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 September 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 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 October 29, 2010 was 322,894,272.

 

 

 


Table of Contents

 

FORM 10-Q

September 30, 2010

TABLE OF CONTENTS

 

     Page  
   PART I—FINANCIAL INFORMATION   

Item 1.

  

Financial Statements

  
   Consolidated Balance Sheets at September 30, 2010 (Unaudited) and December 31, 2009      3   
   Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (Unaudited)      4   
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (Unaudited)      5   
   Consolidated Statement of Equity for the nine months ended September 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

     36   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     61   

Item 4.

  

Controls and Procedures

     62   
   PART II—OTHER INFORMATION   

Item 1.

  

Legal Proceedings

     63   

Item 1A.

  

Risk Factors

     63   

Item 6.

  

Exhibits

     75   

Signatures

     77   

 

2


Table of Contents

 

CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

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

Current Assets:

   

Cash and cash equivalents

  $ 768,675      $ 741,557   

Restricted cash

    51,497        46,797   

Receivables, less allowance for doubtful accounts of $53,297 and $41,397 at September 30, 2010 and December 31, 2009, respectively

    818,030        775,929   

Warehouse receivables

    264,819        315,033   

Income taxes receivable

    61,874        163,032   

Prepaid expenses

    88,821        99,309   

Deferred tax assets, net

    73,983        75,330   

Real estate and other assets held for sale

    5,671        7,109   

Other current assets

    44,217        42,629   
               

Total Current Assets

    2,177,587        2,266,725   

Property and equipment, net

    154,157        178,975   

Goodwill

    1,316,843        1,306,372   

Other intangible assets, net of accumulated amortization of $157,904 and $138,244 at September 30, 2010 and December 31, 2009, respectively

    331,748        322,904   

Investments in unconsolidated subsidiaries

    132,388        135,596   

Deferred tax assets, net

    11,365        3,395   

Real estate under development

    131,424        160,164   

Real estate held for investment

    701,790        526,169   

Available for sale securities

    31,791        32,016   

Other assets, net

    85,970        107,090   
               

Total Assets

  $ 5,075,063      $ 5,039,406   
               
LIABILITIES AND EQUITY    

Current Liabilities:

   

Accounts payable and accrued expenses

  $ 405,800      $ 458,510   

Compensation and employee benefits payable

    305,860        240,536   

Accrued bonus and profit sharing

    274,265        278,444   

Short-term borrowings:

   

Warehouse lines of credit

    260,112        312,872   

Revolving credit facility

    17,893        21,050   

Other

    2,016        5,850   
               

Total short-term borrowings

    280,021        339,772   

Current maturities of long-term debt

    108,233        138,682   

Notes payable on real estate

    215,030        159,921   

Liabilities related to real estate and other assets held for sale

    4,342        1,267   

Other current liabilities

    16,317        11,909   
               

Total Current Liabilities

    1,609,868        1,629,041   

Long-Term Debt:

   

Senior secured term loans

    1,360,548        1,545,490   

11.625% senior subordinated notes, net of unamortized discount of $12,627 and $13,498 at September 30, 2010 and December 31, 2009, respectively

    437,373        436,502   

Other long-term debt

    141        129   
               

Total Long-Term Debt

    1,798,062        1,982,121   

Pension liability

    63,128        64,945   

Non-current tax liabilities

    78,359        73,462   

Notes payable on real estate

    460,253        390,181   

Other liabilities

    108,429        115,361   
               

Total Liabilities

    4,118,099        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; 322,980,362 and 321,767,407 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively

    3,230        3,218   

Additional paid-in capital

    792,013        755,989   

Accumulated earnings (deficit)

    90,193        (15,008

Accumulated other comprehensive loss

    (112,039     (115,077
               

Total CB Richard Ellis Group, Inc. Stockholders’ Equity

    773,397        629,122   

Non-controlling interests

    183,567        155,173   
               

Total Equity

    956,964        784,295   
               

Total Liabilities and Equity

  $ 5,075,063      $ 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
September 30,
    Nine Months Ended
September 30,
 
    2010     2009     2010     2009  

Revenue

  $ 1,266,218      $ 1,023,205      $ 3,464,020      $ 2,869,321   

Costs and expenses:

       

Cost of services

    735,393        606,470        2,029,301        1,726,720   

Operating, administrative and other

    374,815        338,062        1,085,554        972,892   

Depreciation and amortization

    25,605        24,445        79,516        74,003   
                               

Total costs and expenses

    1,135,813        968,977        3,194,371        2,773,615   

Gain on disposition of real estate

    174        2,766        3,797        5,691   
                               

Operating income

    130,579        56,994        273,446        101,397   

Equity income (loss) from unconsolidated subsidiaries

    3,682        (6,312     11,333        (18,252

Interest income

    1,463        1,248        6,374        4,790   

Interest expense

    49,755        54,075        149,822        136,291   

Write-off of financing costs

    —          —          —          29,255   
                               

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

    85,969        (2,145     141,331        (77,611

Provision for income taxes

    38,075        8,498        72,078        1,157   
                               

Income (loss) from continuing operations

    47,894        (10,643     69,253        (78,768

Income from discontinued operations, net of income taxes

    7,821        —          14,961        —     
                               

Net income (loss)

    55,715        (10,643     84,214        (78,768

Less: Net loss attributable to non-controlling interests

    (1,323     (23,020     (20,987     (47,819
                               

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

  $ 57,038      $ 12,377      $ 105,201      $ (30,949
                               

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.

  $ 0.17      $ 0.04      $ 0.31      $ (0.11

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

    0.01        —          0.03        —     
                               

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

  $ 0.18      $ 0.04      $ 0.34      $ (0.11
                               

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

    313,791,661        282,732,848        313,197,421        270,214,427   
                               

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.

  $ 0.17      $ 0.04      $ 0.30      $ (0.11

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

    0.01        —          0.03        —     
                               

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

  $ 0.18      $ 0.04      $ 0.33      $ (0.11
                               

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

    319,353,359        285,923,601        318,278,968        270,214,427   
                               

Amounts attributable to CB Richard Ellis Group, Inc. shareholders

       

Income (loss) from continuing operations, net of tax

  $ 55,563      $ 12,377      $ 96,215      $ (30,949

Discontinued operations, net of tax

    1,475        —          8,986        —     
                               

Net income (loss)

  $ 57,038      $ 12,377      $ 105,201      $ (30,949
                               

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

 

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CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Nine Months Ended
September 30,
 
     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 84,214      $ (78,768

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

    

Depreciation and amortization

     79,717        74,003   

Amortization and write-off of financing costs

     8,305        35,850   

Write-down of impaired real estate and other assets

     2,592        29,315   

Gain on sale of loans, servicing rights and other assets

     (47,782     (14,144

Gain on disposition of real estate held for investment

     (16,945     (2,721

Equity (income) loss from unconsolidated subsidiaries

     (11,333     18,252   

Provision for doubtful accounts

     13,997        135   

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

     35,353        26,608   

Distribution of earnings from unconsolidated subsidiaries

     14,065        7,838   

Tenant concessions received

     4,588        2,296   

(Increase) decrease in receivables

     (51,268     100,410   

Decrease in deferred compensation assets

     —          217,079   

Decrease in prepaid expenses and other assets

     22,561        16,122   

Decrease (increase) in real estate held for sale and under development

     23,331        (2,674

Increase (decrease) in accounts payable and accrued expenses

     4,109        (42,843

Increase (decrease) in compensation and employee benefits payable and accrued bonus and profit sharing

     58,521        (133,458

Decrease in income taxes receivable

     103,036        53,273   

Decrease in other liabilities, including deferred compensation liabilities

     (1,657     (245,282

Other operating activities, net

     (480     (7,840
                

Net cash provided by operating activities

     324,924        53,451   

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (17,885     (12,647

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

     (68,620     (28,263

Contributions to unconsolidated subsidiaries

     (22,646     (41,666

Distributions from unconsolidated subsidiaries

     19,243        4,762   

Net proceeds from disposition of real estate held for investment

     76,504        3,408   

Additions to real estate held for investment

     (22,861     (22,952

Proceeds from the sale of servicing rights and other assets

     22,522        6,963   

Increase in restricted cash

     (5,726     (6,384

Other investing activities, net

     (1,386     (1,126
                

Net cash used in investing activities

     (20,855     (97,905

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Repayment of senior secured term loans

     (214,880     (429,250

Proceeds from revolving credit facility

     16,349        800,928   

Repayment of revolving credit facility

     (19,190     (752,210

Proceeds from 11.625% senior subordinated notes, net

     —          435,928   

Proceeds from notes payable on real estate held for investment

     18,981        13,764   

Repayment of notes payable on real estate held for investment

     (79,555     (5,432

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

     3,603        48,640   

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

     (9,953     (34,968

Repayment of short-term borrowings and other loans, net

     (4,048     (4,193

Proceeds from issuance of common stock, net

     —          146,361   

Proceeds from exercise of stock options

     578        14,735   

Non-controlling interests contributions

     27,367        20,470   

Non-controlling interests distributions

     (6,725     (12,501

Payment of financing costs

     (6,066     (38,698

Other financing activities, net

     518        (1,329
                

Net cash (used in) provided by financing activities

     (273,021     202,245   

Effect of currency exchange rate changes on cash and cash equivalents

     (3,930     9,431   
                

NET INCREASE IN CASH AND CASH EQUIVALENTS

     27,118        167,222   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     741,557        158,823   
                

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 768,675      $ 326,045   
                

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid (received) during the period for:

    

Interest

   $ 122,631      $ 100,310   
                

Income tax refunds, net

   $ (26,808   $ (53,918
                

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

 

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CB RICHARD ELLIS GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

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

Balance at December 31, 2009

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

Net income (loss)

    —          —          105,201        —          (20,987     84,214   

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

    —          —          —          —          29,534        29,534   

Compensation expense for stock options and non-vested stock awards

    —          35,353        —          —          —          35,353   

Foreign currency translation gain (loss)

    —          —          —          641        (44     597   

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

    —          —          —          382        —          382   

Contributions from non-controlling interests

    —          —          —          —          27,367        27,367   

Distributions to non-controlling interests

    —          —          —          —          (6,725     (6,725

Other

    12        671        —          2,015        (751     1,947   
                                               

Balance at September 30, 2010

  $ 3,230      $ 792,013      $ 90,193      $ (112,039   $ 183,567      $ 956,964   
                                               

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 investors re-evaluated commercial real estate versus other asset classes. Occupancy and rent levels weakened significantly for the primary property types that we service, develop or own. Property values have remained under pressure, but appear to be stabilizing, especially for core assets, and occupancy and rental rates appear to be bottoming out. In the first nine months of 2010, improved economic and credit market conditions led to a rebound in sales and leasing velocity from a very depressed level in 2009. 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. 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 nine months ended September 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 nine months ended September 30, 2010, the Venture funded $0.9 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 nine months ended September 30, 2010, aggregate revenue of $9.4 million and $25.0 million, respectively, and operating expenses of $5.6 million and $14.8 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 nine months ended September 30, 2010 were $3.5 million and $9.0 million, respectively, and were all attributable to non-controlling interests.

Investments in real estate of $245.4 million and non-recourse mortgage notes payable of $222.7 million ($34.9 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 September 30, 2010. In addition, non-controlling interests of $24.4 million in the accompanying consolidated balance sheets as of September 30, 2010 are attributable to the Entities.

 

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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.

 

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

 

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

Investments in unconsolidated subsidiaries

   $ 20,494       $ —         $ —         $ 20,494       $ 1,594   

Real estate

   $ 11,219       $ —         $ —         $ 11,219         2,342   

Notes receivable

   $ —         $ —         $ —         $ —           250   
                    

Total impairment charges

               $ 4,186   
                    
     Net Carrying Value
as of
September 30, 2009
     Fair Value Measured and Recorded Using      Total  Impairment
Charges for the
Three Months Ended

September 30, 2009
 
           Level 1                Level 2                Level 3          

Investments in unconsolidated subsidiaries

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

Real estate

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

Total impairment charges

               $ 22,502   
                    
     Net Carrying Value
as of

September 30, 2010
     Fair Value Measured and Recorded Using      Total  Impairment
Charges for the
Nine Months Ended

September 30, 2010
 
           Level 1                Level 2                Level 3          

Investments in unconsolidated subsidiaries

   $ 33,612       $ —         $ —         $ 33,612       $ 8,541   

Real estate

   $ 11,219       $ —         $ —         $ 11,219         2,342   

Note receivable

   $ —         $ —         $ —         $ —           250   
                    

Total impairment charges

               $ 11,133   
                    
     Net Carrying Value
as of

September 30, 2009
     Fair Value Measured and Recorded Using      Total Impairment
Charges for the
Nine Months Ended

September 30, 2009
 
           Level 1                Level 2                Level 3          

Investments in unconsolidated subsidiaries

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

Real estate

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

Notes receivable

   $ —         $ —         $ —         $ —           5,860   
                    

Total impairment charges

               $ 45,267   
                    

Investments in Unconsolidated Subsidiaries

During the three and nine months ended September 30, 2010, we recorded write-downs of $1.6 million and $8.5 million, respectively, of which $0.1 million and $2.6 million, respectively, were attributable to non-controlling interests. During the three and nine months ended September 30, 2010, $1.3 million and $7.2 million, respectively, of the investments write-downs were reported in our Global Investment Management

 

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segment and driven by a decrease in the estimated holding period of certain assets. In addition, during the nine months ended September 30, 2010 we incurred an additional $1.0 million of impairment charges in our Global Investment Management segment and during the three and nine months ended September 30, 2010, we incurred write-downs of $0.3 million in our Development Services segment, all driven by a decline in value of several investments attributable to continued capital market disruption.

During the three and nine months ended September 30, 2009, we recorded investment write-downs of $5.3 million and $16.0 million, respectively, of which $2.7 million and $5.7 million, respectively, were attributable to non-controlling interests. During the three and nine months ended September 30, 2009, $2.8 million and $6.3 million, respectively, of the investment write-downs were reported in our Global Investment Management segment and were primarily driven by a decrease in the estimated holding period of certain assets. During the three and nine months ended September 30, 2009, we incurred an additional $2.5 million and $9.7 million, respectively, of impairment charges, mainly attributable to declines in value of several investments, primarily as a result of significant capital market turmoil. Of the additional impairment charges noted, $7.2 million were reported in our Global Investment Management segment for the nine months ended September 30, 2009 and $2.5 million were reported in our Development Services segment for the three and nine months ended September 30, 2009.

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 nine months ended September 30, 2010, we recorded impairment charges of $2.3 million related to real estate held for investment, $1.6 million of which were attributable to non-controlling interests. These write-downs were primarily attributable to a decrease in the estimated holding period of one project and continued capital market disruption.

During the three and nine months ended September 30, 2009, we recorded charges of $17.2 million and $23.5 million, respectively, including impairment charges on real estate held for investment and a provision for loss on real estate held for sale. Of these amounts, $15.7 million and $20.3 million, respectively, were attributable to non-controlling interests. During the three and nine months ended September 30, 2009, we recorded impairment charges of $17.2 million and $20.3 million, respectively, related to eight projects where the carrying value was not recoverable primarily due to a decrease in the estimated holding periods of the projects. Additionally, during the nine months ended September 30, 2009, we recorded a provision for loss on real estate held for sale of $3.2 million to reduce the carrying value of a condominium project to its fair value less cost to sell, primarily due to reduced unit selling prices resulting from market conditions.

All of the abovementioned charges were included in operating, administrative and other expenses in the accompanying consolidated statements of operations within our Development Services segment. If conditions in the broader economy, commercial real estate industry, specific markets or product types in which we operate worsen and/or markets remain illiquid, we may be required to evaluate additional projects or re-evaluate previously impaired projects for potential impairment. These evaluations could result in additional impairment charges, which may be material.

 

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Notes Receivable

During the three and nine months ended September 30, 2010 we recorded a $0.3 million impairment charge on a note receivable secured by real estate, due to a decrease in value of the borrower’s real estate project, the proceeds from the sale of which would be used to repay the note receivable. During the nine months ended September 30, 2009, we also recorded a $5.9 million impairment charge, $5.4 million of which was attributable to non-controlling interests, on two notes receivable secured by real estate as a result of the borrower defaulting on the notes. 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 represented the difference between the carrying amounts of the notes and the fair value of the real estate assets acquired. For the nine months ended September 30, 2009, this also resulted in a non-cash reclassification of $17.3 million from notes receivable to real estate held for investment. All of our impairment charges associated with notes receivable were included in operating, administrative and other expenses in the accompanying consolidated statement of operations within our Development Services segment.

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 $1.5 billion at September 30, 2010, which approximates their actual carrying value at September 30, 2010 (See Note 9).

11.625% Senior Subordinated Notes: Based on dealers’ quotes, the estimated fair value of our 11.625% senior subordinated notes was $509.5 million at September 30, 2010. Their actual carrying value totaled $437.4 million at September 30, 2010.

Notes Payable on Real Estate: As of September 30, 2010, the carrying value of our notes payable on real estate was $679.6 million (See Note 8). These borrowings mostly have floating interest rates at spreads over a

 

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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 September 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
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Development Services:

        

Revenue

   $ 32,509      $ 24,448      $ 85,070      $ 62,566   

Operating (loss) income

   $ (4,419   $ 5,735      $ 30,650      $ 21,305   

Net loss

   $ (17,295   $ (4,685   $ (3,831   $ (332

Global Investment Management:

        

Revenue

   $ 137,453      $ 162,978      $ 413,277      $ 451,713   

Operating loss

   $ (125,640   $ (141,971   $ (481,362   $ (537,953

Net loss

   $ (214,204   $ (157,606   $ (576,419   $ (661,779

Other:

        

Revenue

   $ 14,354      $ 43,692      $ 75,248      $ 114,524   

Operating income

   $ 4,823      $ 5,312      $ 12,327      $ 13,821   

Net income

   $ 4,975      $ 5,457      $ 12,750      $ 14,089   

Total:

        

Revenue

   $ 184,316      $ 231,118      $ 573,595      $ 628,803   

Operating loss

   $ (125,236   $ (130,924   $ (438,385   $ (502,827

Net loss

   $ (226,524   $ (156,834   $ (567,500   $ (648,022

During the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, we recorded non-cash write-downs of investments of $1.6 million, $5.3 million, $8.5 million and $16.0 million, respectively, within our Global Investment Management and Development Services segments (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.

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

 

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the FASB ASC (Topic 360) and other assets directly related to such projects. Liabilities related to real estate and other assets held for sale have been included as a single line item in the accompanying consolidated balance sheets.

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

 

     September 30, 2010      December 31, 2009  

Assets:

     

Real estate held for sale (See Note 7)

   $ 5,671       $ 7,101   

Other current assets

     —           8   
                 

Total real estate and other assets held for sale

     5,671         7,109   

Liabilities:

     

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

     4,341         1,175   

Accounts payable and accrued expenses

     1         92   
                 

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

     4,342         1,267   
                 

Net real estate and other assets held for sale

   $ 1,329       $ 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):

 

     September 30, 2010      December 31, 2009  

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

   $ 5,671       $ 7,101   

Real estate under development (non-current)

     131,424         160,164   

Real estate held for investment (1)

     701,790         526,169   
                 

Total real estate (2)

   $ 838,885       $ 693,434   
                 

 

(1) Net of accumulated depreciation of $37.5 million and $26.7 million at September 30, 2010 and December 31, 2009, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $18.2 million and $4.1 million, respectively, at September 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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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   
        

In the third quarter of 2010, we deeded a consolidated real estate portfolio to the lender, in lieu of foreclosure. The related real estate note payable was nonrecourse to us. As a result of this transaction, we recorded a gain on disposition of real estate of $2.8 million and the following non-cash activity (dollars in thousands):

 

     Debit (Credit)  

Assets:

  

Real estate held for investment

   $ (13,422

Restricted cash

     (125

Receivables

     (975

Other current assets

     (396

Other assets

     (423
        

Total assets

     (15,341
        

Liabilities:

  

Notes payable on real estate, current

     15,821   

Accounts payable and accrued expenses

     2,052   

Other liabilities

     266   
        

Total liabilities

   $ 18,139   
        

 

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In the third 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 a gain on disposition of real estate of $0.2 million and the following non-cash activity (dollars in thousands):

 

     Debit (Credit)  

Assets:

  

Real estate held for investment

   $ (6,684
        

Liabilities:

  

Notes payable on real estate, current

     6,400   

Accounts payable and accrued expenses

     447   
        

Total liabilities

   $ 6,847   
        

In the third quarter of 2010, we purchased our partner’s interest in one of our equity method subsidiaries. As a result of the purchase of our partner’s interest, we consolidated the subsidiary and recorded the following non-cash activity (dollars in thousands):

 

     Debit (Credit)  

Assets:

  

Real estate held for sale

   $ 14,800   

Investments in unconsolidated subsidiaries

     (450

Other assets

     (500
        

Total assets

     13,850   
        

Liabilities:

  

Notes payable on real estate held for sale

     (9,736

Accounts payable and accrued expenses

     (4,114
        

Total liabilities

   $ (13,850
        

During the three months ended September 30, 2010 and 2009 and the nine months ended September 30, 2010 and 2009, we recorded impairment charges of $2.3 million, $17.2 million, $2.3 million and $20.3 million, respectively, on real estate held for investment within our Development Services segment. In addition, during the nine months ended September 30, 2009, we 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):

 

     September 30, 2010      December 31, 2009  

Current portion of notes payable on real estate

   $ 215,030       $ 159,921   

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

     4,341         1,175   
                 

Total notes payable on real estate, current portion

     219,371         161,096   

Notes payable on real estate, non-current portion

     460,253         390,181   
                 

Total notes payable on real estate

   $ 679,624       $ 551,277   
                 

 

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At September 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 (Credit Agreement) with a syndicate of banks led by CS, as administrative and collateral agent, amending and restating our amended and restated credit agreement dated December 20, 2006. In connection with this amendment and restatement, we wrote off financing costs of $29.3 million during the nine months ended September 30, 2009, which included the write-off of $18.1 million of unamortized deferred financing costs and $11.2 million of Credit Agreement amendment fees paid in March 2009. On August 24, 2009, we entered into a loan modification agreement to our Credit Agreement, which included the conversion of $41.9 million of amounts outstanding under our revolving credit facility to term loans. 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 since 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 nine months ended September 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; $7.2 million of our tranche A-1 term loan facility, which was applied against the balance due at maturity; $0.1 million of our tranche A-3A term loan facility, which covered the required quarterly principal payments due June 30, 2010 and September 30, 2010; $0.5 million of our tranche A-4 term loan facility, which repaid the entire outstanding balance; $153.8 million of our tranche B term loan facility, part of which covered a portion of the balance due at maturity and which also covered the 2010 required quarterly principal payments through September 30, 2010; $2.0 million of our tranche B-1 term loan facility, which covered a portion of the balance due at maturity; and $0.6 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

 

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(Unaudited)

 

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 September 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 September 30, 2010 and December 31, 2009, we had $17.9 million ($12.0 million under tranche 1 and $5.9 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 5.0% and 5.3%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of September 30, 2010, letters of credit totaling $21.3 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 September 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%; and 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%. Effective July 1, 2010, in connection with the $150.0 million prepayment of our tranche B term loan facility, borrowings under the term B loan facility bear interest, based on our option, on the following: for the tranche B 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%; and for the tranche B-1 and B-1A 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 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 September 30, 2010 and December 31, 2009, the outstanding balance did not exceed the targeted outstanding amount. As of September 30, 2010 and December 31, 2009, we had $135.9 million and $326.3 million of tranche A term loan facility principal outstanding, respectively, $41.4 million and $48.6 million of tranche A-1 term loan facility principal outstanding, respectively, $203.2 million of tranche A-2 term loan facility principal outstanding, $167.5 million of tranche A-3 term loan facility principal outstanding, $489.1 million and $642.8 million of tranche B term loan facility principal outstanding, respectively, and $293.2 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 September 30, 2010, we also had $24.0 million of tranche A-3A term loan facility principal outstanding and $114.4 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.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

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 coverage ratio of EBITDA to total interest expense was 6.57x for the trailing twelve months ended September 30, 2010 and our leverage ratio of total debt less available cash to EBITDA was 1.27x as of September 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 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 September 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, as well as investigations relating to the Foreign Corrupt Practices Act. Our management believes that any liability imposed on us that may result from disposition of these lawsuits or investigations 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 $29.0 million as of September 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 October 2011.

We had guarantees totaling $11.7 million as of September 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 $11.7 million primarily consists of guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through October 2013.

In addition, as of September 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

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 Multifamily Capital, Inc. (CBRE MCI), a wholly-owned subsidiary of CBRE Capital Markets, Inc., entered into an agreement with Fannie Mae, under Fannie Mae’s Delegated Underwriting and Servicing (DUS) Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI 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 originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $1.7 billion at September 30, 2010. Additionally, CBRE MCI 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 September 30, 2010. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of September 30, 2010 and December 31, 2009, CBRE MCI had $1.7 million and $1.2 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $3.2 million and $2.0 million, respectively, of loan loss accruals. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI.

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2% to 5% of the equity in a particular fund. As of September 30, 2010, we had aggregate commitments of $20.3 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 September 30, 2010, we had committed to fund $27.2 million of additional capital to these unconsolidated subsidiaries.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

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 nine months ended September 30, 2009, all stock options and contingently issuable shares were anti-dilutive, since we reported a net loss for the period. As a result, basic and diluted loss per share was the same for the nine months ended September 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
September 30,
    Nine Months Ended
September 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

  $ 57,038      $ 12,377      $ 105,201      $ (30,949

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

    313,791,661        282,732,848        313,197,421        270,214,427   
                               

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

  $ 0.18      $ 0.04      $ 0.34      $ (0.11
                               
    Three Months Ended
September 30,
    Nine Months Ended
September 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

  $ 57,038      $ 12,377      $ 105,201      $ (30,949

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

    313,791,661        282,732,848        313,197,421        270,214,427   

Dilutive effect of stock options

    2,673,719        2,770,300        2,554,348        —     

Dilutive effect of contingently issuable shares

    2,887,979        420,453        2,527,199        —     
                               

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

    319,353,359        285,923,601        318,278,968        270,214,427   
                               

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

  $ 0.18      $ 0.04      $ 0.33      $ (0.11
                               

For the three and nine months ended September 30, 2010, options to purchase 597,547 shares of common stock and 1,651,677 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 months ended September 30, 2009, options to purchase 3,394,143 shares of common stock and 7,738,345 of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. Had we reported net income for the nine months

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

ended September 30, 2009, options to purchase 4,767,349 shares of common stock would have been included in the computation of diluted earnings per share, while options to purchase 3,394,143 shares of common stock would have been excluded from the computation of diluted earnings per share as their inclusion would have had an anti-dilutive effect. Additionally, had we reported net income for the nine months ended September 30, 2009, 2,512,590 of contingently issuable shares would have been included in the computation of diluted earnings per share, while 7,738,345 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
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Net income (loss)

   $ 55,715      $ (10,643   $ 84,214      $ (78,768

Other comprehensive income:

        

Foreign currency translation gain

     61,191        9,653        597        40,261   

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

     86        1,972        382        7,818   

Other, net

     (198     630        2,015        816   
                                

Total other comprehensive income

     61,079        12,255        2,994        48,895   

Comprehensive income (loss)

     116,794        1,612        87,208        (29,873

Comprehensive loss attributable to non-controlling interests

     (643     (21,392     (21,031     (46,766
                                

Comprehensive income attributable to CB Richard Ellis Group, Inc.

   $ 117,437      $ 23,004      $ 108,239      $ 16,893   
                                

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.

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Interest cost

   $ 4,050      $ 3,721      $ 11,997      $ 10,566   

Expected return on plan assets

     (3,757     (3,230     (11,133     (9,174

Amortization of unrecognized net loss

     552        271        1,637        769   
                                

Net periodic pension cost

   $ 845      $ 762      $ 2,501      $ 2,161   
                                

We contributed $0.9 million and $2.5 million to fund our pension plans during the three and nine months ended September 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.

 

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CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

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 the three and nine months ended September 30, 2010 were reported in our Development Services segment as follows (dollars in thousands):

 

    Three Months Ended
September 30, 2010
    Nine Months Ended
September 30, 2010
 

Revenue

  $ 704      $ 1,682   

Costs and expenses:

   

Operating, administrative and other

    500        856   

Depreciation and amortization

    33        201   
               

Total costs and expenses

    533        1,057   

Gain on disposition of real estate

    8,520        20,399   
               

Operating income

    8,691        21,024   

Interest income

    —          1   

Interest expense

    372        1,087   
               

Income from discontinued operations, before provision for income taxes

    8,319        19,938   

Provision for income taxes

    498        4,977   
               

Income from discontinued operations, net of income taxes

    7,821        14,961   

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

    6,346        5,975   
               

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

  $ 1,475      $ 8,986   
               

15. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of September 30, 2010 and December 31, 2009; condensed consolidating statements of operations for the three and nine months ended September 30, 2010 and 2009; and condensed consolidating statements of cash flows for the nine months ended September 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 SEPTEMBER 30, 2010

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 4      $ 243,029      $ 366,107      $ 159,535      $ —        $ 768,675   

Restricted cash

    —          4,823        15,989        30,685        —          51,497   

Receivables, net

    —          4        342,269        475,757        —          818,030   

Warehouse receivables (a)

    —          —          264,819        —          —          264,819   

Income taxes receivable

    18,279        77,711        —          11,032        (45,148     61,874   

Prepaid expenses

    —          417        38,088        50,316        —          88,821   

Deferred tax assets, net

    —          —          50,873        23,110        —          73,983   

Real estate and other assets held for sale

    —          —          —          5,671        —          5,671   

Other current assets

    —          —          27,012        17,205        —          44,217   
                                               

Total Current Assets

    18,283        325,984        1,105,157        773,311        (45,148     2,177,587   

Property and equipment, net

    —          —          91,075        63,082        —          154,157   

Goodwill

    —          —          800,228        516,615        —          1,316,843   

Other intangible assets, net

    —          —          302,754        28,994        —          331,748   

Investments in unconsolidated subsidiaries

    —          —          74,730        57,658        —          132,388   

Investments in consolidated subsidiaries

    990,635        2,737,305        967,235        —          (4,695,175     —     

Intercompany loan receivable

    —          —          635,000        119,352        (754,352     —     

Deferred tax assets, net

    —          —          —          33,219        (21,854     11,365   

Real estate under development

    —          —          —          131,424        —          131,424   

Real estate held for investment

    —          —          4,705        697,085        —          701,790   

Available for sale securities

    —          —          31,791        —          —          31,791   

Other assets, net

    —          24,400        22,095        39,475        —          85,970   
                                               

Total Assets

  $ 1,008,918      $ 3,087,689      $ 4,034,770      $ 2,460,215      $ (5,516,529   $ 5,075,063   
                                               

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 16,854      $ 126,193      $ 262,753      $ —        $ 405,800   

Compensation and employee benefits payable

    —          626        178,499        126,735        —          305,860   

Accrued bonus and profit sharing

    —          —          144,236        130,029        —          274,265   

Income taxes payable

    —          —          45,148        —          (45,148     —     

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          260,112        —          —          260,112   

Revolving credit facility

    —          10,209        —          7,684        —          17,893   

Other

    —          —          16        2,000        —          2,016   
                                               

Total short-term borrowings

    —          10,209        260,128        9,684        —          280,021   

Current maturities of long-term debt

    —          108,182        —          51        —          108,233   

Notes payable on real estate

    —          —          —          215,030        —          215,030   

Liabilities related to real estate and other assets held for sale

    —          —          —          4,342        —          4,342   

Other current liabilities

    —          —          13,733        2,584        —          16,317   
                                               

Total Current Liabilities

    —          135,871        767,937        751,208        (45,148     1,609,868   

Long-Term Debt:

           

Senior secured term loans

    —          1,360,548        —          —          —          1,360,548   

11.625% senior subordinated notes, net

    —          437,373        —          —          —          437,373   

Other long-term debt

    —          —          —          141        —          141   

Intercompany loan payable

    235,521        163,262        355,569        —          (754,352     —     
                                               

Total Long-Term Debt

    235,521        1,961,183        355,569        141        (754,352     1,798,062   

Deferred tax liabilities, net

    —          —          21,854        —          (21,854     —     

Pension liability

    —          —          —          63,128        —          63,128   

Non-current tax liabilities

    —          —          78,359        —          —          78,359   

Notes payable on real estate

    —          —          —          460,253        —          460,253   

Other liabilities

    —          —          73,746        34,683        —          108,429   
                                               

Total Liabilities

    235,521        2,097,054        1,297,465        1,309,413        (821,354     4,118,099   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CB Richard Ellis Group, Inc. Stockholders’ Equity

    773,397        990,635        2,737,305        967,235        (4,695,175     773,397   

Non-controlling interests

    —          —          —          183,567        —          183,567   
                                               

Total Equity

    773,397        990,635        2,737,305        1,150,802        (4,695,175     956,964   
                                               

Total Liabilities and Equity

  $ 1,008,918      $ 3,087,689      $ 4,034,770      $ 2,460,215      $ (5,516,529   $ 5,075,063   
                                               

 

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

 

24


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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.

 

25


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 SEPTEMBER 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 745,374      $ 520,844      $ —        $ 1,266,218   

Costs and expenses:

            

Cost of services

     —          —          449,176        286,217        —          735,393   

Operating, administrative and other

     12,851        1,592        189,778        170,594        —          374,815   

Depreciation and amortization

     —          —          13,510        12,095        —          25,605   
                                                

Total costs and expenses

     12,851        1,592        652,464        468,906        —          1,135,813   

Gain on disposition of real estate

     —          —          68        106        —          174   
                                                

Operating (loss) income

     (12,851     (1,592     92,978        52,044        —          130,579   

Equity income (loss) from unconsolidated subsidiaries

     —          —          5,182        (1,500     —          3,682   

Interest income

     —          44        644        912        (137     1,463   

Interest expense

     —          37,194        1,975        10,723        (137     49,755   

Royalty and management service (income) expense

     —          —          (5,819     5,819        —          —     

Income from consolidated subsidiaries

     64,785        88,138        24,366        —          (177,289     —     
                                                

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

     51,934        49,396        127,014        34,914        (177,289     85,969   

(Benefit of) provision for income taxes

     (5,104     (15,389     38,876        19,692        —          38,075   
                                                

Net income from continuing operations

     57,038        64,785        88,138        15,222        (177,289     47,894   

Income from discontinued operations, net of income taxes

     —          —          —          7,821        —          7,821   
                                                

Net income

     57,038        64,785        88,138        23,043        (177,289     55,715   

Less: Net loss attributable to non-controlling interests

     —          —          —          (1,323     —          (1,323
                                                

Net income attributable to CB Richard Ellis Group, Inc.

   $ 57,038      $ 64,785      $ 88,138      $ 24,366      $ (177,289   $ 57,038   
                                                

 

26


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 SEPTEMBER 30, 2009

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

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

Costs and expenses:

            

Cost of services

     —          —          367,623        238,847        —          606,470   

Operating, administrative and other

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

Depreciation and amortization

     —          —          13,522        10,923        —          24,445   
                                                

Total costs and expenses

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

Gain on disposition of real estate

     —          —          —          2,766        —          2,766   
                                                

Operating (loss) income

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

Equity loss from unconsolidated subsidiaries

     —          —          (664     (5,648     —          (6,312

Interest income

     —          8        1,609        7        (376     1,248   

Interest expense

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

Royalty and management service (income) expense

     —          —          (6,432     6,432        —          —     

Income from consolidated subsidiaries

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

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

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

(Benefit of) provision for income taxes

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

Net income (loss)

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

Less: Net loss attributable to non-controlling interests

     —          —          —          (23,020     —          (23,020
                                                

Net income attributable to CB Richard Ellis Group, Inc.

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

 

27


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

   $ —        $ —        $ 2,018,598      $ 1,445,422      $ —        $ 3,464,020   

Costs and expenses:

            

Cost of services

     —          —          1,213,866        815,435        —          2,029,301   

Operating, administrative and other

     33,961        4,106        554,257        493,230        —          1,085,554   

Depreciation and amortization

     —          —          42,244        37,272        —          79,516   
                                                

Total costs and expenses

     33,961        4,106        1,810,367        1,345,937        —          3,194,371   

Gain on disposition of real estate

     —          —          3,381        416        —          3,797   
                                                

Operating (loss) income

     (33,961     (4,106     211,612        99,901        —          273,446   

Equity income (loss) from unconsolidated subsidiaries

     —          —          13,989        (2,656     —          11,333   

Interest income

     —          147        2,130        4,583        (486     6,374   

Interest expense

     —          116,783        2,214        31,311        (486     149,822   

Royalty and management service (income) expense

     —          —          (16,916     16,916        —          —     

Income from consolidated subsidiaries

     125,673        198,456        46,220        —          (370,349     —     
                                                

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

     91,712        77,714        288,653        53,601        (370,349     141,331   

(Benefit of) provision for income taxes

     (13,489     (47,959     90,197        43,329        —          72,078   
                                                

Net income from continuing operations

     105,201        125,673        198,456        10,272        (370,349     69,253   

Income from discontinued operations, net of income taxes

     —          —          —          14,961        —          14,961   
                                                

Net income

     105,201        125,673        198,456        25,233        (370,349     84,214   

Less: Net loss attributable to non-controlling interests

     —          —          —          (20,987     —          (20,987
                                                

Net income attributable to CB Richard Ellis Group, Inc.

   $ 105,201      $ 125,673      $ 198,456      $ 46,220      $ (370,349   $ 105,201   
                                                

 

28


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

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

Costs and expenses:

            

Cost of services

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

Operating, administrative and other

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

Depreciation and amortization

     —          —          41,039        32,964        —          74,003   
                                                

Total costs and expenses

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

Gain on disposition of real estate

     —          —          —          5,691        —          5,691   
                                                

Operating (loss) income

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

Equity loss from unconsolidated subsidiaries

     —          —          (4,934     (13,318     —          (18,252

Interest income

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

Interest expense

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

Write-off of financing costs

     —          29,255        —          —          —          29,255   

Royalty and management service (income) expense

     —          —          (12,420     12,420        —          —     

(Loss) income from consolidated subsidiaries

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

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

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

(Benefit of) provision for income taxes

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

Net (loss) income

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

Less: Net loss attributable to non-controlling interests

     —          —          —          (47,819     —          (47,819
                                                

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

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

 

29


Table of Contents

CB RICHARD ELLIS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(Dollars in thousands)

 

     Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

   $ 10,731      $ 43,624      $ 196,197      $ 74,372      $ 324,924   

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Capital expenditures

     —          —          (11,193     (6,692     (17,885

Acquisition of businesses including net assets acquired, intangibles and goodwill

     —          —          (2,340     (66,280     (68,620

Contributions to unconsolidated subsidiaries

     —          —          (19,329     (3,317     (22,646

Distributions from unconsolidated subsidiaries

     —          —          18,102        1,141        19,243   

Net proceeds from disposition of real estate held for investment

     —          —          —          76,504        76,504   

Additions to real estate held for investment

     —          —          —          (22,861     (22,861

Proceeds from the sale of servicing rights and other assets

     —          —          20,775        1,747        22,522   

Increase in restricted cash

     —          —          (2,201     (3,525     (5,726

Other investing activities, net

     —          —          (1,386     —          (1,386
                                        

Net cash provided by (used in) investing activities

     —          —          2,428        (23,283     (20,855

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Repayment of senior secured term loans

     —          (214,880     —          —          (214,880

Proceeds from revolving credit facility

     —          —          —          16,349        16,349   

Repayment of revolving credit facility

     —          —          —          (19,190     (19,190

Proceeds from notes payable on real estate held for investment

     —          —          —          18,981        18,981   

Repayment of notes payable on real estate held for investment

     —          —          —          (79,555     (79,555

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

     —          —          —          3,603        3,603   

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

     —          —          —          (9,953     (9,953

Repayment of short-term borrowings and other loans, net

     —          —          (548     (3,500     (4,048

Proceeds from exercise of stock options

     578        —          —          —          578   

Non-controlling interests contributions

     —          —          —          27,367        27,367   

Non-controlling interests distributions

     —          —          —          (6,725     (6,725

Payment of financing costs

     —          (5,191     —          (875     (6,066

(Increase) decrease in intercompany receivables, net

     (12,110     176,890        (115,221     (49,559     —     

Other financing activities, net

     801        —          —          (283     518   
                                        

Net cash used in financing activities

     (10,731     (43,181     (115,769     (103,340