CB Richard Ellis Group, Inc. Announces Earnings Per Share up 60% for Third Quarter of 2006

CB Richard Ellis Group, Inc. (NYSE:CBG) today reported revenue for the third quarter ended September 30, 2006 of $903.9 million, up 21.5% over the third quarter of 2005, and diluted earnings per share of $0.39 for the third quarter ended September 30, 2006, compared with $0.25 for the same quarter last year. Excluding one-time charges1, third quarter 2006 diluted earnings per share was $0.40, an increase of 60.0% from the $0.25 earned in the third quarter of 2005. Third Quarter Highlights For the third quarter of 2006, the Company generated revenue of $903.9 million, up 21.5% over the $744.2 million posted in the third quarter of 2005. The Company reported net income of $92.3 million, or $0.39 per diluted share, in the third quarter of 2006 compared with net income of $56.9 million, or $0.25 per diluted share, in the third quarter of 2005. Excluding one-time items, the Company would have earned net income2 of $94.5 million, or $0.40 per diluted share, in the third quarter of 2006, an increase of 64.4% and 60.0%, respectively, compared with net income of $57.5 million, or $0.25 per diluted share, in the third quarter of 2005. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)3 totaled $163.5 million for the third quarter of 2006, an increase of $52.3 million, or 47.0%, from the same quarter last year. The Company’s third quarter results continue to reflect strong performance across virtually all business lines and geographies, as well as contributions from acquisitions. Of the 21.5% revenue growth, approximately two-thirds was due to organic growth and one-third was attributable to acquisitions completed in 2005 and 2006. The double-digit organic growth was fueled by notably improved leasing activity in most major markets as well as increased revenue in the appraisal/valuation, mortgage brokerage, property and facilities management and investment management operations. This marks the 16th straight quarter of double-digit year-over-year organic revenue growth. Nine-Month Results Revenue was $2.4 billion for the nine months ended September 30, 2006, up $465.6 million, or 23.8%, compared to the same period last year. Approximately two-thirds of the improvement was due to organic growth, while acquisitions completed in 2005 and 2006 drove the remainder of the revenue increase. The Company reported net income of $193.5 million, or $0.83 per diluted share, for the nine months ended September 30, 2006 compared to net income of $121.9 million, or $0.53 per diluted share, in the same period last year. Excluding one-time items, the Company would have earned net income of $213.8 million, or $0.91 per diluted share, for the nine months ended September 30, 2006, up 64.4% and 59.6%, respectively, over net income of $130.0 million, or $0.57 per diluted share, for the nine months ended September 30, 2005. EBITDA was $393.1 million for the nine months ended September 30, 2006, up $125.2 million or 46.7% compared to the same period last year. Management’s Commentary "Our business continues to perform very well in all our major geographies around the world,” said Brett White, CB Richard Ellis’ president and chief executive officer. "Our premier brand, global platform and client-service focus have enhanced our capture of market share and have positioned us to benefit significantly from the generally strong commercial real estate markets around the world. We are assisting many companies in the expansion of their operations due to continuing economic growth, and rental rates are rising as vacancy rates decline. As discussed previously, the buoyancy of the leasing market more than offset the expected pullback in investment sales activity. Overall, our business remains very strong as we approach year-end, traditionally our busiest time of the year.” Third-Quarter Segment Highlights Americas Region Third quarter revenue for the Americas region, including the U.S., Canada, Mexico and Latin America, increased 13.2% to $584.7 million, compared with $516.7 million for the third quarter of 2005. This largely organic revenue increase was mainly attributable to a continued improving leasing trend as well as higher mortgage brokerage, appraisal/valuation and property and facilities management fees. Operating income for the Americas region totaled $87.9 million for the third quarter of 2006, compared with $64.5 million for the third quarter of 2005. Excluding the impact of one-time items, operating income for the Americas region would have been $90.6 million for the third quarter of 2006, an increase of $24.9 million, or 37.9%, as compared to $65.7 million for the third quarter of last year. The Americas region’s EBITDA totaled $101.3 million for the third quarter of 2006, an increase of $26.2 million, or 34.9%, from last year’s third quarter. EMEA Region Revenue for the EMEA region, mainly consisting of operations in Europe, increased 29.3% to $193.3 million for the third quarter of 2006, compared with $149.6 million for the third quarter of 2005. Organic revenue growth accounted for nearly half of this increase, with the remainder coming from acquisitions completed in 2005 and 2006. Operating income for the EMEA segment totaled $35.1 million for the third quarter of 2006, compared with $26.7 million for the same period last year. Excluding the impact of one-time items, operating income for the EMEA region would have been $35.5 million for the third quarter of 2006, an increase of $8.7 million, or 32.2%, from the third quarter of last year. EBITDA for the EMEA region totaled $38.7 million for the third quarter of 2006, an increase of $9.8 million, or 34.0%, from last year’s third quarter. These improvements were primarily driven by significantly higher sales and leasing activities as well as higher appraisal/valuation revenues. Asia Pacific Region In the Asia Pacific region, which includes operations in Asia, Australia and New Zealand, revenue totaled $84.5 million for the third quarter of 2006, a 91.6% increase from $44.1 million for the third quarter of 2005. The Company’s acquisition of a majority stake in its Japanese affiliate IKOMA CB Richard Ellis KK in January 2006 accounted for just over half of the revenue increase, with the remainder primarily coming from organic growth throughout the region. Operating income for the Asia Pacific segment totaled $5.0 million for the third quarter of 2006, compared with $5.9 million for the same period last year. EBITDA for the Asia Pacific segment totaled $8.3 million for the third quarter of 2006, an increase of $1.9 million, or 30.0%, from last year’s third quarter. Integration activities related to IKOMA and investment in growth in China have impacted margins in the Asia Pacific segment; however the Company expects that operating income and EBITDA will rise upon full integration of IKOMA and as the benefits from investment spending in China are realized. Global Investment Management Business In the Global Investment Management segment, which consists of investment management operations in the U.S., Europe and Asia, revenue totaled $41.4 million for the third quarter of 2006, a 22.1% increase from the $33.9 million recorded in the third quarter of 2005. This increase was mainly due to carried interest revenue earned in the U.S. as a result of the liquidation of a fund. Assets under management grew to $25.0 billion as of the end of the third quarter, up $7.7 billion, or 44.5%, from year-end 2005. This segment reported operating income of $10.9 million for the third quarter of 2006, compared with an operating loss of $1.2 million for the same period last year. EBITDA for this segment totaled $15.2 million for the third quarter of 2006, an increase of $14.3 million from last year’s third quarter. The improved performance was mainly attributable to $13.5 million of revenue from a fund liquidating (carried interest revenue) in the third quarter as well as $3.8 million of lower incentive compensation expense recognized for dedicated executives and team leaders associated with this segment’s carried interest programs. For the nine months ended September 30, 2006, the Company recorded a total of $22.8 million of incentive compensation expense related to carried interest revenue, only $2.0 million of which pertained to revenue recognized during the nine months ended September 30, 2006 with the remainder relating to future periods’ revenue. Revenues associated with these expenses cannot be recognized until certain financial hurdles are met. The Company expects that it will recognize income from funds liquidating in future quarters that will more than offset accrued incentive compensation expense recognized. The Global Investment Management segment did not incur any one-time costs in the current or prior year quarter. Other Business Highlights The Company’s mortgage brokerage business continues to post steady gains in loan origination volume. For the first nine months of 2006, total volume increased 14.6% to $14.2 billion. The Company is benefiting from a continued strong appetite for debt financing as well as increased referrals from other CB Richard Ellis business lines. The Company continued to post significant growth in its outsourcing services directed to institutional and corporate customers. Net growth in the U.S. Asset Services portfolio improved by 200% with a net gain of 43 million square feet in the first nine months of 2006, compared with a 14 million square foot increase for the same period in 2005. The Company also was awarded significant new outsourcing assignments from corporate clients, including Wachovia, WPP Group, Cintas, The Hartford, TIAA-CREF and RBC Dain Rauscher, totaling in the aggregate approximately 39 million square feet globally. Guidance The Company is increasing its full year guidance for 2006. CB Richard Ellis expects to generate full year diluted earnings per share growth of approximately 45%, excluding one-time charges, as compared to 2005 performance. The Company’s third-quarter earnings conference call will be held on Thursday, October 26, 2006 at 10:30 a.m. EDT. A live webcast will be accessible through the Investor Relations section of the Company’s Web site at www.cbre.com. The direct dial-in number for the conference call is 800-230-1096 (in the U.S.) and 612-234-9959 (for international callers). A replay of the call will be available beginning at 2:00 p.m. EDT through midnight November 10, 2006. The dial-in number for the replay is 800-475-6701 (in the U.S.) and 320-365-3844 (for international callers). The access code for the replay is 845537. A transcript of the call will be available on the Company’s Investor Relations Web site. About CB Richard Ellis CB Richard Ellis Group, Inc. (NYSE:CBG), a FORTUNE 1000 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2005 revenue). With approximately 14,500 employees, the Company serves real estate owners, investors and occupiers through more than 200 offices worldwide (excluding affiliate and partner offices). CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; investment management; appraisal and valuation; and research and consulting. Founded in 1906, CB Richard Ellis marks a century of excellence in real estate services this year. Please visit our Web site at www.cbre.com. Note: This release contains forward-looking statements within the meaning of the ''safe harbor'' provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our growth momentum in 2006, future operations and future financial performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this release. Any forward-looking statements speak only as of the date of this release and, except to the extent required by applicable securities laws, the Company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Factors that could cause results to differ materially include, but are not limited to: commercial real estate vacancy levels; employment conditions and their effect on vacancy rates; property values; rental rates; interest rates; realization of values in investment funds to offset related incentive compensation expense; any general economic recession domestically or internationally; general conditions of financial liquidity for real estate transactions; our ability to leverage our platform to sustain revenue growth; our ability to retain and incentivize producers; our levels of borrowing; and the integration of our acquisitions. Additional information concerning factors that may influence CB Richard Ellis Group, Inc.'s financial information is discussed under "Risk Factors”, "Management’s Discussion and Analysis of Financial Condition and Results of Operations”, "Quantitative and Qualitative Disclosures About Market Risk” and "Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2005, and under "Management’s Discussion and Analysis of Financial Condition and Results of Operations”, "Quantitative and Qualitative Disclosures About Market Risk” and "Forward-Looking Statements” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, as well as in the Company’s press releases and other periodic filings with the Securities and Exchange Commission. Such filings are available publicly and may be obtained off the Company’s Web site at www.cbre.com or upon request from the CB Richard Ellis Investor Relations Department at investorrelations@cbre.com. 1 One-time charges include amortization expense related to net revenue backlog acquired in acquisitions, integration costs related to acquisitions and loss on extinguishment of debt. 2 A reconciliation of net income to net income, as adjusted for one-time items, is provided in the exhibits to this release. 3 The Company’s management believes that EBITDA is useful in evaluating its performance compared to that of other companies in its industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for reasons unrelated to overall operating performance. As a result, the Company’s management uses EBITDA as a measure to evaluate the performance of various business lines and for other discretionary purposes, including as a significant component when measuring its performance under its employee incentive programs. However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles (GAAP), and when analyzing the Company’s operating performance, readers should use EBITDA in addition to, and not as an alternative for, net income determined in accordance with GAAP. Because not all companies use identical calculations, the Company’s presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in the Company’s debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and the Company’s ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. For a reconciliation of EBITDA with the most comparable financial measures calculated and presented in accordance with GAAP, see the section of this press release titled "Non-GAAP Financial Measures.” CB RICHARD ELLIS GROUP, INC. OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (Dollars in thousands, except share data)     Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    Revenue $ 903,876  $ 744,198  $2,420,195  $1,954,627    Costs and expenses: Cost of services 456,994  380,943  1,209,935  987,680  Operating, administrative and other 293,122  255,706  841,881  720,657  Depreciation and amortization 14,892  11,665  42,077  32,853    Operating income 138,868  95,884  326,302  213,437  Equity income from unconsolidated subsidiaries 9,135  4,068  25,976  23,441  Minority interest (income) expense (577) 440  1,232  1,793  Interest income 1,002  2,367  7,568  7,870  Interest expense 7,468  15,794  34,755  42,766  Loss on extinguishment of debt -  624  22,255  7,386    Income before provision for income taxes 142,114  85,461  301,604  192,803  Provision for income taxes 49,805  28,525  108,131  70,874    Net income $ 92,309  $ 56,936  $ 193,473  $ 121,929    Basic income per share $ 0.41  $ 0.26  $ 0.86  $ 0.55    Weighted average shares outstanding for basic income per share 226,749,704  222,532,011  226,095,680  221,502,507    Diluted income per share $ 0.39  $ 0.25  $ 0.83  $ 0.53    Weighted average shares outstanding for diluted income per share 233,943,772  230,331,813  233,519,809  229,334,424    EBITDA $ 163,472  $ 111,177  $ 393,123  $ 267,938  CB RICHARD ELLIS GROUP, INC. SEGMENT RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (Dollars in thousands)     Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005  Americas Revenue $ 584,674  $ 516,665  $ 1,592,716  $ 1,387,657  Costs and expenses: Cost of services 317,958  294,693  853,793  757,945  Operating, administrative and other 169,647  149,375  498,457  440,144  Depreciation and amortization 9,143  8,088  25,024  22,471  Operating income $ 87,926  $ 64,509  $ 215,442  $ 167,097  EBITDA $ 101,259  $ 75,049  $ 251,007  $ 198,344    EMEA Revenue $ 193,340  $ 149,574  $ 498,856  $ 374,823  Costs and expenses: Cost of services 93,798  64,499  232,698  169,204  Operating, administrative and other 61,211  55,861  173,023  160,852  Depreciation and amortization 3,247  2,543  11,564  7,357  Operating income $ 35,084  $ 26,671  $ 81,571  $ 37,410  EBITDA $ 38,701  $ 28,891  $ 93,897  $ 44,139    Asia Pacific Revenue $ 84,492  $ 44,090  $ 229,844  $ 121,249  Costs and expenses: Cost of services 45,238  21,751  123,444  60,531  Operating, administrative and other 32,299  15,907  84,402  45,108  Depreciation and amortization 1,990  572  3,976  1,720  Operating income $ 4,965  $ 5,860  $ 18,022  $ 13,890  EBITDA $ 8,344  $ 6,418  $ 22,586  $ 16,126    Global Investment Management Revenue $ 41,370  $ 33,869  $ 98,779  $ 70,898  Costs and expenses: Operating, administrative and other 29,965  34,563  85,999  74,553  Depreciation and amortization 512  462  1,513  1,305  Operating income (loss) $ 10,893  $ (1,156) $ 11,267  $ (4,960) EBITDA $ 15,168  $ 819  $ 25,633  $ 9,329  Non-GAAP Financial Measures   The following measures are considered "non-GAAP financial measures" under SEC guidelines:   (i) Net income, as adjusted for one-time items   (ii) Diluted earnings per share, as adjusted for one-time items   (iii) EBITDA   (iv) Operating income, as adjusted for one-time items   The Company believes that these non-GAAP financial measures provide a more complete understanding of ongoing operations and enhance comparability of current results to prior periods as well as presenting the effects of one-time items in all periods presented. The Company believes that investors may find it useful to see these non-GAAP financial measures to analyze financial performance without the impact of one-time items that may obscure trends in the underlying performance of its business. Net income, as adjusted for one-time items and diluted earnings per share, as adjusted for one-time items are calculated as follows (dollars in thousands, except per share data):   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    Net income $ 92,309  $ 56,936  $ 193,473  $ 121,929  Amortization expense related to net revenue backlog acquired in acquisitions, net of tax 834  -  2,837  -  Integration costs related to acquisitions, net of tax 1,353  548  3,443  3,683  Loss on extinguishment of debt, net of tax 7  (6) 14,050  4,402  Net income, as adjusted $ 94,503  $ 57,478  $ 213,803  $ 130,014    Diluted income per share, as adjusted $ 0.40  $ 0.25  $ 0.91  $ 0.57    Weighted average shares outstanding for diluted income per share, as adjusted 233,943,772  230,331,813  233,519,809  229,334,424  EBITDA for the Company is calculated as follows (dollars in thousands):   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    Net income $ 92,309  $ 56,936  $ 193,473  $ 121,929  Add: Depreciation and amortization 14,892  11,665  42,077  32,853  Interest expense 7,468  15,794  34,755  42,766  Loss on extinguishment of debt -  624  22,255  7,386  Provision for income taxes 49,805  28,525  108,131  70,874  Less: Interest income 1,002  2,367  7,568  7,870    EBITDA $ 163,472  $ 111,177  $ 393,123  $ 267,938  Operating income, as adjusted for one-time items is calculated as follows (dollars in thousands):   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    Americas   Operating income $ 87,926  $ 64,509  $ 215,442  $ 167,097  Amortization expense related to net revenue backlog acquired in acquisitions 1,319  -  1,319  -  Integration costs related to acquisitions 1,328  1,180  3,582  4,751    Operating income, as adjusted $ 90,573  $ 65,689  $ 220,343  $ 171,848    EMEA   Operating income $ 35,084  $ 26,671  $ 81,571  $ 37,410  Amortization expense related to net revenue backlog acquired in acquisitions -  -  3,174  -  Integration costs related to acquisitions 434  195  1,443  1,432    Operating income, as adjusted $ 35,518  $ 26,866  $ 86,188  $ 38,842  Asia Pacific Operating income $ 4,965  $ 5,860  $ 18,022  $ 13,890  Integration costs related to acquisitions 382  -  429  -    Operating income, as adjusted $ 5,347  $ 5,860  $ 18,451  $ 13,890    Global Investment Management   The Global Investment Management segment did not incur any one-time costs associated with acquisitions in the current or prior year period. EBITDA for segments is calculated as follows (dollars in thousands):   Three Months Ended September 30, Nine Months Ended September 30, 2006  2005  2006  2005    Americas Net income $ 54,840  $ 37,428  $ 112,498  $ 88,560  Add: Depreciation and amortization 9,143  8,088  25,024  22,471  Interest expense 5,407  11,459  28,873  34,131  Loss on extinguishment of debt -  624  22,255  7,386  Provision for income taxes 32,462  19,355  68,553  50,796  Less: Interest income 593  1,905  6,196  5,000    EBITDA $ 101,259  $ 75,049  $ 251,007  $ 198,344    EMEA Net income $ 26,043  $ 17,130  $ 57,555  $ 22,141  Add: Depreciation and amortization 3,247  2,543  11,564  7,357  Interest expense 762  2,377  1,621  3,605  Provision for income taxes 8,839  7,169  24,053  13,597  Less: Interest income 190  328  896  2,561    EBITDA $ 38,701  $ 28,891  $ 93,897  $ 44,139    Asia Pacific Net income $ 3,241  $ 3,324  $ 8,942  $ 8,671  Add: Depreciation and amortization 1,990  572  3,976  1,720  Interest expense 775  703  2,486  2,146  Provision for income taxes 2,411  1,855  7,346  3,723  Less: Interest income 73  36  164  134    EBITDA $ 8,344  $ 6,418  $ 22,586  $ 16,126    Global Investment Management Net income (loss) $ 8,185  $ (946) $ 14,478  $ 2,557  Add: Depreciation and amortization 512  462  1,513  1,305  Interest expense 524  1,255  1,775  2,884  Provision for income taxes 6,093  146  8,179  2,758  Less: Interest income 146  98  312  175    EBITDA $ 15,168  $ 819  $ 25,633  $ 9,329  CB RICHARD ELLIS GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)   September 30, December 31, 2006  2005  Assets: Cash and cash equivalents $ 138,273  $ 449,289  Restricted cash 8,737  5,179  Receivables, net 504,430  483,175  Warehouse receivable (1) 92,900  255,963  Property and equipment, net 153,781  137,655  Goodwill and other intangibles, net 1,075,924  989,719  Deferred compensation assets 184,548  144,597  Other assets, net 435,533  350,095  Total assets $ 2,594,126  $ 2,815,672  Liabilities: Current liabilities, excluding debt $ 750,269  $ 853,738  Warehouse line of credit (1) 92,900  255,963  Revolving credit facility 139,762  -  Senior secured term loan tranche B -  265,250  11¼% senior subordinated notes -  163,021  9¾% senior notes 130,000  130,000  Other debt 27,998  18,987  Deferred compensation liability 200,243  172,871  Other long-term liabilities 198,397  155,333  Total liabilities 1,539,569  2,015,163    Minority interest 28,715  6,824    Stockholders’ equity 1,025,842  793,685  Total liabilities and stockholders’ equity $ 2,594,126  $ 2,815,672      (1) Represents Freddie Mac loan receivables, which are offset by the related non-recourse warehouse line of credit facility.