15% - 33 1/3%
i) Leased assets Assets acquired by means of finance leases, which confer rights and obligations similar to those attached to owned assets, are capitalised as tangible assets as if they had been purchased outright. Obligations under finance leases are recorded as finance debt and the related finance charges are charged to the profit and loss account and recorded as interest payable. All other leases are treated as operating leases. Their annual rentals are charged to the profit and loss account on a straight-line basis over the term of the lease regardless of the timing of rentals under the lease. j) Valuation of investments Investments are valued at cost less provision for permanent diminution in value. k) Foreign currency The trading results of overseas subsidiaries are translated using the average rates of exchange ruling during the financial year. The balance sheets of overseas subsidiaries are translated into sterling at the rates of exchange ruling at the balance sheet date. Exchange differences which arise from the translation of the opening net assets of foreign subsidiary undertakings are taken to reserves. All other exchange differences are taken to the profit and loss account. Foreign currency transactions are translated at the rates ruling when they occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Any differences are taken to the profit and loss account. 1 PRINCIPAL ACCOUNTING POLICIES (CONTINUED) l) Changes in presentation of financial information Financial Reporting Standard 1 "Cash flow statements" was revised in 1996 to change the format for reporting cash flows. The revised standard came into effect for accounting periods ending on or after 23 March 1997. Accordingly, the group's cash flow statement has been presented under the new format. 2 TURNOVER All the group's turnover is derived from property consultancy services. The analysis of group turnover by geographical area is set out below:
Year ended 31 December 1997 (Pounds)'000 Europe 26,840 Far East 23,558 Australia 12,188 Americas 7,685 Africa 101 __________ 70,372 __________
Geographical segmentation of turnover to third parties by destination is not materially different to amount by origin. 3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION BY CLASS OF BUSINESS All the group's profit on ordinary activities before taxation is derived from property consultancy services. 4 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Year ended 31 December 1997 (Pounds)'000 Profit on ordinary activities before taxation is stated after charging: Depreciation: Tangible owned fixed assets 1,452 Tangible fixed assets held under finance leases 354 Auditors' remuneration 408 Auditors' remuneration for non-audit work 214 Operating leases: Hire of plant and machinery 36 Hire of other assets 198 Loss on disposal of fixed assets 84 __________ Auditors remuneration represents amounts paid to Coopers and Lybrand, the groups statutory auditors in 1997.
5 DIRECTORS AND EMPLOYEES Directors' remuneration: The remuneration paid to the directors of REI Limited by the group was:
Year ended 31 December 1997 (Pounds)'000 Aggregate emoluments 1,480 Company pension contributions to money purchase schemes 100 Sums paid to third parties for directors' services 80 __________ 1,660 __________
Retirement benefits are accruing to three directors under privately held money purchase pension schemes and to one director under a privately held defined benefit scheme. No director exercised share options in the year. No director was entitled to receive benefits under any long-term incentive schemes. 5 DIRECTORS AND EMPLOYEES (CONTINUED) Three people who served as directors during the year (B.D. White, J.A.D. Croft and D.A. Sizer) had an interest as shareholders in Richard Ellis Group Limited with whom the following significant transactions were made during the year.
Year ended 31 December 1997 (Pounds)'000 Charged in respect of accommodation 215 __________
Highest paid director Year ended 31 December 1997 (Pounds)'000 Aggregate emoluments and benefits 231 Company pension contributions to money purchase scheme 28 __________ 259 __________
EMPLOYEES: The average monthly number of persons (including executive directors) employed by the group during the year was 1,174.
Year ended 31 December 1997 (Pounds)'000 Staff costs: Wages and salaries 33,987 Social security costs 3,552 Other pension costs 569 __________ 38,108 __________
6 OPERATING PROFIT
Year ended 31 December 1997 (Pounds)'000 Other operating income comprises: Exchange gains 345 Recovery of bad debts 35 Recognition of profit on client expenditure 8 Licence fee income 597 Other 239 __________ 1,224 __________
7 INVESTMENT INCOME
Year ended 31 December 1997 (Pounds)'000 Income from other participating interests 16 Interest receivable 205 __________ 221 __________
8 INTEREST PAYABLE AND SIMILAR CHARGES
Year ended 31 December 1997 (Pounds)'000 On bank loans and overdrafts: Repayable within 5 years, not by instalments 940 On finance leases and hire purchase contracts 184 __________ 1,124 __________
9 TAXATION The tax charge is based on profit for the year and comprises:
Year ended 31 December 1997 (Pounds)'000 United Kingdom corporation tax at 31%/33%: Current 259 Double tax relief (259) __________ - Transfer to deferred tax (see note 16) 557 Overseas taxation 2,278 Withholding tax 48 Irrecoverable Advance Corporation Tax - Overprovision in respect of prior years (59) __________ 2,824 __________ Associated undertakings 32 __________ 2,856 __________
Unutilised corporation tax trading losses carried forward for REI Limited are estimated to be (Pounds)1,317,043. These taxation losses are subject to agreement with the Inland Revenue. The taxation losses have not been recognised as an asset in the financial statements of the group. Overseas taxation excludes the amount of taxation payable on the minority's share of the profits of the partnership Richard Ellis VOF. 10 TANGIBLE FIXED ASSETS
Short Fixtures Computer leasehold and and office Motor improvements fittings equipment vehicles Total (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 COST At 1 January 1997 743 3,579 4,663 2,728 11,713 Exchange differences (26) (441) (518) (378) (1,363) Additions - 562 741 429 1,732 Disposals (165) (148) (434) (590) (1,337) __________ __________ __________ __________ __________ At 31 December 1997 552 3,552 4,452 2,189 10,745 __________ __________ __________ __________ __________ DEPRECIATION At 1 January 1997 605 1,734 2,759 1,485 6,583 Exchange differences (22) (270) (377) (235) (904) Charge for year - 619 797 390 1,806 Disposals (133) (116) (295) (474) (1,018) __________ __________ __________ __________ __________ At 31 December 1997 450 1,967 2,884 1,166 6,467 __________ __________ __________ __________ __________ NET BOOK VALUE At 31 December 1997 102 1,585 1,568 1,023 4,278 __________ __________ __________ __________ __________
The net book value of tangible fixed assets includes an amount of (Pounds)479,036 in respect of assets held under finance leases and hire purchase contracts. 11 FIXED ASSET INVESTMENTS
Associated Other undertakings investments Total (Pounds)'000 (Pounds)'000 (Pounds)'000 COST OR VALUATION At 1 January 1997 680 301 981 Exchange differences (132) (17) (149) Additions 44 375 419 Written off in the year - (60) (60) Goodwill (77) - (77) Share of retained profit (less dividends received) 47 - 47 Transfers (56) 56 - __________ __________ __________ At 31 December 1997 506 655 1,161 __________ __________ __________
ASSOCIATED UNDERTAKINGS
Country of incorporation Proportion of ordinary Name of undertaking or registration share capital held in 1997 % Richard Ellis (Queensland) Trust Australia 25 Richard Ellis Limited New Zealand 25 Richard Ellis Africa Pty Limited South Africa 26 Richard Ellis (KZN) Pty Limited South Africa 21 Richard Ellis Africa Zimbabwe 33
The principal activity of all of the above undertakings is the provision of property consulting services. OTHER INVESTMENTS Other investments include (Pounds)505,885 in respect of 168,984 ordinary 1p shares in REI Limited held at cost by the company's Employee Share Option Plan ("ESOP") trust for the purpose of satisfying obligations under share option plans for the benefit of the group's employees. The purchase of shares is funded by loans guaranteed by REI Limited. The related financing is included in borrowings. ESOP costs charged to the profit and loss account in the year amounted to (Pounds)5,633. This related to interest payable on the borrowings held by the group. 11. FIXED ASSET INVESTMENTS (CONTINUED) INTEREST IN GROUP UNDERTAKINGS The directors consider that to give full particulars of all subsidiary undertakings would lead to a statement of excessive length. The following information relates to those subsidiary undertakings whose results or financial position, in the opinion of the directors, significantly affected the figures of the group:
Country of incorporation Proportion of ordinary Name or registration share capital held in 1997 % Relam Amsterdam Holdings BV The Netherlands 100 REI Investments Limited England 100 REI Registrars Limited* England 100 Richard Ellis SA Belgium 100 Richard Ellis SA France 66.7 Richard Ellis SA Spain 100 Richard Ellis VOF (see note 22) The Netherlands 63.99 Richard Ellis SpA Italy 100 Richard Ellis GmbH Germany 100 Richard Ellis SA Switzerland 100 Richard Ellis GmbH Austria 100 Richard Ellis Limited Portugal 100 Richard Ellis Inc USA 100 Richard Ellis (Canada) Inc Canada 100 Richard Ellis S/C Limited Brazil 81.36 Richard Ellis Limited Hong Kong 100 Richard Ellis (Private) Limited Singapore 100 Richard Ellis KK Japan 100 Richard Ellis (Thailand) Co Limited Thailand 70 Richard Ellis (South Australia) Pty Limited Australia 100 Richard Ellis (Western Australia) Trust Australia 100 Richard Ellis New South Wales Partnership Australia 90
Shares of the undertaking marked with an asterisk (*) are held directly by the parent company. Otherwise shares are held by subsidiary undertakings. All the above undertakings operate principally in their country of incorporation or registration. The principal activity of all of the above undertakings is the provision of property consulting services, with the exceptions of Relam Amsterdam Holdings BV, REI Investments Limited and REI Registrars Limited which act as holding companies. 12 DEBTORS
31 December 1997 (Pounds)'000 Amounts falling due after one year: Other debtors 306 __________ Amounts falling due within one year: Trade debtors 18,449 Other debtors 3,124 Prepayments and accrued income 1,413 Amounts due from associated undertakings 64 __________ 23,050 __________
13 CASH AT BANK AND IN HAND The balance includes (Pounds)93,921 of monies held on behalf of clients. The corresponding liabilities are included within creditors falling due within one year. 14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
31 December 1997 (Pounds)'000 Bank loans and overdrafts 6,119 Obligations under finance leases (see note 15) 260 Trade creditors 3,699 Amounts due to associated undertakings 57 Corporation tax 1,872 Other taxation and social security payable 3,254 Other creditors 5,251 Accruals and deferred income 7,812 __________ 28,324 __________
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
31 December 1997 (Pounds)'000 Bank loans and overdrafts 4,427 Obligations under finance leases (see below) 282 Deferred taxation 70 Deferred purchase consideration 2,521 Other 529 __________ 7,829 __________ BANK LOANS AND OVERDRAFTS Repayable as follows: In one year or less 6,119 Between one and two years 3,997 Between two and five years 344 In five years or more 86 __________ 10,546 __________
Loans repayable after five years are repayable by instalment. FINANCE LEASES The future minimum lease payments to which the group is committed under finance lease and hire purchase contracts are as follows:
31 December 1997 (Pounds)'000 In one year or less 260 Between one and two years 199 Between two and five years 83 __________ 542 __________
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED) DEFERRED PURCHASE CONSIDERATION On 1 January 1993, the group acquired the remaining 36% of the equity of Richard Ellis Limited (a Hong Kong company). The consideration comprised an initial payment of HK$72,000 ((Pounds)6,138) representing the nominal value of the shares acquired, and deferred consideration contingent upon the performance of the Hong Kong business in subsequent years. Owing to uncertainties, including those in the Hong Kong property market, the directors consider that it is not, at the present time, practicable to determine the ultimate consideration payable. An amount of HK$12.72m (approximately (Pounds)1m), representing an estimate based on the future profitability of the Hong Kong business, has been accounted for to date as the deferred consideration payable, which has been included in creditors: amounts falling due after more than one year. Further adjustments to the goodwill account may therefore be required in future years to amend the estimated consideration to the actual amounts paid. The fair value of the net assets acquired was (Pounds)317,911. On 25 January 1996, Richard Ellis SA (a French company) merged with Achard et Associes. The transaction was completed by issuing Richard Ellis SA shares to the shareholders of Achard et Associes. The issue of the shares diluted REI Investments Limited investment in Richard Ellis SA to 66.7%. At the same time the group entered into an agreement to repurchase the 33.3% interest in Richard Ellis SA between 2001 and 2003 at a price based inter-alia on profits generated by the company in the period up to the date of repurchase. The directors consider that it is not at the present time practicable to determine the ultimate consideration payable for the purchase of the Achard et Associes business. An amount of FF15m (approximately (Pounds)1.5m) representing an estimate based on the future profitability of the French business has been accounted for as the deferred consideration payable and is included in creditors: amounts falling due after more than one year. Further adjustments to the goodwill account may therefore be required in future years to amend the estimated consideration to the actual amounts paid. 16 DEFERRED TAXATION Deferred taxation provided and not provided in the financial statements are as follows:
31 December 1997 Amounts provided Amount unprovided ((Pounds)'000) ((Pounds)'000) Tax effect of timing differences relating to accelerated capital allowances - - Other timing differences 70 - __________ __________
The movements on the provision for deferred taxation are as follows:
(Pounds)'000 Provision at 1 January 1997 104 Transfer from profit and loss account (see note 9) 557 Assets included in other debtors in prior year (591) __________ Provision at 31 December 1997 70 __________
Deferred tax has not been provided in respect of the accumulated reserves of overseas subsidiary undertakings as it is not currently intended to remit earnings which would give rise to significant United Kingdom tax liabilities after taking into account any related double tax relief. 17 CALLED UP EQUITY SHARE CAPITAL
31 December 1997 (Pounds)'000 Authorised 10 million ordinary shares of 1p each split into: 7.5 million `A' ordinary shares 75 2.5 million `B' ordinary shares 25 __________ 100 __________ Allotted, called up and fully paid `A' ordinary shares (5,649,489) 56 __________
17 CALLED UP EQUITY SHARE CAPITAL (CONTINUED) The company has established share options schemes under which certain eligible employees are granted options to subscribe for ordinary shares. At 31 December 1997 the following options were outstanding: . 62,000 at 215p, exercisable from 18 October 1991 to 17 October 1998. . 268,500 at 231p, exercisable from 1 May 1996 to 30 April 1998. In May 1997 shareholders approved the adoption of an employee share incentive plan under which up to 1.5 million ordinary 1p shares with restricted vesting rights would be allotted to employees at par value to motivate and encourage them to hold shares in the company. Awards under the scheme were to be determined by reference to certain office performance criteria including financial results for 1997. Since the year end 1,405,029 shares made available to the scheme have been awarded. 18 RESERVES
Share Goodwill Profit premium write-off and loss account reserve account (Pounds)'000 (Pounds)'000 (Pounds)'000 At 1 January 1997 4,998 (15,384) 12,226 On allotment during the year 56 - - Goodwill arising during the year - (473) - Exchange differences - - (437) Retained profit - - 268 Transfer between reserves - 125 (125) __________ __________ __________ At 31 December 1997 5,054 (15,732) 11,932 __________ __________ __________
19 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Year ended 31 December 1997 (Pounds)'000 Profit for the financial year 268 Dividends - __________ 268 Exchange differences (437) Premium on new share capital issued 56 Share capital issued - Goodwill on acquisitions during the year (473) __________ Net addition to shareholders' funds (586) Opening shareholders' funds 1,896 __________ Closing shareholders' funds 1,310 __________
20 FINANCIAL COMMITMENTS At 31 December 1997 the group had annual commitments under non-cancellable operating leases as follows:
31 December 1997 (Pounds)'000 Expiring within one year 1,854 Expiring between two and five years 1,307 Expiring in over five years 267 __________ 3,428 __________
21 CAPITAL COMMITMENTS
31 December 1997 (Pounds)'000 Capital commitments contracted for but not provided for in the financial statements 42 __________ Capital expenditure authorised by the directors, but not yet contracted for 19 __________
22 POST BALANCE SHEET EVENTS In December 1997, it was announced that the Board had reached agreement with CB Commercial Real Estate Services Group Inc. ("CB") on the terms of the merger whereby CB would acquire the entire share capital of REI Limited. Since the year end shareholders holding more than 95% of the fully diluted share capital of REI Limited gave irrevocable undertakings to sell their shares to CB and the transaction was completed during April 1998. In May 1998, CB changed its name to CB Richard Ellis Services, Inc. Pursuant to an agreement dated 1 January 1993, between REI Limited and Holding Selman Beheer BV, the partnership of Richard Ellis VOF terminated on 31 December 1997. With effect from 1 January 1998, Amell Holdings BV acquired the entire issued share capital of Selman BV, previously the 36.01% partner in Richard Ellis VOF. Under the terms of the agreement consideration payable was calculated based on the following: i) The net asset value of Selman BV; and ii) A goodwill amount, calculated as 25% of pre tax profits of Richard Ellis VOF for five years. This amounts to NLG 4.68m (approximately (Pounds)1.4m) These amounts together with interest of NLG 328,000 (approximately (Pounds)98,000) thereon became due and payable 1 January 1998. Selman BV is a company in which GJ Selman (who served as a director of REI Limited during the year) has an interest. 23 MINORITY INTERESTS
31 December 1997 (Pounds)'000 At 1 January 1997 1,303 Profit on ordinary activities after taxation 1,252 Dividends paid and proposed (774) Adjustment to goodwill 303 Exchange differences on translation of subsidiary undertakings' net assets (172) __________ At 31 December 1997 1,912 __________
24 RELATED PARTIES Other than the disclosures included in respect of charges for accommodation (see note 5) and transactions to acquire Richard Ellis Limited (Hong Kong) and Selman Beheer BV (see notes 15 and 22 respectively) there were no material related party transactions and balances that require disclosure. 25 NOTES TO THE CASHFLOW STATEMENT RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES
Year Ended 31 December 1997 (Pounds)'000 Operating profit 5,020 Depreciation on tangible fixed assets 1,806 Increase in debtors (3,510) Decrease in creditors 3,811 Loss on disposal of fixed assets 84 Foreign exchange differences 178 __________ Net cash inflows from operating activities 7,389 __________
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT
Year Ended 31 December 1997 (Pounds)'000 Increase in cash in the year 3,492 Cash outflow from increase in liquid resources 41 Cash inflow from increase in debt and lease financing (1,954) Translation differences 31 __________ Movement in net funds in the year 1,610 Net debt at 1 January 1997 (2,118) __________ Net debt at 31 December 1997 (508) __________
25 NOTES TO THE CASHFLOW STATEMENT (CONTINUED) ANALYSIS OF NET DEBT
31 December 31 December 1996 Cash flow Non-cash 1997 (Pounds)'000 (Pounds)'000 (Pounds)'000 (Pounds)'000 Net cash: Cash at bank and in hand 7,201 3,942 (563) 10,580 Less: deposits treated as liquid resources (3,118) (41) 249 (2,910) __________ __________ __________ __________ 4,083 3,901 (314) 7,670 Bank overdrafts (4,313) (409) 14 (4,708) __________ __________ __________ __________ (230) 3,492 (300) 2,962 Liquid resources: Deposits included in cash 3,118 41 (249) 2,910 __________ __________ __________ __________ 3,118 41 (249) 2,910 Debt: Finance leases (776) 112 122 (542) Debts falling due after one year (4,230) (2,066) 458 (5,838) __________ __________ __________ __________ (5,006) (1,954) 580 (6,380) __________ __________ __________ __________ NET DEBT (2,118) 1,579 31 (508) __________ __________ __________ __________
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFO (CONTINUED). (b) CB Richard Ellis Services. Inc. Unaudited Pro Forma Financial Statements for the year ended December 31, 1997 and for the quarter ended March 31, 1998. CB RICHARD ELLIS SERVICES, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The accompanying pro forma financial statements give effect to the following: (a) for the unaudited pro forma statement of operations for the year ended December 31, 1997, inclusion of the operations of REI Limited ("REI") for the full year ended December 31, 1997 and Koll Real Estate Services, Inc. ("Koll"), for the period from January 1, 1997 through August 28, 1997 (b) inclusion of the operations of REI for unaudited pro forma statement of operations for the quarter ended March 31, 1998 and (c) inclusion of REI's balance sheet as of March 31, 1998 in the unaudited pro forma combined balance sheet. The acquisition of REI by CB Richard Ellis Services, Inc. ("CB REI") is reflected as if it had occurred on January 1, 1997, and March 31, 1998 for purposes of the unaudited pro forma statements of operations and unaudited pro forma balance sheet, respectively. The Koll acquisition has been reflected in the unaudited pro forma statement of operations for the year ended December 31, 1997 as if it had occurred on January 1, 1997. The historical financial information of CB REI was derived from (i) the audited financial statements for the year ended December 31, 1997 included in the Company's 1997 Form 10-K; and (ii) the unaudited financial statements for the quarter ended March 31, 1998 included in the Company's Form 10-Q for the first quarter 1998. The historical financial information for REI was derived from (i) the audited financial statements for the year ended December 31, 1997 and; (ii) the unaudited internally prepared financial statements for the three-month period ended March 31, 1998, both included herein. The historical financial information for Koll was derived from Koll's unaudited internally prepared financial statements for the eight-month period ended August 31, 1997. The pro forma adjustments are based upon currently available information and upon certain assumptions that management believes are reasonable. The acquisitions have been accounted for by the Company as purchases. The adjustments included in the pro forma financial statements represent the effects of the Company's preliminary determination and allocation of the purchase price to the fair value of the assets and liabilities acquired, based upon currently available information. There can be no assurance that the effects will not differ significantly from the pro forma adjustments reflected in the pro forma financial statements. The pro forma financial statements are not necessarily indicative of either future results of operations or results that might have been achieved if the transactions had been consummated as of the dates indicated. CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. UNAUDITED PROFORMA BALANCE SHEET AS OF MARCH 31, 1998 (DOLLARS IN 000'S) CB Commercial REI Historical Historical As of As of CB March March Pro forma Commercial 31, 1998 31, 1998 (a) Subtotal adjustments pro forma ---------- ------------ -------- ----------- ---------- ASSETS - ------ Cash $ 19,550 $13,063 $ 32,613 (2,989) $ 29,624 Receivables 65,824 28,346 94,170 94,170 A/R from affiliates - - - Deferred taxes 3,189 - 3,189 3,189 Prepaid expenses 9,407 - 9,407 9,407 Other 11,826 - 11,826 11,826 -------- ------- --------- -------- -------- Total current assets 109,796 41,409 151,205 (2,989) 148,216 Property, plant and equipment 52,501 7,095 59,596 59,596 Goodwill 199,445 29,240 228,685 $ 76,917 (b) 308,602 3,000 (c) Investments and advances - 2,320 2,320 2,320 Other intangible assets 44,280 - 44,280 44,280 Inventoried property 7,355 - 7,355 7,355 Deferred taxes 37,159 - 37,159 37,159 Other assets 27,203 - 27,203 27,203 -------- ------- --------- -------- -------- Total assets $477,739 $80,064 $557,803 $ 76,928 $634,731 ======== ======= ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Compensation and employee benefits $ 35,182 $ - $ 35,182 $ 35,182 Accounts payable & accrued liabilities 44,939 39,617 84,556 $ 3,000 (c) 87,556 Reserve for bonus and profit sharing 7,110 - 7,110 7,110 Current maturities of long term debt 4,043 4,043 4,043 Current portion of capital lease obligations 1,422 1,422 1,422 Notes payable to bank - - - - -------- ------- --------- -------- -------- Total current liabilities 92,696 39,617 132,313 3,000 135,313 Senior term loans 244,551 244,551 49,717 (b) 294,268 Inventoried property loan 7,470 - 7,470 7,470 Deferred income taxes - - - - Other long term debt 2,400 - 2,400 2,400 Other long term liabilities 30,068 13,123 43,191 43,191 -------- ------- --------- -------- -------- Total liabilities 377,185 52,740 429,925 52,717 482,642 Minority interest 4,655 1,261 5,916 5,916 Stockholders' equity - -------------------- Preferred stock - - - Common stock 190 - 190 13 (b) 203 Additional paid-in capital 269,527 25,443 294,970 (25,443) (b) 319,788 50,261 (b) Notes receivable from sale of stock (5,268) - (5,268) (5,268) Retained earnings (deficit) (168,517) - (168,517) (168,517) Foreign currency translation (loss) gain (33) 620 587 (620) (b) (33) -------- ------- --------- -------- -------- Total stockholders' equity 95,899 26,063 121,962 24,211 146,173 -------- ------- --------- -------- -------- Total liabilities and stockholders' equity $477,739 $80,064 $ 557,803 $ 76,928 $634,731 ======== ======= ========= ======== ========
NOTES: (a) All UK currency balances have been converted to the US dollar at an assumed average conversion rate of $1.676 (calculated based on 5 days before and 5 days after closing date which is April 17, 1998) to the pound. (b) Represents the purchase of the REI stock for total consideration of $102,980,194 (1,330,000 shares at $37.8, plus $47.0 million cash), plus $5.7million in notes; elimination of REI's historical equity and recording of goodwill.) (c) Represents estimated costs associated with the transaction. CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. UNAUDITED PROFORMA STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1998 (DOLLARS IN 000'S, EXCEPT PER SHARE DATA)
CB REI Commercial Historical Historical For the Quarter ended Quarter ended CB March March Pro forma Commercial 31, 1998 31, 1998 (a) adjustments pro forma ------------- ------------- ----------- ---------- Revenues $ 175,144 $16,314 $ 191,458 Other operating income - 297 297 Commissions, fees and other incentives 83,714 12,915 96,629 Operating, administrative and other 78,958 10,413 89,371 Depreciation and amortization 5,322 1,009 910 (c) 7,241 ------------ ----------- --------- ----------- Operating income (loss) 7,150 (7,726) (910) (1,486) Interest income 727 191 918 Interest expense 4,321 382 870 (d) 5,573 Minority interest income - 80 80 ------------ ----------- --------- ----------- Income (loss) before equity income (loss) and provision (benefit) for income taxes 3,556 (7,837) (1,780) (6,061) Equity income (loss) - 430 430 ------------ ----------- --------- ----------- Income (loss) before provision for income taxes 3,556 (7,407) (1,780) (5,631) Provision (benefit) for income taxes 1,591 132 (b) (712) (e) 1,011 ------------ ----------- --------- ----------- Income (loss) from continuing operations $ 1,965 $(7,539) $(1,068) $ (6,642) ============ =========== ========= =========== Per share data: -------------- Basic earnings (loss) per share $ 0.10 (f) $ (0.33) (f) ========== ========== Weighted average shares 18,892,735 20,222,745 (g) ========== ========== Diluted earnings (loss) per share $ 0.10 (f) $ (0.33) (f) ========== ========== Weighted average shares 18,892,735 20,222,745 (G) ========== ==========
NOTES: (a) All UK currency balances have been converted to the US dollar at an assumed average conversion rate of $1.675 (calculated based on 5 days before and 5 days after closing date which is April 17, 1998) to the pound. (b) REI's historical effective tax rate was 87%. The high effective rate is caused by REI's corporate expenses incurred in the U.K. which were not deductible in jurisdictions where the company operates. CB intends to lower the effective tax rate through the use of tax planning strategies, however, the ultimate success of such strategies cannot be known at this time. Accordingly, no adjustment has been reflected in the pro forma financial statements to include any tax savings. (c) Represents amortization expense on goodwill resulting from the REI transaction using a 30 year life (d) Represents interest on the borrowings for the transaction using a 7% interest rate (e) Reflects the tax benefit at an estimated 40% on all goodwill amortization related to the acquisitions. The Company may not be able to receive the full tax benefit on 100% of the goodwill (f) Pro forma EPS gives effect to the purchase of all of CB's preferred stock. Accordingly no reduction has been made to income available to commons stockholders for the annual dividend on such preferred stock. In addition, pro forma EPS does not reflect the one time reduction of EPS by $1.62 per share that will be recorded associated with such purchase representing the excess of the purchase price over the carrying value of the preferred stock. (g) Weighted average shares include incremental shares assumed to be issued in connection with the transaction CB COMMERCIAL REAL ESTATE SERVICES GROUP, INC. UNAUDITED PROFORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (DOLLARS IN 000'S, EXCEPT PER SHARE DATA)
CB REI Commercial Koll Eight Historical Historical Months For the Year ended ended year ended December August 31, Pro forma December 31, 1997 1997 (a) adjustments Subtotal 31, 1997 (h) ------------- ------------- ------------- ------------- ------------- Revenues $ 730,224 $ 87,687 $ 817,911 $ 117,943 Other operating income 2,051 Commissions, fees and other incentives 365,705 17,656 383,361 63,869 Operating, administrative and other 274,447 87,061 361,508 44,686 Merger related and other non-recurring charges 12,924 - 12,924 - Depreciation and amortization 18,060 8,023 (4,500) (b) 26,253 3,027 1,464 (c) 2,910 (d) 208 (e) 88 (f) ------------- ------------- ------------ ------------- ------------- Operating income (loss) 59,088 (25,053) (170) 33,865 8,412 Interest income 2,598 96 2,694 370 Interest expense 15,780 2,335 18,115 1,883 Minority interest expense 651 651 2,088 ------------- ------------- ------------- ------------- ------------- Income (loss) before equity income (loss) and provision (benefit) for income taxes 45,906 (27,943) (170) 17,793 4,811 Equity income (loss) - (63) (63) 424 ------------- ------------- ------------- ------------- ------------- Income (loss) before provision for income 45,906 (28,006) (170) 17,730 5,235 taxes Provision (benefit) for income taxes 20,558 (8,443) (367) (g) 11,748 4,787 (i) ------------- ------------- ------------- ------------- ------------- Income (loss) from continuing operations $ 25,348 $ (19,563) $ 197 $ 5,982 $ 448 ============= ============= ============= ============= ============= ------------- Income (loss) applicable to common shareholders $ 21,348 ============= Per share data: - ---------------------- Basic earnings (loss) per share $ 1.40 Weighted average shares 15,237,914 ============= Diluted earnings (loss) per share $ 1.33 ============= Weighted average shares 15,996,929 ============= CB Pro forma Commercial adjustments pro forma ------------- ------------- Revenues 935,854 Other operating income 2,051 Commissions, fees and other incentives 447,230 Operating, administrative and other 406,194 Merger related and other non-recurring charges 12,924 Depreciation and amortization 3,639 (j) 32,919 ------------- ------------ Operating income (loss) (3,639) 38,638 Interest income 3,064 Interest expense 8,898 (k) 28,896 Minority interest expense (1,307) (l) 1,432 ------------- ------------ Income (loss) before equity income (loss) and provision (benefit) for income taxes (11,230) 11,374 Equity income (loss) 361 ------------- ------------ Income (loss) before provision for income (11,230) 11,735 taxes Provision (benefit) for income taxes (4,557) (g) 11,978 ------------- ------------ Income (loss) from continuing operations $ (6,673) $ (243) ============= ============ ------------ Income (loss) applicable to common shareholders $ (243) (m) ============ Per share data: - ---------------------- Basic earnings (loss) per share $ (0.01) (m) ============ Weighted average shares $19,919,615 (n) ============ Diluted earnings (loss) per share $ (0.01) (m) ============= Weighted average shares 20,840,874 (n) =============
NOTES: - --------- (a) Koll historical results for the first eight months of 1997 include certain non-recurring charges of $19 million. (b) Represents reversal of Koll's historical amortization expense (c) Represents amortization expense for management agreements assuming a useful life of 10 years. (d) Represents amortization expense for the Koll goodwill resulting from the transaction using a 30 year estimated useful life. (e) Represents amortization expense for covenants not to compete (f) Represents amortization expense on Koll's investments to amortize the difference between the purchase price allocated to these investments and their underlying net book value. (g) Reflects the tax benefit at an estimated 40% on all goodwill amortization related to the acquisitions. The Company may not be able to receive the full tax benefit on 100% of the goodwill (h) All UK currency balances have been converted to the US dollar at an assumed average conversion rate of $1.676 (calculated based on 5 days before and 5 days after closing date which is April 17, 1998) to the pound. (i) REI's historical effective tax rate was 87%. The high effective rate is caused by REI's corporate expenses incurred in the U.K. which were not deductible in jurisdictions where the company operates. CB intends to lower the effective tax rate through the use of tax planning strategies, however, the ultimate success of such strategies cannot be known at this time. Accordingly, no adjustment has been reflected in the pro forma financial statements to include any tax savings. (j) Represents amortization expense on goodwill resulting from the REI transaction using a 30 year life (k) Represents interest on the borrowings for the acquisition or REI and the purchase of Company's preferred stock using an 7% interest rate (l) To eliminate the minority interest expense attributable to the Amsterdam operation. (m) Pro forma EPS gives effect to the purchase of all of CB's preferred stock. Accordingly no reduction has been made to income available to commons stockholders for the annual dividend on such preferred stock. In addition, pro forma EPS does not reflect the one time reduction of EPS by $1.62 per share that will be recorded associated with such purchase representing the excess of the purchase price over the carrying value of the preferred stock. (n) Weighted average shares include incremental shares assumed to be issued in connection with the transaction and the effect of the Koll shares from the beginning of the year. 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: June 30, 1998 By: /s/ Debra L. Morris ---------------------------------- Debra L. Morris Global Chief Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----