*
400+
OF F ICES IN
CB Richard Ellis Group, Inc. / 11150 Santa Monica Boulevard, Suite 1600 / Los Angeles, CA 90025
/ Phone: 310.405.8900 / www.cbre.com
THE UNIVERSAL LANGUAGE OF CBRE.
Annual Report 07
Spoken by more than 29,000 CBRE professionals working to create the preeminent, vertically integrated, globally
capable commercial real estate services firm in the world—CB Richard Ellis Group, Inc.
57COU N TR IES
A L L SPE A K ING
THE
UNIVERSAL
LANGUAGE
OF CBRE
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*
400+
OF F ICES IN
CB Richard Ellis Group, Inc. / 11150 Santa Monica Boulevard, Suite 1600 / Los Angeles, CA 90025
/ Phone: 310.405.8900 / www.cbre.com
THE UNIVERSAL LANGUAGE OF CBRE.
Annual Report 07
Spoken by more than 29,000 CBRE professionals working to create the preeminent, vertically integrated, globally
capable commercial real estate services firm in the world—CB Richard Ellis Group, Inc.
57COU N TR IES
A L L SPE A K ING
THE
UNIVERSAL
LANGUAGE
OF CBRE
*i nc lude s a f f i l i at e of f ice s
T
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7
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
Dollars in thousands, except share data
TOTAL REVENUE
6,034,249
4,032,027
3,194,026
NORMALIZED EBITDA (2) (3)
970,072
652,533
461,267
07
06(1)
05
07
06(1)
05
Selected Financial Data
In thousands, except share data
Revenue
Depreciation and amortization
Operating income
Equity income from unconsolidated subsidiaries
Minority interest expense
Other (loss) income
Interest expense, net
Loss on extinguishment of debt
Income from continuing operations before provision for income taxes
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Earnings per share
Basic
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Diluted
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Weighted average shares outstanding
Basic
Diluted
2007
6,034,249
113,269
698,971
64,939
11,875
(37,534 )
133,987
—
580,514
387,871
2,634
390,505
1.70
0.01
1.71
1.65
0.01
1.66
$
$
$
$
$
$
Year Ended December 31,
2006 (1)
$
$
$
$
$
$
4,032,027
67,595
550,139
33,300
6,120
8,610
35,185
33,847
516,897
318,571
—
318,571
1.41
—
1.41
1.35
—
1.35
2005
3,194,026
45,516
372,406
38,425
2,163
—
45,060
7,386
356,222
217,341
—
217,341
0.98
—
0.98
0.95
—
0.95
$
$
$
$
$
$
228,476,724
234,978,464
226,685,122
235,118,341
222,129,066
229,855,056
EBITDA (2) (3)
$
834,264
$
653,524
$
454,184
(1) The results for the year ended December 31, 2006, include the operations of Trammell Crow Company from December 20, 2006, the date we acquired Trammell Crow Company.
(2) Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
(3) Reconciliation of Normalized EBITDA to EBITDA to Net Income:
(4) Reconciliation of Net Income to Net Income, As Adjusted, and Calculation of Diluted Earnings per Share,
As Adjusted:
EARNINGS PER SHARE, AS ADJUSTED (4)
In thousands
Normalized EBITDA
Less:
Merger-related charges
2007
Year Ended December 31,
2005
2006
In thousands, except share data
2007
Year Ended December 31,
2005
2006
$
970,072
$
652,533
$
461,267
$
390,505
$
318,571
$
217,341
Integration costs related to acquisitions
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition
56,932
45,222
33,654
—
7,619
(8,610 )
—
7,083
—
$2.11
$1.48
$1.00
07
06(1)
05
EBITDA (2)
Add:
Interest income (i)
Less:
Depreciation and amortization (ii)
Interest expense (iii)
Loss on extinguishment of debt
Provision for income taxes (iv)
$
834,264
$
653,524
$
454,184
29,019
9,822
11,221
113,694
164,829
—
194,255
67,595
45,007
33,847
198,326
45,516
56,281
7,386
138,881
Net income
$
390,505
$
318,571
$
217,341
(i) Includes interest income related to discontinued operations of $0.01 million for the year ended
December 31, 2007. (ii) Includes depreciation and amortization related to discontinued operations of
$0.4 million for the year ended December 31, 2007. (iii) Includes interest expense related to discontinued
operations of $1.8 million for the year ended December 31, 2007. (iv) Includes provision for income taxes
related to discontinued operations of $1.6 million for the year ended December 31, 2007.
Net income
Amortization expense related to net revenue backlog
and incentive fees acquired in acquisitons, net of tax
Merger-related charges, net of tax
24,898
34,159
Integration costs related to acquisitions, net of tax
27,133
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition, net of tax
20,095
Loss on extinguishment of debt, net of tax
Tax expense related to the repatriation of foreign
earnings under the American Jobs Creation Act of 2004
—
—
9,681
—
4,594
(5,192 )
20,375
—
—
—
4,435
—
4,626
3,537
229,939
1.00
Net income, as adjusted
Diluted income per share, as adjusted
$
$
496,790
2.11
$
$
348,029
1.48
$
$
Weighted average shares outstanding for diluted
income per share, as adjusted
234,978,464
235,118,341
229,855,056
SHAREHOLDER
INFORMATION
EXECUTIVE
OFFICERS
Brett White
President and
Chief Executive Officer
Kenneth J. Kay
Senior Executive
Vice President and
Chief Financial Officer
Calvin W. Frese, Jr.
Senior Executive
Vice President and
President, The Americas
Robert Blain
President, Asia Pacific
Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
Gil Borok
Executive Vice President, Finance
and Chief Accounting Officer
Laurence H. Midler
Executive Vice President,
General Counsel,
Chief Compliance Officer
and Secretary
HEADQUARTERS
CB Richard Ellis Group, Inc.
11150 Santa Monica Boulevard
Suite 1600
Los Angeles, CA 90025
310.405.8900
2007 INDEPENDENT AUDITORS
Deloitte & Touche LLP
350 South Grand Avenue
Los Angeles, CA 90071-3462
2008 INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071-1568
REGISTRAR AND STOCK
TRANSFER AGENT
If you are a registered shareholder and
have a question about your account,
or would like to report a change in your
name or address, please contact:
The Bank of New York
Shareholder Relations Department
P.O. Box 11258
Church Street Station
New York, New York 10286
800.524.4458
212.815.3700
E-mail: shareowners@bankofnewyork.com
Internet address: www.stockbny.com
Stock Listing
CB Richard Ellis Group, Inc. Class A Common
Stock is listed on the New York Stock
Exchange under the ticker symbol “CBG.”
Common Stock Price
The high and low prices per share of
Common Stock are set forth below for
Fiscal Year 2007.
1Q
2Q
3Q
4Q
High
39.15
39.93
42.74
29.36
$
$
$
$
Low
$
31.22
$ 33.00
$ 23.69
17.49
$
The closing share price for our Class A
Common Stock on December 31, 2007,
as reported by the New York Stock
Exchange, was $21.55.
SHAREHOLDER INQUIRIES
Shareholder inquiries, including requests
for annual reports, may be made in
writing to:
CB Richard Ellis Group, Inc.
Investor Relations Department
200 Park Avenue, 17th Floor
New York, New York 10166
E-mail: investorrelations@cbre.com
Internet address: www.cbre.com
BOARD OF
DIRECTORS
1 Richard C. Blum(A)(D)(E)
Chairman
CB Richard Ellis Group, Inc.
Chairman and President
Richard C. Blum & Associates, Inc.
2 Patrice M. Daniels(B)
Founding Partner
Blue Sky Advisors, Inc.
3 Senator Thomas A. Daschle(D)
Special Policy Advisor
Alston & Bird LLP
4 Curtis F. Feeny(D)
Managing Director
Voyager Capital
5 Bradford M. Freeman(A)(C)
Founding Partner
Freeman Spogli & Co., Inc.
6 Michael Kantor(A)
Partner
Mayer Brown LLP
7 Frederic V. Malek(B)(C)
Chairman
Thayer Capital Partners
8 Jane J. Su(C)
Partner
Blum Capital Partners, L.P.
9 Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
CB Richard Ellis Group, Inc.
10 Brett White(A)(E)
President and Chief Executive Officer
CB Richard Ellis Group, Inc.
11 Gary L. Wilson(B)
Private Investor
12 Ray Wirta(A)(E)
Vice Chairman
CB Richard Ellis Group, Inc.
(A) Acquisition Committee
(B) Audit Committee
(C) Compensation Committee
(D) Corporate Governance and
Nominating Committee
(E) Executive Committee
1
2
3
4
5
6
7
8
9
10
11
12
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C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
Dollars in thousands, except share data
TOTAL REVENUE
6,034,249
4,032,027
3,194,026
NORMALIZED EBITDA (2) (3)
970,072
652,533
461,267
07
06(1)
05
07
06(1)
05
Selected Financial Data
In thousands, except share data
Revenue
Depreciation and amortization
Operating income
Equity income from unconsolidated subsidiaries
Minority interest expense
Other (loss) income
Interest expense, net
Loss on extinguishment of debt
Income from continuing operations before provision for income taxes
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Earnings per share
Basic
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Diluted
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Weighted average shares outstanding
Basic
Diluted
2007
6,034,249
113,269
698,971
64,939
11,875
(37,534 )
133,987
—
580,514
387,871
2,634
390,505
1.70
0.01
1.71
1.65
0.01
1.66
$
$
$
$
$
$
Year Ended December 31,
2006 (1)
$
$
$
$
$
$
4,032,027
67,595
550,139
33,300
6,120
8,610
35,185
33,847
516,897
318,571
—
318,571
1.41
—
1.41
1.35
—
1.35
2005
3,194,026
45,516
372,406
38,425
2,163
—
45,060
7,386
356,222
217,341
—
217,341
0.98
—
0.98
0.95
—
0.95
$
$
$
$
$
$
228,476,724
234,978,464
226,685,122
235,118,341
222,129,066
229,855,056
EBITDA (2) (3)
$
834,264
$
653,524
$
454,184
(1) The results for the year ended December 31, 2006, include the operations of Trammell Crow Company from December 20, 2006, the date we acquired Trammell Crow Company.
(2) Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
(3) Reconciliation of Normalized EBITDA to EBITDA to Net Income:
(4) Reconciliation of Net Income to Net Income, As Adjusted, and Calculation of Diluted Earnings per Share,
As Adjusted:
EARNINGS PER SHARE, AS ADJUSTED (4)
In thousands
Normalized EBITDA
Less:
Merger-related charges
2007
Year Ended December 31,
2005
2006
In thousands, except share data
2007
Year Ended December 31,
2005
2006
$
970,072
$
652,533
$
461,267
$
390,505
$
318,571
$
217,341
Integration costs related to acquisitions
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition
56,932
45,222
33,654
—
7,619
(8,610 )
—
7,083
—
$2.11
$1.48
$1.00
07
06(1)
05
EBITDA (2)
Add:
Interest income (i)
Less:
Depreciation and amortization (ii)
Interest expense (iii)
Loss on extinguishment of debt
Provision for income taxes (iv)
$
834,264
$
653,524
$
454,184
29,019
9,822
11,221
113,694
164,829
—
194,255
67,595
45,007
33,847
198,326
45,516
56,281
7,386
138,881
Net income
$
390,505
$
318,571
$
217,341
(i) Includes interest income related to discontinued operations of $0.01 million for the year ended
December 31, 2007. (ii) Includes depreciation and amortization related to discontinued operations of
$0.4 million for the year ended December 31, 2007. (iii) Includes interest expense related to discontinued
operations of $1.8 million for the year ended December 31, 2007. (iv) Includes provision for income taxes
related to discontinued operations of $1.6 million for the year ended December 31, 2007.
Net income
Amortization expense related to net revenue backlog
and incentive fees acquired in acquisitons, net of tax
Merger-related charges, net of tax
24,898
34,159
Integration costs related to acquisitions, net of tax
27,133
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition, net of tax
20,095
Loss on extinguishment of debt, net of tax
Tax expense related to the repatriation of foreign
earnings under the American Jobs Creation Act of 2004
—
—
9,681
—
4,594
(5,192 )
20,375
—
—
—
4,435
—
4,626
3,537
229,939
1.00
Net income, as adjusted
Diluted income per share, as adjusted
$
$
496,790
2.11
$
$
348,029
1.48
$
$
Weighted average shares outstanding for diluted
income per share, as adjusted
234,978,464
235,118,341
229,855,056
SHAREHOLDER
INFORMATION
EXECUTIVE
OFFICERS
Brett White
President and
Chief Executive Officer
Kenneth J. Kay
Senior Executive
Vice President and
Chief Financial Officer
Calvin W. Frese, Jr.
Senior Executive
Vice President and
President, The Americas
Robert Blain
President, Asia Pacific
Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
Gil Borok
Executive Vice President, Finance
and Chief Accounting Officer
Laurence H. Midler
Executive Vice President,
General Counsel,
Chief Compliance Officer
and Secretary
HEADQUARTERS
CB Richard Ellis Group, Inc.
11150 Santa Monica Boulevard
Suite 1600
Los Angeles, CA 90025
310.405.8900
2007 INDEPENDENT AUDITORS
Deloitte & Touche LLP
350 South Grand Avenue
Los Angeles, CA 90071-3462
2008 INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071-1568
REGISTRAR AND STOCK
TRANSFER AGENT
If you are a registered shareholder and
have a question about your account,
or would like to report a change in your
name or address, please contact:
The Bank of New York
Shareholder Relations Department
P.O. Box 11258
Church Street Station
New York, New York 10286
800.524.4458
212.815.3700
E-mail: shareowners@bankofnewyork.com
Internet address: www.stockbny.com
Stock Listing
CB Richard Ellis Group, Inc. Class A Common
Stock is listed on the New York Stock
Exchange under the ticker symbol “CBG.”
Common Stock Price
The high and low prices per share of
Common Stock are set forth below for
Fiscal Year 2007.
1Q
2Q
3Q
4Q
High
39.15
39.93
42.74
29.36
$
$
$
$
Low
$
31.22
$ 33.00
$ 23.69
17.49
$
The closing share price for our Class A
Common Stock on December 31, 2007,
as reported by the New York Stock
Exchange, was $21.55.
SHAREHOLDER INQUIRIES
Shareholder inquiries, including requests
for annual reports, may be made in
writing to:
CB Richard Ellis Group, Inc.
Investor Relations Department
200 Park Avenue, 17th Floor
New York, New York 10166
E-mail: investorrelations@cbre.com
Internet address: www.cbre.com
BOARD OF
DIRECTORS
1 Richard C. Blum(A)(D)(E)
Chairman
CB Richard Ellis Group, Inc.
Chairman and President
Richard C. Blum & Associates, Inc.
2 Patrice M. Daniels(B)
Founding Partner
Blue Sky Advisors, Inc.
3 Senator Thomas A. Daschle(D)
Special Policy Advisor
Alston & Bird LLP
4 Curtis F. Feeny(D)
Managing Director
Voyager Capital
5 Bradford M. Freeman(A)(C)
Founding Partner
Freeman Spogli & Co., Inc.
6 Michael Kantor(A)
Partner
Mayer Brown LLP
7 Frederic V. Malek(B)(C)
Chairman
Thayer Capital Partners
8 Jane J. Su(C)
Partner
Blum Capital Partners, L.P.
9 Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
CB Richard Ellis Group, Inc.
10 Brett White(A)(E)
President and Chief Executive Officer
CB Richard Ellis Group, Inc.
11 Gary L. Wilson(B)
Private Investor
12 Ray Wirta(A)(E)
Vice Chairman
CB Richard Ellis Group, Inc.
(A) Acquisition Committee
(B) Audit Committee
(C) Compensation Committee
(D) Corporate Governance and
Nominating Committee
(E) Executive Committee
1
2
3
4
5
6
7
8
9
10
11
12
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C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
CB Richard Ellis differentiates itself by delivering more of the same—the same wealth of
knowledge, the same global resources, and the same exceptional service from every CBRE
professional in every CBRE office around the world. That’s because at CB Richard Ellis—
whether working for owners or occupiers, investors or developers—we speak the same
language as our clients and we speak it with one seamless voice, from our local experts
to our collaborative international teams. It’s fluency in our clients’ needs and the ability
to deliver the same outstanding results time after time that has made us the largest,
most sought-after commercial real estate services provider in the world. And that makes
CB Richard Ellis a global leader in every market, by every measure, in every language.
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
OFFERING THE MOST EXTENSIVE VOCABULARY OF COMMERCIAL
REAL ESTATE SERVICES IN THE WORLD
GLOBAL LOCATIONS
Argentina
Australia
Austria
Belgium
Botswana
Brazil
Bulgaria
Canada
Chile
China
*Not included in country count
Croatia
Czech
Republic
Denmark
Finland
France
Germany
Greece
Hong Kong*
Hungary
India
Indonesia
Ireland
Israel
Italy
Japan
Kazakhstan
Kenya
Mexico
Morocco
Netherlands
New Zealand
Norway
Panama
Peru
Philippines
Poland
Portugal
Romania
Russia
Serbia
Singapore
Slovakia
South Africa
South Korea
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
Uganda
Ukraine
United Arab
Emirates
United Kingdom
United States
Venezuela
Vietnam
Zimbabwe
Globalization. It’s the new vernacular of today’s clients—our clients—whose business activities and investment strategies are propelling them across the world. To speak to their needs and address the requirements of even the largest multinational corporations and investors, CB Richard Ellis has developed the most extensive vocabulary of commercial real estate services in the world, a global platform of interlocking capabilities including capital markets services; corporate services; property, facilities and project management; mortgage brokerage; investment management; brokerage; valuation and appraisal; and research and consulting. In addition, Trammell Crow Company, our wholly owned but independently operated subsidiary, is an industry-leading provider of premier development services. More important than scope, CB Richard Ellis provides service that is world-class across all these disciplines globally. And that is the universal constant in everything we say and everything we do. C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
88OF THE FORTUNE
100COMPANIES ALL
BENEFITING FROM
THE
UNIVERSAL
LANGUAGE
OF CBRE
CBRE LANGUAGE
/Day_Tues.
/Time_10:00 a.m.
/Location_Los Angeles
/Solutions
Begin-
TRANSLATING REAL ESTATE CHALLENGES INTO REAL BUSINESS
SOLUTIONS
It’s a story that’s told every day in many different cities, in many different languages around the globe. It begins with
the client, our client, who—for the purposes of our narrative—works for a fast-growing technology manufacturer based
in Los Angeles. We’ll call his company GROWTH, and we’ll call him Robert Borges. And Robert has just been handed
some tall marching orders—tasked with locating a new corporate campus. Automatically, he turns to his local CBRE
professional. We’ll call her Kate Carson. For some time now, Kate has provided solutions for Robert and his company,
having expertly spearheaded lease negotiations for their facilities across the U.S. Robert trusts her, is confident in her
abilities and the CBRE global services platform that stands behind her. As his Single Point of Contact at CBRE, Kate
makes it her business to understand his. She speaks his language.
(client story will continue from here)
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
/Day_Tues.
/Time_4:26 p.m.
/Location_New York
Continued on next page
CONVERSATION FUELS COLLABORATION AT CBRE …
CB Richard Ellis in the Americas … completes $136 billion of sales and leasing activity in 2007 … assists Medco Health Solutions in siting
and developing world’s largest automated pharmacy … ends year with 1.1 billion square feet under management … provides comprehensive
outsourcing services for Baylor Health Care System … selected by Nissan North America as exclusive real estate services provider for
non-manufacturing facilities across U.S. … sells $1.9 billion Kushner portfolio and $2.2 billion Crow Holdings portfolio … renews contract to
service 17.5 million-square-foot U.S. portfolio for McKesson Corporation … negotiates 34 of the top 50 leases in New York City … awarded
ING Clarion’s 7 million-square-foot property management portfolio … acquires affiliates in Chile and Alberta, Canada … in any language,
the undisputed market leader throughout the Americas.
Speaking our clients’ language, however, is more than mere talk. At CBRE, it’s partnering with our clients to ensure that their real estate strategy is aligned with their business strategy. For Kate and her team, it’s conversation that quickly translates into action; pinpointing the right location for GROWTH’s new headquarters; negotiating the land purchase; negotiating with local and state agencies for permits and incentive packages; and identifying the best developer for the job. To secure financing, Kate brings GROWTH together with CBRE’s Capital Markets experts who arrange a loan with the state public employees’ union pension fund. To dispose of GROWTH’s old headquarters, she turns to CBRE’s Investment Properties specialists who, in turn, tap the company’s global network to find the perfect buyer—an Australian institution, perhaps, making its first investment in the U.S. Whatever the particulars, at CBRE, it’s collaboration that delivers results. C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
/Day_Wed.
/Time_11:46 p.m.
/Location_Milan
Continued on next page
CROSS-BORDER ACTIVITIES THRIVE ON CBRE’S FLUENCY …
CB Richard Ellis in EMEA … completes $108 billion of sales and leasing activity … arranges largest property disposition ever in Spain
for Banco Santander … has worked with more than 70% of the U.K.’s FTSE 100 companies … chosen as Oracle’s preferred real estate
services provider … plays central role in the sale of the HSBC Tower and Citigroup Tower in Canary Wharf … receives the prestigious
Exceptional Achievement Award at the Managing Partners Forum “European Practice Management Awards” … completes more
than 60,000 valuation and advisory assignments … provides outsourcing services for HSBC’s 10 million-square-foot portfolio in the
U.K. and France … advises SEB on the $2 billion acquisition of Daimler City in Berlin … acquires specialty services companies in the
Netherlands, Spain, Portugal, Italy and the U.K. … in every language, the preeminent full-service provider across EMEA.
Collaborating with our clients, in fact, almost always elicits more discussion. What else can CB Richard Ellis do for them? For clients like GROWTH—which are eager to remain fighting trim—it means outsourcing real estate management functions to our Global Corporate Services team: project and facilities management and lease administration for—let’s say—15 million square feet of sales and distribution offices across the U.S. and Europe. Only the story—like every growing business—can’t end here, and Robert is once again faced with another challenge. Now his company wants to push into the dynamic, emerging markets of Eastern Europe, and that’s going to take new distribution centers in Prague, Bucharest and Moscow. Fortunately, Kate can call upon her colleagues at CBRE Industrial Services to help make GROWTH’s European strategic plan into a successful reality. C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
/Day_Thur.
/Time_11:05 a.m.
/Location_Hong Kong
End
CBRE ARTICULATES WINNING STRATEGY FOR EXPANSION …
CB Richard Ellis in Asia Pacific … represents Barclays in Hong Kong expansion … advises CapitaLand in $676 million sale of Temasek
Tower, one of the largest private office building sales ever in Singapore … awarded biggest single-asset property management assignment
ever in Pacific Region … assists Tiffany & Co. in retail expansion strategy in Australia, Hong Kong, Singapore and Malaysia … wins more
than 4 million square feet of new property management assignments in Shanghai; manages more than 500 million square feet across the
region … arranges $540 million sale of Myer Department Store in downtown Melbourne … acquires leading corporate services provider in
Australia/New Zealand, and a majority interest in CBRE affiliate in India … provides facilities management for Nokia across India …
universally acknowledged as the fastest-growing and most profitable commercial real estate services provider across Asia Pacific.
Another day. Another challenge for GROWTH—especially in the booming markets of Asia Pacific where the company is raring to implement its newest retail strategy. Only this time the solutions are coming from the professionals at CBRE’s Retail Services in Asia—local experts who understand every nuance of the language as it’s spoken on the bustling streets of Tokyo, Seoul, Shang-hai or anywhere across this vibrant region. Expansion, however, requires capital—lots of it. To assist, Kate astutely pulls in our Valuation & Advisory Services group to determine the value of the Australia/New Zealand real estate holdings of a competitor that GROWTH recently acquired. Next, CBRE’s Investment Properties orchestrates an innovative partial sale-leaseback of the portfolio—6.3 million square feet–netting GROWTH some $30 million in gains. End result: GROWTH scores huge in Asia with its new retail concept, pushes big into Eastern Europe and has room to grow back home in the U.S. Indeed, it’s a success story that CBRE helps to tell every day, in many different cities, in many different languages, around the globe. C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
$38 Billion
MANAGED WITH
1OBJECTIVE IN
MIND
EXCEPTIONAL
PERFORMANCE
FOR REAL ESTATE
INVESTORS
CBRE LANGUAGE
/Strategy
DEFINING SUCCESSFUL STRATEGIES FOR REAL ESTATE INVESTORS
Many claim to understand the language of commercial real estate investment, but few can speak it as proficiently
as CB Richard Ellis Investors. That’s because at CBRE Investors—as a wholly owned but independently operated
subsidiary of CB Richard Ellis—we’re able to provide our clients with three key competitive advantages: our
ability to capitalize on the breadth and depth of CBRE’s global platform; our ability to leverage this platform to
implement our strategies; and our dedicated investment teams responsible for defining and executing the right
program for the right client. As a result, we deliver exceptional performance for every investor, in a language
every investor can understand.
CBRE LANGUAGE
/Commitment
SPELLING OUT OUR COMMITMENT FOR A BETTER, GREENER WORLD
Today, more than ever, business leaders are talking about lowering energy costs and achieving greater efficiencies. At CB Richard Ellis, however, we’re leading by doing—spelling out our commitment to reduce our carbon footprint and become carbon-neutral by 2010. Creating a “greener” workplace, we understand, is not only good corporate citizenship; it is an essential business strategy. Still, even more important than our own sustainable practices are the energy-efficient programs we’re helping our clients implement at the 1.9 billion square feet of space that CBRE manages around the world. And with buildings generating as much as 40 percent of the earth’s greenhouse gases, that’s a serious dialogue we should all be having.CB RICHARD ELLIS [ 2007 ANNUAL REPORT ] C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
CBRE LANGUAGE
/Value
CONVEYING VALUE THROUGH OUR ACTIONS AS WELL AS OUR WORDS
In fact, at CB Richard Ellis, we differentiate our company by being anything but the same. That’s because at CB Richard Ellis—no matter where we live, where we work, or what language we speak—we convey and share the same universal values. And these values—respect, integrity, service and excellence—both ground and guide our every action. It’s passion for our clients’ needs and for the world around us that sets the high standard for our performance—day in and day out, in more than 400 offices around the world, where everyone is speaking the Universal Language of CBRE. C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
REVENUE BY LINE OF BUSINESS (1)
28% Sales
23% Property and Facilities Management
6% Appraisals and Valuation
6% Investment Management
SHAREHOLDERS’
LETTER
31% Leasing
3% Commercial Mortgage Brokerage
2% Development Services
1% Other
These are interesting times in the commercial real estate services business. For our
Company, volatility means opportunity. CB Richard Ellis has more than a century of
experience successfully navigating market cycles. As the world’s largest commercial
real estate services firm, the Company is uniquely positioned to succeed in this
environment because of our highly diversified revenue base, global breadth, leading
brand and strong balance sheet and cash flow. We believe market conditions in the
months ahead will hamper smaller, less diversified competitors, likely providing a
conducive environment for further consolidation in the industry. This is an opportunity
we are prepared to pursue aggressively.
Overall, CB Richard Ellis delivered superior performance in 2007. By providing
exceptional service to our clients, the Company achieved record results across all
of our geographies and business segments. CB Richard Ellis expanded its global
reach and further diversified its revenue base. In addition, we introduced ground-
breaking initiatives in environmental sustainability and corporate responsibility.
Despite a fourth quarter that was impacted by softer investment sales amid
difficulties in the credit markets, full-year 2007 performance was strong:
• Global revenue reached a new high, $6.0 billion, reflecting a 50% increase for the year.
• Earnings per diluted share, adjusted for one-time items, rose to $2.11, an increase of
43% from 2006.
• Net income, as adjusted for one-time items, increased 43% to $496.8 million, a
record level.
• Normalized EBITDA improved 49% from 2006 to $970.1 million.
2007 ACCOMPLISHMENTS
In our highly fragmented industry, it is no coincidence that CB Richard Ellis is the
leading firm in virtually all of the top 25 cities globally. The Company is number one
in worldwide transaction activity—leasing, capital markets and valuation—and
outsourcing, including fully integrated corporate services, consulting, and property
and facilities management.
Our strategic actions to diversify our business base both geographically and in
service lines continued to pay dividends. More than 30% of our 2007 revenues
and normalized EBITDA were generated outside the United States. Fueled by
countries such as Australia, China and India, Asia Pacific was our fastest-growing
region, with revenues up 55% for the year. Fee-based revenues from outsourcing
contracts increased to 23% of total revenue – up from 14% in 2006.
HERE ARE SOME HIGHLIGHTS OF KEY BUSINESS LINES IN 2007:
• INVESTMENT SALES: CB Richard Ellis achieved solid performance in
investment sales in 2007 despite credit market fluctuations. Marketwide
investment volume in the U.S. rose 24% to $384 billion, according to Real
Capital Analytics (RCA). CB Richard Ellis’ U.S. investment sales activity grew
faster than the market at 25%. During 2007, RCA reported our investment volume
grew strongly in office (up 71%), industrial (up 45%) and retail (up 67%).
Across EMEA, marketwide investment activity set a new high— €246 billion
($374 billion) —and the Company set new records for individual investment
transactions in seven European countries. Commercial real estate markets
in Asia Pacific maintained their positive momentum, as strong economic
expansion and real estate market fundamentals sustained the confidence of
pension, private equity and sovereign wealth funds.
The long-term trend of increased institutional capital allocations to real estate
continues. The annual Kingsley Associates/Institutional Real Estate survey of
pension funds identifies $76 billion of planned investment in 2008—a nearly
two-thirds increase over 2007. In addition, a substantial pool of institutional
capital allocations from previous years that has not been invested will be put to
work, according to Kingsley.
• LEASING: Revenue increased 26%, primarily due to stronger activity in both
EMEA and Asia Pacific, as well as modest growth in the Americas. In EMEA, full-
year 2007 leasing totals rivaled the exceptional levels seen in 2006 and, in the
case of Germany, exceeded them. Activity remained strong in Asia’s leading office
markets, and prime office vacancy remained tight in key central business districts.
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
61% Americas
REVENUE BY SEGMENT (1)
22% Europe, Middle East and Africa
9% Asia Pacific
6% Global Investment Management
2% Development Services
• CORPORATE SERVICES: With the industry’s deepest and broadest services
platform, CB Richard Ellis continued to significantly expand our contractual work for
major corporate clients. Outsourcing revenue grew 146%, as we successfully leveraged
the strength of the legacy Trammell Crow Company outsourcing capabilities. We added
26 new corporate outsourcing clients, and through the success of our cross-selling
efforts, we expanded our range of services for 18 existing corporate customers and
renewed relationships with 17 others during 2007. Prestigious names added to our
corporate client roster in 2007 include Barclays, Chrysler, GMAC, Nielsen and Oracle.
• GLOBAL INVESTMENT MANAGEMENT: CBRE Investors has continued to
skillfully execute its investment strategy, harvesting gains on property sales and
growing asset management fees. Global investment management revenue grew
51% for the year, based on strong growth in assets under management. Our global
investment management subsidiary posted strong top- and bottom-line growth for
the year, and total assets under management reached $37.8 billion at year’s end, a
32% increase from the end of 2006. CBRE Investors had 120 institutional investor
partners and clients, and raised $9.6 billion in equity capital in 2007.
• DEVELOPMENT SERVICES: The development business produced one of
its strongest years in history, with revenue of $134 million. Due to purchase
accounting rules, we were not able to recognize $61.6 million of gains from property
sales in this business during 2007, despite receiving the cashflow from these sales.
Development activity remained quite strong with $9.2 billion of in-process and
pipeline projects at the end of 2007.
ACQUISITIONS
CB Richard Ellis continues to pursue its strategy of selectively acquiring market-
specific and specialty-service firms that complement our existing platform.
Around the world in 2007, we made 14 such acquisitions valued at $108 million,
including former affiliate companies that are the market leaders in India and Chile.
The associated annual revenue related to these acquisitions is estimated to be
approximately $244 million. Since 2005 through the end of 2007, we completed
44 in-fill acquisitions for a combined purchase price of approximately $352 million,
with associated annual revenue of approximately $547 million.
We have also demonstrated our ability to make and integrate strategic purchases
when the opportunity arises. Our most recent major acquisition, Trammell Crow
Company, exceeded even our own aggressive targets for integration success: we
realized annualized net expense synergy savings of $90 million, surpassing our
original expectations by 38%.
SHARE REPURCHASE
In 2007, we announced and completed a $635 million share repurchase program
using existing cash and our revolving credit facility. The total amount of shares
repurchased was 28.8 million, at an average purchase price of $22.03 per
share. At year’s end, CB Richard Ellis had 202 million shares outstanding versus
approximately 227 million shares at the end of 2006.
BALANCE SHEET HIGHLIGHTS
CB Richard Ellis continued to strengthen its balance sheet during 2007. Our
weighted average cost of debt was reduced to approximately 6.3% at December
31, 2007, down from 7% a year earlier. Our net debt-to-EBITDA ratio at December
31, 2007, was 1.7 times, as compared to 2.5 times at December 31, 2006.
RECOGNITION
In 2007, CB Richard Ellis was named one of the 50 “Best-in-Class” companies by
BusinessWeek, and was ranked among the 100 fastest-growing U.S. companies
by FORTUNE magazine. In early 2008, CB Richard Ellis was named the leading
global brand in commercial real estate for the seventh year in a row, according
to a survey of real estate professionals from around the world by The Lipsey
Company. National Real Estate Investor magazine ranked CB Richard Ellis the
largest brokerage firm in the world, based on aggregate value of sales and
leasing transactions. The Company also won the Exceptional Achievement
Award at the 2007 MPF European Practice Management Awards in London, in
recognition of its outstanding contribution to the professional services sector.
In addition, we were named an EPA Energy Star Partner of the Year for 2007
in recognition of our success in promoting energy conservation and cutting
greenhouse gas emissions at CBRE-managed properties.
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
2003
2004
2005
2006
2007
Pro Forma
2007
Normalized EBITDA Margin
10.1%
11.3% 14.4% 16.2% 16.1% 17.1% (2)
DEFINING GLOBAL LEADERSHIP
At CB Richard Ellis, we recognize that being the industry leader means opening
a path that leads others to creative ways of thinking and acting. In 2007, we
launched a corporate responsibility initiative that globally coordinates and places
keen focus on six key areas: governance; ethics and compliance; philanthropy and
community involvement; diversity and employee relations; health and safety; and
environmental stewardship.
In 2007, CB Richard Ellis began a drive to make our Company carbon-neutral
by 2010, and to help our clients significantly reduce emissions at the 1.9 billion
square feet of properties that we manage around the world. Our first Corporate
Responsibility Report, which we will publish annually going forward, can be
found at www.cbre.com/responsibility.
MACRO ENVIRONMENT
Looking at the horizon, there are some cautionary signals. In the U.S., job creation—an
important indicator of future occupier demand—has been outstripped by job losses
amid concerns about housing market weakness, high energy prices and credit market
difficulties. In Europe, general expectations point to economic growth of less than
2% in 2008. As a result, we anticipate modestly weakening office leasing activity in
Europe and easing in rental growth rates. Asia has shown continued strong economic
growth and investment capital flows; however, it remains to be seen whether the
challenges facing other parts of the world will have a future impact on this region.
Liquidity remains constrained—and property transactions increasingly difficult
to finance—amid the deepening credit market freeze. Our expectation is that
these trends will correct toward the positive some time later in 2008, but the
timing of that correction is unknown.
While the macro environment in which we operate has continued to weaken,
underlying real estate market fundamentals remain strong and are generally
characterized by low vacancies, modestly rising rents and rational levels of new
construction. CBRE Torto Wheaton Research, our econometric forecasting unit,
expects continued increases in rents, albeit at a slower pace than in 2007.
Looking ahead, while no one hopes for difficult times, we see 2008 as an exciting
and opportunistic period. History has shown that during complex economic cycles,
CB Richard Ellis captures market share more quickly than our major competitors,
and we are able, through our highly variable cost structure, to retain profits more
easily than most. It is during uncertain conditions, when the landscape is shifting,
that clients truly recognize the value of our professionals, the strength of our brand,
and the power of our globally capable, vertically integrated platform. These are
advantages that only CB Richard Ellis can offer. That’s why I look forward to 2008
and beyond with enthusiasm.
Sincerely,
Brett White
President and Chief Executive Officer
(1) Includes $2.1 million from discontinued operations.
(2) Adjusts for $61.6 million of gains from Development Services activities,
which cannot be recognized under purchase accounting rules.
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
F ORM
10-K
CB Richard Ellis Group, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
Commission File Number 001-32205
CB RICHARD ELLIS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11150 Santa Monica Boulevard, Suite 1600
Los Angeles, California
(Address of principal executive offices)
94-3391143
(I.R.S. Employer
Identification Number)
90025
(Zip Code)
(310) 405-8900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
N.A.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act. Yes ‘ No È
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 È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. È
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 definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È 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 È
As of June 30, 2007, the aggregate market value of Class A Common Stock held by non-affiliates of the
registrant was $8.4 billion based upon the last sales price on June 29, 2007 on the New York Stock Exchange of
$36.50 for the registrant’s Class A Common Stock.
As of February 15, 2008, the number of shares of Class A Common Stock outstanding was 202,053,646.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant’s 2008 Annual Meeting of Stockholders to be held June 2,
2008 are incorporated by reference in Part III of this Form 10-K Report.
CB RICHARD ELLIS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
Page
1
15
26
26
27
27
28
31
33
67
69
129
129
130
130
130
130
130
130
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
131
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule III—Real Estate Investments and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
133
139
PART IV
Item 1. Business
Company Overview
CB Richard Ellis Group, Inc. (which may be referred to in this Form 10-K as “we”, “us” and “our”) is the
world’s largest commercial real estate services firm, based on 2007 revenue, with leading full-service operations
in major metropolitan areas throughout the world. We offer a full range of services to occupiers, owners, lenders
and investors in office, retail, industrial, multi-family and other types of commercial real estate. As of
December 31, 2007, excluding affiliate offices, we operated in more than 300 offices worldwide with over
29,000 employees providing commercial real estate services under the “CB Richard Ellis” brand name and
providing development services under the “Trammell Crow” brand name. Our business is focused on a range of
service competencies, including tenant representation, property/agency leasing, property sales, commercial
property and corporate facilities management, valuation, real estate investment management, development
services, commercial mortgage origination and servicing, capital markets (equity and debt) solutions and
proprietary research. We generate revenue on a per project or transactional basis and from contractual
management fees. In 2006, we became the first commercial real estate services company included in the
S&P 500. In 2007, we were ranked #520 on the Fortune list of largest U.S. companies, #33 on the Fortune list of
100 Fastest Growing U.S. Companies and #16 on the Business Week list of “Best in Class” companies.
During the year ended December 31, 2007, we generated revenue from a well-balanced, highly diversified
base of clients that includes over 85 of the Fortune 100 companies. Many of our clients are consolidating their
commercial real estate-related needs with fewer providers and, as a result, awarding their business to those
providers that have a strong presence in important markets and the ability to provide a complete range of services
worldwide. As a result of this trend and our ability to deliver comprehensive integrated solutions for our clients’
needs across a wide range of markets, we believe we are well positioned to capture a growing percentage of our
clients’ commercial real estate services needs.
CB Richard Ellis History
CB Richard Ellis marked its 101st year of continuous operations in 2007, tracing our origins to a company
founded in San Francisco in the aftermath of the 1906 earthquake. That company grew to become one of the
largest commercial real estate services firms in the western United States during the 1940s. In the 1960s and
1970s, the company expanded both its service portfolio and geographic coverage to become a full-service
provider with a growing presence throughout the United States.
In 1989, employees and third-party investors acquired the company’s operations to form CB Commercial.
Throughout the 1990s, CB Commercial moved aggressively to accelerate growth and cultivate global capabilities
to meet client demands. The company acquired leading firms in investment management (Westmark Realty
Advisors—now CB Richard Ellis Investors, in 1995), mortgage banking (L.J. Melody & Company—now CBRE
Melody, in 1996) and property and corporate facilities management, as well as capital markets and investment
management (Koll Real Estate Services, in 1997). In 1996, CB Commercial became a public company.
In 1998, the company, then known as CB Commercial Real Estate Services Group, achieved significant
global expansion with the acquisition of REI Limited. REI Limited, which traces its roots to London in 1773, was
the holding company for all “Richard Ellis” operations outside of the United Kingdom. Following the REI
Limited acquisition, the company changed its name to CB Richard Ellis Services, Inc. and, later in 1998,
acquired the London-based firm of Hillier Parker May & Rowden, one of the top property services firms
operating in the United Kingdom. With these acquisitions, we believe we became the first real estate services
firm with a platform to deliver integrated real estate services across the world’s major business capitals through
one commonly-owned, commonly-managed company.
CB Richard Ellis Group, Inc., which was initially known as Blum CB Holding Corp. and later as CBRE
Holding, Inc., was formed by an affiliate of Blum Capital Partners, L.P. as a Delaware corporation on
February 20, 2001 for the purpose of acquiring all of the outstanding stock of CB Richard Ellis Services in a
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“going private” transaction. This transaction, which involved members of our senior management team and
affiliates of Blum Capital Partners and Freeman Spogli & Co., was completed in 2001.
In July 2003, our global position was further solidified as our wholly-owned subsidiary CB Richard Ellis
Services and Insignia Financial Group, Inc. were brought together to form a premier, worldwide, full-service real
estate services company. As a result of the Insignia acquisition, we operate globally under the “CB Richard Ellis”
brand name, which we believe is a well-recognized brand in virtually all of the world’s key business centers. In
order to enhance our financing flexibility and to provide liquidity for some of our stockholders, in June 2004, we
completed the initial public offering of our common stock. On December 13, 2004 and November 15, 2005, we
completed secondary public offerings that provided further liquidity for some of our stockholders.
In December 2006, we completed the acquisition of Trammell Crow Company, our largest acquisition to
date, which deepened our outsourcing services offerings for corporate and institutional clients, especially project
and facilities management, strengthened our ability to provide integrated account management solutions across
geographies, and established people, resources and expertise to offer real estate development services throughout
the United States.
Beginning in 2005 and continuing throughout 2007, we have supplemented our global capabilities through
the acquisition of regional and specialty-niche firms that are leaders in their areas of concentration or in their
local markets, including regional firms with which we had previous affiliate relationships. These “in-fill”
acquisitions remain an integral part of our strategy.
Our Corporate Structure
CB Richard Ellis Group, Inc. is a holding company that conducts all of its operations through its indirect
subsidiaries. CB Richard Ellis Services, Inc., our direct wholly-owned subsidiary, is also generally a holding
company and is the primary obligor or issuer with respect to most of our long-term indebtedness, including our
senior secured term loan facilities obtained to finance the acquisition of Trammell Crow Company.
In our Americas segment, most of our advisory services and outsourcing services operations are conducted
through our indirect wholly-owned subsidiary CB Richard Ellis, Inc. Our mortgage loan origination and
servicing operations are conducted exclusively through our indirect wholly-owned subsidiary CBRE Melody and
its subsidiaries. Our operations in Canada are primarily conducted through our indirect wholly-owned subsidiary
CB Richard Ellis Limited.
In our Europe, Middle East and Africa, or EMEA, segment, operations are conducted through a number of
indirect wholly-owned subsidiaries. The most significant of such subsidiaries include CB Richard Ellis Ltd. (the
United Kingdom), CB Richard Ellis Holding SAS (France), CB Richard Ellis GmbH (Germany), CB Richard
Ellis SA (Spain), CB Richard Ellis, B.V. (the Netherlands) and CB Richard Ellis (Ireland).
In our Asia Pacific segment, operations are primarily conducted through a number of indirect wholly-owned
subsidiaries, including CB Richard Ellis Pty Ltd. (Australia), CB Richard Ellis Ltd. (New Zealand), CB Richard
Ellis Ltd. (Hong Kong, China and Taiwan), CB Richard Ellis Korea Co Ltd. (Korea) and CB Richard Ellis Pte
Ltd. (Singapore) as well as a majority ownership in CB Richard Ellis KK (Japan) and CB Richard Ellis South
Asia Pte Ltd (India).
Operations in our Global Investment Management segment are conducted through our indirect wholly-
owned subsidiary CB Richard Ellis Investors, L.L.C. and its global affiliates, which we also refer to as CBRE
Investors.
Operations in our Development Services segment are conducted through our indirect wholly-owned
subsidiaries Trammell Crow Company, Trammell Crow Services, Inc. and certain of its subsidiaries.
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Industry Overview
Our business covers all aspects of the commercial real estate services industry, including tenant
representation, property/agency leasing, property sales, commercial property and corporate facilities
management, valuation, real estate investment management, development services, commercial mortgage
origination and servicing, capital markets (equity and debt) solutions and proprietary research.
We review on a quarterly basis various internally-generated statistics and estimates regarding both office
and industrial space within the U.S. commercial real estate services industry, including the total available “stock”
of rentable space and the average rent per square foot of space. Our management believes that changes in the
addressable commercial rental market represented by the product of available stock and rent per square foot
provide a reliable estimate of changes in the overall commercial real estate services industry because nearly all
segments within the industry are affected by changes in these two measurements. We estimate that the product of
available stock and rent per square foot grew at a compound annual growth rate of approximately 4.2% from
1997 through 2007.
We believe the current key drivers of revenue growth for the largest commercial real estate services
companies are primarily: (1) the continued outsourcing of commercial real estate services, (2) the consolidation
of clients’ activities with fewer providers, (3) the increasing institutional ownership of commercial real estate,
(4) healthy occupier market fundamentals, (5) acquisition opportunities and (6) attracting and retaining talent.
Outsourcing
Motivated to reduce costs, lower overhead, improve execution across markets, increase operational
efficiency and focus more closely on their core competencies, property owners and occupiers have been
increasingly contracting out for their commercial real estate services, including the following:
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Transaction management—oversight of purchase and sale of properties, execution of lease transactions,
renewal of leases, expansion and relocation of offices and disposition of surplus space;
Facilities management—oversight of all the operations associated with the functioning of occupied real
estate, whether owned or leased, including engineering services, janitorial services, security services,
landscaping and capital improvements and directing and monitoring of various subcontractors;
Project management—oversight of the design and construction of interior space (as distinct from
building design and construction) for space users and occupiers, including assembling and coordinating
contract teams, and creating and managing budgets;
Portfolio management—analysis of all real estate leases of a client to ensure that it is in compliance
with all terms and maintenance of reports on all lease data, including critical dates such as renewal
options, expansion options and termination options, performance of required services and proper
charging or payment of costs;
• Construction management—space planning and tenant build-out coordination for investor clients;
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Property management—oversight of the daily operation of a single property or portfolio of properties,
including tenant service/relations and bidding, awarding and administering subcontracts for
maintenance, landscaping, security, parking, capital and tenant improvements to implement the owner’s
specific property value enhancement objectives through maximization of cash flow; and
Property accounting—performance of all of the accounting and financial reporting associated with a
property or portfolio, including operating budgets and expenses, rent collection and other accounts
receivable, accounts payable, capital and tenant improvements and tenant lease administration.
Consolidation
We believe that major property owners and corporate users are motivated to consolidate their service
provider relationships on a regional, national and global basis to obtain more consistent execution across markets
to achieve economies of scale and to benefit from streamlined management oversight and the efficiency of single
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point of contact service delivery. As a result, we believe large owners and occupiers are awarding an increasing
share of this business to larger real estate services providers, particularly those that provide a full suite of services
across geographical boundaries.
Institutional Ownership of Commercial Real Estate
Institutional owners, such as real estate investment trusts, or REITs, pension funds, foreign institutions and
other financial entities, increasingly have been acquiring more real estate assets. Many institutional investors
have been allocating a higher percentage of their capital to real estate in order to diversify their investment
portfolios and these investments often generate higher current-cash yields than is available with alternative
investments. Total U.S. real estate assets held by institutional owners increased to $719 billion in 2007 from
$320 billion in 1997. REITs were the main drivers of this growth during this period, with an increase of
approximately 263%. Foreign institutions increased their U.S. real estate holdings by approximately 90% over
this period, while pension funds increased their holdings by approximately one-third. We believe it is likely that
many of these owners will outsource management of their portfolios and consolidate their use of real estate
services vendors.
Healthy Occupier Market Fundamentals
A worldwide economic expansion has produced healthy occupier market fundamentals in major cities across
the globe. Demand for real estate, especially office space, has increased while commercial construction has
generally remained subdued compared with historic standards. This trend has contributed to positive absorption,
low vacancy rates and improved rental rates. Healthy occupier market fundamentals remain the norm despite the
U.S. economic slowdown in 2007.
Acquisition Opportunities
Revenue growth and market share gains can be achieved through the strategic acquisition of local and
regional service firms, as well as those specializing in specific market niches. We believe the opportunities to
make additional acquisitions will increase due to the softer leasing and investment sales environment. Firms that
are dependent on a single geographic market or limited service specialties will find it more difficult to compete in
a softer market and will be attracted to a broader and more diversified global platform.
Attracting and Retaining Talent
Attracting and retaining the best real estate services professionals is fundamental to a successful growth
strategy. A broad global platform, strong brand and local market leadership position a company well to draw top
professionals away from smaller, less diversified firms. This is especially true during periods of slower market
activity. Investing heavily in the continuous training, development and skill-enhancement of existing
professionals is key to success in this area.
Our Regions of Operation and Principal Services
We report our results of operations through five segments: (1) the Americas, (2) EMEA, (3) Asia Pacific,
(4) Global Investment Management and (5) Development Services.
Information regarding revenue and operating income or loss, attributable to each of our segments, is
included in “Segment Operations” within the “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” section and within Note 25 of our Notes to Consolidated Financial Statements, which
are incorporated herein by reference. Information concerning the identifiable assets of each of our business
segments is also set forth in Note 25 of our Notes to Consolidated Financial Statements, which is incorporated
herein by reference.
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The Americas
The Americas segment is our largest segment of operations and provides a comprehensive range of services
throughout the United States and in the largest metropolitan regions in Canada and selected parts of Latin
America through both wholly-owned operations as well as affiliated offices. Our Americas segment accounted
for 61.1% of our 2007 revenue, 62.2% of our 2006 revenue and 68.0% of our 2005 revenue. Within our Americas
segment, we organize our services into the following business areas:
Advisory Services
Our advisory services businesses offer occupier/tenant and investor/owner services that meet the full
spectrum of marketplace needs, including (1) real estate services, (2) capital markets and (3) valuation. Our
advisory services business line accounted for 42.5% of our 2007 consolidated revenue, 50.0% of our 2006
consolidated revenue (includes activity from the date we acquired Trammell Crow Company, December 20,
2006, through December 31, 2006) and 54.7% of our 2005 consolidated revenue.
Within advisory services, our major service lines are the following:
• Real Estate Services. We provide strategic advice and execution to owners, investors and occupiers of
real estate in connection with leasing, disposition and acquisition of property. These businesses are built
upon strong client relationships that frequently lead to recurring revenue opportunities over many years.
Our real estate services professionals are particularly adept at aligning real estate strategies with client
business objectives, serving as advisors as well as transaction executors. During 2007, we advised on
over 31,000 lease transactions involving aggregate rents of approximately $48.3 billion and over 7,000
real estate sales transactions with an aggregate value of approximately $87.8 billion. During 2006, we
advised on over 25,000 lease transactions involving aggregate rents of approximately $38.7 billion and
over 6,200 real estate sales transactions with an aggregate value of approximately $73.9 billion. We
believe we are a market leader for the provision of sales and leasing real estate services in most top U.S.
metropolitan statistical areas (as defined by the U.S. Census Bureau), including Atlanta, Chicago,
Dallas, Houston, Los Angeles, Miami, New York, Philadelphia and Washington, D.C.
Our real estate services professionals are compensated primarily through commission-based programs,
which are payable upon completion of an assignment. Therefore, as compensation is our largest
expense, this cost structure gives us flexibility to mitigate the negative effect on our operating margins
during difficult market conditions. Due to the low barriers to entry and significant competition for
quality employees, we strive to retain top professionals through an attractive compensation program tied
to productivity. We also believe we invest in greater support resources than most other firms. For
example, we believe our professional development and training programs are the most extensive in the
industry. In addition, we invest heavily in gathering market information, technology, branding and
marketing. We also foster an entrepreneurial culture that emphasizes client service and rewards
performance.
We further strengthen our relationships with our real estate services clients by offering proprietary
research to them through our commercial real estate market information and forecasting unit, CBRE
Torto Wheaton Research. CBRE Torto Wheaton Research provides data and analysis to its clients in
various formats, including TWR Outlook reports for the office, industrial, hotel, retail and multi-housing
sectors covering more than 50 U.S. metropolitan areas and the TWR Select office and industrial
database covering over 288,000 commercial properties.
• Capital Markets. In 2005, we combined our investment sales and debt/equity financing professionals
into one fully integrated service offering called CBRE Capital Markets. The move formalized our
collaboration between the investment sales professionals and debt/equity financing experts that has
grown as investors have sought comprehensive capital markets solutions, rather than separate sales and
financing transactions. During 2007, we concluded more than $91.6 billion of capital markets
transactions in the Americas, including $66.6 billion of investment sales transactions and $25.0 billion
of mortgage loan originations.
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Our Investment Properties business, which includes office, industrial, retail, multi-family and hotel
properties, is one of the largest investment sales property advisors in the United States, with a market
share of approximately 16.6% in 2007. Our U.S. investment sales activity grew by approximately 25%
during 2007 versus an increase of approximately 24% for the U.S. market as a whole. CBRE Melody,
our wholly-owned subsidiary, originates and services commercial mortgage loans primarily through
relationships established with investment banking firms, national banks, credit companies, insurance
companies, pension funds and government agencies. CBRE Melody’s $25.0 billion mortgage loan
origination volume in 2007 represents an increase of 21% from 2006. Approximately $2.4 billion of
loans were originated for federal government sponsored entities, most of which were financed through
revolving credit lines dedicated exclusively for this purpose. Loans financed through the revolving
credit lines generally occur with principal risk that is substantially mitigated because CBRE Melody
obtains a contractual purchase commitment from the government sponsored entity before it actually
originates the loan. In 2007, GEMSA Loan Services, a joint venture between CBRE Melody and GE
Capital Real Estate, serviced approximately $110.5 billion of mortgage loans, $60.8 billion of which
relate to the servicing rights of CBRE Melody.
• Valuation. We provide valuation services that include market value appraisals, litigation support, discounted
cash flow analyses and feasibility and fairness opinions. Our valuation business has developed proprietary
technology for preparing and delivering valuation reports to our clients, which we believe provides us with an
advantage over our competitors. We believe that our valuation business is one of the largest in the industry.
During 2007, we completed over 30,000 valuation, appraisal and advisory assignments.
Outsourcing Services
Outsourcing is a long-term trend in commercial real estate, with corporations, institutions, public sector
entities and others seeking to achieve improved efficiency, better execution and lower costs by relying on the
expertise of third-party real estate specialists. Our outsourcing services primarily include two business lines that
seek to capitalize on this trend: (1) corporate services and (2) asset services. Although our management
agreements with our outsourcing clients generally may be terminated with notice ranging between 30 days to a
year, we have developed long-term relationships with many of these clients and we continue to work closely with
them to implement their specific goals and objectives and to preserve and expand upon these relationships. As of
December 31, 2007, we managed over 1.0 billion square feet of commercial space for property owners and
occupiers, which we believe represents one of the largest portfolios in the Americas. Our outsourcing services
business line accounted for 18.6% of our 2007 consolidated revenue, 12.2% of our 2006 consolidated revenue
(includes activity of Trammell Crow Company from December 20, 2006, the date we acquired Trammell Crow
Company, through December 31, 2006) and 14.7% of our 2005 consolidated revenue.
• Corporate Services. We provide a comprehensive suite of services, including transaction management,
project management, facilities management, strategic consulting, portfolio management and other services to
leading global corporations, health care institutions and public sector entities with large, geographically–
diverse real estate portfolios. Project management services are typically provided on a portfolio-wide or
programmatic basis. Corporate facilities under management include headquarters buildings, regional offices,
administrative offices and manufacturing and distribution facilities. We identify best practices, implement
technology solutions and leverage our resources to control clients’ facilities costs and enhance the workplace
environment. We seek to enter into multi-year, multi-service outsourcing contracts with our clients, but also
provide services on a one-off assignment or a short-term contract basis. We enter into long-term, contractual
relationships with these organizations with the goal of ensuring that our clients’ real estate strategies support
their overall business strategies. Revenues for project management include fixed management fees, variable
fees, and incentive fees if certain agreed-upon performance targets are met. Revenues may also include
reimbursement of payroll and related costs for personnel providing the services. Contracts for facilities
management services are typically structured so we receive reimbursement of client-dedicated personnel
costs and associated overhead expenses plus a monthly fee, and in some cases, annual incentives if agreed-
upon performance targets are satisfied.
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• Asset Services. We provide property management, construction management, marketing, leasing,
accounting and financial services on a contractual basis for income-producing office, industrial and
retail properties owned by local, regional and institutional investors. We provide these services through
an extensive network of real estate experts in major markets throughout the United States. These local
office delivery teams are supported by a national accounts team whose function is to help ensure quality
service and to maintain and expand relationships with large institutional clients, including buyers,
sellers and landlords who need to lease, buy, sell and/or finance space. We believe our contractual
relationships with these clients put us in an advantageous position to provide other services to them,
including refinancing, disposition and appraisal. We typically receive monthly management fees for the
asset services we provide based upon a specified percentage of the monthly rental income or rental
receipts generated from the property under management, or in certain cases, the greater of such
percentage fee or a minimum agreed-upon fee. We also may be reimbursed for a portion of our
administrative and payroll costs, as well as certain out-of-pocket expenses, directly attributable to the
properties under management.
Europe, Middle East and Africa (EMEA)
Our EMEA segment operates in 33 countries, with its largest operations located in the United Kingdom,
France, Germany, Spain, the Netherlands, Ireland and Russia. Within EMEA, our services are organized along
the same lines as in the Americas, including brokerage, investment properties, corporate services, valuation/
appraisal services, asset management services and facilities management, among others. Our EMEA segment
accounted for 21.8% of our 2007 revenue, 23.2% of our 2006 revenue and 22.2% of our 2005 revenue.
We are one of the leading commercial real estate services companies in the United Kingdom. We hold a
leading market position in London in terms of 2007 leased square footage and provide a broad range of
commercial property real estate services to investment, commercial and corporate clients located in London. We
also have ten regional offices in Birmingham, Bristol, Jersey, Leeds, Liverpool, Manchester, Edinburgh,
Southampton, Belfast and Glasgow. In France, we believe we are a market leader in Paris and we provide a
complete range of services to the commercial property sector. Our German operations are located in Frankfurt,
Munich, Berlin and Hamburg. In Spain, we provide full-service coverage through our offices in Madrid,
Barcelona, Zaragoza, Valencia, Malaga, Marbella and Palma de Mallorca. Our operations in the Netherlands are
located in Amsterdam, Hoofddorp and the Hague and our business in Ireland is based in Dublin. In 2006, we
established a wholly-owned operation in Russia through the acquisition of Noble Gibbons, our former affiliate
based in Moscow. Our operations in these countries generally provide a full range of services to the commercial
property sector. Additionally, we provide some residential property services in France and Spain.
We also have affiliated offices that provide commercial real estate services under our brand name in the
Middle East and Africa, including offices in Abu Dhabi, Botswana, Dubai, Israel, Kenya, South Africa, Uganda
and Zimbabwe. Our agreements with these independent offices include licenses to use the “CB Richard Ellis”
name in the relevant territory in return for payments to us of annual royalty fees. In addition, these agreements
also include business cross-referral arrangements between us and our affiliates.
Asia Pacific
Our Asia Pacific segment operates in 12 countries. We believe that we are one of only a few companies that
can provide a full range of real estate services to large corporations throughout the region, similar to the broad
range of services provided by our Americas and EMEA segments. Our principal operations in Asia are located in
China, Hong Kong, India, Japan, Singapore, South Korea and Taiwan. In 2007, we established a majority owned
operation in India through the acquisition of shares in CB Richard Ellis South Asia Pte Ltd, or CBRE India, our
former affiliate. In addition, we have agreements with affiliated offices in the Philippines, Thailand, Indonesia
and Vietnam that generate royalty fees and support cross-referral arrangements on terms similar to those with our
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affiliated offices in our EMEA segment. The Pacific region includes Australia and New Zealand, with principal
offices located in Adelaide, Brisbane, Canberra, Melbourne, Sydney, Perth, Auckland, Wellington and
Christchurch. Our Asia Pacific segment accounted for 9.1% of our 2007 revenue, 8.8% of our 2006 revenue and
5.8% of our 2005 revenue.
Global Investment Management
Our indirect wholly-owned subsidiary, CB Richard Ellis Investors, L.L.C. and its global affiliates, which we
also refer to as CBRE Investors, provide investment management services to clients/partners that include pension
plans, investment funds and other organizations seeking to generate returns and diversification through
investment in real estate. It sponsors funds and investment programs that span the risk/return spectrum across
three continents: North America, Europe and Asia. In higher yield strategies, CBRE Investors and its investment
teams “co-invest” with its limited partners. Our Global Investment Management segment accounted for 5.8% of
our 2007 revenue, 5.7% of our 2006 revenue and 4.0% of our 2005 revenue.
CBRE Investors is organized into two primary customer-focused groups according to investment strategy,
which include the Managed Accounts Group (low risk) and Strategic Partners (higher yielding strategies).
Operationally, a dedicated investment team with the requisite skill sets executes each investment strategy, with
the team’s compensation being driven largely by the investment performance of its particular strategy/fund. This
organizational structure is designed to align the interests of team members with those of the firm and its investor
clients/partners and to enhance accountability and performance. Dedicated teams share resources such as
accounting, financial controls, information technology, investor services and research. CBRE Investors has an
in-house team of research professionals who focus on investment strategy, underwriting and forecasting, based in
part on research from our advisory services group.
CBRE Investors closed approximately $11.7 billion and $8.0 billion of new acquisitions in 2007 and 2006,
respectively. It liquidated $4.8 billion and $3.0 billion of investments in 2007 and 2006, respectively. Assets
under management have increased from $6.1 billion at December 31, 1998 to $37.8 billion at December 31,
2007, representing a 22.5% compound annual growth rate.
Development Services
Our indirect wholly-owned subsidiary Trammell Crow Company and certain of its subsidiaries provide
development services primarily in the United States to users of and investors in commercial real estate, as well as
for its own account. Trammell Crow Company pursues opportunistic but risk-mitigated development and
investment in commercial real estate across a wide spectrum of property types, including industrial, office and
retail properties; healthcare facilities of all types (medical office buildings, hospitals and ambulatory surgery
centers); higher education facilities, primarily student housing; and residential/mixed-use projects. Our
Development Services segment accounted for 2.2% of our 2007 revenue and less than 1% of our 2006 revenue,
as it only included activity from December 20, 2006, the date we acquired Trammell Crow Company, through
December 31, 2006.
Trammell Crow Company acts as the manager of development projects, providing services that are vital in
all stages of the process, including: (i) site identification, due diligence and acquisition; (ii) evaluating project
feasibility, budgeting, scheduling and cash flow analysis; (iii) procurement of approvals and permits, including
zoning and other entitlements; (iv) project finance advisory services; (v) coordination of project design and
engineering; (vi) construction bidding and management as well as tenant finish coordination; and (vii) project
close-out and tenant move coordination.
Trammell Crow Company may pursue development and investment activity on behalf of its user and
investor clients (with no ownership), in partnership with its clients (through co-investment—either on an
individual project basis or through a fund or program) or for its own account (100% ownership). Development
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activity in which Trammell Crow Company has an ownership interest is conducted through subsidiaries which
are consolidated or unconsolidated for financial reporting purposes, depending primarily on the extent and nature
of our ownership interest.
Trammell Crow Company has established several commingled investment funds to facilitate its pursuit of
opportunistic and value added development and investment projects. In addition, it seeks to channel a large part
of its development and investment activity into programs with certain strategic capital partners.
At December 31, 2007, Trammell Crow Company had $6.5 billion of development projects in process.
Additionally, the inventory of pipeline deals (those projects we are pursuing, which we believe have a greater
than 50% chance of closing or where land has been acquired and the project construction start is more than
twelve months out) was $2.7 billion at December 31, 2007.
Our Competitive Position
We believe we possess several competitive strengths that position us to capitalize on the positive trends in
the commercial real estate services industry, which include healthy leasing fundamentals, increased outsourcing,
consolidation of service providers and higher capital allocations to real estate on the part of institutional owners.
Our strengths include the following:
• Global Brand and Market Leading Positions. For over 100 years, we have built CB Richard Ellis into
one of the foremost brands in the industry. We are the world’s largest commercial real estate services
provider, based on 2007 revenue, and one of only three commercial real estate services companies with
a global footprint. As a result of our strong brand and global footprint, large corporations, institutional
owners and users of real estate recognize us as a leading provider of world-class, comprehensive real
estate services. Operating under the global CB Richard Ellis brand name, we are a leader in many of the
local markets in which we operate, including New York, Los Angeles, Chicago and London.
• Full Service Capabilities. We provide one of the broadest ranges of first-class real estate services in the
industry and provide these services in major metropolitan areas throughout the world. When combined
with our extensive global reach and localized market knowledge, this full range of real estate services
enables us to provide world-class service to our multi-regional and multi-national clients, as well as to
maximize our revenue per client.
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Strong Client Relationships and Client-tailored Service. We have forged long-term relationships with
many of our clients. During the year ended December 31, 2007, our clients included more than 85 of the
Fortune 100 companies. In order to better satisfy the needs of our largest clients and to capture cross-
selling opportunities, we have organized several fully-integrated client coverage teams comprised of
senior management, a global relationship manager and regional and product specialists. We believe that
with respect to outsourcing services, our acquisition of Trammell Crow Company has significantly
complemented our existing structure because of the people, resources and expertise that Trammell Crow
Company has brought to our platform.
• Attractive Business Model. Our business model features a diversified service offering and client base,
recurring revenue streams, a variable cost structure, low capital requirements, strong cash flow
generation and a strong senior management team and workforce.
• Diversified Service Offering and Client Base. Our broad service offering, global footprint and
extensive client relationships provide us with a diversified revenue base. For 2007, we estimate that
corporations accounted for approximately 34% of our revenue, insurance companies and banks
accounted for approximately 19% of our revenue, pension funds and their advisors accounted for
approximately 14% of our revenue, individuals and partnerships accounted for approximately 11%
of our revenue, REITs accounted for approximately 6% of our revenue and other types of clients
accounted for the remainder of our revenue.
• Recurring Revenue Streams. Our years of strong local market presence have allowed us to develop
significant repeat business from existing clients, which we estimate accounted for approximately
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64% of our 2007 revenue. This includes referrals associated with our contractual fee-for-services
businesses, which generally involve facilities management, property management and mortgage
loan servicing, as well as asset management provided by CBRE Investors. Our contractual,
fee-for-service business represented 25.7% of our 2007 revenue.
• Variable Cost Structure. Compensation is our largest expense and our sales and leasing
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professionals are generally paid on a commission and bonus basis, which correlates with our
revenue performance. This cost structure provides us with flexibility to mitigate the negative effect
on our operating margins during difficult market conditions. However, our cost structure also
includes significant other operating expenses that may not correlate to our revenue performance,
including office lease and information technology maintenance and other support services expenses
along with insurance premiums.
Low Capital Requirements. Our business model is structured to provide value-added services with
low capital intensity. During 2007, our net capital expenditures were 1.3% of our revenue.
Strong Cash Flow Generation. Our strong brand name, full-service capabilities, and global
footprint enable us to generate significant revenues which, when combined with our flexible cost
structure and low capital requirements, have allowed us historically to generate significant cash flow
in a variety of economic conditions. In recent years, we have been using our cash flow to repurchase
our shares, reduce high-interest debt on our balance sheet, for co-investment opportunities and to
make in-fill acquisitions to round out our service offering.
Strong Senior Management Team and Workforce. Our most important asset is our people. We
have recruited a talented and motivated work force of over 29,000 employees worldwide who are
supported by a strong and deep senior management team consisting of a number of highly-respected
executives, most of whom have over 20 years of broad experience in the real estate industry. This
seasoned team was augmented by senior leadership from Trammell Crow Company, many of whom
now hold significant management positions at our company. In addition, we use equity
compensation to align the interests of our senior management team with the interests of our
stockholders.
Although we believe these strengths will create significant opportunities for our business, you should also
be aware of the risks that may impact our competitive position, which include the following:
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Smaller Presence in Some Markets than our Local Competitors. Although we are the largest
commercial real estate services firm in the world in terms of 2007 revenue, our relative competitive
position varies significantly across service categories and geographic areas. Depending on the service,
we face competition from other real estate service providers, institutional lenders, insurance companies,
investment banking firms, investment managers and accounting firms, some of which may have greater
financial resources than we do. Many of our competitors are local or regional firms. Although
substantially smaller than we are, some of these competitors are larger on a local or regional basis or
within certain service categories within these markets.
• Exposure to Risks of International Operations. We conduct a significant portion of our business and
employ a substantial number of people outside of the United States. During 2007, we generated
approximately 37.2% of our revenue from operations outside the United States. Because a significant
portion of our revenues are derived from operations outside the United States, we are exposed to adverse
changes in exchange rates and social, political and economic risks of doing business in foreign
countries.
• Geographic Concentration. During 2007, approximately 9.8% of our global revenue was generated
from transactions originating in California. In addition, a significant portion of our European operations
are concentrated in London and Paris. As a result, future adverse economic conditions in these regions
may affect us more than our competitors.
Leverage. On December 5, 2006, in connection with our acquisition of Trammell Crow Company, we
successfully tendered substantially all of our remaining 9 3⁄4% senior notes due in 2010, with the
remainder repaid in May of 2007. Although we paid down our high-interest debt in 2006, we borrowed
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approximately $2.1 billion under our new senior secured term loan facilities in December 2006 to
finance our acquisition of Trammell Crow Company. The new financing was obtained on more
attractive terms than the debt that was paid off. Additionally, we repaid $286.0 million of our senior
secured term loans during the year ended December 31, 2007. However, we still have significant debt
service obligations and the instruments governing our indebtedness impose operating and financial
restrictions on the conduct of our business. For the year ended December 31, 2008, we anticipate that
total interest expense will be approximately $156.0 million. For the year ended December 31, 2007, our
interest expense was approximately $163.0 million.
•
Impact of Credit Crunch and Exposure to Weakening Capital Market Conditions. A significant
portion of our business involves the sale and financing of commercial properties. For example, during
2007 we generated approximately 12.3% of our revenue from U.S. investment sales and financing
activities. The successful completion of such sale and financing transactions is generally dependent on
the availability and cost of credit. Therefore, a disruption in the capital markets, such as the type that
emerged in the United States during 2007, could adversely affect our property sales and financing
businesses.
Our Growth Strategy
We believe we have built the premier integrated global services platform in our industry, which gives us a
distinct competitive advantage. In developing this integrated global services platform, we acquired such entities
as The Koll Company, Westmark Realty Advisors (now known as CBRE Investors), L.J. Melody & Company
(now known as CBRE Melody), REI Limited and Hillier Parker May & Rowden during the 1990s, Insignia in
2003 and Trammell Crow Company in 2006, which added strength, expertise and resources in comprehensive
outsourcing services, integrated account management and real estate development. Today, we believe that we
offer the commercial real estate services industry’s most complete suite of services and that we have a leadership
position in many of the top business centers around the world. Our primary business objective is to leverage this
platform on a global basis in order to garner an increasing share of industry revenues relative to our competitors.
We believe this will enable us to maximize our long-term cash flow, sustain our competitive advantage and
increase long-term stockholder value. Our strategy to achieve these business objectives consists of several
elements:
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Increase Revenue from Large Clients. We plan to capitalize on our client management strategy for our
large clients, which is designed to provide them with a full range of services globally while maximizing
our revenue per client. We deliver these services through relationship management teams that are charged
with thoroughly understanding our customers’ business and real estate strategies and matching our services
to the customers’ requirements. The global relationship manager is a highly seasoned professional who is
focused on maximizing revenue per client and who is compensated with a salary and a performance-based
bonus. The team leader is supported by salaried professionals with specialized expertise, such as
marketing, financial analysis and construction, and, as needed, taps into our field-level transaction
professionals for execution of client strategies. We believe this approach to client management will lead to
stronger client relationships and enable us to maximize cross-selling opportunities and capture a larger
share of our clients’ commercial real estate services expenditures. For example:
• we generated repeat business in 2007 from approximately 64% of our U.S. real estate sales and
leasing clients;
• more than 65% of our corporate services clients today purchase more than one service and, in many
cases, more than two;
•
•
the square footage we manage for our 15 largest U.S. asset services clients has grown by 274%
since 2001; and
the 50 largest clients of the investment sales group within our U.S. real estate services line of
business generated $160.5 million in revenues in 2007—up 219% from $50.3 million for the top 50
investment sales clients in 2002.
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• Capitalize on Cross-selling Opportunities. Because we believe cross-selling represents a large growth
opportunity within the commercial real estate services industry, we are committed to emphasizing this
opportunity across all of our clients, services and regions. Following our acquisition of Trammell Crow
Company in 2006, we organized dedicated teams to assist and supplement our local market
professionals in the pursuit of major assignments and to foster increased cross-selling of the full range
of our services. In addition, we have dedicated substantial resources and implemented several
management initiatives to further develop cross-selling opportunities, including our Leadership Center
program, which provides intensive training for sales and management professionals as well as a
customer relationship management database and sales management principles and incentives designed
to improve individual productivity. We believe the combination of these initiatives will enable us to
further penetrate local markets and better capitalize on our global platform.
• Continue to Grow our Investment Management Business. Our growing investment management
business provides us with an attractive revenue source through fees for assets under management and
gains on the sales of assets. We also expect to achieve strong growth in this business by continuing to
harness the vast resources of the entire CB Richard Ellis organization for the benefit of our investment
management clients. CBRE Investors’ independent structure creates an alignment of interests with its
investors, while permitting its clients to use the broad range of services provided by our other business
lines. As a result, we historically have received significant revenue from the provision of services on an
arm’s length basis to these clients, and we believe this will continue in the future.
• Expansion through In-Fill Acquisitions. Strategic acquisitions are an integral component of our growth
plans. In 2007, we completed 14 in-fill acquisitions for an aggregate purchase price of approximately
$108 million. Our acquirees were generally either quality regional firms, including affiliates, or niche
specialty firms that complement our existing platform or affiliates in which we already held an equity
interest. We believe that there are a number of other smaller firms throughout the world that may be
suitable acquisition candidates for us. We expect that each of these acquisitions would generally be less
than $100 million in total consideration and would add to our existing geographic and/or line of
business platforms.
• Focus on Improved Operating Efficiency. We have been focused for several years on efficiency
improvements and contribution enhancements from our internal support services and functions
including travel, marketing and entertainment as well as total headcount. We believe our efforts have
contributed strongly to lower operating costs, higher margins and improved performance. For example,
for the year ended December 31, 2007, operating expenses as a percentage of revenue increased slightly
to 33.0% from 32.3% for the year ended December 31, 2006. The increase in operating expenses as a
percentage of revenue was primarily driven by higher integration costs in the current year, primarily
driven by our acquisition of Trammell Crow Company, and bonus expense in our Development Services
segment that mainly relates to gains on disposition of real estate, which are not included in revenue.
Excluding the impact of these items, operating expenses as a percentage of revenue would actually be
lower for the year ended December 31, 2007 as compared to the prior year. We will continue to look for
ways to realize further operational efficiencies and cost savings in order to maximize our operating
margins and cash flow.
Competition
We compete across a variety of business disciplines within the commercial real estate services industry,
including tenant representation, property/agency leasing, property sales, commercial property and corporate
facilities management, valuation, real estate investment management, development services, commercial
mortgage origination and servicing, capital markets (equity and debt) solutions and proprietary research. Each of
the business disciplines in which we compete is highly competitive on an international, national, regional and
local level. Although we are the largest commercial real estate services firm in the world in terms of 2007
revenue, our relative competitive position varies significantly across geographies, property types and services.
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Depending on the geography, property type or service, we face competition from other commercial real estate
service providers, in-house corporate real estate departments, developers, institutional lenders, insurance
companies, investment banking firms, investment managers and accounting and consulting firms, some of which
may have greater financial resources than we do. Despite recent consolidation, the commercial real estate
services industry remains highly fragmented. Many of our competitors are local or regional firms. Although
substantially smaller than we are, some of these competitors are larger on a local or regional basis. We are also
subject to competition from other large multi-national firms that have similar service competencies to ours,
including Cushman & Wakefield and Jones Lang LaSalle as well as national firms such as Grubb & Ellis.
Different factors weigh heavily in the competition for clients. In advisory services, key differentiating
factors include quality service, resource depth, demonstrated track record, brand reputation, analytical skills,
market knowledge, strategic thinking and creative problem-solving. These factors are also vital in outsourcing
services, and are supplemented by consistency of execution across markets, economies of scale, enhanced
efficiency and cost reduction strategies. In investment management the ability to enhance asset value and
produce solid, consistent returns on invested capital are keys to success.
Seasonality
A significant portion of our revenue is seasonal, which can affect an investor’s ability to compare our
financial condition and results of operations on a quarter-by-quarter basis. Historically, this seasonality has
caused our revenue, operating income, net income and cash flow from operating activities to be lower in the first
two quarters and higher in the third and fourth quarters of each year. The concentration of earnings and cash flow
in the fourth quarter is due to an industry-wide focus on completing transactions toward the fiscal year-end. This
has historically resulted in lower profits or a loss in the first and second quarters, with profits growing or losses
decreasing in each subsequent quarter.
Employees
At December 31, 2007, we had over 29,000 employees worldwide, excluding affiliate offices. At
December 31, 2007, 482 of these employees were subject to collective bargaining agreements, most of whom are
on-site employees in our asset services business accounts in the New York/New Jersey and Illinois areas. We
believe that relations with our employees are satisfactory.
Intellectual Property
We hold various trademarks and trade names worldwide, which include the “CB Richard Ellis” name.
Although we believe our intellectual property plays a role in maintaining our competitive position in a number of
the markets that we serve, we do not believe we would be materially, adversely affected by expiration or
termination of our trademarks or trade names or the loss of any of our other intellectual property rights other than
the “CB Richard Ellis”, the “CBRE”, the “CBRE Melody” and the “Trammell Crow” names. With respect to the
CB Richard Ellis, CBRE and CBRE Melody names, we have processed and continuously maintain trademark
registrations for these service marks in the United States and the CB Richard Ellis and CBRE related marks are in
registration or in process in most foreign jurisdictions where we conduct significant business. We obtained our
most recent U.S. trademark registrations for the CB Richard Ellis and CBRE related marks in 2005, and these
registrations would expire in 2015 if we failed to renew them. The U.S. Patent & Trademark Office published our
application for the trade name “CBRE Melody” in 2007 and if registered in 2008, this mark would expire in 2017
if we failed to renew it.
We hold a license to use the “Trammell Crow” trade name pursuant to a license agreement with CF98, L.P.,
an affiliate of Crow Realty Investors, L.P., d/b/a Crow Holdings, which is wholly-owned by certain descendents
and affiliates of Mr. Trammell Crow. See “Risk Factors—We license the use of the Trammell Crow trade name
and this license is not exclusive and may be revoked” for additional information.
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In addition to trade names, we have developed proprietary technology for preparing and developing
valuation reports to our clients through our valuation business and we offer proprietary research to clients
through our CBRE Torto Wheaton research unit. We also offer proprietary investment structures through CBRE
Investors. While we seek to secure our rights under applicable intellectual property protection laws in these and
any other proprietary assets that we use in our business, we do not believe any of these other items of intellectual
property are material to our business in the aggregate.
Environmental Matters
Federal, state and local laws and regulations impose environmental liabilities, controls, disclosure rules and
zoning restrictions that impact the ownership, management, development, use, or sale of commercial real estate.
Certain of these laws and regulations may impose liability on current or previous real property owners or
operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic
substances at a property, including contamination resulting from above-ground or underground storage tanks at a
property. If contamination occurs or is present during our role as a property or facility manager or developer, we
could be held liable for such costs as a current “operator” of a property.
Such liability may be imposed without regard for the legality of the acts or omissions that caused the
contamination and without regard to whether we knew of, or were responsible for, the presence of such
hazardous or toxic substances, and such liability may be joint and several with any other parties that are deemed
legally liable for the contamination. The operator of a site also may be liable under common law to third parties
for damages and injuries resulting from exposure to hazardous substances or environmental contamination at a
site, including liabilities arising from exposure to asbestos-containing materials. If the liability is joint and
several, we could be responsible for payment of the full amount of the liability, whether or not any other
responsible party is also liable. Under certain laws and common law principles, any failure by us to disclose
environmental contamination at a property could subject us to liability to a buyer or lessee of the property. In
addition, some environmental laws create a lien on a contaminated site for costs that a governmental entity incurs
in connection with the contamination.
Some of the properties owned, operated or managed by us are in the vicinity of properties which are
currently, or have been, the site of releases of regulated substances and remediation activity, and we are currently
aware of several properties owned, operated or managed by us which may be impacted by regulated substances
which may have migrated from adjacent or nearby properties or which may be within the borders of areas
suspected to be impacted by regional groundwater contamination.
While we are aware of the presence or the potential presence of regulated substances in the soil or
groundwater at several properties owned, operated or managed by us, which may have resulted from historical or
ongoing activities on those properties, we are not aware of any material noncompliance with the environmental
laws or regulations currently applicable to us, and we are not the subject of any material claim for liability with
respect to contamination at any location. However, these laws and regulations may discourage sales and leasing
activities and mortgage lending with respect to some properties, which may adversely affect both us and the
commercial real estate services industry in general. Environmental contamination or other environmental
liabilities may also negatively affect the value of commercial real estate assets held by entities that are managed
by our investment management and development businesses, which could adversely impact the results of
operations of these business lines.
Availability of this Report
Our internet address is www.cbre.com. On our Investor Relations page on this web site, we post the following
filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and
Exchange Commission: our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current
Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
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the Securities Exchange Act of 1934. All such filings on our Investor Relations web page are available to be viewed
on this page free of charge. Information contained on our website is not part of this Annual Report on Form 10-K or
our other filings with the Securities and Exchange Commission. We assume no obligation to update or revise any
forward-looking statements in the Annual Report on Form 10-K, whether as a result of new information, future
events or otherwise, unless we are required to do so by law. A copy of this Annual Report on Form 10-K is
available without charge upon written request to: Investor Relations, CB Richard Ellis Group, Inc., 200 Park
Avenue, 17th Floor, New York, New York 10166.
Item 1A. Risk Factors
Set forth below and elsewhere in this report and in other documents we file with the Securities and
Exchange Commission are risks and uncertainties that could cause our actual results to differ materially from the
results contemplated by the forward-looking statements contained in this report and other public statements we
make.
Recent adverse developments in the credit markets and the risk of continued market deterioration have
adversely affected and may continue to adversely affect our business, results of operations and financial
condition.
Our capital markets business, which includes debt and equity financing services, is sensitive to the cost and
availability of credit and liquidity in the credit markets. Additionally, all of our businesses are susceptible to the
volume of activity in the commercial real estate market. The credit markets have recently experienced largely
unexpected dislocations and liquidity disruptions. These disruptions have reduced the availability and increased
the cost of significant sources of funding. In some cases these sources have been eliminated.
Disruptions in the credit markets may adversely affect our business of providing advisory services to
owners, investors and occupiers of real estate in connection with the leasing, disposition and acquisition of
property. If our clients are unable to procure credit on favorable terms, there may be fewer completed leasings,
dispositions and acquisitions of property. During 2007, we generated approximately 12.3% of our revenue from
U.S. investment property sales and financing activities.
We believe that the scope of recent disruptions in the credit markets has been unusual and that many market
participants did not fully anticipate them. As a result, the magnitude or duration of the current credit market
dislocations and liquidity disruptions are impossible to predict. This limits our ability to plan for future
developments and we believe that it limits the ability of other participants in the credit markets and commercial
real estate markets to do so as well. This uncertainty may lead market participants to plan and act more
conservatively than in recent history, which may amplify decreases in demand in the markets we service. We
also cannot predict whether the current market deterioration has led to or may lead to a recession in the
commercial real estate industry or in the other sectors of the U.S. economy or internationally.
The success of our business is significantly related to general economic conditions and, accordingly, our
business could be harmed in the event of an economic slowdown or recession or a downturn in the real estate
market.
Periods of economic slowdown or recession, significantly rising interest rates, a declining employment
level, a declining demand for real estate or the public perception that any of these events may occur, can reduce
volumes for many of our business lines. These economic conditions could result in a general decline in
acquisition, disposition and leasing activity, as well as a general decline in the value of real estate and in rents,
which in turn would reduce revenue from property management fees and brokerage commissions derived from
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property sales and leases. In addition, these conditions could lead to a decline in sales prices as well as a decline
in funds invested in commercial real estate and related assets. Because our development and investment strategy
often entails making relatively modest investments alongside our investor clients, our ability to conduct these
activities depends in part on the supply of investment capital for commercial real estate and related assets. An
economic downturn or a significant increase in interest rates also may reduce the amount of loan originations and
related servicing by our commercial mortgage brokerage business.
During an economic downturn, it may also take longer for us to dispose of real estate investments or the
selling prices may be lower than originally anticipated. As a result, the carrying value of our real estate
investments may become impaired and we could record losses as a result of such impairment or we could
experience reduced profitability related to declines in real estate values. Further, as a result of our debt level and
the terms of our existing debt instruments, our exposure to adverse general economic conditions is heightened.
Our substantial leverage and debt service obligations could harm our ability to operate our business,
remain in compliance with debt covenants and make payments on our debt.
We are highly leveraged and have significant debt service obligations. Although we paid down our high-
interest debt in 2006, we borrowed approximately $2.1 billion under our new senior secured term loan facilities
in December 2006 (of which $1.8 billion is outstanding as of December 31, 2007) to finance our acquisition of
Trammell Crow Company. For 2008, our estimated interest expense is approximately $156.0 million. Our level
of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the
principal of, interest on or other amounts due in respect of our indebtedness. In addition, we may incur additional
debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject
to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks
associated with our leverage, including our ability to service our debt, would increase.
Our debt could have other important consequences, which include, but are not limited to, the following:
• we could be required to use a substantial portion of our cash flow from operations to pay principal and
interest on our debt;
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our level of debt may restrict us from raising additional financing on satisfactory terms to fund working
capital, strategic acquisitions, investments, joint ventures and other general corporate requirements;
our interest expense could increase if interest rates increase because the loans under our amended credit
agreement governing our senior secured term loan facilities bear interest at floating rates (a portion of
this debt is at fixed interest rates accomplished through interest rate swaps);
our leverage could increase our vulnerability to general economic downturns and adverse competitive
and industry conditions, placing us at a disadvantage compared to those of our competitors that are less
leveraged;
our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our
business and in the commercial real estate services industry;
our failure to comply with the financial and other restrictive covenants in the documents governing our
indebtedness, which, among others, require us to maintain specified financial ratios and limit our ability
to incur additional debt and sell assets, could result in an event of default that, if not cured or waived,
could harm our business or prospects; and
from time to time, Moody’s Investors Service and Standard & Poor’s Ratings Service rate our
significant outstanding debt. These ratings may impact our ability to borrow under any new agreements
in the future, as well as the interest rates and other terms of any current or future borrowings and could
also cause a decline in the market price of our common stock.
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We cannot be certain that our earnings will be sufficient to allow us to pay principal and interest on our debt
and meet our other obligations. If we do not have sufficient earnings, we may be required to refinance all or part
of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee that
we will be able to do.
We are able to incur more indebtedness, which may intensify the risks associated with our leverage,
including our ability to service our indebtedness.
Our current amended and restated credit agreement governing our revolving credit facility and our senior
secured term loan facilities permits us, subject to specified conditions, to incur a significant amount of additional
indebtedness, including up to $600.0 million of additional indebtedness under our revolving credit facility (of
which $227.1 million was drawn as of December 31, 2007) and $300.0 million of additional debt under our
senior secured term loan facilities, subject to the satisfaction of customary conditions. If we incur additional debt,
the risks associated with our leverage, including our ability to service our debt, would increase.
Subject to the maximum amounts of indebtedness permitted in our bank covenants, we are not restricted in
the amount of additional recourse debt we are able to incur in connection with the financing of our development
activities, and we may in the future incur such indebtedness in order to decrease the amount of equity we invest
in these activities. Subject to certain covenants in our various bank loan agreements, we are also not restricted in
the amount of additional recourse debt CBRE Melody & Company may incur in connection with funding loan
originations for multi-family properties having prior purchase commitments by a government sponsored entity.
Our debt instruments impose operating and financial restrictions on us, and in the event of a default, all
of our borrowings would become immediately due and payable.
Our debt instruments, including our amended and restated credit agreement, impose, and the terms of any
future debt may impose, operating and other restrictions on us and many of our subsidiaries. These restrictions
will affect, and in many respects will limit or prohibit, our ability and our restricted subsidiaries’ abilities to:
•
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incur or guarantee additional indebtedness;
pay dividends or make distributions on capital stock or redeem or repurchase capital stock;
repurchase equity interests;
• make investments;
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create restrictions on the payment of dividends or other amounts to us;
transfer or sell assets, including the stock of subsidiaries;
create liens;
enter into transactions with affiliates;
enter into sale/leaseback transactions; and
enter into mergers or consolidations.
Our amended and restated credit agreement also requires us to maintain compliance with specified financial
ratios. Our ability to comply with these ratios may be affected by events beyond our control.
The restrictions contained in our debt instruments could:
•
•
limit our ability to plan for or react to market conditions or meet capital needs or otherwise restrict our
activities or business plans; and
adversely affect our ability to finance ongoing operations, strategic acquisitions, investments or other
capital needs or to engage in other business activities that would be in our interest.
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A breach of any of these restrictive covenants or the inability to comply with the required financial ratios
could result in a default under our debt instruments. If any such default occurs, the lenders under the senior
secured term loan facilities may elect to declare all outstanding borrowings, together with accrued interest and
other fees, to be immediately due and payable. The lenders under our senior secured term loan facilities also have
the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are
unable to repay outstanding borrowings when due, the lenders under the senior secured term loan facilities will
have the right to proceed against the collateral granted to them to secure the debt, which collateral is described in
the immediately following risk factor. If the debt under the senior secured term loan facilities were to be
accelerated, we cannot give assurance that this collateral would be sufficient to repay our debt.
If we fail to meet our payment or other obligations under the senior secured term loan facilities, the
lenders under the senior secured term loan facilities could foreclose on, and acquire control of, substantially
all of our assets.
In connection with the incurrence of indebtedness under our senior secured term loan facilities and the
completion of our acquisition of Trammell Crow Company, the lenders under our senior secured term loan
facilities received a pledge of all of our equity interests in our significant domestic subsidiaries, including CB
Richard Ellis Services, Inc., CBRE Investors, CBRE Melody, Insignia, CB Richard Ellis Real Estate Services,
LLC, Trammell Crow Company and CBRE Real Estate Services, Inc. and 65% of the voting stock of our foreign
subsidiaries that is held directly by us or our domestic subsidiaries. Additionally, these lenders generally have a
lien on substantially all of our accounts receivable, cash, general intangibles, investment property and future
acquired material property. As a result of these pledges and liens, if we fail to meet our payment or other
obligations under the senior secured term loan facilities, the lenders under the senior secured term loan facilities
will be entitled to foreclose on substantially all of our assets and liquidate these assets.
Our success depends upon the retention of our senior management, as well as our ability to attract and
retain qualified and experienced employees (including those acquired through acquisitions).
Our continued success is highly dependent upon the efforts of our executive officers and other key
employees, including Brett White, our Chief Executive Officer and President; and Kenneth J. Kay, our Chief
Financial Officer. Messrs. White and Kay currently are not parties to employment agreements with us. We also
are highly dependent upon the retention of our property sales and leasing professionals, who generate a
significant majority of our revenues, as well as other revenue producing professionals. If any of our key
employees leave (including those acquired through acquisitions), or we lose a significant number of key revenue
producers, and we are unable to quickly hire and integrate qualified replacements, our business, financial
condition and results of operations may suffer. In addition, the growth of our business is largely dependent upon
our ability to attract and retain qualified support personnel in all areas of our business, including brokerage and
property management personnel. Competition for these personnel is intense and we may not be able to
successfully recruit, integrate or retain sufficiently qualified personnel. If we are unable to attract and retain these
qualified personnel, our growth may be limited and our business and operating results could suffer.
Our growth has benefited significantly from acquisitions, which may not be available in the future.
A significant component of our growth has occurred through acquisitions, including our acquisition of
Insignia in July 2003 and our acquisition of Trammell Crow Company in December 2006. Any future growth
through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates
at favorable prices and upon advantageous terms and conditions, which may not be available to us. In addition,
acquisitions involve risks that the businesses acquired will not perform in accordance with expectations and that
business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect.
Future acquisitions and any necessary related financings also may involve significant transaction-related
expenses. For example, through December 31, 2007, we incurred $200.9 million of transaction-related
expenditures in connection with our acquisition of Insignia in 2003 and $196.6 million of transaction-related
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expenditures in connection with our acquisition of Trammell Crow Company in 2006. Transaction-related
expenditures include severance costs, lease termination costs, transaction costs, deferred financing costs and
merger-related costs, among others. We incurred our final transaction expenditures with respect to the Insignia
acquisition in the third quarter of 2004 and the Trammell Crow Company acquisition in the fourth quarter of
2007.
If we acquire companies in the future, we may experience integration costs and the acquired businesses
may not perform as we expect.
We have had, and may continue to experience, difficulties in integrating operations and accounting systems
acquired from other companies. These challenges include the diversion of management’s attention from other
business concerns and the potential loss of our key employees or those of the acquired operations. We believe
that most acquisitions will initially have an adverse impact on operating and net income. Acquisitions also
frequently involve significant costs related to integrating information technology, accounting and management
services and rationalizing personnel levels. In connection with the Insignia acquisition we have incurred $40.7
million of expenses through December 31, 2007, which are related to the integration of Insignia’s business lines,
as well as accounting and other systems, into our own. Additionally, during the year ended December 31, 2007,
we have incurred $42.6 million of integration expenses associated with acquisitions completed in 2005 through
2007, including $39.6 million related to the acquisition of Trammell Crow Company.
If we are unable to fully integrate the accounting and other systems of the businesses we acquire, we may
not be able to effectively manage them. Moreover, the integration process itself may be disruptive to our business
as it requires coordination of geographically diverse organizations and implementation of new accounting and
information technology systems.
Our international operations subject us to social, political and economic risks of doing business in
foreign countries.
We conduct a significant portion of our business and employ a substantial number of people outside of the
United States and as a result, we are subject to risks associated with doing business globally. During 2007, we
generated approximately 37.2% of our revenue from operations outside the United States. Circumstances and
developments related to international operations that could negatively affect our business, financial condition or
results of operations include, but are not limited to, the following factors:
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difficulties and costs of staffing and managing international operations in certain regions;
currency restrictions, which may prevent the transfer of capital and profits to the United States;
unexpected changes in regulatory requirements;
potentially adverse tax consequences;
the responsibility of complying with multiple and potentially conflicting laws, e.g., with respect to
corrupt practices, employment and licensing;
the impact of regional or country-specific business cycles and economic instability;
the geographic, language and cultural differences among personnel in different areas of the world;
greater difficulty in collecting accounts receivable in some geographic regions such as Asia, where
many countries have underdeveloped insolvency laws and clients are often slow to pay, and in some
European countries, where clients also tend to delay payments;
political instability; and
foreign ownership restrictions with respect to operations in countries such as China.
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We have committed additional resources to expand our worldwide sales and marketing activities, to
globalize our service offerings and products in selected markets and to develop local sales and support channels.
If we are unable to successfully implement these plans, to maintain adequate long-term strategies that
successfully manage the risks associated with our global business or to adequately manage operational
fluctuations, our business, financial condition or results of operations could be harmed.
In addition, our international operations and, specifically, the ability of our non-U.S. subsidiaries to
dividend or otherwise transfer cash among our subsidiaries, including transfers of cash to pay interest and
principal on our debt, may be affected by currency exchange control regulations, transfer pricing regulations and
potentially adverse tax consequences, among other things.
Our revenue and earnings may be adversely affected by foreign currency fluctuations.
Our revenue from non-U.S. operations is denominated primarily in the local currency where the associated
revenue was earned. During 2007, approximately 37.2% of our business was transacted in currencies of foreign
countries, the majority of which included the euro, the British pound sterling, the Canadian dollar, the Hong
Kong dollar, the Japanese yen, the Singapore dollar, the Australian dollar and the Indian rupee. Thus, we may
experience fluctuations in revenues and earnings because of corresponding fluctuations in foreign currency
exchange rates.
We have made significant acquisitions of non-U.S. companies and we may acquire additional foreign
companies in the future. As we increase our foreign operations, fluctuations in the value of the U.S. dollar
relative to the other currencies in which we may generate earnings could adversely affect our business, financial
condition and operating results. Due to the constantly changing currency exposures to which we are subject and
the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future
operating results. In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to
perform period-to-period comparisons of our reported results of operations.
From time to time, our management uses currency hedging instruments, including foreign currency forward
and option contracts and borrows in foreign currencies. Economic risks associated with these hedging
instruments include unexpected fluctuations in inflation rates, which impact cash flow relative to paying down
debt, and unexpected changes in the underlying net asset position.
Our stock price is subject to volatility.
Our stock price is affected by a number of factors, including quarterly variations in our results and those of
our competitors; changes to the competitive landscape; estimates and projections by the investment community;
the arrival or departure of key personnel; the introduction of new services by us or our competitors; and
acquisitions, strategic alliances or joint ventures involving us or our competitors. In addition, the stock market, in
general, has historically experienced significant price and volume fluctuations. Any of these factors may cause
declines in the market price of our common stock. When the market price of a company’s common stock drops
significantly, stockholders sometimes institute securities class action lawsuits against the company. A securities
class action lawsuit against us could cause us to incur substantial costs and could divert the time and attention of
our management and other resources from our business.
20
If the properties that we manage fail to perform, then our financial condition and results of operations
could be harmed.
The revenue we generate from our asset services and facilities management lines of business is generally a
percentage of aggregate rent collections from properties, although many management agreements provide for a
specified minimum management fee. Accordingly, our success partially depends upon the performance of the
properties we manage. The performance of these properties will depend upon the following factors, among
others, many of which are partially or completely outside of our control:
•
•
•
•
•
•
•
•
our ability to attract and retain creditworthy tenants;
the magnitude of defaults by tenants under their respective leases;
our ability to control operating expenses;
governmental regulations, local rent control or stabilization ordinances which are in, or may be put into,
effect;
various uninsurable risks;
financial conditions prevailing generally and in the areas in which these properties are located;
the nature and extent of competitive properties; and
the real estate market generally.
Our real estate investment and co-investment activities subject us to real estate investment risks which
could cause fluctuations in earnings and cash flow.
An important part of the strategy for our Global Investment Management business involves investing our
capital in certain real estate investments with our clients. As of December 31, 2007, we had committed $95.6
million to fund future co-investments. We expect that approximately $51.2 million of these commitments will be
funded during 2008. In addition to required future capital contributions, some of the co-investment entities may
request additional capital from us and our subsidiaries holding investments in those assets, and the failure to
provide these contributions could have adverse consequences to our interests in these investments. These adverse
consequences could include damage to our reputation with our co-investment partners and clients, as well as the
necessity of obtaining alternative funding from other sources that may be on disadvantageous terms for us and
the other co-investors. Providing co-investment financing is a very important part of CB Richard Ellis Investors’
investment management business, which would suffer if we were unable to make these investments. Although
our debt instruments contain restrictions that limit our ability to provide capital to the entities holding direct or
indirect interests in co-investments, we may provide this capital in many instances.
Selective investment in real estate projects is an important part of our Development Services business
strategy and there is an inherent risk of loss of our investment. As of December 31, 2007, we had approximately
70 consolidated real estate projects with invested equity of $52.5 million and $6.6 million of notes payable on
real estate that are recourse to us (beyond being recourse to the single-purpose entity that holds the real estate
asset and is the primary obligor on the note payable). The estimated total budgeted project cost of these
consolidated real estate projects is $985.2 million. In addition, at December 31, 2007, we were involved as a
principal (in most cases, co-investing with our clients) in approximately 50 unconsolidated real estate
subsidiaries in which we had invested $92.6 million and had committed additional capital to these unconsolidated
subsidiaries of $7.7 million. We also guaranteed notes payable of these unconsolidated subsidiaries of $6.1
million.
21
Because the disposition of a single significant investment can impact our financial performance in any
period, our real estate investment activities could increase fluctuations in our net earnings and cash flow. In many
cases, we have limited control over the timing of the disposition of these investments and the recognition of any
related gain or loss. Risks associated with these activities include, but are not limited to, the following:
•
•
•
losses from investments;
difficulties associated with international co-investments described in “—Our international operations
subject us to social, political and economic risks of doing business in foreign countries” and “—Our
revenue and earnings may be adversely affected by foreign currency fluctuations;” and
potential lack of control over the disposition of any co-investments and the timing of the recognition of
gains, losses or potential incentive participation fees.
Our joint venture activities involve unique risks that are often outside of our control which, if realized,
could harm our business.
We have utilized joint ventures for commercial investments and local brokerage and other affiliations both
in the United States and internationally, and although we currently have no specific plans to do so, we may
acquire minority interests in other joint ventures in the future. In many of these joint ventures, we may not have
the right or power to direct the management and policies of the joint ventures and other participants may take
action contrary to our instructions or requests and against our policies and objectives. In addition, the other
participants may become bankrupt or have economic or other business interests or goals that are inconsistent with
ours. If a joint venture participant acts contrary to our interest, it could harm our business, results of operations
and financial condition.
We have numerous significant competitors and potential future competitors, some of which may have
greater financial and operational resources than we do.
We compete across a variety of business disciplines within the commercial real estate services industry,
including investment management, tenant representation, corporate services, construction and development
management, property management, agency leasing, valuation and commercial mortgage brokerage. With
respect to each of our business disciplines, we cannot give assurance that we will be able to continue to compete
effectively or maintain our current fee arrangements or margin levels or that we will not encounter increased
competition. Each of the business disciplines in which we compete is highly competitive on an international,
national, regional and local level. Although we are the largest commercial real estate services firm in the world in
terms of 2007 revenue, our relative competitive position varies significantly across product and service
categories and geographic areas. Depending on the product or service, we face competition from other real estate
service providers, in-house corporate real estate departments, developers, institutional lenders, insurance
companies, investment banking firms, investment managers, and accounting and consulting firms, some of which
may have greater financial resources than we do. In addition, future changes in laws could lead to the entry of
other competitors, such as financial institutions. Many of our competitors are local or regional firms. Although
substantially smaller than us, some of these competitors are larger on a local or regional basis. We are also
subject to competition from other large national and multi-national firms that have similar service competencies
to ours. There has been a significant increase in recent years in real estate ownership by REITs, many of which
self-manage most of their real estate assets. Continuation of this trend could shrink the asset base available to be
managed by third-party service providers and thereby decrease the demand for our services. In general, there can
be no assurance that we will be able to compete effectively, to maintain current fee levels or margins, or maintain
or increase our market share.
22
A significant portion of our operations are concentrated in California and our business could be harmed
in the event of a future economic downturn in the California real estate markets.
During 2007 and 2006, approximately 9.8% and 13.5%, respectively, of revenue was generated from
transactions originating in California. As a result of the geographic concentration in California, any future
economic downturn in the California commercial real estate market and in the local economies in San Diego, Los
Angeles and Orange County could harm our results of operations.
Our results of operations vary significantly among quarters during each calendar year, which makes
comparisons of our quarterly results difficult.
A significant portion of our revenue is seasonal. Historically, this seasonality has caused our revenue,
operating income, net income and cash flow from operating activities to be lower in the first two quarters and
higher in the third and fourth quarters of each year. The concentration of earnings and cash flow in the fourth
quarter is due to an industry-wide focus on completing transactions toward the fiscal year-end. This has
historically resulted in lower profits or a loss in the first and second quarters, with profits growing (or losses
decreasing) in each subsequent quarter. This variance among quarters during each calendar year makes
comparison between such quarters difficult, but does not generally affect the comparison of the same quarters
during different calendar years.
We license the use of the Trammell Crow trade name and this license is not exclusive and may be
revoked.
We have a license agreement with an affiliate of Crow Holdings that allows us to use the name “Trammell
Crow” perpetually throughout the world in any business except the residential real estate business, although we
can use this name in serving certain mixed-use properties or in providing investment sales brokerage services to
buyers and sellers of multi-family residential facilities. This license can be revoked if we fail to maintain certain
quality standards or infringe upon certain of the licensor’s intellectual property rights. If we lose the right to use
the Trammell Crow name, our Development Services business could suffer significantly.
The license agreement permits certain existing uses of the name “Trammell Crow” by affiliates of Crow
Holdings. The use of the Trammell Crow name or other similar names by third parties may create confusion or
reduce the value associated with the Trammell Crow name.
If we fail to comply with laws and regulations applicable to us in our role as a real estate broker,
mortgage broker, property/facility manager or developer, we may incur significant financial penalties.
We are subject to numerous federal, state, local and non-U.S. laws and regulations specific to the services
we perform in our business, as well as laws of broader applicability, such as tax, securities and employment laws.
Brokerage of real estate sales and leasing transactions and the provision of property management and valuation
services require us to maintain applicable licenses in each U.S. state in which we perform these services. If we
fail to maintain our licenses or conduct these activities without a license, or violate any of the regulations
covering our licenses, we may be required to pay fines (including treble damages in certain states) or return
commissions received or have our licenses suspended or revoked. In addition, our indirect wholly-owned
subsidiary, CBRE Investors, is subject to laws and regulations as a registered investment advisor and compliance
failures or regulatory action could adversely affect our business. As the size and scope of commercial real estate
transactions have increased significantly during the past several years, both the difficulty of ensuring compliance
with numerous state licensing regimes and the possible loss resulting from non-compliance have increased.
Furthermore, the laws and regulations applicable to our business, both within and outside of the United States,
also may change in ways that increase the costs of compliance.
23
We may have liabilities in connection with real estate brokerage and property management activities.
As a licensed real estate broker, we and our licensed employees are subject to regulatory due diligence,
disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject us or our employees
to litigation from parties who purchased, sold or leased properties that we or they brokered or managed. We
could become subject to claims by participants in real estate sales, as well as building owners and companies for
whom we provide management services, claiming that we did not fulfill our regulatory and fiduciary obligations.
In addition, in our property management business, we hire and supervise third-party contractors to provide
construction and engineering services for our managed properties. While our role is limited to that of a
supervisor, we may be subject to claims for construction defects or other similar actions. Adverse outcomes of
real estate brokerage or property management litigation could negatively impact our business, financial condition
or results of operations.
We may be subject to environmental liability as a result of our role as a property or facility manager or
developer of real estate.
Various laws and regulations impose liability on real property owners or operators for the cost of
investigating, cleaning up or removing contamination caused by hazardous or toxic substances at a property. In
our role as a property or facility manager or developer, we could be held liable as an operator for such costs. This
liability may be imposed without regard to the legality of the original actions and without regard to whether we
knew of, or were responsible for, the presence of the hazardous or toxic substances. Liability under some of these
laws may be joint and several, meaning that one liable party could be held responsible for all costs related to a
contaminated site despite the existence of other liable parties. If we fail to disclose environmental issues, we
could also be liable to a buyer or lessee of a property. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and costs incurred in connection with the
contamination. If we incur any such liability, our business could suffer significantly. Additionally, liabilities
incurred to comply with more stringent future environmental requirements could adversely affect any or all of
our lines of business.
Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “anticipate,”
“believe,” “could,” “should,” “propose,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,”
“project,” “will” and similar terms and phrases are used in this Annual Report on Form 10-K to identify forward-
looking statements. These statements relate to analyses and other information based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to our future prospects,
developments and business strategies.
These forward-looking statements are made based on our management’s expectations and beliefs
concerning future events affecting us and are subject to uncertainties and factors relating to our operations and
business environment, all of which are difficult to predict and many of which are beyond our control. These
uncertainties and factors could cause our actual results to differ materially from those matters expressed in or
implied by these forward-looking statements.
The following factors are among those, but are not only those, that may cause actual results to differ
materially from the forward-looking statements:
•
changes in general economic and business conditions, particularly in geographies where our business
may be concentrated, including interest rate increases, the cost and availability of capital for investment
in real estate, clients’ willingness to make real estate or long-term contractual commitments and other
factors impacting the value of real estate assets;
24
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
increases in unemployment and general slowdowns in commercial activity;
our ability to diversify our revenue model to offset cyclical economic trends in the commercial real
estate industry;
our ability to attract new user and investor clients;
our ability to retain major clients and renew related contracts;
a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which
would impact our revenues and operating performance;
changes in the key components of revenue growth for large commercial real estate services companies,
including consolidation of client accounts and increasing levels of institutional ownership of
commercial real estate;
trends in use of large, full-service real estate providers;
our ability to maximize cross-selling opportunities;
diversification of our client base;
our ability to retain our senior management and attract and retain qualified and experienced employees;
future acquisitions may not be available at favorable prices or upon advantageous terms and conditions;
costs relating to the acquisition of businesses we may acquire could be higher than anticipated;
integration issues arising out of the acquisition of companies we may acquire, including that we may not
be able to improve operating efficiency as much as anticipated;
our leverage and ability to incur additional indebtedness;
our ability to generate a sufficient amount of cash to satisfy working capital requirements and to service
our existing and future indebtedness;
our ability to reduce debt and achieve cash interest savings;
our ability to compete globally, or in specific geographic markets or business segments that are material
to us;
changes in social, political and economic conditions in the foreign countries in which we operate;
our ability to manage fluctuations in net earnings and cash flow, which could result from our
participation as a principal in real estate investments;
variability in our results of operations among quarters;
our ability to leverage our global services platform to maximize and sustain long-term cash flow;
our ability to comply with the laws and regulations applicable to real estate brokerage and mortgage
transactions;
our exposure to liabilities in connection with real estate brokerage and property management activities;
foreign currency fluctuations;
the failure of properties managed by us to perform as anticipated;
the success of our co-investment and joint venture activities;
the ability of our Global Investment Management segment to comply with applicable laws and
regulations governing its role as a registered investment advisor;
the ability of our Global Investment Management segment to realize values in investment funds to offset
incentive compensation expense related thereto;
25
•
•
•
•
•
•
•
our ability to sufficiently protect our intellectual property, including protection of our global brand;
improvements in operating efficiency;
trends in pricing for commercial real estate services;
liabilities under guarantees, or for construction defects, that we incur in our Development Services
business;
the ability of CBRE Melody to periodically amend, or replace, on satisfactory terms and agreements for
its indebtedness;
the effect of implementation of new tax and accounting rules and standards; and
the other factors described in our current Annual Report on Form 10-K, included under the heading
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies,” and “Quantitative and Qualitative Disclosures About
Market Risk.”
Forward-looking statements speak only as of the date the statements are made. You should not put undue
reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to
reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information,
except to the extent required by applicable securities laws. If we do update one or more forward-looking
statements, no inference should be drawn that we will make additional updates with respect to those or other
forward-looking statements. Additional information concerning these and other risks and uncertainties is
contained in our other periodic filings with the Securities and Exchange Commission.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We occupied the following offices as of December 31, 2007:
Location
Sales Offices
Corporate Offices
Total
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe, Middle East and Africa (EMEA) . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
157
78
77
312
2
1
1
4
159
79
78
316
These offices also include employees of our Global Investment Management and Development Services
segments. The majority of our offices that contain employees of our Global Investment Management or our
Development Services segment also contain employees of our other segments. As a result, offices of our Global
Investment Management and Development Services segments have not been separately included above, as to do
so would be duplicative.
In general, these leased offices are fully utilized. The most significant terms of the leasing arrangements for
our offices are the length of the lease and the rent. Our leases have terms varying in duration. The rent payable
under our office leases varies significantly from location to location as a result of differences in prevailing
commercial real estate rates in different geographic locations. Our management believes that no single office
lease is material to our business, results of operations or financial condition. In addition, we believe there is
adequate alternative office space available at acceptable rental rates to meet our needs, although adverse
movements in rental rates in some markets may negatively affect our profits in those markets when we enter into
new leases. We do not own any offices, which is consistent with our strategy to lease instead of own.
26
Item 3. Legal Proceedings
We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary
course of business. Our management believes that any liability imposed on us that may result from disposition of
these lawsuits will not have a material effect on our business, consolidated financial position, cash flows or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 2007.
27
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Stock Price Information
Our Class A common stock has traded on the New York Stock Exchange under the symbol “CBG” since
June 10, 2004. On April 28, 2006, our board of directors approved a three-for-one stock split of our outstanding
Class A common stock effected as a 100% stock dividend, which was distributed on June 1, 2006. The applicable
high and low prices of our Class A common stock for the last two fiscal years, as reported by the New York
Stock Exchange, are set forth below for the periods indicated and adjusted for our stock split.
Fiscal Year 2007
Price Range
High
Low
Quarter ending March 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending June 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending September 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$39.15
$39.93
$42.74
$29.36
$31.22
$33.00
$23.69
$17.49
Fiscal Year 2006
Quarter ending March 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending September 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quarter ending December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.82
$29.83
$25.96
$34.26
$19.46
$21.88
$20.02
$22.73
The closing share price for our Class A common stock on December 31, 2007, as reported by the New York
Stock Exchange, was $21.55. As of February 15, 2008, there were 343 stockholders of record of our Class A
common stock.
Dividend Policy
We have not declared or paid any cash dividends on any class of our common stock since our inception on
February 20, 2001, and we do not anticipate declaring or paying any cash dividends on our common stock for the
foreseeable future. We currently intend to retain any future earnings to finance future growth and reduce debt.
Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend
on our financial condition, results of operations, capital requirements and other factors that the board of directors
deems relevant. In addition, our ability to declare and pay cash dividends is restricted by the amended and
restated credit agreement governing our revolving credit facility and senior secured term loan facilities.
Recent Sales of Unregistered Securities
None.
28
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2007.
All outstanding awards relate to our Class A common stock.
Plan category
Number of Securities
to be Issued upon
Exercise of
Outstanding Options
and Rights
(a)
Weighted-average
Exercise Price of
Outstanding
Options and
Rights
(b)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
Equity compensation plans approved by security
holders (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
12,566,895
security holders . . . . . . . . . . . . . . . . . . . . . . . .
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,566,895
$9.38
—
$9.38
5,031,047 (2)
—
5,031,047
(1) Consists of our Amended and Restated 2004 Stock Incentive Plan and our 2001 Stock Incentive Plan (no
further awards may be issued under our 2001 Stock Incentive Plan, which was terminated in June 2004 in
connection with the adoption of the 2004 Stock Incentive Plan).
(2) Under the Amended and Restated 2004 Stock Incentive Plan, we may issue stock awards, including but not
limited to restricted stock bonuses and restricted stock units, as that term is defined in the 2004 Stock
Incentive Plan. Each stock award other than a stock option or stock appreciation right shall reduce the
number of shares reserved for issuance under the 2004 Stock Incentive Plan by 2.25.
Changes in Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program (1)
Approximate
Dollar Value of
Shares that May
Yet Be
Purchased Under
the Program
Month #1 (November 2007) . . . . . . . . . . . . . . . . . . . .
Month #2 (December 2007) . . . . . . . . . . . . . . . . . . . .
10,294,100
18,536,342
$19.59
23.38
10,294,100
18,536,342
$433,377,937
—
$
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,830,442
$22.03
28,830,442
(1) On November 7, 2007, we announced a share repurchase program of up to $500.0 million of our outstanding
common stock, which was authorized by our board of directors. Subsequently, on November 28, 2007, we
announced an expansion of our share repurchase program, in which our board of directors authorized the
share repurchase of up to $635.0 million of our outstanding shares of common stock, which included the
$500.0 million previously authorized. The share repurchase program was completed in December 2007 by
acquiring 28.8 million shares at an average price of $22.03.
29
Stock Performance Graph
The following graph shows our cumulative total stockholder return for the period beginning with our initial
public offering on June 10, 2004 and ending on December 31, 2007. The graph also shows the cumulative total
returns of the Standard & Poor’s 500 Stock Index, or S&P 500 Index, in which we are included, and an industry peer
group.
The comparison below assumes $100 was invested on June 10, 2004 in our Class A common stock and in each
of the indices shown and assumes that all dividends were reinvested. Our stock price performance shown in the
following graph is not indicative of future stock price performance. The peer group is comprised of the following
publicly traded real estate services companies: Grubb & Ellis Company and Jones Lang LaSalle Incorporated. These
two companies represent our primary competitors that are publicly traded with business lines reasonably comparable
to ours.
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURN*
Among CB Richard Ellis Group, Inc., The S&P 500 Index,
And A Peer Group
$700
$600
$500
$400
$300
$200
$100
$0
6/10/04 6/04
9/04 12/04 3/05
6/05
9/05 12/05 3/06
6/06
9/06 12/06 3/07
6/07
9/07 12/07
6/10/04
6/04
9/04
12/04
3/05
6/05
9/05
12/05
3/06
6/06
9/06
12/06
3/07
6/07
9/07
12/07
CB Richard Ellis Group, Inc. 100.00
104.09 125.89 182.83 190.68 239.02 268.12 320.71 439.78 407.08 402.18 542.78 558.80 596.73 455.15 352.32
S&P 500
Peer Group
100.00
101.94 100.04 109.27 106.93 108.39 112.30 114.64 119.47 117.75 124.42 132.75 133.60 141.99 144.87 140.05
100.00
104.85 129.80 148.09 182.95 177.56 183.40 209.66 310.75 350.21 342.60 373.64 419.36 454.59 408.41 284.59
*$100 invested on 6/10/04 in stock or 5/31/04 in index – including reinvestment of dividends.
Fiscal year ending December 31.
Copyright ©2008. Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
30
Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial information for each of the five
years in the period ended December 31, 2007. The statement of operations data, the statement of cash flows data
and the other data for the years ended December 31, 2007, 2006 and 2005 and the balance sheet data as of
December 31, 2007 and 2006 were derived from our audited consolidated financial statements included
elsewhere in this Form 10-K. The statement of operations data, the statement of cash flows data and the other
data for the years ended December 31, 2004 and 2003, and the balance sheet data as of December 31, 2005, 2004
and 2003 were derived from our audited consolidated financial statements that are not included in this
Form 10-K.
The selected financial data presented below is not necessarily indicative of results of future operations and
should be read in conjunction with our consolidated financial statements and the information included under the
headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included
elsewhere in this Form 10-K.
Year ended December 31,
2007
2006 (1)
2004
2005
(dollars in thousands, except share data)
2003 (2)
6,034,249 $
698,971
29,004
162,991
—
4,032,027 $
550,139
9,822
45,007
33,847
3,194,026 $
372,406
11,221
56,281
7,386
2,647,073 $
171,008
6,926
68,080
21,075
1,810,111
25,830
4,623
72,319
13,479
387,871
318,571
217,341
64,725
(34,704)
2,634
390,505
—
318,571
—
217,341
—
64,725
—
(34,704)
STATEMENTS OF OPERATIONS
DATA:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Operating income . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . .
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net
of income taxes . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . .
EPS (3) (4):
Basic income (loss) per share
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations,
net of income taxes . . . . . . . . . . . . .
1.70
0.01
1.41
—
0.98
—
0.32
—
(0.23)
—
(0.23)
Net income (loss) . . . . . . . . . . . . . . . . $
1.71 $
1.41 $
0.98 $
0.32 $
Diluted income (loss) per share
Income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . . . $
1.65 $
1.35 $
0.95 $
0.30 $
(0.23)
Income from discontinued operations,
net of income taxes . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . $
Weighted average shares:
0.01
1.66 $
—
1.35 $
—
0.95 $
—
0.30 $
—
(0.23)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . .
228,476,724
234,978,464
226,685,122
235,118,341
222,129,066
229,855,056
203,326,218
214,035,219
152,755,716
152,755,716
STATEMENTS OF CASH FLOWS
DATA:
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . $
Net cash used in investing activities . . . . . .
Net cash (used in) provided by financing
648,210 $
(284,421)
430,044 $
(2,061,933)
359,656 $
(115,509)
187,207 $
(28,351)
87,546
(308,400)
activities . . . . . . . . . . . . . . . . . . . . . . . . .
(277,253)
1,419,560
(47,272)
(67,366)
303,664
OTHER DATA:
EBITDA (5) (6) . . . . . . . . . . . . . . . . . . . . . . $
834,264 $
653,524 $
454,184 $
245,340 $
132,817
31
As of December 31,
2007
2006
2005
2004
2003
(dollars in thousands)
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, including current portion . . . . . . . . . . .
Notes payable on real estate (7)
. . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
$ 342,874
6,242,573
1,788,726
466,032
4,990,417
988,543
$ 244,476
5,944,631
2,078,509
347,033
4,684,854
1,181,641
$ 449,289
2,815,672
561,069
—
2,015,163
793,685
$ 256,896
2,271,636
612,838
—
1,705,763
559,948
$ 163,881
2,213,481
802,705
—
1,873,896
332,929
Note: We have not declared any cash dividends on common stock for the periods shown.
(1) The results for the year ended December 31, 2006 include the operations of Trammell Crow Company from
December 20, 2006, the date we acquired Trammell Crow Company.
(2) The results for the year ended December 31, 2003 include the operations of Insignia Financial Group, Inc. from July 23,
2003, the date we acquired Insignia.
(3) EPS represents earnings (loss) per share. See Earnings Per Share information in Note 19 of our Notes to Consolidated
Financial Statements.
(4) On April 28, 2006, our board of directors approved a three-for-one stock split of our Class A common stock effected as a
100% stock dividend, which was distributed on June 1, 2006. The applicable share and per share data for all periods
presented has been restated to give effect to this stock split.
(5) EBITDA represents earnings before net interest expense, loss on extinguishment of debt, income taxes, depreciation and
amortization. Our management believes EBITDA is useful in evaluating our performance compared to that of other
companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income
taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for
reasons unrelated to overall operating performance. As a result, our management uses EBITDA as a measure to evaluate
the performance of our various business lines and for other discretionary purposes, including as a significant component
when measuring our performance under our employee incentive programs.
However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and
when analyzing our operating performance, readers should use EBITDA in addition to, and not as an alternative for, net
income (loss) as determined in accordance with GAAP. Because not all companies use identical calculations, our
presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA
is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain
cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts
calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other
cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in
certain activities, such as incurring additional debt and making certain restricted payments.
EBITDA is calculated as follows (dollars in thousands):
Year ended December 31,
2007
2006
2005
2004
2003
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $390,505 $318,571 $217,341 $ 64,725 $ (34,704)
Add:
Depreciation and amortization (i) . . . . . . . . . . . . . . . . . .
Interest expense (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes (iii) . . . . . . . . . . . . .
113,694
164,829
—
194,255
67,595
45,007
33,847
198,326
45,516
56,281
7,386
138,881
54,857
68,080
21,075
43,529
92,622
72,319
13,479
(6,276)
Less:
Interest income (iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,019
9,822
11,221
6,926
4,623
EBITDA (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $834,264 $653,524 $454,184 $245,340 $132,817
(i)
Includes depreciation and amortization related to discontinued operations of $0.4 million for the year ended
December 31, 2007.
Includes interest expense related to discontinued operations of $1.8 million for the year ended December 31, 2007.
(ii)
(iii) Includes provision for income taxes related to discontinued operations of $1.6 million for the year ended
December 31, 2007.
(iv) Includes interest income related to discontinued operations of $0.01 million for the year ended December 31, 2007.
Includes EDITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
(6)
(7) Notes payable on real estate disclosed here includes the current and long-term portions of notes payable on real estate as
well as notes payable included in liabilities related to real estate and other assets held for sale.
32
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are the world’s largest commercial real estate services firm, based on 2007 revenue, with leading full-
service operations in major metropolitan areas throughout the world. We offer a full range of services to
occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial
real estate. As of December 31, 2007, excluding affiliate offices, we operated in more than 300 offices worldwide
with over 29,000 employees providing commercial real estate services under the “CB Richard Ellis” brand name
and development services under the “Trammell Crow” brand name. Our business is focused on several service
competencies, including tenant representation, property/agency leasing, property sales, commercial property and
corporate facilities management, valuation, real estate investment management, development services,
commercial mortgage origination and servicing, capital markets (equity and debt) solutions and proprietary
research. We generate revenues on a per project or transactional basis and from contractual management fees. In
2006, we became the first commercial real estate services company included in the S&P 500. In 2007, we were
ranked #520 on the Fortune list of largest U.S. companies, #33 on the Fortune list of 100 Fastest Growing U.S.
Companies and #16 on the Business Week list of “Best in Class” companies.
When you read our financial statements and the information included in this section, you should consider
that we have experienced, and continue to experience, several material trends and uncertainties that have affected
our financial condition and results of operations that make it challenging to predict our future performance based
on our historical results. We believe that the following material trends and uncertainties are most crucial to an
understanding of the variability in our historical earnings and cash flows and the potential for such variances in
the future:
Macroeconomic Conditions
Economic trends and government policies directly affect our operations as well as global and regional
commercial real estate markets generally. These include: overall economic activity and employment growth,
interest rate levels, the availability of credit to finance transactions and the impact of tax and regulatory policies.
Periods of economic slowdown or recession, significantly rising interest rates, a declining employment level, a
declining demand for real estate or the public perception that any of these events may occur, can negatively
affect the performance of many of our business lines. Weak economic conditions could result in a general
decrease in transaction activity and a decline in rents, which, in turn, would reduce revenue from property
management fees and from brokerage commissions derived from property sales and leases. In addition, these
conditions could lead to a decline in funds invested in commercial real estate and related assets. An economic
downturn or a significant increase in interest rates also may reduce the amount of loan originations and related
servicing by our commercial mortgage brokerage business.
Adverse changes in economic conditions would also affect our compensation expense, which is structured to
decrease in line with any decrease in revenues. Compensation is our largest expense and the sales and leasing
professionals in our largest line of business, advisory services, generally are paid on a commission and bonus
basis that correlates with our revenue performance. As a result, the negative effect on our operating margins
during difficult market conditions is partially mitigated. In addition, in circumstances when economic conditions
are particularly severe, our management can look to improve operational performance by reducing senior
management bonuses, curtailing capital expenditures and other cutting of discretionary operating expenses.
Notwithstanding these approaches, adverse global and regional economic changes remain one of the most
significant risks to our future financial condition and results of operations.
Beginning in 2003, economic conditions in the Americas, our largest segment in terms of revenue, improved
from the economic downturn in 2001 and 2002, which positively impacted the commercial real estate market
generally. This caused an improvement in our Americas segment’s revenue, particularly in leasing and sales
revenue. Beginning in the third quarter of 2007 and continuing through year-end, U.S. economic activity began to
33
weaken, due to the softer housing sector, more limited credit availability and higher oil prices. Weaker economic
growth caused leasing activity to slow in some markets within the United States, although most markets continued
to exhibit positive fundamentals, including low vacancies and rising rents. U.S. investment sales activity declined in
the fourth quarter due to reduced availability of financing, especially commercial mortgage-backed security debt,
for larger asset purchases and more conservative loan underwriting standards. Longer term, the rebound of the U.S.
leasing and sales business will depend upon credit markets returning to more normalized conditions, and the U.S.
economy resuming its growth.
The weakening trends experienced in the United States began to manifest themselves in the United
Kingdom in the latter part of 2007. This was evidenced by slower investment sales and leasing revenue growth
rates in the fourth quarter of 2007 as compared with earlier in 2007. The markets in Asia Pacific remained strong
throughout 2007. Investment sentiment remained positive with continued strong demand from capital sources
within Asia as well as continued strong cross-border capital flows. Healthy economic growth underpinned strong
leasing activity and rental growth across most of the Asia Pacific region.
Effects of Acquisitions
Our management historically has made significant use of strategic acquisitions to add new service
competencies, to increase our scale within existing competencies and to expand our presence in various
geographic regions around the world. For example, we enhanced our mortgage brokerage services through our
1996 acquisition of L.J. Melody & Company (now known as CBRE Melody) and we significantly increased the
scale of our investment management business through our 1995 acquisition of Westmark Realty Advisors (now
known as CB Richard Ellis Investors), our 1997 acquisition of Koll Real Estate Services and our 1998
acquisition of the London-based firm Hillier Parker May & Rowden. Our 2003 acquisition of Insignia Financial
Group, Inc. (Insignia) significantly increased the scale of our real estate advisory services and outsourcing
services business lines in our Americas segment and also significantly increased our presence in the New York,
London and Paris metropolitan areas.
In December 2006, we completed our largest acquisition to date in acquiring Trammell Crow Company. The
acquisition of Trammell Crow Company deepened our offering of outsourcing services for corporate and
institutional clients, especially project and facilities management, strengthened our ability to provide integrated
management solutions across geographies, and established people, resources and expertise to offer real estate
development services throughout the United States.
Strategic in-fill acquisitions have also been an integral component of our growth plans. During the year
ended December 31, 2007, we completed 14 acquisitions with an aggregate purchase price of approximately
$108 million. These included: the acquisition of the remaining 50.1% interest we did not already own in our U.S.
affiliate, CBRE Technical Services, a building engineering services firm, within our Americas business segment,
which by being brought in-house and combined with a similar business we acquired in the Trammell Crow
Company Acquisition, will strongly benefit us; and the acquisition of a majority interest in CB Richard Ellis
South Asia Pte Ltd, or CBRE India, an affiliate company within our Asia Pacific business segment, that is a
premier full service commercial real estate provider operating in the rapidly growing Indian market. In 2006, in
addition to our acquisition of Trammell Crow Company, we completed 23 in-fill acquisitions for an aggregate
purchase price of approximately $155.0 million. Our acquirees were generally either quality regional firms or
niche specialty firms that complement our existing platform within a region or affiliates in which we already held
an equity interest. In addition, these acquisitions exemplify our efforts to broaden our geographic coverage.
Although our management believes that strategic acquisitions can significantly decrease the cost, time and
commitment of management resources necessary to attain a meaningful competitive position within targeted
markets or to expand our presence within our current markets, our management also believes that most acquisitions
will initially have an adverse impact on our operating and net income, both as a result of transaction-related
expenditures and the charges and costs of integrating the acquired business and its financial and accounting systems
34
into our own. For example, through December 31, 2007, we incurred $200.9 million of transaction-related
expenditures in connection with our acquisition of Insignia in 2003 (the Insignia Acquisition) and $196.6 million of
transaction-related expenditures in connection with our acquisition of Trammell Crow Company in 2006.
Transaction-related expenditures included severance costs, lease termination costs, transaction costs, deferred
financing costs and merger-related costs, among others. We incurred our final transaction expenditures with respect
to the Insignia Acquisition in the third quarter of 2004 and the Trammell Crow Company Acquisition in the fourth
quarter of 2007. In addition, through December 31, 2007, we have incurred $40.7 million of expenses in connection
with the integration of Insignia’s business lines, as well as accounting and other systems, into our own, $2.6 million
of which was incurred during the year ended December 31, 2007. Additionally, during the year ended December 31,
2007, we incurred $42.6 million of integration expenses associated with other acquisitions completed in 2005
through 2007, including $39.6 million related to the acquisition of Trammell Crow Company. We expect to incur
total integration expenses of approximately $16.0 million during 2008, which include residual Insignia-related
integration costs, integration costs associated with our acquisition of Trammell Crow Company as well as similar
costs related to our strategic in-fill acquisitions in 2005 through 2007.
International Operations
We have made significant acquisitions of non-U.S. companies and we may acquire additional foreign
companies in the future. As we increase our foreign operations through either acquisitions or organic growth,
fluctuations in the value of the U.S. dollar relative to the other currencies in which we may generate earnings
could adversely affect our business, financial condition and operating results. Our management team generally
seeks to mitigate our exposure by balancing assets and liabilities that are denominated in the same currency and
by maintaining cash positions outside the United States only at levels necessary for operating purposes. In
addition, from time to time we enter into foreign currency exchange contracts to mitigate our exposure to
exchange rate changes related to particular transactions and to hedge risks associated with the translation of
foreign currencies into U.S. dollars. Due to the constantly changing currency exposures to which we are subject
and the volatility of currency exchange rates, our management cannot predict the effect of exchange rate
fluctuations upon future operating results. In addition, fluctuations in currencies relative to the U.S. dollar may
make it more difficult to perform period-to-period comparisons of our reported results of operations.
Our international operations also are subject to, among other things, political instability and changing
regulatory environments, which may adversely affect our future financial condition and results of operations. Our
management routinely monitors these risks and related costs and evaluates the appropriate amount of resources to
allocate towards business activities in foreign countries where such risks and costs are particularly significant.
Leverage
On December 5, 2006, in connection with our acquisition of Trammell Crow Company, we successfully
tendered substantially all of our remaining 9 3⁄4% senior notes due in 2010, with the remainder repaid in May of
2007. Although we paid down our high-interest debt in 2006, we borrowed approximately $2.1 billion under our
new senior secured term loan facilities in December 2006 to finance our acquisition of Trammell Crow
Company. As a result, we are highly leveraged and have significant debt service obligations.
Although our management believes that the incurrence of long-term indebtedness has been important in the
development of our business, including facilitating our acquisitions of Insignia and Trammell Crow Company,
the cash flow necessary to service this debt is not available for other general corporate purposes, which may limit
our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services
industry. Our management seeks to mitigate this exposure both through the refinancing of debt when available on
attractive terms and through selective repayment and retirement of indebtedness. For example, in June 2006, we
entered into a new $600.0 million revolving credit facility, which fully replaced our former credit agreement on
more favorable terms. Additionally, we repaid $286.0 million of our senior secured term loans during the year
ended December 31, 2007. Our management generally expects to continue to look for opportunities to reduce our
debt in the future.
35
Notwithstanding the actions described above, however, our level of indebtedness and the operating and
financial restrictions in our debt agreements both place constraints on the operation of our business.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require management to make estimates and
assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and
on other factors that management believes to be reasonable. Actual results may differ from those estimates. We
believe that the following critical accounting policies represent the areas where more significant judgments and
estimates are used in the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenue in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition in
Financial Statements,” which has four basic criteria that must be met before revenue is recognized:
•
•
•
•
existence of persuasive evidence that an arrangement exists;
delivery has occurred or services have been rendered;
the seller’s price to the buyer is fixed and determinable; and
collectibility is reasonably assured.
Our revenue recognition policies are consistent with these criteria. The judgments involved in revenue
recognition include understanding the complex terms of agreements and determining the appropriate time to
recognize revenue for each transaction based on such terms. Each transaction is evaluated to determine: (i) at what
point in time revenue is earned, (ii) whether there are contingencies involved that would impact the timing of
recognition of revenue and (iii) how and when such contingencies will be resolved. The actual timing of revenue
recognition could vary if different judgments were made. The revenues of our business that are subject to the most
judgment are our brokerage commission revenue and incentive-based management and development fees.
We record real estate commissions on sales generally upon close of escrow or transfer of title, except when
future contingencies exist. Real estate commissions on leases are generally recorded in income once we satisfy
all obligations under the commission agreement. Terms and conditions of a commission agreement may include,
but are not limited to, execution of a signed lease agreement and future contingencies including tenant
occupancy, payment of a deposit or payment of a first month’s rent (or a combination thereof). As some of these
conditions are outside of our control and are often not clearly defined, judgment must be exercised in
determining when such required events have occurred in order to recognize revenue.
A typical commission agreement provides that we earn a portion of the lease commission upon the
execution of the lease agreement by the tenant, while the remaining portion(s) of the lease commission is earned
at a later date, usually upon tenant occupancy. The existence of any significant future contingencies, such as
tenant occupancy, results in the delay of recognition of corresponding revenue until such contingencies are
satisfied. For example, if we do not earn all or a portion of the lease commission until the tenant pays its first
month’s rent, and the lease agreement provides the tenant with a free rent period, we delay revenue recognition
until rent is paid by the tenant.
Investment management and property management fees are generally based upon percentages of the revenue
or profit generated by the entities managed and are recognized when earned under the provisions of the related
management agreements. Our Global Investment Management segment also earns performance-based incentive
fees with regard to many of its investments. Such revenue is recognized at the end of the measurement periods when
36
the conditions of the applicable incentive fee arrangements have been satisfied. With many of these investments,
our Global Investment Management team has participation interests in such incentive fees. These participation
interests are generally accrued for based upon the probability of such performance-based incentive fees being
earned over the related vesting period.
We earn incentive development fees from our Development Services segment. These fees are recognized
when quantitative criteria have been met (such as specified leasing or budget targets) or, for those incentive fees
based on qualitative criteria, upon approval of the fee by our clients. Certain incentive development fees allow us
to share in the fair value of the developed real estate asset above cost. This sharing creates additional revenue
potential to us with no exposure to loss other than opportunity cost. Our incentive development fee revenue is not
recognized to the extent that such revenue is subject to future performance contingencies, but rather once the
contingency has been resolved. The unique nature and complexity of each incentive fee requires us to use
varying levels of judgment in determining the timing of revenue recognition.
In establishing the appropriate provisions for trade receivables, we make assumptions with respect to future
collectibility. Our assumptions are based on an individual assessment of a customer’s credit quality as well as
subjective factors and trends, including the aging of receivables balances. In addition to these individual
assessments, in general, outstanding trade accounts receivable amounts that are more than 180 days overdue are
fully evaluated for collectibility and fully provided for if deemed uncollectible. Historically, our credit losses
have been insignificant. However, estimating losses requires significant judgment, and conditions may change or
new information may become known after any periodic evaluation. As a result, actual credit losses may differ
from our estimates.
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and those of our majority-owned
subsidiaries, as well as variable interest entities, or VIEs, in which we are the primary beneficiary. The equity
attributable to minority shareholders’ interests in subsidiaries is shown separately in our consolidated balance
sheets included elsewhere in this filing. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Variable Interest Entities
Our determination of the appropriate accounting method with respect to our VIEs, including co-investments
with our clients, is based on Financial Accounting Standards Board, or FASB, Interpretation No. 46 (revised
December 2003), or FIN 46R, “Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51.”
We consolidate any VIE of which we are the primary beneficiary and disclose significant VIEs of which we are
not the primary beneficiary, if any.
We determine if an entity is a VIE under FIN 46R based on several factors, including whether the entity’s
total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional
subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a
qualitative analysis, then a quantitative analysis, if necessary. In a quantitative analysis, we incorporate various
estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the
probabilities of various scenarios occurring. If the entity is a VIE, we then determine whether we consolidate the
entity as the primary beneficiary. This determination of whether we are the primary beneficiary includes any
impact of an “upside economic interest” in the form of a “promote” that we may have. A promote is an interest
built into the distribution structure of the entity based on the entity’s achievement of certain return hurdles.
We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments
and estimates that are inherently subjective. If we made different judgments or utilized different estimates in
these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or
not to consolidate such entity.
37
Limited Partnerships, Limited Liability Companies and Other Subsidiaries
Our determination of the appropriate accounting method with respect to our investments in limited
partnerships, limited liability companies and other subsidiaries is based on control. For our general partner
interests, we are presumed to control (and therefore consolidate) the entity, unless the other limited partners have
substantive rights that overcome this presumption of control. These substantive rights allow the limited partners
to participate in significant decisions made in the ordinary course of the entity’s business. We account for our
non-controlling general partner investments in these entities under the equity method. This treatment also applies
to our managing member interests in limited liability companies.
Our investments in unconsolidated subsidiaries in which we have the ability to exercise significant influence
over operating and financial policies, but do not control, or entities which are variable interest entities in which
we are not the primary beneficiary are accounted for under the equity method. Accordingly, our share of the
earnings from these equity-method basis companies is included in consolidated net income. All other investments
held on a long-term basis are valued at cost less any impairment in value.
Our determination of the appropriate accounting treatment for an investment in a subsidiary requires
judgment of several factors, including the size and nature of our ownership interest and the other owners’
substantive rights to make decisions for the entity. If we were to make different judgments or conclusions as to
the level of our control or influence, it could result in a different accounting treatment. Accounting for an
investment as either consolidated or using the equity method generally would have no impact on our net income
or stockholders’ equity in any accounting period, but a different treatment would impact individual income
statement and balance sheet items, as consolidation would effectively “gross up” our income statement and
balance sheet. If our evaluation of an investment accounted for using the cost method was different, it could
result in our being required to account for an investment by consolidation or by the equity method. Under the
cost method, the investor only records its share of the underlying entity’s earnings to the extent that it receives
dividends from the investee; when the dividends received by the investor exceed the investor’s share of the
investee’s earnings subsequent to the date of the investor’s investment, the investor records a reduction in the
basis of its investment. Under the cost method, the investor does not record its share of losses of the investee.
Conversely, under either consolidation or equity method accounting, the investor effectively records its share of
the underlying entity’s net income or loss, to the extent of its investment or its guarantees of the underlying
entity’s debt. Accounting for an investment using either the equity or cost method has no impact on the
evaluation of impairment of the underlying investment; under either method, impairment losses are recognized
upon evidence of other-than-temporary losses of value.
Goodwill and Other Intangible Assets
Our acquisitions require the application of purchase accounting in accordance with Statement of Financial
Accounting Standards, or SFAS, No. 141, “Business Combinations.” This results in tangible and identifiable
intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the
purchase price and the fair value of net assets acquired is recorded as goodwill.
In determining the fair values of assets and liabilities acquired in a business combination, we use a variety
of valuation methods including present value, depreciated replacement cost, market values (where available) and
selling prices less costs to dispose. We are responsible for determining the valuation of assets and liabilities, and
for the allocation of purchase price to assets acquired and liabilities assumed.
Assumptions must often be made in determining fair values, particularly where observable market values do
not exist. Assumptions may include discount rates, growth rates, cost of capital, royalty rates, tax rates and
remaining useful lives. These assumptions can have a significant impact on the value of identifiable assets and
accordingly can impact the value of goodwill recorded. Different assumptions could result in different values
being attributed to assets and liabilities. Since these values impact the amount of annual depreciation and
amortization expense, different assumptions could also impact our statement of operations and could impact the
results of future impairment reviews.
38
The majority of our goodwill balance has resulted from our acquisition of CB Richard Ellis Services in
2001, our acquisition of Insignia in 2003 and our acquisition of Trammell Crow Company in 2006. Other
intangible assets include trademarks, which were separately identified as a result of the 2001 acquisition, as well
as a trade name separately identified as a result of the Insignia Acquisition representing the Richard Ellis trade
name in the United Kingdom that was owned by Insignia prior to the Insignia Acquisition and the Trammell
Crow trade name separately identified as part of the Trammell Crow Company Acquisition to be used in
providing development services. Both the trademarks and the trade names are not being amortized and have
indefinite estimated useful lives. The remaining other intangible assets primarily include customer relationships,
management contracts, loan servicing rights and franchise agreements, which are all being amortized over
estimated useful lives ranging up to 20 years.
SFAS No. 142, “Goodwill and Other Intangible Assets,” requires us to perform at least an annual
assessment of impairment of goodwill and other intangible assets deemed to have indefinite useful lives based on
assumptions and estimates of fair value and future cash flow information. These assumptions and estimates
developed by us may differ from actual results. If different assumptions and estimates were used, carrying values
could be adversely impacted, resulting in write downs that would adversely affect our earnings.
We perform an annual assessment of our goodwill and other intangible assets deemed to have indefinite
lives for impairment as of the beginning of the fourth quarter of each year. We also assess goodwill and other
intangible assets deemed to have indefinite useful lives for impairment when events or circumstances indicate
that their carrying value may not be recoverable from future cash flows. We completed our required annual
impairment tests as of October 1, 2007, 2006 and 2005, and determined that no impairment existed as of those
dates.
Real Estate
As of December 31, 2007, the carrying value of our total real estate assets was $686.2 million (11.0% of
total assets). The significant accounting policies and estimates with regard to our real estate assets relate to
classification and impairment evaluation, cost capitalization and allocation, disposition of real estate and
discontinued operations.
Classification and Impairment Evaluation
With respect to our real estate assets, SFAS No. 144, “Accounting for the Impairment or Disposal of Long-
Lived Assets” establishes criteria to classify an asset as “held for sale.” Assets included in real estate held for sale
include only completed assets or land for sale in its present condition that meet all of the SFAS No.144 “held for
sale” criteria. All other real estate assets are classified in one of the following line items in our consolidated
balance sheet: (i) real estate under development (current), which includes real estate that we are in the process of
developing that is expected to be completed and disposed of within one year of the balance sheet date; (ii) real
estate under development (non-current), which includes real estate that we are in the process of developing that is
expected to be completed and disposed of more than one year from the balance sheet date; or (iii) real estate held
for investment, which consists of completed assets not expected to be disposed of within one year of the balance
sheet date and land on which development activities have not yet commenced.
Real estate held for sale is recorded at the lower of cost or estimated fair value less cost to sell. If an asset’s
fair value less cost to sell, based on discounted future cash flows or market comparisons, is less than its carrying
amount, an allowance is recorded against the asset. Determining an asset’s fair value and the related allowance to
record requires us to utilize judgment and estimates.
Real estate under development and real estate held for investment are carried at cost less depreciation, as
applicable. When indicators of impairment are present, real estate under development and real estate held for
investment are evaluated for impairment and losses are recorded when undiscounted cash flows estimated to be
generated by an asset are less than the asset’s carrying amount. The amount of the impairment loss is calculated
39
as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow
analysis or market comparisons. This determination of fair value and the amount, if any, of the impairment loss,
requires us to utilize judgments and estimates. Buildings and improvements included in real estate held for
investment are depreciated using the straight-line method over estimated useful lives, generally 39 years. Tenant
improvements included in real estate held for investment are amortized using the straight-line method over the
shorter of their estimated useful life or the terms of the respective leases. Land improvements included in real
estate held for investment are depreciated over their estimated useful lives, up to 15 years.
We evaluate each of our real estate assets on a quarterly basis in order to determine the classification of each
asset in our consolidated balance sheet. This evaluation requires judgment by us in considering certain criteria
that must be evaluated under SFAS No. 144, such as the estimated time to complete assets that are under
development and the timeframe in which we expect to sell our real estate assets. The classification of real estate
assets determines which real estate assets are to be depreciated as well as what method is used to evaluate and
measure impairment. Had we evaluated our assets differently, the balance sheet classification of such assets,
depreciation expense and impairment losses could have been different.
Cost Capitalization and Allocation
When acquiring, developing and constructing real estate assets, we capitalize costs in accordance with
SFAS No. 34, “Capitalization of Interest Costs” and SFAS No. 67, “Accounting for Costs and the Initial Rental
Operations of Real Estate Properties.” Capitalization begins when we determine that activities related to
development have begun and ceases when activities are complete, which are timing decisions that require
judgment. Costs capitalized under SFAS No. 67 include pursuit costs, or pre-acquisition/pre-construction costs,
taxes and insurance, development and construction costs and costs of incidental operations. Pursuit costs
capitalized in connection with a potential development project that we have determined based on our judgment
not to pursue are written off in the period that such determination is made. A difference in the timing of when
this determination is made could cause the pursuit costs to be expensed in a different period.
At times, we purchase bulk land that we intend to sell or develop in phases. The land basis allocated to each
phase is based on the relative estimated fair value of the phases before construction. We allocate construction
costs incurred relating to more than one phase between the various phases; if the costs cannot be specifically
identified to a certain phase or the improvements benefit more than one phase, we allocate the costs between the
phases based on their relative estimated sales values. Relative allocations of the costs are changed as the sales
value estimates are revised.
When acquiring real estate with existing buildings, we allocate the purchase price between land, land
improvements, building and intangibles related to in-place leases, if any, based on their relative fair values in
accordance with SFAS No. 141 and SFAS No. 142. The fair values of acquired land and buildings are
determined based on an estimated discounted future cash flow model with lease-up assumptions as if the building
was vacant upon acquisition. The fair value of in-place leases includes the value of net lease intangibles for
above or below-market rents and tenant origination costs, determined on a lease by lease basis using assumptions
for market rates, absorption periods, lease commissions and tenant improvements. The capitalized values for both
net lease intangibles and tenant origination costs are amortized over the term of the underlying leases.
Amortization related to net lease intangibles is recorded as either an increase to or a reduction of rental income
and amortization for tenant origination costs is recorded to amortization expense. If we used different estimates
in these valuations, the allocation of purchase price to each component could differ, which could cause the
amount of amortization related to lease intangibles and tenant origination costs to be different, as well as
depreciation of the related building and land improvements.
Disposition of Real Estate
Gains on disposition of real estate are recognized upon sale of the underlying project in accordance with
SFAS No. 66 “Accounting for Sales of Real Estate.” We evaluate each real estate sale transaction to determine if
it qualifies for gain recognition under the full accrual method. This evaluation requires us to make judgments and
40
estimates in assessing whether a sale has been consummated, the adequacy of the buyer’s investment, the
subordination or collectibility of any receivable related to the purchase, and whether we have transferred the
usual risks and rewards of ownership to the buyer, with no substantial continuing involvement by us. If the
transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment,
we account for the sale based on an appropriate deferral method determined by the nature and extent of the
buyer’s investment and our continuing involvement. In some cases, a deferral method could require the real
estate asset and its related liabilities to remain on our balance sheet until the sale qualifies for a different deferral
method or full accrual profit recognition.
Discontinued Operations
SFAS No. 144 extends the reporting of a discontinued operation to a “component of an entity,” and further
requires that a component be classified as a discontinued operation if the operations and cash flows of the
component have been or will be eliminated from the ongoing operations of the entity in the disposal transaction
and the entity will not have any significant continuing involvement in the operations of the component after the
disposal transaction. As defined in SFAS No. 144, a “component of an entity” comprises operations and cash
flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
entity. Because each of our real estate assets is generally accounted for in a discrete subsidiary, many constitute a
component of an entity under SFAS No. 144, increasing the likelihood that the disposition of assets are required
to be recognized and reported as operating profits and losses on discontinued operations in the periods in which
they occur. The evaluation of whether the component’s cash flows have been eliminated and the level of our
continuing involvement requires judgment by us and a different assessment could result in items not being
reported as discontinued operations.
Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109,
“Accounting for Income Taxes.” Deferred tax assets and liabilities are determined based on temporary differences
between the financial reporting and the tax basis of assets and liabilities and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released
in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Valuation allowances are provided against deferred tax assets when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
Effective January 1, 2007, we adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An interpretation of Statement of Financial
Accounting Standard No. 109,” or FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. The cumulative effect of applying this interpretation has resulted in a decrease to retained earnings of
approximately $29.1 million and a decrease to goodwill of approximately $5.4 million. Prior to January 1, 2007,
we estimated uncertain income tax obligations in accordance with SFAS No. 109 and SFAS No. 5, “Accounting
for Contingencies.”
Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties.
We also assess our ability to utilize tax attributes, including those in the form of carryforwards, for which the
benefits have already been reflected in the financial statements. We do not record valuation allowances for
deferred tax assets that we believe will be realized in future periods. While we believe the resulting tax balances
as of December 31, 2007 and 2006 are appropriately accounted for in accordance with SFAS No. 109, FIN 48
and SFAS No. 5, as applicable, the ultimate outcome of such matters could result in favorable or unfavorable
adjustments to our consolidated financial statements and such adjustments could be material. See Note 17 of the
Notes to Consolidated Financial Statements for further information regarding income taxes.
41
Basis of Presentation
Recent Significant Acquisitions
On December 20, 2006, pursuant to an Agreement and Plan of Merger dated October 30, 2006 (the
Trammell Crow Company Acquisition Agreement), by and among us, A-2 Acquisition Corp., a Delaware
corporation and our wholly-owned subsidiary (Merger Sub), and Trammell Crow Company, the Merger Sub was
merged with and into Trammell Crow Company (the Trammell Crow Company Acquisition). Trammell Crow
Company was the surviving corporation in the Trammell Crow Company Acquisition and upon the closing of the
Trammell Crow Company Acquisition became our indirect wholly-owned subsidiary.
The consolidated statements of operations and cash flows for the years ended December 31, 2007 and 2006
include the consolidated financial statements of Trammell Crow Company from December 20, 2006, the date of
the Trammell Crow Company Acquisition. As such, our consolidated financial statements after the Trammell
Crow Company Acquisition are not directly comparable to our consolidated financial statements prior to the
Trammell Crow Company Acquisition.
Segment Reporting
We report our operations through five segments. The segments are as follows: (1) Americas, (2) EMEA,
(3) Asia Pacific, (4) Global Investment Management and (5) Development Services. The Americas consists of
operations located in the United States, Canada and Latin America. EMEA mainly consists of operations in
Europe, while Asia Pacific includes operations in Asia, Australia and New Zealand. The Global Investment
Management business consists of investment management operations in the United States, Europe and Asia. The
Development Services business consists of real estate development and investment activities primarily in the
United States, which were acquired in the Trammell Crow Company Acquisition.
42
Results of Operations
The following table sets forth items derived from our consolidated statements of operations for the years
ended December 31, 2007, 2006 and 2005:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Cost of services . . . . . . . . . . . . . . . . . . .
Operating, administrative and other . . . .
Depreciation and amortization . . . . . . . .
Merger-related charges . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . .
Gain on disposition of real estate . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Equity income from unconsolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . .
Other (loss) income . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . .
Income from continuing operations before
provision for income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . .
Income from discontinued operations, net of
Year Ended December 31,
2007
2006
2005
(Dollars in thousands)
$6,034,249
100.0% $4,032,027
100.0% $3,194,026
100.0%
3,200,718
1,988,658
113,269
56,932
5,359,577
24,299
698,971
64,939
11,875
(37,534)
29,004
162,991
—
580,514
192,643
387,871
53.0
33.0
1.9
0.9
88.8
0.4
11.6
1.0
0.2
(0.6)
0.5
2.7
—
9.6
3.2
6.4
0.1
2,110,512
1,303,781
67,595
—
3,481,888
—
550,139
33,300
6,120
8,610
9,822
45,007
33,847
52.4
32.3
1.7
—
86.4
—
13.6
0.8
0.1
0.2
0.2
1.1
0.8
516,897
198,326
318,571
12.8
4.9
7.9
1,753,472
1,022,632
45,516
—
2,821,620
—
372,406
38,425
2,163
—
11,221
56,281
7,386
356,222
138,881
217,341
54.9
32.0
1.4
—
88.3
—
11.7
1.2
0.1
—
0.4
1.8
0.2
11.2
4.4
6.8
—
—
—
—
income taxes . . . . . . . . . . . . . . . . . . . . . . . .
2,634
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 390,505
6.5% $ 318,571
7.9% $ 217,341
6.8%
EBITDA (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 834,264
13.8% $ 653,524
16.2% $ 454,184
14.2%
(1)
Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
EBITDA represents earnings before net interest expense, loss on extinguishment of debt, income taxes,
depreciation and amortization. Our management believes EBITDA is useful in evaluating our performance
compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the
effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which
items may vary for different companies for reasons unrelated to overall operating performance. As a result, our
management uses EBITDA as a measure to evaluate the performance of our various business lines and for other
discretionary purposes, including as a significant component when measuring our performance under our
employee incentive programs.
However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles,
or GAAP, and when analyzing our operating performance, readers should use EBITDA in addition to, and not as
an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical
calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other
companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s
discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The
amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in our debt
43
instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to
determine compliance with financial covenants and our ability to engage in certain activities, such as incurring
additional debt and making certain restricted payments.
EBITDA is calculated as follows:
Year Ended December 31,
2007
2006
2005
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add:
$390,505
(Dollars in thousands)
$318,571
$217,341
Depreciation and amortization (1) . . . . . . . . . . . . . . . . . . . .
Interest expense (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes (3) . . . . . . . . . . . . . . . . . . . . . . .
113,694
164,829
—
194,255
67,595
45,007
33,847
198,326
45,516
56,281
7,386
138,881
Less:
Interest income (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,019
9,822
11,221
EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$834,264
$653,524
$454,184
(1)
(2)
(3)
(4)
(5)
Includes depreciation and amortization related to discontinued operations of $0.4 million for the year
ended December 31, 2007.
Includes interest expense related to discontinued operations of $1.8 million for the year ended
December 31, 2007.
Includes provision for income taxes related to discontinued operations of $1.6 million for the year
ended December 31, 2007.
Includes interest income related to discontinued operations of $0.01 million for the year ended
December 31, 2007.
Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31,
2007.
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
We reported consolidated net income of $390.5 million for the year ended December 31, 2007 on revenue of
$6.0 billion as compared to consolidated net income of $318.6 million on revenue of $4.0 billion for the year
ended December 31, 2006.
Our revenue on a consolidated basis increased by $2.0 billion, or 49.7%, as compared to the year ended
December 31, 2006. This improvement was due to organic growth and acquisitions completed during 2006 and
2007, particularly the acquisition of Trammell Crow Company in December of 2006. The revenue growth was
fueled by continued higher worldwide transaction revenue as well as increased activity in our outsourcing and
appraisal/valuation operations. Additionally, enhanced performance from our Global Investment Management
business contributed to the increase. Foreign currency translation had a $161.5 million positive impact on total
revenue during the year ended December 31, 2007.
Our cost of services on a consolidated basis increased by $1.1 billion, or 51.7%, during the year ended
December 31, 2007 as compared to the year ended December 31, 2006. Our sales and leasing professionals
generally are paid on a commission and bonus basis, which substantially correlates with our revenue
performance. Accordingly, the overall increase was primarily driven by the increase in revenue. Also
contributing to the increase was an increase in reimbursable expenses as well as additional headcount, both of
which mainly resulted from acquisitions. Foreign currency translation had a $76.6 million negative impact on
cost of services during the year ended December 31, 2007. Cost of services as a percentage of revenue increased
slightly from 52.4% for the year ended December 31, 2006 to 53.0% for the year ended December 31, 2007,
primarily attributable to our mix of revenue.
44
Our operating, administrative and other expenses on a consolidated basis were $2.0 billion, an increase of
$684.9 million, or 52.5%, for the year ended December 31, 2007 as compared to the year ended December 31,
2006. The increase was primarily driven by higher worldwide payroll-related costs, including bonuses, which
resulted from our improved operating performance. Also contributing to the increase were higher costs as a result
of acquisitions, particularly our acquisition of Trammell Crow Company, as well as increased marketing costs in
support of our growing revenue. These increases were partially offset by lower carried interest expense. Foreign
currency translation had a $52.0 million negative impact on total operating expenses during the year ended
December 31, 2007. Operating expenses as a percentage of revenue increased slightly from 32.3% for the year
ended December 31, 2006 to 33.0% for the year ended December 31, 2007. Operating expenses as a percentage
of revenue in the current year were negatively impacted by higher integration costs in the current year, primarily
driven by the Trammell Crow Company Acquisition, and bonus expense in our Development Services segment
that primarily relates to gains on disposition of real estate, which are not included in revenue. Excluding the
impact of these items, operating expenses as a percentage of revenue would actually be lower for the year ended
December 31, 2007 as compared to the year ended December 31, 2006.
Our depreciation and amortization expense on a consolidated basis increased by $45.7 million, or 67.6%, for
the year ended December 31, 2007 as compared to the year ended December 31, 2006. This increase was
primarily driven by higher amortization expense related to intangible assets acquired in the Trammell Crow
Company Acquisition, including net revenue backlog. As of December 31, 2007, the intangible asset
representing the net revenue backlog acquired in the Trammell Crow Company Acquisition was fully amortized.
Also contributing to the increase over the prior year was higher depreciation expense mainly resulting from fixed
assets acquired in recent acquisitions.
Our merger-related charges on a consolidated basis were $56.9 million for the year ended December 31,
2007. These charges primarily consisted of severance and lease termination costs, which were attributable to the
Trammell Crow Company Acquisition.
Our gain on disposition of real estate on a consolidated basis was $24.3 million for the year ended
December 31, 2007. These gains resulted from activity within our Development Services segment.
Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $31.6 million, or
95.0%, for the year ended December 31, 2007 as compared to the year ended December 31, 2006. This was
primarily due to equity income generated by our Development Services segment.
Our consolidated minority interest expense increased by $5.8 million for the year ended December 31, 2007
as compared to the year ended December 31, 2006. The increase was primarily due to minority interest
associated with our Japanese affiliate CB Richard Ellis KK, or IKOMA.
Our other loss on a consolidated basis was $37.5 million for the year ended December 31, 2007, which
primarily related to the sale of Trammell Crow Company’s approximately 19% ownership interest in Savills plc,
a real estate services company based in the United Kingdom. This sale resulted in a pre-tax loss of $34.9 million,
which was largely driven by stock price depreciation at the date of sale as compared to December 31, 2006 when
the investment was marked to market.
Our consolidated interest income was $29.0 million, an increase of $19.2 million, or 195.3%, as compared
to the year ended December 31, 2006. This increase was mainly driven by interest income earned in our
Americas segment primarily resulting from higher average cash balances in 2007 as a result of cash received on
the sale of Trammell Crow Company’s interest in Savills plc as well as interest income earned on restricted cash
held related to former shareholders of Trammell Crow Company common stock (see Note 5 of the Notes to
Consolidated Financial Statements). Also contributing to the positive variance was interest income earned in our
EMEA segment resulting from higher average cash balances in 2007 as well as higher interest income in our
Development Services segment.
45
Our consolidated interest expense increased $118.0 million, or 262.1%, as compared to the year ended
December 31, 2006. The overall increase was primarily due to the additional debt resulting from the Trammell
Crow Company Acquisition. Despite the significant increase in our leverage as a result of the Trammell Crow
Company Acquisition, our management generally expects to look for opportunities to reduce our debt in the
future. For example, we repaid $286.0 million of our senior secured term loans during the year ended
December 31, 2007. We expect that annual interest expense for 2008 will be approximately $156.0 million.
Our loss on extinguishment of debt on a consolidated basis was $33.8 million for the year ended
December 31, 2006. This loss was primarily related to the write-off of unamortized deferred financing fees and
unamortized discount, as well as premiums paid, all in connection with the repurchase of our 11 1⁄4% senior
subordinated notes during the year ended December 31, 2006. In addition, during the year ended December 31,
2006, we incurred $11.6 million of losses related to the write-off of unamortized deferred financing fees, as well
as premiums paid, in connection with the repurchase of our 9 3⁄4% senior notes and $8.2 million of losses in
connection with the write-off of unamortized deferred financing fees associated with our prior credit facility,
which was replaced during 2006.
Our provision for income taxes on a consolidated basis was $192.6 million for the year ended December 31,
2007 as compared to $198.3 million for the year ended December 31, 2006. Our effective tax rate decreased from
38.4% for the year ended December 31, 2006 to 33.2% for the year ended December 31, 2007. The decrease in
both the provision for income taxes and our effective tax rate is primarily a result of the change in our mix of
domestic and foreign earnings as well as the reversal of a reserve for an uncertain tax position in the current year,
which we determined was no longer required.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
We reported consolidated net income of $318.6 million for the year ended December 31, 2006 on revenue of
$4.0 billion as compared to consolidated net income of $217.3 million on revenue of $3.2 billion for the year
ended December 31, 2005.
Our revenue on a consolidated basis increased by $838.0 million, or 26.2%, as compared to the year ended
December 31, 2005. Over two-thirds of the improvement was due to organic growth, while the remainder was
attributable to acquisitions completed during 2005 and 2006. The organic revenue growth was primarily driven
by continued higher worldwide transaction revenue as well as increased appraisal/valuation, mortgage brokerage
and property and facilities management fees. Additionally, carried interest revenue earned and higher fees
generated in our Global Investment Management business contributed to the increase. Foreign currency
translation had a $28.1 million positive impact on total revenue during the year ended December 31, 2006.
Our cost of services on a consolidated basis increased by $357.0 million, or 20.4%, during the year ended
December 31, 2006 as compared to the year ended December 31, 2005. As previously mentioned, our sales and
leasing professionals generally are paid on a commission and bonus basis, which substantially correlates with our
revenue performance. Accordingly, the overall increase was primarily driven by the increase in revenue. Also
contributing to the increase was additional headcount, which primarily resulted from acquisitions. Foreign
currency translation had a $9.1 million negative impact on cost of services during the year ended December 31,
2006. Cost of services as a percentage of revenue decreased from 54.9% for the year ended December 31, 2005
to 52.4% for the year ended December 31, 2006, primarily attributable to our mix of revenue, with a higher
composition of revenue being non-commissionable or earned from markets with lower cost of services.
Our operating, administrative and other expenses on a consolidated basis were $1.3 billion, an increase of
$281.1 million, or 27.5%, for the year ended December 31, 2006 as compared to the year ended December 31,
2005. The increase was primarily driven by higher worldwide payroll-related costs, including bonuses and
carried interest incentive compensation expense, as well as increased marketing costs, which resulted from our
improved operating performance. Also contributing to the increase were higher costs as a result of acquisitions,
46
particularly our acquisition of Trammell Crow Company. Foreign currency translation had an $8.9 million
negative impact on total operating expenses during the year ended December 31, 2006. Operating expenses as a
percentage of revenue were essentially flat at 32.3% for the year ended December 31, 2006 versus 32.0% for the
year ended December 31, 2005.
Our depreciation and amortization expense on a consolidated basis increased by $22.1 million, or 48.5%, for
the year ended December 31, 2006 as compared to the year ended December 31, 2005. This increase was
primarily driven by higher amortization expense related to the intangible assets representing net revenue backlog
and incentive fees acquired in the Trammell Crow Company Acquisition. As of December 31, 2006, the net book
value of the intangible asset representing the remaining net revenue backlog acquired in the Trammell Crow
Company Acquisition was $25.8 million, which was fully amortized by the end of 2007. Also contributing to the
increase over the prior year was higher depreciation expense resulting from increased capital expenditures as
well as fixed assets acquired in recent acquisitions.
Our equity income from unconsolidated subsidiaries on a consolidated basis decreased by $5.1 million, or
13.3%, for the year ended December 31, 2006 as compared to the year ended December 31, 2005. This was
primarily due to higher dispositions within selected funds in our Global Investment Management segment in
2005, partially offset by higher equity income in our EMEA and Americas segments for the year ended
December 31, 2006.
Our consolidated minority interest expense increased $4.0 million, or 182.9%, as compared to the year
ended December 31, 2005. The increase was primarily due to minority interest associated with our Japanese
affiliate, IKOMA, which we began fully consolidating in our results in 2006 as a result of our equity interest
reaching 51% in 2006.
Our other income on a consolidated basis was $8.6 million for the year ended December 31, 2006, which
represented income related to marking Trammell Crow Company’s investment in Savills plc to market for the
period December 20, 2006, the date of the Trammell Crow Company Acquisition, through December 31, 2006.
Our consolidated interest income was $9.8 million for the year ended December 31, 2006, a decrease of $1.4
million, or 12.5%, as compared to the year ended December 31, 2005. This decrease was primarily driven by
lower average cash balances in 2006 as a result of using cash to pay down debt as well as to fund acquisitions.
Our consolidated interest expense decreased $11.3 million, or 20.0%, as compared to the year ended
December 31, 2005. The overall decline was primarily due to interest savings realized as a result of debt
repayments made throughout 2005 and 2006, including the redemption of the remaining outstanding balance of
our 11 1⁄4% senior subordinated notes in June 2006 and the repayment of substantially all of our 9 3⁄4% senior
notes in December 2006. In December 2006, we also entered into an amended and restated credit agreement
covering two new senior secured term loan facilities for an aggregate principal amount of up to $2.2 billion (of
which we drew down $2.1 billion) to finance our acquisition of Trammell Crow Company.
Our loss on extinguishment of debt on a consolidated basis was $33.8 million and $7.4 million for the years
ended December 31, 2006 and 2005, respectively. These losses were related to the write-off of unamortized
deferred financing fees and unamortized discount, as well as premiums paid, all in connection with the
repurchase of our 11 1⁄4% senior subordinated notes during the years ended December 31, 2006 and 2005. In
addition, during the year ended December 31, 2006, we incurred $11.6 million of losses related to the write-off
of unamortized deferred financing fees, as well as premiums paid, in connection with the repurchase of our 9 3⁄4%
senior notes and $8.2 million of losses in connection with the write-off of unamortized deferred financing fees
associated with our prior credit facility, which was replaced during the year ended December 31, 2006.
Our provision for income taxes on a consolidated basis was $198.3 million for the year ended December 31,
2006 as compared to $138.9 million for the year ended December 31, 2005. The increase in the provision for
income taxes is attributable to the significant increase in pre-tax income over 2005. Our effective tax rate declined
47
from 39.0% for the year ended December 31, 2005 to 38.4% for the year ended December 31, 2006. The decrease in
the effective tax rate is primarily a result of the change in our mix of domestic and foreign earnings.
Segment Operations
The following table summarizes our revenue, costs and expenses and operating income (loss) by our
Americas, EMEA, Asia Pacific, Global Investment Management and Development Services operating segments
for the years ended December 31, 2007, 2006 and 2005.
Year Ended December 31,
2007
2006
2005
(Dollars in thousands)
Americas
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,689,737
Costs and expenses:
100.0% $2,506,913
100.0% $2,172,813
100.0%
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Merger-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,272,146
975,673
77,076
55,620
61.6
26.4
2.1
1.5
1,453,632
710,547
38,846
—
58.0
28.4
1.5
—
1,278,185
621,009
30,782
—
58.8
28.6
1.4
—
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 309,222
8.4% $ 303,888
12.1% $ 242,837
11.2%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 365,004
9.9% $ 366,103
14.6% $ 286,887
13.2%
EMEA
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,314,019
Costs and expenses:
100.0% $ 933,517
100.0% $ 707,330
100.0%
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Merger-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
650,824
398,339
12,324
1,240
49.5
30.4
0.9
0.1
462,807
282,564
15,152
—
49.6
30.3
1.6
—
379,163
223,365
10,468
—
53.6
31.6
1.5
—
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251,292
19.1% $ 172,994
18.5% $
94,334
13.3%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 261,199
19.9% $ 189,404
20.3% $ 104,493
14.8%
Asia Pacific
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 548,650
Costs and expenses:
100.0% $ 354,756
100.0% $ 186,573
100.0%
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
277,748
179,329
6,489
50.6
32.7
1.2
194,073
115,165
5,499
54.7
32.5
1.5
96,124
64,173
2,430
51.5
34.4
1.3
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
85,084
15.5% $
40,019
11.3% $
23,846
12.8%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
82,775
15.1% $
43,268
12.2% $
27,285
14.6%
Global Investment Management
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 347,883
Costs and expenses:
100.0% $ 228,034
100.0% $ 127,310
100.0%
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
252,437
2,798
72.6
0.8
189,399
2,306
83.1
1.0
114,085
1,836
89.6
1.4
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
92,648
26.6% $
36,329
15.9% $
11,389
9.0%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 113,068
32.5% $
52,724
23.1% $
35,519
27.9%
Development Services
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,960
Costs and expenses:
100.0% $
8,807
100.0% $
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Merger-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . .
182,880
14,582
72
24,299
136.5
10.8
0.1
18.1
6,106
5,792
—
—
69.3
65.8
—
—
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (39,275)
(29.3)% $
(3,091)
(35.1)% $
EBITDA (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
12,218
9.1% $
2,025
23.0% $
—
—
—
—
—
—
—
— %
—
—
—
—
— %
— %
(1)
Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
48
EBITDA represents earnings before net interest expense, loss on extinguishment of debt, income taxes,
depreciation and amortization. Our management believes EBITDA is useful in evaluating our performance
compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the
effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which
items may vary for different companies for reasons unrelated to overall operating performance. As a result, our
management uses EBITDA as a measure to evaluate the performance of our various business lines and for other
discretionary purposes, including as a significant component when measuring our performance under our
employee incentive programs.
However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles,
or GAAP, and when analyzing our operating performance, readers should use EBITDA in addition to, and not as
an alternative for, net income (loss) as determined in accordance with GAAP. Because not all companies use
identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other
companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s
discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The
amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in our debt
instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to
determine compliance with financial covenants and our ability to engage in certain activities, such as incurring
additional debt and making certain restricted payments.
49
Net interest expense and loss on extinguishment of debt have been expensed in the segment incurred.
Provision (benefit) for income taxes has been allocated among our segments by using applicable U.S. and foreign
effective tax rates. EBITDA for our segments is calculated as follows (dollars in thousands):
Year Ended December 31,
2007
2006
(Dollars in thousands)
2005
Americas
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $114,045
Add:
$166,034
$124,426
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and management service income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
77,076
141,070
—
(24,050)
71,630
38,846
36,753
33,847
—
97,890
30,782
45,934
7,386
—
86,001
Less:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,767
7,267
7,642
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $365,004
$366,103
$286,887
EMEA
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,816
Add:
$103,631
$ 60,426
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and management service expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,324
835
17,290
61,299
15,152
2,200
—
69,698
10,468
3,887
—
32,777
Less:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,365
1,277
3,065
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $261,199
$189,404
$104,493
Asia Pacific
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,778
Add:
$ 18,170
$ 15,297
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and management service expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,489
3,448
5,511
24,157
5,499
3,092
—
16,782
2,430
2,777
—
6,968
Less:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
608
275
187
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,775
$ 43,268
$ 27,285
Global Investment Management
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,357
Add:
$ 33,022
$ 17,192
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and management service expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,798
3,600
1,249
43,400
2,306
2,642
—
15,435
1,836
3,683
—
13,135
Less:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,336
681
327
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,068
$ 52,724
$ 35,519
Development Services
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,491) $ (2,286) $ —
Add:
Depreciation and amortization (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for income taxes (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,007
20,447
(6,231)
5,792
320
(1,479)
Less:
Interest income (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,514
322
—
—
—
—
EBITDA (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,218
$
2,025
$ —
(1)
(2)
(3)
(4)
(5)
Includes depreciation and amortization related to discontinued operations of $0.4 million for the year ended December 31, 2007.
Includes interest expense related to discontinued operations of $1.8 million for the year ended December 31, 2007.
Includes provision for income taxes related to discontinued operations of $1.6 million for the year ended December 31, 2007.
Includes interest income related to discontinued operations of $0.01 million for the year ended December 31, 2007.
Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
50
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Americas
Revenue increased by $1.2 billion, or 47.2%, for the year ended December 31, 2007 as compared to the year
ended December 31, 2006. The increase was driven by acquisitions, particularly our acquisition of Trammell
Crow Company, and includes higher sales and lease transaction revenue and growth of our outsourcing revenues
as well as increased activity in our appraisal/valuation operations. Foreign currency translation had a $17.2
million positive impact on total revenue during the year ended December 31, 2007.
Cost of services increased by $818.5 million, or 56.3%, for the year ended December 31, 2007 as compared
to the year ended December 31, 2006, primarily due to an increase in salaries and related costs associated with
our property and facilities management contracts as well as higher commission expense and bonus accruals as a
result of the overall increase in revenue. Foreign currency translation had an $8.4 million negative impact on cost
of services during the year ended December 31, 2007. Cost of services as a percentage of revenue increased from
58.0% for the year ended December 31, 2006 to 61.6% for the year ended December 31, 2007, primarily due to
the increase in salaries and related costs associated with our property and facilities management contracts (the
reimbursement of which is reflected in revenue) as our business shifted towards outsourcing services as a result
of the Trammell Crow Company Acquisition.
Operating, administrative and other expenses increased $265.1 million, or 37.3%, mainly driven by higher
costs as a result of our acquisition of Trammell Crow Company in December 2006, including increased payroll-
related costs and bonuses, as well as higher occupancy and marketing costs. Foreign currency translation had a
$5.7 million negative impact on total operating expenses during the year ended December 31, 2007.
EMEA
Revenue increased by $380.5 million, or 40.8%, for the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This revenue increase was primarily driven by strong performance across all
business lines and countries, including the United Kingdom, France, Germany, Spain, the Netherlands, Russia,
Italy and Belgium. Foreign currency translation had a $105.2 million positive impact on total revenue during the
year ended December 31, 2007.
Cost of services increased $188.0 million, or 40.6%, mainly as a result of higher producer compensation
expense, including bonuses, as well as increased commission expense, all of which were primarily driven by
higher revenue and increased headcount, partially due to acquisitions. Higher salaries and related costs associated
with our property and facilities management contracts also contributed to the increase. These increases were
partially offset by a curtailment gain of $10.0 million recognized in the current year as a result of the freezing of
our U.K. pension plans (see Note 16 of the Notes to Consolidated Financial Statements). Foreign currency
translation had a $52.3 million negative impact on cost of services during the year ended December 31, 2007.
Cost of services as a percentage of revenue was consistent between periods at 49.5% for the year ended
December 31, 2007 versus 49.6% for the year ended December 31, 2006.
Operating, administrative and other expenses increased by $115.8 million, or 41.0%, mainly due to higher
payroll-related costs, including bonuses, in the region, which were primarily due to improved results combined
with the impact of in-fill acquisitions. Marketing costs in the region also increased in the current year in support
of our growing revenue. Foreign currency translation had a $31.9 million negative impact on total operating
expenses during the year ended December 31, 2007.
Asia Pacific
Revenue increased by $193.9 million, or 54.7%, for the year ended December 31, 2007 as compared to the
year ended December 31, 2006. This revenue increase was primarily driven by improved performance in the
region, most notably in Australia, China, India, Singapore and Japan. Foreign currency translation had a $29.9
million positive impact on total revenue during the year ended December 31, 2007.
51
Cost of services increased by $83.7 million, or 43.1%, mainly driven by increased producer compensation
expense, including bonuses, as well as increased commission expense, all of which were primarily driven by
higher revenues and increased headcount, partially due to acquisitions. Higher salaries and related costs
associated with our property and facilities management contracts also contributed to the increase. These increases
were partially offset by lower cost of services in Japan, partially attributable to the full integration of IKOMA,
which led to improved productivity in Japan. Cost of services as a percentage of revenue decreased from 54.7%
for the year ended December 31, 2006 to 50.6% for the year ended December 31, 2007, primarily driven by the
above mentioned lower cost of services in Japan. Foreign currency translation had a $15.9 million negative
impact on cost of services for the year ended December 31, 2007.
Operating, administrative and other expenses increased by $64.2 million, or 55.7%, primarily due to an
increase in payroll-related costs, including bonuses, which largely resulted from improved results in the region.
Marketing costs in the region also increased in the current year in support of our growing revenue. Foreign
currency translation had an $8.6 million negative impact on total operating expenses during the year ended
December 31, 2007.
Global Investment Management
Revenue increased by $119.8 million, or 52.6%, for the year ended December 31, 2007 as compared to the
year ended December 31, 2006. The improvement was mainly due to higher incentive fees and increased
investment management fees earned in the United States and the United Kingdom, partially offset by lower
carried interest revenue in the current year. Total assets under management at December 31, 2007 rose 32.2%
from year-end 2006 to $37.8 billion. Foreign currency translation had a $9.2 million positive impact on total
revenue during the year ended December 31, 2007.
Operating, administrative and other expenses increased by $63.0 million, or 33.3%, primarily due to higher
bonus expense resulting from improved results as well as an increase in salaries and related costs due to
additional headcount. These increases were partially offset by lower carried interest incentive compensation
expense of $28.4 million recognized for dedicated Global Investment Management executives and team leaders
with participation interests in certain real estate investments under management. During the year ended
December 31, 2007, we recorded a total of $62.7 million of incentive compensation expense related to carried
interest revenue, a part of which pertained to revenue recognized during the current year with the remainder
(approximately $42.9 million) relating to future periods’ revenue. Revenue associated with these expenses cannot
be recognized until certain financial hurdles are met. We expect that income we will recognize from funds
liquidating in future years will more than offset the $42.9 million of additional incentive compensation expense
accrued during the year ended December 31, 2007. Foreign currency translation had a $5.8 million negative
impact on total operating expenses during the year ended December 31, 2007.
Development Services
The Development Services segment consists of real estate development and investment activities primarily
in the United States acquired in the Trammell Crow Company Acquisition on December 20, 2006. The results for
2006 only include activity from December 20, 2006 the acquisition date, through December 31, 2006. This
segment generated revenue of $134.0 million and total operating expenses of $182.9 million for the year ended
December 31, 2007. The loss incurred in this segment was largely a result of purchase accounting for the
Trammell Crow Company Acquisition, which requires the write-up of assets to fair value upon acquisition,
thereby eliminating any gains in the near term. For the year ended December 31, 2007, this segment’s results
were reduced by approximately $61.6 million as a result of purchase accounting. Our inventory of in-process and
pipeline projects at December 31, 2007 rose 9.5% from year-end 2006 to $9.2 billion.
52
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Americas
Revenue increased by $334.1 million, or 15.4%, for the year ended December 31, 2006 as compared to the
year ended December 31, 2005. This largely organic revenue increase was primarily driven by a continued
improving leasing trend, an increase in investment sales activity as well as higher appraisal/valuation, mortgage
brokerage and property and facilities management fees. Foreign currency translation had a $9.0 million positive
impact on total revenue during the year ended December 31, 2006.
Cost of services increased by $175.4 million, or 13.7%, for the year ended December 31, 2006 as compared
to the year ended December 31, 2005, primarily due to higher commission expense and bonus accruals as a result
of the overall increase in revenue. Foreign currency translation had a $3.7 million negative impact on cost of
services during the year ended December 31, 2006. Cost of services as a percentage of revenue decreased slightly
from 58.8% for the year ended December 31, 2005 to 58.0% for the year ended December 31, 2006, primarily
attributable to our mix of revenue.
Operating, administrative and other expenses increased $89.5 million, or 14.4%, mainly driven by higher
payroll-related costs including bonuses, as well as higher marketing costs, all of which primarily resulted from
supporting our growing revenues. Foreign currency translation had a $4.6 million negative impact on total
operating expenses during the year ended December 31, 2006.
EMEA
Revenue increased by $226.2 million, or 32.0%, for the year ended December 31, 2006 as compared to the
year ended December 31, 2005. Organic revenue growth accounted for approximately two-thirds of this increase,
with the remainder resulting from in-fill acquisitions completed in 2005 and in 2006. The organic revenue
increase was primarily driven by higher transaction revenue, particularly in the United Kingdom, France and
Germany, as well as increased appraisal/valuation revenue throughout the region. The overall increase related to
in-fill acquisitions was primarily driven by our acquisition of CB Richard Ellis Gunne in Ireland and Dalgleish &
Company in the United Kingdom during the latter half of 2005 as well as our acquisition of Holley Blake in the
United Kingdom early in the third quarter of 2006. Foreign currency translation had a $24.4 million positive
impact on total revenue during the year ended December 31, 2006.
Cost of services increased $83.6 million, or 22.1%, mainly as a result of higher producer compensation
expense, including bonuses, as well as increased commission expense, all of which were primarily driven by
higher revenue and increased headcount, partially due to acquisitions. Foreign currency translation had a $9.0
million negative impact on cost of services during the year ended December 31, 2006. Cost of services as a
percentage of revenue decreased from 53.6% for the year ended December 31, 2005 to 49.6% for the year ended
December 31, 2006, primarily driven by our mix of revenue, with a higher composition of revenue earned from
markets with lower cost of services.
Operating, administrative and other expenses increased by $59.2 million, or 26.5%, mainly due to higher
payroll-related costs, including bonuses, as well as increased marketing costs in the region, which were primarily
due to improved results combined with the impact of in-fill acquisitions. Foreign currency translation had a $5.9
million negative impact on total operating expenses during the year ended December 31, 2006.
Asia Pacific
Revenue increased by $168.2 million, or 90.1%, for the year ended December 31, 2006 as compared to the
year ended December 31, 2005. Over 70% of the increase was due to acquisitions, primarily driven by our
acquisition of an additional stake in our Japanese affiliate, IKOMA, in early January 2006, which took our equity
interest in IKOMA to 51% and led to our consolidation of IKOMA’s results, with the remainder attributable to
53
organic growth. The organic revenue increase was primarily driven by higher transaction revenue as well as
increased appraisal/valuation activity in Australia. Foreign currency translation had a $5.4 million negative impact
on total revenue during the year ended December 31, 2006.
Cost of services increased by $97.9 million, or 101.9%, mainly due to higher commissions and additional
headcount, both of which were primarily attributable to our consolidation of IKOMA as well as increased activity
in Australia. Cost of services as a percentage of revenue increased from 51.5% for the year ended December 31,
2005 to 54.7% for the year ended December 31, 2006, primarily driven by a higher transaction commission rate
at IKOMA, which improved in 2007 upon full integration. Foreign currency translation had a $3.6 million
positive impact on cost of services for the year ended December 31, 2006.
Operating, administrative and other expenses increased by $51.0 million, or 79.5%, primarily due to an
increase in payroll-related costs, including bonuses, as well as higher occupancy and marketing costs, which
largely resulted from our consolidation of IKOMA as well as improved results in Australia. Foreign currency
translation had a $2.3 million positive impact on total operating expenses during the year ended December 31,
2006.
Global Investment Management
Revenue increased by $100.7 million, or 79.1%, for the year ended December 31, 2006 as compared to the
year ended December 31, 2005. The improvement was mainly driven by increased carried interest revenue of
$73.7 million as well as higher asset management fees earned in the United States and the United Kingdom.
Foreign currency translation had a $0.1 million positive impact on total revenue during the year ended
December 31, 2006.
Operating, administrative and other expenses increased by $75.3 million, or 66.0%, primarily due to an
increase in carried interest incentive compensation expense of $55.2 million recognized for dedicated executives
and team leaders with participation interests in certain real estate investments under management, as well as
higher bonus expense resulting from improved results. During the year ended December 31, 2006, we recorded a
total of $91.1 million of incentive compensation expense related to carried interest revenue, a part of which
pertained to revenue recognized during the current year with the remainder (approximately $50.2 million)
relating to future periods’ revenue. Revenue associated with these expenses cannot be recognized until certain
contractual hurdles are met. Foreign currency translation had a $0.7 million negative impact on total operating
expenses during the year ended December 31, 2006.
Development Services
The Development Services segment consists of real estate development and investment activities primarily
in the United States acquired in the Trammell Crow Company Acquisition on December 20, 2006. This segment
includes activity from the acquisition date through December 31, 2006, including revenue of $8.8 million as well
as operating, administrative and other expenses of $6.1 million.
Liquidity and Capital Resources
We believe that we can satisfy our working capital requirements and funding of investments with internally
generated cash flow and, as necessary, borrowings under our revolving credit facility. Included in the capital
requirements that we expect to fund during 2008 are approximately $80.0 million of anticipated net capital
expenditures. The capital expenditures for 2007 are primarily comprised of information technology costs, which
are driven largely by computer replacements as well as costs associated with upgrading various servers and
systems, and leasehold improvements.
During 2003 and 2006, we required substantial amounts of new equity and debt financing to fund our
acquisitions of Insignia and Trammell Crow Company. Absent extraordinary transactions such as these, we
historically have not needed sources of financing other than our internally generated cash flow and our revolving
54
credit facility to fund our working capital, capital expenditure and investment requirements. In the absence of
such extraordinary transactions, our management anticipates that our cash flow from operations and our
revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future,
but at a minimum for the next 12 months.
As evidenced above, from time to time, we consider potential strategic acquisitions. Our management
believes that any future significant acquisitions that we make most likely would require us to obtain additional
debt or equity financing. In the past, we have been able to obtain such financing for material transactions on
terms that our management believed to be reasonable. However, it is possible that we may not be able to find
acquisition financing on favorable terms in the future if we decide to make any further material acquisitions.
Our current long-term liquidity needs, other than those related to ordinary course obligations and commitments
such as operating leases, generally are comprised of two parts. The first is the repayment of the outstanding and
anticipated principal amounts of our long-term indebtedness. Our management is unable to project with certainty
whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due.
If this cash flow is insufficient, then our management expects that we would need to refinance such indebtedness or
otherwise amend its terms to extend the maturity dates. Our management cannot make any assurances that such
refinancings or amendments, if necessary, would be available on attractive terms, if at all.
The other primary component of our long-term liquidity needs, other than those related to ordinary course
obligations and commitments such as operating leases, are our obligations related to our deferred compensation
plans and our U.K. pension plans. Pursuant to our deferred compensation plans, a select group of our
management and other highly-compensated employees have been permitted to defer receipt of some or all of
their compensation until future distribution dates and have the deferred amount credited towards specified
investment alternatives. Except for deferrals into stock fund units that provide for future issuances of our
common stock, the deferrals under the deferred compensation plans represent future cash payment obligations for
us. We currently have invested in insurance and mutual funds for the purpose of funding our future cash deferred
compensation obligations. In addition, upon each distribution under the plans, we receive a corresponding tax
deduction for such compensation payment. Our U.K. subsidiaries maintain pension plans with respect to which a
limited number of our U.K. employees are participants. Our historical policy has been to fund pension costs as
actuarially determined and as required by applicable law and regulations. During the year ended December 31,
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 United Kingdom. In connection with this change, certain plan assets and liabilities were
remeasured, which resulted in an underfunded obligation of $34.2 million at December 31, 2007 as compared to
a $58.0 million underfunded obligation at December 31, 2006.
We expect that any future obligations under our deferred compensation plans and pension plans that are not
currently funded will be funded out of our future cash flow from operations.
In January 2007, we sold Trammell Crow Company’s approximately 19% ownership interest in Savills plc
(a real estate services company based in the United Kingdom) at a $34.9 million net loss, which was largely
driven by stock price depreciation at the date of sale as compared to December 31, 2006 when the investment
was marked to market. The disposition was effected through the sale of approximately 25.9 million shares of
Savills plc common stock. The pre-tax proceeds from the sale, net of selling costs, totaled approximately $311.0
million and have been used to reduce net indebtedness.
On November 7, 2007, we announced a share repurchase program of up to $500.0 million of our outstanding
common stock, which was authorized by our board of directors. Subsequently, on November 28, 2007, we
announced an expansion of our share repurchase program, in which our board of directors authorized the share
repurchase of up to $635.0 million of our outstanding shares of common stock, which included the $500.0
million previously authorized. This share repurchase program was funded out of our cash flow from operations as
well as our revolving credit facility.
55
Historical Cash Flows
Operating Activities
Net cash provided by operating activities totaled $648.2 million for the year ended December 31, 2007, an
increase of $218.2 million as compared to the year ended December 31, 2006. The Trammell Crow Company
Acquisition has impacted substantially all components of cash used in our operating activities, which makes
comparison against the same period in the prior year not meaningful. However, the sharp increase in cash
provided by operating activities during the year ended December 31, 2007 was primarily driven by the
approximately $311.0 million in proceeds received from the sale of the approximately 19% ownership in Savills
plc, a real estate services company based in the United Kingdom, held by Trammell Crow Company.
Furthermore, higher results and distributions of earnings from unconsolidated subsidiaries, partially offset by
higher income taxes paid also contributed to the increase.
Net cash provided by operating activities totaled $430.0 million for the year ended December 31, 2006, an
increase of $70.4 million as compared to the year ended December 31, 2005. This increase was primarily due to
improved operating performance experienced in 2006 in comparison to the year ended December 31, 2005,
which was evidenced by increases in net income, income taxes paid, compensation and employee benefits
payable and accrued bonuses and profit sharing offset by an increase in accounts receivable. This net increase in
cash provided by operating activities in 2006 was partially offset by higher deposits in the United Kingdom,
primarily made to replace a letter of credit requirement related to one of our leases, as well as an increase in
prepaid compensation in 2006. Lastly, the new presentation of incremental tax benefits resulting from stock
options exercised as financing inflows in 2006 as a result of our adoption of SFAS No. 123—Revised, “Share
Based Payment,” versus operating inflows in 2005 also partially offset the overall increase.
Investing Activities
Net cash used in investing activities totaled $284.4 million for the year ended December 31, 2007, a
decrease of $1.8 billion as compared to the year ended December 31, 2006. The decrease was primarily due to
the use of less cash for acquisitions in the current year, partially offset by the usage of cash to purchase real estate
held for investment and higher capital expenditures.
Net cash used in investing activities totaled $2.1 billion for the year ended December 31, 2006, representing
an increase of $1.9 billion as compared to the year ended December 31, 2005. The increase was primarily due to
the use of cash for acquisitions, particularly our acquisition of Trammell Crow Company. Also contributing to
the net increase in 2006 was an increase in restricted cash as well as higher capital expenditures. The increase in
restricted cash represents funds set aside to cover deferred purchase consideration relative to the Trammell Crow
Company Acquisition.
Financing Activities
Net cash used in financing activities totaled $277.3 million for the year ended December 31, 2007 as compared
to net cash provided by financing activities of $1.4 billion for the year ended December 31, 2006. The proceeds of
$2.1 billion from our senior secured term loans received in the prior year to fund the Trammell Crow Company
Acquisition, as well as our repurchase of $635.0 million of common stock in the current year mainly contributed to
this variance. These items were partially offset by the repayment of debt in the prior year, increased net borrowings
under our revolving credit facility in the current year as well as current year activities within our Development
Services segment, including an increase in minority interest contributions, higher net proceeds received from notes
payable on real estate and short-term borrowings related to a revolving line of credit.
Net cash provided by financing activities totaled $1.4 billion for the year ended December 31, 2006 as
compared to net cash used in financing activities of $47.3 million for the year ended December 31, 2005. The
increase in net cash provided by financing activities was primarily driven by the debt financing required by the
56
Trammell Crow Company Acquisition, net of associated deferred financing fees. This increase was partially
offset by repayment of debt, including the remaining outstanding balance of our 11 1⁄4% senior subordinated
notes, a substantial majority of the remaining outstanding balance of our 9 3⁄4% senior notes as well as the
repayment of our prior senior secured term loan.
Summary of Contractual Obligations and Other Commitments
The following is a summary of our various contractual obligations and other commitments as of
December 31, 2007:
Contractual Obligations
Payments Due by Period
Total
Less than
1 year
1-3 years
4-5 years
Total debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,327,406
975,700
Operating leases (2) . . . . . . . . . . . . . . . . . . . . . . .
290,562
Deferred compensation plan liability (3) . . . . . . .
34,163
Pension liability (3) (4)
. . . . . . . . . . . . . . . . . . . .
Notes payable on real estate (recourse) (5) . . . . .
6,589
Notes payable on real estate (non recourse)
459,443
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred purchase consideration (6) . . . . . . . . . .
4,528
Total Contractual Obligations . . . . . . . . . . . . . $4,098,391
$550,054
164,598
11,300
—
4,779
(Dollars in thousands)
$ 509,741
327,772
33,600
—
1,810
$362,597
194,842
35,400
—
—
More than
5 years
$ 905,014
288,488
210,262
34,163
—
104,286
4,528
339,495
—
15,662
—
—
—
$839,545
$1,212,418
$608,501
$1,437,927
Other Commitments
Amount of Other Commitments Expiration
Total
Less than
1 year
1-3 years
4-5 years
More than
5 years
(Dollars in thousands)
. . . . . . . . . . . . . . . . . . . . . . . $
Letters of credit (2)
17,997
Guarantees (2) (7)
. . . . . . . . . . . . . . . . . . . . . . . .
6,893
Co-investments (2) (8) . . . . . . . . . . . . . . . . . . . . .
103,272
Non-current tax liabilities (9) . . . . . . . . . . . . . . . .
—
15,119
Other (10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Commitments . . . . . . . . . . . . . . . . $ 143,281
$
$ 17,997
6,893
58,885
—
15,119
— $ — $
—
44,387
—
—
—
—
—
—
$ 98,894
$
44,387
$ — $
—
—
—
—
—
—
(1) See Note 14 of our Notes to the Consolidated Financial Statements. Figures do not include scheduled
interest payments. Assuming each debt obligation is held until maturity, we estimate that we will make the
following interest payments (in thousands): 2008—$128,615; 2009 to 2010—$216,559; 2011 to 2012—
$161,704 and thereafter $53,659. The interest payments on the variable rate debt have been calculated at the
interest rate in effect at December 31, 2007.
(2) See Note 15 of our Notes to the Consolidated Financial Statements.
(3) See Note 16 of our Notes to the Consolidated Financial Statements.
(4) Because these obligations are related, either wholly or partially, to the future retirement of our employees
and such retirement dates are not predictable, an undeterminable portion of this amount will be paid in years
one through five.
(5) See Note 13 of our Notes to the Consolidated Financial Statements. Figures do not include scheduled
interest payments. The notes (primarily construction loans) have either fixed or variable interest rates,
ranging from 5.44% to 8.73% at December 31, 2007. In general, interest is drawn on the underlying loan
and subsequently paid with proceeds received upon the sale of the real estate project.
(6) Represents portion of the total purchase price for the acquisition of Trammell Crow Company that has not been
paid. As of December 31, 2007, $4.5 million is included in restricted cash in the accompanying consolidated
balance sheets with a corresponding current liability included in deferred purchase consideration. Amount
relates to outstanding shares of Trammell Crow Company common stock that have not yet been tendered.
Payment in full will be made as share certificates are tendered.
57
(7) Due to the nature of guarantees, payments could be due at any time upon the occurrence of certain triggering
(8)
events including default. Accordingly, all guarantees are reflected as expiring in less than one year.
Includes $95.6 million related to our Global Investment Management segment ($51.2 million is expected to
be funded in 2008 and $44.4 million is expected to be funded from 2009 to 2010) and $7.7 million related to
our Development Services segment (expected to be funded in 2008).
(9) As of December 31, 2007, our FIN 48 liability, including interest and penalties, is $81.8 million. We are
unable to reasonably estimate the timing of the effective settlement of tax positions.
(10) Represents outstanding reserves for claims under certain insurance programs, which are included in other
current and other long-term liabilities in the accompanying consolidated balance sheets at December 31,
2007. Due to the nature of this item, payments could be due at any time upon the occurrence of certain
events. Accordingly, entire balance has been reflected as expiring in less than one year.
Indebtedness
Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when
due the principal of, interest on or other amounts due in respect of our indebtedness and other obligations. In addition,
we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other
purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional
debt, the risks associated with our leverage, including our ability to service our debt, would increase.
Most of our long-term indebtedness was incurred in connection with our acquisition of CB Richard Ellis
Services in July 2001, the Insignia Acquisition in July 2003 and the Trammell Crow Company Acquisition in
December 2006. The CB Richard Ellis Services acquisition, which was a going private transaction involving
members of our senior management, affiliates of Blum Capital Partners and Freeman Spogli & Co. and some of
our other existing stockholders, was undertaken so that we could take advantage of growth opportunities and
focus on improvements in the CB Richard Ellis Services businesses. The Insignia Acquisition increased the scale
of our real estate advisory services and outsourcing services businesses as well as significantly increased our
presence in the New York, London and Paris metropolitan areas. The Trammell Crow Company Acquisition has
expanded our global leadership and strengthened our ability to provide integrated account management and
comprehensive real estate services for our clients.
Since 2001, we have maintained a credit agreement with Credit Suisse, or CS, and other lenders to fund
strategic acquisitions and to provide for our working capital needs. On June 26, 2006, we entered into a $600.0
million multi-currency senior secured revolving credit facility with a syndicate of banks led by CS, as
administrative and collateral agent, which fully replaced our prior credit agreement. In connection with the
replacement of our prior credit facility, we wrote off $8.2 million of unamortized deferred financing fees during
the year ended December 31, 2006. On December 20, 2006, we entered into an amendment and restatement to
our credit agreement (the Credit Agreement) to, among other things, allow the consummation of the Trammell
Crow Company Acquisition and the incurrence of senior secured term loan facilities for an aggregate principal
amount of up to $2.2 billion.
Our Credit Agreement includes the following: (1) a $600.0 million revolving credit facility, including
revolving credit loans, letters of credit and a swingline loan facility, all maturing on June 24, 2011, (2) a $1.1
billion tranche A term loan facility, requiring quarterly principal payments beginning March 31, 2009 (previously
set to commence on March 31, 2008, but adjusted as a result of our prepayment of all of the 2008 required
payments in 2007) through September 30, 2011, with the balance payable on December 20, 2011, (3) a $1.1
billion tranche B term loan facility, requiring quarterly principal payments of $2.75 million beginning March 31,
2007 through September 30, 2013, with the balance payable on December 20, 2013 and (4) the ability to borrow
an additional $300.0 million, subject to the satisfaction of customary conditions. The revolving credit facility
allows for borrowings outside of the United States, with sub-facilities of $5.0 million available to one of our
Canadian subsidiaries, $35.0 million available to one of our Australian and New Zealand subsidiaries and $50.0
million available to one of our U.K. subsidiaries. Additionally, outstanding borrowings under these sub-facilities
may be up to 5.0% higher as allowed under the currency fluctuation provision in the Credit Agreement.
58
Borrowings under the revolving credit facility bear interest at varying rates, based at our option, on either
the applicable fixed rate plus 1.2375% or the daily rate plus 0.2375% for the first year; thereafter, at the
applicable fixed rate plus 0.575% to 1.1125% or the daily rate plus 0% to 0.1125%, in both cases as determined
by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). As of
December 31, 2007, we had $227.1 million of revolving credit facility principal outstanding with a related
weighted average interest rate of 7.4%, which is included in short-term borrowings in the accompanying
consolidated balance sheets. As of December 31, 2006, we had no revolving credit facility principal outstanding.
As of December 31, 2007, letters of credit totaling $11.5 million were outstanding under the revolving credit
facility. These letters of credit primarily relate to our outstanding indebtedness as well as letters of credit issued
in connection with development activities in our Development Services segment and reduce the amount we may
borrow under the revolving credit facility.
Borrowings under the tranche A term loan facility bear interest, based at our option, on either the applicable
fixed rate plus 1.50% or the daily rate plus 0.50% for the first year, thereafter, at the applicable fixed rate plus
0.75% to 1.375% or the daily rate plus 0% to 0.375%, in both cases as determined by reference to our ratio of
total debt less available cash to EBITDA (as defined in our Credit Agreement). Borrowings under the tranche B
term facility bear interest, based at our option, on either the applicable fixed rate plus 1.50% or the daily rate plus
0.50%. During the year ended December 31, 2007, we repaid $146.0 million and $140.0 million of our tranche A
and tranche B term loan facilities, respectively. As of December 31, 2007 and 2006, the tranche A term loan
facility had related average interest rates of 5.7% and 6.9%, respectively, while the tranche B term loan facility
had related average interest rates of 6.4% and 6.9%, respectively. As of December 31, 2007 and 2006, we had
$827.0 million and $973.0 million of tranche A term loan facility principal outstanding, respectively, and $960.0
million and $1.1 billion of tranche B term loan facility principal outstanding, respectively, which are included in
the accompanying consolidated balance sheets.
On February 26, 2007, we entered into two interest rate swap agreements with a total notional amount of
$1.4 billion and a maturity date of December 31, 2009. The purpose of these interest rate swap agreements is to
hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan
facilities. On March 20, 2007, these interest rate swaps were designated as cash flow hedges under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities.” We incurred a loss on these interest
rate swaps from the date we entered into the swaps up to the designation date of approximately $3.9 million,
which is included in other loss in the accompanying consolidated statement of operations. There was no hedge
ineffectiveness for the period from March 20, 2007 through December 31, 2007. As of December 31, 2007, the
fair value of these interest rate swap agreements was reflected as a $17.1 million liability and is included in other
current liabilities 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. Additionally, the
Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment.
Our Credit Agreement contains 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 interest and a
maximum leverage ratio of EBITDA (as defined in the Credit Agreement) to funded debt.
On March 2, 2007, we entered into a $50.0 million credit note with Wells Fargo Bank for the purpose of
purchasing eligible investments, which include cash equivalents, agency securities, A1/P1 commercial paper and
eligible money market funds. The proceeds of this note will not be made generally available to us, but will
instead be deposited in an investment account maintained by Wells Fargo Bank and will be used and applied
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solely to purchase eligible investment securities. Borrowings under the revolving credit note bear interest at
0.25% and the original termination date of the note, which was December 3, 2007, was extended to September 1,
2008 through a written amendment. As of December 31, 2007, there were no amounts outstanding under this
revolving credit note.
In May 2003, in connection with the Insignia Acquisition, CBRE Escrow, Inc., or CBRE Escrow, a wholly-
owned subsidiary of CB Richard Ellis Services, issued $200.0 million in aggregate principal amount of 9 3⁄4%
senior notes, which were due May 15, 2010. CBRE Escrow merged with and into CB Richard Ellis Services, and
CB Richard Ellis Services assumed all obligations with respect to the 9 3⁄4% senior notes in connection with the
Insignia Acquisition. The 9 3⁄4% senior notes were unsecured obligations of CB Richard Ellis Services, senior to
all of its current and future unsecured indebtedness, but subordinated to all of CB Richard Ellis Services’ current
and future secured indebtedness. The 9 3⁄4% senior notes were jointly and severally guaranteed on a senior basis
by us and substantially all of our domestic subsidiaries. Interest accrued at a rate of 9 3⁄4% per year and was
payable semi-annually in arrears on May 15 and November 15. Before May 15, 2006, we were permitted to
redeem up to 35.0% of the originally issued amount of the 9 3⁄4% senior notes at 109 3⁄4% of par, plus accrued and
unpaid interest, solely with the net cash proceeds from public equity offerings, which we elected to do. During
July 2004, we used a portion of the net proceeds we received from our initial public offering to redeem $70.0
million in aggregate principal amount, or 35.0%, of our 9 3⁄4% senior notes. Pursuant to the terms of the
Trammell Crow Company Acquisition Agreement, on November 3, 2006, we caused CB Richard Ellis Services
to launch a tender offer and consent solicitation for all of our outstanding 9 3⁄4% senior notes, which resulted in
the repurchase of all but $3.3 million of these notes. The remaining $3.3 million of 9 3⁄4% senior notes were
redeemable at our option, in whole or in part, on or after May 15, 2007 at 104.875% of par on that date, and we
elected to redeem these notes during the year ended December 31, 2007.
In connection with the Trammell Crow Company Acquisition, on December 20, 2006, we immediately
repaid Trammell Crow Company’s outstanding revolving credit facility of $74.0 million.
From time to time, Moody’s Investor Service and Standard & Poor’s Ratings Service rate our senior debt.
Neither the Moody’s nor the Standard & Poor’s ratings impact our ability to borrow under our Credit Agreement.
However, these ratings may impact our ability to borrow under new agreements in the future and the interest
rates of any such current or future borrowings.
Our wholly-owned subsidiary, CBRE Melody, has credit agreements with Washington Mutual Bank, FA, or
WaMu, and JP Morgan Chase Bank, N.A., or JP Morgan, for the purpose of funding mortgage loans that will be
resold.
Effective July 1, 2006, CBRE Melody entered into a $200.0 million multifamily mortgage loan repurchase
agreement, or Repo Agreement, with WaMu. Under the Repo Agreement, CBRE Melody originates multifamily
loans and sells such loans to one or more investors, including Fannie Mae, Freddie Mac, Ginnie Mae or any of
several private institutional investors. WaMu has agreed to purchase certain qualifying mortgage loans after such
loans have been originated, but prior to sale to one of the aforementioned investors, on a servicing retained basis,
subject to CBRE Melody’s obligation to repurchase the mortgage loan. Effective August 20, 2007, CBRE Melody
entered into a first amendment to the Repo Agreement, with WaMu. This amendment provided for, among other
things, a change in interest rate from one-month LIBOR, set daily plus 0.75% to one-month LIBOR, set daily plus
0.70%. The Repo Agreement was to continue indefinitely unless or until thirty days written notice was delivered,
prior to the termination date, by either CBRE Melody or WaMu. In December 2007, CBRE Melody was given
written notification by WaMu that the Repo Agreement would be terminated on January 28, 2008.
On November 15, 2005, CBRE Melody entered into a secured credit agreement with JP Morgan to establish
a warehouse line of credit. This agreement provides for a $250.0 million senior secured revolving line of credit
and bears interest at the daily Chase London LIBOR rate plus 0.75%. On November 14, 2006, CBRE Melody
executed an amendment to the credit agreement whereby the maturity date was extended to November 30, 2007.
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On September 13, 2007, CBRE Melody entered into an amendment to their secured credit agreement with JP
Morgan, which increased the senior secured revolving line of credit from $250.0 million to $350.0 million, with
the additional $100.0 million bearing interest at the Chase London LIBOR rate plus 0.85%. On November 30,
2007, CBRE Melody executed an amendment to extend the maturity date of the agreement to May 31, 2008. This
amendment also changed the interest rate to Chase London LIBOR plus 1.00% on outstanding amounts
aggregating $250.0 million or less and Chase London LIBOR plus 1.10% on outstanding amounts in excess of
$250.0 million.
During the years ended December 31, 2007 and 2006, respectively, we had a maximum of $450.9 million
and $399.8 million of warehouse lines of credit principal outstanding. As of December 31, 2007 and 2006, we
had $255.8 million and $104.0 million of warehouse lines of credit principal outstanding, respectively, which are
included in short-term borrowings in the accompanying consolidated balance sheets. Additionally, we had $255.8
million and $104.0 million of mortgage loans held for sale (warehouse receivables), which represented mortgage
loans funded through the lines of credit that, while committed to be purchased, had not yet been purchased as of
December 31, 2007 and 2006, respectively, and which are also included in the accompanying consolidated
balance sheets.
On July 31, 2006, CBRE Melody entered into a $60.0 million revolving credit note with JP Morgan for the
purpose of purchasing qualified investment securities, which include but are not limited to U.S. Treasury and
Agency securities. The proceeds of this note will not be made generally available to CBRE Melody, but will
instead be deposited in an investment account maintained by JP Morgan and will be used and applied solely to
purchase qualified investment securities. Borrowings under the revolving credit note will bear interest at 0.50%.
Initially, all outstanding principal on this note and all accrued interest unpaid was to be due and payable on
demand, or if no demand was made, then on or before July 31, 2007. On November 14, 2006, CBRE Melody
executed an amendment extending the maturity of this note to November 30, 2007. Effective May 1, 2007,
CBRE Melody executed an amendment, which increased the revolving credit note to $100.0 million and
extended the maturity date to April 30, 2008. On November 30, 2007, CBRE Melody executed an amendment
which further extended the maturity date to May 31, 2008. As of December 31, 2007, there were no amounts
outstanding under this revolving credit note.
On April 30, 2007, Trammell Crow Company Acquisitions II, L.P., or Acquisitions II, a legal entity within
our Development Services segment that we consolidate, entered into a $100.0 million revolving credit agreement
with WestLB AG, as administrative agent for a lender group. Borrowings under this credit agreement will be
used to fund acquisitions of real estate prior to receipt of capital contributions of Acquisitions II investors and
permanent project financing. Borrowings under this agreement bear interest at the daily British Bankers
Association LIBOR rate plus 0.65% and this agreement expires on April 30, 2010. Subject to certain conditions,
Acquisitions II can extend the maturity date of the credit facility for an additional term of not longer than twelve
months and may increase the maximum commitment to an amount not exceeding $150.0 million. Borrowings
under the line are non-recourse to us and are secured by the capital commitments of the investors in Acquisitions
II. As of December 31, 2007, there was $42.6 million outstanding under this revolving credit note included in
short-term borrowings in the accompanying consolidated balance sheets.
In connection with our acquisition of Westmark Realty Advisors in 1995 (now known as CB Richard Ellis
Investors), we issued approximately $20.0 million in aggregate principal amount of senior notes. The Westmark
senior notes are redeemable at the discretion of the note holders and have final maturity dates of June 30, 2008
and June 30, 2010. The interest rate on the Westmark senior notes is currently equal to the interest rate in effect
for amounts outstanding under our Credit Agreement plus 12 basis points. The amount of the Westmark senior
notes included in short-term borrowings in the accompanying consolidated balance sheets was $11.2 million as
of December 31, 2007 and 2006.
In January 2006, we acquired an additional stake in our Japanese affiliate, IKOMA, which increased our
total equity interest in IKOMA to 51%. As a result, we now consolidate IKOMA’s financial statements, which
included debt. IKOMA utilized short-term borrowings to assist in funding its working capital requirements. As of
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December 31, 2007, there was no amount of outstanding debt for IKOMA. As of December 31, 2006, IKOMA
had $6.7 million of debt outstanding, which is included in short-term borrowings in the accompanying
consolidated balance sheets.
Insignia, which we acquired in July 2003, issued loan notes as partial consideration for previous acquisitions
of businesses in the United Kingdom. The acquisition loan notes are payable to the sellers of the previously
acquired U.K. businesses and are secured by restricted cash deposits in approximately the same amount. The
acquisition loan notes are redeemable semi-annually at the discretion of the note holder and have a final maturity
date of April 2010. As of December 31, 2007 and 2006, $1.9 million and $2.2 million, respectively, of the
acquisition loan notes were outstanding and are included in short-term borrowings in the accompanying
consolidated balance sheets.
A significant number of our subsidiaries in Europe have had a Euro cash pool loan since 2001, which is
used to fund their short-term liquidity needs. The Euro cash pool loan is an overdraft line for our European
operations issued by HSBC Bank. The Euro cash pool loan has no stated maturity date and bears interest at
varying rates based on a base rate as defined by HSBC Bank plus 2.5%. As of December 31, 2007 and 2006,
there were no amounts outstanding under this facility.
Deferred Compensation Plan Obligations
We have four deferred compensation plans, or DCPs. The first, which we refer to as the Pre-August 2004
DCP, has been frozen and is no longer accepting deferrals. The second, which we refer to as the Post-August
2004 DCP, became effective on August 1, 2004 and began accepting deferrals on August 13, 2004. The third,
which we refer to as the Restoration Plan and was assumed by us in connection with our acquisition of Insignia,
has been frozen and is no longer accepting deferrals. The fourth, which we refer to as the Trammell Crow
Company DCP, was adopted by the Trammell Crow Company effective January 1, 2006, was assumed by us in
connection with the Trammell Crow Company Acquisition and was merged into the Post-August 2004 DCP
effective January 1, 2008. Because a substantial majority of the deferrals under our deferred compensation plans
have distribution dates based upon the end of a relevant participant’s employment with us, we have an ongoing
obligation to make distributions to these participants as they leave our employment. In addition, participants
currently may receive unscheduled in-service withdrawals of amounts deferred prior to January 1, 2005, subject
to a 7.5% penalty. As the level of employee departures or in-service distributions is not predictable, the timing of
these obligations also is not predictable. Accordingly, we may face significant unexpected cash funding
obligations in the future if in-service distributions are greater than we expect or participants leave our
employment sooner than we expect.
Pre-August 2004 DCP
Prior to amending the Pre-August 2004 DCP as discussed below, each participant in the Pre-August 2004
DCP was allowed to defer a portion of his or her compensation for distribution generally either after his or her
employment with us ended or on a future date at least three years after the deferral election date. The investment
alternatives available to participants included two interest index funds and an insurance fund in which gains and
losses on deferrals are measured by one or more of approximately 80 mutual funds. Distributions with respect to
the interest index and insurance fund accounts are made by us in cash. In addition, prior to July 2001, participants
were entitled to invest their deferrals in stock fund units that are distributed as shares of our Class A common
stock. As of December 31, 2007, there were 3,017,150 outstanding stock fund units under the Pre-August 2004
DCP, all of which were vested. Our stock fund unit deferrals included in additional paid-in capital totaled $5.8
million and $6.2 million at December 31, 2007 and 2006, respectively.
Effective August 1, 2004, we closed the Pre-August 2004 DCP. On August 13, 2004, deferrals made by
participants for the plan year 2004 were deposited in the Post-August 2004 DCP. Effective August 1, 2004, no
additional deferrals were permitted under the Pre-August 2004 DCP. Existing account balances under the plan
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will be paid to participants in the future according to their existing deferral elections. However, currently all
participants may make unscheduled in-service withdrawals of their account balances, including the shares of
Class A common stock underlying stock fund units, if they pay a penalty equal to 7.5% and the taxes due on the
value of the withdrawal. Unscheduled in-service withdrawals continue to be permitted under this plan because it
is grandfathered from the rules of new Section 409A of the Internal Revenue Code, or IRC.
Post-August 2004 DCP
Effective August 1, 2004, we adopted the Post-August 2004 DCP, which began accepting deferrals for
compensation earned after August 13, 2004. At adoption, each participant’s original deferral election made for
the Plan Year 2004 in the Pre-August 2004 DCP was carried into the Post-August 2004 DCP. Participants were
not allowed to make new deferral elections for the Plan Year 2004.
Under the Post-August 2004 DCP, each participant is allowed to defer a portion of his or her compensation
for distribution generally either after his or her employment with us ends or on a future date at least three years
after the deferral election date. Deferrals are credited at the participant’s election to one or more investment
alternatives under the Post-August 2004 DCP, which include a money-market fund and ten mutual fund
investment options. There is limited flexibility for participants to change distribution elections once made.
Effective January 1, 2005, the Post-August 2004 DCP conforms to all the provisions outlined in Section 409A of
the IRC and, therefore, does not allow for unscheduled in-service distributions.
Included in our accompanying consolidated balance sheets is an accumulated non-stock liability for our
Pre-August 2004 DCP and Post-August 2004 DCP totaling $282.7 million and $228.3 million at December 31,
2007 and 2006, respectively, and assets (in the form of insurance) set aside to cover the liability of $264.2
million and $203.3 million as of December 31, 2007 and 2006, respectively. The current portion of the
accumulated non-stock liability is $12.3 million and $7.4 million at December 31, 2007 and 2006, respectively,
and is included in compensation and employee benefits payable in the accompanying consolidated balance
sheets.
Restoration Plan
The Restoration Plan, assumed in connection with the Insignia Acquisition, has been frozen and is no longer
accepting deferrals. The Restoration Plan is being administered only for the purpose of making distributions
when participants terminate employment. Remaining amounts in this plan are invested in one fund. The
Restoration Plan is unfunded and has an accumulated non-stock liability of $4.4 million and $4.2 million
included in the accompanying consolidated balance sheets as of December 31, 2007 and 2006, respectively.
Trammell Crow Company DCP
Effective, January 1, 2006, Trammell Crow Company established a non-qualified deferred compensation
plan, or Trammell Crow Company DCP, for certain key employees of Trammell Crow Company. A portion of
the eligible employees’ compensation was permitted to be directed into the Trammell Crow Company DCP. The
Trammell Crow Company DCP is funded and included in the accompanying consolidated balance sheets is an
accumulated non-stock liability of $3.5 million and $1.6 million at December 31, 2007 and 2006, respectively,
and investments in trading securities set aside to cover the liability of $3.5 million and $1.6 million at
December 31, 2007 and 2006, respectively. Effective January 1, 2008, the Trammell Crow Company DCP was
merged into the Post-August 2004 DCP.
Pension Liability
Our subsidiaries based in the United Kingdom maintain two contributory defined benefit pension plans to
provide retirement benefits to existing and former employees participating in the plans. With respect to these plans,
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our historical policy has been to contribute annually an amount to fund pension cost as actuarially determined and as
required by applicable laws and regulations. Our contributions to these plans are invested and, if these investments
do not perform in the future as well as we expect, we will be required to provide additional funding to cover the
shortfall. During the year ended December 31, 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 United Kingdom.
In connection with this change, we recorded a curtailment gain of $10.0 million during the third quarter of
2007 and certain plan assets and liabilities were remeasured. The resulting underfunded status of our pension
plans included in pension liability in the accompanying consolidated balance sheets was $34.2 million at
December 31, 2007 as compared to $58.0 million at December 31, 2006.
We expect to contribute a total of $10.6 million to fund our pension plans for the year ending December 31,
2008.
Other Obligations and Commitments
We had outstanding letters of credit totaling $18.0 million as of December 31, 2007, excluding letters of
credit for which we have outstanding liabilities already accrued on our balance sheet related to our subsidiaries’
outstanding reserves for claims under certain insurance programs and indebtedness. These letters of credit are
primarily executed by us in the normal course of business of our Development Services segment as well as in
connection with certain insurance programs. The letters of credit expire at varying dates through November 2008.
We had guarantees totaling $6.9 million as of December 31, 2007, excluding guarantees related to
consolidated indebtedness and operating leases. These guarantees primarily include a debt repayment guaranty of
an unconsolidated subsidiary as well as various guarantees of management contracts in our operations overseas.
The guarantee obligation related to the debt repayment guaranty of an unconsolidated subsidiary expires in
December 2009. The other guarantees will expire at the end of each of the respective management agreements.
We have several other debt repayment guarantees of unconsolidated subsidiaries that are subject to the
provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57 and 107 and Rescission
of FASB Interpretation No. 34.” We estimate that our likely exposure under these guarantees is not material. On
this basis, we estimate that the fair value of these guarantees is equivalent to the amount necessary to secure the
guarantees using letters of credit from a bank, and the aggregate amount is nominal.
In addition, at December 31, 2007, we have numerous completion and budget guarantees relating to
development projects. These guarantees are made by us in the normal course of 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 budget risk to
such contractors. While there can be no assurance, we do not expect to incur any material losses under these
guarantees.
From time to time, we act as a general contractor with respect to construction projects. We do not consider
these activities to be a material part of our business. In connection with these activities, we seek to subcontract
construction work for certain projects to reputable subcontractors. Should construction defects arise relating to
the underlying projects, we could potentially be liable to the client for the costs to repair such defects; 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.
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An important part of the strategy for our 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 December 31, 2007, we had committed $95.6 million to fund future
co-investments, of which $51.2 million is expected to be funded during 2008. In addition to required future
capital contributions, some of the co-investment entities may request additional capital from us and our
subsidiaries holding investments in those assets and the failure to provide these contributions could have adverse
consequences to our interests in these 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 December 31, 2007, we
had committed to fund $7.7 million of additional capital to these unconsolidated subsidiaries. The entire $7.7
million is expected to be funded during 2008.
Seasonality
A significant portion of our revenue is seasonal, which can affect an investor’s ability to compare our
financial condition and results of operations on a quarter-by-quarter basis. Historically, this seasonality has
caused our revenue, operating income, net income and cash flow from operating activities to be lower in the first
two quarters and higher in the third and fourth quarters of each year. The concentration of earnings and cash flow
in the fourth quarter is due to an industry-wide focus on completing transactions toward the fiscal year-end. This
has historically resulted in lower profits or a loss in the first and second quarters, with profits growing or losses
decreasing in each subsequent quarter.
Inflation
Our commissions and other variable costs related to revenue are primarily affected by real estate market
supply and demand, which may be affected by general economic conditions including inflation. However, to
date, we do not believe that general inflation has had a material impact upon our operations.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which enhances existing
guidance for measuring assets and liabilities using fair value. SFAS No. 157 provides a single definition of fair
value, a framework for measuring fair value and expanded disclosures concerning fair value. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair
value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value
measurements are disclosed by level within that hierarchy. This pronouncement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of the adoption of SFAS No. 157 on
our consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS
No. 158 requires an employer to recognize the funded status of each pension and other postretirement benefit
plan as an asset or liability on their balance sheet with all unrecognized amounts to be recorded in other
comprehensive income. As required, we adopted this provision of SFAS No. 158 and initially applied it to the
funded status of our defined benefit pension plans as of December 31, 2006. SFAS No. 158 also ultimately
requires an employer to measure the funded status of a plan as of the date of the employer’s fiscal year-end
statement of financial position. As required, we will adopt the provisions of SFAS No. 158 relative to the
measurement date in our fiscal year ending December 31, 2008. We are currently evaluating the impact, if any,
that the full adoption of SFAS No. 158 will have on our consolidated financial position and results of operations.
In November 2006, the FASB issued Emerging Issues Task Force, or EITF, Issue No. 06-8, “Applicability
of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real
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Estate, for Sales of Condominiums.” EITF Issue No. 06-8 establishes that a company should evaluate the
adequacy of the buyer’s continuing investment in determining whether to recognize profit under the
percentage-of-completion method. EITF Issue No. 06-8 is effective for the first annual reporting period
beginning after March 15, 2007. We do not expect the adoption of EITF Issue No. 06-8 to have a material effect
on our consolidated financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities—Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair value and establishes presentation
and disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This pronouncement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of the adoption of SFAS No. 159, if
any, on our consolidated financial position and results of operations.
In November 2007, the FASB issued EITF Issue No. 07-6, “Accounting for the Sale of Real Estate Subject
to the Requirements of SFAS No. 66 When the Agreement Includes a Buy-Sell Clause.” A buy-sell clause is a
contractual term that gives both investors of a jointly-owned entity the ability to offer to buy the other investor’s
interest. EITF Issue No. 07-6 applies to sales of real estate to an entity if the entity is both partially owned by the
seller of the real estate and subject to an arrangement between the seller and the other investor containing a
buy-sell clause. EITF Issue No. 07-6 concluded the existence of a buy-sell clause does not represent a prohibited
form of continuing involvement that would preclude partial sale and profit recognition pursuant to SFAS No. 66.
EITF Issue No. 07-6 cautioned the buy-sell clause could represent such a prohibition if the terms of the buy-sell
clause and other facts and circumstances of the arrangement suggest that the buyer cannot act independently of
the seller or the seller is economically compelled or contractually required to reacquire the other investor’s
interest in the jointly owned entity. EITF 07-6 is effective for new arrangements in fiscal years beginning after
December 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact of the
adoption of EITF Issue No. 07-6, if any, on our consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements—An Amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for a
parent company’s noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Under
SFAS No. 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings.
SFAS No. 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after
December 15, 2008. We are currently evaluating the impact of the adoption of SFAS No. 160 on our
consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations,” or SFAS
No. 141R. SFAS No. 141R amends SFAS No. 141 and provides revised guidance for recognizing and measuring
assets acquired and liabilities assumed in a business combination. This statement also requires that transaction
costs in a business combination be expensed as incurred. Changes in acquired tax contingencies, including those
existing at the date of adoption, will be recognized in earnings if outside the maximum allocation period
(generally one year). SFAS No. 141R will apply prospectively to business combinations for which the acquisition
date is after fiscal years beginning on or after December 15, 2008. We are currently evaluating the impact of the
adoption of SFAS No. 141R on our consolidated financial position and results of operations.
In December 2007, the FASB issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.”
EITF Issue No. 07-1 defines collaborative arrangements and establishes reporting requirements for transactions
between participants in a collaborative arrangement and between participants in the arrangement and third
parties. EITF Issue No. 07-1 also establishes the appropriate income statement presentation and classification for
joint operating activities and payments between participants, as well as the sufficiency of the disclosures related
to these arrangements. EITF Issue No. 07-1 is effective for fiscal years beginning after December 15, 2007. We
do not expect the adoption of EITF Issue No. 07-1 to have a material effect on our consolidated financial position
or results of operations.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk consists of foreign currency exchange rate fluctuations related to our
international operations and changes in interest rates on debt obligations.
Exchange Rates
During the year ended December 31, 2007, approximately 37.2% of our business was transacted in local
currencies of foreign countries, the majority of which includes the euro, the British pound sterling, the Canadian
dollar, the Hong Kong dollar, the Japanese yen, the Singapore dollar, the Australian dollar and the Indian rupee.
We attempt to manage our exposure primarily by balancing assets and liabilities and maintaining cash positions
in foreign currencies only at levels necessary for operating purposes. As a result, fluctuations in foreign currency
exchange rates affect reported amounts of our total assets and liabilities, which are reflected in our financial
statements as translated into U.S. dollars for each financial reporting period at the exchange rate in effect on the
respective balance sheet dates, and our total revenue and expenses, which are reflected in our financial statements
as translated into U.S. dollars for each financial reporting period at the monthly average exchange rate. During
the year ended December 31, 2007, foreign currency translation had a $161.5 million positive impact on our total
revenue and a $128.6 million negative impact on our total costs of services and operating, administrative and
other expenses.
We routinely monitor our exposure to currency exchange rate changes in connection with transactions and
sometimes enter into foreign currency exchange forward and option contracts to limit our exposure to such
transactions, as appropriate. In the normal course of business, we also sometimes utilize derivative financial
instruments in the form of foreign currency exchange contracts to mitigate foreign currency exchange exposure
resulting from intercompany loans, expected cash flow and earnings. We apply Statement of Financial
Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended when accounting for any such contracts. In all cases, we view derivative financial instruments as a risk
management tool and, accordingly, do not engage in any speculative activities with respect to foreign currency.
As of December 31, 2006, we had two option agreements outstanding to purchase an aggregate notional amount
of 160.0 million British pounds sterling, which were terminated in January 2007 in connection with the sale of
Trammell Crow Company’s investment in Savills plc. On January 22, 2007, we entered into an option agreement
to sell a notional amount of 50.0 million British pounds sterling, which expired on December 27, 2007. On
April 2, 2007, we entered into three options agreements, including one to sell a notional amount of 17.0 million
euros, which expired on June 27, 2007. The second option agreement was to sell a notional amount of
19.0 million euros and expired on September 26, 2007. The third option agreement was to sell a notional amount
of 38.0 million euros and expired on December 27, 2007. On December 20, 2007, we entered into a foreign
currency exchange forward contract with a notional amount of 46.0 million British pounds sterling, which
expires on October 31, 2008. Included in the accompanying consolidated statements of operations were charges
of $8.1 million for the year ended December 31, 2007, resulting from net losses on foreign currency exchange
option and forward contracts.
67
Interest Rates
We manage our interest expense by using a combination of fixed and variable rate debt. Excluding notes
payable on real estate, our fixed and variable rate long-term debt at December 31, 2007 consisted of the
following (dollars in thousands):
Daily
One-Month
LIBOR
+0.70%
$64,510
—
—
—
—
—
Daily
Chase-
London
LIBOR
+1.0%
$191,267
—
—
—
—
—
One-Month
LIBOR
+ 1.0% (1)
One-Month
LIBOR
+ 1.50% (1)
$ —
194,550
291,900
340,550
—
—
$ 11,000
11,000
11,000
11,000
11,000
905,000
One-Month
LIBOR
+ 0.775%
to 1.5%
+ 12 basis
points (2)
$11,185
—
—
—
—
—
Year of
Maturity
Fixed
Rate
2008 . . . . . . . . . $ 390
1,268
2009 . . . . . . . . .
23
2010 . . . . . . . . .
23
2011 . . . . . . . . .
24
2012 . . . . . . . . .
14
Thereafter . . . . .
Total . . . . . $1,742
$64,510
$191,267
$827,000
$960,000
$11,185
Six-
Month
LIBOR
-2.0%
$2,037
—
—
—
—
—
$2,037
Daily British
Bankers
Association
LIBOR
+ 0.65%
One-Month
LIBOR
+ 0.775% (3)
$42,600
$227,065
—
—
—
—
—
—
—
—
—
—
Total
$ 550,054
206,818
302,923
351,573
11,024
905,014
$42,600
$227,065
$2,327,406
Weighted
Average
Interest
Rate . . . . . . . .
7.7%
5.3%
5.8%
5.7%
6.5%
6.2%
4.2%
5.7%
7.4%
6.2%
(1) Consists of amounts due under our senior secured term loan facilities.
(2)
Interest rate on this debt is equal to interest rate in effect with respect to amounts outstanding under our Credit Agreement plus twelve
basis points.
(3) Consists of amounts due under our revolving credit facility with interest ranging from 7.25% to 8.84%. We have used a weighted
average rate of one-month LIBOR + 0.775% for disclosure of the rate.
We utilize sensitivity analyses to assess the potential effect of our variable rate debt. If interest rates were to
increase by 62 basis points, which would comprise approximately 10% of the weighted average interest rates of our
outstanding variable rate debt, excluding notes payable on real estate, at December 31, 2007, the net impact would
be a decrease of $14.4 million on pre-tax income and cash provided by operating activities for the year ended
December 31, 2007.
We also have $466.0 million of notes payable on real estate as of December 31, 2007. These notes have
interest rates ranging from 5.4% to 8.7% with maturity dates extending through 2011. Interest costs relating to
notes payable on real estate include both interest that is expensed and interest that is capitalized as part of the cost
of real estate. If interest rates were to increase by 100 basis points, our total estimated interest cost related to
notes payable would increase by approximately $4.7 million.
From time to time, we enter into interest rate cap agreements in order to limit our interest expense related to
our notes payable on real estate. These interest rate cap agreements are not designated as effective hedges under
SFAS No. 133 and are therefore marked to market each period with the change in fair market value recognized in
current period earnings. There was no significant net impact on our earnings resulting from gains and/or losses
on interest rate cap agreements for the year ended December 31, 2007.
Estimated fair values for the term loans under our senior secured term loan facilities and our remaining
long-term debt are not presented because we believe that they are not materially different from book value,
primarily because the substantial majority of this debt is based on variable rates.
On February 26, 2007, we entered into two interest rate swap agreements with a total notional amount of $1.4
billion and a maturity date of December 31, 2009. The purpose of these interest rate swap agreements is to hedge
potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. On
March 20, 2007, these interest rate swaps were designated as cash flow hedges under SFAS No. 133. We incurred a
loss on these interest rate swaps from the date we entered into the swaps up to the designation date of approximately
$3.9 million, which is included in other loss in the accompanying consolidated statement of operations. There was no
hedge ineffectiveness for the period from March 20, 2007 through December 31, 2007. As of December 31, 2007, the
fair value of these interest rate swap agreements was reflected as a $17.1 million liability and is included in other
current liabilities in the accompanying consolidated balance sheets.
68
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005 . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 . . . . . . . . .
Page
70
72
73
74
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
75
Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76
77
Quarterly Results of Operations (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
128
FINANCIAL STATEMENT SCHEDULES:
Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
Schedule III—Real Estate Investments and Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133
All other schedules are omitted because they are either not applicable, not required or the information required is
included in the Consolidated Financial Statements, including the notes thereto.
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CB Richard Ellis Group, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of CB Richard Ellis Group, Inc. and subsidiaries
(the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash
flows, stockholders’ equity, and comprehensive income, for each of the three years in the period ended December
31, 2007. Our audits also included the financial statement schedules listed in the Index at Item 15. We also have
audited the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company’s management is responsible for these financial statements and
financial statement schedules, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion
on these financial statements and financial statement schedules and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
70
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of CB Richard Ellis Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2007,
in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth therein. Also, in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
As discussed in Note 17 to the consolidated financial statements, the Company adopted, effective January 1,
2007, a new accounting standard for uncertainty in income taxes.
DELOITTE & TOUCHE LLP
Los Angeles, CA
February 29, 2008
71
CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
ASSETS
December 31,
2007
2006
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 342,874 $ 244,476
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
212,938
Receivables, less allowance for doubtful accounts of $34,748 and $22,190 at December 31, 2007 and 2006,
44,438
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warehouse receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate under development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate and other assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net of accumulated amortization of $105,438 and $55,065 at December 31, 2007 and 2006,
1,081,653
255,777
81,158
191,984
142,688
135,261
3,488
1,212
80,297
2,360,830
216,214
2,174,710
880,809
103,992
73,804
143,024
9,906
239,343
355,503
371
70,846
2,335,012
180,546
2,188,352
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and advances to unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate under development
Real estate held for investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net
113,040
104,207
27,949
123,382
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,242,573 $5,944,631
404,104
264,190
236,892
17,932
138,643
279,727
30,314
119,017
441,073
203,271
227,799
—
Current Liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 493,804 $ 477,781
159,676
Deferred purchase consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
330,826
Compensation and employee benefits payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
524,184
Accrued bonus and profit sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,576
Short-term borrowings:
4,528
319,808
727,460
50,658
Warehouse lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities related to real estate and other assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
255,777
227,065
55,838
538,680
11,374
156,703
101,544
23,802
2,428,361
103,992
—
22,216
126,208
11,836
43,856
195,758
35,961
1,954,662
Long-Term Debt:
Total Long-Term Debt
Senior secured term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 3⁄4% senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity:
Class A common stock; $0.01 par value; 325,000,000 shares authorized; 201,594,592 and 227,474,835 shares issued and
1,776,000
—
1,352
1,777,352
278,266
—
34,163
81,847
214,505
175,923
4,990,417
—
263,613
2,062,000
3,310
1,363
2,066,673
225,179
80,603
57,971
—
118,477
181,289
4,684,854
—
78,136
2,275
outstanding at December 31, 2007 and 2006, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
610,406
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(60)
Notes receivable from sale of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
602,086
Accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,066)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,181,641
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,242,573 $5,944,631
2,016
40,559
(60)
963,530
(17,502)
988,543
The accompanying notes are an integral part of these consolidated financial statements.
72
CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating, administrative and other . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Merger-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of real estate . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income from unconsolidated subsidiaries . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
Income from continuing operations before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income per share
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for basic income per
Year Ended December 31,
2007
2006
2005
$
6,034,249
$
4,032,027
$
3,194,026
3,200,718
1,988,658
113,269
56,932
5,359,577
24,299
2,110,512
1,303,781
67,595
—
3,481,888
—
1,753,472
1,022,632
45,516
—
2,821,620
—
698,971
64,939
11,875
(37,534)
29,004
162,991
—
580,514
192,643
387,871
2,634
390,505
1.70
0.01
1.71
$
$
$
550,139
33,300
6,120
8,610
9,822
45,007
33,847
516,897
198,326
318,571
—
318,571
1.41
—
1.41
$
$
$
372,406
38,425
2,163
—
11,221
56,281
7,386
356,222
138,881
217,341
—
217,341
0.98
—
0.98
$
$
$
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
228,476,724
226,685,122
222,129,066
Diluted income per share
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of income taxes . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for diluted income per
$
$
1.65
0.01
1.66
$
$
1.35
—
1.35
$
$
0.95
—
0.95
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
234,978,464
235,118,341
229,855,056
The accompanying notes are an integral part of these consolidated financial statements.
73
CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of long-term debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of servicing rights and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income from unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In-kind distributions from unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of real estate held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense and merger-related expense related to stock options and stock awards . . . . . . . . . . . . . . . . .
Incremental tax benefit from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of earnings from unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant concessions received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in deferred compensation assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in real estate held for sale and under development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in compensation and employee benefits payable and accrued bonus and profit sharing . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating activities, net
Year Ended December 31,
2007
2006
2005
$ 390,505
$
318,571
$ 217,341
113,694
7,958
—
(11,355)
33,654
3,880
(64,939)
(2,710)
14,549
(3,346)
17,688
5,322
35,546
(16,568)
45,408
117,196
15,220
320,047
(138,965)
(60,919)
(19,870)
(114,714)
(53,201)
148,756
(138,094)
2,907
561
67,595
18,447
1,648
(8,099)
(8,610)
—
(33,300)
(9,614)
6,120
—
4,696
(23,055)
11,889
(31,774)
41,035
29,384
10,566
—
(188,708)
(58,674)
(58,480)
66,913
71,214
196,320
2,440
3,422
98
45,516
5,914
689
(4,158)
—
—
(38,425)
—
2,163
—
4,214
(5,659)
5,463
—
28,625
24,997
4,273
—
(93,135)
(42,020)
(9,387)
—
66,344
102,502
86,696
(41,226)
(1,071)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
648,210
430,044
359,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses (other than Trammell Crow Company) including net assets acquired, intangibles and
goodwill, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisition of Trammell Crow Company, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions to investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of servicing rights and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to real estate held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from disposition of real estate held for investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(92,955)
(55,298)
(37,751)
(90,473)
(94,483)
(97,830)
57,812
32,504
(189,602)
10,898
168,811
10,897
(107,491)
(1,677,422)
(62,947)
28,558
8,041
—
—
(195,792)
418
(75,694)
—
(41,832)
30,657
3,649
—
—
4,047
1,415
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(284,421)
(2,061,933)
(115,509)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior secured term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of senior secured term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of 11 1⁄4% senior subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of 9 3⁄4% senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of Trammell Crow Company’s revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from notes payable on real estate held for investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of notes payable on real estate held for investment
Proceeds from notes payable on real estate held for sale and under development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of notes payable on real estate held for sale and under development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from (repayment of) short-term borrowings and other loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incremental tax benefit from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities, net
—
(286,000)
604,186
(381,704)
—
(3,310)
—
142,862
(21,621)
210,532
(126,066)
33,525
11,867
16,568
(635,000)
198,446
(34,842)
(5,609)
(1,087)
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of currency exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(277,253)
11,862
2,073,000
(265,250)
843,324
(843,324)
(164,669)
(126,690)
(74,000)
18,200
—
11,605
(71,168)
(8,626)
15,572
31,774
—
14,710
(3,100)
(29,843)
(1,955)
1,419,560
7,516
—
(11,800)
—
—
(42,700)
—
—
—
—
—
—
(2,533)
11,450
—
—
4,495
(6,213)
(318)
347
(47,272)
(4,482)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,398
244,476
(204,813)
449,289
192,393
256,896
CASH AND CASH EQUIVALENTS, AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 342,874
$
244,476
$ 449,289
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 148,944
Income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 317,394
$
$
55,927
$ 52,398
218,935
$ 56,817
The accompanying notes are an integral part of these consolidated financial statements.
74
CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollars in thousands, except share data)
Class A
common
stock
Additional
paid-in
capital
Notes
receivable
from sale
of stock
Accumulated
earnings
Shares
Accumulated other
comprehensive
(loss) income
Minimum
pension
liability
and other
Foreign
currency
translation
and other
Total
Balance at December 31, 2004 . . . . . . . . . . . . 213,094,287 $2,130 $ 512,381
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash issuance of common stock . . . . . . .
Non-vested stock grants . . . . . . . . . . . . . . . . .
Net cancellation and distribution of deferred
—
5,910 —
—
229
—
472,368
—
5
$(433)
—
—
—
$ 66,174
217,341
—
—
$ (6,223) $(14,081) $ 559,948
217,341
229
5
—
—
—
—
—
—
compensation stock fund units . . . . . . . . . .
2,764,470
28
(471) —
Net collection on notes receivable from sale
of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liability adjustment, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised (including tax
benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense for stock options and
non-vested stock awards . . . . . . . . . . . . . . .
Foreign currency translation loss . . . . . . . . . .
—
—
—
—
—
—
5,016,711
51
31,007
—
—
—
—
5,506
—
332
—
—
—
—
—
—
—
—
—
—
—
—
(14,516)
—
—
—
—
—
—
—
—
(5,775)
(443)
332
(14,516)
31,058
5,506
(5,775)
Balance at December 31, 2005 . . . . . . . . . . . . 221,353,746 $2,214 $ 548,652
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cancellation and distribution of deferred
—
—
—
$(101)
—
$283,515
318,571
$(20,739) $(19,856) $ 793,685
318,571
—
—
compensation stock fund units . . . . . . . . . .
Net collection on notes receivable from sale
of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains on available for sale
securities, net of tax . . . . . . . . . . . . . . . . . .
Minimum pension liability adjustment, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of SFAS No. 158, net of $3.7
million in tax . . . . . . . . . . . . . . . . . . . . . . . .
Stock options exercised (including tax
benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash issuance of common stock . . . . . . .
Non-vested stock grants . . . . . . . . . . . . . . . . .
Compensation expense for stock options and
non-vested stock awards . . . . . . . . . . . . . . .
Foreign currency translation gain . . . . . . . . . .
Cancellation of non-vested stock awards . . . .
671,648
6
(89) —
—
—
—
—
—
—
—
—
4,393,671
44
3,295 —
11
1,089,070
—
—
—
—
(36,595) —
—
—
—
—
49,954
86
—
11,803
—
—
41
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,718
(8,586)
—
—
—
—
—
—
—
—
50
—
—
—
—
—
—
14,347
—
(83)
41
50
1,718
(8,586)
49,998
86
11
11,803
14,347
—
Balance at December 31, 2006 . . . . . . . . . . . . 227,474,835 $2,275 $ 610,406
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of FIN 48 . . . . . . . . . . . . . . . . . . . .
Net cancellation and distribution of deferred
—
—
—
—
—
—
$ (60)
—
—
$602,086
390,505
(29,061)
$(27,607) $ (5,459) $1,181,641
390,505
(29,061)
—
—
—
—
compensation stock fund units . . . . . . . . . .
Pension liability adjustments, net of tax . . . . .
Stock options exercised (including tax
187,949
—
1
—
(22) —
—
—
benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash issuance of common stock . . . . . . .
Non-vested stock grants . . . . . . . . . . . . . . . . .
819,679
Repurchase of common stock . . . . . . . . . . . . . (28,830,442)
Compensation expense for stock options and
non-vested stock awards . . . . . . . . . . . . . . .
1,973,947
—
20
2,808 —
8
(288)
—
—
—
—
—
—
—
—
—
—
—
(34,184) —
29,348
104
—
—
—
—
(634,712) —
24,608
993
9,834
—
—
—
—
—
—
—
—
—
—
—
Accelerated vesting of non-vested stock
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated vesting of stock options . . . . . . .
Unrealized losses on interest rate swaps, net
of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding losses on available for
sale securities, net of tax . . . . . . . . . . . . . . .
Foreign currency translation gain . . . . . . . . . .
Cancellation of non-vested stock awards . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(8,818)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(21)
(8,818)
29,368
104
8
(635,000)
24,608
993
9,834
(7,667)
(7,667)
(409)
32,458
—
(409)
32,458
—
Balance at December 31, 2007 . . . . . . . . . . . . 201,594,592 $2,016 $ 40,559
$ (60)
$963,530
$(36,425) $ 18,923 $ 988,543
The accompanying notes are an integral part of these consolidated financial statements.
75
CB RICHARD ELLIS GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses on interest rate swaps, net of $5,532 income tax
Year Ended December 31,
2007
2006
2005
$390,505
$318,571
$217,341
32,458
14,347
(5,775)
benefit as of December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7,667)
—
—
Unrealized holding (losses) gains on available for sale securities, net of
$306 income tax benefit and $36 income tax as of December 31, 2007
and 2006, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability adjustments, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
(409)
(8,818)
50
1,718
—
(14,516)
Total other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . .
15,564
16,115
(20,291)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$406,069
$334,686
$197,050
The accompanying notes are an integral part of these consolidated financial statements.
76
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
CB Richard Ellis Group, Inc. (formerly known as CBRE Holding, Inc.), a Delaware corporation (which may
be referred to in these financial statements as “we,” “us,” and “our”), was incorporated on February 20, 2001 and
was created to acquire all of the outstanding shares of CB Richard Ellis Services, Inc. (CBRE), an international
commercial real estate services firm. Prior to July 20, 2001, we were a wholly-owned subsidiary of Blum
Strategic Partners, L.P. (Blum Strategic), formerly known as RCBA Strategic Partners, L.P., which is an affiliate
of Richard C. Blum, a director of CBRE and our company.
On July 20, 2001, we acquired all of the outstanding stock of CBRE pursuant to an Amended and Restated
Agreement and Plan of Merger, dated May 31, 2001, among CBRE, Blum CB Corp. (Blum CB) and us. Blum
CB was merged with and into CBRE with CBRE being the surviving corporation (the 2001 Merger). In July
2003, our global position in the commercial real estate services industry was further solidified as CBRE acquired
Insignia Financial Group, Inc. (Insignia). On July 23, 2003, pursuant to an Amended and Restated Agreement
and Plan of Merger, dated May 28, 2003 (the Insignia Acquisition Agreement), by and among us, CBRE, Apple
Acquisition Corp. (Apple Acquisition), a Delaware corporation and wholly-owned subsidiary of CBRE, and
Insignia, Apple Acquisition was merged with and into Insignia (the Insignia Acquisition). Insignia was the
surviving corporation in the Insignia Acquisition and at the effective time of the Insignia Acquisition became a
wholly-owned subsidiary of CBRE.
On June 15, 2004, we completed the initial public offering of shares of our Class A common stock (the
IPO). In connection with the IPO, we issued and sold 23,180,292 shares of our Class A common stock and
received aggregate net proceeds of approximately $135.0 million, after deducting underwriting discounts and
commissions and offering expenses payable by us. Also in connection with the IPO, selling stockholders sold an
aggregate of 48,819,708 shares of our Class A common stock and received net proceeds of approximately $290.6
million, after deducting underwriting discounts and commissions. On July 14, 2004, selling stockholders sold an
additional 687,900 shares of our Class A common stock to cover over-allotments of shares by the underwriters
and received net proceeds of approximately $4.1 million, after deducting underwriting discounts and
commissions. Lastly, on December 13, 2004 and November 15, 2005, we completed secondary public offerings
that provided further liquidity for some of our stockholders. We did not receive any of the proceeds from the
sales of shares by the selling stockholders on June 15, 2004, July 14, 2004, December 13, 2004 and
November 15, 2005.
In December 2006, we expanded our global leadership as we completed the acquisition of Trammell Crow
Company, our largest acquisition to date. On December 20, 2006, pursuant to an Agreement and Plan of Merger
dated October 30, 2006 (the Trammell Crow Company Acquisition Agreement), by and among us, A-2 Acquisition
Corp., a Delaware corporation and our wholly-owned subsidiary (Merger Sub), and Trammell Crow Company, the
Merger Sub was merged with and into the Trammell Crow Company (the Trammell Crow Company Acquisition).
Trammell Crow Company was the surviving corporation in the Trammell Crow Company Acquisition and upon the
closing of the Trammell Crow Company Acquisition became our indirect wholly-owned subsidiary. We have no
substantive operations other than our investment in CBRE and Trammell Crow Company.
We offer a full range of services to occupiers, owners, lenders and investors in office, retail, industrial,
multi-family and other commercial real estate assets globally under the “CB Richard Ellis” brand name and
provide development services under the “Trammell Crow” brand name. Our business is focused on several
service competencies, including tenant representation, property/agency leasing, property sales, commercial
property and corporate facilities management, valuation, real estate investment management, development
services, commercial mortgage origination and servicing, capital markets (equity and debt) solutions and
proprietary research. We generate revenues on a per project or transactional basis and from contractual
management fees.
77
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and those of our majority-owned
subsidiaries, as well as variable interest entities (VIEs) in which we are the primary beneficiary and other
subsidiaries of which we have control. The equity attributable to minority shareholders’ interests in subsidiaries
is shown separately in the accompanying consolidated balance sheets. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Variable Interest Entities
Our determination of the appropriate accounting method with respect to our variable interests, including
co-investments with our clients, is based on Financial Accounting Standards Board (FASB) Interpretation No. 46
(revised December 2003), “Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51”
(FIN 46R). We consolidate any VIEs of which we are the primary beneficiary and disclose significant variable
interests in VIEs of which we are not the primary beneficiary, if any.
In the third quarter of 2007, an entity in which we have an interest contributed land to a limited liability
company (LLC) of which we are the managing member. The LLC was formed to develop a retail shopping
center. Based upon our evaluation of the LLC, we concluded the LLC is a variable interest entity in accordance
with FIN 46R and we consolidated the LLC as its primary beneficiary. Included in our accompanying
consolidated balance sheets as of December 31, 2007 is the LLC’s notes payable balance of $45.0 million, which
is non-recourse to us and secured by the underlying real estate of $45.8 million, which is included in current real
estate under development.
Limited Partnerships, Limited Liability Companies and Other Subsidiaries
Our determination of the appropriate accounting method with respect to our investments in limited
partnerships, limited liability companies and other subsidiaries is based on control. For our general partner
interests, we are presumed to control (and therefore consolidate) the entity, unless the other limited partners have
substantive rights that overcome this presumption of control. These substantive rights allow the limited partners
to participate in significant decisions made in the ordinary course of the entity’s business. We account for our
non-controlling general partner investments in these entities under the equity method. This treatment also applies
to our managing member interests in limited liability companies.
Our determination of the appropriate accounting method for all other investments in subsidiaries is based on
the amount of influence we have (including our ownership interest) in the underlying entity. Those other
investments where we have the ability to exercise significant influence (but not control) over operating and
financial policies of such subsidiaries (including certain subsidiaries where we have less than 20% ownership)
are accounted for using the equity method. We eliminate transactions with such equity method subsidiaries to the
extent of our ownership in such subsidiaries. Accordingly, our share of the earnings or losses of these equity
method subsidiaries is included in consolidated net income. All of our remaining investments are carried at cost.
Under either the equity or cost method, impairment losses are recognized upon evidence of other-than-temporary
losses of value.
Use of Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require management to make estimates and
78
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assumptions that affect the reported amounts in the financial statements. Actual results may differ from these
estimates. Management believes that these estimates provide a reasonable basis for the fair presentation of our
financial condition and results of operations.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash and highly liquid investments with an original maturity
of less than three months. We control certain cash and cash equivalents as an agent for our investment and
property management clients. These amounts are not included in the accompanying consolidated balance sheets
(See Note 20).
Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and
interest-bearing investments. Users of real estate services account for a substantial portion of trade receivables
and collateral is generally not required. The risk associated with this concentration is limited due to the large
number of users and their geographic dispersion.
We place substantially all of our interest-bearing investments with major financial institutions and limit the
amount of credit exposure with any one financial institution.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation, or in the case of capitalized
leases, at the present value of the future minimum lease payments. Depreciation and amortization of property and
equipment is computed primarily using the straight-line method over estimated useful lives ranging up to ten
years. Leasehold improvements are amortized over the term of their associated leases, excluding options to
renew, since such leases generally do not carry prohibitive penalties for non-renewal. We capitalize expenditures
that materially increase the life of our assets and expense the costs of maintenance and repairs.
We review property and equipment for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If this review indicates that such assets are
considered to be impaired, the impairment is recognized in the period the changes occur and represents the
amount by which the carrying value exceeds the fair value of the asset. We did not recognize an impairment loss
related to property and equipment in 2007, 2006 or 2005.
Computer Software Costs
Certain costs related to the development or purchases of internal-use software are capitalized in accordance
with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Internal computer
software costs that are incurred in the preliminary project stage are expensed as incurred. Direct consulting costs
as well as payroll and related costs, which are incurred during the development stage of a project are capitalized
and amortized over a three-year period when placed into production.
Goodwill and Other Intangible Assets
Our acquisitions require the application of purchase accounting in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, “Business Combinations.” This results in tangible and identifiable
intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the
79
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
purchase price and the fair value of net assets acquired is recorded as goodwill. The majority of our goodwill
balance has resulted from the 2001 Merger, the Insignia Acquisition and the Trammell Crow Company
Acquisition. Other intangible assets include trademarks, which were separately identified as a result of the 2001
Merger, as well as a trade name separately identified as a result of the Insignia Acquisition representing the
Richard Ellis trade name in the United Kingdom (U.K.) that was owned by Insignia prior to the Insignia
Acquisition and a trade name separately identified as part of the Trammell Crow Company Acquisition to be
used in providing development services. Both the trademarks and the trade names are not being amortized and
have indefinite estimated useful lives. The remaining other intangible assets primarily include customer
relationships, management contracts, loan servicing rights and franchise agreements, which are all being
amortized over estimated useful lives ranging up to 20 years.
SFAS No. 142, “Goodwill and Other Intangible Assets,” requires us to perform at least an annual
assessment of impairment of goodwill and other intangible assets deemed to have indefinite useful lives based on
assumptions and estimates of fair value and future cash flow information. We perform an annual assessment of
our goodwill and other intangible assets deemed to have indefinite lives for impairment as of the beginning of the
fourth quarter of each year. We also assess our goodwill and other intangible assets deemed to have indefinite
useful lives for impairment when events or circumstances indicate that our carrying value may not be recoverable
from future cash flows. We completed our required annual impairment tests as of October 1, 2007, 2006 and
2005, and determined that no impairment existed as of those dates.
Deferred Financing Costs
Costs incurred in connection with financing activities are deferred and amortized over the terms of the
related debt agreements ranging up to seven years. Amortization of these costs is charged to interest expense in
the accompanying consolidated statements of operations. During 2005, we wrote off $1.1 million of unamortized
deferred financing costs associated with the $42.7 million repurchase of our 11 1⁄4% senior subordinated notes.
During 2006, we wrote off $14.7 million of unamortized deferred financing costs associated with the $164.7
million repurchase of our 11 1⁄4% senior subordinated notes, the $126.7 million redemption of our 9 3⁄4% senior
notes and the replacement of our prior credit facility. Total deferred financing costs, net of accumulated
amortization, included in other assets in the accompanying consolidated balance sheets were $30.4 million and
$33.2 million, as of December 31, 2007 and 2006, respectively.
Revenue Recognition
We record real estate commissions on sales generally upon close of escrow or transfer of title, except when
future contingencies exist. Real estate commissions on leases are generally recorded in income once we satisfy
all obligations under the commission agreement. Terms and conditions of a commission agreement may include,
but are not limited to, execution of a signed lease agreement and future contingencies including tenant
occupancy, payment of a deposit or payment of a first month’s rent (or a combination thereof). As some of these
conditions are outside of our control and are often not clearly defined, judgment must be exercised in
determining when such required events have occurred in order to recognize revenue.
A typical commission agreement provides that we earn a portion of the lease commission upon the
execution of the lease agreement by the tenant, while the remaining portion(s) of the lease commission is earned
at a later date, usually upon tenant occupancy. The existence of any significant future contingencies, such as
tenant occupancy, results in the delay of recognition of corresponding revenue until such contingencies are
satisfied. For example, if we do not earn all or a portion of the lease commission until the tenant pays its first
month’s rent, and the lease agreement provides the tenant with a free rent period, we delay revenue recognition
until rent is paid by the tenant.
80
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Investment management and property management fees are generally based upon percentages of the revenue
or profit generated by the entities managed and are recognized when earned under the provisions of the related
management agreements. Our Global Investment Management segment earns performance-based incentive fees
with regard to many of its investments. Such revenue is recognized at the end of the measurement periods when
the conditions of the applicable incentive fee arrangements have been satisfied. With many of these investments,
our Global Investment Management team has participation interests in such incentive fees. These participation
interests are generally accrued for based upon the probability of such performance-based incentive fees being
earned over the related vesting period.
Appraisal fees are recorded after services have been rendered. Loan origination fees are recognized at the
time a loan closes and we have no significant remaining obligations for performance in connection with the
transaction, while loan servicing fees are recorded to revenue as monthly principal and interest payments are
collected from mortgagors. Other commissions, consulting fees and referral fees are recorded as income at the
time the related services have been performed, unless significant future contingencies exist.
Development services and project management services generate fees from development and construction
management projects. For projects where we operate as a general contractor, fees are generally recognized using
the percentage-of-completion method based on costs incurred as a percentage of total expected costs. Some
development and construction management and project management assignments are subject to agreements that
describe the calculation of fees and when we earn such fees. The earnings terms of these agreements dictate when
we recognize the related revenue. We may earn incentive fees for project management services based upon
achievement of certain performance criteria as set forth in the project management services agreement. We may
earn incentive development fees by reaching specified time table, leasing, budget or value creation targets, as
defined in the relevant development services agreement. Certain incentive development fees allow us to share in
the fair value of the developed real estate asset above cost. This sharing creates additional revenue potential to us
with no exposure to loss other than opportunity cost. We recognize such fees when the specified target is
attained.
We record deferred income to the extent that cash payments have been received in accordance with the
terms of underlying agreements, but such amounts have not yet met the criteria for revenue recognition in
accordance with generally accepted accounting principles. We recognize such revenues when the appropriate
criteria are met.
Pursuant to Emerging Issues Task Force (EITF) Issue No. 01-14, “Income Statement Characterization of
Reimbursements Received for ‘Out of Pocket’ Expenses Incurred,” and EITF Issue No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent,” we account for certain reimbursements (primarily salaries
and related charges) mainly related to our facilities and property management operations as revenue.
Reimbursement revenue is recognized when the underlying reimbursable costs are incurred.
In establishing the appropriate provisions for trade receivables, we make assumptions with respect to future
collectibility. Our assumptions are based on an individual assessment of a customer’s credit quality as well as
subjective factors and trends, including the aging of receivables balances. In addition to these individual
assessments, in general, outstanding trade accounts receivable amounts that are more than 180 days overdue are
fully evaluated for collectibility and fully provided for if deemed uncollectible. Historically, our credit losses
have been insignificant. However, estimating losses requires significant judgment, and conditions may change or
new information may become known after any periodic evaluation. As a result, actual credit losses may differ
from our estimates.
81
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Real Estate
Classification and Impairment Evaluation
We classify real estate in accordance with the criteria of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” as follows: (i) Real estate held for sale, which includes completed assets or land
for sale in its present condition that meet all of the SFAS No. 144 “held for sale” criteria, (ii) Real estate under
development (current), which includes real estate that we are in the process of developing that is expected to be
completed and disposed of within one year of the balance sheet date; (iii) Real estate under development (non-
current), which includes real estate that we are in the process of developing that is expected to be completed and
disposed of more than one year from the balance sheet date; or (iv) Real estate held for investment, which
consists of completed assets not expected to be disposed of within one year of the balance sheet date and land on
which development activities have not yet commenced. Any asset reclassified from real estate held for sale to
real estate under development (current or non-current) or real estate held for investment is recorded individually
at the lower of its fair value at the date of the reclassification or its carrying amount before it was classified as
“held for sale,” adjusted (in the case of real estate held for investment) for any depreciation that would have been
recognized had the asset been continuously classified as real estate held for investment.
Real estate held for sale is recorded at the lower of cost or fair value less cost to sell. If an asset’s fair value
less cost to sell, based on discounted future cash flows or market comparisons, is less than its carrying amount,
an allowance is recorded against the asset.
Real estate under development and real estate held for investment are carried at cost less depreciation, as
applicable. When indicators of impairment are present, real estate under development and real estate held for
investment are evaluated for impairment and losses are recorded when undiscounted cash flows estimated to be
generated by an asset are less than the asset’s carrying amount. The amount of the impairment loss is calculated
as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow
analysis or market comparisons. Buildings and improvements included in real estate held for investment are
depreciated using the straight-line method over estimated useful lives, generally 39 years. Tenant improvements
included in real estate held for investment are amortized using the straight-line method over the shorter of their
estimated useful lives or terms of the respective leases. Land improvements included in real estate held for
investment are depreciated over their estimated useful lives, up to 15 years.
Cost Capitalization and Allocation
When acquiring, developing and constructing real estate assets, we capitalize costs in accordance with
SFAS No. 34, “Capitalization of Interest Costs” and SFAS No. 67, “Accounting for Costs and the Initial Rental
Operations of Real Estate Properties.” Capitalization begins when the activities related to development have
begun and ceases when activities are complete. Costs capitalized under SFAS No. 67 include pursuit costs, or
pre-acquisition/pre-construction costs, taxes and insurance, development and construction costs and costs of
incidental operations. Pursuit costs capitalized in connection with a potential development project that we have
determined not to pursue are written off in the period that determination is made.
At times, we purchase bulk land that we intend to sell or develop in phases. The land basis allocated to each
phase is based on the relative estimated fair value of the phases before construction. We allocate construction
costs incurred relating to more than one phase between the various phases; if the costs cannot be specifically
identified to a certain phase or the improvements benefit more than one phase, we allocate the costs between the
phases based on their relative estimated sales values. Relative allocations of the costs are changed as the sales
value estimates are revised.
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
When acquiring real estate with existing buildings, we allocate the purchase price between land, land
improvements, building and intangibles related to in-place leases, if any, based on their relative fair values in
accordance with SFAS No. 141 and SFAS No. 142. The fair values of acquired land and buildings are
determined based on an estimated discounted future cash flow model with lease-up assumptions as if the building
was vacant upon acquisition. The fair value of in-place leases includes the value of net lease intangibles for
above or below-market rents and tenant origination costs, determined on a lease by lease basis. The capitalized
values for both net lease intangibles and tenant origination costs are amortized over the term of the underlying
leases. Amortization related to net lease intangibles is recorded as either an increase to or a reduction of rental
income and amortization for tenant origination costs is recorded to amortization expense.
Disposition of Real Estate
Gains on disposition of real estate are recognized upon sale of the underlying project in accordance with
SFAS No. 66, “Accounting for Sales of Real Estate.” We evaluate each real estate sale transaction to determine if
it qualifies for gain recognition under the full accrual method. If the transaction does not meet the criteria for the
full accrual method of profit recognition based on our assessment, we account for a sale based on an appropriate
deferral method determined by the nature and extent of the buyer’s investment and our continuing involvement.
Discontinued Operations
SFAS No. 144 extends the reporting of a discontinued operation to a “component of an entity,” and further
requires that a component be classified as a discontinued operation if the operations and cash flows of the
component have been or will be eliminated from the ongoing operations of the entity in the disposal transaction
and the entity will not have any significant continuing involvement in the operations of the component after the
disposal transaction. As defined in SFAS No. 144, a “component of an entity” comprises operations and cash
flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the
entity. Because each of our real estate assets is generally accounted for in a discrete subsidiary, many constitute a
component of an entity under SFAS No. 144, increasing the likelihood that the disposition of assets that we hold
for sale in the ordinary course of business must be reported as a discontinued operation unless we have
significant continuing involvement in the operations of the asset after its disposition. Furthermore, operating
profits and losses on such assets are required to be recognized and reported as operating profits and losses on
discontinued operations in the periods in which they occur.
Business Promotion and Advertising Costs
The costs of business promotion and advertising are expensed as incurred in accordance with SOP 93-7,
“Reporting on Advertising Costs.” Business promotion and advertising costs of $66.5 million, $54.4 million and
$43.3 million were included in operating, administrative and other expenses for the years ended December 31,
2007, 2006 and 2005, respectively.
Foreign Currencies
The financial statements of subsidiaries located outside the United States (U.S.) are generally measured
using the local currency as the functional currency. The assets and liabilities of these subsidiaries are translated at
the rates of exchange at the balance sheet date, and income and expenses are translated at the average monthly
rate. The resulting translation adjustments are included in the accumulated other comprehensive loss component
of stockholders’ equity. Gains and losses resulting from foreign currency transactions are included in the results
of operations. The aggregate transaction losses included in the accompanying consolidated statements of
operations are a $1.1 million, a $2.1 million and a $0.4 million loss for the years ended December 31, 2007, 2006
and 2005, respectively.
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivative Financial Instruments
In the normal course of business, we sometimes utilize derivative financial instruments in the form of
foreign currency exchange forward and option contracts to mitigate foreign currency exchange exposure resulting
from intercompany loans, expected cash flow and earnings. We apply SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended, when accounting for any such contracts. SFAS No. 133
requires us to recognize all qualifying derivative instruments as assets or liabilities on our balance sheet and
measure them at fair value. The statement requires that changes in the fair value of derivatives be recognized in
earnings unless specific hedge accounting criteria are met. Included in the consolidated statements of operations
were charges of $8.1 million for the year ended December 31, 2007, resulting from net losses on foreign currency
exchange option and forward contracts. The net impact on our earnings resulting from gains and/or losses on
foreign currency exchange forward and option contracts for the years ending December 31, 2006 and 2005 was
not significant. As of December 31, 2006 we had two option agreements outstanding to purchase an aggregate
notional amount of 160.0 million British pounds sterling, which were terminated in January 2007 in connection
with the sale of Trammell Crow Company’s investment in Savills plc. As of December 31, 2007, we had an
outstanding foreign currency exchange forward contract with an aggregate notional amount of 46.0 million
British pounds sterling, which expires on October 31, 2008.
We also enter into loan commitments that relate to the origination or acquisition of commercial mortgage
loans that will be held for resale. SFAS No. 133, as amended, requires that these commitments be recorded at
their relative fair values as derivatives. The net impact on our financial position or earnings resulting from these
derivative contracts has not been significant.
On February 26, 2007, we entered into two interest rate swap agreements with a total notional amount of
$1.4 billion and a maturity date of December 31, 2009. The purpose of these interest rate swap agreements is to
hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan
facilities (see Note 14). On March 20, 2007, these interest rate swaps were designated as cash flow hedges under
SFAS No. 133. We incurred a loss on these interest rate swaps from the date we entered into the swaps up to the
designation date of approximately $3.9 million, which is included in other loss in the accompanying consolidated
statement of operations. There was no hedge ineffectiveness for the period from March 20, 2007 through
December 31, 2007. As of December 31, 2007, the fair value of these interest rate swap agreements was reflected
as a $17.1 million liability and is included in other current liabilities in the accompanying consolidated balance
sheets.
Marketable Securities
We account for investments in marketable debt and equity securities in accordance with SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities.” We determine the appropriate classification
of debt and equity securities at the time of purchase and reevaluate such designation as of each balance sheet
date. We classify marketable securities we acquire with the intent to generate a profit from short-term
movements in market prices as trading securities. Debt securities are classified as held to maturity when we have
the positive intent and ability to hold the securities to maturity. Marketable equity and debt securities not
classified as trading or held to maturity are classified as available for sale.
In accordance with SFAS No. 115, trading securities are carried at their fair value with realized and
unrealized gains and losses included in net income. The available for sale securities are carried at their fair
market value and any difference between cost and market value is recorded as unrealized gain or loss, net of
income taxes, and is reported as accumulated other comprehensive income in the consolidated statement of
stockholders’ equity. Premiums and discounts are recognized in interest income using the effective interest
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
method. Realized gains and losses and declines in value expected to be other-than-temporary on available for
sale securities are included in other income. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available for sale are included in interest income.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). In the accompanying
consolidated balance sheets, accumulated other comprehensive loss consists of foreign currency translation
adjustments, unrealized losses on interest rate swaps, unrealized holding (losses) gains on available for sale
securities, an adjustment related to the adoption of SFAS No. 158 and other pension liability adjustments.
Foreign currency translation adjustments exclude any income tax effect given that earnings of non-U.S.
subsidiaries are deemed to be reinvested for an indefinite period of time (see Note 17). The income tax benefit
associated with pension adjustments was $2.3 million, $8.2 million and $8.9 million as of December 31, 2007,
2006 and 2005, respectively.
Accounting for Transfers and Servicing
We follow SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities” in accounting for loan sales and acquisition of servicing rights. SFAS No. 140
provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a financial-components approach that focuses
on control. Under the approach, after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred at fair value. Servicing assets are amortized over the
period of estimated servicing income with a write-off required when control is surrendered. When we sell
mortgage loans, we allocate the acquisition cost of the mortgage loan between the loan sold and the retained loan
servicing rights, based upon their relative fair values. The reported gain is the difference between the cash
proceeds from the sale of the mortgage loans and its allocated costs. The cost allocated to the loan servicing
rights are included in other intangible assets in the accompanying consolidated balance sheets. Our recording of
loan servicing rights at their fair value resulted in gains, which have been reflected in the accompanying
consolidated statements of operations. The amount of loan servicing rights recognized during the years ended
December 31, 2007 and 2006 was as follows (dollars in thousands):
Year Ended
December 31,
2007
2006
Beginning balance, loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan servicing rights recognized under SFAS No. 140 . . . . . . . . . . . . . . . . . . . .
Loan servicing rights sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,778
3,063
(486)
(2,366)
$13,914
2,177
(923)
(2,390)
Ending balance, loan servicing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,989
$12,778
We periodically evaluate our servicing asset for impairment on a portfolio basis as all of these assets relate
to commercial mortgage loans. Management estimates that the carrying amount approximates the fair value of
the servicing asset based upon a discounted cash flow model of net servicing fees and assuming a 14% attrition
rate and a 15% discount rate. The overall risk characteristics of commercial mortgage loans are such that the
occurrence of material adverse fluctuations in the underlying assumptions used to calculate the related fair values
are unlikely.
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting for Broker Draws
As part of our recruitment efforts relative to new U.S. brokers, we offer a transitional broker draw
arrangement. Our broker draw arrangements generally last until such time as a broker’s pipeline of business is
sufficient to allow him or her to earn sustainable commissions. This program is intended to provide the broker with
a minimal amount of cash flow to allow adequate time for his or her training as well as time for him or her to
develop business relationships. Similar to traditional salaries, the broker draws are paid irrespective of the actual
revenues generated by the broker. Often these broker draws represent the only form of compensation received by
the broker. Furthermore, it is not our general policy to pursue collection of unearned broker draws paid under this
arrangement. As a result, we have concluded that broker draws are economically equivalent to salaries paid and
accordingly charge them to compensation as incurred. The broker is also entitled to earn a commission on
completed revenue transactions. This amount is calculated as the commission that would have been payable under
our full commission program, less any amounts previously paid to the broker in the form of a draw.
Stock-Based Compensation
In the fourth quarter of 2003, we adopted the fair value recognition provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation” prospectively to all employee awards granted, modified or settled
after January 1, 2003, as permitted by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition
and Disclosure—An Amendment of FASB Statement No. 123.”
In December 2004, the FASB issued SFAS No. 123—Revised, “Share Based Payment,” or SFAS
No. 123R. SFAS No. 123R requires the measurement of compensation cost at the grant date, based upon the
estimated fair value of the award, and requires amortization of the related expense over the employee’s requisite
service period. Effective January 1, 2006, we adopted SFAS No. 123R applying the modified-prospective
method for remaining unvested options that were granted subsequent to our IPO and the prospective method for
remaining unvested options that were granted prior to our IPO.
The modified-prospective method provides for certain changes to the method for valuing share-based
payment compensation, however prior periods are not required to be revised for comparative purposes. The
valuation provisions of SFAS No. 123R apply to new awards as well as options that were granted subsequent to
our IPO that were outstanding on the effective date and are subsequently modified or cancelled. As we have been
accounting for our options under the fair value based method under SFAS No. 123 since the fourth quarter of
2003, the adoption of the modified-prospective method of SFAS No. 123R did not have a material impact on our
financial position or results of operations.
We are applying the prospective method for the remaining unvested options that were granted prior to our
IPO. Under the prospective method application, the fair value and other provisions of the statement are to be
applied only to awards modified, repurchased or cancelled after the required effective date. In addition, we are
required to account for any portion of awards outstanding as of January 1, 2006 using the accounting principles
originally applied to those awards. Accordingly, our 2003 and pre-IPO 2004 grants will continue to be accounted
for under the minimum value provisions of SFAS No. 123.
See Note 16 for additional information on our stock-based compensation plans.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common
shares outstanding during each period. The computation of diluted earnings per share further assumes the dilutive
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
effect of stock options and contingently issuable shares. Contingently issuable shares represent non-vested stock
awards and unvested stock fund units in the deferred compensation plan. In accordance with SFAS No. 128,
“Earnings Per Share” these shares are included in the dilutive earnings per share calculation under the treasury
stock method (see Note 19).
Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with SFAS No. 109,
“Accounting for Income Taxes.” Deferred tax assets and liabilities are determined based on temporary
differences between the financial reporting and the tax basis of assets and liabilities and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and
are released in the years in which the temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are provided against deferred tax assets when it is more likely than not that
some portion or all of the deferred tax asset will not be realized.
Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes—An interpretation of Statement of Financial Accounting Standard No. 109,” or
FIN 48. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The cumulative
effect of applying this interpretation has resulted in a decrease to retained earnings of approximately $29.1
million and a decrease to goodwill of approximately $5.4 million. Prior to January 1, 2007, we estimated
uncertain income tax obligations in accordance with SFAS No. 109 and SFAS No. 5, “Accounting for
Contingencies.”
Self-Insurance
Our wholly-owned captive insurance company, which is subject to applicable insurance rules and
regulations, insures our exposure related to workers’ compensation benefits provided to employees and purchases
excess coverage from an unrelated insurance carrier. We purchase general liability and automotive insurance
through an unrelated insurance carrier. The captive insurance company reinsures the related deductibles. The
captive insurance company also insures deductibles relating to other coverages. Given the nature of these types
of claims, it may take several years for resolution and determination of the cost of these claims. We are required
to estimate the cost of these claims in our financial statements. We are responsible for evaluating our exposure to
workers’ compensation, general liability and automotive claims.
The estimates that we utilize to record our potential losses on claims are inherently subjective, and actual
claims could differ from amounts recorded, which could result in increased or decreased expense in future
periods. As of December 31, 2007 and 2006, our reserve for claims under these insurance programs was $15.1
million and $14.7 million, respectively, of which $2.0 million was included in other current liabilities for each
year and the remainder was included in other liabilities in the accompanying consolidated balance sheets.
Non-Controlling Interests in Consolidated Limited Life Subsidiaries
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.” Certain provisions of SFAS No. 150 would have required us to
classify non-controlling interests in consolidated limited life subsidiaries as liabilities adjusted to their settlement
values in our consolidated financial statements. In November 2003, the FASB indefinitely deferred application of
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the measurement and recognition provisions (but not the disclosure requirements) of SFAS No. 150 with respect
to these non-controlling interests. As of December 31, 2007, the estimated settlement value of non-controlling
interests in our consolidated limited life subsidiaries was $172.9 million, as compared to the carrying value of
$170.0 million, which is included in minority interest in the accompanying consolidated balance sheets. As of
December 31, 2006, the estimated settlement value of non-controlling interests in our consolidated limited life
subsidiaries was not significant since the majority of the assets of our consolidated limited life subsidiaries were
acquired in 2007.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which enhances existing
guidance for measuring assets and liabilities using fair value. SFAS No. 157 provides a single definition of fair
value, a framework for measuring fair value and expanded disclosures concerning fair value. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair
value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value
measurements are disclosed by level within that hierarchy. This pronouncement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of the adoption of SFAS No. 157 on
our consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS
No. 158 requires an employer to recognize the funded status of each pension and other postretirement benefit
plan as an asset or liability on their balance sheet with all unrecognized amounts to be recorded in other
comprehensive income. As required, we adopted this provision of SFAS No. 158 and initially applied it to the
funded status of our defined benefit pension plans as of December 31, 2006. This resulted in a decrease in
stockholders’ equity of $8.6 million, which was net of a tax benefit of $3.7 million. The partial adoption of SFAS
No. 158 had no effect on net earnings or cash flows. The incremental effects of applying SFAS No. 158 on line
items in the accompanying consolidated balance sheet at December 31, 2006 were as follows (dollars in
thousands):
Deferred tax liabilities long-term, net . . . . . . . . . . . . . . . .
Pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
Before
Application of
SFAS No. 158
$
84,282
45,706
4,676,268
(24,480)
1,190,227
Adjustments
$ (3,679)
12,265
8,586
(8,586)
(8,586)
After
Application of
SFAS No. 158
$
80,603
57,971
4,684,854
(33,066)
1,181,641
SFAS No. 158 also ultimately requires an employer to measure the funded status of a plan as of the date of
the employer’s fiscal year-end statement of financial position. As required, we will adopt the provisions of SFAS
No. 158 relative to the measurement date in our fiscal year ending December 31, 2008. We are currently
evaluating the impact, if any, that the full adoption of SFAS No. 158 will have on our consolidated financial
position and results of operations.
In November 2006, the FASB issued EITF Issue No. 06-8, “Applicability of the Assessment of a Buyers
Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of
Condominiums.” EITF Issue No. 06-8 establishes that a company should evaluate the adequacy of the buyer’s
continuing investment in determining whether to recognize profit under the percentage-of-completion method.
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
EITF Issue No. 06-8 is effective for the first annual reporting period beginning after March 15, 2007. We do not
expect the adoption of EITF Issue No. 06-8 to have a material effect on our consolidated financial position or
results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities—Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair value and establishes presentation
and disclosure requirements designed to facilitate comparisons between entities that choose different
measurement attributes for similar types of assets and liabilities. This pronouncement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of the adoption of SFAS No. 159, if
any, on our consolidated financial position and results of operations.
In November 2007, the FASB issued EITF Issue No. 07-6, “Accounting for the Sale of Real Estate Subject
to the Requirements of SFAS No. 66 When the Agreement Includes a Buy-Sell Clause.” A buy-sell clause is a
contractual term that gives both investors of a jointly-owned entity the ability to offer to buy the other investor’s
interest. EITF Issue No. 07-6 applies to sales of real estate to an entity if the entity is both partially owned by the
seller of the real estate and subject to an arrangement between the seller and the other investor containing a
buy-sell clause. EITF Issue No. 07-6 concluded the existence of a buy-sell clause does not represent a prohibited
form of continuing involvement that would preclude partial sale and profit recognition pursuant to SFAS No. 66.
EITF Issue No. 07-6 cautioned the buy-sell clause could represent such a prohibition if the terms of the buy-sell
clause and other facts and circumstances of the arrangement suggest that the buyer cannot act independently of
the seller or the seller is economically compelled or contractually required to reacquire the other investor’s
interest in the jointly owned entity. EITF 07-6 is effective for new arrangements in fiscal years beginning after
December 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact of the
adoption of EITF Issue No. 07-6, if any, on our consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements—An Amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for a
parent company’s noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Under SFAS
No. 160, a change in control will be measured at fair value, with any gain or loss recognized in earnings. SFAS
No. 160 is effective for fiscal years and interim periods within those fiscal years, beginning on or after
December 15, 2008. We are currently evaluating the impact of the adoption of SFAS No. 160 on our
consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations (SFAS
No. 141R).” SFAS No. 141R amends SFAS No. 141 and provides revised guidance for recognizing and
measuring assets acquired and liabilities assumed in a business combination. This statement also requires that
transaction costs in a business combination be expensed as incurred. Changes in acquired tax contingencies,
including those existing at the date of adoption, will be required in earnings if outside the maximum allocation
period (generally one year). SFAS No. 141R will apply prospectively to business combinations for which the
acquisition date is after fiscal years beginning on or after December 15, 2008. We are currently evaluating the
impact of the adoption of SFAS No. 141R on our consolidated financial position and results of operations.
In December 2007, the FASB issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.”
EITF Issue No. 07-1 defines collaborative arrangements and establishes reporting requirements for transactions
between participants in a collaborative arrangement and between participants in the arrangement and third
parties. EITF Issue No. 07-1 also establishes the appropriate income statement presentation and classification for
joint operating activities and payments between participants, as well as the sufficiency of the disclosures related
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
to these arrangements. EITF Issue No. 07-1 is effective for fiscal years beginning after December 15, 2007. We
do not expect the adoption of EITF Issue No. 07-1 to have a material effect on our consolidated financial position
or results of operations.
Reclassifications
Certain reclassifications, which do not have an effect on net income or equity, have been made to the 2006
financial statements to conform with the 2007 presentation. For the year ended December 31, 2006, a net
decrease of $59.6 million in notes payable on real estate held for sale and under development was reclassed out
of net cash used in operating activities to net cash used in financing activities to conform with the 2007
presentation.
3. Trammell Crow Company Acquisition
On December 20, 2006, pursuant to the Trammell Crow Company Acquisition Agreement, by and among
us, Merger Sub (our wholly-owned subsidiary) and Trammell Crow Company, the Merger Sub was merged with
and into Trammell Crow Company. Trammell Crow Company was the surviving corporation in the Trammell
Crow Company Acquisition and upon the closing of the Trammell Crow Company Acquisition became our
indirect wholly-owned subsidiary. We acquired Trammell Crow Company to expand our global leadership and to
strengthen our ability to provide integrated account management and comprehensive real estate services for our
clients.
Pursuant to the terms of the Trammell Crow Company Acquisition Agreement, (1) each issued and
outstanding share of Trammell Crow Company Common Stock (other than treasury shares), par value $0.01 per
share, was converted into the right to receive $49.51 in cash, without interest (the Trammell Crow Company
Common Stock Merger Consideration), (2) all outstanding options to acquire Trammell Crow Company
Common Stock were cancelled and represented the right to receive a cash payment, without interest, equal to the
excess, if any, of the Trammell Crow Company Common Stock Merger Consideration over the per share exercise
price of the option, multiplied by the number of shares of Trammell Crow Company Common Stock subject to
the option, less any applicable withholding taxes and (3) all outstanding stock units with underlying shares of
Trammell Crow Company Common Stock held in the Trammell Crow Company Employee Stock Purchase Plan
were converted into the right to receive $49.51 in cash, without interest. Following the Trammell Crow Company
Acquisition, the Trammell Crow Company Common Stock was delisted from the New York Stock Exchange and
deregistered under the Securities Exchange Act of 1934.
The funding to complete the Trammell Crow Company Acquisition, as well as the refinancing of
substantially all of the outstanding indebtedness of Trammell Crow Company (other than notes payable on real
estate), was obtained through senior secured term loan facilities for an aggregate principal amount of up to $2.2
billion (see Note 14).
The aggregate purchase price for the Trammell Crow Company Acquisition was approximately $1.9 billion,
which includes: (1) $1.8 billion in cash paid for shares of Trammell Crow Company’s outstanding common
stock, at $49.51 per share, including outstanding stock units held in the Trammell Crow Company Employee
Stock Purchase Plan, (2) cash payments of $120.0 million to holders of Trammell Crow Company’s vested
options and (3) $18.7 million of direct costs incurred in connection with the acquisition, consisting mostly of
legal and accounting fees. As of December 31, 2007, $4.5 million of the total purchase price has not been paid
out and is included in restricted cash in the accompanying consolidated balance sheets along with a
corresponding current liability of $4.5 million, which is included in deferred purchase consideration in the
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CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accompanying consolidated balance sheets. These amounts relate to outstanding shares of Trammell Crow
Company common stock that have not yet been tendered. Payment in full will be made as share certificates are
tendered.
Purchase accounting adjustments related to the Trammell Crow Company Acquisition have been recorded in
the accompanying consolidated financial statements as of, and for periods subsequent to, December 20, 2006.
The excess purchase price over the fair value of net assets acquired has been recorded to goodwill. The goodwill
is not deductible for tax purposes. The final valuation of the net assets acquired was completed during 2007 and
did not result in any significant adjustments to the preliminary valuation, other than those noted below.
During the year ended December 31, 2007, we made the following significant adjustments to goodwill:
• We completed the valuation of the various real estate assets acquired from Trammell Crow Company,
which resulted in a $104.4 million decrease to goodwill.
• We recorded an $18.1 million decrease to goodwill related to the sale of certain investments acquired in
connection with the Trammell Crow Company Acquisition. As no event occurred during the period
from the acquisition date to the sale date that would have impacted the value of these assets, our
management concluded that the amount at which these assets were ultimately sold represented the best
estimate of the fair value of these assets at the date of the Trammell Crow Company Acquisition.
• We recorded a $6.3 million reduction to goodwill due to a decrease in liabilities primarily related to
severance and costs associated with exiting contracts. The adjustment during the year ended
December 31, 2007 represents a change in estimate as we completed our assessments and finalized our
plans, particularly with respect to certain employee and contract terminations. All such adjustments
were recorded in accordance with EITF Issue No. 95-3, “Recognition of Liabilities in Connection with a
Purchase Business Combination.”
• We recorded an increase of $31.9 million to goodwill related to the finalization of the net deferred tax
liabilities and income taxes payable balances acquired in connection with the Trammell Crow Company
Acquisition. This adjustment primarily related to the deferred tax impact of all purchase accounting
adjustments noted above.
The Trammell Crow Company Acquisition gave rise to the acceleration of vesting of restricted shares of
Trammell Crow Company common stock as a result of the change in control of Trammell Crow Company as
well as costs associated with exiting contracts and other contractual obligations. Additionally, the Trammell
Crow Company Acquisition has given rise to the consolidation and elimination of some Trammell Crow
Company duplicate facilities and redundant employees as well as lawsuits involving Trammell Crow Company.
As a result, we have accrued certain liabilities in accordance with EITF Issue No. 95-3. These liabilities assumed
in connection with the Trammell Crow Company Acquisition consist of the following (dollars in thousands):
Change of control payments . . . . . . . . . . . . .
Costs associated with exiting contracts and
other contractual obligations . . . . . . . . . . .
Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease termination costs . . . . . . . . . . . . . . . . .
Legal settlements anticipated . . . . . . . . . . . . .
2006 Charge
to Goodwill
2006
Utilization
2007
Adjustments
2007
Utilization
To be Utilized at
December 31, 2007
$ 36,461
$(35,727)
$ —
$
(734)
$ —
29,635
18,422
11,085
6,212
(500)
—
—
—
(2,168)
(3,791)
276
(599)
(17,195)
(12,647)
(4,311)
(1,794)
9,772
1,984
7,050
3,819
$101,815
$(36,227)
$(6,282)
$(36,681)
$22,625
91
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The change of control payments represented amounts paid to certain executives of Trammell Crow
Company as a direct result of the Trammell Crow Company Acquisition as stipulated in their employment
contracts. Additionally, restricted shares of Trammell Crow Company common stock that were legally unvested
as of the acquisition date were converted into cash awards at the acquisition date. These contractual obligations
are being paid as the awards vest. The liability for severance represents severance related to redundant
employees. The remaining outstanding liabilities for severance will be paid in 2008. We identified 34 redundant
facilities for which a total accrual for lease termination costs of $11.4 million has been established. The liability
for lease termination costs will be paid over the remaining contract periods through 2012. We have accrued
approximately $5.6 million to cover our exposure in various lawsuits involving Trammell Crow Company that
were pending prior to the Trammell Crow Company Acquisition. These liabilities are being paid as each case is
settled.
Unaudited pro forma results, assuming the Trammell Crow Company Acquisition had occurred as of
January 1, 2006 and 2005 for purposes of the 2006 and 2005 pro forma disclosures, are presented below. These
unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments,
such as increased amortization expense as a result of intangible assets acquired in the Trammell Crow Company
Acquisition as well as higher interest expense as a result of debt incurred to finance the Trammell Crow
Company Acquisition. These unaudited pro forma results do not purport to be indicative of what operating results
would have been had the Trammell Crow Company Acquisition occurred on January 1, 2006 and 2005,
respectively, and may not be indicative of future operating results (dollars in thousands, except share data):
Year Ended December 31,
2006
2005
(Unaudited)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for basic income per share . . . . . . . . . . . . .
Diluted income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for diluted income per share . . . . . . . . . . . .
$
$
$
5,015,092
578,821
259,592
1.15
226,685,122
1.10
235,118,341
$
$
$
4,068,588
360,045
135,824
0.61
222,129,066
0.59
229,855,056
4. Basis of Preparation
The accompanying consolidated balance sheets as of December 31, 2007 and 2006, and the consolidated
statements of operations, cash flows and stockholders’ equity for the years ended December 31, 2007 and 2006
include the consolidated financial statements of Trammell Crow Company from December 20, 2006, the date of
the Trammell Crow Company Acquisition. As such, our consolidated financial statements after the Trammell
Crow Company Acquisition are not directly comparable to our financial statements prior to the Trammell Crow
Company Acquisition.
5. Restricted Cash
Included in the accompanying consolidated balance sheets as of December 31, 2007 and 2006, is restricted
cash of $44.4 million and $212.9 million, respectively. The balances primarily include restricted cash set aside to
cover deferred purchase consideration associated with the Trammell Crow Company Acquisition, escrow
accounts held in our Development Services segment, cash pledged to secure the guarantee of certain short-term
notes issued in connection with previous acquisitions by Insignia in the U.K. and escrow accounts related to other
92
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
strategic in-fill acquisitions completed during 2007 and 2006. The deferred purchase consideration relates to
outstanding shares of Trammell Crow Company common stock that have not yet been tendered. Payment in full
is being made as share certificates are tendered.
6. Property and Equipment
Property and equipment consists of the following (dollars in thousands):
Useful Lives
2007
2006
December 31,
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment under capital leases . . . . . . . . . . . . . . . . . . . . . . . .
3 years
3-10 years
1-10 years
1-10 years
$ 215,928
135,120
108,187
3,857
$ 181,689
100,163
93,375
12,727
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
463,092
(246,878)
387,954
(207,408)
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . .
$ 216,214
$ 180,546
Depreciation expense associated with property and equipment was $53.9 million for the year ended
December 31, 2007, $43.7 million for the year ended December 31, 2006 and $36.6 million for the year ended
December 31, 2005.
7. Goodwill and Other Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill for the years ended
December 31, 2007 and 2006 (dollars in thousands):
Balance at December 31, 2005 . . . .
Acquisition of Trammell Crow
Americas
EMEA
Asia
Pacific
Global
Investment
Management
Development
Services
Total
$ 571,517
$260,988
$14,017
$33,657
$ —
$ 880,179
Company . . . . . . . . . . . . . . . . . . .
1,142,673
—
—
—
72,917
1,215,590
Purchase accounting adjustments
related to acquisitions . . . . . . . . .
Foreign exchange movement . . . . . .
Balance at December 31, 2006 . . . .
Purchase accounting adjustments
related to acquisitions . . . . . . . . .
Adoption of FIN 48 (see Note 2) . . .
Foreign exchange movement . . . . . .
3,144
—
56,385
10,485
17,261
803
4,307
198
—
—
81,097
11,486
$1,717,334
$327,858
$32,081
$38,162
$72,917
$2,188,352
(92,390)
(5,359)
1,560
11,061
—
6,791
47,540
—
3,340
—
—
69
13,746
—
—
(20,043)
(5,359)
11,760
Balance at December 31, 2007 . . . .
$1,621,145
$345,710
$82,961
$38,231
$86,663
$2,174,710
93
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other intangible assets totaled $404.1 million and $441.1 million, net of accumulated amortization of
$105.4 million and $55.1 million, as of December 31, 2007 and 2006, respectively, and are comprised of the
following (dollars in thousands):
December 31,
2007
2006
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Unamortizable intangible assets
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets
Customer relationships . . . . . . . . . . . . . . . . . . . .
Backlog and incentive fees . . . . . . . . . . . . . . . . .
Management contracts . . . . . . . . . . . . . . . . . . . . .
Loan servicing rights . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ 63,700
103,826
$167,526
$220,000
48,761
29,219
24,115
19,921
$ 63,700
103,826
$167,526
$220,000
44,630
28,585
22,143
13,254
(11,917)
(48,761)
(25,078)
(11,126)
(8,556)
(60)
(18,780)
(21,333)
(9,365)
(5,527)
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . .
$509,542
$(105,438)
$496,138
$(55,065)
$342,016
$(105,438)
$328,612
$(55,065)
In accordance with SFAS No. 141, trademarks of $63.7 million were separately identified as a result of the
2001 Merger. As a result of the Insignia Acquisition, a $19.8 million trade name was separately identified, which
represents the Richard Ellis trade name in the U.K. that was owned by Insignia. In connection with the Trammell
Crow Company Acquisition, an $84.0 million trade name was separately identified, which represents the
Trammell Crow trade name used by us in providing development services. Both the trademarks and the trade
names have indefinite useful lives and accordingly are not being amortized.
Customer relationships represent intangible assets identified in the Trammell Crow Company Acquisition
relating to existing relationships primarily in Trammell Crow Company’s brokerage, property management,
project management and facilities management lines of business. These intangible assets are being amortized
over useful lives of up to 20 years.
Backlog and incentive fees mostly represented the fair value of net revenue backlog and incentive fees
acquired as part of the Trammell Crow Company Acquisition as well as other in-fill acquisitions. These
intangible assets were amortized over useful lives of up to one year.
Management contracts are primarily comprised of property management contracts in the U.S., Canada, the
U.K. and France, as well as valuation services and fund management contracts in the U.K. These management
contracts are being amortized over useful lives of up to ten years.
Loan servicing rights represent the fair value of servicing assets in our mortgage brokerage line of business
in the U.S., the majority of which were acquired as part of the 2001 Merger. The loan servicing rights are being
amortized over useful lives of up to ten years.
Other amortizable intangible assets mainly represent other intangible assets acquired as a result of the
Trammell Crow Company Acquisition and Insignia Acquisition. These include certain acquired Trammell Crow
94
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Company contract intangibles. Additionally, these include other intangible assets recognized for non-contractual
revenue acquired in the U.S. as well as franchise agreements and a trade name in France acquired in the Insignia
Acquisition. All other intangible assets are being amortized over useful lives of up to 20 years.
Amortization expense related to intangible assets was $48.6 million for the year ended December 31, 2007,
$23.8 million for the year ended December 31, 2006 and $8.9 million for the year ended December 31, 2005. The
estimated annual amortization expense for each of the years ending December 31, 2008 through December 31,
2012 approximates $17.5 million, $16.2 million, $15.8 million, $14.5 million and $12.1 million, respectively.
8. Investments in and Advances to Unconsolidated Subsidiaries
Investments in and advances to unconsolidated subsidiaries are accounted for under the equity method of
accounting and include the following (dollars in thousands):
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92,638
144,254
$ 70,526
157,273
$236,892
$227,799
December 31,
2007
2006
Combined condensed financial information for the entities accounted for using the equity method is as
follows (dollars in thousands):
Condensed Balance Sheets Information:
December 31,
2007
2006
Development Services:
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,370,900
117,454
$ 1,488,354
714,803
185,646
$ 970,021
174,809
$1,144,830
469,260
272,918
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
900,449
$ 742,178
Other:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,763,231
6,878,373
$ 9,641,604
$ 4,346,201
2,194,921
$2,014,923
5,892,275
$7,907,198
$1,911,988
2,888,253
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,541,122
$4,800,241
Minority interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
12,028
$ 249,881
Total:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest
$11,129,958
$ 7,441,571
12,028
$
$9,052,028
$5,542,419
$ 249,881
95
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Operations Information:
Year Ended December 31,
2007
2006
2005
Development Services:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60,347
$ 88,637
$ 70,084
$
$
$
2,325
1,423
954
$ —
$ —
$ —
Other:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$801,366
$227,294
$404,368
$889,573
$189,757
$491,998
$483,198
$ 70,813
$384,974
Total:
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$861,713
$315,931
$474,452
$891,898
$191,180
$492,952
$483,198
$ 70,813
$384,974
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 to these equity investees on an arm’s length basis and earned revenues from these
unconsolidated subsidiaries of $93.4 million, $62.0 million and $61.7 million during the years ended
December 31, 2007, 2006 and 2005, respectively.
Our Development Services segment has agreements to provide development and brokerage services to
certain of our unconsolidated development subsidiaries on an arm’s length basis and earned revenues from these
unconsolidated subsidiaries. Revenue related to these agreements included in our results for the year ended
December 31, 2007 was $7.7 million. Revenue related to these agreements included in our results for 2006 was
not significant.
9. Marketable Securities
The following table is a summary of the available for sale marketable securities held by us at December 31,
2007 (dollars in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
U.S. Treasury securities and obligations of
U.S. government agencies . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,884
5,074
2,791
2,629
18,378
13,149
$ 230
90
33
38
391
3,065
$ —
(5)
(1)
(3)
(9)
(3,448)
$ 8,114
5,159
2,823
2,664
18,760
12,766
Total available for sale securities . . . . . . . . . . . . . . .
$31,527
$3,456
$(3,457)
$31,526
The majority of these assets were acquired as part of the Trammell Crow Company Acquisition. As a result,
the amortized cost at December 31, 2006 approximates market value as these assets were adjusted to market
96
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
value on December 20, 2006, the date of the Trammell Crow Company Acquisition. The following table is a
summary of the amortized cost of the available for sale marketable securities held by us at December 31, 2006
(dollars in thousands):
U.S. Treasury securities and obligations of U.S. government agencies . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$ 7,471
4,291
1,358
1,912
15,032
13,288
Total available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,320
The net carrying value and estimated fair value of debt securities at December 31, 2007, by contractual
maturity, are shown below. Actual repayment dates may differ from contractual maturities because the issuers of
the securities may have the right to prepay obligations.
Debt securities:
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
Estimated
Fair Value
(dollars in thousands)
$ 1,195
7,311
4,452
2,791
2,629
$ 1,212
7,455
4,606
2,823
2,664
Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,378
$18,760
Included in the accompanying consolidated balance sheets at December 31, 2007 and 2006 are trading
securities of approximately $3.5 million and $355.5 million, respectively. The substantial majority of the balance
at December 31, 2006 represents an investment in Savills plc, which we acquired in connection with the
Trammell Crow Company Acquisition.
In January 2007, we sold Trammell Crow Company’s 19% ownership interest in Savills plc and generated a
pre-tax loss of $34.9 million during the year ended December 31, 2007, which was largely driven by stock price
depreciation at the date of sale as compared to December 31, 2006 when the investment was marked to market.
The loss is included in other loss in the accompanying consolidated statements of operations. We received
approximately $311.0 million of pre-tax proceeds from the sale, net of selling expenses.
During the year ended December 31, 2006, we recorded a gain of $8.6 million, which is included in other
income in the accompanying consolidated statements of operations. This gain resulted from the change in fair
value of this investment from December 20, 2006, the date we acquired this investment as part of the Trammell
Crow Company Acquisition, through December 31, 2006.
We did not record any significant dividends or interest income related to marketable securities in 2007
or 2006.
97
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10. Other Assets
The following table summarizes the items included in other assets (dollars in thousands):
December 31,
2007
2006
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee and affiliate loans (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease costs and concessions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term trade receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 35,019
34,047
30,377
7,375
6,039
2,766
3,394
$ 31,411
30,739
33,181
7,671
8,096
3,998
8,286
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$119,017
$123,382
(1) See Note 26 for additional information.
11. 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 SFAS No. 144 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 sheet. In accordance with SFAS No. 144, certain
assets classified as held for sale at December 31, 2007, or sold in the year ended December 31, 2007, that were
not classified as held for sale at December 31, 2006, were reclassified to real estate and other assets held for sale
in the accompanying consolidated balance sheets as of December 31, 2006.
Real estate and other assets held for sale and related liabilities were as follows at December 31, 2007 and
2006 (dollars in thousands):
December 31,
2007
2006
Assets:
Real estate held for sale (see Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$125,182
3,835
6,244
$232,706
4,529
2,108
Total real estate and other assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . .
135,261
239,343
Liabilities:
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate held for sale (see Note 13) . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,887
94,824
335
498
Total liabilities related to real estate and other assets held for sale . . . . . . . . .
101,544
9,759
184,700
315
984
195,758
Net real estate and other assets held for sale . . . . . . . . . . . . . . . . . . . . . . . .
$ 33,717
$ 43,585
98
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. 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. Certain real estate assets owned by us secure the outstanding balances
of underlying mortgage or construction loans. All of our real estate is included in our Development Services
segment (see Note 25). Real estate owned by us consisted of the following (dollars in thousands):
Land
Buildings and
Improvements
Other
Total
At December 31, 2007
Real estate under development (current) . . . . . . . . . . . . . . . . . .
Real estate included in assets held for sale (see Note 11) . . . . .
Real estate under development (non-current)
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Real estate held for investment
$ 59,896
50,873
125,634
115,581
$ 82,792
73,156
12,269
156,891
$ —
1,153
740
7,255
$142,688
125,182
138,643
279,727
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$351,984
$325,108(1) $9,148(2) $686,240
Real estate under development (current) . . . . . . . . . . . . . . . . . .
Real estate included in assets held for sale (see Note 11) . . . . .
Real estate under development (non-current)
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Real estate held for investment
$
1,978
95,414
79,663
43,500
$
7,928
135,931
33,377
56,483
$ —
1,361
—
4,224
9,906
$
232,706
113,040
104,207
Total real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$220,555
$233,719(1) $5,585(2) $459,859
At December 31, 2006
(1) Net of accumulated depreciation of $2.8 million at December 31, 2007. Accumulated depreciation at
(2)
December 31, 2006 was not significant.
Includes balances for lease intangibles and tenant origination costs of $5.4 million and $3.7 million,
respectively, at December 31, 2007 and $2.6 million and $3.0 million, respectively, at December 31, 2006.
We record lease intangibles and tenant origination costs upon acquiring buildings with in-place leases. The
balances are shown net of amortization, which is recorded as an increase to or a reduction of rental income
for lease intangibles and as amortization expense for tenant origination costs.
No writedowns for impairment of real estate or provisions for losses on real estate held for sale were
recorded by us during the years ended December 31, 2007 or 2006.
The estimated costs to complete the 35 consolidated real estate projects under development or to be
developed by us as of December 31, 2007 totaled approximately $298.9 million. At December 31, 2007, we had
commitments for the sale of six of our projects.
Rental revenues (which are included in revenue) and expenses (which are included in operating,
administrative and other expenses) relating to our operational real estate properties, excluding those reported as
discontinued operations, were $27.5 million and $16.2 million, respectively, for the year ended December 31,
2007 and $0.7 million and $0.5 million, respectively, for the period from December 20, 2006 through
December 31, 2006.
99
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. Notes Payable on Real Estate
We had loans secured by real estate, which consisted of the following at December 31, 2007 and 2006
(dollars in thousands):
Current portion of notes payable on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate included in liabilities related to real estate and other assets
December 31,
2007
2006
$156,703
$ 43,856
held for sale (see Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
94,824
184,700
Total notes payable on real estate, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable on real estate, non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251,527
214,505
228,556
118,477
Total notes payable on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$466,032
$347,033
Notes payable on real estate held for sale are included in liabilities related to real estate and other assets held
for sale. Notes payable on real estate under development (current) are included in notes payable on real estate,
current. Notes payable on real estate under development (non-current) and real estate held for investment are
classified according to payment terms and maturity date.
At December 31, 2007, $5.8 million of the current portion and $0.8 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.
Principal maturities of notes payable on real estate at December 31, 2007, were as follows (dollars in
thousands):
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 109,065
212,090
129,215
15,662
$ 466,032
Interest rates on loans outstanding at December 31, 2007 and 2006, ranged from 5.44% to 8.73% and 6.0%
to 9.25%, respectively. Generally, only interest is payable on the real estate loans and is usually drawn on the
underlying loan with all unpaid principal and interest due at maturity. Capitalized interest for the year ended
December 31, 2007 and the period from December 20, 2006, the date we acquired Trammell Crow Company,
through December 31, 2006 totaled $15.8 million and $1.0 million, respectively.
We have a participating mortgage loan obligation related to a real estate project. The mortgage lender
participates in net operating cash flow of the mortgaged real estate project, if any, and net proceeds upon the sale
of the project. The lender receives 6.0% fixed interest on the outstanding balance of its note, compounded
monthly, and participates in 35.0% to 80.0% of net proceeds based on reaching various internal rates of return.
The amount of the participating liability was $2.1 million and $6.1 million at December 31, 2007 and 2006,
respectively.
100
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Long-Term Debt and Short-Term Borrowings
Total long-term debt and short-term borrowings consist of the following (dollars in thousands):
December 31,
2007
2006
Long-Term Debt:
Senior secured term loans, with interest ranging from 5.72% to 8.75%, due from 2007
through 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 3⁄4% senior notes, fully extinguished as of May 2007 . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, mainly for automobiles and telephone equipment, with
interest ranging from 6.5% to 7.9%, due through 2009 . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,787,000
—
$2,073,000
3,310
1,548
178
2,009
190
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,788,726
11,374
2,078,509
11,836
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,777,352
2,066,673
Short-Term Borrowings:
Warehouse line of credit, with interest at daily one-month LIBOR plus 0.70% and a
termination date of January 28, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,510
1,642
Warehouse line of credit, with interest at daily Chase-London LIBOR rate plus
1.00%, with a maturity date of May 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total warehouse lines of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility, with interest ranging from 7.25% to 8.84% . . . . . . . . . . . . . .
Trammell Crow Company Acquisitions II, L.P. revolving line of credit, with interest
at daily British Bankers Association LIBOR plus 0.65% and a maturity date of
April 30, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Westmark senior notes, with interest ranging from 6.23% to 7.00%, due on
demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ikoma loan notes, with interest ranging from 1.05% to 1.34% . . . . . . . . . . . . . . . . . . . .
Insignia acquisition loan notes, with interest ranging from 3.30% to 4.24%, due on
demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
191,267
255,777
227,065
42,600
11,185
—
1,870
183
538,680
11,374
550,054
102,350
103,992
—
—
11,245
6,714
2,189
2,068
126,208
11,836
138,044
Total long-term debt and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . .
$2,327,406
$2,204,717
Future annual aggregate maturities of total consolidated debt at December 31, 2007 are as follows (dollars
in thousands): 2008—$550,054; 2009—$206,818; 2010—$302,923; 2011—$351,573; 2012—$11,024; and
$905,014 thereafter.
Since 2001, we have maintained a credit agreement with Credit Suisse (CS) and other lenders to fund
strategic acquisitions and to provide for our working capital needs. On June 26, 2006, we entered into a $600.0
million multi-currency senior secured revolving credit facility with a syndicate of banks led by CS, as
administrative and collateral agent, which fully replaced our prior credit agreement. In connection with the
replacement of our prior credit facility, we wrote off $8.2 million of unamortized deferred financing fees during
the year ended December 31, 2006. On December 20, 2006, we entered into an amendment and restatement to
101
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
our credit agreement (the Credit Agreement) to, among other things, allow the consummation of the Trammell
Crow Company Acquisition and the incurrence of senior secured term loan facilities for an aggregate principal
amount of up to $2.2 billion.
Our Credit Agreement includes the following: (1) a $600.0 million revolving credit facility, including
revolving credit loans, letters of credit and a swingline loan facility, all maturing on June 24, 2011, (2) a $1.1
billion tranche A term loan facility, requiring quarterly principal payments beginning March 31, 2009 (previously
set to commence on March 31, 2008, but adjusted as a result of our prepayment of all of the 2008 required
payments in 2007) through September 30, 2011, with the balance payable on December 20, 2011, (3) a $1.1
billion tranche B term loan facility, requiring quarterly principal payments of $2.75 million beginning March 31,
2007 through September 30, 2013, with the balance payable on December 20, 2013 and (4) the ability to borrow
an additional $300.0 million, subject to the satisfaction of customary conditions. The revolving credit facility
allows for borrowings outside of the United States, with sub-facilities of $5.0 million available to one of our
Canadian subsidiaries, $35.0 million available to one of our Australian and New Zealand subsidiaries and $50.0
million available to one of our U.K. subsidiaries. Additionally, outstanding borrowings under these sub-facilities
may be up to 5.0% higher as allowed under the currency fluctuation provision in the Credit Agreement.
Borrowings under the revolving credit facility bear interest at varying rates, based at our option, on either
the applicable fixed rate plus 1.2375% or the daily rate plus 0.2375% for the first year; thereafter, at the
applicable fixed rate plus 0.575% to 1.1125% or the daily rate plus 0% to 0.1125%, in both cases as determined
by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). As of
December 31, 2007, we had $227.1 million of revolving credit facility principal outstanding with a related
weighted average interest rate of 7.4%, which is included in short-term borrowings in the accompanying
consolidated balance sheets. As of December 31, 2006, we had no revolving credit facility principal outstanding.
As of December 31, 2007, letters of credit totaling $11.5 million were outstanding under the revolving credit
facility. These letters of credit primarily relate to our outstanding indebtedness as well as letters of credit issued
in connection with development activities in our Development Services segment and reduce the amount we may
borrow under the revolving credit facility.
Borrowings under the tranche A term loan facility bear interest, based at our option, on either the applicable
fixed rate plus 1.50% or the daily rate plus 0.50% for the first year, thereafter, at the applicable fixed rate plus
0.75% to 1.375% or the daily rate plus 0% to 0.375%, in both cases as determined by reference to our ratio of
total debt less available cash to EBITDA (as defined in our Credit Agreement). Borrowings under the tranche B
term facility bear interest, based at our option, on either the applicable fixed rate plus 1.50% or the daily rate plus
0.50%. During the year ended December 31, 2007, we repaid $146.0 million and $140.0 million of our tranche A
and tranche B term loan facilities, respectively. As of December 31, 2007 and 2006, the tranche A term loan
facility had related average interest rates of 5.7% and 6.9%, respectively, while the tranche B term loan facility
had related average interest rates of 6.4% and 6.9%, respectively. As of December 31, 2007 and 2006, we had
$827.0 million and $973.0 million of tranche A term loan facility principal outstanding, respectively, and $960.0
million and $1.1 billion of tranche B term loan facility principal outstanding, respectively, which are 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. Additionally, the
Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment.
Our Credit Agreement contains 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
102
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 interest and a
maximum leverage ratio of EBITDA (as defined in the Credit Agreement) to funded debt.
On March 2, 2007, we entered into a $50.0 million credit note with Wells Fargo Bank for the purpose of
purchasing eligible investments, which include cash equivalents, agency securities, A1/P1 commercial paper and
eligible money market funds. The proceeds of this note will not be made generally available to us, but will
instead be deposited in an investment account maintained by Wells Fargo Bank and will be used and applied
solely to purchase eligible investment securities. Borrowings under the revolving credit note bear interest at
0.25% and the original termination date of the note, which was December 3, 2007, was extended to September 1,
2008 through a written amendment. As of December 31, 2007, there were no amounts outstanding under this
revolving credit note.
In May 2003, in connection with the Insignia Acquisition, CBRE Escrow, Inc. (CBRE Escrow), a wholly-
owned subsidiary of CB Richard Ellis Services, issued $200.0 million in aggregate principal amount of 9 3⁄4%
senior notes, which were due May 15, 2010. CBRE Escrow merged with and into CB Richard Ellis Services, and
CB Richard Ellis Services assumed all obligations with respect to the 9 3⁄4% senior notes in connection with the
Insignia Acquisition. The 9 3⁄4% senior notes were unsecured obligations of CB Richard Ellis Services, senior to
all of its current and future unsecured indebtedness, but subordinated to all of CB Richard Ellis Services’ current
and future secured indebtedness. The 9 3⁄4% senior notes were jointly and severally guaranteed on a senior basis
by us and substantially all of our domestic subsidiaries. Interest accrued at a rate of 9 3⁄4% per year and was
payable semi-annually in arrears on May 15 and November 15. Before May 15, 2006, we were permitted to
redeem up to 35.0% of the originally issued amount of the 9 3⁄4% senior notes at 109 3⁄4% of par, plus accrued and
unpaid interest, solely with the net cash proceeds from public equity offerings, which we elected to do. During
July 2004, we used a portion of the net proceeds we received from our initial public offering to redeem $70.0
million in aggregate principal amount, or 35.0%, of our 9 3⁄4% senior notes. Pursuant to the terms of the
Trammell Crow Company Acquisition Agreement, on November 3, 2006, we caused CB Richard Ellis Services
to launch a tender offer and consent solicitation for all of our outstanding 9 3⁄4% senior notes, which resulted in
the repurchase of all but $3.3 million of these notes. The remaining $3.3 million of 9 3⁄4% senior notes were
redeemable at our option, in whole or in part, on or after May 15, 2007 at 104.875% of par on that date and we
elected to redeem these notes during the year ended December 31, 2007.
In connection with the Trammell Crow Company Acquisition, on December 20, 2006, we immediately
repaid Trammell Crow Company’s outstanding revolving credit facility of $74.0 million.
We had short-term borrowings of $538.7 million and $126.2 million with related average interest rates of
6.4% and 5.8% as of December 31, 2007 and 2006, respectively.
Our wholly-owned subsidiary, CBRE Melody, has credit agreements with Washington Mutual Bank, FA, or
WaMu, and JP Morgan Chase Bank, N.A., or JP Morgan, for the purpose of funding mortgage loans that will be
resold.
Effective July 1, 2006, CBRE Melody entered into a $200.0 million multifamily mortgage loan repurchase
agreement, or Repo Agreement, with WaMu. Under the Repo Agreement, CBRE Melody originates multifamily
loans and sells such loans to one or more investors, including Fannie Mae, Freddie Mac, Ginnie Mae or any of
several private institutional investors. WaMu has agreed to purchase certain qualifying mortgage loans after such
loans have been originated, but prior to sale to one of the aforementioned investors, on a servicing retained basis,
subject to CBRE Melody’s obligation to repurchase the mortgage loan. Effective August 20, 2007, CBRE
103
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Melody entered into a first amendment to the Repo Agreement, with WaMu. This amendment provided for,
among other things, a change in interest rate from one-month LIBOR, set daily plus 0.75% to one-month LIBOR,
set daily plus 0.70%. The Repo Agreement was to continue indefinitely unless or until thirty days written notice
was delivered, prior to the termination date, by either CBRE Melody or WaMu. In December 2007, CBRE
Melody was given written notification by WaMu that the Repo Agreement would be terminated on January 28,
2008.
On November 15, 2005, CBRE Melody entered into a secured credit agreement with JP Morgan to establish
a warehouse line of credit. This agreement provides for a $250.0 million senior secured revolving line of credit
and bears interest at the daily Chase London LIBOR rate plus 0.75%. On November 14, 2006, CBRE Melody
executed an amendment to this credit agreement whereby the maturity date was extended to November 30, 2007.
On September 13, 2007, CBRE Melody entered into an amendment to their secured credit agreement with JP
Morgan, which increased the senior secured revolving line of credit from $250.0 million to $350.0 million, with
the additional $100.0 million bearing interest at the Chase London LIBOR rate plus 0.85%. On November 30,
2007, CBRE Melody executed an amendment to extend the maturity date of the agreement to May 31, 2008. This
amendment also changed the interest rate to Chase London LIBOR plus 1.00% on amounts outstanding
aggregating $250.0 million or less and Chase London LIBOR plus 1.10% on outstanding amounts in excess of
$250.0 million.
During the years ended December 31, 2007 and 2006, respectively, we had a maximum of $450.9 million
and $399.8 million of warehouse lines of credit principal outstanding. As of December 31, 2007 and 2006, we
had $255.8 million and $104.0 million of warehouse lines of credit principal outstanding, respectively, which are
included in short-term borrowings in the accompanying consolidated balance sheets. Additionally, we had $255.8
million and $104.0 million of mortgage loans held for sale (warehouse receivables), which represented mortgage
loans funded through the lines of credit that, while committed to be purchased, had not yet been purchased as of
December 31, 2007 and 2006, respectively, and which are also included in the accompanying consolidated
balance sheets.
On July 31, 2006, CBRE Melody entered into a $60.0 million revolving credit note with JP Morgan for the
purpose of purchasing qualified investment securities, which include but are not limited to U.S. Treasury and
Agency securities. The proceeds of this note will not be made generally available to CBRE Melody, but will
instead be deposited in an investment account maintained by JP Morgan and will be used and applied solely to
purchase qualified investment securities. Borrowings under the revolving credit note will bear interest at 0.50%.
Initially, all outstanding principal on this note and all accrued interest unpaid was to be due and payable on
demand, or if no demand was made, then on or before July 31, 2007. On November 14, 2006, CBRE Melody
executed an amendment extending the maturity of this note to November 30, 2007. Effective May 1, 2007,
CBRE Melody executed an amendment, which increased the revolving credit note to $100.0 million and
extended the maturity date to April 30, 2008. On November 30, 2007, CBRE Melody executed an amendment
which further extended the maturity date to May 31, 2008. As of December 31, 2007, there were no amounts
outstanding under this revolving credit note.
On April 30, 2007, Trammell Crow Company Acquisitions II, L.P. (Acquisitions II), a legal entity within
our Development Services segment that we consolidate, entered into a $100.0 million revolving credit agreement
with WestLB AG, as administrative agent for a lender group. Borrowings under this credit agreement will be
used to fund acquisitions of real estate prior to receipt of capital contributions of Acquisitions II investors and
permanent project financing. Borrowings under this agreement bear interest at the daily British Bankers
Association LIBOR rate plus 0.65% and this agreement expires on April 30, 2010. Subject to certain conditions,
Acquisitions II can extend the maturity date of the credit facility for an additional term of not longer than twelve
months and may increase the maximum commitment to an amount not exceeding $150.0 million. Borrowings
104
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
under the line are non-recourse to us and are secured by the capital commitments of the investors in Acquisitions
II. As of December 31, 2007, there was $42.6 million outstanding under this revolving credit note included in
short-term borrowings in the accompanying consolidated balance sheets.
In connection with our acquisition of Westmark Realty Advisors in 1995 (now known as CB Richard Ellis
Investors), we issued approximately $20.0 million in aggregate principal amount of senior notes. The Westmark
senior notes are redeemable at the discretion of the note holders and have final maturity dates of June 30, 2008
and June 30, 2010. The interest rate on the Westmark senior notes is currently equal to the interest rate in effect
for amounts outstanding under our Credit Agreement plus 12 basis points. The amount of the Westmark senior
notes included in short-term borrowings in the accompanying consolidated balance sheets was $11.2 million as
of December 31, 2007 and 2006.
In January 2006, we acquired an additional stake in our Japanese affiliate, CB Richard Ellis KK (IKOMA),
which increased our total equity interest in IKOMA to 51%. As a result, we now consolidate IKOMA’s financial
statements, which included debt. IKOMA utilized short-term borrowings to assist in funding its working capital
requirements. As of December 31, 2007, there was no amount of outstanding debt for IKOMA. As of
December 31, 2006, IKOMA had $6.7 million of debt outstanding, which is included in short-term borrowings in
the accompanying consolidated balance sheets.
Insignia, which we acquired in July 2003, issued loan notes as partial consideration for previous acquisitions of
businesses in the United Kingdom. The acquisition loan notes are payable to the sellers of the previously acquired
U.K. businesses and are secured by restricted cash deposits in approximately the same amount. The acquisition loan
notes are redeemable semi-annually at the discretion of the note holder and have a final maturity date of April 2010.
As of December 31, 2007 and 2006, $1.9 million and $2.2 million, respectively, of the acquisition loan notes were
outstanding and are included in short-term borrowings in the accompanying consolidated balance sheets.
A significant number of our subsidiaries in Europe have had a Euro cash pool loan since 2001, which is
used to fund their short-term liquidity needs. The Euro cash pool loan is an overdraft line for our European
operations issued by HSBC Bank. The Euro cash pool loan has no stated maturity date and bears interest at
varying rates based on a base rate as defined by HSBC Bank plus 2.5%. As of December 31, 2007 and 2006,
there were no amounts outstanding under this facility.
15. Commitments and Contingencies
We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary
course of business. Our management believes that any liability imposed upon us that may result from disposition
of these lawsuits will not have a material effect on our business, consolidated financial position, cash flows or
results of operations.
The following is a schedule by year of future minimum lease payments for noncancellable capital and
operating leases as of December 31, 2007 (dollars in thousands):
Capital leases
Operating leases
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payment required . . . . . . . . . . . . . . . . . . . . .
$ 453
1,365
—
—
—
—
$1,818
$164,598
190,144
137,628
109,483
85,359
288,488
$975,700
105
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The interest portion of capital lease payments represents the amount necessary to reduce net minimum lease
payments to present value calculated at our incremental borrowing rate at the inception of the leases. This totaled
approximately $0.3 million at December 31, 2007, resulting in a present value of net minimum lease payments of
$1.5 million. At December 31, 2007, $0.3 million and $1.2 million were included in current maturities of long-
term debt and long-term debt, respectively. In addition, the total minimum payments for noncancellable
operating leases were not reduced by the minimum sublease rental income of $29.6 million due in the future
under noncancellable subleases.
Substantially all leases require us to pay maintenance costs, insurance and property taxes. The composition
of total rental expense under noncancellable operating leases consisted of the following (dollars in thousands):
Minimum rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less sublease rentals . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,883
(219)
$127,090
(764)
$121,672
(687)
$171,664
$126,326
$120,985
Year Ended December 31,
2007
2006
2005
We had outstanding letters of credit totaling $18.0 million as of December 31, 2007, excluding letters of
credit for which we have outstanding liabilities already accrued on our balance sheet related to our subsidiaries’
outstanding reserves for claims under certain insurance programs and indebtedness. These letters of credit are
primarily executed by us in the normal course of business of our Development Services segment as well as in
connection with certain insurance programs. The letters of credit expire at varying dates through November 2008.
We had guarantees totaling $6.9 million as of December 31, 2007, excluding guarantees related to
consolidated indebtedness and operating leases. These guarantees primarily include a debt repayment guaranty of
an unconsolidated subsidiary as well as various guarantees of management contracts in our operations overseas.
The guarantee obligation related to the debt repayment guaranty of an unconsolidated subsidiary expires in
December 2009. The other guarantees will expire at the end of each of the respective management agreements.
We have several other debt repayment guarantees of unconsolidated subsidiaries that are subject to the
provisions of FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57 and 107 and Rescission
of FASB Interpretation No. 34.” We estimate that our likely exposure under these guarantees is not material. On
this basis, we estimate that the fair value of these guarantees is equivalent to the amount necessary to secure the
guarantees using letters of credit from a bank, and the aggregate amount is nominal.
In addition, at December 31, 2007, we have numerous completion and budget guarantees relating to
development projects. These guarantees are made by us in the normal course of 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 budget risk to
such contractors. While there can be no assurance, we do not expect to incur any material losses under these
guarantees.
From time to time, we act as a general contractor with respect to construction projects. We do not consider
these activities to be a material part of our business. In connection with these activities, we seek to subcontract
construction work for certain projects to reputable subcontractors. Should construction defects arise relating to
the underlying projects, we could potentially be liable to the client for the costs to repair such defects; we would
106
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
An important part of the strategy for our 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 December 31, 2007, we had committed $95.6 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 December 31, 2007, we
had committed to fund $7.7 million of additional capital to these unconsolidated subsidiaries.
16. Employee Benefit Plans
Stock Incentive Plans
2001 Stock Incentive Plan. Our 2001 stock incentive plan was adopted by our board of directors and
approved by our stockholders on June 7, 2001. However, our 2001 stock incentive plan was terminated in June
2004 in connection with the adoption of our 2004 stock incentive plan, which is described below. The 2001 stock
incentive plan permitted the grant of nonqualified stock options, incentive stock options, stock appreciation
rights, restricted stock, restricted stock units and other stock-based awards to our employees, directors or
independent contractors. Since our 2001 stock incentive plan has been terminated, no shares remain available for
issuance under it. However, as of December 31, 2007, outstanding stock options granted under the 2001 stock
incentive plan to acquire 5,865,591 shares of our Class A common stock remain outstanding according to their
terms, and we will continue to issue shares to the extent required under the terms of such outstanding awards.
Options granted under this plan have an exercise price of $1.92 and vest and are exercisable in 20% annual
increments over five years from the date of grant. Options granted under the 2001 stock incentive plan are
subject to a maximum term of ten years from the date of grant. The number of shares issued pursuant to the stock
incentive plan, or pursuant to outstanding awards, is subject to adjustment on account of stock splits, stock
dividends and other dilutive changes in our Class A common stock. In the event of a change of control of our
company, all outstanding options will become fully vested and exercisable.
Amended and Restated 2004 Stock Incentive Plan. Our 2004 stock incentive plan was adopted by our board
of directors and approved by our stockholders on April 21, 2004, was amended and restated on April 14, 2005
and was amended again on September 6, 2006 and June 1, 2007. The 2004 stock incentive plan authorizes the
grant of stock-based awards to our employees, directors or independent contractors. A total of 20,785,218 shares
of our Class A common stock initially were reserved for issuance under the 2004 stock incentive plan. This share
reserve is reduced by one share upon grant of an option or stock appreciation right, and is reduced by 2.25 shares
upon issuance of stock pursuant to other stock-based awards. Awards that expire, terminate or lapse, will again
be available for grant under this plan. Pursuant to the terms of our 2004 stock incentive plan, no employee is
eligible to be granted options or stock appreciation rights covering more than 6,235,566 shares during any
calendar year. This limitation is subject to a policy adopted by our board of directors, which states that no person
is eligible to be granted options, stock appreciation rights or restricted stock purchase rights covering more than
2,078,523 shares during any calendar year or to be granted any other form of stock award covering more than
1,039,260 shares during any calendar year. The number of shares issued or reserved pursuant to the 2004 stock
incentive plan, or pursuant to outstanding awards, is subject to adjustment on account of mergers, consolidations,
reorganizations, stock splits, stock dividends and other dilutive changes in our common stock. In addition, our
board of directors may adjust outstanding awards to preserve the awards’ benefits or potential benefits.
107
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2007, 6,701,304 shares were subject to options issued under our 2004 stock incentive
plan and 5,031,047 shares remained available for future grants under the 2004 stock incentive plan. Options
granted under this plan during 2007, 2006 and 2005 have exercise prices in the range of $25.18 to $37.43, $23.46
to $31.40 and $11.10 to $15.43, respectively, which primarily vest and are exercisable generally in equal annual
increments over three or four years from the date of grant. All options previously granted under the 2004 stock
incentive plan have had a term of five or seven years from the date of grant.
A summary of the status of our option plans is presented in the tables below:
Outstanding at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
19,356,528
(5,016,711)
3,213,849
(162,618)
17,391,048
(4,393,671)
968,172
(235,657)
13,729,892
(1,973,947)
1,197,175
(386,225)
Outstanding at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,566,895
Vested and expected to vest at December 31, 2007 (1) . . . . . . . . . . . . . . .
12,365,047
Exercisable at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,255,108
Weighted
Average
Exercise Price
$ 3.02
2.28
15.09
2.84
$ 5.46
3.53
23.50
7.74
$ 7.30
6.01
27.40
8.66
$ 9.38
$ 9.38
$ 5.57
(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total
outstanding options.
Option plans outstanding at December 31, 2007 and their related weighted average exercise price, intrinsic
value and life information is presented below:
Outstanding Options
Exercisable Options
Weighted
Average
Remaining
Contractual
Life
5.0
1.9
4.6
5.7
6.7
4.6
Number
Outstanding
5,865,591
2,242,643
2,376,468
893,854
1,188,339
12,566,895
Aggregate
Intrinsic
Value
Weighted
Average
Exercise
Price
$ 1.92
7.44
15.20
23.51
27.41
Number
Exercisable
4,529,463
1,512,143
984,044
226,718
2,740
Weighted
Average
Exercise
Price
$ 1.92
7.43
15.24
23.53
36.14
Aggregate
Intrinsic
Value
$ 9.38
$161,963,377
7,255,108
$ 5.57
$116,456,519
Exercise Prices
$1.92
$6.33 – $7.46
$11.10 – $15.43
$23.46 – $25.67
$27.19 – $37.43
At December 31, 2007, the aggregate intrinsic value and weighted average remaining contractual life for
options vested and expected to vest were $160.2 million and 4.6 years, respectively.
108
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In accordance with SFAS No. 123R, we estimate the fair value of our options using the Black-Scholes
option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate,
the expected stock price volatility and the expected life of the options.
The total estimated grant date fair value of stock options that vested during the year ended December 31,
2007 was $10.1 million. The weighted average fair value of options granted by us was $12.42, $10.46 and $5.62
for the years ended December 31, 2007, 2006 and 2005, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model, utilizing the following weighted
average assumptions:
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0%
0%
0%
4.14%
3.99%
4.80%
44.41% 39.94% 40.00%
5 years
5 years
4 years
Year ended December 31,
2007
2006
2005
The dividend yield assumption is excluded from the calculation, as it is our present intention to retain all
earnings. The expected volatility is based on a combination of our historical stock price and implied volatility. The
selection of implied volatility data to estimate expected volatility is based upon the availability of actively traded
options on our stock. The risk-free interest rate is based upon the U.S. Treasury yield curve in effect at the time of
grant for periods corresponding with the expected life of the options. The expected life of our stock options
represents the estimated period of time until exercise and is based on historical experience of similar options, giving
consideration to the contractual terms, vesting schedules and expectations of future employee behavior.
Option valuation models require the input of subjective assumptions including the expected stock price
volatility and expected life. Because our employee stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions can materially affect the fair
value estimate, we do not believe that the Black-Scholes model necessarily provides a reliable single measure of
the fair value of our employee stock options.
Total compensation expense related to stock options was $10.0 million, $8.0 million and $5.0 million for the
years ended December 31, 2007, 2006 and 2005, respectively. In addition, during the year ended December 31,
2007, we incurred $9.8 million of expense resulting from the acceleration of vesting of stock options in
connection with the termination of duplicative employees as a result of the Trammell Crow Company
Acquisition, which is included in merger-related charges in the accompanying consolidated statement of
operations for the year ended December 31, 2007. At December 31, 2007, total unrecognized estimated
compensation cost related to non-vested stock options was approximately $27.2 million, which is expected to be
recognized over a weighted average period of approximately 2.8 years.
The total intrinsic value of stock options exercised during the years ended December 31, 2007 and 2006 was
$55.4 million and $98.5 million, respectively. We recorded cash received from stock option exercises of $11.9
million and $15.5 million and related tax benefits of $16.6 million and $31.8 million during the years ended
December 31, 2007 and 2006, respectively. Upon option exercise, we issue new shares of stock. Excess tax
benefits exist when the tax deduction resulting from the exercise of options exceeds the compensation cost
recorded. Prior to the adoption of SFAS No. 123R, we presented all such excess tax benefits as operating cash
flows on our consolidated statements of cash flows. SFAS No. 123R requires the cash flows resulting from such
excess tax benefits to be classified as financing cash flows. Under SFAS No. 123R, we have classified excess tax
benefits of $16.6 million and $31.8 million for the years ended December 31, 2007 and 2006, respectively, as
financing cash inflows.
109
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We have issued non-vested stock awards, including shares and stock units, in our Class A common stock to
certain of our employees and members of our board of directors. During the year ended December 31, 2007, we
granted non-vested stock awards of 819,679 shares, of which 57,902 shares were restricted stock awards which
immediately vested at the date of grant, with the remaining shares generally vesting in equal annual increments over
three or four years from the date of grant. During the years ended December 31, 2006 and 2005, we granted
non-vested stock awards of 1,089,070 shares and 472,368 shares, respectively, which generally vest in equal annual
increments over three or four years from the date of grant. In addition, we granted 297,779 and 441,753 of
non-vested stock units to certain of our employees during the years ended December 31, 2007 and 2006,
respectively. These non-vested stock units all vest in 2016. No non-vested stock units were granted for the year
ended December 31, 2005. A summary of the status of our non-vested stock awards is presented in the table below:
Balance at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares / Units
30,954
472,368
503,322
1,530,823
(109,035)
(43,441)
1,881,669
1,117,458
(467,127)
(38,419)
Balance at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . .
2,493,581
Weighted
Average Market
Value Per Share
$ 6.33
15.34
$14.79
26.18
15.43
17.12
$23.97
29.60
24.04
21.60
$26.52
Total compensation expense related to non-vested stock awards was $14.7 million, $3.9 million and $0.5
million for the years ended December 31, 2007, 2006 and 2005, respectively. Total compensation expense for the
year ended December 31, 2007 includes $2.0 million of compensation expense related to 57,902 shares of
restricted stock, which immediately vested at the date of grant. In addition, during the year ended December 31,
2007, we incurred $1.0 million of expense resulting from the acceleration of vesting of non-vested stock awards
in connection with the termination of duplicative employees as a result of the Trammell Crow Company
Acquisition, which is included in merger-related charges in the accompanying consolidated statement of
operations. At December 31, 2007, total unrecognized estimated compensation cost related to non-vested stock
awards was approximately $59.4 million, which is expected to be recognized over a weighted average period of
approximately 4.6 years.
Deferred Compensation Plans. We have four deferred compensation plans (DCPs). The first, which we refer
to as the Pre-August 2004 DCP, has been frozen and is no longer accepting deferrals. The second, which we refer
to as the Post-August 2004 DCP, became effective on August 1, 2004 and began accepting deferrals on
August 13, 2004. The third, which we refer to as the Restoration Plan, was assumed by us in connection with the
Insignia Acquisition, has been frozen and is no longer accepting deferrals. The fourth, which we refer to as the
Trammell Crow Company DCP, was adopted by the Trammell Crow Company effective January 1, 2006, was
assumed by us in connection with the Trammell Crow Company Acquisition, and will be merged into the Post-
August 2004 DCP, effective January 1, 2008. Our deferred compensation plans historically have permitted our
highly compensated employees, including members of management, to elect, prior to the beginning of each
calendar year, to defer receipt of some or all of their compensation for the next year until a future distribution
date and have it credited to one or more of several funds in the respective deferred compensation plans.
110
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Because a substantial majority of the deferrals under our deferred compensation plans have distribution
dates based upon the end of a relevant participant’s employment with us, we have an ongoing obligation to make
distributions to these participants as they leave our employment. In addition, participants currently may receive
unscheduled in-service withdrawals of amounts deferred prior to January 1, 2005, subject to a 7.5% penalty. As
the level of employee departures or in-service distributions is not predictable, the timing of these obligations also
is not predictable. Accordingly, we may face significant unexpected cash funding obligations in the future if
in-service distributions are greater than we expect or participants leave our employment sooner than we expect.
Pre-August 2004 DCP
Prior to amending the Pre-August 2004 DCP as discussed below, each participant in the Pre-August 2004
DCP was allowed to defer a portion of his or her compensation for distribution generally either after his or her
employment with us ended or on a future date at least three years after the deferral election date. The investment
alternatives available to participants included two interest index funds and an insurance fund in which gains and
losses on deferrals are measured by one or more of approximately 80 mutual funds. Distributions with respect to
the interest index and insurance fund accounts are made by us in cash. In addition, prior to July 2001, participants
were entitled to invest their deferrals in stock fund units that are distributed as shares of our Class A common
stock. As of December 31, 2007, there were 3,017,150 outstanding stock fund units under the Pre-August 2004
DCP, all of which were vested. Our stock fund unit deferrals included in additional paid-in capital totaled $5.8
million and $6.2 million at December 31, 2007 and 2006, respectively.
Effective August 1, 2004, we closed the Pre-August 2004 DCP. On August 13, 2004, deferrals made by
participants for the Plan Year 2004 were deposited in the Post-August 2004 DCP. Effective August 1, 2004, no
additional deferrals were permitted under the Pre-August 2004 DCP. Existing account balances under the plan
will be paid to participants in the future according to their existing deferral elections. However, currently all
participants may make unscheduled in-service withdrawals of their account balances, including the shares of
Class A common stock underlying stock fund units, if they pay a penalty equal to 7.5% and the taxes due on the
value of the withdrawal. Unscheduled in-service withdrawals continue to be permitted under this Plan because it
is grandfathered from the rules of new Section 409A of the Internal Revenue Code (IRC).
In 2001, we announced a match for the Plan Year 2000 in the amount of $8.0 million, which has been
invested in an interest bearing account on behalf of participants. The 2000 Company Match vested at 20% per
year and was fully vested by December 2005. The related compensation expense was amortized over the vesting
period. The amount charged to expense for the 2000 Company match was $1.7 million for the year ended
December 31, 2005.
Post-August 2004 DCP
Effective August 1, 2004, we adopted the Post-August 2004 DCP, which began accepting deferrals for
compensation earned after August 13, 2004. At adoption, each participant’s original deferral election made for
the Plan Year 2004 in the Pre-August 2004 DCP was carried into the Post-August 2004 DCP. Participants were
not allowed to make new deferral elections for the Plan Year 2004.
Under the Post-August 2004 DCP, each participant is allowed to defer a portion of his or her compensation
for distribution generally either after his or her employment with us ends or on a future date at least three years
after the deferral election date. Deferrals are credited at the participant’s election to one or more investment
alternatives under the Post-August 2004 DCP, which include a money-market fund and ten mutual fund
investment options. There is limited flexibility for participants to change distribution elections once made.
111
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective January 1, 2005, the Post-August 2004 DCP conforms to all the provisions outlined in Section 409A of
the IRC and, therefore, does not allow for unscheduled in-service distributions.
Included in our accompanying consolidated balance sheets is an accumulated non-stock liability for our
Pre-August 2004 DCP and Post-August 2004 DCP totaling $282.7 million and $228.3 million at December 31,
2007 and 2006, respectively, and assets (in the form of insurance) set aside to cover the liability of $264.2
million and $203.3 million as of December 31, 2007 and 2006, respectively. The current portion of the
accumulated non-stock liability is $12.3 million and $7.4 million at December 31, 2007 and 2006, respectively,
and is included in compensation and employee benefits payable in the accompanying consolidated balance
sheets.
Restoration Plan
The Restoration Plan, assumed in connection with the Insignia Acquisition, has been frozen and is no longer
accepting deferrals. The Restoration Plan is being administered only for the purpose of making distributions
when participants terminate employment. Remaining amounts in this plan are invested in one fund. The
Restoration Plan is unfunded and has an accumulated non-stock liability of $4.4 million and $4.2 million
included in the accompanying consolidated balance sheets as of December 31, 2007 and 2006, respectively.
Trammell Crow Company DCP
Effective, January 1, 2006, Trammell Crow Company established a non-qualified deferred compensation
plan, or Trammell Crow Company DCP, for certain key employees of Trammell Crow Company. A portion of
the eligible employees’ compensation was permitted to be directed into the Trammell Crow Company DCP. The
Trammell Crow Company DCP is funded and included in the accompanying consolidated balance sheets as an
accumulated non-stock liability of $3.5 million and $1.6 million at December 31, 2007 and 2006, respectively,
and investments in trading securities set aside to cover the liability of $3.5 million and $1.6 million at
December 31, 2007 and 2006, respectively. Effective January 1, 2008, the Trammell Crow Company DCP will
be merged into the Post-August 2004 DCP.
Bonuses. We have bonus programs covering select employees, including senior management. Awards are
based on the position and performance of the employee and the achievement of pre-established financial,
operating and strategic objectives. The amounts charged to expense for bonuses were $235.0 million for the year
ended December 31, 2007, $129.4 million for the year ended December 31, 2006 and $99.3 million for the year
ended December 31, 2005.
401(k) Plans. Our CB Richard Ellis 401(k) Plan (401(k) Plan) is a defined contribution profit sharing plan
under Section 401(k) of the Internal Revenue Code. Generally, our U.S. employees are eligible to participate in
the plan if the employee is at least 21 years old. The 401(k) Plan provides for participant contributions as well as
a company match. A participant is allowed to contribute to the 401(k) Plan from 1% to 75% of his or her
compensation, subject to limits imposed by applicable law. Previously, we determined the amount of employer
contributions, if any, to be contributed to the 401 (k) Plan based on the performance and profitability of our
consolidated U.S. operations. Our contributions for the year were allocated to participants who were actively
employed on the last day of the plan year in proportion to each participant’s pre-tax contributions for that year,
up to 5% of the participant’s compensation. Effective January 1, 2007, we contributed a 50% match on the first
3% of annual compensation (up to $150,000 of compensation) deferred by each participant. In connection with
the 401(k) Plan, we charged to expense $12.6 million for the year ended December 31, 2007, $7.3 million for the
year ended December 31, 2006 and $3.6 million for the year ended December 31, 2005.
112
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Participants are entitled to invest up to 25% of their 401(k) account balance in shares of our common stock.
As of December 31, 2007, 160,815 shares of our common stock were held as investments by participants in our
401(k) plan.
In connection with the Trammell Crow Company Acquisition, we assumed Trammell Crow Company’s
existing 401(k) Retirement Savings Plan (Trammell Crow Company 401(k) Plan). The Trammell Crow Company
401(k) Plan was a defined contribution savings plan, which provided the opportunity for pretax contributions by
employees of Trammell Crow Company. Trammell Crow Company matched 50% of the employee’s
contributions up to 6% of the employee’s annual earnings or a maximum of $7,000 per employee per annum.
Participants in the Trammell Crow Company 401(k) Plan participated in the Trammell Crow Company 401(k)
without interruption until April 1, 2007, at which time they joined our 401(k) Plan. No further contributions were
made to the Trammell Crow Company 401(k) Plan after April 1, 2007. The Trammell Crow Company 401(k)
Plan assets merged with our 401(k) Plan on July 1, 2007.
Pension Plans. We have two contributory defined benefit pension plans in the U.K. The London-based firm
of Hillier Parker May & Rowden, which we acquired in 1998, had a contributory defined benefit pension plan. A
subsidiary of Insignia, which we acquired in connection with the Insignia Acquisition in 2003, had a contributory
defined benefit pension plan in the U.K. Our subsidiaries based in the U.K. maintain these plans to provide
retirement benefits to existing and former employees participating in the plans. With respect to these plans, our
historical policy has been to contribute annually an amount to fund pension cost as actuarially determined and as
required by applicable laws and regulations.
Effective July 1, 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 a defined contribution plan. In
connection with this change, we recorded a curtailment gain of $10.0 million during the third quarter of 2007 and
certain plan assets and liabilities were remeasured. The resulting underfunded status of our pension plans
included in pension liability in the accompanying consolidated balance sheets was $34.2 million at December 31,
2007 as compared to $58.0 million at December 31, 2006.
113
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A measurement date of September 30, 2007 was used for both of our defined benefit pension plans for the
year ended December 31, 2007. The following table sets forth a reconciliation of the benefit obligation, plan
assets, plan’s funded status and amounts recognized in the accompanying consolidated balance sheets for both of
our defined benefit pension plans (dollars in thousands):
Change in benefit obligation
Benefit obligation at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2007
2006
$323,241
6,062
16,791
(5,491)
1,277
(2,684)
(7,208)
(6,528)
5,462
$261,703
6,878
14,165
—
2,022
(4,419)
13,437
(8,639)
38,094
Benefit obligation at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$330,922
$323,241
Change in plan assets
Fair value of plan asset at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$265,270
24,672
8,231
1,277
(6,528)
3,837
$204,319
25,097
11,981
2,022
(8,639)
30,490
Fair value of plan assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$296,759
$265,270
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (34,163)
$ (57,971)
Amounts recognized in the statement of financial position consist of:
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (34,163)
$ (57,971)
The accumulated benefit obligation for all defined benefit pension plans was $330.9 million and $310.6
million at December 31, 2007 and 2006, respectively.
Items not yet recognized as a component of net periodic pension cost were as follows (dollars in thousands):
Unamortized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service benefit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company contributions in the post-measurement period . . . . . . . . . . . . . . . .
$36,000
(2,757)
17,348
$ 49,093
(10,273)
618
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,591
$ 39,438
Year Ended December 31,
2007
2006
The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net
periodic pension cost in 2008 is $0.7 million. No prior service cost is expected to be amortized from accumulated
other comprehensive loss into net periodic pension cost in 2008.
114
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Components of net periodic pension (benefit) cost and other amounts recognized in other comprehensive
income consisted of the following (dollars in thousands):
Year Ended December 31,
2007
2006
2005
Net Periodic (Benefit) Cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service benefit . . . . . . . . . . . . . . . . . . . . . . .
Amortization of unrecognized net loss . . . . . . . . . . . . . . . . . . . . .
$ 4,551
17,156
(18,837)
(9,988)
(446)
1,053
$ 6,878
14,165
(14,727)
—
(481)
1,530
$ 5,552
12,374
(13,768)
—
(475)
770
Net periodic pension (benefit) cost
. . . . . . . . . . . . . . . . . . . . . . . .
(6,511)
$ 7,365
$ 4,453
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Loss
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service cost . . . . . . . . . . . . . . . . . . . . . . . . .
Post measurement date contributions . . . . . . . . . . . . . . . . . . . . . . .
$(13,093)
7,516
16,730
Total recognized in other comprehensive loss . . . . . . . . . . . . . . . .
11,153
Total recognized in net periodic benefit and other
comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,642
Weighted average assumptions used to determine our projected benefit obligation were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2007
5.73%
7.01%
N/A
2006
5.00%
6.45%
4.04%
Weighted average assumptions used to determine our net periodic pension cost were as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2007
5.48%
6.82%
1.31%
2006
5.00%
6.45%
4.04%
2005
5.25%
6.97%
3.94%
We review historical rates of return for equity and fixed income securities, as well as current economic
conditions, to determine the expected long-term rate of return on plan assets. The assumed rate of return for 2007
is based on 70.9% of the portfolio being invested in equities yielding a 7.7% return and 23.6% of assets being
primarily invested in corporate and government debt securities yielding a 5.1% return. Consideration is given to
diversification and periodic rebalancing of the portfolio based on prevailing market conditions.
115
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our pension plan weighted average asset allocations by asset category were as follows:
Asset Category
Target Allocation
2007
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53%-79%
13%-47%
1%-8%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan Assets
At December 31,
2007
2006
70.9% 71.7%
23.6% 22.9%
5.4%
5.5%
100.0% 100.0%
Our pension trust assets are invested with a long-term focus to achieve a return on investment that is based
on levels of liquidity and investment risk that the trustees, in consultation with management believe are prudent
and reasonable. The investment portfolio contains a diversified blend of equity and fixed income and index
linked investments consisting primarily of government debt. The equity investments are diversified across U.K.
and non-U.K. equities, as well as value, growth, and medium and large capitalizations. The portfolio’s asset mix
is reviewed regularly, and the portfolio is rebalanced based on existing market conditions. Investment risk is
measured and monitored on a regular basis through quarterly portfolio reviews, annual liability measurements
and periodic asset/liability analyses.
We expect to contribute $10.6 million to our pension plans in 2008. The following is a schedule by year of
benefit payments, which reflect expected future service, as appropriate, that are expected to be paid (dollars in
thousands):
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013-2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,406
6,571
7,236
8,194
9,714
57,883
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$95,004
We also have defined contribution plans for employees in the United Kingdom. Our contributions to these
plans were approximately $5.6 million, $3.1 million and $2.4 million for the years ended December 31, 2007,
2006 and 2005, respectively.
116
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. Income Taxes
Our tax provision (benefit) consisted of the following (dollars in thousands):
Year Ended December 31,
2007
2006
2005
Federal:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 221,275
(172,789)
$100,476
(16,737)
$ 82,431
(7,367)
48,486
83,739
75,064
State:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,465
(15,990)
43,793
(17,600)
Foreign:
Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,475
26,193
93,946
18,349
112,295
86,281
2,113
88,394
11,016
2,293
13,309
48,792
1,716
50,508
$ 194,256
$198,326
$138,881
The following is a reconciliation, stated as a percentage of pre-tax income (loss), of the U.S. statutory
federal income tax rate to our effective tax rate:
Year Ended December 31,
2007
2006
2005
Federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on foreign income which differ from the U.S. statutory rate . . . . . . .
Tax contingency reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
35%
(3)
3
(1)
(1)
35%
—
2
(1)
2
—
35%
1
2
(1)
—
2
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33%
38%
39%
The domestic component of income before provision for income taxes included in the accompanying
consolidated statements of operations was $191.7 million for the year ended December 31, 2007, $256.4 million
for the year ended December 31, 2006 and $206.9 million for the year ended December 31, 2005. The
international component of income before provision for income taxes was $393.1 million for the year ended
December 31, 2007, $260.5 million for the year ended December 31, 2006 and $149.3 million for the year ended
December 31, 2005.
During the years ended December 31, 2007, 2006 and 2005, respectively, we recorded a $21.1 million,
$32.9 million and $21.1 million income tax benefit in connection with stock options exercised. Of this income
tax benefit, $16.6 million, $31.8 million and $20.6 million was charged directly to additional paid-in capital
within the stockholders’ equity section of the accompanying consolidated balance sheets in 2007, 2006 and 2005,
respectively.
117
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cumulative tax effects of temporary differences are shown below at December 31, 2007 and 2006 (dollars
in thousands):
Asset (Liability)
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt and other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized costs and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonus and deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trading securities and other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOL, alternative minimum tax credit and charitable contribution carryforwards and
state tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2007
2006
$
5,971
79,190
(176,651)
226,098
(503)
$
4,053
59,894
(188,985)
158,310
(74,635)
26,611
17,345
19,991
3,336
32,370
83,622
15,861
17,997
4,046
9,957
Net deferred tax assets before valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
233,758
(23,842)
90,120
(27,699)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 209,916
$ 62,421
Total deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 were as follows (dollars
in thousands):
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 556,146
(23,842)
$ 425,134
(27,699)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
532,304
(322,388)
397,435
(335,014)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 209,916
$ 62,421
December 31,
2007
2006
As of December 31, 2007, we had U.S. federal net operating losses (NOLs) of approximately $6.7 million,
translating to a deferred tax asset before valuation allowance of $2.3 million. Our NOLs begin expiring in 2023
continuing through 2026. As of December 31, 2007, there were also deferred tax assets of approximately $9.8
million related to state NOLs as well as $12.8 million related to foreign NOLs. The utilization of NOLs may be
subject to certain limitations under U.S. federal, state and foreign laws.
Management determined that as of December 31, 2007, $23.8 million of deferred tax assets do not satisfy
the recognition criteria set forth in SFAS No. 109. Accordingly, a valuation allowance has been recorded for this
amount. During the year ended December 31, 2007, our valuation allowances decreased by approximately $3.9
million. A decrease of $ 7.6 million was primarily a result of our determination that a portion of the deferred tax
asset representing net operating losses and capital losses for which a valuation allowance had previously been
recorded would be utilized. Of this decrease to the valuation allowance, $4.0 million related to deferred tax assets
that were established in connection with the Insignia Acquisition, thus the reduction of the valuation allowance
resulted in a decrease to goodwill. The decrease of $7.6 million noted above was partially offset by an increase in
valuation allowances as a result of the Trammell Crow Company Acquisition.
118
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Presently, we have not recorded a deferred tax liability for undistributed earnings of subsidiaries located
outside of the U.S. These earnings may become taxable upon a payment of a dividend or as a result of a sale or
liquidation of the subsidiaries. At this time, we do not have any plans to repatriate income from our foreign
subsidiaries, however, to the extent that we are able to repatriate such earnings in a tax free manner, or in the
event of a change in our capital situation or investment strategy, it is possible that the foreign subsidiaries may
pay a dividend which would impact our effective tax rate. Unremitted earnings of foreign subsidiaries, which
have been, or are intended to be permanently invested in accordance with Accounting Principles Board Opinion
No. 23, “Accounting for Income Taxes—Special Areas,” aggregated approximately $692.8 million at
December 31, 2007. The determination of the tax liability upon repatriation is not practicable.
Effective January 1, 2007, we adopted the provisions of FIN 48. The total amount of gross unrecognized tax
benefits was approximately $148.4 million as of January 1, 2007 and $66.5 million as of December 31, 2007.
The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $50.0
million ($47.6 million, net of federal benefit received from state positions) as of January 1, 2007 and $56.4
million ($53.8 million, net of federal benefit received from state positions) as of December 31, 2007.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (dollars in
thousands):
Balance as of January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—tax positions in prior period . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases—tax positions in prior period . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases—current-period tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases relating to settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions as a result of a lapse of statute of limitations . . . . . . . . . . . . . . . . . .
Foreign exchange movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (148,384)
(6,582)
94,735
(8,719)
1,471
1,511
(508)
Balance as of December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (66,476)
During the year ended December 31, 2007, we filed a request with the Internal Revenue Service to change
our tax method of accounting on an uncertain tax position. As a result of this change, we determined that a FIN
48 liability was no longer needed on this position and reversed approximately $110.6 million. Of this amount,
$17.0 million ($15.0 million net of federal benefit received from interest expense) represents related interest and
penalties, the majority of which resulted in a decrease in our effective tax rate for the year ended December 31,
2007. We do not currently anticipate that any significant increase or decrease to unrecognized tax benefits will be
recorded during the next 12 months.
Our continuing practice is to recognize potential accrued interest and/or penalties related to income tax
matters within income tax expense. As of January 1, 2007, we had approximately $31.8 million accrued for the
payment of interest and penalties. During the year ended December 31, 2007, we accrued an additional $4.9
million in interest associated with uncertain tax positions. As of December 31, 2007, we have recognized a
liability for interest and penalties of $18.5 million ($16.5 million net of related federal benefit received from
interest expense).
We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the
U.S. federal jurisdiction and multiple state, local and foreign jurisdictions. We are no longer subject to U.S.
federal Internal Revenue Service audits for years prior to 2005, but the tax year 2004 is open by statute. With
limited exception, our significant state and foreign tax jurisdictions are no longer subject to audit by the various
tax authorities for tax years prior to 1999.
119
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Stockholders’ Equity
We are authorized to issue 325,000,000 shares of Class A common stock with $0.01 par value per share.
Holders of our Class A common stock are entitled to one vote per share on all matters on which our stockholders
are entitled to vote. Holders of our Class A common stock are entitled to receive ratable dividends if and when
declared from time to time by our board of directors out of funds legally available for that purpose, after payment
of dividends required to be paid on any outstanding preferred stock. Our amended and restated credit agreement
governing our revolving credit facility and senior secured term loan facilities imposes restrictions on our ability
to declare dividends with respect to our Class A common stock.
Our board of directors is authorized, subject to any limitations imposed by law, without the approval of our
stockholders, to issue a total of 25,000,000 shares of preferred stock, in one or more series, with each such series
having rights and preferences including voting rights, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as our board of directors may determine.
On November 7, 2007, we announced a share repurchase program of up to $500.0 million of our outstanding
common stock, which was authorized by our board of directors. Subsequently, on November 28, 2007, we
announced an expansion of our share repurchase program, in which our board of directors authorized the share
repurchase of up to $635.0 million of our outstanding shares of common stock, which included the $500.0
million previously authorized. The share repurchase program was completed in December 2007 by acquiring
28.8 million shares at an average price of $22.03.
19. Earnings Per Share Information
The following is a calculation of earnings per share (dollars in thousands, except share data):
Year Ended December 31,
2007
2006
2005
Income
Shares
Per
Share
Amount
Income
Shares
Per
Share
Amount
Income
Shares
Per
Share
Amount
Basic earnings per share:
Net income applicable to
common stockholders . . . . . $390,505 228,476,724
$1.71
$318,571 226,685,122
$1.41
$217,341 222,129,066
$0.98
Diluted earnings per share:
Net income applicable to
common stockholders . . . . . $390,505 228,476,724
$318,571 226,685,122
$217,341 222,129,066
Dilutive effect of contingently
issuable shares . . . . . . . . . . .
Dilutive effect of stock
options . . . . . . . . . . . . . . . . .
Net income applicable to
—
—
489,398
6,012,342
—
—
246,736
8,186,483
—
—
28,962
7,697,028
common stockholders . . . . . $390,505 234,978,464
$1.66
$318,571 235,118,341
$1.35
$217,341 229,855,056
$0.95
For the years ended December 31, 2007 and 2006, options to purchase 1,202,891 shares and 956,624 shares
of common stock, respectively, were excluded from the computation of diluted earnings per share because their
inclusion would have had an anti-dilutive effect. There were no anti-dilutive shares for the year ended
December 31, 2005.
120
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
20. Fiduciary Funds
The accompanying consolidated balance sheets do not include the net assets of escrow, agency and fiduciary
funds, which are held by us on behalf of clients and which amounted to $1.2 billion and $1.0 billion at
December 31, 2007 and 2006, respectively.
21. Fair Value of Financial Instruments
SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value
information about financial instruments, whether or not recognized in the accompanying consolidated balance
sheets. Fair value is defined as the amount at which an instrument could be exchanged in a current transaction
between willing parties other than in a forced or liquidation sale. The fair value estimates of financial instruments
are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of
different market assumptions and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
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
WaMu and JP Morgan warehouse lines of credit outstanding for our wholly-owned subsidiary, CBRE Melody &
Company (CBRE Melody), which was formerly known as L.J. Melody & Company (See Note 14).
Trading Securities: These investments are carried at fair value as of December 31, 2007 (see Note 9). The
substantial majority of this balance at December 31, 2006 represented an investment in Savills plc acquired as
part of the Trammell Crow Company Acquisition, which was sold during the year ended December 31, 2007.
Short-Term Borrowings: The majority of this balance represents our revolving credit facility and the WaMu
and JP Morgan warehouse lines of credit outstanding for CBRE Melody. Due to the variable interest rates of
these instruments, fair value approximates carrying value (See Note 14).
Senior Secured Term Loans, Long-Term Debt and Notes Payable on Real Estate: Estimated fair values
approximate respective carrying values because the substantial majority of these instruments are based on
variable interest rates (see Notes 13 and 14).
121
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
22. Merger-Related Charges
In connection with the Trammell Crow Company Acquisition, we recorded merger-related charges of $56.9
million for the year ended December 31, 2007. These charges primarily relate to the exit of facilities that were
occupied by us prior to the Trammell Crow Company Acquisition as well as the termination of employees, both
of which became duplicative as a result of the Trammell Crow Company Acquisition. We recorded charges for
the exit of these facilities as premises were vacated and for redundant employees as these employees were
terminated, both in accordance with SFAS No. 146, ”Accounting for Costs Associated with Exit or Disposal
Activities.” Our merger-related charges consisted of the following (dollars in thousands):
Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease termination costs . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs associated with exiting contracts . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
Charge
$34,345
16,035
2,130
1,273
3,149
Total merger-related charges . . . . . . . . . . . . . . . . . . . .
$56,932
Utilized to Date
To be Utilized at
December 31, 2007
$(33,340)
(1,518)
(2,130)
(1,273)
(3,149)
$(41,410)
$ 1,005
14,517
—
—
—
$15,522
The remaining liability for severance will be paid in 2008. The remaining liability for lease termination
costs will be paid over the remaining contract periods through 2016.
23. Discontinued Operations
In the ordinary course of business of our Development Services segment, we sell real estate assets, or hold
real estate assets for sale, that may be considered components of an entity in accordance with SFAS No. 144. If
we do not have, or expect to have, significant continuing involvement with the operation of these real estate
assets after sale, we are required to recognize operating profits or losses and gains or losses on sale of these
assets as discontinued operations in our consolidated statements of income in the periods in which they occur.
Prior to 2007, we had no discontinued operations related to these activities. Real estate operations and
dispositions accounted for as discontinued operations for the year ended December 31, 2007 were as follows
(dollars in thousands):
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
$ 2,102
Operating, administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, before provision for income taxes
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
812
425
1,237
7,878
8,743
2,674
15
1,837
4,247
1,613
Income from discontinued operations, net of income taxes
$ 2,634
122
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
24. Liabilities Related to the Insignia Acquisition
The Insignia Acquisition gave rise to the consolidation and elimination of some Insignia duplicate facilities
as well as the termination of certain contracts as a result of a change of control of Insignia. As a result, we
accrued certain liabilities in accordance with EITF Issue No. 95-3. The remaining liabilities assumed in
connection with the Insignia Acquisition consist of the following and are included in the accompanying
consolidated balance sheets (dollars in thousands):
Lease termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal settlements anticipated . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability
Balance at
December 31, 2006
$ 9,976
2,246
$12,222
2007
Utilization
$(3,555)
(103)
$(3,658)
To be
Utilized at
December 31, 2007
$6,421
2,143
$8,564
The remaining liability for lease termination costs will be paid over the remaining contract periods through
2012. The remaining liability covering our exposure in various lawsuits involving Insignia that were pending
prior to the Insignia Acquisition will be paid as each case is settled.
The remaining liability associated with items previously charged to merger-related costs in connection with
the Insignia Acquisition consisted of the following (dollars in thousands):
Liability
Balance at
December 31, 2006
2007
Utilization
To be
Utilized at
December 31, 2007
Lease termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13,997
$(3,198)
$10,799
25. Industry Segments
We report our operations through five segments. The segments are as follows: (1) Americas, (2) EMEA,
(3) Asia Pacific, (4) Global Investment Management and (5) Development Services.
Our Americas segment is our largest segment of operations and provides a comprehensive range of services
throughout the U.S. and in the largest regions of Canada and selected parts of Latin America. The primary
services offered consist of the following: real estate services, mortgage loan origination and servicing, valuation
services, asset services and corporate services.
Our EMEA and Asia Pacific segments provide services similar to the Americas business segment, excluding
mortgage loan origination and servicing. The EMEA segment has operations primarily in Europe, while the Asia
Pacific segment has operations primarily in Asia, Australia and New Zealand.
Our Global Investment Management business provides investment management services to clients seeking
to generate returns and diversification through investments in real estate in the U.S., Europe and Asia.
Our Development Services business consists of real estate development and investment activities primarily
in the U.S., which we acquired in the Trammell Crow Company Acquisition on December 20, 2006.
123
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Summarized financial information by operating segment is as follows (dollars in thousands):
Year Ended December 31,
2007
2006
2005
Revenue
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,689,737
1,314,019
548,650
347,883
133,960
$2,506,913
933,517
354,756
228,034
8,807
$2,172,813
707,330
186,573
127,310
—
$6,034,249
$4,032,027
$3,194,026
Operating income (loss)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 309,222
251,292
85,084
92,648
(39,275)
$ 303,888
172,994
40,019
36,329
(3,091)
$ 242,837
94,334
23,846
11,389
—
698,971
550,139
372,406
Equity income (loss) from unconsolidated subsidiaries
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest expense (income)
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations before provision for income
16,659
387
(31)
19,222
28,702
64,939
419
2,804
8,767
1,600
(1,715)
11,875
(37,534)
29,004
162,991
—
15,792
2,287
464
14,755
2
33,300
1,033
1,029
2,714
666
678
6,120
8,610
9,822
45,007
33,847
14,096
282
1,187
22,860
—
38,425
828
591
178
566
—
2,163
—
11,221
56,281
7,386
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 580,514
$ 516,897
$ 356,222
Depreciation and amortization
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
77,076
12,324
6,489
2,798
14,582
$
$
38,846
15,152
5,499
2,306
5,792
30,782
10,468
2,430
1,836
—
$ 113,269
$
67,595
$
45,516
124
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital expenditures
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$62,045
13,295
11,401
4,156
2,058
$34,432
10,306
6,732
3,828
—
$25,451
7,666
3,572
1,062
—
December 31,
2007
2006
2005
(Dollars in thousands)
$92,955
$55,298
$37,751
December 31,
2007
2006
(Dollars in thousands)
Identifiable assets
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,782,132
1,216,970
354,075
204,342
1,132,264
552,790
$3,744,597
769,270
177,196
208,455
657,613
387,500
$6,242,573
$5,944,631
Identifiable assets by industry segment are those assets used in our operations in each segment. Corporate
identifiable assets include cash and cash equivalents and net deferred tax assets.
Investments in and advances to unconsolidated subsidiaries
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Investment Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2007
2006
(Dollars in thousands)
$ 43,105
1,491
300
99,358
92,638
$ 48,926
2,307
299
105,741
70,526
$236,892
$227,799
Geographic Information:
Revenue
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31,
2007
2006
2005
(Dollars in thousands)
$3,787,978
687,776
1,558,495
$2,515,362
519,865
996,800
$2,135,130
433,524
625,372
$6,034,249
$4,032,027
$3,194,026
The revenue shown in the table above is allocated based upon the country in which services are performed.
125
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31,
2007
2006
(Dollars in thousands)
Long-lived assets
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$126,436
27,852
61,926
$109,101
28,397
43,048
$216,214
$180,546
The long-lived assets shown in the table above include property and equipment.
26. Related Party Transactions
Included in prepaid expenses, other current assets and other long-term assets, net in the accompanying
consolidated balance sheets are loans to related parties, primarily employees, of $73.6 million and $66.3 million
as of December 31, 2007 and 2006, respectively. The majority of these loans represent sign-on and retention
bonuses issued or assumed in connection with acquisitions as well as prepaid retention and recruitment awards
issued to employees. These loans are at varying principal amounts, bear interest at rates up to 9.75% per annum
and mature on various dates through 2013.
The accompanying consolidated balance sheets also include $0.1 million of notes receivable from sale of
stock as of December 31, 2007 and 2006. There is only one shareholder loan outstanding as of December 31,
2007. This note is a full recourse loan to an employee and is secured by our common stock that is owned by such
individual. This loan requires quarterly interest payments, bears interest at 10.0% per annum and matures in
2011.
From time to time, directors and executive officers are given an opportunity to invest in investment vehicles
managed by certain of our subsidiaries on the same terms as other unaffiliated investors. In 2007, Ray Wirta, our
Vice Chairman of the board of directors, invested $2.6 million in CBRE Realty Finance, Inc., a real estate
investment trust managed and sponsored by an affiliate of ours as well as by our subsidiary, CBRE Melody. In
2006, Mr. Wirta, invested $1.1 million in CBRE Realty Finance, Inc. These investments have been made on the
same terms as unaffiliated investors.
Frederic Malek, one of our directors, has committed to invest $2.0 million, Blum Family Partners, L.P., a
significant stockholder affiliated with Richard Blum, our Chairman of the board of directors, has committed to
invest $1.5 million and Mr. Wirta has committed to invest $1.0 million in CB Richard Ellis Strategic Partners IV,
L.P. (through pooled co-investment vehicles organized for the investment of certain employees). As of
December 31, 2007, Mr. Malek had funded $1.4 million, Blum Family Partners, L.P. had funded $1.1 million
and Mr. Wirta had funded $0.7 million of their respective commitments in this investment. CB Richard Ellis
Strategic Partners IV, L.P. fund is a closed-end real estate investment fund managed and sponsored by our
subsidiary, CBRE Investors. Each of these investments has been approved by our board of directors, including all
of the disinterested members.
Bob Sulentic, a director and executive officer, has committed to invest an aggregate minimum of $0.8
million in Trammell Crow Company Acquisitions I, L.P., and Trammell Crow Company Acquisitions II, L.P.
(through pooled co-investment vehicles organized for the investment of certain employees). As of December 31,
126
CB RICHARD ELLIS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2007, Mr. Sulentic had funded $0.5 million of his commitment in these investments. These funds are closed-end
real estate investment funds managed and sponsored by our subsidiary, Trammell Crow Company. These
investments have been approved by our board of directors, including all of the disinterested members.
CBRE Investors and certain investment funds managed by it, retained the law firm of Mayer Brown LLP,
including its predecessors, to provide legal services during each of 2007, 2006 and 2005. Mr. Kantor, who has
been a member of our Board since February 2004, currently is a partner at Mayer Brown LLP.
127
CB RICHARD ELLIS GROUP, INC.
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic EPS (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for basic
EPS (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for diluted
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS (1)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic EPS (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for basic
EPS (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding for diluted
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EPS (1)
Three Months
Ended
December 31,
2007
Three Months
Ended
September 30,
2007
Three Months
Ended
June 30,
2007
Three Months
Ended
March 31,
2007
(Dollars in thousands, except share data)
$
$
1,837,116
191,973
122,446
0.55
$
$
1,492,809
215,254
114,947
0.50
$
$
1,490,363
198,616
141,135
0.61
$
$
1,213,961
93,128
11,977
0.05
222,750,267
0.54
$
230,997,817
0.48
$
230,543,095
0.59
$
229,663,454
0.05
$
228,102,903
237,450,864
237,475,584
236,932,240
Three Months
Ended
December 31,
2006
Three Months
Ended
September 30,
2006
Three Months
Ended
June 30,
2006
Three Months
Ended
March 31,
2006
(Dollars in thousands, except share data)
$
$
1,409,270
223,837
125,098
0.55
$
$
967,941
138,868
92,309
0.41
$
$
903,544
127,879
64,254
0.28
$
$
751,272
59,555
36,910
0.16
228,422,382
0.53
$
226,749,704
0.39
$
225,964,727
0.27
$
225,559,521
0.16
$
236,932,665
233,943,772
233,655,941
232,948,764
(1) EPS is defined as earnings per share.
128
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9a. Controls and Procedures
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Securities Exchange Act Rules 13a-15(f), including maintenance of
(i) records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets,
and (ii) policies and procedures that provide reasonable assurance that (a) transactions are recorded as necessary
to permit preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America, (b) our receipts and expenditures are being made only in accordance with
authorizations of management and our Board of Directors and (c) we will prevent or timely detect unauthorized
acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of the inherent limitations of any system of internal control. Internal control over financial
reporting is a process that involves human diligence and compliance and is subject to lapses of judgment and
breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by
collusion or improper overriding of controls. As a result of such limitations, there is risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate, this risk.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on our evaluation under
the COSO framework, our management concluded that our internal control over financial reporting was effective
as of December 31, 2007. The effectiveness of internal control over financial reporting as of December 31, 2007
has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
report which is included herein.
Disclosure Controls and Procedures
We have formally adopted a policy for disclosure controls and procedures that provides guidance on the
evaluation of disclosure controls and procedures and is designed to ensure that all corporate disclosure is
complete and accurate in all material respects and that all information required to be disclosed in the periodic
reports submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods and in the manner specified in the Securities and Exchange Commission’s rules
and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures. A Disclosure Committee consisting of the principal accounting officer,
general counsel, chief communication officer, senior officers of each significant business line and other select
employees assisted the Chief Executive Officer and the Chief Financial Officer in this evaluation. Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures were effective as required by the Securities Exchange Act Rule 13a-15(c) as of the end of the
period covered by this report.
Changes in Internal Controls Over Financial Reporting
No changes in internal control over financial reporting occurred during the last fiscal quarter that have
materially affected, or are likely to materially affect, our internal control over financial reporting.
129
Item 9b. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information under the headings “Information About the Board”, “Corporate Governance”, “Executive
Officers” and “Stock Ownership” in the definitive proxy statement for our 2008 Annual Meeting of Stockholders
is incorporated herein by reference.
We are filing the certifications by the Chief Executive Officer and Chief Financial Officer required under
Section 302 of the Sarbanes-Oxley Act as exhibits to this Annual Report on Form 10-K.
On June 26, 2007, Brett White, our Chief Executive Officer and President, submitted to the New York Stock
Exchange the Annual Written Affirmation required by Section 303A of the Corporate Governance Rules of the
New York Stock Exchange certifying that he was not aware of any violations by CB Richard Ellis Group, Inc. of
the New York Stock Exchange’s corporate governance listing standards.
Item 11. Executive Compensation
The information contained under the headings “Information About the Board—Compensation of Directors”,
“Information About the Board—Board Committees”, “Corporate Governance—Compensation Committee
Interlocks and Insider Participation” and “Executive Compensation” in the definitive proxy statement for our
2008 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information contained under the heading “Stock Ownership” in the definitive proxy statement for our
2008 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information contained under the headings “Executive Compensation”, “Related Party Transactions” and
“Corporate Governance” in the definitive proxy statement for our 2008 Annual Meeting of Stockholders is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information contained under the heading “Corporate Governance—Principal Accountant Fees and
Services” in the definitive proxy statement for our 2008 Annual Meeting of Stockholders is incorporated herein
by reference.
130
Item 15. Exhibits and Financial Statement Schedules
PART IV
1.
Financial Statements
See Index to Consolidated Financial Statements set forth on page 69.
2.
Financial Statement Schedules
See Schedule II on page 132.
See Schedule III beginning on page 133.
3.
Exhibits
See Exhibit Index beginning on page 140 hereof.
131
CB RICHARD ELLIS GROUP, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Allowance for
Doubtful Accounts
Balance, December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs, payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired in the Trammell Crow Company Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs, payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired through acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs, payments and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,811
4,214
(3,379)
$15,646
4,696
3,057
(1,209)
$22,190
17,688
628
(5,758)
$34,748
132
CB RICHARD ELLIS GROUP, INC. AND SUBSIDIARIES
SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2007
(In thousands)
Description
Encumbrances Land
Related
Buildings and
Improvements Other
Costs
Subsequent
to Acquisition Land
Buildings and
Improvements Other
Total
(A)
Accumulated
Depreciation
Depreciable
Lives in
Years (B)
Date of
Construction
Date
Acquired
Initial Cost
Balance at December 31, 2007
REAL ESTATE UNDER DEVELOPMENT (CURRENT)
Industrial
East Belt Parkway, Houston,
TX . . . . . . . . . . . . . . . . . . . . .
6,859
1,041
Land
CG Interstate, Phoenix, AZ . . . .
High Street Siena, Denver,
CO . . . . . . . . . . . . . . . . . . . . .
Mixed Use (Multi-family/Retail)
High Street Rainey, Austin,
TX . . . . . . . . . . . . . . . . . . . . .
PMC Houston, Houston, TX . . .
Office
Cascade Station Office II,
Portland, OR . . . . . . . . . . . . .
Rockwood, Portland, OR . . . . .
Retail
Atascocita Commons, Humble,
TX . . . . . . . . . . . . . . . . . . . . .
Fairway Centre, Pasadena,
1
3
3
4,797
5,051
—
—
36,452
44,995
482
27,938
—
—
—
—
—
576
7,310
1,233
3,116
282
—
17,332
6,211
5,639
TX . . . . . . . . . . . . . . . . . . . . .
4,960
3,061
1,797
REAL ESTATE HELD FOR SALE
Industrial
Brampton, Brampton, ON . . . . .
Pennsy Drive, Landover,
—
2,465
8
MD . . . . . . . . . . . . . . . . . . . .
13,640
2,460
8,506
Land
Lake Park Plaza, Lewisville,
TX . . . . . . . . . . . . . . . . . . . . .
McKinnon, Vaughan, ON . . . . .
Sierra Corporate Center, Reno,
NV . . . . . . . . . . . . . . . . . . . . .
Stassney Heights, Austin,
TX . . . . . . . . . . . . . . . . . . . . .
—
10,865
1,332
13,222
—
—
2,056
379
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,341
1,518
5,864
2,380
7,431
1,186
1,186
—
—
—
—
—
7,382
7,431
1,186
47,199
17,857
482
35,515
47,199
10,280
— 47,681
— 45,795
598
4,588
1,233
3,205
880
4,499
—
—
2,113
7,704
5,065
5,813
11,102
— 16,915
1,623
3,513
2,968
—
6,481
1,334
3,766
41
—
3,807
1,348
2,460
9,854
— 12,314
—
4,187
1,332
17,409
401
2,457
—
379
—
—
—
—
—
1,332
— 17,409
—
—
2,457
379
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(C)
2007
N/A
N/A
(C)
(C)
(C)
(C)
(C)
(C)
2006
1966
N/A
N/A
N/A
N/A
2006
2006
2006
2007
2006
2007
2006
2006
2006
2006
2006
2006
2006
2006
Description
Encumbrances Land
Related
Buildings and
Improvements Other
Costs
Subsequent
to Acquisition Land
Buildings and
Improvements Other
Total
(A)
Accumulated
Depreciation
Depreciable
Lives in
Years (B)
Date of
Construction
Date
Acquired
Initial Cost
Balance at December 31, 2007
Medical Office
Ballenger Crow, Flint, MI . . . . .
Chestnut Commons, Elyria,
OH . . . . . . . . . . . . . . . . . . . . .
Concord Place, Oklahoma City,
OK . . . . . . . . . . . . . . . . . . . . .
Oakmont, Ft. Worth, TX . . . . . .
TC DUHS, Charlotte, NC . . . . .
Mixed Use (Multi-family/Retail)
High Street Clarkson, Denver,
3,355
3,449
10,714
CO . . . . . . . . . . . . . . . . . . . . .
—
High Street Columbia,
Washington, DC . . . . . . . . . .
2,122
Office
6660 Doubletree, Columbus,
OH . . . . . . . . . . . . . . . . . . . . .
1,294
Cascade Station Office A,
Portland, OR . . . . . . . . . . . . .
—
6,500
—
2,861
6,670
1,220
—
506
—
76
67
41
570
365
645
750
8,004
230
182
157
1,662
434
8,094
1
3
4
Concord Commons,
Englewood, CO . . . . . . . . . . .
Meridian Tower, Tulsa, OK . . .
Retail
Centre Point Commons,
Bradenton, FL . . . . . . . . . . . .
Northwood, Austin, TX . . . . . .
Parmer Lane Village, Austin,
—
6,172
—
1,218
22,200
5,485
7,484
1,944
13,223
5,969
TX . . . . . . . . . . . . . . . . . . . . .
2,359
916
1,692
REAL ESTATE UNDER DEVELOPMENT (NON-CURRENT)
Industrial
MROTC Steel Hangers,
—
—
—
—
104
—
—
789
—
—
382
—
7
90
5,008
—
7,869
—
7,869
9,298
1,659
8,859
— 10,518
2,849
3,248
3,105
—
—
—
408
58
76
67
41
3,592
3,940
11,109
—
—
104
4,000
3,998
11,289
230
182
—
—
297
223
576
233
707
1,516
1,566
1,524
2,069
—
3,593
28
(390)
—
1,216
462
7,833
—
255
462
9,304
3,203
(42)
14,636
1,937
9,274
5,937
— 23,910
7,878
4
(71)
872
1,672
83
2,627
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Oklahoma City, OK . . . . . . .
8,703
915
1,555
740
6,474
915
8,029
740
9,684
—
Land
301 Ocean, Santa Monica,
Ca . . . . . . . . . . . . . . . . . . . . .
14,000
50,396
Atascocita Commons II,
Humble, TX . . . . . . . . . . . . .
Branford, Los Angeles, CA . . .
High Street Emerson, Denver,
CO . . . . . . . . . . . . . . . . . . . . .
Oak Park, Houston, TX . . . . . . .
TCDFW I-20 II, Dallas, TX . . .
2,999
—
1,050
—
2,389
2,833
19,105
2,094
635
1,921
—
—
—
—
—
—
—
—
—
—
—
—
588
50,984
271
1,912
3,104
21,017
127
242
233
2,221
877
2,154
—
—
—
—
—
—
— 50,984
—
3,104
— 21,017
—
—
—
2,221
877
2,154
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2006
2007
2006
2007
2006
2004
2006
1974
2007
2005
1981
2007
1974
2003
2006
2007
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
(C)
2006
N/A
N/A
N/A
N/A
N/A
N/A
2007
2006
2007
2006
2007
2006
Description
Encumbrances Land
Related
Buildings and
Improvements Other
Costs
Subsequent
to Acquisition Land
Buildings and
Improvements Other
Total
(A)
Accumulated
Depreciation
Depreciable
Lives in
Years (B)
Initial Cost
Balance at December 31, 2007
Timbercreek, Dallas, TX . . . . . .
Office
Saracen Building 1, Waltham,
26,035
33,865
—
MA . . . . . . . . . . . . . . . . . . . .
—
8,378
4,233
REAL ESTATE HELD FOR INVESTMENT
Industrial
2801 Summit Associates, Plano,
TX . . . . . . . . . . . . . . . . . . . . .
2,900
Air-T Industrial, Memphis,
1,082
1,986
TN . . . . . . . . . . . . . . . . . . . . .
4,002
1,139
3,069
1,249
498
641
—
—
345
883
269
2,119
35,984
—
— 35,984
—
7
8,378
4,240
— 12,618
—
(544)
802
1,986
81
2,869
(398)
1,145
3,125
423
4,693
(254)
503
645
6
1,154
(85)
(94)
(46)
1
3
5
Baker Industrial, Memphis,
TN . . . . . . . . . . . . . . . . . . . . .
Bellbrook Industrial, Memphis,
TN . . . . . . . . . . . . . . . . . . . . .
MROTC, Oklahoma City,
OK . . . . . . . . . . . . . . . . . . . . .
SC Industrial, Memphis, TN . . .
Land
ADC Associates, Oklahoma
City, OK . . . . . . . . . . . . . . . .
Arrowood, Charlotte, NC . . . . .
Ballpark Way, Houston, TX . . .
Bee Caves, Austin, TX . . . . . . .
CG Sunland, Phoenix, AZ . . . .
Fairway Centre, Pasadena,
TX . . . . . . . . . . . . . . . . . . . . .
Greenhill, Tulsa, OK . . . . . . . . .
Lakeline Retail, Cedar Park,
TX . . . . . . . . . . . . . . . . . . . . .
NCC Consortium, Reston,
VA . . . . . . . . . . . . . . . . . . . . .
SA Crossroads, San Antonio,
TX . . . . . . . . . . . . . . . . . . . . .
Saracen, Waltham, MA . . . . . . .
TCDFW LCT, Irving, TX . . . . .
Medical Office
Colwick, Charlotte, NC . . . . . . .
14,100
9,642
1,627
3,657
3,796
9,556
7,313
1,853 18,722
(147)
12,998
5,882
3,223
3,506
3,347
317
—
666
3,142
1,582
3,017
3,513
6,695
2,243
— 9,712
6,071
315
(433)
(38)
—
—
5,380
—
—
—
1,213
—
—
—
—
—
—
558
321
8,218
172
1,472
2,474
1,347
5
145
2,131
2,538
3,452
—
—
—
—
—
—
—
—
—
—
—
—
593
2,997
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
128
(273)
605
—
21
22
—
—
308
558
321
8,218
172
1,600
2,201
1,952
5
166
2,153
2,538
3,452
—
—
—
—
—
—
—
—
—
—
—
—
558
—
—
321
— 8,218
172
—
— 1,600
— 2,201
— 1,952
—
—
5
166
— 2,153
— 2,538
— 3,452
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39
39
39
39
39
39
—
—
—
—
—
—
—
—
—
—
—
—
Date of
Construction
Date
Acquired
N/A
2006
1950
2007
1989
1976
1972
1975
2007
1969
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2006
2007
2007
2007
2006
2007
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2007
2006
2007
593
3,305
— 3,898
(34)
39
1970
Description
Encumbrances Land
Related
Buildings and
Improvements Other
Costs
Subsequent
to Acquisition Land
Buildings and
Improvements Other
Total
(A)
Accumulated
Depreciation
Depreciable
Lives in
Years (B)
Date of
Construction
Date
Acquired
Initial Cost
Balance at December 31, 2007
Mixed-Use (Multi-family/Retail)
High Street Rainey, Austin,
TX . . . . . . . . . . . . . . . . . . . . .
—
1,241
645
Office
110 Free Street, Portland,
ME . . . . . . . . . . . . . . . . . . . . .
6,454
2,717
5,283
1105 Schrock, Columbus,
OH . . . . . . . . . . . . . . . . . . . . .
6460 Busch, Columbus, OH . . .
6600 Busch, Columbus, OH . . .
898 Sepulveda, El Segundo,
CA . . . . . . . . . . . . . . . . . . . . .
Hamilton, Torrance, CA . . . . . .
Northeast Office 161,
10,123
1,565
1,153
18,544
13,700
1,844
483
642
6,986
9,111
7,089
950
185
16,331
10,695
Morristown, NJ . . . . . . . . . . .
5,155
403
4,076
10,238
10,011
9,024
2,522
4,784
2,155
8,193
8,217
10,111
—
—
—
5,193
9,875
16,500
2,690
1,359
11,837
5,979
420
827
212
5,875
1,690
8,245
12,195
14,024
1
3
6
Northeast Office 163,
Morristown, NJ . . . . . . . . . . .
Oak Brook, Oak Brook, IL . . . .
Park South, Charlotte, NC . . . .
Saracen Building 2, Waltham,
MA . . . . . . . . . . . . . . . . . . . .
Saracen Building 3, Waltham,
MA . . . . . . . . . . . . . . . . . . . .
Saracen Building 4, Waltham,
MA . . . . . . . . . . . . . . . . . . . .
Seafed, Seattle, WA . . . . . . . . .
South Executive, Charlotte,
NC . . . . . . . . . . . . . . . . . . . . .
Warwick, West Warwick, RI . .
Retail
Arvada Marketplace East,
Arvada, CO . . . . . . . . . . . . . .
Atascocita Commons, Humble,
TX . . . . . . . . . . . . . . . . . . . . .
Atascocita Commons Retail A,
7,500
3,743
5,427
46
1,127
593
640
1,275
2,427
—
—
Humble, TX . . . . . . . . . . . . .
1,416
—
—
2,465
444
458
—
—
831
695
—
556
—
—
—
—
532
—
—
1,241
645
— 1,886
(9)
931
2,797
6,134
— 8,931
(85)
772
(98)
(217)
(1,240)
30
1,936
519
586
7,600
9,111
8,237
1,046
280
1,997 12,170
1,779
1,068
214
202
12,720
10,725
1,757 22,077
— 19,836
(140)
(45)
(41)
(245)
(23)
487
433
4,795
569
5,797
(108)
1,047
3,006
(146)
2,631
4,868
2,120
9,758
11,139
10,171
68 12,457
— 16,007
385 12,676
12
1
1
158
281
14
27
35
37
2,702
1,359
— 4,061
11,837
5,980
— 17,817
420
840
213
6,020
—
633
— 6,860
1,593
8,245
12,797
14,038
308 14,698
— 22,283
(160)
(30)
3,730
5,477
36
9,243
(153)
595
640
1,308
— 1,903
2,464
— 3,104
(33)
(61)
(162)
(178)
(108)
(3)
(13)
(1)
(89)
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
39
2007
2006
1946
1982
1980
1972
1978
1984
1974
1974
1972
1980
1966
1943
1920
1984
1973
1973
1987
2006
2006
2007
2006
2006
2006
2006
2007
2006
2006
2007
2007
2007
2007
2007
2007
2007
2007
2006
2006
2006
Description
Encumbrances Land
Related
Buildings and
Improvements Other
Costs
Subsequent
to Acquisition Land
Buildings and
Improvements Other
Total
(A)
Accumulated
Depreciation (A)
Depreciable
Lives in
Years (B)
Date of
Construction
Date
Acquired
Initial Cost
Balance at December 31, 2007
Atascocita
Commons
Retail B,
Humble,
TX . . . . . . . . .
Bellbrook Retail,
Memphis,
TN . . . . . . . . .
Crossroads Mall,
San Antonio,
TX . . . . . . . . .
1,640
510
2,316
—
64
522
2,368
—
2,890
(63)
2,308
899
411
85
298
905
736
52
1,693
(44)
13,500
7,233
5,924
(1,001)
87
7,245
6,009
(1,011)
12,243
(169)
39
39
39
2006
2006
1975
2007
1961
2006
Total . . . . . .
466,032
$319,327
$209,106
$13,043
$147,604
$351,984
$327,948
$ 9,148 $689,080
$(2,840)
(A) Includes depreciation and costs subsequent to December 20, 2006, the date that we acquired Trammell Crow Company.
(B) Land, real estate under development and real estate held for sale are not depreciated.
(C) Project is under construction at December 31, 2007.
1
3
7
CB RICHARD ELLIS GROUP, INC. AND SUBSIDIARIES
NOTE TO SCHEDULE III—REAL ESTATE INVESTMENTS AND ACCUMULATED
DEPRECIATION
DECEMBER 31, 2007
(In thousands)
Changes in real estate investments and accumulated depreciation for the year ended December 31 were as
follows:
Real estate investments:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
$ 459,859
400,826
(164,402)
(7,203)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 689,080
Accumulated depreciation:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other adjustments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
—
(5,762)
625
2,297
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(2,840)
(1)
(2)
Includes amortization of lease intangibles and tenant origination costs. Also includes reclassification of
accumulated depreciation to real estate basis upon reclassification of assets to “held for sale.”
Includes reclassification of accumulated depreciation to real estate basis upon reclassification of assets to
“held for sale.”
138
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
CB RICHARD ELLIS GROUP, INC.
By:
/s/ BRETT WHITE
Brett White
Chief Executive Officer
Date: February 29, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ RICHARD C. BLUM
Chairman of the Board
February 29, 2008
Richard C. Blum
/s/ GIL BOROK
Gil Borok
Chief Accounting Officer
(principal accounting officer)
February 29, 2008
/s/ PATRICE MARIE DANIELS
Director
February 29, 2008
Patrice Marie Daniels
/s/ THOMAS A. DASCHLE
Director
February 29, 2008
Thomas A. Daschle
/s/ CURTIS F. FEENY
Director
February 29, 2008
Curtis F. Feeny
/s/ BRADFORD M. FREEMAN
Director
February 29, 2008
Bradford M. Freeman
/s/ MICHAEL KANTOR
Director
February 29, 2008
Michael Kantor
/s/ KENNETH J. KAY
Kenneth J. Kay
Chief Financial Officer
(principal financial officer)
February 29, 2008
/s/ FREDERIC V. MALEK
Director
February 29, 2008
Frederic V. Malek
/s/ ROBERT E. SULENTIC
Director
February 29, 2008
Robert E. Sulentic
/s/
JANE J. SU
Jane J. Su
/s/ BRETT WHITE
Brett White
Director
February 29, 2008
Director and Chief Executive Officer
February 29, 2008
(principal executive officer)
/s/ GARY L. WILSON
Director
February 29, 2008
Gary L. Wilson
/s/ RAY WIRTA
Ray Wirta
Vice Chairman
February 29, 2008
139
Exhibit
2.1
2.2
2.3
3.1
3.2
4.1
4.2(a)
4.2(b)
4.2(c)
4.2(d)
EXHIBIT INDEX
Description
Amended and Restated Agreement and Plan of Merger, dated as of May 28, 2003, by and among
Insignia Financial Group, Inc., CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc. and
Apple Acquisition Corp. (incorporated by reference to Exhibit 2.2 of the CB Richard Ellis Services,
Inc. Registration Statement on Form S-4 filed with the SEC on October 20, 2003)
Purchase Agreement, dated as of May 28, 2003, by and among Insignia Financial Group, Inc.,
CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc., Apple Acquisition Corp. and Island
Fund I LLC (incorporated by reference to Exhibit 2.3 of the CB Richard Ellis Services, Inc.
Registration Statement on Form S-4 filed with the SEC (No. 333-190841) on October 20, 2003)
Agreement and Plan of Merger, dated as of October 30, 2006, by and among Trammell Crow
Company, CB Richard Ellis Group, Inc. and A-2 Acquisition Corp. (incorporated by reference to
Exhibit 2.1 of the CB Richard Ellis Group, Inc. Current Report on Form 8-K filed with the SEC on
November 1, 2006
Form of Restated Certificate of Incorporation of CB Richard Ellis Group, Inc. filed on June 15, 2004
(incorporated by reference to Exhibit 3.3 of the CB Richard Ellis Group, Inc. Amendment No. 4 to
Registration Statement on Form S-1 filed with the SEC (No. 333-112867) on June 7, 2004)
Form of Restated By-laws of CB Richard Ellis Group, Inc. (incorporated by reference to Exhibit 3.5
of the CB Richard Ellis Group, Inc. Amendment No. 4 to Registration Statement on Form S-1 filed
with the SEC (No. 333-112867) on June 7, 2004)
Form of Class A common stock certificate of CB Richard Ellis Group, Inc. (incorporated by reference
to Exhibit 4.1 of the CB Richard Ellis Group, Inc. Amendment No. 2 to Registration Statement on
Form S-1 filed with the SEC (No. 333-112867) on April 30, 2004)
Securityholders’ Agreement, dated as of July 20, 2001 (“Securityholders’ Agreement”), by and
among, CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc., Blum Strategic Partners, L.P.,
Blum Strategic Partners II, L.P., Blum Strategic Partners II GmbH & Co. KG, FS Equity Partners III,
L.P., FS Equity Partners International, L.P., Credit Suisse First Boston Corporation, DLJ Investment
Funding, Inc., The Koll Holding Company, Frederic V. Malek, the management investors named
therein and the other persons from time to time party thereto (incorporated by reference to Exhibit 25
to Amendment No. 9 to Schedule 13D with respect to CB Richard Ellis Services, Inc. filed with the
SEC on July 25, 2001)
Amendment and Waiver to Securityholders’ Agreement, dated as of April 14, 2004, by and among,
CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc. and the other parties to the
Securityholders’ Agreement (incorporated by reference to Exhibit 4.2(b) of the CB Richard Ellis
Group, Inc. Amendment No. 2 to Registration Statement on Form S-1 filed with the SEC
(No. 333-112867) on April 30, 2004)
Second Amendment and Waiver to Securityholders’ Agreement, dated as of November 24, 2004, by
and among CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc. and certain of the other
parties to the Securityholders’ Agreement (incorporated by reference to Exhibit 4.2(c) of the CB
Richard Ellis Group, Inc. Amendment No. 1 to Registration Statement on Form S-1 filed with the
SEC (No. 333-120445) on November 24, 2004)
Third Amendment and Waiver to Securityholders’ Agreement, dated as of August 1, 2005, by and
among CB Richard Ellis Group, Inc., CB Richard Ellis Services, Inc. and certain of the other parties
to the Securityholders’ Agreement (incorporated by reference to Exhibit 4.1 of the CB Richard Ellis
Group, Inc. Current Report on Form 8-K filed with the SEC on August 2, 2005)
140
Exhibit
4.3
4.4
4.5(a)
4.5(b)
4.5(c)
Description
Anti-Dilution Agreement, dated as of July 20, 2001, by and between CB Richard Ellis Group, Inc. and
Credit Suisse First Boston Corporation (incorporated by reference to Exhibit 20 to Amendment No. 9
to Schedule 13D with respect to CB Richard Ellis Services, Inc. filed with the SEC on July 25, 2001)
Warrant Agreement, dated as of July 20, 2001, by and between CB Richard Ellis Group, Inc., and
FS Equity Partners III, L.P. and FS Equity Partners International, L.P. (incorporated by reference to
Exhibit 26 to Amendment No. 9 to Schedule 13D with respect to CB Richard Ellis Services, Inc. filed
with the SEC on July 25, 2001)
Indenture, dated as of May 22, 2003, between CBRE Escrow, Inc., and U.S. Bank National
Association, as Trustee, for 9 3⁄4% Senior Notes Due May 15, 2010 (incorporated by reference to
Exhibit 4.1 of the CB Richard Ellis Services, Inc. Registration Statement on Form S-4 filed with the
SEC (No. 333-190841) on October 20, 2003)
First Supplemental Indenture, dated as of July 23, 2003, among CB Richard Ellis Services, Inc.,
CB Richard Ellis Group, Inc., the Subsidiary Guarantors and U.S. Bank National Association
(incorporated by reference to Exhibit 4.1(b) of the CB Richard Ellis Services, Inc. Registration
Statement on Form S-4 filed with the SEC (No. 333-190841) on December 5, 2003)
Second Supplemental Indenture, dated as of December 4, 2003, among CB Richard Ellis Services,
Inc., Investors 1031, LLC and U.S. Bank National Association (incorporated by reference to Exhibit
4.1(c) of the CB Richard Ellis Services, Inc. Registration Statement on Form S-4 filed with the SEC
(No. 333-190841) on December 5, 2003)
10.1(a) Amendment Agreement and Waiver, dated as of April 23, 2004, among CB Richard Ellis Services,
Inc., CB Richard Ellis Group, Inc., the Lenders named therein and Credit Suisse First Boston, as
Administrative Agent (incorporated by reference to Exhibit 10.1(a) of the CB Richard Ellis Group,
Inc. Amendment No. 2 to Registration Statement on Form S-1 filed with the SEC (No. 333-112867)
on April 30, 2004)
10.1(b) Amended and Restated Credit Agreement, dated as of April 23, 2004 (“Credit Agreement”), by and
among CB Richard Ellis Services, Inc., CB Richard Ellis Group, Inc., the Lenders named therein and
Credit Suisse First Boston, as Administrative Agent (incorporated by reference to Exhibit 10.1(b) of
the CB Richard Ellis Group, Inc. Amendment No. 2 to Registration Statement on Form S-1 filed with
the SEC (No. 333-112867) on April 30, 2004)
10.1(c) Amendment to Credit Agreement, dated as of November 15, 2004, by and among CB Richard Ellis
Services, Inc., CB Richard Ellis Group, Inc., the Lenders named therein and Credit Suisse First
Boston, as Administrative Agent (incorporated by reference to Exhibit 10.1(c) of the CB Richard Ellis
Group, Inc. Amendment No. 1 to Registration Statement on Form S-1 filed with the SEC
(No. 333-120445) on November 24, 2004)
10.1(d) Amendment No. 2 to Credit Agreement, dated as of May 10, 2005, by and among CB Richard Ellis
Services, Inc., CB Richard Ellis Group, Inc., the Lenders named therein and Credit Suisse First
Boston, as Administrative Agent (incorporated by reference to Exhibit 10 of the CB Richard Ellis
Group, Inc. Amendment No. 1 to Quarterly Report on Form 10-Q/A filed with the SEC on March 14,
2006)
10.1(e) Credit Agreement, dated as of June 26, 2006, among CB Richard Ellis Services, Inc., CB Richard
Ellis Group, Inc., certain Subsidiaries of CB Richard Ellis Services, Inc., the Lenders named therein
and Credit Suisse, as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit
10.1 of the CB Richard Ellis Group, Inc. Current Report on Form 8-K filed with the SEC on June 30,
2006)
141
Exhibit
Description
10.1(f) Guarantee and Pledge Agreement, dated as of June 26, 2006, among CB Richard Ellis Services, Inc.,
CB Richard Ellis Group, Inc., the Subsidiaries of CB Richard Ellis Services, Inc. from time to time
party thereto and Credit Suisse, as Collateral Agent (incorporated by reference to Exhibit 10.2 of the
CB Richard Ellis Group, Inc. Current Report on Form 8-K filed with the SEC on June 30, 2006)
10.1(g) Amended and Restated Credit Agreement, dated December 20, 2006, by and among CB Richard Ellis
Services, Inc., CB Richard Ellis Group, Inc., certain Subsidiaries of CB Richard Ellis Services, Inc.,
the lenders named therein and Credit Suisse, as Administrative Agent and Collateral Agent
(incorporated by reference to Exhibit 10.1 of the CB Richard Ellis Group, Inc. Current Report on
Form 8-K filed with the SEC on December 22, 2006)
10.2
10.3
CB Richard Ellis Group, Inc. 2001 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.1 of the CB Richard Ellis Group, Inc. Annual Report on Form 10-K filed with the SEC on
March 25, 2003)*
2004 Stock Incentive Plan of CB Richard Ellis Group, Inc. (incorporated by reference to Exhibit 10.3
of the CB Richard Ellis Group, Inc. Amendment No. 2 to Registration Statement on Form S-1 filed
with the SEC (No. 333-112867) on April 30, 2004)*
10.3(a) Amended and Restated 2004 Stock Incentive Plan of CB Richard Ellis Group, Inc. (incorporated by
reference to Exhibit 10.3 of the CB Richard Ellis Group, Inc. Quarterly Report on Form 10-Q filed
with the SEC on May 10, 2005)*
10.3(b) Amendment No. 1, dated September 6, 2006, to the Amended and Restated 2004 Stock Incentive Plan
of CB Richard Ellis, Group, Inc. (incorporated by reference to Exhibit 10.1 of the CB Richard Ellis
Group, Inc. Current Report on Form 8-K filed with the SEC on September 12, 2006)*
10.3(c) Amendment No. 2, dated June 1, 2007, to the Amended and Restated 2004 Stock Incentive Plan of
CB Richard Ellis Group, Inc. (incorporated by reference to Exhibit 10.2 of the CB Richard Ellis
Group, Inc. Quarterly Report on Form 10-Q filed with the SEC on August 9, 2007)*
10.4
CB Richard Ellis Services, Inc. Amended and Restated Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.11 of the CB Richard Ellis Group, Inc. Annual Report on
Form 10-K filed with the SEC on March 25, 2003)*
10.5(a) CB Richard Ellis Services, Inc. Amended and Restated 401(k) Plan, as amended (incorporated by
reference to Exhibit 10.12 of the CB Richard Ellis Group, Inc. Annual Report on Form 10-K filed
with the SEC on March 25, 2003)*
10.5(b) Amendment to CB Richard Ellis Services, Inc. Amended and Restated 401(k) Plan, dated March 31,
2006 (incorporated by reference to Exhibit 10.5(b) of the CB Richard Ellis Group, Inc. Quarterly
Report on Form 10-Q filed with the SEC on May 10, 2006)*
10.6
Employment Agreement, dated as of January 23, 2001, between CB Richard Ellis Pty Ltd. and Robert
Blain (incorporated by reference to Exhibit 10.12 of the CB Richard Ellis Group, Inc. Amendment
No. 2 to Registration Statement on Form S-1 filed with the SEC (No. 333-112867) on April 30,
2004)*
10.7(a) CB Richard Ellis Deferred Compensation Plan effective as of August 1, 2004 (incorporated by
reference to Exhibit 4.1 of the CB Richard Ellis Group, Inc. Registration Statement on Form S-8 filed
with the SEC (No. 333-119362) on September 29, 2004)*
10.7(b) Amendment, dated as of November 18, 2005, to CB Richard Ellis Services, Inc. Amended and
Restated Deferred Compensation Plan (incorporated by reference to Exhibit 10.12(b) of the CB
Richard Ellis Group, Inc. Annual Report on Form 10-K filed with the SEC on March 16, 2006)*
142
Exhibit
10.8
10.9
Description
Agreement, dated as of January 23, 2005, between Alan Froggatt and CB Richard Ellis Limited
(incorporated by reference to Exhibit 10.13 of the CB Richard Ellis Group, Inc. Annual Report on
Form 10-K filed with the SEC on March 15, 2005)*
Transition Agreement, dated as of February 22, 2005, by and between Ray Wirta, CB Richard Ellis
Group, Inc. and CB Richard Ellis, Inc. (incorporated by reference to Exhibit 10.14 of the CB Richard
Ellis Group, Inc. Annual Report on Form 10-K filed with the SEC on March 15, 2005)*
10.10(a) Executive Bonus Plan, amended as of January 1, 2006 (incorporated by reference to Exhibit 10.1 of
the CB Richard Ellis Group, Inc. Current Report on Form 8-K filed with the SEC on February 6,
2006)*
10.10(b) Executive Bonus Plan, amended and restated as of March 19, 2007 (incorporated by reference to
Exhibit 10.1 of the CB Richard Ellis Group, Inc. Quarterly Report on Form 10-Q filed with the SEC
on May 10, 2007)*
10.11
10.12
10.13
10.14
11
12
21
23.1
31.1
31.2
32
Amendment to Employment Agreement, dated October 30, 2006, between Robert E. Sulentic and CB
Richard Ellis, Inc. (incorporated by reference to Exhibit 10.2 of the CB Richard Ellis Group, Inc.
Current Report on Form 8-K filed with the SEC on December 22, 2006)*
Amendment to Employment Agreement, dated December 19, 2006, between Robert E. Sulentic and
CB Richard Ellis, Inc. (incorporated by reference to Exhibit 10.3 of the CB Richard Ellis Group, Inc.
Current Report on Form 8-K filed with the SEC on December 22, 2006)*
Mutual Termination Agreement, dated as of February 2, 2007, between CB Richard Ellis, Inc. and
Robert Blain (incorporated by reference to Exhibit 10.18 of the CB Richard Ellis Group, Inc. Annual
Report on Form 10-K filed with the SEC on March 1, 2007)*
Executive Incentive Plan, effective as of January 1, 2007 (incorporated by reference to Exhibit 10.1 of
the CB Richard Ellis Group, Inc. Quarterly Report on Form 10-Q filed with the SEC on August 9,
2007)*
Statement concerning Computation of Per Share Earnings (filed as [Note 19] of the Consolidated
Financial Statements)
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends**
Subsidiaries of CB Richard Ellis Group, Inc.**
Consent of Independent Registered Public Accounting Firm**
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended (adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002)**
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended (adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002)**
Certifications by Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. 1350
(adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)**
Denotes a management contract or compensatory plan or arrangement
*
** Filed herewith
143
EXHIBIT 12
CB RICHARD ELLIS GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(Dollars in thousands)
Income (loss) before provision for income taxes . . . . .
Less: Equity income from unconsolidated
Year ended December 31,
2007
2006
2005
2004
2003
$580,514
$516,897
$356,222
$108,254
$ (40,980)
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,939
33,300
38,425
20,977
14,930
Add: Distributed earnings of unconsolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
117,196
220,213
29,384
120,963
24,997
103,995
11,502
126,190
11,140
112,207
Total earnings before fixed charges . . . . . . . . . . . . . . .
$852,984
$633,944
$446,789
$224,969
$ 67,437
Fixed charges:
Portion of rent expense representative of the
interest factor (1) . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . .
$ 57,222
162,991
—
$ 42,109
45,007
33,847
$ 40,328
56,281
7,386
$ 37,035
68,080
21,075
$ 26,409
72,319
13,479
Total fixed charges . . . . . . . . . . . . . . . . . . . . . . . .
$220,213
$120,963
$103,995
$126,190
$112,207
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . .
3.87
5.24
4.30
1.78
N/A (2)
(1) Represents one-third of operating lease costs, which approximates the portion that relates to the interest
portion.
(2) The ratio of earnings to fixed charges was negative for the year ended December 31, 2003. Additional
earnings of $44.8 million would be needed to have a one-to-one ratio of earnings to fixed charges.
SUBSIDIARIES OF CB RICHARD ELLIS GROUP, INC.
At December 31, 2007
NAME
EXHIBIT 21
State (or Country)
of Incorporation
CB Richard Ellis Services, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
CB Richard Ellis, Inc.
CB Richard Ellis Real Estate Services, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Trammell Crow Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Insignia Financial Group, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Trammell Crow Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
CBRE Melody & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
CBRE Melody of Texas, LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas
CB Richard Ellis Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom
Relam Amsterdam Holdings B.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Netherlands
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-116398 and 333-119362
on Form S-8 of our report dated February 29, 2008 (which report expresses an unqualified opinion and includes
an explanatory paragraph relating to the adoption of a new accounting standard for uncertainty in income taxes),
relating to the financial statements and financial statement schedules of CB Richard Ellis Group, Inc. and the
effectiveness of CB Richard Ellis Group, Inc.’s internal control over financial reporting, appearing in this Annual
Report on Form 10-K of CB Richard Ellis Group, Inc. for the year ended December 31, 2007.
DELOITTE & TOUCHE LLP
Los Angeles, California
February 29, 2008
I, Brett White, certify that:
CERTIFICATIONS
EXHIBIT 31.1
1)
I have reviewed this annual report on Form 10-K of CB Richard Ellis Group, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 29, 2008
/s/ BRETT WHITE
Brett White
Chief Executive Officer
I, Kenneth J. Kay, certify that:
CERTIFICATIONS
EXHIBIT 31.2
1)
I have reviewed this annual report on Form 10-K of CB Richard Ellis Group, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 29, 2008
/s/ KENNETH J. KAY
Kenneth J. Kay
Chief Financial Officer
WRITTEN STATEMENT
PURSUANT TO
18 U.S.C. SECTION 1350
EXHIBIT 32
The undersigned, Brett White, Chief Executive Officer, and Kenneth J. Kay, Chief Financial Officer of CB
Richard Ellis Group, Inc. (the “Company”), hereby certify as of the date hereof, solely for the purposes of 18
U.S.C. §1350, that:
(i) the Annual Report on Form 10-K for the period ending December 31, 2007, of the Company (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company at the dates and for the periods indicated.
Dated: February 29, 2008
/s/ BRETT WHITE
Brett White
Chief Executive Officer
/s/ KENNETH J. KAY
Kenneth J. Kay
Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being
filed as part of the report or as a separate disclosure document.
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
C B RIC H A RD E L L IS [ 2 0 0 7 A NNUA L RE P O R T ]
Dollars in thousands, except share data
TOTAL REVENUE
6,034,249
4,032,027
3,194,026
NORMALIZED EBITDA (2) (3)
970,072
652,533
461,267
07
06(1)
05
07
06(1)
05
Selected Financial Data
In thousands, except share data
Revenue
Depreciation and amortization
Operating income
Equity income from unconsolidated subsidiaries
Minority interest expense
Other (loss) income
Interest expense, net
Loss on extinguishment of debt
Income from continuing operations before provision for income taxes
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Earnings per share
Basic
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Diluted
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income (4)
Weighted average shares outstanding
Basic
Diluted
2007
6,034,249
113,269
698,971
64,939
11,875
(37,534 )
133,987
—
580,514
387,871
2,634
390,505
1.70
0.01
1.71
1.65
0.01
1.66
$
$
$
$
$
$
Year Ended December 31,
2006 (1)
$
$
$
$
$
$
4,032,027
67,595
550,139
33,300
6,120
8,610
35,185
33,847
516,897
318,571
—
318,571
1.41
—
1.41
1.35
—
1.35
2005
3,194,026
45,516
372,406
38,425
2,163
—
45,060
7,386
356,222
217,341
—
217,341
0.98
—
0.98
0.95
—
0.95
$
$
$
$
$
$
228,476,724
234,978,464
226,685,122
235,118,341
222,129,066
229,855,056
EBITDA (2) (3)
$
834,264
$
653,524
$
454,184
(1) The results for the year ended December 31, 2006, include the operations of Trammell Crow Company from December 20, 2006, the date we acquired Trammell Crow Company.
(2) Includes EBITDA related to discontinued operations of $6.5 million for the year ended December 31, 2007.
(3) Reconciliation of Normalized EBITDA to EBITDA to Net Income:
(4) Reconciliation of Net Income to Net Income, As Adjusted, and Calculation of Diluted Earnings per Share,
As Adjusted:
EARNINGS PER SHARE, AS ADJUSTED (4)
In thousands
Normalized EBITDA
Less:
Merger-related charges
2007
Year Ended December 31,
2006
2005
In thousands, except share data
2007
Year Ended December 31,
2006
2005
$
970,072
$
652,533
$
461,267
$
390,505
$
318,571
$
217,341
Integration costs related to acquisitions
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition
56,932
45,222
33,654
—
7,619
(8,610 )
—
7,083
—
$2.11
$1.48
$1.00
07
06(1)
05
EBITDA (2)
Add:
Interest income (i)
Less:
Depreciation and amortization (ii)
Interest expense (iii)
Loss on extinguishment of debt
Provision for income taxes (iv)
$
834,264
$
653,524
$
454,184
29,019
9,822
11,221
113,694
164,829
—
194,255
67,595
45,007
33,847
198,326
45,516
56,281
7,386
138,881
Net income
$
390,505
$
318,571
$
217,341
(i) Includes interest income related to discontinued operations of $0.01 million for the year ended
December 31, 2007. (ii) Includes depreciation and amortization related to discontinued operations of
$0.4 million for the year ended December 31, 2007. (iii) Includes interest expense related to discontinued
operations of $1.8 million for the year ended December 31, 2007. (iv) Includes provision for income taxes
related to discontinued operations of $1.6 million for the year ended December 31, 2007.
Net income
Amortization expense related to net revenue backlog
and incentive fees acquired in acquisitons, net of tax
Merger-related charges, net of tax
24,898
34,159
Integration costs related to acquisitions, net of tax
27,133
Loss (gain) on trading securities acquired in the
Trammell Crow Company acquisition, net of tax
20,095
Loss on extinguishment of debt, net of tax
Tax expense related to the repatriation of foreign
earnings under the American Jobs Creation Act of 2004
—
—
9,681
—
4,594
(5,192 )
20,375
—
—
—
4,435
—
4,626
3,537
229,939
1.00
Net income, as adjusted
Diluted income per share, as adjusted
$
$
496,790
2.11
$
$
348,029
1.48
$
$
Weighted average shares outstanding for diluted
income per share, as adjusted
234,978,464
235,118,341
229,855,056
SHAREHOLDER
INFORMATION
EXECUTIVE
OFFICERS
Brett White
President and
Chief Executive Officer
Kenneth J. Kay
Senior Executive
Vice President and
Chief Financial Officer
Calvin W. Frese, Jr.
Senior Executive
Vice President and
President, The Americas
Robert Blain
President, Asia Pacific
Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
Gil Borok
Executive Vice President, Finance
and Chief Accounting Officer
Laurence H. Midler
Executive Vice President,
General Counsel,
Chief Compliance Officer
and Secretary
HEADQUARTERS
CB Richard Ellis Group, Inc.
11150 Santa Monica Boulevard
Suite 1600
Los Angeles, CA 90025
310.405.8900
2007 INDEPENDENT AUDITORS
Deloitte & Touche LLP
350 South Grand Avenue
Los Angeles, CA 90071-3462
2008 INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071-1568
REGISTRAR AND STOCK
TRANSFER AGENT
If you are a registered shareholder and
have a question about your account,
or would like to report a change in your
name or address, please contact:
The Bank of New York
Shareholder Relations Department
P.O. Box 11258
Church Street Station
New York, New York 10286
800.524.4458
212.815.3700
E-mail: shareowners@bankofnewyork.com
Internet address: www.stockbny.com
Stock Listing
CB Richard Ellis Group, Inc. Class A Common
Stock is listed on the New York Stock
Exchange under the ticker symbol “CBG.”
Common Stock Price
The high and low prices per share of
Common Stock are set forth below for
Fiscal Year 2007.
1Q
2Q
3Q
4Q
High
39.15
39.93
42.74
29.36
$
$
$
$
Low
$
31.22
$ 33.00
$ 23.69
17.49
$
The closing share price for our Class A
Common Stock on December 31, 2007,
as reported by the New York Stock
Exchange, was $21.55.
SHAREHOLDER INQUIRIES
Shareholder inquiries, including requests
for annual reports, may be made in
writing to:
CB Richard Ellis Group, Inc.
Investor Relations Department
200 Park Avenue, 17th Floor
New York, New York 10166
E-mail: investorrelations@cbre.com
Internet address: www.cbre.com
BOARD OF
DIRECTORS
1 Richard C. Blum(A)(D)(E)
Chairman
CB Richard Ellis Group, Inc.
Chairman and President
Richard C. Blum & Associates, Inc.
2 Patrice M. Daniels(B)
Founding Partner
Blue Sky Advisors, Inc.
3 Senator Thomas A. Daschle(D)
Special Policy Advisor
Alston & Bird LLP
4 Curtis F. Feeny(D)
Managing Director
Voyager Capital
5 Bradford M. Freeman(A)(C)
Founding Partner
Freeman Spogli & Co., Inc.
6 Michael Kantor(A)
Partner
Mayer Brown LLP
7 Frederic V. Malek(B)(C)
Chairman
Thayer Capital Partners
8 Jane J. Su(C)
Partner
Blum Capital Partners, L.P.
9 Robert E. Sulentic
Group President,
Development Services,
Asia Pacific and Europe,
Middle East and Africa
CB Richard Ellis Group, Inc.
10 Brett White(A)(E)
President and Chief Executive Officer
CB Richard Ellis Group, Inc.
11 Gary L. Wilson(B)
Private Investor
12 Ray Wirta(A)(E)
Vice Chairman
CB Richard Ellis Group, Inc.
(A) Acquisition Committee
(B) Audit Committee
(C) Compensation Committee
(D) Corporate Governance and
Nominating Committee
(E) Executive Committee
1
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5
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CB Richard Ellis Group, Inc. / 11150 Santa Monica Boulevard, Suite 1600 / Los Angeles, CA 90025
/ Phone: 310.405.8900 / www.cbre.com
THE UNIVERSAL LANGUAGE OF CBRE.
Annual Report 07
Spoken by more than 29,000 CBRE professionals working to create the preeminent, vertically integrated, globally
capable commercial real estate services firm in the world—CB Richard Ellis Group, Inc.
57COU N TR IES
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