Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2015

or

 

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

For the Transition Period from                      to                     

Commission File Number 001 – 32205

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   94-3391143

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

400 South Hope Street, 25th Floor

Los Angeles, California

  90071
(Address of principal executive offices)   (Zip Code)
(213) 613-3333   Not applicable
(Registrant’s telephone number, including area code)  

(Former name, former address and

former fiscal year if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨.

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

 

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

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

The number of shares of Class A common stock outstanding at April 30, 2015 was 332,977,943.

 

 

 


Table of Contents

FORM 10-Q

March 31, 2015

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION    Page  

Item 1.

  Financial Statements   
  Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014      3   
 

Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (Unaudited)

     4   
 

Consolidated Statements of Comprehensive (Loss) Income for the three months ended March  31, 2015 and 2014 (Unaudited)

     5   
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (Unaudited)

     6   
 

Consolidated Statement of Equity for the three months ended March 31, 2015 (Unaudited)

     7   
 

Notes to Consolidated Financial Statements (Unaudited)

     8   

Item 2.

 

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

     34   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     56   

Item 4.

 

Controls and Procedures

     57   

PART II - OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     58   

Item 1A.

 

Risk Factors

     58   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     58   

Item 6.

 

Exhibits

     59   

Signatures

     63   

 

2


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CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

     March 31,
2015
    December 31,
2014
 
     (Unaudited)        
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 379,028      $ 740,884   

Restricted cash

     56,694        28,090   

Receivables, less allowance for doubtful accounts of $39,846 and $41,831 at March 31, 2015 and December 31, 2014, respectively

     1,537,100        1,736,229   

Warehouse receivables

     1,080,364        506,294   

Trading securities

     64,124        62,804   

Income taxes receivable

     30,847        12,709   

Prepaid expenses

     143,197        142,719   

Deferred tax assets, net

     193,324        205,866   

Real estate and other assets held for sale

     5,122        3,845   

Available for sale securities

     849        663   

Other current assets

     103,230        84,401   
  

 

 

   

 

 

 

Total Current Assets

     3,593,879        3,524,504   

Property and equipment, net

     479,751        497,926   

Goodwill

     2,267,009        2,333,821   

Other intangible assets, net of accumulated amortization of $481,795 and $463,400 at March 31, 2015 and December 31, 2014, respectively

     789,017        802,360   

Investments in unconsolidated subsidiaries

     209,805        218,280   

Real estate under development

     7,520        4,630   

Real estate held for investment

     34,880        37,129   

Available for sale securities

     55,587        59,512   

Other assets, net

     188,212        168,943   
  

 

 

   

 

 

 

Total Assets

   $ 7,625,660      $ 7,647,105   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current Liabilities:

    

Accounts payable and accrued expenses

   $ 702,125      $ 827,530   

Compensation and employee benefits payable

     491,318        623,814   

Accrued bonus and profit sharing

     501,337        788,858   

Short-term borrowings:

    

Warehouse lines of credit

     1,065,891        501,185   

Revolving credit facility

     110,000        4,840   

Other

     16        25   
  

 

 

   

 

 

 

Total short-term borrowings

     1,175,907        506,050   

Current maturities of long-term debt

     15,296        42,407   

Notes payable on real estate

     23,253        23,229   

Other current liabilities

     63,753        63,746   
  

 

 

   

 

 

 

Total Current Liabilities

     2,972,989        2,875,634   

Long-Term Debt:

    

5.00% senior notes

     800,000        800,000   

Senior secured term loans

     487,500        605,963   

5.25% senior notes

     426,819        426,813   

Other long-term debt

     23        26   
  

 

 

   

 

 

 

Total Long-Term Debt

     1,714,342        1,832,802   

Notes payable on real estate

     19,952        19,614   

Deferred tax liabilities, net

     152,738        149,233   

Non-current tax liabilities

     47,733        46,003   

Pension liability

     87,152        92,923   

Other liabilities

     325,733        329,498   
  

 

 

   

 

 

 

Total Liabilities

     5,320,639        5,345,707   

Commitments and contingencies

     —          —     

Equity:

    

CBRE Group, Inc. Stockholders’ Equity:

    

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 332,958,718 and 332,991,031 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively

     3,330        3,330   

Additional paid-in capital

     1,052,496        1,039,425   

Accumulated earnings

     1,634,032        1,541,095   

Accumulated other comprehensive loss

     (430,550     (324,020
  

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

     2,259,308        2,259,830   

Non-controlling interests

     45,713        41,568   
  

 

 

   

 

 

 

Total Equity

     2,305,021        2,301,398   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 7,625,660      $ 7,647,105   
  

 

 

   

 

 

 

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

 

3


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CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

   $ 2,052,503       $ 1,860,842   

Costs and expenses:

     

Cost of services

     1,290,777         1,161,460   

Operating, administrative and other

     531,775         528,395   

Depreciation and amortization

     69,846         65,203   
  

 

 

    

 

 

 

Total costs and expenses

     1,892,398         1,755,058   

Gain on disposition of real estate

     —           6,697   
  

 

 

    

 

 

 

Operating income

     160,105         112,481   

Equity income from unconsolidated subsidiaries

     15,451         15,000   

Other income

     1,087         4,801   

Interest income

     2,297         1,577   

Interest expense

     26,214         28,015   

Write-off of financing costs

     2,685         —     
  

 

 

    

 

 

 

Income before provision for income taxes

     150,041         105,844   

Provision for income taxes

     56,903         37,902   
  

 

 

    

 

 

 

Net income

     93,138         67,942   

Less: Net income attributable to non-controlling interests

     201         279   
  

 

 

    

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 92,937       $ 67,663   
  

 

 

    

 

 

 

Basic income per share attributable to CBRE Group, Inc.

   $ 0.28       $ 0.21   
  

 

 

    

 

 

 

Weighted average shares outstanding for basic income per share

     331,976,907         330,035,445   
  

 

 

    

 

 

 

Diluted income per share attributable to CBRE Group, Inc.

   $ 0.28       $ 0.20   
  

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     335,698,590         333,349,519   
  

 

 

    

 

 

 

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

 

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CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
March 31,
 
     2015     2014  

Net income

   $ 93,138      $ 67,942   

Other comprehensive (loss) income:

    

Foreign currency translation (loss) gain

     (105,420     11,573   

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax

     1,795        1,800   

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

     (2,774     (1,504

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

     (166     438   

Other, net

     2        275   
  

 

 

   

 

 

 

Total other comprehensive (loss) income

     (106,563     12,582   

Comprehensive (loss) income

     (13,425     80,524   

Less: Comprehensive income attributable to non-controlling interests

     168        285   
  

 

 

   

 

 

 

Comprehensive (loss) income attributable to CBRE Group, Inc.

   $ (13,593   $ 80,239   
  

 

 

   

 

 

 

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

 

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CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
March 31,
 
         2015             2014      

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 93,138      $ 67,942   

Adjustments to reconcile net income to net cash used in operating activities:

    

Depreciation and amortization

     69,846        65,203   

Amortization and write-off of financing costs

     4,947        1,816   

Gain on sale of loans, servicing rights and other assets

     (38,414     (17,403

Net realized and unrealized gains from investments

     (1,087     (4,801

Equity income from unconsolidated subsidiaries

     (15,451     (15,000

Provision for doubtful accounts

     1,483        1,564   

Compensation expense related to equity awards

     15,941        11,171   

Incremental tax benefit from stock options exercised

     (532     (1,239

Distribution of earnings from unconsolidated subsidiaries

     8,925        3,417   

Tenant concessions received

     5,077        1,252   

Purchase of trading securities

     (20,522     (15,809

Proceeds from sale of trading securities

     19,433        15,726   

Decrease in receivables

     155,574        78,169   

Increase in prepaid expenses and other assets

     (35,952     (25,209

Increase in real estate held for sale and under development

     (1,749     (1,521

Decrease in accounts payable and accrued expenses

     (46,795     (70,779

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

     (383,965     (294,866

Decrease (increase) in income taxes receivable/payable

     444        (59,344

Decrease in other liabilities

     (7,836     (5,433

Other operating activities, net

     (2,355     (4,822
  

 

 

   

 

 

 

Net cash used in operating activities

     (179,850     (269,966

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (18,628     (13,653

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

     (75,033     (14,704

Contributions to unconsolidated subsidiaries

     (14,841     (9,710

Distributions from unconsolidated subsidiaries

     24,422        17,279   

Additions to real estate held for investment

     (670     —     

Proceeds from the sale of servicing rights and other assets

     4,941        9,316   

(Increase) decrease in restricted cash

     (31,358     9,611   

Purchase of available for sale securities

     (11,878     (12,660

Proceeds from the sale of available for sale securities

     15,854        10,999   

Other investing activities, net

     358        26   
  

 

 

   

 

 

 

Net cash used in investing activities

     (106,833     (3,496

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from senior secured term loans

     500,000        —     

Repayment of senior secured term loans

     (645,613     (9,913

Proceeds from revolving credit facility

     264,000        617,765   

Repayment of revolving credit facility

     (158,512     (401,112

Repayment of notes payable on real estate held for investment

     (385     (906

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

     746        2,058   

Shares repurchased for payment of taxes on equity awards

     (5,092     —     

Incremental tax benefit from stock options exercised

     532        1,239   

Non-controlling interests contributions

     4,192        119   

Non-controlling interests distributions

     (748     (2,024

Payment of financing costs

     (21,183     (9

Other financing activities, net

     1,628        1,111   
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (60,435     208,328   

Effect of currency exchange rate changes on cash and cash equivalents

     (14,738     1,459   
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (361,856     (63,675

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     740,884        491,912   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 379,028      $ 428,237   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for:

    

Interest

   $ 37,163      $ 29,424   
  

 

 

   

 

 

 

Income tax payments, net

   $ 56,890      $ 98,063   
  

 

 

   

 

 

 

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

 

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CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

     CBRE Group, Inc. Shareholders     Non-
controlling
interests
    Total  
     Class A
common
stock
    Additional
paid-in
capital
    Accumulated
earnings
     Accumulated
other
comprehensive
loss
     

Balance at December 31, 2014

   $ 3,330      $ 1,039,425      $ 1,541,095       $ (324,020   $ 41,568      $ 2,301,398   

Net income

     —          —          92,937         —          201        93,138   

Stock options exercised (including tax benefit)

     1        2,159        —           —          —          2,160   

Compensation expense for equity awards

     —          15,941        —           —          —          15,941   

Shares repurchased for payment of taxes on equity awards

     (1     (5,091     —           —          —          (5,092

Foreign currency translation loss

     —          —          —           (105,387     (33     (105,420

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax

     —          —          —           1,795        —          1,795   

Unrealized losses on interest rate swaps, net of tax

     —          —          —           (2,774     —          (2,774

Unrealized holding losses on available for sale securities, net of tax

     —          —          —           (166     —          (166

Contributions from non-controlling interests

     —          —          —           —          4,192        4,192   

Distributions to non-controlling interests

     —          —          —           —          (748     (748

Other

     —          62        —           2        533        597   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2015

   $ 3,330      $ 1,052,496      $ 1,634,032       $ (430,550   $ 45,713      $ 2,305,021   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of CBRE Group, Inc., a Delaware corporation (which may be referred to in these financial statements as the “company”, “we”, “us” and “our”), have been prepared in accordance with the rules applicable to Quarterly Reports on Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (GAAP) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of revenue and expenses. Such estimates include the value of goodwill, intangibles and other long-lived assets, real estate assets, accounts receivable, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Certain reclassifications have been made to the 2014 financial statements to conform with the 2015 presentation.

The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2015. The unaudited interim consolidated financial statements and notes to consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2014.

2. New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance under accounting principles generally accepted in the United States, or GAAP, when it becomes effective on January 1, 2017. This ASU permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of this ASU on our ongoing financial reporting.

In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This ASU provides consolidation guidance for legal entities such as limited partnerships, limited liability corporations and securitization structures. ASU 2015-02 offers updated consolidation evaluation criteria and may require additional disclosures. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We do not believe the adoption of ASU 2015-02 will have a material impact on our consolidated financial position, results of operations or disclosure requirements of our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This ASU requires that debt issuance costs related to a

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, and requires the use of the retrospective method. ASU 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. We do not believe the adoption of this ASU will have a material impact on our consolidated financial position.

3. Variable Interest Entities (VIEs)

A consolidated subsidiary (the Venture) in our Global Investment Management segment sponsored investments by third-party investors in certain commercial properties through the formation of tenant-in-common limited liability companies and Delaware Statutory Trusts (collectively referred to as the Entities) that were owned by the third-party investors. The Venture also formed and was a member of a limited liability company for each property that served as master tenant (Master Tenant). Each Master Tenant leased the property from the Entities through a master lease agreement. Pursuant to the master lease agreements, the Master Tenant had the power to direct the day-to-day asset management activities that most significantly impacted the economic performance of the Entities. As a result, the Entities were deemed to be VIEs since the third-party investors holding the equity investment at risk in the Entities did not direct the day-to-day activities that most significantly impacted the economic performance of the properties held by the Entities. The Venture made voluntary contributions to each of these properties to support their operations beyond the cash flow generated by the properties themselves and such financial support was significant enough that the Venture was deemed to be the primary beneficiary of each Entity. During 2014, the remaining two commercial properties were sold.

No financial support was provided by the Venture to the Entities during the three months ended March 31, 2014. The assets of the Entities were the sole collateral for the mortgage notes payable and other liabilities of the Entities and, as such, the creditors and equity investors of these Entities had no recourse to our assets held outside of these Entities.

Operating results relating to the Entities for the three months ended March 31, 2014 included the following (dollars in thousands):

 

Revenue

   $ 2,102   

Operating, administrative and other expenses

   $ 1,233   

Net income attributable to non-controlling interests

   $ 478   

We also hold variable interests in certain VIEs in our Global Investment Management and Development Services segments which are not consolidated as it was determined that we are not the primary beneficiary. Our involvement with these entities is in the form of equity co-investments and fee arrangements.

As of March 31, 2015 and December 31, 2014, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

     March 31,
2015
     December 31,
2014
 

Investments in unconsolidated subsidiaries

   $ 22,863       $ 26,353   

Other assets, current

     3,427         3,337   

Co-investment commitments

     200         200   
  

 

 

    

 

 

 

Maximum exposure to loss

   $ 26,490       $ 29,890   
  

 

 

    

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

4. Fair Value Measurements

The “Fair Value Measurements and Disclosures” Topic of the FASB Accounting Standards Codification (ASC) (Topic 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

   

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

 

   

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

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

There were no significant transfers in or out of Level 1 and Level 2 during the three months ended March 31, 2015 and 2014.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

There have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014. The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of March 31, 2015 and December 31, 2014 (dollars in thousands):

 

     As of March 31, 2015  
     Fair Value Measured and Recorded Using         
         Level 1              Level 2              Level 3          Total  

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 6,337       $ —         $ —         $ 6,337   

Debt securities issued by U.S. federal agencies

     —           6,583         —           6,583   

Corporate debt securities

     —           15,391         —           15,391   

Asset-backed securities

     —           2,749         —           2,749   

Collateralized mortgage obligations

     —           1,933         —           1,933   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     6,337         26,656         —           32,993   

Equity securities

     23,443         —           —           23,443   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     29,780         26,656         —           56,436   

Trading securities

     64,124         —           —           64,124   

Warehouse receivables

     —           1,080,364         —           1,080,364   

Loan commitments

     —           —           4,015         4,015   

Foreign currency exchange forward contracts

     —           17,827         —           17,827   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 93,904       $ 1,124,847       $ 4,015       $ 1,222,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Interest rate swaps

   $ —         $ 28,500       $ —         $ 28,500   

Securities sold, not yet purchased

     3,004         —           —           3,004   

Foreign currency exchange forward contracts

     —           319         —           319   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 3,004       $ 28,819       $ —         $ 31,823   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

     As of December 31, 2014  
     Fair Value Measured and Recorded Using         
           Level 1                Level 2              Level 3                Total        

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 4,813       $ —         $ —         $ 4,813   

Debt securities issued by U.S. federal agencies

     —           6,690         —           6,690   

Corporate debt securities

     —           16,664         —           16,664   

Asset-backed securities

     —           3,755         —           3,755   

Collateralized mortgage obligations

     —           1,959         —           1,959   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     4,813         29,068         —           33,881   

Equity securities

     26,294         —           —           26,294   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     31,107         29,068         —           60,175   

Trading securities

     62,804         —           —           62,804   

Warehouse receivables

     —           506,294         —           506,294   

Loan commitments

     —           —           2,372         2,372   

Foreign currency exchange forward contracts

     —           1,235         —           1,235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 93,911       $ 536,597       $ 2,372       $ 632,880   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Interest rate swaps

   $ —         $ 26,895       $ —         $ 26,895   

Securities sold, not yet purchased

     1,830         —           —           1,830   

Foreign currency exchange forward contracts

     —           1,397         —           1,397   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 1,830       $ 28,292       $ —         $ 30,122   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2015 and 2014.

The following table provides additional information about fair value measurements for these Level 3 assets for the three months ended March 31, 2015 (dollars in thousands):

 

Balance at January 1, 2015

   $ 2,372   

Net gains included in earnings

     4,015   

Settlements

     (2,372

Transfers into (out of) Level 3

     —     
  

 

 

 

Ending balance at March 31, 2015

   $ 4,015   
  

 

 

 

FASB ASC Topic 825, “Financial Instruments” requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Our financial instruments are as follows:

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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

Warehouse Receivables: These balances are carried at fair value based on market prices at the balance sheet date.

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

Foreign Currency Exchange Forward Contracts and Loan Commitments: These assets and liabilities are carried at their fair value as calculated by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative (see Note 5).

Securities Sold, not yet Purchased: These liabilities are carried at their fair value.

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

Senior Secured Term Loans: Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior secured term loans was approximately $500.0 million and $645.1 million at March 31, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $500.0 million and $645.6 million at March 31, 2015 and December 31, 2014, respectively (see Note 10).

Interest Rate Swaps: These liabilities are carried at their fair value as calculated by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative (see Note 5).

5.00% Senior Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 5.00% senior notes was $832.0 million and $818.0 million at March 31, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $800.0 million at both March 31, 2015 and December 31, 2014.

5.25% Senior Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 5.25% senior notes was $457.9 million and $439.7 million at March 31, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $426.8 million at both March 31, 2015 and December 31, 2014.

Notes Payable on Real Estate: As of March 31, 2015 and December 31, 2014, the carrying value of our notes payable on real estate was $43.2 million and $42.8 million, respectively (see Note 9). These borrowings generally have floating interest rates at spreads added to a market rate index. It is likely that some portion of our notes payable on real estate have fair values lower than actual carrying values. Given the cost involved in estimating their fair value, we determined it was not practicable to do so. Additionally, these notes payable were not recourse to us as of March 31, 2015 or December 31, 2014.

5. Derivative Financial Instruments

We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate, liquidity and credit risk primarily by managing the amount,

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

sources and duration of our debt funding and by using derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known but uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings. We do not net derivatives on our balance sheet. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy.

In March 2011, we entered into five interest rate swap agreements, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with FASB ASC Topic 815, “Derivatives and Hedging.” The purpose of these interest rate swap agreements is to attempt to hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. The total notional amount of these interest rate swap agreements is $400.0 million, with $200.0 million expiring in October 2017 and $200.0 million expiring in September 2019. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. There was no significant hedge ineffectiveness for the three months ended March 31, 2015 and 2014. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss on the balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We reclassified $2.9 million and $3.0 million for the three months ended March 31, 2015 and 2014, respectively, from accumulated other comprehensive loss to interest expense. During the next twelve months, we estimate that $11.2 million will be reclassified from accumulated other comprehensive loss to interest expense. In addition, we recorded net losses of $4.5 million and $2.6 million for the three months ended March 31, 2015 and 2014, respectively, to other comprehensive income/loss in relation to such interest rate swap agreements. As of March 31, 2015 and December 31, 2014, the fair values of such interest rate swap agreements were reflected as a $28.5 million liability and a $26.9 million liability, respectively, and were included in other long-term liabilities in the accompanying consolidated balance sheets.

Additionally, our foreign operations expose us to fluctuations in foreign exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency. We enter into derivative financial instruments to attempt to protect the value or fix the amount of certain obligations in terms of our reporting currency, the U.S. dollar. In March 2014, we began a foreign currency exchange forward hedging program by entering into 38 foreign currency exchange forward contracts, including agreements to buy U.S. dollars and sell Australian dollars, Canadian dollars, Japanese yen, Euros and British pound sterling covering an initial notional amount of $209.7 million. The purpose of these forward contracts is to attempt to mitigate the risk of fluctuations in foreign currency exchange rates that would adversely impact some of our foreign currency denominated EBITDA. Hedge accounting was not elected for any of these contracts. As such, changes in the fair values of these contracts are recorded directly in earnings. Included in the consolidated statement of operations were net gains of $18.4 million from foreign currency exchange forward contracts for the three months ended March 31, 2015. The net impact on earnings resulting from gains and/or losses associated with these contracts during the three months ended March 31, 2014 was not significant. As of March 31, 2015, we had 44 foreign currency exchange forward contracts outstanding covering a notional amount of $257.5 million. As of March 31, 2015, the fair value of forward contracts with four counterparties aggregated to a $16.6 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of March 31, 2015, the fair value of forward contracts with one counterparty aggregated to a $0.1 million liability position, which was included in other current liabilities in the accompanying consolidated balance sheets. As of December 31, 2014, the fair value of forward contracts with two counterparties aggregated to a $0.5 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of December 31, 2014, the fair value of forward contracts with four counterparties aggregated to a $1.3 million liability position, which was included in other current liabilities in the accompanying consolidated balance sheets.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

We also routinely monitor our exposure to currency exchange rate changes in connection with certain transactions and sometimes enter into foreign currency exchange option and forward contracts to limit our exposure to such transactions, as appropriate. In the ordinary course of business, we also sometimes utilize derivative financial instruments in the form of foreign currency exchange contracts to attempt to mitigate foreign currency exchange exposure resulting from intercompany loans. Included in the consolidated statements of operations were net gains of $0.4 million for the three months ended March 31, 2015 resulting from net gains on these foreign currency exchange option and forward contracts. The net impact on earnings resulting from gains and/or losses associated with these contracts during the three months ended March 31, 2014 was not significant. As of March 31, 2015, we had four foreign currency exchange option and forward contracts outstanding covering a notional amount of $35.9 million. As of March 31, 2015, the fair value of forward contracts with one counterparty aggregated to a $1.2 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of March 31, 2015, the fair value of forward contracts with one counterparty aggregated to a $0.2 million liability position, which was included in other current liabilities in the accompanying consolidated balance sheets. As of December 31, 2014, the fair value of forward contracts with one counterparty aggregated to a $0.8 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of December 31, 2014, the fair value of forward contracts with one counterparty aggregated to a $0.1 million liability position, which was included in other current liabilities in the accompanying consolidated balance sheets.

We also enter into loan commitments that relate to the origination of commercial mortgage loans that will be held for resale. FASB ASC Topic 815 requires that these commitments be recorded at their fair values as derivatives. Included in the consolidated statements of operations were net gains of $4.0 million for the three months ended March 31, 2015, resulting from gains on these loan commitments. The net impact on earnings resulting from gains and/or losses associated with these loan commitments during the three months ended March 31, 2014 was not significant. As of March 31, 2015, the fair value of such contracts with three counterparties aggregated to a $4.0 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of December 31, 2014, the fair value of such contracts with three counterparties aggregated to a $2.4 million asset position, which was included in other current assets in the accompanying consolidated balance sheets.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

6. Investments in Unconsolidated Subsidiaries

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

 

     Three Months Ended
March 31,
 
     2015      2014  

Global Investment Management:

     

Revenue

   $ 255,727       $ 234,335   

Operating income (loss)

   $ 28,627       $ (171,593

Net loss

   $ (42,956    $ (160,151

Development Services:

     

Revenue

   $ 9,259       $ 14,436   

Operating income

   $ 39,047       $ 16,462   

Net income

   $ 37,636       $ 15,083   

Other:

     

Revenue

   $ 27,587       $ 25,205   

Operating income

   $ 3,526       $ 1,667   

Net income

   $ 3,637       $ 1,688   

Total:

     

Revenue

   $ 292,573       $ 273,976   

Operating income (loss)

   $ 71,200       $ (153,464

Net loss

   $ (1,683    $ (143,380

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

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

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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

 

     March 31,
2015
     December 31,
2014
 

Assets:

     

Real estate held for sale (see Note 8)

   $ 5,115       $ 3,840   

Other current assets

     7         5   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     5,122         3,845   

Liabilities:

     

Accounts payable and accrued expenses

     40         61   
  

 

 

    

 

 

 

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

     40         61   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 5,082       $ 3,784   
  

 

 

    

 

 

 

8. Real Estate

We provide build-to-suit services for our clients and also develop or purchase certain projects which we intend to sell to institutional investors upon project completion or redevelopment. Therefore, we have ownership of real estate until such projects are sold or otherwise disposed. Certain real estate assets secure the outstanding balances of underlying mortgage or construction loans. Our real estate is reported in our Development Services segment and consisted of the following (dollars in thousands):

 

     March 31,
2015
     December 31,
2014
 

Real estate included in assets held for sale (see Note 7)

   $ 5,115       $ 3,840   

Real estate under development (non-current)

     7,520         4,630   

Real estate held for investment (1)

     34,880         37,129   
  

 

 

    

 

 

 

Total real estate (2)

   $ 47,515       $ 45,599   
  

 

 

    

 

 

 

 

(1) Net of accumulated depreciation of $12.7 million and $12.3 million at March 31, 2015 and December 31, 2014, respectively.
(2) Includes balances for lease intangibles of $3.6 million at both March 31, 2015 and December 31, 2014. We record lease intangibles upon acquiring real estate projects with in-place leases. The balances are shown net of amortization, which is recorded as an increase to, or a reduction of, rental income.

9. Notes Payable on Real Estate

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

 

     March 31,
2015
     December 31,
2014
 

Current portion of notes payable on real estate

   $ 23,253       $ 23,229   

Notes payable on real estate, non-current portion

     19,951         19,614   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 43,204       $ 42,843   
  

 

 

    

 

 

 

At both March 31, 2015 and December 31, 2014, none of our notes payable on real estate was recourse to us, but was recourse to the single-purpose entity that held the real estate asset and was the primary obligor on the note payable.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

10. Debt

Since 2001, we have maintained credit facilities to fund strategic acquisitions and to provide for our working capital needs. On March 28, 2013, we entered into a credit agreement (the 2013 Credit Agreement) with a syndicate of banks led by Credit Suisse Group AG (CS) as administrative and collateral agent, to completely refinance a previous credit agreement. On January 9, 2015, we entered into an amended and restated credit agreement (the 2015 Credit Agreement) with a syndicate of banks jointly led by Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and CS. In January 2015, we used the proceeds from the tranche A term loan facility under the 2015 Credit Agreement and from the December 2014 issuance of $125.0 million of 5.25% senior notes due 2025, along with cash on hand, to pay off the prior tranche A and tranche B term loans and the previously outstanding balance on our revolving credit facility under the 2013 Credit Agreement.

As of March 31, 2015, our 2015 Credit Agreement provides for the following: (1) a $2.6 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and matures on January 9, 2020; and (2) a $500.0 million tranche A term loan facility requiring quarterly principal payments, which begin on June 30, 2015 and continue through maturity on January 9, 2020.

The revolving credit facility under the 2015 Credit Agreement allows for borrowings outside of the United States (U.S.), with a $75.0 million sub-facility available to one of our Canadian subsidiaries, a $100.0 million sub-facility available to one of our Australian subsidiaries and one of our New Zealand subsidiaries and a $300.0 million sub-facility 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 2015 Credit Agreement. Borrowings under the revolving credit facility bear interest at varying rates, based at our option, on either the applicable fixed rate plus 1.175% to 1.50% or the daily rate plus 0.175% to 0.50% as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the 2015 Credit Agreement). As of March 31, 2015, we had $110.0 million of revolving credit facility principal outstanding under the 2015 Credit Agreement with a related weighted average annual interest rate of 2.7%, which was included in short-term borrowings in the accompanying consolidated balance sheets. As of March 31, 2015, letters of credit totaling $4.0 million were outstanding under the revolving credit facility. These letters of credit, which reduce the amount we may borrow under the revolving credit facility, were primarily issued in the ordinary course of business. As of December 31, 2014, we had $4.8 million of revolving credit facility principal outstanding under the 2013 Credit Agreement with a related weighted average annual interest rate of 1.4%, which was included in short-term borrowings in the accompanying consolidated balance sheets.

Borrowings under the tranche A term loan facility under the 2015 Credit Agreement as of March 31, 2015 bear interest, based on our option, on either the applicable fixed rate plus 1.375% to 1.85% or the daily rate plus 0.375% to 0.85%, as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the 2015 Credit Agreement). As of March 31, 2015, we had $500.0 million of term loan facility principal outstanding under the 2015 Credit Agreement, which was included in the accompanying consolidated balance sheets. As of December 31, 2014, we had $645.6 million of term loan facilities principal outstanding (including $434.4 million of tranche A term loan facility and $211.2 million of tranche B term loan facility) under the 2013 Credit Agreement, which are also included in the accompanying consolidated balance sheets.

As of March 10, 2015, we obtained Investment Grade Status (as defined in the 2015 Credit Agreement). As such, upon delivery of our first quarter 2015 compliance certificate (due 45 days following the end of such quarter), borrowings under the revolving credit facility will bear interest at varying rates, based at our option, on either (1) the applicable fixed rate plus 0.85% to 1.00% or (2) the daily rate, in each case as determined by reference to our Credit Rating (as defined in the 2015 Credit Agreement). Borrowings under the tranche A term loan facility will bear interest, based on our option, on either (1) the applicable fixed rate plus 0.95% to 1.25% or (2) the daily rate plus 0.0% to 0.25%, in each case as determined by reference to our Credit Rating (as defined in the 2015 Credit Agreement).

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The 2015 Credit Agreement is jointly and severally guaranteed by us and substantially all of our material domestic subsidiaries. Borrowings under the 2015 Credit Agreement are secured by a pledge of substantially all of the capital stock of our U.S. subsidiaries and 65.0% of the capital stock of certain non-U.S. subsidiaries, in each case, held by us and the U.S. guarantor subsidiaries. Also, the 2015 Credit Agreement requires us to pay a fee based on the total amount of the unused revolving credit facility commitment.

Our 2015 Credit Agreement and the indentures governing our 5.00% senior notes and 5.25% senior notes contain numerous restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, create or permit liens on assets, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. Our 2015 Credit Agreement also currently requires us to maintain a minimum coverage ratio of EBITDA (as defined in the 2015 Credit Agreement) to total interest expense of 2.00x and a maximum leverage ratio of total debt less available cash to EBITDA (as defined in the 2015 Credit Agreement) of 4.25x as of the end of each fiscal quarter. Our coverage ratio of EBITDA to total interest expense was 13.02x for the trailing twelve months ended March 31, 2015 and our leverage ratio of total debt less available cash to EBITDA was 1.23x as of March 31, 2015.

11. 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 losses in excess of the amounts accrued arising from such lawsuits are unlikely to be significant, but that litigation is inherently uncertain and there is the potential for a material adverse effect on our financial statements if one or more matters are resolved in a particular period in an amount materially in excess of that anticipated by management.

In January 2008, CBRE Multifamily Capital, Inc. (CBRE MCI), a wholly-owned subsidiary of CBRE Capital Markets, entered into an agreement with Federal National Mortgage Association (Fannie Mae), under Fannie Mae’s DUS Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and in selected cases, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $10.6 billion at March 31, 2015. Additionally, CBRE MCI has funded loans under the DUS Program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $91.4 million at March 31, 2015. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves or other acceptable collateral under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of March 31, 2015 and December 31, 2014, CBRE MCI had a $32.0 million and a $29.0 million, respectively, letter of credit under this reserve arrangement, and had provided approximately $18.7 million and $16.8 million, respectively, of loan loss accruals. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which totaled approximately $855.6 million (including $710.2 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at March 31, 2015.

We had outstanding letters of credit totaling $43.3 million as of March 31, 2015, excluding letters of credit for which we have outstanding liabilities already accrued on our consolidated balance sheet related to our subsidiaries’ outstanding reserves for claims under certain insurance programs as well as letters of credit related to operating leases. CBRE MCI’s letter of credit totaling $32.0 million referred to in the preceding paragraph represented the majority of the $43.3 million outstanding letters of credit. The remaining letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through December 2015.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

We had guarantees totaling $17.4 million as of March 31, 2015, excluding guarantees related to pension liabilities, consolidated indebtedness and other obligations for which we have outstanding liabilities already accrued on our consolidated balance sheet, and operating leases. The $17.4 million primarily represents guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through December 2018, as well as various guarantees of management contracts in our operations overseas, which expire at the end of each of the respective agreements.

In addition, as of March 31, 2015, we had numerous completion and budget guarantees relating to development projects. These guarantees are made by us in the ordinary course of our Development Services business. Each of these guarantees requires us to complete construction of the relevant project within a specified timeframe and/or within a specified budget, with us potentially being liable for costs to complete in excess of such timeframe or budget. However, we generally have “guaranteed maximum price” contracts with reputable general contractors with respect to projects for which we provide these guarantees. These contracts are intended to pass the risk to such contractors. While there can be no assurance, we do not expect to incur any material losses under these guarantees.

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2.0% to 5.0% of the equity in a particular fund. As of March 31, 2015, we had aggregate commitments of $16.5 million to fund future co-investments.

Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of March 31, 2015, we had committed to fund $22.0 million of additional capital to these unconsolidated subsidiaries.

12. Income Per Share Information

The following is a calculation of income per share (dollars in thousands, except share data):

 

     Three Months Ended
March 31,
 
     2015      2014  

Computation of basic income per share attributable to CBRE Group, Inc. shareholders:

     

Net income attributable to CBRE Group, Inc. shareholders

   $ 92,937       $ 67,663   

Weighted average shares outstanding for basic income per share

     331,976,907         330,035,445   
  

 

 

    

 

 

 

Basic income per share attributable to CBRE Group, Inc. shareholders

   $ 0.28       $ 0.21   
  

 

 

    

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2015      2014  

Computation of diluted income per share attributable to CBRE Group, Inc. shareholders:

     

Net income attributable to CBRE Group, Inc. shareholders

   $ 92,937       $ 67,663   

Weighted average shares outstanding for basic income per share

     331,976,907         330,035,445   

Dilutive effect of contingently issuable shares

     3,444,604         2,880,113   

Dilutive effect of stock options

     277,079         433,961   
  

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     335,698,590         333,349,519   
  

 

 

    

 

 

 

Diluted income per share attributable to CBRE Group, Inc. shareholders

   $ 0.28       $ 0.20   
  

 

 

    

 

 

 

For the three months ended March 31, 2015 and 2014, 47,757 and 20,065, respectively, of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

For the three months ended March 31, 2014, options to purchase 37,598 shares of common stock were excluded from the computation of diluted earnings per share. These options were excluded because their inclusion would have had an anti-dilutive effect given that the options’ exercise prices were greater than the average market price of our common stock for such period.

13. Pensions

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

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

 

     Three Months Ended
March 31,
 
     2015      2014  

Interest cost

   $ 3,741       $ 4,431   

Expected return on plan assets

     (4,612      (5,796

Amortization of unrecognized net loss

     1,031         662   
  

 

 

    

 

 

 

Net periodic pension cost (benefit)

   $ 160       $ (703
  

 

 

    

 

 

 

We contributed $1.9 million to fund our pension plans during the three months ended March 31, 2015. We expect to contribute a total of $6.4 million to fund our pension plans for the year ending December 31, 2015.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

14. Segments

We report our operations through the following segments: (1) Americas, (2) EMEA, (3) Asia Pacific, (4) Global Investment Management and (5) Development Services.

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

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

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

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

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

 

     Three Months Ended
March 31,
 
     2015      2014  

Revenue

     

Americas

   $ 1,227,616       $ 1,021,681   

EMEA

     494,024         518,679   

Asia Pacific

     208,366         195,643   

Global Investment Management

     110,224         112,463   

Development Services

     12,273         12,376   
  

 

 

    

 

 

 
   $ 2,052,503       $ 1,860,842   
  

 

 

    

 

 

 

 

     Three Months Ended
March 31,
 
     2015      2014  

EBITDA

     

Americas

   $ 187,321       $ 125,762   

EMEA

     7,578         23,365   

Asia Pacific

     10,550         8,241   

Global Investment Management

     34,880         28,263   

Development Services

     5,959         11,575   
  

 

 

    

 

 

 
   $ 246,288       $ 197,206   
  

 

 

    

 

 

 

EBITDA represents earnings before net interest expense, write-off of financing costs, income taxes, depreciation and amortization. Our management believes EBITDA is useful in evaluating our operating

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 would include impairment charges of goodwill and intangibles created from acquisitions. Such 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 operating performance of our various business segments and for other discretionary purposes, including as a significant component when measuring our operating performance under our employee incentive programs. Additionally, we believe EBITDA is useful to investors to assist them in getting a more complete picture of our results of operations.

However, EBITDA is not a recognized measurement under 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 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.

Net interest expense and write-off of financing costs have been expensed in the segment incurred. Provision 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):

 

     Three Months Ended
March 31,
 
     2015      2014  

Americas

     

Net income attributable to CBRE Group, Inc.

   $ 95,202       $ 70,466   

Add:

     

Depreciation and amortization

     42,950         34,158   

Interest expense, net

     3,546         9,186   

Write-off of financing costs

     2,685         —     

Royalty and management service expense (income)

     108         (864

Provision for income taxes

     42,830         12,816   
  

 

 

    

 

 

 

EBITDA

   $ 187,321       $ 125,762   
  

 

 

    

 

 

 

EMEA

     

Net loss attributable to CBRE Group, Inc.

   $ (18,486    $ (6,990

Add:

     

Depreciation and amortization

     14,792         17,463   

Interest expense, net

     11,447         7,159   

Royalty and management service income

     (1,217      (3,885

Provision for income taxes

     1,042         9,618   
  

 

 

    

 

 

 

EBITDA

   $ 7,578       $ 23,365   
  

 

 

    

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2015      2014  

Asia Pacific

     

Net income (loss) attributable to CBRE Group, Inc.

   $ 2,659       $ (4,244

Add:

     

Depreciation and amortization

     3,846         3,068   

Interest expense, net

     898         335   

Royalty and management service expense

     63         3,639   

Provision for income taxes

     3,084         5,443   
  

 

 

    

 

 

 

EBITDA

   $ 10,550       $ 8,241   
  

 

 

    

 

 

 

Global Investment Management

     

Net income attributable to CBRE Group, Inc.

   $ 10,708       $ 2,828   

Add:

     

Depreciation and amortization

     7,611         9,366   

Interest expense, net

     7,684         8,841   

Royalty and management service expense

     1,046         1,110   

Provision for income taxes

     7,831         6,118   
  

 

 

    

 

 

 

EBITDA

   $ 34,880       $ 28,263   
  

 

 

    

 

 

 

Development Services

     

Net income attributable to CBRE Group, Inc.

   $ 2,854       $ 5,603   

Add:

     

Depreciation and amortization

     647         1,148   

Interest expense, net

     342         917   

Provision for income taxes

     2,116         3,907   
  

 

 

    

 

 

 

EBITDA

   $ 5,959       $ 11,575   
  

 

 

    

 

 

 

15. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of March 31, 2015 and December 31, 2014; condensed consolidating statements of operations for the three months ended March 31, 2015 and 2014; condensed consolidating statements of comprehensive income (loss) for the three months ended March 31, 2015 and 2014; and condensed consolidating statements of cash flows for the three months ended March 31, 2015 and 2014 of (a) CBRE Group, Inc. as the parent, (b) CBRE Services, Inc. (CBRE) as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) CBRE Group, Inc. on a consolidated basis; and

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

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 5,653      $ 33,654      $ 339,716      $ —        $ 379,028   

Restricted cash

    —          —          3,961        52,733        —          56,694   

Receivables, net

    —          —          641,188        895,912        —          1,537,100   

Warehouse receivables (a)

    —          —          343,406        736,958        —          1,080,364   

Trading securities

    —          —          113        64,011        —          64,124   

Income taxes receivable

    4,960        —          12,557        13,330        —          30,847   

Prepaid expenses

    —          —          58,348        84,849        —          143,197   

Deferred tax assets, net

    —          —          140,746        52,578        —          193,324   

Real estate and other assets held for sale

    —          —          1,062        4,060        —          5,122   

Available for sale securities

    —          —          849        —          —          849   

Other current assets

    —          17,777        51,474        33,979        —          103,230   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    4,965        23,430        1,287,358        2,278,126        —          3,593,879   

Property and equipment, net

    —          —          350,384        129,367        —          479,751   

Goodwill

    —          —          1,200,012        1,066,997        —          2,267,009   

Other intangible assets, net

    —          —          505,278        283,739        —          789,017   

Investments in unconsolidated subsidiaries

    —          —          170,732        39,073        —          209,805   

Investments in consolidated subsidiaries

    3,074,751        2,448,431        809,953        —          (6,333,135     —     

Intercompany loan receivable

    —          2,423,383        700,000        —          (3,123,383     —     

Real estate under development

    —          —          831        6,689        —          7,520   

Real estate held for investment

    —          —          5,609        29,271        —          34,880   

Available for sale securities

    —          —          53,800        1,787        —          55,587   

Other assets, net

    —          50,913        100,868        36,431        —          188,212   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 3,079,716      $ 4,946,157      $ 5,184,825      $ 3,871,480      $ (9,456,518   $ 7,625,660   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 5,355      $ 173,257      $ 523,513      $ —        $ 702,125   

Compensation and employee benefits payable

    —          626        271,013        219,679        —          491,318   

Accrued bonus and profit sharing

    —          —          189,756        311,581        —          501,337   

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          341,542        724,349        —          1,065,891   

Revolving credit facility

    —          110,000        —          —          —          110,000   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          110,000        341,558        724,349        —          1,175,907   

Current maturities of long-term debt

    —          12,500        2,775        21        —          15,296   

Notes payable on real estate

    —          —          —          23,253        —          23,253   

Other current liabilities

    —          106        59,713        3,934        —          63,753   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          128,587        1,038,072        1,806,330        —          2,972,989   

Long-Term Debt:

           

5.00% senior notes

    —          800,000        —          —          —          800,000   

Senior secured term loans

    —          487,500        —          —          —          487,500   

5.25% senior notes

    —          426,819        —          —          —          426,819   

Other long-term debt

    —          —          —          23        —          23   

Intercompany loan payable

    820,408        —          1,328,460        974,515        (3,123,383     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    820,408        1,714,319        1,328,460        974,538        (3,123,383     1,714,342   

Notes payable on real estate

    —          —          —          19,952        —          19,952   

Deferred tax liabilities, net

    —          —          104,418        48,320        —          152,738   

Non-current tax liabilities

    —          —          47,651        82        —          47,733   

Pension liability

    —          —          —          87,152        —          87,152   

Other liabilities

    —          28,500        217,793        79,440        —          325,733   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    820,408        1,871,406        2,736,394        3,015,814        (3,123,383     5,320,639   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    2,259,308        3,074,751        2,448,431        809,953        (6,333,135     2,259,308   

Non-controlling interests

    —          —          —          45,713        —          45,713   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    2,259,308        3,074,751        2,448,431        855,666        (6,333,135     2,305,021   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 3,079,716      $ 4,946,157      $ 5,184,825      $ 3,871,480      $ (9,456,518   $ 7,625,660   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 5.00% senior notes, 5.25% senior notes and our 2015 Credit Agreement, a substantial majority of warehouse receivables funded under Bank of America (BofA), TD Bank, N.A. (TD Bank), Capital One, N.A. (Capital One), JP Morgan Chase Bank, N.A. (JP Morgan) and Fannie Mae ASAP lines of credit are pledged to BofA, TD Bank, Capital One, JP Morgan and Fannie Mae, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 18,262      $ 374,103      $ 348,514      $ —        $ 740,884   

Restricted cash

    —          —          630        27,460        —          28,090   

Receivables, net

    —          —          605,044        1,131,185        —          1,736,229   

Warehouse receivables (a)

    —          —          339,921        166,373        —          506,294   

Trading securities

    —          —          115        62,689        —          62,804   

Income taxes receivable

    19,443        —          —          10,603        (17,337     12,709   

Prepaid expenses

    —          —          62,902        79,817        —          142,719   

Deferred tax assets, net

    —          —          140,761        65,105        —          205,866   

Real estate and other assets held for sale

    —          —          —          3,845        —          3,845   

Available for sale securities

    —          —          663        —          —          663   

Other current assets

    —          1,185        50,429        32,787        —          84,401   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    19,448        19,447        1,574,568        1,928,378        (17,337     3,524,504   

Property and equipment, net

    —          —          361,899        136,027        —          497,926   

Goodwill

    —          —          1,196,418        1,137,403        —          2,333,821   

Other intangible assets, net

    —          —          493,058        309,302        —          802,360   

Investments in unconsolidated subsidiaries

    —          —          173,738        44,542        —          218,280   

Investments in consolidated subsidiaries

    3,019,410        2,433,913        914,895        —          (6,368,218     —     

Intercompany loan receivable

    —          2,453,215        700,000        —          (3,153,215     —     

Real estate under development

    —          —          828        3,802        —          4,630   

Real estate held for investment

    —          —          6,814        30,315        —          37,129   

Available for sale securities

    —          —          57,714        1,798        —          59,512   

Other assets, net

    —          33,581        98,139        37,223        —          168,943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 3,038,858      $ 4,940,156      $ 5,578,071      $ 3,628,790      $ (9,538,770   $ 7,647,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 19,541      $ 257,591      $ 550,398      $ —        $ 827,530   

Compensation and employee benefits payable

    —          626        346,663        276,525        —          623,814   

Accrued bonus and profit sharing

    —          —          425,329        363,529        —          788,858   

Income taxes payable

    —          —          17,337        —          (17,337     —     

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          337,184        164,001        —          501,185   

Revolving credit facility

    —          —          —          4,840        —          4,840   

Other

    —          —          16        9        —          25   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          —          337,200        168,850        —          506,050   

Current maturities of long-term debt

    —          39,650        2,734        23        —          42,407   

Notes payable on real estate

    —          —          —          23,229        —          23,229   

Other current liabilities

    —          1,258        58,357        4,131        —          63,746   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          61,075        1,445,211        1,386,685        (17,337     2,875,634   

Long-Term Debt:

           

5.00% senior notes

    —          800,000        —          —          —          800,000   

Senior secured term loans

    —          605,963        —          —          —          605,963   

5.25% senior notes

    —          426,813        —          —          —          426,813   

Other long-term debt

    —          —          —          26        —          26   

Intercompany loan payable

    779,028        —          1,350,424        1,023,763        (3,153,215     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    779,028        1,832,776        1,350,424        1,023,789        (3,153,215     1,832,802   

Notes payable on real estate

    —          —          —          19,614        —          19,614   

Deferred tax liabilities, net

    —          —          87,486        61,747        —          149,233   

Non-current tax liabilities

    —          —          45,936        67        —          46,003   

Pension liability

    —          —          —          92,923        —          92,923   

Other liabilities

    —          26,895        215,101        87,502        —          329,498   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    779,028        1,920,746        3,144,158        2,672,327        (3,170,552     5,345,707   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    2,259,830        3,019,410        2,433,913        914,895        (6,368,218     2,259,830   

Non-controlling interests

    —          —          —          41,568        —          41,568   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    2,259,830        3,019,410        2,433,913        956,463        (6,368,218     2,301,398   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 3,038,858      $ 4,940,156      $ 5,578,071      $ 3,628,790      $ (9,538,770   $ 7,647,105   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 5.00% senior notes, 5.25% senior notes and our 2013 Credit Agreement, a substantial majority of warehouse receivables funded under BofA, JP Morgan, Capital One and Fannie Mae ASAP lines of credit are pledged to BofA, JP Morgan, Capital One and Fannie Mae, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

26


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 1,157,871      $ 894,632      $ —        $ 2,052,503   

Costs and expenses:

           

Cost of services

    —          —          717,643        573,134        —          1,290,777   

Operating, administrative and other

    13,144        (18,620     284,587        252,664        —          531,775   

Depreciation and amortization

    —          —          36,527        33,319        —          69,846   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    13,144        (18,620     1,038,757        859,117        —          1,892,398   

Operating (loss) income

    (13,144     18,620        119,114        35,515        —          160,105   

Equity income from unconsolidated subsidiaries

    —          —          15,321        130        —          15,451   

Other income

    —          —          924        163        —          1,087   

Interest income

    —          55,367        674        1,623        (55,367     2,297   

Interest expense

    —          24,886        39,402        17,293        (55,367     26,214   

Write-off of financing costs

    —          2,685        —          —          —          2,685   

Royalty and management service (income) expense

    —          —          (4,102     4,102        —          —     

Income from consolidated subsidiaries

    101,121        72,220        225        —          (173,566     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    87,977        118,636        100,958        16,036        (173,566     150,041   

(Benefit of) provision for income taxes

    (4,960     17,515        28,738        15,610        —          56,903   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    92,937        101,121        72,220        426        (173,566     93,138   

Less: Net income attributable to non-controlling interests

    —          —          —          201        —          201   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 92,937      $ 101,121      $ 72,220      $ 225      $ (173,566   $ 92,937   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 956,638      $ 904,204      $ —        $ 1,860,842   

Costs and expenses:

           

Cost of services

    —          —          594,917        566,543        —          1,161,460   

Operating, administrative and other

    9,672        1,399        253,985        263,339        —          528,395   

Depreciation and amortization

    —          —          31,181        34,022        —          65,203   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    9,672        1,399        880,083        863,904        —          1,755,058   

Gain on disposition of real estate

    —          —          6,697        —          —          6,697   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (9,672     (1,399     83,252        40,300        —          112,481   

Equity income (loss) from unconsolidated subsidiaries

    —          —          17,202        (2,202     —          15,000   

Other income

    —          —          842        3,959        —          4,801   

Interest income

    —          52,270        600        972        (52,265     1,577   

Interest expense

    —          24,602        42,026        13,652        (52,265     28,015   

Royalty and management service (income) expense

    —          —          (1,858     1,858        —          —     

Income (loss) from consolidated subsidiaries

    73,729        57,255        (2,837     —          (128,147     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    64,057        83,524        58,891        27,519        (128,147     105,844   

(Benefit of) provision for income taxes

    (3,606     9,795        1,636        30,077        —          37,902   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    67,663        73,729        57,255        (2,558     (128,147     67,942   

Less: Net income attributable to non-controlling interests

    —          —          —          279        —          279   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to CBRE Group, Inc.

  $ 67,663      $ 73,729      $ 57,255      $ (2,837   $ (128,147   $ 67,663   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Net income

  $ 92,937      $ 101,121      $ 72,220      $ 426      $ (173,566   $ 93,138   

Other comprehensive loss:

           

Foreign currency translation loss

    —          —          —          (105,420     —          (105,420

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax

    —          1,795        —          —          —          1,795   

Unrealized losses on interest rate swaps, net of tax

    —          (2,774     —          —          —          (2,774

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

    —          —          (287     121        —          (166

Other, net

    —          —          2        —          —          2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive loss

    —          (979     (285     (105,299     —          (106,563

Comprehensive income (loss)

    92,937        100,142        71,935        (104,873     (173,566     (13,425

Less: Comprehensive income attributable to non-controlling interests

    —          —          —          168        —          168   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to CBRE Group, Inc.

  $ 92,937      $ 100,142      $ 71,935      $ (105,041   $ (173,566   $ (13,593
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Net income (loss)

  $ 67,663      $ 73,729      $ 57,255      $ (2,558   $ (128,147   $ 67,942   

Other comprehensive income:

           

Foreign currency translation gain

    —          —          —          11,573        —          11,573   

Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax

    —          1,800        —          —          —          1,800   

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

    —          (1,565     —          61        —          (1,504

Unrealized holding gains on available for sale securities, net of tax

    —          —          368        70        —          438   

Other, net

    —          —          275        —          —          275   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    —          235        643        11,704        —          12,582   

Comprehensive income

    67,663        73,964        57,898        9,146        (128,147     80,524   

Less: Comprehensive income attributable to non-controlling interests

    —          —          —          285        —          285   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

  $ 67,663      $ 73,964      $ 57,898      $ 8,861      $ (128,147   $ 80,239   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

  $ 22,240      $ 828      $ (296,579   $ 93,661      $ (179,850

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Capital expenditures

    —          —          (8,536     (10,092     (18,628

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

    —          —          (73,061     (1,972     (75,033

Contributions to unconsolidated subsidiaries

    —          —          (13,930     (911     (14,841

Distributions from unconsolidated subsidiaries

    —          —          22,865        1,557        24,422   

Additions to real estate held for investment

    —          —          —          (670     (670

Proceeds from the sale of servicing rights and other assets

    —          —          2,410        2,531        4,941   

Increase in restricted cash

    —          —          (3,331     (28,027     (31,358

Purchase of available for sale securities

    —          —          (11,878     —          (11,878

Proceeds from the sale of available for sale securities

    —          —          15,854        —          15,854   

Other investing activities, net

    —          —          358        —          358   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —          —          (69,249     (37,584     (106,833

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Proceeds from senior secured term loans

    —          500,000        —          —          500,000   

Repayment of senior secured term loans

    —          (645,613     —          —          (645,613

Proceeds from revolving credit facility

    —          264,000        —          —          264,000   

Repayment of revolving credit facility

    —          (154,000     —          (4,512     (158,512

Repayment of notes payable on real estate held for investment

    —          —          —          (385     (385

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

    —          —          —          746        746   

Shares repurchased for payment of taxes on equity awards

    (5,092     —          —          —          (5,092

Incremental tax benefit from stock options exercised

    532        —          —          —          532   

Non-controlling interests contributions

    —          —          —          4,192        4,192   

Non-controlling interests distributions

    —          —          —          (748     (748

Payment of financing costs

    —          (21,183     —          —          (21,183

(Increase) decrease in intercompany receivables, net

    (19,308     43,359        25,379        (49,430     —     

Other financing activities, net

    1,628        —          —          —          1,628   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (22,240     (13,437     25,379        (50,137     (60,435

Effect of currency exchange rate changes on cash and cash equivalents

    —          —          —          (14,738     (14,738
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

    —          (12,609     (340,449     (8,798     (361,856

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

    5        18,262        374,103        348,514        740,884   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

  $ 5      $ 5,653      $ 33,654      $ 339,716      $ 379,028   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

         

Cash paid during the period for:

         

Interest

  $ —        $ 36,358      $ —        $ 805      $ 37,163   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax payments, net

  $ —        $ —        $ 34,160      $ 22,730      $ 56,890   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

  $ 17,391      $ 42,115      $ (333,507   $ 4,035      $ (269,966

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Capital expenditures

    —          —          (8,070     (5,583     (13,653

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

    —          —          (5,310     (9,394     (14,704

Contributions to unconsolidated subsidiaries

    —          —          (9,709     (1     (9,710

Distributions from unconsolidated subsidiaries

    —          —          17,121        158        17,279   

Proceeds from the sale of servicing rights and other assets

    —          —          8,354        962        9,316   

Decrease in restricted cash

    —          6,871        1,515        1,225        9,611   

Purchase of available for sale securities

    —          —          (12,660     —          (12,660

Proceeds from the sale of available for sale securities

    —          —          10,999        —          10,999   

Other investing activities, net

    —          —          23        3        26