Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2010

 

¨ 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    94-3391143

(State or other jurisdiction of

incorporation or organization)

   (I.R.S. Employer Identification Number)

11150 Santa Monica Boulevard, Suite 1600

Los Angeles, California

   90025
(Address of principal executive offices)    (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  x    No  ¨.

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  x    No  ¨.

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨

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

The number of shares of Class A common stock outstanding at July 31, 2010 was 321,776,329.

 

 

 


Table of Contents

FORM 10-Q

June 30, 2010

TABLE OF CONTENTS

 

          Page
   PART I—FINANCIAL INFORMATION   

Item 1.

  

Financial Statements

  
   Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009    3
   Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009 (Unaudited)    4
   Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009 (Unaudited)    5
   Consolidated Statement of Equity for the six months ended June 30, 2010 (Unaudited)    6
   Notes to Consolidated Financial Statements (Unaudited)    7

Item 2.

  

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

   34

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

   58

Item 4.

  

Controls and Procedures

   59
   PART II—OTHER INFORMATION   

Item 1.

  

Legal Proceedings

   60

Item 1A.

  

Risk Factors

   60

Item 6.

  

Exhibits

   60

Signatures

   62

 

2


Table of Contents

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

     June 30,
2010
    December 31,
2009
 
     (Unaudited)        
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 743,563      $ 741,557   

Restricted cash

     37,324        46,797   

Receivables, less allowance for doubtful accounts of $47,932 and $41,397 at June 30, 2010 and December 31, 2009, respectively

     731,621        775,929   

Warehouse receivables

     260,636        315,033   

Income taxes receivable

     54,204        163,032   

Prepaid expenses

     92,999        99,309   

Deferred tax assets, net

     75,737        75,330   

Real estate and other assets held for sale

     12,140        7,109   

Other current assets

     44,880        42,629   
                

Total Current Assets

     2,053,104        2,266,725   

Property and equipment, net

     153,104        178,975   

Goodwill

     1,276,840        1,306,372   

Other intangible assets, net of accumulated amortization of $149,791 and $138,244 at June 30, 2010 and December 31, 2009, respectively

     323,500        322,904   

Investments in unconsolidated subsidiaries

     119,120        135,596   

Deferred tax assets, net

     25        3,395   

Real estate under development

     130,503        160,164   

Real estate held for investment

     743,405        526,169   

Available for sale securities

     30,668        32,016   

Other assets, net

     100,781        107,090   
                

Total Assets

   $ 4,931,050      $ 5,039,406   
                
LIABILITIES AND EQUITY     

Current Liabilities:

    

Accounts payable and accrued expenses

   $ 364,634      $ 458,510   

Compensation and employee benefits payable

     240,532        240,536   

Accrued bonus and profit sharing

     180,543        278,444   

Short-term borrowings:

    

Warehouse lines of credit

     258,972        312,872   

Revolving credit facility

     25,155        21,050   

Other

     2,016        5,850   
                

Total short-term borrowings

     286,143        339,772   

Current maturities of long-term debt

     87,848        138,682   

Notes payable on real estate

     208,054        159,921   

Liabilities related to real estate and other assets held for sale

     11,201        1,267   

Other current liabilities

     16,184        11,909   
                

Total Current Liabilities

     1,395,139        1,629,041   

Long-Term Debt:

    

Senior secured term loans

     1,535,104        1,545,490   

11.625% senior subordinated notes, net of unamortized discount of $12,926 and $13,498 at June 30, 2010 and December 31, 2009, respectively

     437,074        436,502   

Other long-term debt

     132        129   
                

Total Long-Term Debt

     1,972,310        1,982,121   

Pension liability

     60,058        64,945   

Non-current tax liabilities

     75,433        73,462   

Notes payable on real estate

     499,374        390,181   

Other liabilities

     108,126        115,361   
                

Total Liabilities

     4,110,440        4,255,111   

Commitments and contingencies

     —          —     

Equity:

    

CB Richard Ellis Group, Inc. Stockholders’ Equity:

    

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 321,784,335 and 321,767,407 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively

     3,218        3,218   

Additional paid-in capital

     777,866        755,989   

Accumulated earnings (deficit)

     33,155        (15,008

Accumulated other comprehensive loss

     (172,438     (115,077
                

Total CB Richard Ellis Group, Inc. Stockholders’ Equity

     641,801        629,122   

Non-controlling interests

     178,809        155,173   
                

Total Equity

     820,610        784,295   
                

Total Liabilities and Equity

   $ 4,931,050      $ 5,039,406   
                

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

 

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Table of Contents

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2010     2009     2010     2009  

Revenue

   $ 1,171,919      $ 955,667      $ 2,197,802      $ 1,846,116   

Costs and expenses:

        

Cost of services

     678,714        566,831        1,293,908        1,120,250   

Operating, administrative and other

     372,033        328,671        710,739        634,830   

Depreciation and amortization

     27,616        24,166        53,911        49,558   
                                

Total costs and expenses

     1,078,363        919,668        2,058,558        1,804,638   

Gain on disposition of real estate

     3,623        2,925        3,623        2,925   
                                

Operating income

     97,179        38,924        142,867        44,403   

Equity income (loss) from unconsolidated subsidiaries

     14,235        (1,743     7,651        (11,940

Interest income

     3,111        1,237        4,911        3,542   

Interest expense

     50,275        47,418        100,067        82,216   

Write-off of financing costs

     —          —          —          29,255   
                                

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

     64,250        (9,000     55,362        (75,466

Provision for (benefit of) income taxes

     26,704        4,706        34,003        (7,341
                                

Net income (loss) from continuing operations

     37,546        (13,706     21,359        (68,125

Income from discontinued operations, net of income taxes

     7,140        —          7,140        —     
                                

Net income (loss)

     44,686        (13,706     28,499        (68,125

Less: Net loss attributable to non-controlling interests

     (10,104     (7,069     (19,664     (24,799
                                

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

   $ 54,790      $ (6,637   $ 48,163      $ (43,326
                                

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.

   $ 0.15      $ (0.02   $ 0.13      $ (0.16

Income from discontinued operations attributable to CB Richard Ellis Group, Inc.

     0.02        —          0.02        —     
                                

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

   $ 0.17      $ (0.02   $ 0.15      $ (0.16
                                

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

     312,910,934        265,683,366        312,895,372        263,851,431   
                                

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.

   $ 0.15      $ (0.02   $ 0.13      $ (0.16

Income from discontinued operations attributable to CB Richard Ellis Group, Inc.

     0.02        —          0.02        —     
                                

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

   $ 0.17      $ (0.02   $ 0.15      $ (0.16
                                

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

     318,425,227        265,683,366        317,736,844        263,851,431   
                                

Amounts attributable to CB Richard Ellis Group, Inc. shareholders

        

Income (loss) from continuing operations, net of tax

   $ 47,279      $ (6,637   $ 40,652      $ (43,326

Discontinued operations, net of tax

     7,511        —          7,511        —     
                                

Net income (loss)

   $ 54,790      $ (6,637   $ 48,163      $ (43,326
                                

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

 

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Table of Contents

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 28,499      $ (68,125

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

    

Depreciation and amortization

     54,079        49,558   

Amortization and write-off of financing costs

     5,325        33,461   

Write-down of impaired real estate and other assets

     —          12,083   

Gain on sale of loans, servicing rights and other assets

     (20,343     (8,527

Gain on disposition of real estate held for investment

     (11,879     —     

Equity (income) loss from unconsolidated subsidiaries

     (7,651     11,940   

Provision for (recovery of) doubtful accounts

     12,421        (2,442

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

     22,018        16,296   

Distribution of earnings from unconsolidated subsidiaries

     11,793        5,830   

Tenant concessions received

     3,424        579   

Decrease in receivables

     4,961        106,637   

Decrease in deferred compensation assets

     —          221,416   

Decrease in prepaid expenses and other assets

     4,352        1,320   

Increase in real estate held for sale and under development

     (10,868     (9,376

Decrease in accounts payable and accrued expenses

     (23,737     (60,787

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

     (83,708     (186,337

Decrease in income taxes receivable

     113,243        51,830   

Decrease in other liabilities, including deferred compensation liabilities

     (601     (250,250

Other operating activities, net

     (321     (7,825
                

Net cash provided by (used in) operating activities

     101,007        (82,719
                

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (7,161     (5,880

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

     (62,720     (16,581

Contributions to unconsolidated subsidiaries

     (10,852     (35,775

Distributions from unconsolidated subsidiaries

     16,130        2,780   

Net proceeds from disposition of real estate held for investment

     57,249        —     

Additions to real estate held for investment

     (5,212     (7,914

Proceeds from the sale of servicing rights and other assets

     9,741        6,423   

Decrease (increase) in restricted cash

     7,804        (5,810

Other investing activities, net

     (954     (793
                

Net cash provided by (used in) investing activities

     4,025        (63,550
                

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Repayment of senior secured term loans

     (60,770     (300,500

Proceeds from revolving credit facility

     16,349        571,422   

Repayment of revolving credit facility

     (10,496     (554,000

Proceeds from 11.625% senior subordinated notes

     —          435,928   

Proceeds from notes payable on real estate held for investment

     8,741        12,088   

Repayment of notes payable on real estate held for investment

     (48,493     (997

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

     3,214        32,170   

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

     (3,412     (32,046

Repayment of short-term borrowings and other loans, net

     (4,047     (1,412

Proceeds from issuance of common stock, net

     —          146,350   

Proceeds from exercise of stock options

     312        4,092   

Non-controlling interests contributions

     22,103        15,660   

Non-controlling interests distributions

     (6,954     (8,469

Payment of financing costs

     (5,707     (29,225

Other financing activities, net

     19        (1,653
                

Net cash (used in) provided by financing activities

     (89,141     289,408   

Effect of currency exchange rate changes on cash and cash equivalents

     (13,885     7,558   
                

NET INCREASE IN CASH AND CASH EQUIVALENTS

     2,006        150,697   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     741,557        158,823   
                

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 743,563      $ 309,520   
                

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid (received) during the period for:

    

Interest

   $ 85,408      $ 57,245   
                

Income tax refunds, net

   $ (77,047   $ (57,385
                

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

 

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Table of Contents

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

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

Balance at December 31, 2009

  $ 3,218   $ 755,989      $ (15,008   $ (115,077   $ 155,173      $ 784,295   

Net income (loss)

    —       —          48,163        —          (19,664     28,499   

Adoption of Accounting Standards Update 2009-17 (See Note 2)

    —       —          —          —          29,534        29,534   

Compensation expense for stock options and non-vested stock awards

    —       22,018        —          —          —          22,018   

Foreign currency translation loss

    —       —          —          (59,870     (724     (60,594

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

    —       —          —          296        —          296   

Contributions from non-controlling interests

    —       —          —          —          22,103        22,103   

Distributions to non-controlling interests

    —       —          —          —          (6,954     (6,954

Other

    —       (141     —          2,213        (659     1,413   
                                             

Balance at June 30, 2010

  $ 3,218   $ 777,866      $ 33,155      $ (172,438   $ 178,809      $ 820,610   
                                             

 

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

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of CB Richard Ellis Group, Inc. (which may be referred to in these financial statements as “we,” “us,” and “our”) 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.

In 2008 and most of 2009, worldwide commercial real estate fundamentals and transaction activity weakened significantly due to the credit crisis and severe global recession. High unemployment rates, sharply reduced global trade, curtailed corporate spending and weak consumer confidence negatively impacted office, industrial and retail real estate markets as companies shrank their occupancy, placed excess space on the market for sublease and deferred occupancy decisions. Property sales transactions declined sharply due to constrained liquidity in the capital markets as many lenders tightened underwriting standards for commercial real estate. Capitalization rates increased as potential buyers of commercial real estate re-evaluated commercial real estate versus other asset classes available for investment. Occupancy and rent levels weakened significantly for the primary property types that we service, develop or own. A return to positive economic growth in the United States (U.S.) in late 2009 and in 2010 has moderately improved commercial real estate fundamentals. Property values have remained under pressure, but appear to be stabilizing, and occupancy and rental rates continued to decline, albeit at a slower rate. In the first half of 2010, improved economic and credit market conditions led to a rebound in sales and leasing velocity from a very depressed level in 2009. The recoverability of our investments in unconsolidated subsidiaries and our investments in real estate has been impacted by the overall downturn in the global economy. 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 in the broader economy, commercial real estate industry, specific markets or property types in which we operate worsen, we could have additional impairment charges.

The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2010. 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, 2009, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2009.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

2. Consolidated Variable Interest Entities

In December 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” This ASU incorporates Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R),” issued by the FASB in June 2009. The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact such entity’s economic performance and (i) the obligation to absorb losses of such entity or (ii) the right to receive benefits from such entity. ASU 2009-17 also requires additional disclosures about a reporting entity’s involvement in variable interest entities, which enhances the information provided to users of financial statements. We adopted ASU 2009-17 effective January 1, 2010 and as a result, we began consolidating certain variable interest entities that were not previously consolidated by us.

A consolidated subsidiary (the Venture) sponsored investments by third-party investors in eight commercial properties through the formation of tenant-in-common limited liability companies and Delaware Statutory Trusts (collectively referred to as “the Entities”) that are owned by the third-party investors. The Venture also formed and is a member of a limited liability company for each property that serves as master tenant (Master Tenant). Each Master Tenant leases the property from the Entities through a master lease agreement. Pursuant to the master lease agreements, the Master Tenant has the power to direct the day-to-day asset management activities that most significantly impact the economic performance of the Entities. As a result, the Entities were deemed to be variable interest entities since the third-party investors holding the equity investment at risk in the Entities do not direct the day-to-day activities that most significantly impact the economic performance of the properties held by the Entities.

The Venture has made and may continue to make voluntary contributions to each of these properties to support their operations beyond the cash flow generated by the properties themselves. As of the most recent reconsideration date, such financial support has been significant enough that the Venture was deemed to be the primary beneficiary of each entity. During the six months ended June 30, 2010, the Venture funded $0.5 million of financial support to the Entities.

The Entities were initially consolidated by the Venture upon adoption of ASU 2009-17 on January 1, 2010. The Entities’ assets and associated mortgage notes payable aggregated $251.0 million and $221.5 million, respectively, and were recorded based on their fair value at adoption. We did not recognize a gain or loss on the initial consolidation of these Entities. The assets of the Entities are the sole collateral for the mortgage notes payable and other liabilities of the Entities and as such, the creditors and equity investors of these Entities have no recourse to our assets held outside of these Entities.

For the three and six months ended June 30, 2010, aggregate revenue of $9.5 million and $15.6 million, respectively, and operating expenses of $5.4 million and $9.2 million, respectively, relating to the operating activities of the Entities are included in the accompanying consolidated statements of operations. The aggregate losses of the Entities for the three and six months ended June 30, 2010 were $3.0 million and $5.5 million, respectively, and were all attributable to non-controlling interests.

Investments in real estate of $247.1 million and mortgage notes payable of $222.4 million ($3.6 million of which is current) are included in real estate assets held for investment and notes payable on real estate, respectively, in the accompanying consolidated balance sheets as of June 30, 2010. In addition, non-controlling interests of $24.7 million in the accompanying consolidated balance sheets as of June 30, 2010 are attributable to the Entities.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

3. New Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements,” which provides amendments to the FASB ASC Subtopic 820-10 that require new disclosures regarding (i) transfers in and out of Level 1 and Level 2 fair value measurements and (ii) activity in Level 3 fair value measurements. ASU 2010-06 also clarifies existing disclosures regarding (i) the level of asset and liability disaggregation and (ii) fair value measurement inputs and valuation techniques. As required, we adopted the new disclosures and clarifications of existing disclosure requirements, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We are currently evaluating the disclosure impact of adoption on our consolidated financial statements, but do not expect it to have a material impact.

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. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires 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:

 

   

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. 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. Inputs used in these evaluations included risk-free rates of return, estimated risk premiums as well as other economic variables.

The following non-recurring fair value measurements were recorded during the three months ended June 30, 2009 and the six months ended June 30, 2010 and 2009 (dollars in thousands):

 

     Net Carrying Value
as of

June 30, 2009
        Total  Impairment
Charges for the
Three Months Ended
June 30, 2009
      Fair Value Measured and Recorded Using   
             Level 1              Level 2              Level 3        

Investments in unconsolidated subsidiaries

   $ 35,810    $ —      $ —      $ 35,810    $ 3,628

Real estate

   $ 16,409    $ —      $ —      $ 16,409      3,232
                  

Total impairment charges

               $ 6,860
                  

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

     Net Carrying  Value
as of
June 30, 2010
   Fair Value Measured and Recorded Using    Total  Impairment
Charges for the
Six Months Ended
June 30, 2010
             Level 1              Level 2              Level 3        

Investments in unconsolidated subsidiaries

   $ 32,803    $ —      $ —      $ 32,803    $ 6,947
     Net Carrying  Value
as of
June 30, 2009
   Fair Value Measured and Recorded Using    Total  Impairment
Charges for the
Six Months Ended
June 30, 2009
             Level 1              Level 2              Level 3        

Investments in unconsolidated subsidiaries

   $ 58,743    $ —      $ —      $ 58,743    $ 10,682

Real estate

   $ 46,779    $ —      $ —      $ 46,779      6,223

Notes receivable

   $ —      $ —      $ —      $ —        5,860
                  

Total impairment charges

               $ 22,765
                  

Investments in Unconsolidated Subsidiaries

During the three and six months ended June 30, 2009, we recorded investment write-downs of $3.6 million and $10.7 million, respectively, within our Global Investment Management segment. Of these amounts, $1.1 million and $3.0 million, respectively, were attributable to non-controlling interests. During the three months ended June 30, 2009, the investment write-downs were primarily driven by a decrease in the estimated holding period of certain assets held within our Global Investment Management portfolio. During the six months ended June 30, 2009, we incurred an additional $7.1 million of impairment charges, mainly attributable to declines in value of several investments, primarily as a result of significant capital market turmoil, which adversely affected 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).

During the six months ended June 30, 2010, we recorded write-downs of $6.9 million within our Global Investment Management segment, $2.5 million of which were attributable to non-controlling interests. Of these write-downs, $5.9 million were driven by a decrease in the estimated holding period of certain assets held within our Global Investment Management portfolio and $1.0 million was driven by a decline in value of an investment attributable to continued capital market turmoil.

All of our impairment charges related to investments in unconsolidated subsidiaries were included in equity income (loss) from unconsolidated subsidiaries in the accompanying consolidated statements of operations. 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 deteriorated and that these challenging conditions could persist for some time.

Real Estate

During the three and six months ended June 30, 2009, we recorded charges of $3.2 million and $6.2 million, respectively, including impairment charges on real estate held for investment and a provision for loss on real estate held for sale. These charges were included in operating, administrative and other expenses in the accompanying consolidated statements of operations within our Development Services segment. Of these amounts, $2.0 million and $4.6 million, respectively, were attributable to non-controlling interests. Impairment

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

charges recorded in the second quarter of 2009 included 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. During the six months ended June 30, 2009, we recorded additional impairment charges of $3.0 million related to three projects where the carrying value was not recoverable primarily due to a decrease in the estimated holding periods of the projects.

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.

Notes Receivable

During the six months ended June 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 six months ended June 30, 2009.

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

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.

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.

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 June 30, 2010, which approximates their actual carrying value at June 30, 2010 (See Note 9).

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

11.625% Senior Subordinated Notes: Based on dealers’ quotes, the estimated fair value of our 11.625% senior subordinated notes was $492.0 million at June 30, 2010. Their actual carrying value totaled $437.1 million at June 30, 2010.

Notes Payable on Real Estate: As of June 30, 2010, the carrying value of our notes payable on real estate was $718.5 million (See Note 8). These borrowings mostly have floating interest rates at spreads over a market rate index. It is likely that some portion of our notes payable on real estate have fair values lower than actual carrying values. Given our volume of notes payable and the cost involved in estimating their fair value, we determined it was not practicable to do so. Additionally, only $3.5 million of these notes payable are recourse to us as of June 30, 2010.

5. 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
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Development Services:

        

Revenue

   $ 31,625      $ 23,713      $ 52,561      $ 38,118   

Operating income

   $ 37,739      $ 14,006      $ 35,069      $ 15,570   

Net income

   $ 25,036      $ 6,553      $ 13,464      $ 4,353   

Global Investment Management:

        

Revenue

   $ 109,590      $ 145,026      $ 275,824      $ 288,735   

Operating loss

   $ (92,723   $ (78,281   $ (355,722   $ (395,982

Net loss

   $ (113,824   $ (144,455   $ (448,650   $ (504,173

Other:

        

Revenue

   $ 31,748      $ 37,697      $ 60,894      $ 70,832   

Operating income

   $ 4,758      $ 4,977      $ 7,504      $ 8,509   

Net income

   $ 4,917      $ 5,008      $ 7,775      $ 8,632   

Total:

        

Revenue

   $ 172,963      $ 206,436      $ 389,279      $ 397,685   

Operating loss

   $ (50,226   $ (59,298   $ (313,149   $ (371,903

Net loss

   $ (83,871   $ (132,894   $ (427,411   $ (491,188

During the three months ended June 30, 2009 and the six months ended June 30, 2010 and 2009, we recorded non-cash write-downs of investments of $3.6 million, $6.9 million and $10.7 million, respectively, within our Global Investment Management segment (See Note 4).

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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

6. 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):

 

     June 30, 2010    December 31, 2009

Assets:

     

Real estate held for sale (See Note 7)

   $ 12,135    $ 7,101

Other current assets

     5      8
             

Total real estate and other assets held for sale

     12,140      7,109

Liabilities:

     

Notes payable on real estate held for sale (See Note 8)

     11,036      1,175

Accounts payable and accrued expenses

     165      92
             

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

     11,201      1,267
             

Net real estate and other assets held for sale

   $ 939    $ 5,842
             

7. 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. Additionally, effective January 1, 2010, we adopted ASU 2009-17 and began consolidating certain variable interest entities that hold investments in real estate (See Note 2). Certain real estate assets secure the outstanding balances of underlying mortgage or construction loans. Our real estate is reported in our Development Services and Global Investment Management segments and consisted of the following (dollars in thousands):

 

     June 30, 2010    December 31, 2009

Real estate included in assets held for sale (See Note 6)

   $ 12,135    $ 7,101

Real estate under development (non-current)

     130,503      160,164

Real estate held for investment (1)

     743,405      526,169
             

Total real estate (2)

   $ 886,043    $ 693,434
             

 

(1) Net of accumulated depreciation of $34.1 million and $26.7 million at June 30, 2010 and December 31, 2009, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $19.6 million and $4.6 million, respectively, at June 30, 2010 and $20.4 million and $5.9 million, respectively, at December 31, 2009. We record lease intangibles and tenant origination costs upon acquiring real estate projects 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.

 

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(Unaudited)

 

In the first quarter of 2010, one of our consolidated real estate projects was sold to an affiliate of the project’s lender at a foreclosure auction. The related real estate note payable was nonrecourse to us. As a result of this transaction, we recorded the following non-cash activity (dollars in thousands):

 

     Debit (Credit)  

Assets:

  

Real estate held for investment

   $ (16,221

Restricted cash

     (279

Other current assets

     (524
        

Total assets

     (17,024
        

Liabilities:

  

Notes payable on real estate, current

     16,520   

Accounts payable and accrued expenses

     504   
        

Total liabilities

   $ 17,024   
        

No material write-downs were recorded by us during the three and six months ended June 30, 2010. During the six months ended June 30, 2009, we recorded impairment charges of $3.0 million on our real estate held for investment within our Development Services segment. In addition, during the three and six months ended June 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 for additional information.

8. Notes Payable on Real Estate

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

 

     June 30, 2010    December 31, 2009

Current portion of notes payable on real estate

   $ 208,054    $ 159,921

Notes payable on real estate included in liabilities related to real estate and other assets held for sale (See Note 6)

     11,036      1,175
             

Total notes payable on real estate, current portion

     219,090      161,096

Notes payable on real estate, non-current portion

     499,374      390,181
             

Total notes payable on real estate

   $ 718,464    $ 551,277
             

At June 30, 2010 and December 31, 2009, $3.5 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.

9. Debt

Since 2001, we have maintained a credit agreement with Credit Suisse Group AG (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

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

dated December 20, 2006. In connection with this amendment and restatement, we wrote off financing costs of $29.3 million during the six months ended June 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. On both February 5, 2010 and March 29, 2010, we entered into additional loan modification agreements to our Credit Agreement to further extend debt maturities and amortization schedules.

Subsequent to the March 29, 2010 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 $225.1 million maturing on June 24, 2011 and tranche 2 in the amount of $333.0 million maturing on June 24, 2013; (2) a $579.8 million A term loan facility, which is further broken down as follows: i) a $135.9 million tranche A term loan facility requiring quarterly principal payments beginning December 31, 2010 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 $203.2 million tranche A-2 term loan facility, requiring quarterly principal payments of $8.7 million beginning September 30, 2012 and continuing through March 31, 2013, with the balance payable on June 24, 2013; iv) a $167.5 million tranche A-3 term loan facility payable on December 20, 2013; v) a $24.1 million tranche A-3A term loan facility, requiring quarterly principal payments of $0.06 million beginning June 30, 2010 and continuing through September 30, 2013, with the balance payable on December 20, 2013; and vi) a $0.5 million tranche A-4 term loan facility payable on December 20, 2011, and (3) a $1,053.0 million B term loan facility, which is further broken down as follows: i) a $642.8 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; ii) a $295.2 million tranche B-1 term loan facility payable on December 20, 2015; and iii) a $115.0 million tranche B-1A term loan facility payable on December 20, 2015.

During the six months ended June 30, 2010, we repaid the following amounts: $50.7 million of our tranche A term loan facility, which was applied to the required 2010 principal repayments; $4.2 million of our tranche A-1 term loan facility, which was applied against the balance due at maturity; $0.06 million of our tranche A-3A term loan facility, which covered the required quarterly principal payment due June 30, 2010; $0.5 million of our tranche A-4 term loan facility, which repaid the entire outstanding balance; $3.8 million of our tranche B term loan facility, which covered the required quarterly principal payments due March 31, 2010 and June 30, 2010; $1.2 million of our tranche B-1 term loan facility, which covered a portion of the balance due at maturity; and $0.3 million of our tranche B-1A term loan facility, which covered a portion of the balance due at maturity.

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 United Kingdom (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 June 30, 2010 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 June 30, 2010 and December 31, 2009, we had $25.2 million ($12.6 million under tranche 1 and $12.6 million under tranche 2) and $21.1 million ($13.1 million under tranche 1 and $8.0 million under tranche 2), respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 5.6% and 5.3%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of

 

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(Unaudited)

 

June 30, 2010, letters of credit totaling $26.5 million were outstanding under the revolving credit facility. These letters of credit were primarily 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.

Borrowings under the term loan facilities as of June 30, 2010 bear interest, based at 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 and A-3A term loan facilities, 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 and B-1A term loan facilities, 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, both 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, A-2, A-3, B-1 and B-1A 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 June 30, 2010 and December 31, 2009, the outstanding balance did not exceed the targeted outstanding amount. As of June 30, 2010 and December 31, 2009, we had $135.9 million and $326.3 million of tranche A term loan facility principal outstanding, respectively, $44.4 million and $48.6 million of tranche A-1 term loan facility principal outstanding, respectively, $203.2 million and $0 of tranche A-2 term loan facility principal outstanding, respectively, $167.5 million and $0 of tranche A-3 term loan facility principal outstanding, respectively, $639.0 million and $642.8 million of tranche B term loan facility principal outstanding, respectively, and $294.0 million and $295.2 million of tranche B-1 term loan facility principal outstanding, respectively, which are included in the accompanying consolidated balance sheets. As of June 30, 2010, we also had $24.0 million of tranche A-3A term loan facility principal outstanding and $114.7 million of tranche B-1A term loan facility principal outstanding, which are also included in the accompanying consolidated balance sheets.

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.

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 minimum coverage ratio of EBITDA to total interest expense was 5.51x for the trailing twelve months ended June 30, 2010 and our maximum leverage ratio of total debt less available cash to EBITDA was 1.69x as of June 30, 2010.

On April 19, 2010, we entered into a Receivables Purchase Agreement (RPA), which allows us to transfer an undivided interest in a designated pool of U.S. accounts receivable, on an ongoing basis, to provide collateral

 

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(Unaudited)

 

for borrowings up to a maximum of $55.0 million. Borrowings under this arrangement generally bear interest at the commercial paper rate plus 2.75% and this agreement expires on April 18, 2011. As of June 30, 2010, there were no amounts outstanding under this agreement.

10. 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 $34.7 million as of June 30, 2010, 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 as well as letters of credit related to operating leases. These letters of credit are primarily executed by us in the normal course of business as well as in connection with certain insurance programs. The letters of credit expire at varying dates through July 2011.

We had guarantees totaling $11.5 million as of June 30, 2010, excluding guarantees related to pension liabilities, consolidated indebtedness and other obligations for which we have outstanding liabilities already accrued on our consolidated balance sheet as well as operating leases. The $11.5 million primarily consists of guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through October 2013.

In addition, as of June 30, 2010, 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 $1.4 billion at June 30, 2010. 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 $435.3 million at June 30, 2010. 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 June 30, 2010 and December 31, 2009, CBRE Capital Markets had $1.5 million and $1.2 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $2.7 million and $2.0 million, respectively, of loan loss accruals.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 June 30, 2010, we had aggregate commitments of $27.5 million to fund future co-investments.

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 June 30, 2010, we had committed to fund $29.9 million of additional capital to these unconsolidated subsidiaries.

11. 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. generally further assumes the dilutive effect of potential common shares, which include stock options and certain contingently issuable shares. Contingently issuable shares consist of non-vested stock awards. For the three and six months ended June 30, 2009, all stock options and contingently issuable shares were anti-dilutive, since we reported a net loss for these periods. As a result, basic and diluted loss per share was the same for the three and six months ended June 30, 2009. 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
June 30,
    Six Months Ended
June 30,
 
    2010   2009     2010   2009  

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

       

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

  $ 54,790   $ (6,637   $ 48,163   $ (43,326

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

    312,910,934     265,683,366        312,895,372     263,851,431   
                           

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

  $ 0.17   $ (0.02   $ 0.15   $ (0.16
                           

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2010   2009     2010   2009  

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

       

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

  $ 54,790   $ (6,637   $ 48,163   $ (43,326

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

    312,910,934     265,683,366        312,895,372     263,851,431   

Dilutive effect of stock options

    2,595,767     —          2,494,663     —     

Dilutive effect of contingently issuable shares

    2,918,526     —          2,346,809     —     
                           

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

    318,425,227     265,683,366        317,736,844     263,851,431   
                           

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

  $ 0.17   $ (0.02   $ 0.15   $ (0.16
                           

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

For the three and six months ended June 30, 2010, options to purchase 838,830 shares of common stock were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. Additionally, 398,047 and 397,577 of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect for the three and six months ended June 30, 2010, respectively.

Had we reported net income for the three and six months ended June 30, 2009, options to purchase 4,779,425 shares of common stock would have been included in the computation of diluted earnings per share, while options to purchase 6,867,927 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. Additionally, had we reported net income for the three and six months ended June 30, 2009, 198,562 of contingently issuable shares would have been included in the computation of diluted earnings per share, while 4,449,584 of contingently issuable shares would have been excluded from the computation of diluted earnings per share as their inclusion would have had an anti-dilutive effect.

12. Comprehensive Income (Loss)

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Net income (loss)

   $ 44,686      $ (13,706   $ 28,499      $ (68,125

Other comprehensive (loss) income:

        

Foreign currency translation (loss) gain

     (36,468     58,819        (60,594     30,608   

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

     174        1,240        296        5,846   

Other, net

     (75     (174     2,213        186   
                                

Total other comprehensive (loss) income

     (36,369     59,885        (58,085     36,640   

Comprehensive income (loss)

     8,317        46,179        (29,586     (31,485

Comprehensive loss attributable to non-controlling interests

     (10,468     (5,822     (20,388     (25,374
                                

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

   $ 18,785      $ 52,001      $ (9,198   $ (6,111
                                

13. 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.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  

Interest cost

   $ 3,884      $ 3,547      $ 7,947      $ 6,845   

Expected return on plan assets

     (3,605     (3,081     (7,376     (5,944

Amortization of unrecognized net loss

     530        258        1,085        498   
                                

Net periodic pension cost

   $ 809      $ 724      $ 1,656      $ 1,399   
                                

We contributed $0.8 million and $1.6 million to fund our pension plans during the three and six months ended June 30, 2010, respectively. We expect to contribute a total of $3.5 million to fund our pension plans for the year ending December 31, 2010.

14. Discontinued Operations

In the ordinary course of business, we dispose of real estate assets, or hold real estate assets for sale, that may be considered components of an entity in accordance with Topic 360. If we do not have, or expect to have, significant continuing involvement with the operation of these real estate assets after disposition, we are required to recognize operating profits or losses and gains or losses on disposition 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 both the three and six months ended June 30, 2010 were reported in our Development Services segment as follows (dollars in thousands):

 

Revenue

   $ 978   

Costs and expenses:

  

Operating, administrative and other

     356   

Depreciation and amortization

     168   
        

Total costs and expenses

     524   

Gain on disposition of real estate

     11,879   
        

Operating income

     12,333   

Interest income

     1   

Interest expense

     715   
        

Income from discontinued operations, before provision for income taxes

     11,619   

Provision for income taxes

     4,479   
        

Income from discontinued operations, net of income taxes

     7,140   

Less: Loss from discontinued operations attributable to non-controlling interests

     (371
        

Income from discontinued operations attributable to CB Richard Ellis Group, Inc.

   $ 7,511   
        

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

15. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of June 30, 2010 and December 31, 2009; condensed consolidating statements of operations for the three and six months ended June 30, 2010 and 2009; and condensed consolidating statements of cash flows for the six months ended June 30, 2010 and 2009, of (a) CB Richard Ellis Group, Inc. as the parent, (b) CB Richard Ellis Services, Inc. (CBRE) as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) CB Richard Ellis Group, Inc. on a consolidated basis; and

(2) Elimination entries necessary to consolidate CB Richard Ellis Group, Inc. as the parent, with CBRE and its guarantor and nonguarantor subsidiaries.

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.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2010

(Dollars in thousands)

 

    Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination     Consolidated
Total

Current Assets:

           

Cash and cash equivalents

  $ 4   $ 138,924   $ 449,711   $ 154,924   $ —        $ 743,563

Restricted cash

    —       4,819     5,449     27,056     —          37,324

Receivables, net

    —       4     306,185     425,432     —          731,621

Warehouse receivables (a)

    —       —       260,636     —       —          260,636

Income taxes receivable

    13,467     68,984     —       16,826     (45,073     54,204

Prepaid expenses

    —       2,557     39,954     50,488     —          92,999

Deferred tax assets, net

    —       —       52,937     22,800     —          75,737

Real estate and other assets held for sale

    —       —       —       12,140     —          12,140

Other current assets

    —       —       30,341     14,539     —          44,880
                                     

Total Current Assets

    13,471     215,288     1,145,213     724,205     (45,073     2,053,104

Property and equipment, net

    —       —       92,001     61,103     —          153,104

Goodwill

    —       —       798,630     478,210     —          1,276,840

Other intangible assets, net

    —       —       294,523     28,977     —          323,500

Investments in unconsolidated subsidiaries

    —       —       61,688     57,432     —          119,120

Investments in consolidated subsidiaries

    826,187     2,757,705     899,141     —       (4,483,033     —  

Intercompany loan receivable

    —       —       635,000     43,477     (678,477     —  

Deferred tax assets, net

    —       —       —       31,542     (31,517     25

Real estate under development

    —       —       —       130,503     —          130,503

Real estate held for investment

    —       —       4,685     738,720     —          743,405

Available for sale securities

    —       —       30,437     231     —          30,668

Other assets, net

    —       26,833     33,841     40,107     —          100,781
                                     

Total Assets

  $ 839,658   $ 2,999,826   $ 3,995,159   $ 2,334,507   $ (5,238,100   $ 4,931,050
                                     

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —     $ 4,408   $ 114,815   $ 245,411   $ —        $ 364,634

Compensation and employee benefits payable

    —       626     137,480     102,426     —          240,532

Accrued bonus and profit sharing

    —       —       104,226     76,317     —          180,543

Income taxes payable

    —       —       45,073     —       (45,073     —  

Short-term borrowings:

           

Warehouse lines of credit (a)

    —       —       258,972     —       —          258,972

Revolving credit facility

    —       9,711     —       15,444     —          25,155

Other

    —       —       16     2,000     —          2,016
                                     

Total short-term borrowings

    —       9,711     258,988     17,444     —          286,143

Current maturities of long-term debt

    —       87,736     1     111     —          87,848

Notes payable on real estate

    —       —       —       208,054     —          208,054

Liabilities related to real estate and other assets held for sale

    —       —       —       11,201     —          11,201

Other current liabilities

    —       —       13,014     3,170     —          16,184
                                     

Total Current Liabilities

    —       102,481     673,597     664,134     (45,073     1,395,139

Long-Term Debt:

           

Senior secured term loans

    —       1,535,104     —       —       —          1,535,104

11.625% senior subordinated notes, net

    —       437,074     —       —       —          437,074

Other long-term debt

    —       —       —       132     —          132

Intercompany loan payable

    197,857     98,980     381,640     —       (678,477     —  
                                     

Total Long-Term Debt

    197,857     2,071,158     381,640     132     (678,477     1,972,310

Deferred tax liabilities, net

    —       —       31,517     —       (31,517     —  

Pension liability

    —       —       —       60,058     —          60,058

Non-current tax liabilities

    —       —       75,433     —       —          75,433

Notes payable on real estate

    —       —       —       499,374     —          499,374

Other liabilities

    —       —       75,267     32,859     —          108,126
                                     

Total Liabilities

    197,857     2,173,639     1,237,454     1,256,557     (755,067     4,110,440

Commitments and contingencies

    —       —       —       —       —          —  

Equity:

           

CB Richard Ellis Group, Inc. Stockholders’ Equity

    641,801     826,187     2,757,705     899,141     (4,483,033     641,801

Non-controlling interests

    —       —       —       178,809     —          178,809
                                     

Total Equity

    641,801     826,187     2,757,705     1,077,950     (4,483,033     820,610
                                     

Total Liabilities and Equity

  $ 839,658   $ 2,999,826   $ 3,995,159   $ 2,334,507   $ (5,238,100   $ 4,931,050
                                     

 

(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 Fannie Mae As Soon As Pooled (ASAP), Bank of America (BofA) and JP Morgan Chase Bank, N.A. (JP Morgan) lines of credit are pledged to Fannie Mae, BofA and JP Morgan, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2009

(Dollars in thousands)

 

    Parent   CBRE   Guarantor
Subsidiaries
  Nonguarantor
Subsidiaries
  Elimination     Consolidated
Total

Current Assets:

           

Cash and cash equivalents

  $ 4   $ 242,586   $ 283,251   $ 215,716   $ —        $ 741,557

Restricted cash

    —       —       13,786     33,011     —          46,797

Receivables, net

    —       2     297,717     478,210     —          775,929

Warehouse receivables (a)

    —       —       315,033     —       —          315,033

Income taxes receivable

    14,062     171,549     —       23,046     (45,625     163,032

Prepaid expenses

    —       —       44,148     55,161     —          99,309

Deferred tax assets, net

    —       —       54,183     21,147     —          75,330

Real estate and other assets held for sale

    —       —       —       7,109     —          7,109

Other current assets

    —       4,660     26,236     11,733     —          42,629
                                     

Total Current Assets

    14,066     418,797     1,034,354     845,133     (45,625     2,266,725

Property and equipment, net

    —       —       106,488     72,487     —          178,975

Goodwill

    —       —       797,142     509,230     —          1,306,372

Other intangible assets, net

    —       —       293,886     29,018     —          322,904

Investments in unconsolidated subsidiaries

    —       —       68,144     67,452     —          135,596

Investments in consolidated subsidiaries

    811,588     2,535,355     903,699     —       (4,250,642     —  

Intercompany loan receivable

    —       —       635,000     47,271     (682,271     —  

Deferred tax assets, net

    —       —       —       34,162     (30,767     3,395

Real estate under development

    —       —       —       160,164     —          160,164

Real estate held for investment

    —       —       4,680     521,489     —          526,169

Available for sale securities

    —       —       31,796     220     —          32,016

Other assets, net

    —       25,914     40,671     40,505     —          107,090
                                     

Total Assets

  $ 825,654   $ 2,980,066   $ 3,915,860   $ 2,327,131   $ (5,009,305   $ 5,039,406
                                     

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —     $ 5,905   $ 126,319   $ 326,286   $ —        $ 458,510

Compensation and employee benefits payable

    —       626     118,310     121,600     —          240,536

Accrued bonus and profit sharing

    —       —       128,133     150,311     —          278,444

Income taxes payable

    —       —       45,625     —       (45,625     —  

Short-term borrowings:

           

Warehouse lines of credit (a)

    —       —       312,872     —       —          312,872

Revolving credit facility

    —       10,501     —       10,549     —          21,050

Other

    —       —       350     5,500     —          5,850
                                     

Total short-term borrowings

    —       10,501     313,222     16,049     —          339,772

Current maturities of long-term debt

    —       138,120     232     330     —          138,682

Notes payable on real estate

    —       —       —       159,921     —          159,921

Liabilities related to real estate and other assets held for sale

    —       —       —       1,267     —          1,267

Other current liabilities

    1,190     —       8,946     1,773     —          11,909
                                     

Total Current Liabilities

    1,190     155,152     740,787     777,537     (45,625     1,629,041

Long-Term Debt:

           

Senior secured term loans

    —       1,545,490     —       —       —          1,545,490

11.625% senior subordinated notes, net

    —       436,502     —       —       —          436,502

Other long-term debt

    —       —       —       129     —          129

Intercompany loan payable

    195,342     31,334     455,595     —       (682,271     —  
                                     

Total Long-Term Debt

    195,342     2,013,326     455,595     129     (682,271     1,982,121

Deferred tax liabilities, net

    —       —       30,767     —       (30,767     —  

Pension liability

    —       —       —       64,945     —          64,945

Non-current tax liabilities

    —       —       73,462     —       —          73,462

Notes payable on real estate

    —       —       —       390,181     —          390,181

Other liabilities

    —       —       79,894     35,467     —          115,361
                                     

Total Liabilities

    196,532     2,168,478     1,380,505     1,268,259     (758,663     4,255,111

Commitments and contingencies

    —       —       —       —       —          —  

Equity:

           

CB Richard Ellis Group, Inc. Stockholders’ Equity

    629,122     811,588     2,535,355     903,699     (4,250,642     629,122

Non-controlling interests

    —       —       —       155,173     —          155,173
                                     

Total Equity

    629,122     811,588     2,535,355     1,058,872     (4,250,642     784,295
                                     

Total Liabilities and Equity

  $ 825,654   $ 2,980,066   $ 3,915,860   $ 2,327,131   $ (5,009,305   $ 5,039,406
                                     

 

(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.

 

23


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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 670,790      $ 501,129      $ —        $ 1,171,919   

Costs and expenses:

            

Cost of services

     —          —          397,544        281,170        —          678,714   

Operating, administrative and other

     10,734        2,151        189,287        169,861        —          372,033   

Depreciation and amortization

     —          —          14,517        13,099        —          27,616   
                                                

Total costs and expenses

     10,734        2,151        601,348        464,130        —          1,078,363   

Gain on disposition of real estate

     —          —          3,313        310        —          3,623   
                                                

Operating (loss) income

     (10,734     (2,151     72,755        37,309        —          97,179   

Equity income from unconsolidated subsidiaries

     —          —          12,398        1,837        —          14,235   

Interest income

     —          45        626        2,599        (159     3,111   

Interest expense

     —          39,453        117        10,864        (159     50,275   

Royalty and management service (income) expense

     —          —          (6,096     6,096        —          —     

Income from consolidated subsidiaries

     61,260        86,312        27,966        —          (175,538     —     
                                                

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

     50,526        44,753        119,724        24,785        (175,538     64,250   

(Benefit of) provision for income taxes

     (4,264     (16,507     33,412        14,063        —          26,704   
                                                

Net income from continuing operations

     54,790        61,260        86,312        10,722        (175,538     37,546   

Income from discontinued operations, net of income taxes

     —          —          —          7,140        —          7,140   
                                                

Net income

     54,790        61,260        86,312        17,862        (175,538     44,686   

Less: Net loss attributable to non-controlling interests

     —          —          —          (10,104     —          (10,104
                                                

Net income attributable to CB Richard Ellis Group, Inc.

   $ 54,790      $ 61,260      $ 86,312      $ 27,966      $ (175,538   $ 54,790   
                                                

 

24


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2009

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 568,754      $ 386,913      $ —        $ 955,667   

Costs and expenses:

            

Cost of services

     —          —          348,964        217,867        —          566,831   

Operating, administrative and other

     7,493        (1,637     184,111        138,704        —          328,671   

Depreciation and amortization

     —          —          13,684        10,482        —          24,166   
                                                

Total costs and expenses

     7,493        (1,637     546,759        367,053        —          919,668   

Gain on disposition of real estate

     —          —          —          2,925        —          2,925   
                                                

Operating (loss) income

     (7,493     1,637        21,995        22,785        —          38,924   

Equity loss from unconsolidated subsidiaries

     —          —          (238     (1,505     —          (1,743

Interest income

     —          2        1,193        1,034        (992     1,237   

Interest expense

     —          39,872        89        8,449        (992     47,418   

Royalty and management service (income) expense

     —          —          (4,917     4,917        —          —     

(Loss) income from consolidated subsidiaries

     (2,133     21,051        5,843        —          (24,761     —     
                                                

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

     (9,626     (17,182     33,621        8,948        (24,761     (9,000

(Benefit of) provision for income taxes

     (2,989     (15,049     12,570        10,174        —          4,706   
                                                

Net (loss) income

     (6,637     (2,133     21,051        (1,226     (24,761     (13,706

Less: Net loss attributable to non-controlling interests

     —          —          —          (7,069     —          (7,069
                                                

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

   $ (6,637   $ (2,133   $ 21,051      $ 5,843      $ (24,761   $ (6,637
                                                

 

25


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 1,273,224      $ 924,578      $ —        $ 2,197,802   

Costs and expenses:

            

Cost of services

     —          —          764,690        529,218        —          1,293,908   

Operating, administrative and other

     21,110        2,514        364,479        322,636        —          710,739   

Depreciation and amortization

     —          —          28,734        25,177        —          53,911   
                                                

Total costs and expenses

     21,110        2,514        1,157,903        877,031        —          2,058,558   

Gain on disposition of real estate

     —          —          3,313        310        —          3,623   
                                                

Operating (loss) income

     (21,110     (2,514     118,634        47,857        —          142,867   

Equity income (loss) from unconsolidated subsidiaries

     —          —          8,807        (1,156     —          7,651   

Interest income

     —          103        1,486        3,671        (349     4,911   

Interest expense

     —          79,589        239        20,588        (349     100,067   

Royalty and management service (income) expense

     —          —          (11,097     11,097        —          —     

Income from consolidated subsidiaries

     60,888        110,318        21,854        —          (193,060     —     
                                                

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

     39,778        28,318        161,639        18,687        (193,060     55,362   

(Benefit of) provision for income taxes

     (8,385     (32,570     51,321        23,637        —          34,003   
                                                

Net income (loss) from continuing operations

     48,163        60,888        110,318        (4,950     (193,060     21,359   

Income from discontinued operations, net of income taxes

     —          —          —          7,140        —          7,140   
                                                

Net income

     48,163        60,888        110,318        2,190        (193,060     28,499   

Less: Net loss attributable to non-controlling interests

     —          —          —          (19,664     —          (19,664
                                                

Net income attributable to CB Richard Ellis Group, Inc.

   $ 48,163      $ 60,888      $ 110,318      $ 21,854      $ (193,060   $ 48,163   
                                                

 

26


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 1,127,154      $ 718,962      $ —        $ 1,846,116   

Costs and expenses:

            

Cost of services

     —          —          701,054        419,196        —          1,120,250   

Operating, administrative and other

     14,966        2,788        344,546        272,530        —          634,830   

Depreciation and amortization

     —          —          27,517        22,041        —          49,558   
                                                

Total costs and expenses

     14,966        2,788        1,073,117        713,767        —          1,804,638   

Gain on disposition of real estate

     —          —          —          2,925        —          2,925   
                                                

Operating (loss) income

     (14,966     (2,788     54,037        8,120        —          44,403   

Equity loss from unconsolidated subsidiaries

     —          —          (4,270     (7,670     —          (11,940

Interest income

     —          28        2,067        2,485        (1,038     3,542   

Interest expense

     —          67,343        223        15,688        (1,038     82,216   

Write-off of financing costs

     —          29,255        —          —          —          29,255   

Royalty and management service (income) expense

     —          —          (5,988     5,988        —          —     

(Loss) income from consolidated subsidiaries

     (34,330     25,593        (1,132     —          9,869        —     
                                                

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

     (49,296     (73,765     56,467        (18,741     9,869        (75,466

(Benefit of) provision for income taxes

     (5,970     (39,435     30,874        7,190        —          (7,341
                                                

Net (loss) income

     (43,326     (34,330     25,593        (25,931     9,869        (68,125

Less: Net loss attributable to non-controlling interests

     —          —          —          (24,799     —          (24,799
                                                

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

   $ (43,326   $ (34,330   $ 25,593      $ (1,132   $ 9,869      $ (43,326
                                                

 

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Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

   $ 9,936      $ 58,386      $ 84,825      $ (52,140   $ 101,007   

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     —          —          (3,376     (3,785     (7,161

Acquisition of businesses including net assets acquired, intangibles and goodwill

     —          —          (2,303     (60,417     (62,720

Contributions to unconsolidated subsidiaries

     —          —          (7,830     (3,022     (10,852

Distributions from unconsolidated subsidiaries

     —          —          15,961        169        16,130   

Net proceeds from disposition of real estate held for investment

     —          —          —          57,249        57,249   

Additions to real estate held for investment

     —          —          —          (5,212     (5,212

Proceeds from the sale of servicing rights and other assets

     —          —          9,708        33        9,741   

Decrease (increase) in restricted cash

     —          —          8,336        (532     7,804   

Other investing activities, net

     —          —          (954     —          (954
                                        

Net cash provided by (used in) investing activities

     —          —          19,542        (15,517     4,025   

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Repayment of senior secured term loans

     —          (60,770     —          —          (60,770

Proceeds from revolving credit facility

     —          —          —          16,349        16,349   

Repayment of revolving credit facility

     —          —          —          (10,496     (10,496

Proceeds from notes payable on real estate held for investment

     —          —          —          8,741        8,741   

Repayment of notes payable on real estate held for investment

     —          —          —          (48,493     (48,493

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

     —          —          —          3,214        3,214   

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

     —          —          —          (3,412     (3,412

Repayment of short-term borrowings and other loans, net

     —          —          (547     (3,500     (4,047

Proceeds from exercise of stock options

     312        —          —          —          312   

Non-controlling interests contributions

     —          —          —          22,103        22,103   

Non-controlling interests distributions

     —          —          —          (6,954     (6,954

Payment of financing costs

     —          (4,994     —          (713     (5,707

(Increase) decrease in intercompany receivables, net

     (10,484     (96,284     62,640        44,128        —     

Other financing activities, net

     236        —          —          (217     19   
                                        

Net cash (used in) provided by financing activities

     (9,936     (162,048     62,093        20,750        (89,141

Effect of currency exchange rate changes on cash and cash equivalents

     —          —          —          (13,885     (13,885
                                        

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     —          (103,662     166,460        (60,792     2,006   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     4        242,586        283,251        215,716        741,557   
                                        

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 4      $ 138,924      $ 449,711      $ 154,924      $ 743,563   
                                        

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

          

Cash paid (received) during the period for:

          

Interest

   $ —        $ 76,484      $ 2      $ 8,922      $ 85,408   
                                        

Income tax (refunds) payments, net

   $ (6,424   $ (78,380   $ (9,967   $ 17,724      $ (77,047
                                        

 

28


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

   $ 12,121      $ (24,516   $ 3,673      $ (73,997   $ (82,719

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     —          —          (3,593     (2,287     (5,880

Acquisition of businesses including net assets acquired, intangibles and goodwill

     —          —          (5,648     (10,933     (16,581

Contributions to unconsolidated subsidiaries

     —          —          (3,266     (32,509     (35,775

Distributions from unconsolidated subsidiaries

     —          —          2,122        658        2,780   

Additions to real estate held for investment

     —          —          —          (7,914     (7,914

Proceeds from the sale of servicing rights and other assets

     —          —          6,214        209        6,423   

Increase in restricted cash

     —          —          (2,380     (3,430     (5,810

Other investing activities, net

     —          —          (793     —          (793
                                        

Net cash used in investing activities

     —          —          (7,344     (56,206     (63,550

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Repayment of senior secured term loans

     —          (300,500     —          —          (300,500

Proceeds from revolving credit facility

     —          563,543        —          7,879        571,422   

Repayment of revolving credit facility

     —          (554,000     —          —          (554,000

Proceeds from 11.625% senior subordinated notes

     —          435,928        —          —          435,928   

Proceeds from notes payable on real estate held for investment

     —          —          —          12,088        12,088   

Repayment of notes payable on real estate held for investment

     —          —          —          (997     (997

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

     —          —          —          32,170        32,170   

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

     —          —          —          (32,046     (32,046

(Repayment of) proceeds from short-term borrowings and other loans, net

     —          —          (1,501     89        (1,412

Proceeds from issuance of common stock, net

     146,350        —          —          —          146,350   

Proceeds from exercise of stock options

     4,092        —          —          —          4,092   

Non-controlling interests contributions

     —          —          —          15,660        15,660   

Non-controlling interests distributions

     —          —          —          (8,469     (8,469

Payment of financing costs

     —          (28,722     —          (503     (29,225

(Increase) decrease in inter-company receivables, net

     (161,801     11,290        72,520        77,991        —     

Other financing activities, net

     (762     —          —          (891     (1,653
                                        

Net cash (used in) provided by financing activities

     (12,121     127,539        71,019        102,971        289,408   

Effect of currency exchange rate changes on cash and cash equivalents

     —          —          —          7,558        7,558   
                                        

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     —          103,023        67,348        (19,674     150,697   

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      $ 110,226      $ 76,815      $ 122,475      $ 309,520   
                                        

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

          

Cash paid (received) during the period for:

          

Interest

   $ —        $ 47,310      $ 106      $ 9,829      $ 57,245   
                                        

Income tax (refunds) payments, net

   $ (2,126   $ (9,221   $ (54,870   $ 8,832      $ (57,385
                                        

 

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Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

16. Industry Segments

We report our operations through five segments. The segments are as follows: (1) Americas, (2) EMEA, (3) Asia Pacific, (4) Global Investment Management and (5) Development Services.

The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the U.S. and in the largest regions of Canada and selected parts of Latin America. The primary services offered consist of the following: real estate services, mortgage loan origination and servicing, valuation services, asset services and corporate services.

Our EMEA and Asia Pacific segments provide services similar to the Americas business segment. The EMEA segment has operations primarily in Europe, while the Asia Pacific segment has operations primarily in Asia, Australia and New Zealand.

Our Global Investment Management business provides investment management services to clients seeking to generate returns and diversification through direct and indirect investments in real estate in the U.S., Europe and Asia.

Our Development Services business consists of real estate development and investment activities primarily in the U.S.

Summarized financial information by segment is as follows (dollars in thousands):

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

Revenue

           

Americas

   $ 722,255    $ 601,565    $ 1,367,866    $ 1,178,606

EMEA

     225,378      176,595      413,538      338,756

Asia Pacific

     158,678      122,652      293,110      215,746

Global Investment Management

     46,896      32,606      86,303      69,902

Development Services

     18,712      22,249      36,985      43,106
                           
   $ 1,171,919    $ 955,667    $ 2,197,802    $ 1,846,116
                           

EBITDA

           

Americas

   $ 89,847    $ 42,602    $ 151,835    $ 81,243

EMEA

     19,865      5,928      23,990      2,811

Asia Pacific

     12,777      12,219      21,035      14,159

Global Investment Management

     10,766