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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q

ý   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from                                    to                                   

Commission File Number 001 - 32205

CB RICHARD ELLIS GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  94-3391143
(I.R.S. Employer
Identification Number)

11150 Santa Monica Boulevard, Suite 1600
Los Angeles, California
(Address of principal executive offices)

 

  
90025
(Zip Code)

(310) 405-8900
(Registrant's telephone number, including area code)

 

  
(Former name, former address and former fiscal year
if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o.

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    No o.

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý.

        The number of shares of Class A common stock outstanding at October 30, 2009 was 292,817,544.


Table of Contents


FORM 10-Q

September 30, 2009

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

  Page

Item 1.

 

Financial Statements

   

 

Consolidated Balance Sheets at September 30, 2009 (Unaudited) and December 31, 2008

 
3

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008 (Unaudited)

 
4

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (Unaudited)

 
5

 

Consolidated Statement of Equity for the nine months ended September 30, 2009 (Unaudited)

 
6

 

Notes to Consolidated Financial Statements (Unaudited)

 
7

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
48

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 
77

Item 4.

 

Controls and Procedures

 
78

PART II—OTHER INFORMATION

   

Item 1.

 

Legal Proceedings

 
78

Item 1A.

 

Risk Factors

 
79

Item 6.

 

Exhibits

 
92

Signatures

 
94

2


Table of Contents


CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 
  September 30,
2009
  December 31,
2008
 
 
  (Unaudited)
   
 

ASSETS

             

Current Assets:

             
 

Cash and cash equivalents

  $ 326,045   $ 158,823  
 

Restricted cash

    42,768     36,322  
 

Receivables, less allowance for doubtful accounts of $38,817 and $56,303 at September 30, 2009 and December 31, 2008, respectively

    681,238     751,940  
 

Warehouse receivables

    193,029     210,473  
 

Deferred compensation assets

    8,898     225,704  
 

Income taxes receivable

    133,383     117,720  
 

Prepaid expenses

    99,367     94,282  
 

Deferred tax assets, net

    87,170     147,770  
 

Real estate under development

    10,337     56,322  
 

Real estate and other assets held for sale

    11,238     40,434  
 

Other current assets

    39,593     75,743  
           
   

Total Current Assets

    1,633,066     1,915,533  

Property and equipment, net

    179,852     207,976  

Goodwill

    1,309,405     1,251,823  

Other intangible assets, net of accumulated amortization of $132,903 and $114,685 at September 30, 2009 and December 31, 2008, respectively

    320,076     311,447  

Investments in unconsolidated subsidiaries

    156,180     145,726  

Deferred tax assets, net

    37,576     44,483  

Real estate under development

    135,361     158,090  

Real estate held for investment

    559,456     535,979  

Available for sale securities

    32,034     28,794  

Other assets, net

    112,338     126,563  
           
   

Total Assets

  $ 4,475,344   $ 4,726,414  
           

LIABILITIES AND EQUITY

             

Current Liabilities:

             
 

Accounts payable and accrued expenses

  $ 426,900   $ 399,877  
 

Compensation and employee benefits payable

    235,758     255,408  
 

Accrued bonus and profit sharing

    187,967     295,219  
 

Deferred compensation liabilities

    4,062     239,464  
 

Short-term borrowings:

             
   

Warehouse lines of credit

    192,958     210,473  
   

Revolving credit facility

    41,115     25,765  
   

Other

    5,870     9,827  
           
   

Total short-term borrowings

    239,943     246,065  
 

Current maturities of long-term debt

    96,739     210,662  
 

Notes payable on real estate

    161,450     176,372  
 

Liabilities related to real estate and other assets held for sale

    1,386     22,740  
 

Other current liabilities

    15,639     27,038  
           
   

Total Current Liabilities

    1,369,844     1,872,845  

Long-Term Debt:

             
 

Senior secured term loans

    1,590,170     1,865,200  
 

11.625% senior subordinated notes, net of unamortized discount of $13,772 at September 30, 2009

    436,228      
 

Other long-term debt

    507     1,559  
           
   

Total Long-Term Debt

    2,026,905     1,866,759  

Pension liability

    21,319     19,802  

Non-current tax liabilities

    81,565     78,705  

Notes payable on real estate

    392,271     420,242  

Other liabilities

    117,284     122,338  
           
   

Total Liabilities

    4,009,188     4,380,691  

Commitments and contingencies

         

Equity:

             

CB Richard Ellis Group, Inc. Stockholders' Equity:

             
 

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 292,707,565 and 262,336,032 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively

    2,927     2,623  
 

Additional paid-in capital

    453,038     285,825  
 

Accumulated deficit

    (79,298 )   (48,349 )
 

Accumulated other comprehensive loss

    (77,571 )   (125,413 )
           
   

Total CB Richard Ellis Group, Inc. Stockholders' Equity

    299,096     114,686  

Non-controlling interests

    167,060     231,037  
           
   

Total Equity

    466,156     345,723  
           
   

Total Liabilities and Equity

  $ 4,475,344   $ 4,726,414  
           

The accompanying notes are an integral part of these consolidated financial statements.

3


Table of Contents


CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2009   2008   2009   2008  

Revenue

  $ 1,023,205   $ 1,299,735   $ 2,869,321   $ 3,845,533  

Costs and expenses:

                         
 

Cost of services

    606,470     755,362     1,726,720     2,197,013  
 

Operating, administrative and other

    338,062     420,352     972,892     1,321,536  
 

Depreciation and amortization

    24,445     25,412     74,003     74,236  
                   
 

Total costs and expenses

    968,977     1,201,126     2,773,615     3,592,785  

Gain on disposition of real estate

    2,766     9,766     5,691     13,808  
                   

Operating income

    56,994     108,375     101,397     266,556  

Equity loss from unconsolidated subsidiaries

    6,312     3,408     18,252     25,922  

Other loss

                4,607  

Interest income

    1,248     4,400     4,790     14,107  

Interest expense

    54,075     42,290     136,291     126,855  

Write-off of financing costs

            29,255      
                   

(Loss) income from continuing operations before provision for income taxes

    (2,145 )   67,077     (77,611 )   123,279  

Provision for income taxes

    8,498     37,701     1,157     64,493  
                   

(Loss) income from continuing operations

    (10,643 )   29,376     (78,768 )   58,786  

Income from discontinued operations, net of income taxes

        26,748         26,748  
                   

Net (loss) income

    (10,643 )   56,124     (78,768 )   85,534  

Less: Net (loss) income attributable to non-controlling interests

    (23,020 )   15,751     (47,819 )   8,144  
                   

Net income (loss) attributable to CB Richard Ellis Group, Inc. 

  $ 12,377   $ 40,373   $ (30,949 ) $ 77,390  
                   

Basic income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders

                         

Income (loss) from continuing operations attributable to CB Richard Ellis Group, Inc. 

  $ 0.04   $ 0.15   $ (0.11 ) $ 0.33  

Income from discontinued operations, net of income taxes, attributable to CB Richard Ellis Group, Inc. 

        0.05         0.05  
                   

Net income (loss) attributable to CB Richard Ellis Group, Inc. 

  $ 0.04   $ 0.20   $ (0.11 ) $ 0.38  
                   

Weighted average shares outstanding for basic income (loss) per share

    282,732,848     203,680,475     270,214,427     203,409,873  
                   

Diluted income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders

                         

Income (loss) from continuing operations attributable to CB Richard Ellis Group, Inc. 

  $ 0.04   $ 0.14   $ (0.11 ) $ 0.32  

Income from discontinued operations, net of income taxes, attributable to CB Richard Ellis Group, Inc. 

        0.05         0.05  
                   

Net income (loss) attributable to CB Richard Ellis Group, Inc. 

  $ 0.04   $ 0.19   $ (0.11 ) $ 0.37  
                   

Weighted average shares outstanding for diluted income (loss) per share

    285,923,601     207,706,250     270,214,427     207,942,875  
                   

Amounts attributable to CB Richard Ellis Group, Inc. shareholders

                         

Income (loss) from continuing operations, net of tax

  $ 12,377   $ 30,148   $ (30,949 ) $ 67,165  

Discontinued operations, net of tax

        10,225         10,225  
                   

Net income (loss)

  $ 12,377   $ 40,373   $ (30,949 ) $ 77,390  
                   

The accompanying notes are an integral part of these consolidated financial statements.

4


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CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 
  Nine Months Ended
September 30,
 
 
  2009   2008  

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Net (loss) income

  $ (78,768 ) $ 85,534  

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

             
 

Depreciation and amortization

    74,003     74,328  
 

Amortization and write-off of financing costs

    35,850     9,078  
 

Amortization of long-term debt discount

    300      
 

Write-down of impaired real estate and other assets

    29,315     4,607  
 

Gain on sale of servicing rights and other assets

    (14,144 )   (11,478 )
 

Gain on disposition of real estate held for investment

    (2,721 )    
 

Equity loss from unconsolidated subsidiaries

    18,252     25,922  
 

Provision for doubtful accounts

    135     14,626  
 

Deferred income taxes

    1,105     (444 )
 

Compensation expense related to stock options and non-vested stock awards

    26,608     21,250  
 

Incremental tax benefit from stock options exercised

    (1,039 )   (4,272 )

Deferred compensation deferrals

        24,540  

Distribution of earnings from unconsolidated subsidiaries

    7,838     17,782  

Tenant concessions received

    2,296     8,712  

Decrease in receivables

    100,410     219,131  

Decrease in deferred compensation assets

    217,079     16,036  

Decrease (increase) in prepaid expenses and other assets

    16,122     (19,767 )

Increase in real estate held for sale and under development

    (2,674 )   (2,333 )

Decrease in accounts payable and accrued expenses

    (42,843 )   (115,278 )

Decrease in compensation and employee benefits payable and accrued bonus and profit sharing

    (133,458 )   (433,533 )

Increase (decrease) in income taxes payable

    53,273     (115,515 )

Decrease in other liabilities, including deferred compensation liabilities

    (245,282 )   (48,357 )

Other operating activities, net

    (8,206 )   (1,914 )
           
 

Net cash provided by (used in) operating activities

    53,451     (231,345 )
           

CASH FLOWS FROM INVESTING ACTIVITIES:

             

Capital expenditures

    (12,647 )   (39,895 )

Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired

    (28,263 )   (195,963 )

Contributions to unconsolidated subsidiaries

    (41,666 )   (44,062 )

Distributions from unconsolidated subsidiaries

    4,762     19,811  

Proceeds from the sale of servicing rights and other assets

    6,963     6,263  

Additions to real estate held for investment

    (22,952 )   (122,618 )

Net proceeds from disposition of real estate held for investment

    3,408      

Increase in restricted cash

    (6,384 )   (29,779 )

Other investing activities, net

    (1,126 )   (4,744 )
           
 

Net cash used in investing activities

    (97,905 )   (410,987 )
           

CASH FLOWS FROM FINANCING ACTIVITIES:

             

Proceeds from senior secured term loans

        300,000  

Repayment of senior secured term loans

    (429,250 )   (9,750 )

Proceeds from revolving credit facility

    800,928     1,720,801  

Repayment of revolving credit facility

    (752,210 )   (1,379,429 )

Proceeds from 11.625% senior subordinated notes, net

    435,928      

Proceeds from notes payable on real estate held for investment

    13,764     109,520  

Repayment of notes payable on real estate held for investment

    (5,432 )   (13,975 )

Proceeds from notes payable on real estate held for sale and under development

    48,640     120,601  

Repayment of notes payable on real estate held for sale and under development

    (34,968 )   (120,620 )

Repayment of short-term borrowings and other loans, net

    (4,193 )   (37,773 )

Proceeds from issuance of common stock, net

    146,361      

Proceeds from exercise of stock options

    14,735     3,805  

Incremental tax benefit from stock options exercised

    1,039     4,272  

Non-controlling interests contributions

    20,470     42,344  

Non-controlling interests distributions

    (12,501 )   (28,510 )

Payment of financing costs

    (38,698 )   (9,729 )

Other financing activities, net

    (2,368 )   (1,327 )
           
 

Net cash provided by financing activities

    202,245     700,230  
 

Effect of currency exchange rate changes on cash and cash equivalents

    9,431     8  
           

NET INCREASE IN CASH AND CASH EQUIVALENTS

    167,222     57,906  

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

   
158,823
   
342,874
 
           

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

  $ 326,045   $ 400,780  
           

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

             
 

Cash paid (received) during the period for:

             
   

Interest

  $ 100,310   $ 112,742  
           
   

Income tax (refunds) payments, net

  $ (53,918 ) $ 185,021  
           

The accompanying notes are an integral part of these consolidated financial statements.

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CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 
  CB Richard Ellis Group, Inc. Shareholders    
   
 
 
  Class A common stock   Additional paid-in capital   Accumulated deficit   Accumulated other comprehensive loss   Non-controlling interests   Total  

Balance at December 31, 2008

  $ 2,623   $ 285,825   $ (48,349 ) $ (125,413 ) $ 231,037   $ 345,723  

Net loss

            (30,949 )       (47,819 )   (78,768 )

Compensation expense for stock options and non-vested stock awards

        26,608                 26,608  

Foreign currency translation gain

                39,208     1,053     40,261  

Issuance of common stock, net

    191     146,170                 146,361  

Stock options exercised (including tax benefit)

    22     15,752                 15,774  

Unrealized gains on interest rate swaps and interest rate caps, net of tax

                7,818         7,818  

Contributions from non-controlling interests

                    20,470     20,470  

Distributions to non-controlling interests

                    (12,501 )   (12,501 )

Acquisition of non-controlling interests

        (18,031 )           (25,194 )   (43,225 )

Other

    91     (3,286 )       816     14     (2,365 )
                           

Balance at September 30, 2009

  $ 2,927   $ 453,038   $ (79,298 ) $ (77,571 ) $ 167,060   $ 466,156  
                           

The accompanying notes are an integral part of these consolidated financial statements.

6


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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

        CB Richard Ellis Group, Inc. (formerly known as CBRE Holding, Inc.), a Delaware corporation (which may be referred to in these financial statements as "we," "us," and "our"), was incorporated on February 20, 2001 and was created to acquire all of the outstanding shares of CB Richard Ellis Services, Inc. (CBRE), an international commercial real estate services firm. Prior to July 20, 2001, we were a wholly-owned subsidiary of Blum Strategic Partners, L.P. (Blum Strategic), formerly known as RCBA Strategic Partners, L.P., which is an affiliate of Richard C. Blum, a director of CBRE and our company.

        On July 20, 2001, we acquired all of the outstanding stock of CBRE pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 31, 2001, among CBRE, Blum CB Corp. (Blum CB) and us. Blum CB was merged with and into CBRE with CBRE being the surviving corporation (the 2001 Merger). In July 2003, our global position in the commercial real estate services industry was further solidified as CBRE acquired Insignia Financial Group, Inc. (Insignia). On July 23, 2003, pursuant to an Amended and Restated Agreement and Plan of Merger, dated May 28, 2003 (the Insignia Acquisition Agreement), by and among us, CBRE, Apple Acquisition Corp. (Apple Acquisition), a Delaware corporation and wholly-owned subsidiary of CBRE, and Insignia, Apple Acquisition was merged with and into Insignia (the Insignia Acquisition). Insignia was the surviving corporation in the Insignia Acquisition and at the effective time of the Insignia Acquisition became a wholly-owned subsidiary of CBRE.

        On June 15, 2004, we completed the initial public offering of shares of our Class A common stock (the IPO). In connection with the IPO, we issued and sold 23,180,292 shares of our Class A common stock and received aggregate net proceeds of approximately $135.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us. Also in connection with the IPO, selling stockholders sold an aggregate of 48,819,708 shares of our Class A common stock and received net proceeds of approximately $290.6 million, after deducting underwriting discounts and commissions. On July 14, 2004, selling stockholders sold an additional 687,900 shares of our Class A common stock to cover over-allotments of shares by the underwriters and received net proceeds of approximately $4.1 million, after deducting underwriting discounts and commissions. On December 13, 2004 and November 15, 2005, we completed secondary public offerings that provided further liquidity for some of our stockholders. We did not receive any of the proceeds from the sales of shares by the selling stockholders on June 15, 2004, July 14, 2004, December 13, 2004 and November 15, 2005. On November 18, 2008, we completed a public offering of 57.5 million shares of our Class A common stock, which raised $206.7 million of net proceeds used for general corporate purposes. Lastly, in June 2009, we completed two offerings that resulted in the sale of approximately 19.1 million shares of our Class A common stock and raised approximately $146.4 million of net proceeds. The net proceeds from these two offerings were used for general corporate purposes, including the repayment of some of our outstanding indebtedness under our current credit agreement.

        In December 2006, we expanded our global leadership with the acquisition of Trammell Crow Company, our largest acquisition to date. On December 20, 2006, pursuant to an Agreement and Plan of Merger dated October 30, 2006 (the Trammell Crow Company Acquisition Agreement), by and among us, A-2 Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary (Merger Sub), and Trammell Crow Company, Merger Sub was merged with and into the Trammell Crow Company (the Trammell Crow Company Acquisition). Trammell Crow Company was the surviving

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

1. Nature of Operations (Continued)


corporation in the Trammell Crow Company Acquisition, and upon the closing of the Trammell Crow Company Acquisition it became our indirect wholly-owned subsidiary. We have no substantive operations other than our investment in CBRE and Trammell Crow Company.

        We offer a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other commercial real estate assets globally under the "CB Richard Ellis" brand name and provide development services under the "Trammell Crow" brand name. Our business is focused on several service competencies, including commercial property and corporate facilities management, tenant representation, property/agency leasing, property sales, valuation, real estate investment management, commercial mortgage origination and servicing, capital markets (equity and debt) solutions, development services and proprietary research. We generate revenues from contractual management fees and on a per project or transactional basis.

2. Basis of Presentation

        The accompanying consolidated financial statements have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (GAAP) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of revenue and expenses. Such estimates include the value of real estate assets, accounts receivable, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management's best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatility in equity prices and foreign currency exchange rates, among other things, have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

        Beginning in the fourth quarter of 2008 and continuing until the third quarter of 2009, worldwide commercial real estate activity weakened significantly, as evidenced by the decline in the United States (U.S.) Gross Domestic Product, rising unemployment rates and significant capital markets turmoil. Weakened economic activity negatively impacted office markets as companies deferred occupancy decisions and placed space on the market for sublease. Reduced global trade and lower domestic demand adversely affected warehouse and distribution markets. Constrained consumer spending negatively affected the retail sector. Investment sales transactions declined significantly due to illiquidity in the capital markets as many lenders tightened underwriting standards for commercial real estate. Capitalization rates have increased as potential buyers of commercial real estate re-evaluated

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

2. Basis of Presentation (Continued)


commercial real estate versus other asset classes available for investment. Market fundamentals in the primary markets and product types in which we invest and/or develop real estate have weakened significantly. As a result, our ability to recover our investments in unconsolidated subsidiaries and our investments in real estate has been impacted. The assumptions utilized in our recoverability analysis of these investments reflected our outlook for the commercial real estate industry and the impact on our business. This outlook incorporated our belief that market conditions had deteriorated and that these challenging conditions could persist for some time. If conditions worsen in the broader economy, commercial real estate industry, specific markets or product types in which we operate, and/or markets remain illiquid, we could have additional impairment charges.

        The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2009. The consolidated financial statements and notes to consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008, as amended by the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 11, 2009, which contains the latest available audited consolidated financial statements, which are as of and for the year ended December 31, 2008.

3. New Accounting Pronouncements

        In the third quarter of 2009, we adopted the provisions of the Financial Accounting Standards Board (FASB) Codification literature (formerly known as Statement of Financial Accounting Standards (SFAS) No. 168). As a result, all references to accounting literature in this Quarterly Report on Form 10-Q refer to the Codification literature.

        In December 2008, the FASB issued FASB Staff Position SFAS No. 132R-1, "Employers' Disclosures about Postretirement Benefit Plan Assets," which is now included in the "Compensation-Retirement Benefits" Topic of the FASB Accounting Standards Codification (ASC) (Topic 715), requiring employers to provide additional disclosures about plan assets of a defined benefit pension or other post-retirement plan. These disclosures should principally include information detailing investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and an understanding of significant concentrations of risk within plan assets. The disclosures required shall be provided for fiscal years ending after December 15, 2009. We are currently evaluating the disclosure impact of adoption on our consolidated financial statements.

        In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140," which is now included in the "Transfers and Servicing" Topic of the FASB ASC (Topic 860). Such literature eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity's continuing involvement in and exposure to the risks related to transferred financial assets effective for fiscal years beginning after November 15, 2009. We are currently evaluating the impact of adoption on our consolidated financial position and results of operations.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

3. New Accounting Pronouncements (Continued)

        In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," which is now included in the "Consolidation" Topic of the FASB ASC (Topic 810). Such literature (1) addresses the elimination of the concept of a qualifying special purpose entity, (2) replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity and (3) provides more timely and useful information about an enterprise's involvement with a variable interest entity. This literature is effective for fiscal years beginning after November 15, 2009, with earlier adoption prohibited. We are currently evaluating the impact of adoption on our consolidated financial position and results of operations.

        In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 "Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value." ASU No. 2009-05 provides clarification on measuring liabilities at fair value in circumstances in which a quoted price in an active market is not available. ASU No. 2009-05 also clarifies that both a quoted price in an active market for an identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. This literature is effective for fiscal years and interim periods beginning after August 28, 2009. We are currently evaluating the impact of adoption on our consolidated financial position and results of operations.

        In September 2009, the FASB issued ASU No. 2009-12, "Fair Value Measurements and Disclosures (Topic 820)—Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)." This ASU provides amendments for the fair value measurement of investments to create a practical expedient to measure the fair value of an investment in certain entities on the basis of the net asset value per share of the investment (or its equivalent) determined as of the reporting entity's measurement date. Therefore, certain attributes of the investment (such as restrictions on redemption) and transaction prices from principal-to-principal or brokered transactions will not be considered in measuring the fair value of the investment if the practical expedient is used. The amendment in this ASU also requires disclosures by major category of investment about the attributes of those investments, such as the nature of any restrictions on the investor's ability to redeem its investments at measurement date, any unfunded commitments, and the investment strategies of the investees. ASU No. 2009-12 is effective for interim and annual periods ending after December 15, 2009. We are currently evaluating the impact of adoption on our consolidated financial position and results of operations.

4. Fair Value Measurements

        The "Fair Value Measurements and Disclosures" Topic of the FASB ASC (Topic 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. Fair Value Measurements (Continued)


entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

        We do not have any material assets or liabilities that are required to be recorded at fair value on a recurring basis.

        The following non-recurring fair value measurements were recorded during the three and nine months ended September 30, 2009 (dollars in thousands):

 
   
  Fair Value Measured and
Recorded Using
   
 
 
   
  Total Impairment
Charges for the
Three Months Ended
September 30, 2009
 
 
  Net Carrying Value
as of
September 30, 2009
 
 
  Level 1   Level 2   Level 3  

Investments in unconsolidated subsidiaries

  $ 37,396   $   $   $ 37,396   $ 5,270  

Real estate

  $ 58,045   $   $   $ 58,045     17,232  
                               

Total impairment charges

                          $ 22,502  
                               

 

 
   
  Fair Value Measured and
Recorded Using
   
 
 
   
  Total Impairment
Charges for the
Nine Months Ended
September 30, 2009
 
 
  Net Carrying Value
as of
September 30, 2009
 
 
  Level 1   Level 2   Level 3  

Investments in unconsolidated subsidiaries

  $ 65,155   $   $   $ 65,155   $ 15,952  

Real estate

  $ 79,299   $   $   $ 79,299     23,455  

Notes receivable

  $   $   $   $     5,860  
                               

Total impairment charges

                          $ 45,267  
                               

        During the three and nine months ended September 30, 2009, we recorded investment write-downs of $5.3 million and $16.0 million, respectively. Such write-downs were included in equity loss from unconsolidated subsidiaries in the accompanying consolidated statements of operations. Of these amounts, $2.7 million and $5.7 million during the three and nine months ended September 30, 2009, respectively, were attributable to non-controlling interests. During the three and nine months ended

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. Fair Value Measurements (Continued)

September 30, 2009, $2.8 million and $6.3 million, respectively, of the investment write-downs were reported in our Global Investment Management segment and were primarily driven by a decrease in the estimated holding period of certain assets held within our global investment management portfolio. In addition, during the three and nine months ended September 30, 2009, we incurred an additional $2.5 million and $9.7 million, respectively, of impairment charges, mainly attributable to declines in value of several investments, primarily as a result of significant capital market turmoil, which has continued to adversely affect global commercial real estate fundamentals (as evidenced by low transaction volumes and illiquidity in the capital markets due to the tightened lending standards for commercial real estate). Of the additional impairment charges noted above, $7.2 million were reported in our Global Investment Management segment for the nine months ended September 30, 2009 and $2.5 million were reported in our Development Services segment for the three and nine months ended September 30, 2009.

        When we performed our impairment analysis, the assumptions utilized reflected our outlook for the commercial real estate industry and the impact on our business. This outlook incorporated our belief that market conditions continued to deteriorate and that these challenging conditions could persist for some time. If either general economic conditions or activity in the capital markets worsen, we may be required to evaluate additional investments or re-evaluate previously impaired investments for potential impairment. These evaluations could result in additional write-downs, which may be material. The fair value measurements employed for these investments were generally based on a discounted cash flow approach and/or review of comparable activities in the market place, which falls within Level 3 of the fair value hierarchy.

        During the three and nine months ended September 30, 2009, we recorded charges of $17.2 million and $23.5 million, respectively, including impairment charges on real estate held for investment and a provision for loss on real estate held for sale. These charges are included in operating, administrative and other expenses in the accompanying consolidated statements of operations within our Development Services segment. Of these amounts, $15.7 million and $20.3 million during the three and nine months ended September 30, 2009, respectively, were attributable to non-controlling interests. During the fourth quarter of 2008, commercial real estate fundamentals in the U.S. weakened significantly, impacted by the overall downturn in the economy and market illiquidity. These conditions have continued through the third quarter of 2009. As a result, during the three and nine months ended September 30, 2009, we recorded impairment charges of $17.2 million and $20.3 million, respectively, related to eight projects where the carrying value was not recoverable primarily due to a decrease in the estimated holding periods of the projects. Additionally, during the second quarter of 2009, we recorded a provision for loss on real estate held for sale of $3.2 million to reduce the carrying value of a condominium project to its fair value less cost to sell, primarily due to reduced unit selling prices resulting from market conditions.

        If conditions in the broader economy, commercial real estate industry, specific markets or product types in which we operate worsen and/or markets remain illiquid, we may be required to evaluate additional projects or re-evaluate previously impaired projects for potential impairment. These evaluations could result in additional impairment charges, which may be material.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. Fair Value Measurements (Continued)

        The fair value measurements employed for our impairment evaluations were generally based on a discounted cash flow approach and/or review of comparable activities in the market place, which falls within Level 3 of the fair value hierarchy.

        During the nine months ended September 30, 2009, we recorded a $5.9 million impairment charge on two notes receivable secured by real estate as a result of the borrower defaulting on the notes. This impairment charge was included in operating, administrative and other expenses in the accompanying consolidated statement of operations within our Development Services segment. Of this amount, $5.4 million was attributable to non-controlling interests. These defaults resulted from the borrowers' noncompliance with certain terms of the note agreements. As a result, we accepted assignment of the underlying real estate assets in lieu of foreclosing under our security deeds. The impairment charge we recorded represents the difference between the carrying amounts of the notes and the fair value of the real estate assets acquired. This transaction also resulted in a non-cash reclassification of $17.3 million from notes receivable to real estate held for investment during the nine months ended September 30, 2009.

        The fair value measurements employed for this impairment evaluation were generally based on a discounted cash flow approach and review of comparable activities in the market place, which falls within Level 3 of the fair value hierarchy.

        FASB ASC Topic 820 also requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets, as follows:

        Cash and Cash Equivalents and Restricted Cash:    These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.

        Receivables, less Allowance for Doubtful Accounts:    Due to their short-term nature, fair value approximates carrying value.

        Warehouse Receivables:    Due to their short-term nature, fair value approximates carrying value. Fair value is determined based on the terms and conditions of funded mortgage loans and generally reflects the values of the warehouse lines of credit outstanding for our wholly-owned subsidiary, CBRE Capital Markets (See Note 11).

        Available for Sale Securities:    These investments are carried at their fair value.

        Short-Term Borrowings:    The majority of this balance represents our revolving credit facility and our warehouse lines of credit outstanding for CBRE Capital Markets. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (See Note 11).

        Senior Secured Term Loans:    Based upon information from third-party banks, the estimated fair value of our senior secured term loans was approximately $1.6 billion at September 30, 2009. Their actual carrying value totaled $1.7 billion at September 30, 2009 (See Note 11).

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

4. Fair Value Measurements (Continued)

        11.625% Senior Subordinated Notes:    Based on dealers' quotes, the estimated fair value of our 11.625% senior subordinated notes was $459.1 million at September 30, 2009. Their actual carrying value totaled $436.2 million at September 30, 2009 (See Note 11).

        Notes Payable on Real Estate:    As of September 30, 2009, the carrying value of our notes payable on real estate was $554.9 million. These borrowings have floating interest rates at spreads over a market rate index. Given the credit crunch experienced during 2008 that continued through the third quarter of 2009, it is likely that some portion of our notes payable on real estate have fair values lower than actual carrying values. However, given the volume of notes payable we have and the cost involved in estimating their fair value, we determined it was not practicable to do so. Additionally, only $5.7 million of these notes payable are recourse to us as of September 30, 2009.

5. Restricted Cash

        Included in the accompanying consolidated balance sheets as of September 30, 2009 and December 31, 2008, is restricted cash of $42.8 million and $36.3 million, respectively. The balances primarily include restricted cash set aside to cover funding obligations as required by contracts executed by us in the normal course of business, including escrow accounts held in our Development Services segment. The balances also include restricted cash set aside to cover deferred purchase consideration associated with the Trammell Crow Company Acquisition, escrow accounts related to strategic in-fill acquisitions and cash pledged to secure the guarantee of certain short-term notes issued in connection with previous acquisitions by Insignia in the United Kingdom (U.K.). The deferred purchase consideration relates to outstanding shares of Trammell Crow Company common stock that have not yet been surrendered for payment. Payment in full is being made as share certificates are surrendered for payment.

6. Goodwill and Other Intangible Assets

        The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2009 (dollars in thousands):

 
  Americas   EMEA   Asia Pacific   Total  

Balance at December 31, 2008

  $ 834,758   $ 330,465   $ 86,600   $ 1,251,823  

Purchase accounting related to acquisitions

    2,796     10,244     16,501     29,541  

Foreign exchange movement

    1,745     15,239     11,057     28,041  
                   

Balance at September 30, 2009

  $ 839,299   $ 355,948   $ 114,158   $ 1,309,405  
                   

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. Goodwill and Other Intangible Assets (Continued)

        Other intangible assets totaled $320.1 million and $311.4 million, net of accumulated amortization of $132.9 million and $114.7 million, as of September 30, 2009 and December 31, 2008, respectively, and are comprised of the following (dollars in thousands):

 
  As of September 30, 2009   As of December 31, 2008  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Gross
Carrying
Amount
  Accumulated
Amortization
 

Unamortizable intangible assets

                         
 

Trademarks

  $ 56,800         $ 56,800        
 

Trade name

    19,826           19,826        
                       

  $ 76,626         $ 76,626        
                       

Amortizable intangible assets

                         
 

Customer relationships

  $ 230,308   $ (35,044 ) $ 229,748   $ (25,382 )
 

Backlog and incentive fees

    47,639     (47,639 )   47,126     (47,126 )
 

Management contracts

    25,414     (23,281 )   24,161     (21,332 )
 

Loan servicing rights

    43,463     (13,062 )   29,239     (9,584 )
 

Other

    29,529     (13,877 )   19,232     (11,261 )
                   

  $ 376,353   $ (132,903 ) $ 349,506   $ (114,685 )
                   
 

Total intangible assets

  $ 452,979   $ (132,903 ) $ 426,132   $ (114,685 )
                   

        Trademarks of $56.8 million were separately identified as a result of the 2001 Merger. As a result of the Insignia Acquisition, a $19.8 million trade name was separately identified, which represented the Richard Ellis trade name in the U.K. that was owned by Insignia.

        Customer relationships primarily represent intangible assets identified in the Trammell Crow Company Acquisition relating to existing relationships primarily in the brokerage, property management, project management and facilities management lines of business. These intangible assets are being amortized over useful lives of up to 20 years.

        Backlog and incentive fees mostly represented the fair value of net revenue backlog and incentive fees acquired as part of the Trammell Crow Company Acquisition as well as other in-fill acquisitions. These intangible assets were amortized over useful lives of up to one year.

        Management contracts consist primarily of property management contracts in the U.S., Canada, the U.K. and France, as well as valuation services and fund management contracts in the U.K. These management contracts are being amortized over useful lives of up to ten years.

        Loan servicing rights represent the fair value of servicing assets in our mortgage brokerage line of business in the U.S. The loan servicing rights are being amortized over the useful lives of the underlying loans, which are generally up to ten years.

        Other amortizable intangible assets mainly represent other intangible assets acquired as a result of the Trammell Crow Company Acquisition and Insignia Acquisition. These include certain acquired Trammell Crow Company contract intangibles. Additionally, these include other intangible assets recognized for non-contractual revenue acquired in the U.S. as well as franchise agreements and a

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

6. Goodwill and Other Intangible Assets (Continued)


trade name in France acquired in the Insignia Acquisition. Other intangible assets are being amortized over useful lives of up to 20 years.

        Amortization expense related to intangible assets was $5.0 million and $5.2 million for the three months ended September 30, 2009 and 2008, respectively, and $14.4 million and $16.0 million for the nine months ended September 30, 2009 and 2008, respectively. The estimated annual amortization expense for each of the years ending December 31, 2009 through December 31, 2013 approximates $19.5 million, $19.9 million, $19.1 million, $16.6 million and $15.9 million, respectively.

7. Investments in Unconsolidated Subsidiaries

        Investments in unconsolidated subsidiaries are accounted for under the equity method of accounting. Combined condensed financial information for these entities is as follows (dollars in thousands):

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2009   2008   2009   2008  

Development Services:

                         
 

Revenue

  $ 24,448   $ 12,261   $ 62,566   $ 34,392  
 

Operating income

  $ 5,735   $ 3,133   $ 21,305   $ 31,993  
 

Net (loss) income

  $ (4,685 ) $ (1,518 ) $ (332 ) $ 19,433  

Global Investment Management:

                         
 

Revenue

  $ 162,978   $ 133,215   $ 451,713   $ 404,258  
 

Operating (loss) income

  $ (141,971 ) $ 7,737   $ (537,953 ) $ 71,258  
 

Net loss

  $ (157,606 ) $ (248,356 ) $ (661,779 ) $ (242,203 )

Other:

                         
 

Revenue

  $ 43,692   $ 124,505   $ 114,524   $ 224,034  
 

Operating income (loss)

  $ 5,312   $ (36,177 ) $ 13,821   $ (84,784 )
 

Net income (loss)

  $ 5,457   $ (41,809 ) $ 14,089   $ (12,089 )

Total:

                         
 

Revenue

  $ 231,118   $ 269,981   $ 628,803   $ 662,684  
 

Operating (loss) income

  $ (130,924 ) $ (25,307 ) $ (502,827 ) $ 18,467  
 

Net loss

  $ (156,834 ) $ (291,683 ) $ (648,022 ) $ (234,859 )

        During the three and nine months ended September 30, 2009, we recorded non-cash write-downs of investments of $5.3 million and $16.0 million, respectively (see Note 4).

        During the three and nine months ended September 30, 2008, we recorded non-cash write-downs of $4.1 million and $14.7 million, respectively, of our investment in Realty Finance Corporation, a mortgage REIT, within our Americas segment. During the nine months ended September 30, 2008, we also recorded a $7.3 million write-down of our investment in CBRE Property Trust within our Global Investment Management segment. All of the impairment charges recorded during the three and nine months ended September 30, 2008 were attributable to a decline in market valuation and were included

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

7. Investments in Unconsolidated Subsidiaries (Continued)


in equity loss from unconsolidated subsidiaries in the accompanying consolidated statements of operations.

        Our Global Investment Management segment involves investing our own capital in certain real estate investments with clients. We have provided investment management, property management, brokerage and other professional services in connection with these real estate investments on an arm's length basis and earned revenues from these unconsolidated subsidiaries. We have also provided development, property management and brokerage services to certain of our unconsolidated subsidiaries in our Development Services segment on an arm's length basis and earned revenues from these unconsolidated subsidiaries.

8. Real Estate and Other Assets Held for Sale and Related Liabilities

        Real estate and other assets held for sale include completed real estate projects or land for sale in their present condition that have met all of the "held for sale" criteria of the "Property, Plant and Equipment" Topic of the FASB ASC (Topic 360) and other assets directly related to such projects. Liabilities related to real estate and other assets held for sale have been included as a single line item in the accompanying consolidated balance sheets.

        Real estate and other assets held for sale and related liabilities were as follows (dollars in thousands):

 
  September 30,
2009
  December 31,
2008
 

Assets:

             

Real estate held for sale (see Note 9)

  $ 11,143   $ 39,582  

Other current assets

    95     689  

Other assets

        163  
           

Total real estate and other assets held for sale

    11,238     40,434  

Liabilities:

             

Notes payable on real estate held for sale (see Note 10)

    1,175     21,049  

Accounts payable and accrued expenses

    210     1,511  

Other current liabilities

    1     180  
           

Total liabilities related to real estate and other assets held for sale

    1,386     22,740  
           

Net real estate and other assets held for sale

  $ 9,852   $ 17,694  
           

9. Real Estate

        We provide build-to-suit services for our clients and also develop or purchase certain projects which we intend to sell to institutional investors upon project completion or redevelopment. Therefore, we have ownership of real estate until such projects are sold or otherwise disposed. Certain real estate assets owned by us secure the outstanding balances of underlying mortgage or construction loans. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. Real Estate (Continued)


majority of our real estate is included in our Development Services segment. Real estate owned by us consisted of the following (dollars in thousands):

 
  September 30,
2009
  December 31,
2008
 

Real estate under development (current)

  $ 10,337   $ 56,322  

Real estate included in assets held for sale (see Note 8)

    11,143     39,582  

Real estate under development (non-current)

    135,361     158,090  

Real estate held for investment (1)

    559,456     535,979  
           

Total real estate (2)

  $ 716,297   $ 789,973  
           

(1)
Net of accumulated depreciation of $24.3 million and $14.6 million at September 30, 2009 and December 31, 2008, respectively.

(2)
Includes balances for lease intangibles and tenant origination costs of $5.8 million and $6.2 million, respectively, at September 30, 2009 and $6.5 million and $8.3 million, respectively, at December 31, 2008. We record lease intangibles and tenant origination costs upon acquiring buildings with in-place leases. The balances are shown net of amortization, which is recorded as an increase to, or a reduction of, rental income for lease intangibles and as amortization expense for tenant origination costs.

        During the three and nine months ended September 30, 2009, we recorded impairment charges of $17.2 million and $20.3 million, respectively, on our real estate held for investment within our Development Services segment. In addition, during the nine months ended September 30, 2009, we also recorded a provision for loss on real estate held for sale of $3.2 million within our Development Services segment (See Note 4). No material write-downs were recorded by us during the three and nine months ended September 30, 2008.

        In June 2009, upon substantial completion of a real estate project under development, one of our consolidated subsidiaries assigned its assets and liabilities (and contributed $0.5 million) to an entity controlled and owned 60% by a third party. Our consolidated subsidiary retained a 40% ownership in the new entity and now accounts for this investment using the equity method. No gain or loss was

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. Real Estate (Continued)


recognized as a result of this transaction, and we recorded the following non-cash activity (dollars in thousands):

 
  Debit (Credit)  

Assets:

       

Real estate under development, current

  $ (57,399 )

Receivables

    (1,207 )

Other current assets

    (1,485 )
       

Total assets

    (60,091 )
       

Liabilities:

       

Notes payable on real estate, current

    56,662  

Accounts payable and accrued expenses

    3,429  
       

Total liabilities

  $ 60,091  
       

        In July 2009, our partner in a limited liability company that we accounted for as an investment in unconsolidated subsidiaries assigned their full interest in the limited liability company to us, in accordance with a buy-sell provision in the limited liability company agreement. As a result, we consolidated the limited liability company as it became our wholly-owned and controlled subsidiary. As a result of this transaction, we recorded the following non-cash activity (dollars in thousands):

 
  Debit (Credit)  

Assets:

       

Real estate held for investment

  $ 12,533  

Investments in unconsolidated subsidiaries

    (5,902 )
       

Total assets

    6,631  
       

Liabilities:

       

Notes payable on real estate, current

    (6,400 )

Accounts payable and accrued expenses

    (231 )
       

Total liabilities

  $ (6,631 )
       

        In the third quarter of 2009, we conveyed two real estate projects to their respective lenders in order to satisfy the underlying non-recourse notes that were in default. In addition, we sold short another property and the lender forgave the balance of the related non-recourse mortgage note. We recorded a net gain of $2.7 million from these transactions, which has been included in gain on disposition of real estate in the accompanying consolidated statements of operations within our

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

9. Real Estate (Continued)


Development Services segment for the three and nine months ended September 30, 2009 and recorded the following non-cash activity (dollars in thousands):

 
  Debit (Credit)  

Assets:

       

Real estate held for investment

  $ (29,856 )

Restricted cash

    (1,118 )

Other current assets

    (869 )

Other assets

    (1,149 )
       

Total assets

    (32,992 )
       

Liabilities:

       

Notes payable on real estate, current

    30,369  

Notes payable on real estate, long-term

    4,006  

Accounts payable and accrued expenses

    1,291  
       

Total liabilities

  $ 35,666  
       

10. Notes Payable on Real Estate

        We had loans secured by real estate, which consisted of the following (dollars in thousands):

 
  September 30,
2009
  December 31,
2008
 

Current portion of notes payable on real estate

  $ 161,450   $ 176,372  

Notes payable on real estate included in liabilities related to real estate and other assets held for sale (see Note 8)

    1,175     21,049  
           

Total notes payable on real estate, current portion

    162,625     197,421  

Notes payable on real estate, non-current portion

    392,271     420,242  
           

Total notes payable on real estate

  $ 554,896   $ 617,663  
           

        At September 30, 2009, $5.7 million of the non-current portion of notes payable on real estate were recourse to us, beyond being recourse to the single-purpose entity that held the real estate asset and was the primary obligor on the note payable.

11. Debt

        Since 2001, we have maintained a credit agreement with Credit Suisse (CS) and other lenders to fund strategic acquisitions and to provide for our working capital needs. On March 24, 2009, we entered into a second amendment and restatement to our credit agreement (the Credit Agreement) with a syndicate of banks led by CS, as administrative and collateral agent, amending and restating our amended and restated credit agreement dated December 20, 2006. In connection with this amendment and restatement, we wrote off financing costs of $29.3 million during the nine months ended September 30, 2009, which included the write-off of $18.1 million of unamortized deferred financing costs and $11.2 million of Credit Agreement amendment fees paid in March 2009. On August 24, 2009, we entered into a loan modification agreement to our Credit Agreement, which included the conversion of $41.9 million of amounts outstanding under our revolving credit facility to term loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)

        Subsequent to the August 24, 2009 loan modification, our Credit Agreement includes the following: (1) a $558.1 million revolving credit facility, including revolving credit loans, letters of credit and a swingline loan facility, with tranche 1 in the amount of $357.6 million maturing on June 24, 2011 and tranche 2 in the amount of $200.5 million maturing on June 24, 2013; (2) an $871.5 million A term loan facility, which is further broken down as follows: i) a $335.5 million tranche A term loan facility requiring quarterly principal payments through September 30, 2011, with the balance payable on December 20, 2011; ii) a $48.6 million tranche A-1 term loan facility payable on December 20, 2013; iii) a $290.3 million tranche A-2 term loan facility, requiring quarterly principal payments of $8.7 million beginning March 30, 2010 and continuing through March 31, 2013, with the balance payable on June 24, 2013; and iv) a $197.1 million tranche A-3 term loan facility payable on December 20, 2013; and (3) a $943.5 million B term loan facility, which is further broken down as follows: i) a $646.6 million tranche B term loan facility requiring quarterly principal payments of $1.9 million through September 30, 2013, with the balance payable on December 20, 2013; and ii) a $296.9 million tranche B-1 term loan facility payable on December 20, 2015. During the nine months ended September 30, 2009, we repaid the following amounts: $252.3 million of our tranche A term loan facility, which was applied to the required 2009 principal repayments and a portion of the first quarter 2010 principal payment; $52.0 million of our tranche A-1 term loan facility, which covered all the required quarterly principal payments and a portion of the balance due at maturity; $87.1 million of our tranche A-2 term loan facility, which was applied to quarterly principal payments from the first quarter of 2010 through the second quarter of 2012; $29.6 million of our tranche A-3 term loan facility, which covered a portion of the balance due at maturity; $7.4 million of our tranche B term loan facility, which covered all required quarterly principal payments to date in 2009; and $0.9 million of our tranche B-1 term loan facility, which covered a portion of the balance due at maturity. These prepayments led to a reduction in the interest rate spreads governing our tranche A and A-1 term loan facilities as well as our revolving credit facility.

        The revolving credit facility allows for borrowings outside of the U.S., with sub-facilities of $5.0 million available to one of our Canadian subsidiaries, $35.0 million in aggregate available to one of our Australian and one of our New Zealand subsidiaries and $50.0 million available to one of our U.K. subsidiaries. Additionally, outstanding borrowings under these sub-facilities may be up to 5.0% higher as allowed under the currency fluctuation provision in the Credit Agreement. Borrowings under the revolving credit facility as of September 30, 2009 bear interest at varying rates, based at our option, on either the applicable fixed rate plus 2.25% to 4.00% or the daily rate plus 1.25% to 3.00% for the tranche 1 facility, and on either the applicable fixed rate plus 2.50% to 4.75% or the daily rate plus 1.50% to 3.75% for the tranche 2 facility, in all cases as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). As of September 30, 2009 and December 31, 2008, we had $41.1 million ($16.3 million under tranche 1 and $24.8 million under tranche 2) and $25.8 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 5.3% and 5.7%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of September 30, 2009, letters of credit totaling $24.5 million were outstanding under the revolving credit facility. These letters of credit primarily relate to letters of credit issued in the normal course of business as well as in connection with certain insurance programs and reduce the amount we may borrow under the revolving credit facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)

        Borrowings under the term loan facilities as of September 30, 2009 bear interest, based on our option, on the following: for the tranche A term loan facility, on either the applicable fixed rate plus 2.75% to 4.50% or the daily rate plus 1.75% to 3.50%; for the tranche A-1 term loan facility, on either the applicable fixed rate plus 3.50% to 4.50% or the daily rate plus 2.50% to 3.50%; for the tranche A-2 term loan facility, on either the applicable fixed rate plus 3.25% to 5.50% or the daily rate plus 2.25% to 4.50%; for the tranche A-3 term loan facility, on either the applicable fixed rate plus 4.00% to 5.00% or the daily rate plus 3.00% to 4.00%; for the tranche B term loan facility, on either the applicable fixed rate plus 4.00% to 5.00% or the daily rate plus 3.00% to 4.00%; and for the tranche B-1 term loan facility, on either the applicable fixed rate plus 4.50% to 5.50% or the daily rate plus 3.50% to 4.50%. For all term loan facilities, the fixed rate and daily rate options are determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). The tranche A-1 and A-3 term loan facilities include a targeted outstanding amount (as defined in the Credit Agreement) provision that will increase the interest rate by 2% if the outstanding balance exceeds the targeted outstanding amount at the end of each quarter. As of September 30, 2009 and December 31, 2008, the outstanding balance did not exceed the targeted outstanding amount. As of September 30, 2009 and December 31, 2008, we had $326.3 million and $827.0 million of tranche A term loan facility principal outstanding, respectively, $48.6 million and $297.8 million of tranche A-1 term loan facility principal outstanding, respectively, and $644.7 million and $949.0 million of tranche B term loan facility principal outstanding, respectively, which are included in the accompanying consolidated balance sheets. As of September 30, 2009, we also had $203.2 million, $167.5 million and $296.1 million of tranche A-2 term loan facility principal outstanding, tranche A-3 term loan facility principal outstanding and tranche B-1 term loan facility principal outstanding, respectively, which are also included in the accompanying consolidated balance sheets.

        On February 26, 2007, we entered into two interest rate swap agreements with a total notional amount of $1.4 billion and a maturity date of December 31, 2009. The purpose of these interest rate swap agreements is to hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. On March 20, 2007, these interest rate swaps were designated as cash flow hedges. We incurred a loss on these interest rate swaps from the date we entered into the swaps up to the designation date of approximately $3.9 million. There was no hedge ineffectiveness for the nine months ended September 30, 2009 and 2008. On March 20, 2008, the total notional amount of the interest rate swap agreements was reduced to $950.0 million and on March 20, 2009, was further reduced to $410.0 million. As of September 30, 2009 and December 31, 2008, the fair values of these interest rate swap agreements were reflected as a $5.5 million liability and an $18.3 million liability, respectively, and were included in other current liabilities in the accompanying consolidated balance sheets. The fair value measurements employed for these interest rate swaps were based on observable market data, which falls within Level 2 of the fair value hierarchy (see Note 4).

        The Credit Agreement is jointly and severally guaranteed by us and substantially all of our domestic subsidiaries. Borrowings under our Credit Agreement are secured by a pledge of substantially all of the capital stock of our U.S. subsidiaries and 65% of the capital stock of certain non-U.S. subsidiaries, and by a security interest in substantially all of the personal property of the U.S. subsidiaries. Also, the Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)

        On June 18, 2009, CBRE, our wholly-owned subsidiary, issued $450.0 million in aggregate principal amount of 11.625% senior subordinated notes due June 15, 2017 for approximately $435.9 million, net of discount. The 11.625% senior subordinated notes are unsecured senior subordinated obligations of CBRE and are jointly and severally guaranteed on a senior subordinated basis by us and our domestic subsidiaries that guarantee our Credit Agreement. Interest accrues at a rate of 11.625% per year and is payable semi-annually in arrears on June 15 and December 15. The 11.625% senior subordinated notes are redeemable at our option, in whole or in part, on or after June 15, 2013 at 105.813% of par on that date and at declining prices thereafter. At any time prior to June 15, 2013, the 11.625% senior subordinated notes may be redeemed by us, in whole or in part, at a price equal to 100% of the principal amount, plus accrued and unpaid interest and an applicable premium (as defined in the indenture governing these notes), which is based on the present value of the June 15, 2013 redemption price plus all remaining interest payments through June 15, 2013. In addition, prior to June 15, 2012, up to 35.0% of the original issued amount of the 11.625% senior subordinated notes may be redeemed at 111.625% of par, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings. In the event of a change of control (as defined in the indenture governing our 11.625% senior subordinated notes), we are obligated to make an offer to purchase the remaining 11.625% senior subordinated notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest. The amount of the 11.625% senior subordinated notes included in the accompanying consolidated balance sheets, net of unamortized discount, was $436.2 million at September 30, 2009.

        Our Credit Agreement and the indenture governing our 11.625% senior subordinated notes contain numerous restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, create or permit liens on assets, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. Our Credit Agreement also currently requires us to maintain a minimum coverage ratio of EBITDA (as defined in the Credit Agreement) to total interest expense of 2.00x through March 31, 2011 and 2.25x thereafter and a maximum leverage ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement) of 4.25x through March 31, 2011 and 3.75x thereafter. Our ability to meet these financial ratios can be affected by events beyond our control, and we cannot assure that we will be able to meet those ratios when required. We significantly reduced our cost structure during 2008 and have continued to further reduce costs in 2009. As a result, our 2009 projections show that we will be well within compliance with the minimum coverage ratio and the maximum leverage ratio. We continue to monitor our projected compliance with these financial ratios and other terms of our Credit Agreement.

        We had short-term borrowings of $239.9 million and $246.1 million with related average interest rates of 2.9% and 2.2% as of September 30, 2009 and December 31, 2008, respectively.

        On March 2, 2007, we entered into a $50.0 million credit note with Wells Fargo Bank for the purpose of purchasing eligible investments, which include cash equivalents, agency securities, A1/P1 commercial paper and eligible money market funds. The proceeds of this note are not made generally available to us, but instead deposited in an investment account maintained by Wells Fargo Bank and used and applied solely to purchase eligible investment securities. This agreement has been amended

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)


several times and as of September 30, 2009, provides for a $40.0 million revolving credit note, bears interest at 0.25% and has a maturity date of November 1, 2010. As of September 30, 2009 and December 31, 2008, there were no amounts outstanding under this revolving credit note.

        On March 4, 2008, we entered into a $35.0 million credit and security agreement with Bank of America (BofA) for the purpose of purchasing eligible financial instruments, which include A1/P1 commercial paper, U.S. Treasury securities, GSE discount notes (as defined in the credit and security agreement) and money market funds. The proceeds of this note are not made generally available to us, but instead deposited in an investment account maintained by BofA and used and applied solely to purchase eligible financial instruments. Borrowings under the revolving note bear interest at 1.0%. In February 2009, the amount available to us under this arrangement was reduced to $5.0 million and the maturity date was extended to February 28, 2010. As of September 30, 2009 and December 31, 2008, there were no amounts outstanding under this revolving note.

        On August 19, 2008, we entered into a $15.0 million uncommitted facility with First Tennessee Bank for the purpose of purchasing investments, which include cash equivalents, agency securities, A1/P1 commercial paper and eligible money market funds. The proceeds of this facility are not made generally available to us, but instead are held in a collateral account maintained by First Tennessee Bank. Borrowings under this facility bear interest at 0.25% and had an original maturity date of August 3, 2009. Effective August 3, 2009, the amount available under the agreement was reduced to $4.0 million and the maturity date was extended to August 3, 2010. As of September 30, 2009 and December 31, 2008, there were no amounts outstanding under this facility.

        Our wholly-owned subsidiary CBRE Capital Markets has the following warehouse lines of credit: credit agreements with JP Morgan Chase Bank, N.A. (JP Morgan) and BofA for the purpose of funding mortgage loans that will be resold, a funding arrangement with Red Mortgage Capital Inc. (Red Capital) for the purpose of funding originations of multi-family property mortgage loans and a funding arrangement with Fannie Mae for the purpose of selling a percentage of certain closed multi-family loans.

        On November 15, 2005, CBRE Capital Markets entered into a secured credit agreement with JP Morgan to establish a warehouse line of credit. This agreement has been amended several times and as of September 30, 2009, provides for a $210.0 million senior secured revolving line of credit, bears interest at the daily Chase-London LIBOR plus 2.00% and has a maturity date of January 29, 2010.

        On April 16, 2008, CBRE Capital Markets entered into a secured credit agreement with BofA to establish a warehouse line of credit. This agreement has been amended several times and as of September 30, 2009, provides for a $125.0 million senior secured revolving line of credit, bears interest at the daily one-month LIBOR plus 2.75% and has a maturity date of April 14, 2010.

        In February 2008, CBRE Capital Markets established a funding arrangement with Red Capital for the purpose of funding originations of Freddie Mac and Fannie Mae multi-family property mortgage loans. Each funding is separately approved on a transaction-by-transaction basis where Red Capital commits to purchase a 100% participation interest in qualifying mortgage loans that are subject to a rate-lock commitment from Freddie Mac or Fannie Mae. Under this arrangement, a participation is funded when a mortgage loan is originated, on a servicing retained basis, subject to CBRE Capital Market's obligation to repurchase the participation interest upon ultimate sale of the mortgage loan to

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)


Freddie Mac or Fannie Mae. The maximum availability to any one entity is $150.0 million and is reduced by any outstanding participation interests with any other entity. Additionally, no individual mortgage loan financed under the arrangement can exceed $50.0 million. Effective September 19, 2008, the rate on borrowings was the National City Bank one-month internal funds transfer rate plus 1.75%. Effective March 1, 2009, Red Capital established a new rate on borrowings of daily one-month LIBOR plus 2.50%.

        In August 2009, CBRE Capital Markets entered into a funding arrangement with Fannie Mae under its Multifamily As Soon As Pooled Plus Agreement and its Multifamily As Soon As Pooled Sale Agreement (ASAP Program). Under the ASAP Program, CBRE Capital Markets may elect, on a transaction by transaction basis, to sell a percentage of certain closed multifamily loans to Fannie Mae on an expedited basis. After all contingencies are satisfied, the ASAP Program requires that CBRE Capital Markets repurchase the interest in the multifamily loan previously sold to Fannie Mae followed by either a full delivery back to Fannie Mae via whole loan execution or a securitization into a mortgage backed security. As of September 30, 2009, the maximum outstanding under the ASAP Program cannot exceed $100.0 million and, between the sale date to Fannie Mae and the repurchase date by CBRE Capital Markets, the outstanding balance bears interest and is payable to Fannie Mae at the daily LIBOR rate plus 1.35% with a LIBOR floor of 0.35%.

        During the nine months ended September 30, 2009, we had a maximum of $508.0 million of warehouse lines of credit principal outstanding. As of September 30, 2009 and December 31, 2008, we had $193.0 million and $210.5 million of warehouse lines of credit principal outstanding, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. Additionally, we had $193.0 million and $210.5 million of mortgage loans held for sale (warehouse receivables), which represented mortgage loans funded through the lines of credit that, while committed to be purchased, had not yet been purchased as of September 30, 2009 and December 31, 2008, respectively, and which are also included in the accompanying consolidated balance sheets.

        On July 31, 2006, CBRE Capital Markets entered into a revolving credit note with JP Morgan for the purpose of purchasing qualified investment securities, which include but are not limited to U.S. Treasury and Agency securities. This agreement has been amended several times and as of September 30, 2009, provides for a $100.0 million revolving credit note, bears interest at 0.50% and has a maturity date of January 29, 2010. As of September 30, 2009 and December 31, 2008, there were no amounts outstanding under this revolving credit note.

        On April 30, 2007, Trammell Crow Company Acquisitions II, L.P. (Acquisitions II), a consolidated limited partnership within our Development Services segment, entered into a $100.0 million revolving credit agreement with WestLB AG, as administrative agent for a lender group. During the second quarter of 2009, Acquisitions II opted to reduce the amount available under this credit agreement to $50.0 million. Borrowings under this credit agreement are used to fund acquisitions of real estate prior to receipt of capital contributions from Acquisitions II investors and permanent project financing, and are limited to a portion of unfunded capital commitments of certain Acquisitions II investors. As of September 30, 2009, borrowing capacity under this agreement, net of outstanding amounts drawn, was $22.4 million. Borrowings under this agreement bear interest at the daily British Bankers Association LIBOR rate plus 0.65% and this agreement expires on April 30, 2010. Subject to certain conditions, Acquisitions II can extend the maturity date of the credit facility for an additional term of not longer

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

11. Debt (Continued)


than six months. Borrowings under the line are non-recourse to us and are secured by the capital commitments of the investors in Acquisitions II. As of September 30, 2009 and December 31, 2008, there was $5.5 million and $8.0 million, respectively, outstanding under this revolving credit note included in short-term borrowings in the accompanying consolidated balance sheets.

        In connection with our acquisition of Westmark Realty Advisors in 1995 (now known as CB Richard Ellis Investors), we issued approximately $20.0 million in aggregate principal amount of senior notes. The Westmark senior notes were redeemable at the discretion of the note holder and had a final maturity date of June 30, 2010. The interest rate on the Westmark senior notes was equal to the interest rate in effect for amounts outstanding under our Credit Agreement plus 12 basis points. The amount of the Westmark senior notes included in short-term borrowings in the accompanying consolidated balance sheets was $1.1 million as of December 31, 2008. In January 2009, the remaining outstanding balance of $1.1 million was redeemed by the final note holder.

        Insignia, which we acquired in July 2003, issued loan notes as partial consideration for previous acquisitions of businesses in the U.K. The acquisition loan notes are payable to the sellers of the previously acquired U.K. businesses and are secured by restricted cash deposits in approximately the same amount. The acquisition loan notes are redeemable semi-annually at the discretion of the note holder and have a final maturity date of April 2010. As of September 30, 2009 and December 31, 2008, $0.4 million and $0.7 million, respectively, of the acquisition loan notes were outstanding and are included in short-term borrowings in the accompanying consolidated balance sheets.

        In July 2008, in connection with the purchase of the remaining 50% ownership interest we did not already own in our affiliate CB Richard Ellis Tucson, LLC, we issued a loan note that is payable to the seller. In June 2009, the purchase price was reduced, resulting in partial reduction of the loan amount by $1.2 million, with the remainder due on June 30, 2010. The amount of the CB Richard Ellis Tucson, LLC loan note included in the accompanying consolidated balance sheets at September 30, 2009 and December 31, 2008 was $0.2 million and $1.6 million, respectively.

        A significant number of our subsidiaries in Europe have had a Euro cash pool loan since 2001, which is used to fund their short-term liquidity needs. The Euro cash pool loan is an overdraft line for our European operations issued by HSBC Bank. The Euro cash pool loan has no stated maturity date and bears interest at varying rates based on a base rate as defined by HSBC Bank plus 2.5%. At both September 30, 2009 and December 31, 2008, there were no amounts outstanding under this facility.

12. Commitments and Contingencies

        We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. Our management believes that any liability imposed upon us that may result from disposition of these lawsuits will not have a material effect on our business, consolidated financial position, cash flows or results of operations.

        We had outstanding letters of credit totaling $33.1 million as of September 30, 2009, excluding letters of credit for which we have outstanding liabilities already accrued on our consolidated balance sheet related to our subsidiaries' outstanding reserves for claims under certain insurance programs. These letters of credit are primarily executed by us in the normal course of business as well as in

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

12. Commitments and Contingencies (Continued)


connection with certain insurance programs. The letters of credit expire at varying dates through July 2010.

        We had guarantees totaling $31.8 million as of September 30, 2009, excluding guarantees related to consolidated indebtedness and pension liabilities for which we have outstanding liabilities already accrued on our consolidated balance sheet as well as operating leases. These guarantees primarily consist of guarantees related to our defined benefit pension plans in the U.K. (in excess of our outstanding pension liability of $21.3 million as of September 30, 2009). The remaining guarantees include debt repayment guarantees of unconsolidated subsidiaries as well as various guarantees of management contracts in our operations overseas. The guarantee obligations related to debt repayment guarantees of unconsolidated subsidiaries expire at varying dates through November 2010. The other guarantees will expire at the end of each of the respective agreements.

        In addition, as of September 30, 2009, we had numerous completion and budget guarantees relating to development projects. These guarantees are made by us in the normal course of our Development Services business. Each of these guarantees requires us to complete construction of the relevant project within a specified timeframe and/or within a specified budget, with us potentially being liable for costs to complete in excess of such timeframe or budget. However, we generally have "guaranteed maximum price" contracts with reputable general contractors with respect to projects for which we provide these guarantees. These contracts are intended to pass the risk to such contractors. While there can be no assurance, we do not expect to incur any material losses under these guarantees.

        From time to time, we act as a general contractor with respect to construction projects. We do not consider these activities to be a material part of our business. In connection with these activities, we seek to subcontract construction work for certain projects to reputable subcontractors. Should construction defects arise relating to the underlying projects, we could potentially be liable to the client for the costs to repair such defects, although we would generally look to the subcontractor that performed the work to remedy the defect and also look to insurance policies that cover this work. While there can be no assurance, we do not expect to incur material losses with respect to construction defects.

        In January 2008, CBRE Capital Markets entered into an agreement with Fannie Mae, under Fannie Mae's Delegated Underwriting and Servicing (DUS) Lender Program, to provide financing for apartments with five or more units. Under the DUS Program, CBRE Capital Markets originates, underwrites, closes and services loans without prior approval by Fannie Mae, and in selected cases, is subject to sharing up to one-third of any losses on loans issued under the DUS program. CBRE Capital Markets has funded loans subject to such loss sharing arrangements with unpaid principal balances of $770.0 million. Additionally, CBRE Capital Markets has funded loans under the DUS program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $261.7 million. CBRE Capital Markets, under its agreement with Fannie Mae, must post cash reserves under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of September 30, 2009, CBRE Capital Markets had $1.0 million of cash reserved under this arrangement.

        An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2% to 5% of the equity in a particular fund. As of September 30, 2009, we had aggregate commitments of $46.9 million to fund future co-investments.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

12. Commitments and Contingencies (Continued)

        Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of September 30, 2009, we had committed to fund $32.7 million of additional capital to these unconsolidated subsidiaries.

13. Employee Benefit Plans

        2001 Stock Incentive Plan.    Our 2001 stock incentive plan was adopted by our board of directors and approved by our stockholders on June 7, 2001. However, our 2001 stock incentive plan was terminated in June 2004 in connection with the adoption of our 2004 stock incentive plan, which is described below. The 2001 stock incentive plan permitted the grant of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to our employees, directors or independent contractors. Since our 2001 stock incentive plan has been terminated, no shares remain available for issuance under it. However, as of September 30, 2009, outstanding stock options granted under the 2001 stock incentive plan to acquire 4,717,190 shares of our Class A common stock remain outstanding according to their terms, and we will continue to issue shares to the extent required under the terms of such outstanding awards. Options granted under this plan have an exercise price of $1.92. As of September 30, 2009, all options granted under this plan were fully vested and exercisable. Options granted under the 2001 stock incentive plan are subject to a maximum term of ten years from the date of grant. The number of shares issued pursuant to the 2001 stock incentive plan, or pursuant to outstanding awards, is subject to adjustment on account of stock splits, stock dividends and other dilutive changes in our Class A common stock.

        Second Amended and Restated 2004 Stock Incentive Plan.    Our 2004 stock incentive plan was adopted by our board of directors and approved by our stockholders on April 21, 2004, and has been amended several times subsequently, including an amendment and restatement on June 2, 2008 and an amendment on December 3, 2008. The 2004 stock incentive plan authorizes the grant of stock-based awards to our employees, directors or independent contractors. A total of 20,785,218 shares of our Class A common stock initially were reserved for issuance under the 2004 stock incentive plan, which increased by 10,000,000 shares to a total of 30,785,218 shares in connection with the June 2, 2008 amendment and restatement. For awards granted prior to June 2, 2008 under this plan, this share reserve was reduced by one share upon grant of an option or stock appreciation right, and was reduced by 2.25 shares upon issuance of stock pursuant to other stock-based awards. For awards granted on or after June 2, 2008 under this plan, this share reserve is reduced by one share upon grant of all awards. In addition, full value awards, i.e., awards other than stock options and stock appreciation rights, are limited to no more than 75% of the total share reserve. Awards that expire, terminate or lapse will again be available for grant under this plan. No person is eligible to be granted awards in the aggregate covering more than 2,000,000 shares during any fiscal year. The number of shares issued or reserved pursuant to the 2004 stock incentive plan, or pursuant to outstanding awards, is subject to adjustment on account of mergers, consolidations, reorganizations, stock splits, stock dividends and other dilutive changes in our common stock. In addition, our board of directors may adjust outstanding awards to preserve the awards' benefits or potential benefits.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

13. Employee Benefit Plans (Continued)

        On July 9, 2009, we completed a stock option exchange program (Exchange Offer) under which eligible employees tendered, and we accepted for cancellation, eligible options to purchase 2,599,307 shares of our Class A common stock. We granted new options to eligible employees to purchase 103,361 shares of our Class A common stock and issued 819,672 restricted shares of our Class A common stock in exchange for the cancellation of the tendered eligible options. The exercise price per share of the new options granted in the Exchange Offer was $8.09, the closing price of our common stock on July 9, 2009. The new options and restricted shares issued will vest and are exercisable in equal annual increments over four years from the date of grant. This Exchange Offer did not result in any incremental compensation expense as the estimated fair value of the new awards did not exceed the estimated fair value of the exchanged stock options immediately prior to the exchange.

        As of September 30, 2009, 3,444,302 shares were subject to options issued under our 2004 stock incentive plan and 6,541,981 shares remained available for future grants under the 2004 stock incentive plan. Options granted under this plan during the nine months ended September 30, 2009 have exercise prices in the range of $8.09 to $11.45, which primarily vest and are exercisable generally in equal annual increments over four years from the date of grant.

        A summary of the status of our outstanding stock options is presented in the tables below:

 
  Shares   Weighted Average
Exercise Price
 

Outstanding at December 31, 2008

    12,748,593   $ 9.91  

Exercised

    (2,297,811 )   6.41  

Granted (1)

    605,066     10.61  

Canceled/Forfeited (2)

    (2,655,212 )   21.31  

Expired

    (239,144 )   15.16  
           

Outstanding at September 30, 2009

    8,161,492   $ 6.94  
           

Vested and expected to vest at September 30, 2009 (3)

    8,008,333   $ 6.94  
           

Exercisable at September 30, 2009

    6,333,739   $ 5.28  
           

(1)
Includes 103,361 shares granted in connection with the Exchange Offer.

(2)
Includes 2,599,307 shares canceled in connection with the Exchange Offer.

(3)
The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.

        We estimate the fair value of our options on the date of grant using the Black-Scholes option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, the expected stock price volatility and the expected life of the options.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

13. Employee Benefit Plans (Continued)

        The total estimated grant date fair value of stock options that vested during the nine months ended September 30, 2009 was $4.9 million. The weighted average fair value of options granted by us was $6.87 and $6.54 for the three months ended September 30, 2009 and 2008, respectively, and $6.63 and $6.58 for the nine months ended September 30, 2009 and 2008, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, utilizing the following weighted average assumptions:

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2009   2008   2009   2008  

Dividend yield

    0 %   0 %   0 %   0 %

Risk-free interest rate

    2.50 %   3.02 %   2.51 %   3.02 %

Expected volatility

    77.42 %   51.97 %   75.18 %   51.97 %

Expected life

    6 years     5 years     6 years     5 years  

        The dividend yield assumption is excluded from the calculation, as it is our present intention to retain all earnings. The expected volatility is based on a combination of our historical stock price and implied volatility. The selection of implied volatility data to estimate expected volatility is based upon the availability of actively traded options on our stock. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the options. The expected life of our stock options represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior.

        Option valuation models require the input of subjective assumptions including the expected stock price volatility and expected life. Because our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, we do not believe that the Black-Scholes model necessarily provides a reliable single measure of the fair value of our employee stock options.

        Options outstanding at September 30, 2009 and their related weighted average exercise price, intrinsic value and life information is presented below:

 
  Outstanding Options   Exercisable Options  
Exercise Prices
  Number
Outstanding
  Weighted
Average
Remaining
Contractual Life
  Weighted
Average
Exercise Price
  Aggregate
Intrinsic
Value
  Number
Exercisable
  Weighted
Average
Exercise Price
  Aggregate
Intrinsic
Value
 

$1.92

    4,717,190     3.3   $ 1.92           4,717,190   $ 1.92        

$6.33 - $8.44

    200,912     5.6     7.80           54,103     6.72        

$11.10 - $15.43

    3,131,082     5.1     13.75           1,488,072     14.81        

$22.00 - $25.67

    62,976     4.5     23.40           45,048     23.71        

$27.19 - $37.43

    49,332     4.9     29.74           29,326     30.57        
                                   

    8,161,492     4.0   $ 6.94   $ 47,229,491     6,333,739   $ 5.28   $ 46,578,812  
                               

        At September 30, 2009, the aggregate intrinsic value and weighted average remaining contractual life for options vested and expected to vest were $47.2 million and 4.0 years, respectively.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

13. Employee Benefit Plans (Continued)

        Total compensation expense related to stock options was $1.5 million and $3.3 million for the three months ended September 30, 2009 and 2008, respectively, and $6.4 million and $8.6 million for the nine months ended September 30, 2009 and 2008, respectively. At September 30, 2009, total unrecognized estimated compensation cost related to non-vested stock options was approximately $12.2 million, which is expected to be recognized over a weighted average period of approximately 3.2 years.

        The total intrinsic value of stock options exercised during the nine months ended September 30, 2009 and 2008 was $7.8 million and $12.0 million, respectively. We recorded cash received from stock option exercises of $14.7 million and $3.8 million and related tax benefit of $1.0 million and $4.3 million during the nine months ended September 30, 2009 and 2008, respectively. Upon option exercise, we issue new shares of stock. Excess tax benefits exist when the tax deduction resulting from the exercise of options exceeds the compensation cost recorded.

        We have issued non-vested stock awards, including shares and stock units, in our Class A common stock to certain of our employees and members of our board of directors. During the nine months ended September 30, 2009 and 2008, we granted non-vested stock awards of 6,587,687 shares and 2,371,987 shares, respectively, which primarily vest and are exercisable generally in equal annual increments over four years from the date of grant. We also granted 54,344 and 529,907 of non-vested stock units to certain of our employees during the nine months ended September 30, 2009 and 2008, respectively. These non-vested stock units all vest in 2016. A summary of the status of our non-vested stock awards is presented in the table below:

 
  Shares/Units   Weighted Average
Grant Date
Fair Value
Per Share
 

Balance at December 31, 2008

    4,638,543   $ 19.39  

Granted (1)

    6,642,031     10.95  

Vested

    (933,259 )   17.22  

Forfeited

    (96,380 )   20.89  
           

Balance at September 30, 2009

    10,250,935   $ 14.11  
           

(1)
Includes 819,672 shares granted in connection with the Exchange Offer.

        Total compensation expense related to non-vested stock awards was $8.8 million and $4.6 million for the three months ended September 30, 2009 and 2008, respectively, and $20.2 million and $12.7 million for the nine months ended September 30, 2009 and 2008, respectively. At September 30, 2009, total unrecognized estimated compensation cost related to non-vested stock awards was approximately $130.4 million, which is expected to be recognized over a weighted average period of approximately 3.9 years.

        Deferred Compensation Plans.    Historically, we have maintained four deferred compensation plans (DCPs) in which, in prior years, our highly compensated employees, including members of management, were allowed to elect, prior to the beginning of each calendar year, to defer receipt of

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

13. Employee Benefit Plans (Continued)


some or all of their compensation for the next year until a future distribution date and have it credited to one or more of several funds in the respective DCPs. Because a substantial majority of the deferrals under our DCPs had distribution dates based upon the end of a relevant participant's employment with us, we had an ongoing obligation to make distributions to these participants as they left our employment. In addition, in prior years, participants were permitted to make unscheduled in-service withdrawals of amounts deferred prior to January 1, 2005, subject to a 7.5% penalty.

        On November 5, 2008, based on prevailing market conditions, our board of directors authorized our Chief Executive Officer to modify or terminate our U.S. DCPs, subject to applicable regulatory requirements. We notified participants that we would merge the DCPs and modify the remaining DCP pursuant to the transition rules under Internal Revenue Code Section 409A to allow participants to make new distribution elections prior to December 31, 2008 to receive distributions of plan assets at dates they specified in 2009. In December of 2008, all of our DCPs were merged into one DCP. These actions also accelerated future distributions from the DCP of cash and shares of our Class A common stock to the participants of such DCP during the nine months ended September 30, 2009, but did not have a material effect on our consolidated statement of operations. The DCP is substantially fully-funded and the shares still to be distributed are included in our earnings per share calculations. In connection with 2009 distributions to the participants, we expect to receive a cash tax benefit of approximately $100 million. Upon completion of the distribution process, we expect the DCP will be terminated. Included in the accompanying consolidated balance sheets were DCP liabilities of $4.1 million and $244.9 million at September 30, 2009 and December 31, 2008, respectively, and assets set aside to cover the liability of $8.9 million and $229.8 million as of September 30, 2009 and December 31, 2008, respectively. As of September 30, 2009, there were 450,563 outstanding stock fund units under the DCP, all of which were vested. Our stock fund unit deferrals included in additional paid-in capital totaled $0.6 million and $5.5 million at September 30, 2009 and December 31, 2008, respectively.

14. Stockholders' Equity

        On June 4, 2009, we filed a Certificate of Amendment to our Restated Certificate of Incorporation that increased the total number of shares of Class A common stock that we are authorized to issue from 325,000,000 to 525,000,000 shares.

        On June 10, 2009, we completed the sale of 13,440,860 shares of our Class A common stock through a direct placement to Paulson & Co. Inc., which raised approximately $97.6 million of net proceeds. On June 11, 2009, we completed the sale of 5,682,684 shares of our Class A common stock through an at-the-market offering program, which raised approximately $48.8 million of net proceeds.

15. Income (Loss) Per Share

        Basic income (loss) per share attributable to CB Richard Ellis Group, Inc. is computed by dividing net income (loss) attributable to CB Richard Ellis Group, Inc. shareholders by the weighted average number of common shares outstanding during each period. The computation of diluted income (loss) per share attributable to CB Richard Ellis Group, Inc., further assumes the dilutive effect of potential common shares, which include stock options and certain contingently issuable shares. Contingently

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

15. Income (Loss) Per Share (Continued)


issuable shares consist of non-vested stock awards. The following is a calculation of income (loss) per share attributable to CB Richard Ellis Group, Inc. (dollars in thousands, except share data):

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2009   2008   2009   2008  

Computation of basic income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders:

                         

Net income (loss) applicable to CB Richard Ellis Group, Inc. shareholders

  $ 12,377   $ 40,373   $ (30,949 ) $ 77,390  

Weighted average shares outstanding for basic income (loss) per share

    282,732,848     203,680,475     270,214,427     203,409,873  
                   

Basic income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders

  $ 0.04   $ 0.20   $ (0.11 ) $ 0.38  
                   

Computation of diluted income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders:

                         

Net income (loss) applicable to CB Richard Ellis Group, Inc. shareholders

  $ 12,377   $ 40,373   $ (30,949 ) $ 77,390  

Weighted average shares outstanding for diluted income (loss) per share

    282,732,848     203,680,475     270,214,427     203,409,873  
 

Dilutive effect of stock options

    2,770,300     3,844,068         4,307,589  
 

Dilutive effect of contingently issuable shares

    420,453     181,707         225,413  
                   

Weighted average shares outstanding for diluted income (loss) per share

    285,923,601     207,706,250     270,214,427     207,942,875  
                   

Diluted income (loss) per share attributable to CB Richard Ellis Group, Inc. shareholders

  $ 0.04   $ 0.19   $ (0.11 ) $ 0.37  
                   

        For the three months ended September 30, 2009, options to purchase 3,394,143 shares of common stock were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect. For the nine months ended September 30, 2009, all stock options and contingently issuable shares were anti-dilutive, since we reported a net loss for this period. Had we reported net income for the nine months ended September 30, 2009, options to purchase 4,767,349 shares of common stock would have been included in the computation of diluted income per share, while options to purchase 3,394,143 shares of common stock would have been excluded from the computation of diluted earnings per share as their inclusion would have had an anti-dilutive effect. For the three and nine months ended September 30, 2008, options to purchase 5,665,228 shares and 3,646,166 shares, respectively, of common stock were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

16. Comprehensive Income (Loss)

        Comprehensive income (loss) consists of net (loss) income and other comprehensive income (loss). In the accompanying consolidated balance sheets, accumulated other comprehensive loss consists of foreign currency translation adjustments, unrealized gains on interest rate swaps and interest rate caps, and unrealized holding gains on available for sale securities. Foreign currency translation adjustments exclude any income tax effect given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.

        The following table provides a summary of comprehensive income (loss) (dollars in thousands):

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2009   2008   2009   2008  

Net (loss) income

  $ (10,643 ) $ 56,124   $ (78,768 ) $ 85,534  

Other comprehensive income (loss):

                         
 

Foreign currency translation gains (losses) and other

    9,653     (68,470 )   39,675     (48,380 )
 

Unrealized gains on interest rate swaps and interest rate caps, net

    1,972     7,231     7,818     8,560  
 

Unrealized holding gains (losses) on available for sale securities, net

    630     (1,177 )   1,402     (629 )
                   
   

Total other comprehensive income (loss)

    12,255     (62,416 )   48,895     (40,449 )

Comprehensive income (loss)

    1,612     (6,292 )   (29,873 )   45,085  

Comprehensive (loss) income attributable to non-controlling interests

    (21,392 )   14,291     (46,766 )   7,942  
                   

Comprehensive income (loss) attributable to CB Richard Ellis Group, Inc. 

  $ 23,004   $ (20,583 ) $ 16,893   $ 37,143  
                   

17. Pensions

        We have two contributory defined benefit pension plans in the U.K., which we acquired in connection with previous acquisitions. Our subsidiaries based in the U.K. maintain the plans to provide retirement benefits to existing and former employees participating in these plans. During 2007, we reached agreements with the active members of these plans to freeze future pension plan benefits. In return, the active members became eligible to enroll in the CBRE Group Personal Pension Plan, a defined contribution plan in the U.K.

        Net periodic pension cost (benefit) consisted of the following (dollars in thousands):

 
  Three Months
Ended
September 30,
  Nine Months
Ended
September 30,
 
 
  2009   2008   2009   2008  

Interest cost

  $ 3,721   $ 4,417   $ 10,566   $ 13,724  

Expected return on plan assets

    (3,230 )   (4,675 )   (9,174 )   (14,517 )

Amortization of unrecognized net loss

    271     156     769     484  
                   

Net periodic pension cost (benefit)

  $ 762   $ (102 ) $ 2,161   $ (309 )
                   

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

17. Pensions (Continued)

        We contributed $0.9 million and $2.5 million to fund our pension plans during the three and nine months ended September 30, 2009, respectively. We expect to contribute a total of $3.5 million to fund our pension plans for the year ending December 31, 2009.

18. Liabilities Related to Acquisitions

        The Trammell Crow Company Acquisition gave rise to the consolidation and elimination of some Trammell Crow Company duplicate facilities as well as lawsuits involving Trammell Crow Company, which resulted in the accrual of certain liabilities. The remaining liabilities assumed in connection with the Trammell Crow Company Acquisition consist of the following and are included in the accompanying consolidated balance sheets (dollars in thousands):

 
  Liability Balance
at
December 31, 2008
  2009
Utilization
  To be Utilized
at
September 30, 2009
 

Lease termination costs

  $ 3,410   $ (3,284 ) $ 126  

Legal settlements anticipated

    3,157     (1,368 )   1,789  
               

  $ 6,567   $ (4,652 ) $ 1,915  
               

        The remaining liability for lease termination costs will be paid over the remaining contract periods through 2012. The remaining liability covering our exposure in various lawsuits involving Trammell Crow Company that were pending prior to the Trammell Crow Company Acquisition will be paid as each case is settled.

        The remaining liability associated with items previously charged to merger-related charges in connection with the Trammell Crow Company Acquisition consisted of the following (dollars in thousands):

 
  Liability Balance
at
December 31, 2008
  2009
Utilization
  To be Utilized
at
September 30, 2009
 

Lease termination costs

  $ 8,813   $ (5,982 ) $ 2,831  

        The remaining liability for lease termination costs will be paid over the remaining contract periods through 2016.

        The Insignia Acquisition gave rise to the consolidation and elimination of some Insignia duplicate facilities as well as lawsuits involving Insignia, which resulted in the accrual of certain liabilities. The remaining liabilities assumed in connection with the Insignia Acquisition consist of the following and are included in the accompanying consolidated balance sheets (dollars in thousands):

 
  Liability Balance
at
December 31, 2008
  2009
Utilization
  To be Utilized
at
September 30, 2009
 

Lease termination costs

  $ 4,541   $ (2,577 ) $ 1,964  

Legal settlements anticipated

    2,128     (11 )   2,117  
               

  $ 6,669   $ (2,588 ) $ 4,081  
               

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

18. Liabilities Related to Acquisitions (Continued)

        The remaining liability for lease termination costs will be paid over the remaining contract periods through 2012. The remaining liability covering our exposure in various lawsuits involving Insignia that were pending prior to the Insignia Acquisition will be paid as the case is settled.

        The remaining liability associated with items previously charged to merger-related charges in connection with the Insignia Acquisition consisted of the following (dollars in thousands):

 
  Liability Balance
at
December 31, 2008
  2009
Utilization
  To be Utilized
at
September 30, 2009
 

Lease termination costs

  $ 7,898   $ (4,658 ) $ 3,240  

        The remaining liability for lease termination costs will be paid over the remaining contract periods through 2012.

19. Discontinued Operations

        In the ordinary course of business of our Development Services segment, we sell real estate assets, or hold real estate assets for sale, that may be considered components of an entity in accordance with FASB ASC Topic 360. If we do not have, or expect to have, significant continuing involvement with the operation of these real estate assets after sale, we are required to recognize operating profits or losses and gains or losses on sale of these assets as discontinued operations in our consolidated statements of operations in the periods in which they occur. Real estate operations and dispositions accounted for as discontinued operations for the three and nine months ended September 30, 2008 were as follows (dollars in thousands):

Revenue

  $ 1,251  

Costs and expenses:

       
 

Operating, administrative and other

    659  
 

Depreciation and amortization

    92  
       
 

Total costs and expenses

    751  

Gain on disposition of real estate

    32,816  
       

Operating income

    33,316  

Interest income

   
124
 

Interest expense

    649  
       

Income from discontinued operations, before provision for income taxes

    32,791  

Provision for income taxes

    6,043  
       

Income from discontinued operations, net of income taxes

    26,748  

Less: Income from discontinued operations, net of income taxes, attributable to non-controlling interests

    16,523  
       

Income from discontinued operations, net of income taxes, attributable to CB Richard Ellis Group, Inc. 

  $ 10,225  
       

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements

        The following condensed consolidating financial information includes:

        Investments in consolidated subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in consolidated subsidiaries and inter-company balances and transactions.

37


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2009
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Current Assets:

                                     
 

Cash and cash equivalents

  $ 4   $ 117,751   $ 38,792   $ 169,498   $   $ 326,045  
 

Restricted cash

            13,682     29,086         42,768  
 

Receivables, net

        1     306,405     374,832         681,238  
 

Warehouse receivables (a)

            193,029             193,029  
 

Deferred compensation assets

        8,898                 8,898  
 

Income taxes receivable

    9,843     154,907         23,703     (55,070 )   133,383  
 

Prepaid expenses

            45,859     53,508         99,367  
 

Deferred tax assets, net

            71,521     15,649         87,170  
 

Real estate under development

                10,337         10,337  
 

Real estate and other assets held for sale

                11,238         11,238  
 

Other current assets

        741     26,681     12,171         39,593  
                           
   

Total Current Assets

    9,847     282,298     695,969     700,022     (55,070 )   1,633,066  

Property and equipment, net

            105,137     74,715         179,852  

Goodwill

            801,031     508,374         1,309,405  

Other intangible assets, net

            291,852     28,224         320,076  

Investments in unconsolidated subsidiaries

            90,459     65,721         156,180  

Investments in consolidated subsidiaries

    778,515     2,609,121     863,804         (4,251,440 )    

Inter-company loan receivable

        30,121     635,000     21,262     (686,383 )    

Deferred tax assets, net

            8,429     29,147         37,576  

Real estate under development

                135,361         135,361  

Real estate held for investment

            4,685     554,771         559,456  

Available for sale securities

            31,806     228         32,034  

Other assets, net

        27,094     44,280     40,964         112,338  
                           
   

Total Assets

  $ 788,362   $ 2,948,634   $ 3,572,452   $ 2,158,789   $ (4,992,893 ) $ 4,475,344  
                           

Current Liabilities:

                                     
 

Accounts payable and accrued expenses

  $   $ 26,974   $ 119,384   $ 280,542   $   $ 426,900  
 

Compensation and employee benefits payable

        626     130,871     104,261         235,758  
 

Accrued bonus and profit sharing

            100,124     87,843         187,967  
 

Deferred compensation liabilities

        4,062                 4,062  
 

Income taxes payable

            55,070         (55,070 )    
 

Short-term borrowings:

                                     
   

Warehouse lines of credit (a)

            192,958             192,958  
   

Revolving credit facility

        10,389         30,726         41,115  
   

Other

            370     5,500         5,870  
                           
   

Total short-term borrowings

        10,389     193,328     36,226         239,943  
 

Current maturities of long-term debt

        96,190     235     314         96,739  
 

Notes payable on real estate

                161,450         161,450  
 

Liabilities related to real estate and other assets held for sale

                1,386         1,386  
 

Other current liabilities

    234     5,480     8,408     1,517         15,639  
                           
   

Total Current Liabilities

    234     143,721     607,420     673,539     (55,070 )   1,369,844  

Long-Term Debt:

                                     
 

Senior secured term loans

        1,590,170                 1,590,170  
 

11.625% senior subordinated notes, net

        436,228                 436,228  
 

Other long-term debt

                507         507  
 

Inter-company loan payable

    489,032         197,351         (686,383 )    
                           
   

Total Long-Term Debt

    489,032     2,026,398     197,351     507     (686,383 )   2,026,905  

Pension liability

                21,319         21,319  

Non-current tax liabilities

            78,124     3,441         81,565  

Notes payable on real estate

                392,271         392,271  

Other liabilities

            80,436     36,848         117,284  
                           
   

Total Liabilities

    489,266     2,170,119     963,331     1,127,925     (741,453 )   4,009,188  

Commitments and contingencies

                         

Equity:

                                     

CB Richard Ellis Group, Inc. Stockholders' Equity

    299,096     778,515     2,609,121     863,804     (4,251,440 )   299,096  

Non-controlling interests

                167,060         167,060  
                           
   

Total Equity

    299,096     778,515     2,609,121     1,030,864     (4,251,440 )   466,156  
                           
   

Total Liabilities and Equity

  $ 788,362   $ 2,948,634   $ 3,572,452   $ 2,158,789   $ (4,992,893 ) $ 4,475,344  
                           

(a)
Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our 11.625% senior subordinated notes and our Credit Agreement, a substantial majority of warehouse receivables funded under the JP Morgan, BofA and the Fannie Mae ASAP lines of credit are pledged to JP Morgan, BofA and Fannie Mae, and accordingly, are not included as collateral for these notes or our other outstanding debt.

38


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2008
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Current Assets:

                                     
 

Cash and cash equivalents

  $ 4   $ 7,203   $ 9,467   $ 142,149   $   $ 158,823  
 

Restricted cash

            11,313     25,009         36,322  
 

Receivables, net

            341,037     410,903         751,940  
 

Warehouse receivables (a)

            210,473             210,473  
 

Deferred compensation assets

        225,704                 225,704  
 

Income taxes receivable

    11,146     48,339     42,275     15,960         117,720  
 

Prepaid expenses

            46,494     47,788         94,282  
 

Deferred tax assets, net

        97,059     30,266     20,445         147,770  
 

Real estate under development

                56,322         56,322  
 

Real estate and other assets held for sale

            172     40,262         40,434  
 

Other current assets

            27,069     48,674         75,743  
                           
   

Total Current Assets

    11,150     378,305     718,566     807,512         1,915,533  

Property and equipment, net

            127,436     80,540         207,976  

Goodwill

            799,591     452,232         1,251,823  

Other intangible assets, net

            283,715     27,732         311,447  

Investments in unconsolidated subsidiaries

            99,792     45,934         145,726  

Investments in consolidated subsidiaries

    763,426     2,424,837     772,762         (3,961,025 )    

Inter-company loan receivable

        274,458     635,000     63,208     (972,666 )    

Deferred tax assets, net

            18,874     25,609         44,483  

Real estate under development

                158,090         158,090  

Real estate held for investment

            4,612     531,367         535,979  

Available for sale securities

            28,569     225         28,794  

Other assets, net

        26,674     60,806     39,083         126,563  
                           
   

Total Assets

  $ 774,576   $ 3,104,274   $ 3,549,723   $ 2,231,532   $ (4,933,691 ) $ 4,726,414  
                           

Current Liabilities:

                                     
 

Accounts payable and accrued expenses

  $   $ 3,826   $ 152,938   $ 243,113   $   $ 399,877  
 

Compensation and employee benefits payable

            138,224     117,184         255,408  
 

Accrued bonus and profit sharing

            136,416     158,803         295,219  
 

Deferred compensation liabilities

        239,464                 239,464  
 

Short-term borrowings:

                                     
   

Warehouse lines of credit (a)

            210,473             210,473  
   

Revolving credit facility

                25,765         25,765  
   

Other

            1,827     8,000         9,827  
                           
   

Total short-term borrowings

            212,300     33,765         246,065  
 

Current maturities of long-term debt

        208,550     805     1,307         210,662  
 

Notes payable on real estate

                176,372         176,372  
 

Liabilities related to real estate and other assets held for sale

                22,740         22,740  
 

Other current liabilities

    234     18,348     6,862     1,594         27,038  
                           
   

Total Current Liabilities

    234     470,188     647,545     754,878         1,872,845  

Long-Term Debt:

                                     
 

Senior secured term loans

        1,865,200                 1,865,200  
 

Other long-term debt

            788     771         1,559  
 

Inter-company loan payable

    659,656         313,010         (972,666 )    
                           
   

Total Long-Term Debt

    659,656     1,865,200     313,798     771     (972,666 )   1,866,759  

Pension liability

                19,802         19,802  

Non-current tax liabilities

            77,460     1,245         78,705  

Notes payable on real estate

                420,242         420,242  

Other liabilities

        5,460     86,083     30,795         122,338  
                           
   

Total Liabilities

    659,890     2,340,848     1,124,886     1,227,733     (972,666 )   4,380,691  

Commitments and contingencies

                         

Equity:

                                     

CB Richard Ellis Group, Inc. Stockholders' Equity

    114,686     763,426     2,424,837     772,762     (3,961,025 )   114,686  

Non-controlling interests

                231,037         231,037  
                           
   

Total Equity

    114,686     763,426     2,424,837     1,003,799     (3,961,025 )   345,723  
                           
   

Total Liabilities and Equity

  $ 774,576   $ 3,104,274   $ 3,549,723   $ 2,231,532   $ (4,933,691 ) $ 4,726,414  
                           

(a)
Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our Credit Agreement, all warehouse receivables funded under the BofA, JP Morgan and Red Capital lines of credit are pledged to BofA, JP Morgan and Red Capital, and accordingly, are not included as collateral for these notes or our other outstanding debt.

39


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Revenue

  $   $   $ 604,949   $ 418,256   $   $ 1,023,205  

Costs and expenses:

                                     
 

Cost of services

            367,623     238,847         606,470  
 

Operating, administrative and other

    9,708     1,001     168,796     158,557         338,062  
 

Depreciation and amortization

            13,522     10,923         24,445  
                           
 

Total costs and expenses

    9,708     1,001     549,941     408,327         968,977  

Gain on disposition of real estate

                2,766         2,766  
                           

Operating (loss) income

    (9,708 )   (1,001 )   55,008     12,695         56,994  

Equity loss from unconsolidated subsidiaries

            664     5,648         6,312  

Interest income

        8     1,609     7     (376 )   1,248  

Interest expense

        45,927     572     7,952     (376 )   54,075  

Royalty and management service (income) expense

            (6,432 )   6,432          

Income from consolidated subsidiaries

    18,212     46,718     4,088         (69,018 )    
                           

Income (loss) before (benefit) provision for income taxes

    8,504     (202 )   65,901     (7,330 )   (69,018 )   (2,145 )

(Benefit) provision for income taxes

    (3,873 )   (18,414 )   19,183     11,602         8,498  
                           

Net income (loss)

    12,377     18,212     46,718     (18,932 )   (69,018 )   (10,643 )

Less: Net loss attributable to non-controlling interests

                (23,020 )       (23,020 )
                           

Net income attributable to CB Richard Ellis Group, Inc. 

  $ 12,377   $ 18,212   $ 46,718   $ 4,088   $ (69,018 ) $ 12,377  
                           


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Revenue

  $   $   $ 764,359   $ 535,376   $   $ 1,299,735  

Costs and expenses:

                                     
 

Cost of services

            467,462     287,900         755,362  
 

Operating, administrative and other

    7,323     879     200,064     212,086         420,352  
 

Depreciation and amortization

            13,517     11,895         25,412  
                           
 

Total costs and expenses

    7,323     879     681,043     511,881         1,201,126  

Gain on disposition of real estate

            468     9,298         9,766  
                           

Operating (loss) income

    (7,323 )   (879 )   83,784     32,793         108,375  

Equity loss from unconsolidated subsidiaries

            2,420     988         3,408  

Interest income

        25     1,907     3,257     (789 )   4,400  

Interest expense

    382     33,224     154     9,319     (789 )   42,290  

Royalty and management service (income) expense

            (8,151 )   8,151          

Income from consolidated subsidiaries

    44,887     73,281     22,199         (140,367 )    
                           

Income from continuing operations before (benefit) provision for income taxes

    37,182     39,203     113,467     17,592     (140,367 )   67,077  

(Benefit) provision for income taxes

    (3,191 )   (5,684 )   40,186     6,390         37,701  
                           

Income from continuing operations

    40,373     44,887     73,281     11,202     (140,367 )   29,376  

Income from discontinued operations, net of income taxes

                26,748         26,748  
                           

Net income

    40,373     44,887     73,281     37,950     (140,367 )   56,124  

Less: Net income attributable to non-controlling interests

                15,751         15,751  
                           

Net income attributable to CB Richard Ellis Group, Inc. 

  $ 40,373   $ 44,887   $ 73,281   $ 22,199   $ (140,367 ) $ 40,373  
                           

40


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Revenue

  $   $   $ 1,732,103   $ 1,137,218   $   $ 2,869,321  

Costs and expenses:

                                     
 

Cost of services

            1,068,677     658,043         1,726,720  
 

Operating, administrative and other

    24,674     3,789     513,342     431,087         972,892  
 

Depreciation and amortization

            41,039     32,964         74,003  
                           
 

Total costs and expenses

    24,674     3,789     1,623,058     1,122,094         2,773,615  

Gain on disposition of real estate

                5,691         5,691  
                           

Operating (loss) income

    (24,674 )   (3,789 )   109,045     20,815         101,397  

Equity loss from unconsolidated subsidiaries

            4,934     13,318         18,252  

Interest income

        36     3,676     2,492     (1,414 )   4,790  

Interest expense

        113,270     795     23,640     (1,414 )   136,291  

Write-off of financing costs

        29,255                 29,255  

Royalty and management service (income) expense

            (12,420 )   12,420          

(Loss) income from consolidated subsidiaries

    (16,118 )   72,311     2,956         (59,149 )    
                           

(Loss) income before (benefit) provision for income taxes

    (40,792 )   (73,967 )   122,368     (26,071 )   (59,149 )   (77,611 )

(Benefit) provision for income taxes

    (9,843 )   (57,849 )   50,057     18,792         1,157  
                           

Net (loss) income

    (30,949 )   (16,118 )   72,311     (44,863 )   (59,149 )   (78,768 )

Less: Net loss attributable to non-controlling interests

                (47,819 )       (47,819 )
                           

Net (loss) income attributable to CB Richard Ellis Group, Inc. 

  $ (30,949 ) $ (16,118 ) $ 72,311   $ 2,956   $ (59,149 ) $ (30,949 )
                           

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination   Consolidated
Total
 

Revenue

  $   $   $ 2,276,083   $ 1,569,450   $   $ 3,845,533  

Costs and expenses:

                                     
 

Cost of services

            1,365,824     831,189         2,197,013  
 

Operating, administrative and other

    19,551     932     705,346     595,707         1,321,536  
 

Depreciation and amortization

            40,882     33,354         74,236  
                           
 

Total costs and expenses

    19,551     932     2,112,052     1,460,250         3,592,785  

Gain on disposition of real estate

            1,036     12,772         13,808  
                           

Operating (loss) income

    (19,551 )   (932 )   165,067     121,972         266,556  

Equity loss from unconsolidated subsidiaries

            17,747     8,175         25,922  

Other loss

                4,607         4,607  

Interest income

    2     129     5,822     10,091     (1,937 )   14,107  

Interest expense

    382     100,958     600     26,852     (1,937 )   126,855  

Royalty and management service (income) expense

            (21,265 )   21,265          

Income from consolidated subsidiaries

    89,066     162,259     58,899         (310,224 )    
                           

Income from continuing operations before (benefit) provision for income taxes

    69,135     60,498     232,706     71,164     (310,224 )   123,279  

(Benefit) provision for income taxes

    (8,255 )   (28,568 )   70,447     30,869         64,493  
                           

Income from continuing operations

    77,390     89,066     162,259     40,295     (310,224 )   58,786  

Income from discontinued operations, net of income taxes

                26,748         26,748  
                           

Net income

    77,390     89,066     162,259     67,043     (310,224 )   85,534  

Less: Net income attributable to non-controlling interests

                8,144         8,144  
                           

Net income attributable to CB Richard Ellis Group, Inc. 

  $ 77,390   $ 89,066   $ 162,259   $ 58,899   $ (310,224 ) $ 77,390  
                           

41


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

  $ 13,080   $ (64,160 ) $ 129,378   $ (24,847 ) $ 53,451  

CASH FLOWS FROM INVESTING ACTIVITIES:

                               

Capital expenditures

            (7,272 )   (5,375 )   (12,647 )

Acquisition of businesses including net assets acquired, intangibles and goodwill

            (5,762 )   (22,501 )   (28,263 )

Contributions to unconsolidated subsidiaries

            (4,856 )   (36,810 )   (41,666 )

Distributions from unconsolidated subsidiaries

            3,898     864     4,762  

Proceeds from the sale of servicing rights and other assets

            6,704     259     6,963  

Additions to real estate held for investment

                (22,952 )   (22,952 )

Net proceeds from disposition of real estate held for investment

                3,408     3,408  

Increase in restricted cash

            (2,370 )   (4,014 )   (6,384 )

Other investing activities, net

            (1,126 )       (1,126 )
                       
 

Net cash used in investing activities

            (10,784 )   (87,121 )   (97,905 )

CASH FLOWS FROM FINANCING ACTIVITIES:

                               

Repayment of senior secured term loans

        (429,250 )           (429,250 )

Proceeds from revolving credit facility

        793,049         7,879     800,928  

Repayment of revolving credit facility

        (741,646 )       (10,564 )   (752,210 )

Proceeds from 11.625% senior subordinated notes, net

        435,928             435,928  

Proceeds from notes payable on real estate held for investment

                13,764     13,764  

Repayment of notes payable on real estate held for investment

                (5,432 )   (5,432 )

Proceeds from notes payable on real estate held for sale and under development

                48,640     48,640  

Repayment of notes payable on real estate held for sale and under development

                (34,968 )   (34,968 )

Repayment of short-term borrowings and other loans, net

            (1,676 )   (2,517 )   (4,193 )

Proceeds from issuance of common stock, net

    146,361                 146,361  

Proceeds from exercise of stock options

    14,735                 14,735  

Incremental tax benefit from stock options exercised

    1,039                 1,039  

Non-controlling interests contributions

                20,470     20,470  

Non-controlling interests distributions

                (12,501 )   (12,501 )

Payment of financing costs

        (37,690 )       (1,008 )   (38,698 )

(Increase) decrease in inter-company receivables, net

    (174,080 )   154,317     (87,593 )   107,356      

Other financing activities, net

    (1,135 )           (1,233 )   (2,368 )
                       
 

Net cash (used in) provided by financing activities

    (13,080 )   174,708     (89,269 )   129,886     202,245  
 

Effect of currency exchange rate changes on cash and cash equivalents

                9,431     9,431  
                       

NET INCREASE IN CASH AND CASH EQUIVALENTS

        110,548     29,325     27,349     167,222  

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

    4     7,203     9,467     142,149     158,823  
                       

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

  $ 4   $ 117,751   $ 38,792   $ 169,498   $ 326,045  
                       

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

                               
 

Cash paid during the period for:

                               
   

Interest

  $   $ 85,148   $ 97   $ 15,065   $ 100,310  
                       
   

Income tax (refunds) payments, net

  $ (2,126 ) $ (9,221 ) $ (56,198 ) $ 13,627   $ (53,918 )
                       

42


Table of Contents


CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

20. Guarantor and Nonguarantor Financial Statements (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(Dollars in thousands)

 
  Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

  $ 10,131   $ (71,990 ) $ (53,818 ) $ (115,668 ) $ (231,345 )

CASH FLOWS FROM INVESTING ACTIVITIES:

                               

Capital expenditures