Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 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 July 31, 2015 was 333,179,917.

 

 

 


Table of Contents

FORM 10-Q

June 30, 2015

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION    Page  

Item 1.

  Financial Statements   
  Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014      3   
 

Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)

     4   
 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014 (Unaudited)

     5   
 

Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)

     6   
 

Consolidated Statement of Equity for the six months ended June 30, 2015 (Unaudited)

     7   
 

Notes to Consolidated Financial Statements (Unaudited)

     8   

Item 2.

 

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

     38   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     63   

Item 4.

 

Controls and Procedures

     64   

PART II - OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     65   

Item 1A.

 

Risk Factors

     65   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     65   

Item 6.

 

Exhibits

     66   

Signatures

     69   

 

2


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

     June 30,
2015
    December 31,
2014
 
     (Unaudited)        
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 336,422      $ 740,884   

Restricted cash

     66,011        28,090   

Receivables, less allowance for doubtful accounts of $44,060 and $41,831 at June 30, 2015 and December 31, 2014, respectively

     1,604,620        1,736,229   

Warehouse receivables

     750,816        506,294   

Trading securities

     68,553        62,804   

Income taxes receivable

     49,995        12,709   

Prepaid expenses

     154,460        142,719   

Deferred tax assets, net

     204,858        205,866   

Real estate and other assets held for sale

     1,899        3,845   

Available for sale securities

     1,129        663   

Other current assets

     104,193        84,401   
  

 

 

   

 

 

 

Total Current Assets

     3,342,956        3,524,504   

Property and equipment, net

     484,032        497,926   

Goodwill

     2,313,819        2,333,821   

Other intangible assets, net of accumulated amortization of $520,767 and $463,400 at June 30, 2015 and December 31, 2014, respectively

     806,102        802,360   

Investments in unconsolidated subsidiaries

     222,539        218,280   

Real estate under development

     13,868        4,630   

Real estate held for investment

     21,217        37,129   

Available for sale securities

     58,123        59,512   

Other assets, net

     197,603        168,943   
  

 

 

   

 

 

 

Total Assets

   $ 7,460,259      $ 7,647,105   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current Liabilities:

    

Accounts payable and accrued expenses

   $ 764,524      $ 827,530   

Compensation and employee benefits payable

     577,967        623,814   

Accrued bonus and profit sharing

     421,108        788,858   

Short-term borrowings:

    

Warehouse lines of credit

     743,592        501,185   

Revolving credit facility

     —          4,840   

Other

     895        25   
  

 

 

   

 

 

 

Total short-term borrowings

     744,487        506,050   

Current maturities of long-term debt

     13,894        42,407   

Notes payable on real estate

     1,625        23,229   

Other current liabilities

     71,169        63,746   
  

 

 

   

 

 

 

Total Current Liabilities

     2,594,774        2,875,634   

Long-Term Debt:

    

5.00% senior notes

     800,000        800,000   

Senior term loans

     484,375        605,963   

5.25% senior notes

     426,774        426,813   

Other long-term debt

     7        26   
  

 

 

   

 

 

 

Total Long-Term Debt

     1,711,156        1,832,802   

Notes payable on real estate

     23,194        19,614   

Deferred tax liabilities, net

     167,294        149,233   

Non-current tax liabilities

     48,869        46,003   

Pension liability

     91,028        92,923   

Other liabilities

     320,416        329,498   
  

 

 

   

 

 

 

Total Liabilities

     4,956,731        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; 333,100,934 and 332,991,031 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

     3,331        3,330   

Additional paid-in capital

     1,067,934        1,039,425   

Accumulated earnings

     1,759,061        1,541,095   

Accumulated other comprehensive loss

     (370,734     (324,020
  

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

     2,459,592        2,259,830   

Non-controlling interests

     43,936        41,568   
  

 

 

   

 

 

 

Total Equity

     2,503,528        2,301,398   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 7,460,259      $ 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
June 30,
     Six Months Ended
June 30,
 
     2015     2014      2015      2014  

Revenue

   $ 2,390,506      $ 2,126,806       $ 4,443,009       $ 3,987,648   

Costs and expenses:

          

Cost of services

     1,487,974        1,314,473         2,778,751         2,475,933   

Operating, administrative and other

     610,158        566,202         1,141,933         1,094,597   

Depreciation and amortization

     70,605        63,295         140,451         128,498   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total costs and expenses

     2,168,737        1,943,970         4,061,135         3,699,028   

Gain on disposition of real estate

     6,986        23,170         6,986         29,867   
  

 

 

   

 

 

    

 

 

    

 

 

 

Operating income

     228,755        206,006         388,860         318,487   

Equity income from unconsolidated subsidiaries

     6,693        9,264         22,144         24,264   

Other (loss) income

     (1,069     6,364         18         11,165   

Interest income

     1,402        1,146         3,699         2,723   

Interest expense

     26,154        28,470         52,368         56,485   

Write-off of financing costs

     —          —           2,685         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Income before provision for income taxes

     209,627        194,310         359,668         300,154   

Provision for income taxes

     76,474        64,111         133,377         102,013   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income

     133,153        130,199         226,291         198,141   

Less: Net income attributable to non-controlling interests

     8,124        24,735         8,325         25,014   
  

 

 

   

 

 

    

 

 

    

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 125,029      $ 105,464       $ 217,966       $ 173,127   
  

 

 

   

 

 

    

 

 

    

 

 

 

Basic income per share attributable to CBRE Group, Inc.

   $ 0.38      $ 0.32       $ 0.66       $ 0.52   
  

 

 

   

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding for basic income per share

     331,999,935        330,133,061         331,988,489         330,084,525   
  

 

 

   

 

 

    

 

 

    

 

 

 

Diluted income per share attributable to CBRE Group, Inc.

   $ 0.37      $ 0.32       $ 0.65       $ 0.52   
  

 

 

   

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     336,154,524        333,918,620         335,926,626         333,634,342   
  

 

 

   

 

 

    

 

 

    

 

 

 

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

 

4


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015      2014     2015     2014  

Net income

   $ 133,153       $ 130,199      $ 226,291      $ 198,141   

Other comprehensive income (loss):

         

Foreign currency translation gain (loss)

     57,508         24,873        (47,912     36,446   

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

     1,809         1,826        3,604        3,626   

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

     263         (2,810     (2,511     (4,314

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

     237         (1,294     71        (856

Other, net

     16         (140     18        135   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     59,833         22,455        (46,730     35,037   

Comprehensive income

     192,986         152,654        179,561        233,178   

Less: Comprehensive income attributable to non-controlling interests

     8,141         24,738        8,309        25,023   
  

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

   $ 184,845       $ 127,916      $ 171,252      $ 208,155   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

5


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2015     2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 226,291      $ 198,141   

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

    

Depreciation and amortization

     140,451        128,498   

Amortization and write-off of financing costs

     7,264        3,645   

Gain on sale of loans, servicing rights and other assets

     (74,135     (33,277

Net realized and unrealized gains from investments

     (18     (11,165

Gain on disposition of real estate held for investment

     (6,488     (23,028

Equity income from unconsolidated subsidiaries

     (22,144     (24,264

Provision for doubtful accounts

     4,412        4,507   

Deferred income taxes

     (2,410     (7,884

Compensation expense related to equity awards

     29,132        24,471   

Incremental tax benefit from stock options exercised

     (1,078     (2,158

Distribution of earnings from unconsolidated subsidiaries

     13,174        9,297   

Tenant concessions received

     6,262        6,199   

Purchase of trading securities

     (42,653     (35,728

Proceeds from sale of trading securities

     35,596        32,786   

Decrease (increase) in receivables

     113,769        (123,958

Increase in prepaid expenses and other assets

     (43,118     (21,841

(Increase) decrease in real estate held for sale and under development

     (3,417     4,438   

Decrease in accounts payable and accrued expenses

     (9,767     (62,939

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

     (390,333     (223,419

Increase in income taxes receivable/payable

     (14,125     (72,131

(Decrease) increase in other liabilities

     (4,971     10,820   

Other operating activities, net

     (3,885     (4,994
  

 

 

   

 

 

 

Net cash used in operating activities

     (42,191     (223,984
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (50,388     (53,605

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

     (94,975     (29,777

Contributions to unconsolidated subsidiaries

     (27,571     (25,440

Distributions from unconsolidated subsidiaries

     27,269        22,847   

Net proceeds from disposition of real estate held for investment

     —          68,183   

Additions to real estate held for investment

     (1,411     (5,144

Proceeds from the sale of servicing rights and other assets

     12,615        12,820   

(Increase) decrease in restricted cash

     (38,678     14,201   

Purchase of available for sale securities

     (23,453     (41,466

Proceeds from the sale of available for sale securities

     24,563        35,056   

Other investing activities, net

     1,192        327   
  

 

 

   

 

 

 

Net cash used in investing activities

     (170,837     (1,998
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from senior term loans

     500,000        —     

Repayment of senior term loans

     (648,738     (19,825

Proceeds from revolving credit facility

     831,000        1,154,568   

Repayment of revolving credit facility

     (835,512     (962,315

Proceeds from notes payable on real estate held for investment

     —          3,575   

Repayment of notes payable on real estate held for investment

     (776     (22,990

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

     4,404        4,885   

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

     —          (32,984

Proceeds from short-term borrowings, net

     569        6,538   

Shares repurchased for payment of taxes on equity awards

     (5,113     (15

Proceeds from exercise of stock options

     3,214        2,209   

Incremental tax benefit from stock options exercised

     1,078        2,158   

Non-controlling interests contributions

     4,405        574   

Non-controlling interests distributions

     (10,637     (24,120

Payment of financing costs

     (22,225     (104

Other financing activities, net

     (2,138     (1,431
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (180,469     110,723   

Effect of currency exchange rate changes on cash and cash equivalents

     (10,965     5,213   
  

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (404,462     (110,046

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     740,884        491,912   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 336,422      $ 381,866   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for:

    

Interest

   $ 43,123      $ 51,214   
  

 

 

   

 

 

 

Income tax payments, net

   $ 148,011      $ 182,315   
  

 

 

   

 

 

 

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

 

6


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

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

Balance at December 31, 2014

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

Net income

     —          —          217,966         —          8,325        226,291   

Stock options exercised (including tax benefit)

     2        4,290        —           —          —          4,292   

Compensation expense for equity awards

     —          29,132        —           —          —          29,132   

Shares repurchased for payment of taxes on equity awards

     (1     (5,112     —           —          —          (5,113

Foreign currency translation loss

     —          —          —           (47,896     (16     (47,912

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

     —          —          —           3,604        —          3,604   

Unrealized losses on interest rate swaps, net of tax

     —          —          —           (2,511     —          (2,511

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

     —          —          —           71        —          71   

Contributions from non-controlling interests

     —          —          —           —          4,405        4,405   

Distributions to non-controlling interests

     —          —          —           —          (10,637     (10,637

Other

     —          199        —           18        291        508   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

   $ 3,331      $ 1,067,934      $ 1,759,061       $ (370,734   $ 43,936      $ 2,503,528   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

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 our opinion, 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 us 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 our best judgment. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjust 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 and six months ended June 30, 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, 2018. 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.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 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. Acquisition of Global WorkPlace Solutions

On March 31, 2015, CBRE, Inc., our wholly-owned subsidiary, entered into a Stock and Asset Purchase Agreement with Johnson Controls, Inc. (JCI) to acquire JCI’s Global WorkPlace Solutions (GWS) business. GWS is a market-leading provider of Integrated Facilities Management solutions for major occupiers of commercial real estate and has significant operations around the world. The purchase price is $1.475 billion, payable in cash, with adjustments for working capital and other items. We expect to fund the acquisition through a combination of cash on hand and proceeds from the incurrence of debt. The closing of the transaction is subject to receipt of customary regulatory approvals and satisfaction of other customary closing conditions. The transaction is expected to close in the late third quarter or early fourth quarter of 2015.

4. 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.

The venture did not provide any financial support to the Entities during the six months ended June 30, 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 and six months ended June 30, 2014 included the following (dollars in thousands):

 

     Three Months
Ended

June 30, 2014
     Six Months
Ended

June  30, 2014
 

Revenue

   $ 1,459       $ 3,561   

Operating, administrative and other expenses

   $ 1,355       $ 2,588   

Gain on disposition of real estate

   $ 23,028       $ 23,028   

Net income attributable to non-controlling interests

   $ 22,202       $ 21,724   

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 June 30, 2015 and December 31, 2014, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

     June 30,
2015
     December 31,
2014
 

Investments in unconsolidated subsidiaries

   $ 22,263       $ 26,353   

Other assets, current

     3,523         3,337   

Co-investment commitments

     200         200   
  

 

 

    

 

 

 

Maximum exposure to loss

   $ 25,986       $ 29,890   
  

 

 

    

 

 

 

5. 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 and six months ended June 30, 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 June 30, 2015 and December 31, 2014 (dollars in thousands):

 

     As of June 30, 2015  
     Fair Value Measured and Recorded Using      Total  
         Level 1              Level 2              Level 3         

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 4,553       $ —         $ —         $ 4,553   

Debt securities issued by U.S. federal agencies

     —           6,469         —           6,469   

Corporate debt securities

     —           18,418         —           18,418   

Asset-backed securities

     —           3,023         —           3,023   

Collateralized mortgage obligations

     —           1,910         —           1,910   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     4,553         29,820         —           34,373   

Equity securities

     24,879         —           —           24,879   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     29,432         29,820         —           59,252   

Trading securities

     68,553         —           —           68,553   

Warehouse receivables

     —           750,816         —           750,816   

Loan commitments

     —           —           6,569         6,569   

Foreign currency exchange forward contracts

     —           7,127         —           7,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 97,985       $ 787,763       $ 6,569       $ 892,317   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Interest rate swaps

   $ —         $ 25,106       $ —         $ 25,106   

Securities sold, not yet purchased

     3,472         —           —           3,472   

Foreign currency exchange forward contracts

     —           5,061         —           5,061   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 3,472       $ 30,167       $ —         $ 33,639   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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      Total  
         Level 1              Level 2              Level 3         

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 and six months ended June 30, 2015 and 2014.

The following table provides additional information about fair value measurements for the Level 3 assets for the six months ended June 30, 2015 (dollars in thousands):

 

Balance at January 1, 2015

   $ 2,372   

Net gains included in earnings

     10,584   

Settlements

     (6,387

Transfers into (out of) Level 3

     —     
  

 

 

 

Ending balance at June 30, 2015

   $ 6,569   
  

 

 

 

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.

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 6).

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 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 term loans was approximately $496.9 million and $645.1 million at June 30, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $496.9 million and $645.6 million at June 30, 2015 and December 31, 2014, respectively (see Note 11).

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 6).

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 $810.0 million and $818.0 million at June 30, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $800.0 million at both June 30, 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 $439.9 million and $439.7 million at June 30, 2015 and December 31, 2014, respectively. Their actual carrying value totaled $426.8 million at both June 30, 2015 and December 31, 2014.

Notes Payable on Real Estate: As of June 30, 2015 and December 31, 2014, the carrying value of our notes payable on real estate was $24.8 million and $42.8 million, respectively (see Note 10). 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 June 30, 2015 or December 31, 2014.

6. 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, 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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 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 and six months ended June 30, 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 $3.0 million and $5.9 million for the three and six months ended June 30, 2015, respectively, and $3.0 million and $5.9 million for the three and six months ended June 30, 2014, respectively, from accumulated other comprehensive loss to interest expense. During the next twelve months, we estimate that $11.0 million will be reclassified from accumulated other comprehensive loss to interest expense. In addition, we recorded net gains of $0.4 million and net losses of $4.1 million for the three and six months ended June 30, 2015, respectively, and net losses of $4.6 million and $7.2 million for the three and six months ended June 30, 2014, respectively, to other comprehensive income/loss in relation to such interest rate swap agreements. As of June 30, 2015 and December 31, 2014, the fair values of such interest rate swap agreements were reflected as a $25.1 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 (reporting) currency, which is U.S. dollars. 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, British pound sterling, Canadian dollars, euros and Japanese yen, 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 losses of $11.1 million and net gains of $7.3 million from foreign currency exchange forward contracts for the three and six months ended June 30, 2015, respectively, and net losses of $3.4 million from foreign currency exchange forward contracts for both the three and six months ended June 30, 2014. As of June 30, 2015, we had 83 foreign currency exchange forward contracts outstanding covering a notional amount of $367.7 million. As of June 30, 2015, the fair value of forward contracts with five counterparties aggregated to a $7.1 million asset position, which was included in other current assets in the accompanying consolidated balance sheets. As of June 30, 2015, the fair value of forward contracts with six counterparties aggregated to a $4.6 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 losses of $0.6 million and $0.2 million for the three and six months ended June 30, 2015 resulting from net losses 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 and six months ended June 30, 2014 was not significant. As of June 30, 2015, we had four foreign currency exchange option and forward contracts outstanding covering a notional amount of $33.0 million. As of June 30, 2015, the fair value of forward contracts with two counterparties aggregated to a $0.5 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 $6.6 million and $10.6 million for the three and six months ended June 30, 2015, respectively, resulting from these loan commitments. The net impact on earnings resulting from gains and/or losses associated with these loan commitments during the three and six months ended June 30, 2014 was not significant. As of June 30, 2015, the fair value of such contracts with three counterparties aggregated to a $6.6 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)

 

7. Investments in Unconsolidated Subsidiaries

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Global Investment Management:

     

Revenue

   $ 251,172       $ 191,913       $ 506,899       $ 426,248   

Operating loss

   $ (109,353    $ (150,306    $ (80,726    $ (321,899

Net loss

   $ (188,240    $ (93,821    $ (231,196    $ (253,972

Development Services:

     

Revenue

   $ 10,316       $ 8,399       $ 19,575       $ 22,835   

Operating income

   $ 2,301       $ 1,945       $ 41,348       $ 18,407   

Net (loss) income

   $ (149    $ 128       $ 37,487       $ 15,211   

Other:

     

Revenue

   $ 45,979       $ 46,377       $ 73,566       $ 71,582   

Operating income

   $ 11,105       $ 11,677       $ 14,631       $ 13,344   

Net income

   $ 11,264       $ 11,698       $ 14,901       $ 13,386   

Total:

     

Revenue

   $ 307,467       $ 246,689       $ 600,040       $ 520,665   

Operating loss

   $ (95,947    $ (136,684    $ (24,747    $ (290,148

Net loss

   $ (177,125    $ (81,995    $ (178,808    $ (225,375

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.

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

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

 

     June 30,
2015
     December 31,
2014
 

Assets:

     

Real estate held for sale (see Note 9)

   $ 1,899       $ 3,840   

Other current assets

     —           5   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     1,899         3,845   

Liabilities:

     

Accounts payable and accrued expenses

     13         61   
  

 

 

    

 

 

 

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

     13         61   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 1,886       $ 3,784   
  

 

 

    

 

 

 

9. Real Estate

We provide build-to-suit services for our clients and also develop or purchase certain projects which we intend to sell to institutional investors upon project completion or redevelopment. Therefore, we have ownership of real estate until such projects are sold or otherwise disposed. Certain real estate assets 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):

 

     June 30,
2015
     December 31,
2014
 

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

   $ 1,899       $ 3,840   

Real estate under development (non-current)

     13,868         4,630   

Real estate held for investment (1)

     21,217         37,129   
  

 

 

    

 

 

 

Total real estate (2)

   $ 36,984       $ 45,599   
  

 

 

    

 

 

 

 

(1) Net of accumulated depreciation of $10.1 million and $12.3 million at June 30, 2015 and December 31, 2014, respectively.
(2) Includes balances for lease intangibles of $0.1 million and $3.6 million at June 30, 2015 and December 31, 2014, respectively. 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.

10. Notes Payable on Real Estate

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

 

     June 30,
2015
     December 31,
2014
 

Current portion of notes payable on real estate

   $ 1,625       $ 23,229   

Notes payable on real estate, non-current portion

     23,194         19,614   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 24,819       $ 42,843   
  

 

 

    

 

 

 

At both June 30, 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)

 

11. Debt

We maintain credit facilities with third-party lenders, which we use for a variety of purposes. On March 28, 2013, we entered into a credit agreement (the 2013 Credit Agreement) with a syndicate of banks led by Credit Suisse 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 balance on our revolving credit facility under the 2013 Credit Agreement.

The 2015 Credit Agreement is now an unsecured credit facility that is jointly and severally guaranteed by us and substantially all of our material domestic subsidiaries. As of June 30, 2015, the 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 began 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 (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). The 2015 Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused) and as of June 30, 2015, no amounts were outstanding under our revolving credit facility other than letters of credit totaling $2.0 million. 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 June 30, 2015 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). As of June 30, 2015, we had $496.9 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.

Our 2015 Credit Agreement and the indentures governing our 5.00% senior notes and 5.25% senior notes contain 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

 

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Credit Agreement also 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 13.74x for the trailing twelve months ended June 30, 2015 and our leverage ratio of total debt less available cash to EBITDA was 1.15x as of June 30, 2015.

12. Commitments and Contingencies

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. We believe that any losses in excess of the amounts accrued therefor as liabilities on our financial statements are unlikely to be significant, but 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 what we anticipated.

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 Delegated Underwriting and Servicing 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 select 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 $11.3 billion at June 30, 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 $51.6 million at June 30, 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 June 30, 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 $19.9 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 $267.0 million (including $112.7 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 June 30, 2015.

We had outstanding letters of credit totaling $41.4 million as of June 30, 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 $41.4 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 June 2016.

We had guarantees totaling $19.9 million as of June 30, 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 excluding guarantees related to operating leases. The $19.9 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 June 30, 2015, we had numerous non-recourse carveout, completion and budget guarantees relating to development projects. These guarantees are commonplace in our industry and are made by us in the ordinary course of our Development Services business. Non-recourse carveout guarantees generally require that

 

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our project-entity borrower not commit specified improper acts, with us potentially liable for all or a portion of such entity’s indebtedness or other damages suffered by the lender if those acts occur. Completion and budget guarantees generally require 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 use “guaranteed maximum price” contracts with reputable, bondable 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 June 30, 2015, we had aggregate commitments of $20.7 million to fund future co-investments.

Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of June 30, 2015, we had committed to fund $20.6 million of additional capital to these unconsolidated subsidiaries.

13. Income Per Share Information

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

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

           

Net income attributable to CBRE Group, Inc. shareholders

   $ 125,029       $ 105,464       $ 217,966       $ 173,127   

Weighted average shares outstanding for basic income per share

     331,999,935         330,133,061         331,988,489         330,084,525   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.38       $ 0.32       $ 0.66       $ 0.52   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

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

           

Net income attributable to CBRE Group, Inc. shareholders

   $ 125,029       $ 105,464       $ 217,966       $ 173,127   

Weighted average shares outstanding for basic income per share

     331,999,935         330,133,061         331,988,489         330,084,525   

Dilutive effect of contingently issuable shares

     3,913,275         3,360,227         3,678,940         3,120,170   

Dilutive effect of stock options

     241,314         425,332         259,197         429,647   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     336,154,524         333,918,620         335,926,626         333,634,342   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

   $ 0.37       $ 0.32       $ 0.65       $ 0.52   
  

 

 

    

 

 

    

 

 

    

 

 

 

For both the three and six months ended June 30, 2015, 47,082 of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-

 

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dilutive effect. For both the three and six months ended June 30, 2014, 10,503 of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

For the three and six months ended June 30, 2014, options to purchase 7,314 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.

14. 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
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Interest cost

   $ 3,686       $ 4,477       $ 7,427       $ 8,908   

Expected return on plan assets

     (4,547      (5,857      (9,159      (11,653

Amortization of unrecognized net loss

     1,016         668         2,047         1,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic pension cost (benefit)

   $ 155       $ (712    $ 315       $ (1,415
  

 

 

    

 

 

    

 

 

    

 

 

 

With respect to these pension plans, our historical policy has been to contribute annually to the plans, an amount to fund pension liabilities as actuarially determined and as required by applicable laws and regulations. Our contributions to these plans are invested by the plan trustee and, if these investments do not perform well in the future, we may be required to provide additional contributions to cover any pension underfunding. We contributed $1.5 million and $3.4 million to fund our pension plans during the three and six months ended June 30, 2015, respectively. We expect to contribute a total of $6.3 million to fund our pension plans for the year ending December 31, 2015.

15. 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.

 

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

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Revenue

           

Americas

   $ 1,434,489       $ 1,235,720       $ 2,662,105       $ 2,257,401   

EMEA

     585,714         510,987         1,079,738         1,029,666   

Asia Pacific

     261,828         241,214         470,194         436,857   

Global Investment Management

     94,053         126,314         204,277         238,777   

Development Services

     14,422         12,571         26,695         24,947   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,390,506       $ 2,126,806       $ 4,443,009       $ 3,987,648   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

EBITDA

           

Americas

   $ 203,411       $ 169,404       $ 390,732       $ 295,166   

EMEA

     47,810         27,369         55,388         50,734   

Asia Pacific

     28,154         23,765         38,704         32,006   

Global Investment Management

     16,304         38,129         51,184         66,392   

Development Services

     1,181         1,527         7,140         13,102   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 296,860       $ 260,194       $ 543,148       $ 457,400   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA represents earnings before net interest expense, write-off of financing costs, income taxes, depreciation and amortization. EBITDA is not a recognized measurement under U.S. generally accepted accounting principles (GAAP) and when analyzing our operating performance, investors 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.

We generally use EBITDA to evaluate operating performance and for other discretionary purposes, and we believe that this measure provides a more complete understanding of ongoing operations, enhances comparability of current results to prior periods and may be useful for investors to analyze our financial performance because EBITDA eliminates the impact of selected charges that may obscure trends in the underlying performance of our business. We further believe that investors may find EBITDA useful in evaluating our operating performance compared to that of other companies in our industry because EBITDA calculations generally eliminate the effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending. EBITDA may vary for different companies for reasons unrelated to overall operating performance.

EBITDA is not intended to be a measure of free cash flow for our discretionary use because it does not consider certain cash requirements such as tax and debt service payments. EBITDA may also differ from the amount calculated under similarly titled definitions in our debt agreements, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

 

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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
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015      2014  

Americas

           

Net income attributable to CBRE Group, Inc.

   $ 96,857       $ 92,304       $ 192,059       $ 162,770   

Add:

           

Depreciation and amortization

     44,591         35,187         87,541         69,345   

Interest expense (income), net

     4,247         (226      7,793         8,960   

Write-off of financing costs

     —           —           2,685         —     

Royalty and management service expense (income)

     2,370         (2,843      2,478         (3,707

Provision for income taxes

     55,346         44,982         98,176         57,798   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 203,411       $ 169,404       $ 390,732       $ 295,166   
  

 

 

    

 

 

    

 

 

    

 

 

 

EMEA

           

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

   $ 19,929       $ (6,967    $ 1,443       $ (13,957

Add:

           

Depreciation and amortization

     14,607         15,319         29,399         32,782   

Interest expense, net

     11,375         17,184         22,822         24,343   

Royalty and management service income

     (4,975      (3,070      (6,192      (6,955

Provision for income taxes

     6,874         4,903         7,916         14,521   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 47,810       $ 27,369       $ 55,388       $ 50,734   
  

 

 

    

 

 

    

 

 

    

 

 

 

Asia Pacific

           

Net income attributable to CBRE Group, Inc.

   $ 10,949       $ 8,246       $ 13,608       $ 4,002   

Add:

           

Depreciation and amortization

     3,783         3,371         7,629         6,439   

Interest expense, net

     991         768         1,889         1,103   

Royalty and management service expense

     1,586         4,623         1,649         8,262   

Provision for income taxes

     10,845         6,757         13,929         12,200   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 28,154       $ 23,765       $ 38,704       $ 32,006   
  

 

 

    

 

 

    

 

 

    

 

 

 

Global Investment Management

           

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

   $ (2,688    $ 12,234       $ 8,020       $ 15,062   

Add:

           

Depreciation and amortization

     7,061         8,452         14,672         17,818   

Interest expense, net

     7,818         8,745         15,502         17,586   

Royalty and management service expense

     1,019         1,290         2,065         2,400   

Provision for income taxes

     3,094         7,408         10,925         13,526   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 16,304       $ 38,129       $ 51,184       $ 66,392   
  

 

 

    

 

 

    

 

 

    

 

 

 

Development Services

           

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

   $ (18    $ (353    $ 2,836       $ 5,250   

Add:

           

Depreciation and amortization

     563         966         1,210         2,114   

Interest expense, net

     321         853         663         1,770   

Provision for income taxes

     315         61         2,431         3,968   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 1,181       $ 1,527       $ 7,140       $ 13,102   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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16. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of June 30, 2015 and December 31, 2014; condensed consolidating statements of operations for the three and six months ended June 30, 2015 and 2014; condensed consolidating statements of comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014; and condensed consolidating statements of cash flows for the six months ended June 30, 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 15,041      $ 56,547      $ 264,829      $ —        $ 336,422   

Restricted cash

    —          —          1,150        64,861        —          66,011   

Receivables, net

    —          —          593,479        1,011,141        —          1,604,620   

Warehouse receivables (a)

    —          —          628,013        122,803        —          750,816   

Trading securities

    —          —          101        68,452        —          68,553   

Income taxes receivable

    9,625        —          27,942        12,428        —          49,995   

Prepaid expenses

    —          —          59,910        94,550        —          154,460   

Deferred tax assets, net

    —          —          140,746        64,112        —          204,858   

Real estate and other assets held for sale

    —          —          1,058        841        —          1,899   

Available for sale securities

    —          —          1,129        —          —          1,129   

Other current assets

    —          7,077        59,473        37,643        —          104,193   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    9,630        22,118        1,569,548        1,741,660        —          3,342,956   

Property and equipment, net

    —          —          345,569        138,463        —          484,032   

Goodwill

    —          —          1,205,056        1,108,763        —          2,313,819   

Other intangible assets, net

    —          —          512,318        293,784        —          806,102   

Investments in unconsolidated subsidiaries

    —          —          185,767        36,772        —          222,539   

Investments in consolidated subsidiaries

    3,343,116        2,493,405        930,412        —          (6,766,933     —     

Intercompany loan receivable

    —          2,552,719        700,000        —          (3,252,719     —     

Real estate under development

    —          —          842        13,026        —          13,868   

Real estate held for investment

    —          —          5,675        15,542        —          21,217   

Available for sale securities

    —          —          56,304        1,819        —          58,123   

Other assets, net

    —          48,726        113,133        35,744        —          197,603   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 3,352,746      $ 5,116,968      $ 5,624,624      $ 3,385,573      $ (10,019,652   $ 7,460,259   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 19,664      $ 209,244      $ 535,616      $ —        $ 764,524   

Compensation and employee benefits payable

    —          626        346,696        230,645        —          577,967   

Accrued bonus and profit sharing

    —          —          207,347        213,761        —          421,108   

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          624,360        119,232        —          743,592   

Other

    —          —          16        879        —          895   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          —          624,376        120,111        —          744,487   

Current maturities of long-term debt

    —          12,500        1,380        14        —          13,894   

Notes payable on real estate

    —          —          —          1,625        —          1,625   

Other current liabilities

    —          4,807        60,873        5,489        —          71,169   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          37,597        1,449,916        1,107,261        —          2,594,774   

Long-Term Debt:

           

5.00% senior notes

    —          800,000        —          —          —          800,000   

Senior term loans

    —          484,375        —          —          —          484,375   

5.25% senior notes

    —          426,774        —          —          —          426,774   

Other long-term debt

    —          —          —          7        —          7   

Intercompany loan payable

    893,154        —          1,306,364        1,053,201        (3,252,719     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    893,154        1,711,149        1,306,364        1,053,208        (3,252,719     1,711,156   

Notes payable on real estate

    —          —          —          23,194        —          23,194   

Deferred tax liabilities, net

    —          —          106,438        60,856        —          167,294   

Non-current tax liabilities

    —          —          48,869        —          —          48,869   

Pension liability

    —          —          —          91,028        —          91,028   

Other liabilities

    —          25,106        219,632        75,678        —          320,416   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    893,154        1,773,852        3,131,219        2,411,225        (3,252,719     4,956,731   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    2,459,592        3,343,116        2,493,405        930,412        (6,766,933     2,459,592   

Non-controlling interests

    —          —          —          43,936        —          43,936   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    2,459,592        3,343,116        2,493,405        974,348        (6,766,933     2,503,528   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 3,352,746      $ 5,116,968      $ 5,624,624      $ 3,385,573      $ (10,019,652   $ 7,460,259   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

25


Table of Contents

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 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 JUNE 30, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 1,341,591      $ 1,048,915      $ —        $ 2,390,506   

Costs and expenses:

           

Cost of services

    —          —          849,131        638,843        —          1,487,974   

Operating, administrative and other

    12,362        11,698        301,412        284,686        —          610,158   

Depreciation and amortization

    —          —          39,282        31,323        —          70,605   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    12,362        11,698        1,189,825        954,852        —          2,168,737   

Gain on disposition of real estate

    —          —          141        6,845        —          6,986   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (12,362     (11,698     151,907        100,908        —          228,755   

Equity income (loss) from unconsolidated subsidiaries

    —          —          8,591        (1,898     —          6,693   

Other income (loss)

    —          1        335        (1,405     —          (1,069

Interest income

    —          52,361        78,199        990        (130,148     1,402   

Interest expense

    —          102,816        36,373        17,113        (130,148     26,154   

Royalty and management service expense (income)

    —          —          236        (236     —          —     

Income from consolidated subsidiaries

    132,726        171,425        43,680        —          (347,831     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    120,364        109,273        246,103        81,718        (347,831     209,627   

(Benefit of) provision for income taxes

    (4,665     (23,453     74,678        29,914        —          76,474   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    125,029        132,726        171,425        51,804        (347,831     133,153   

Less: Net income attributable to non-controlling interests

    —          —          —          8,124        —          8,124   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 125,029      $ 132,726      $ 171,425      $ 43,680      $ (347,831   $ 125,029   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 1,168,544      $ 958,262      $ —        $ 2,126,806   

Costs and expenses:

           

Cost of services

    —          —          728,165        586,308        —          1,314,473   

Operating, administrative and other

    10,684        4,253        270,637        280,628        —          566,202   

Depreciation and amortization

    —          —          31,991        31,304        —          63,295   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    10,684        4,253        1,030,793        898,240        —          1,943,970   

Gain on disposition of real estate

    —          —          —          23,170        —          23,170   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (10,684     (4,253     137,751        83,192        —          206,006   

Equity income from unconsolidated subsidiaries

    —          —          8,802        462        —          9,264   

Other income

    —          1        757        5,606        —          6,364   

Interest income

    —          44,115        531        615        (44,115     1,146   

Interest expense

    —          26,168        22,688        23,729        (44,115     28,470   

Royalty and management service (income) expense

    —          —          (4,779     4,779        —          —     

Income from consolidated subsidiaries

    112,163        103,575        16,540        —          (232,278     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    101,479        117,270        146,472        61,367        (232,278     194,310   

(Benefit of) provision for income taxes

    (3,985     5,107        42,897        20,092        —          64,111   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    105,464        112,163        103,575        41,275        (232,278     130,199   

Less: Net income attributable to non-controlling interests

    —          —          —          24,735        —          24,735   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 105,464      $ 112,163      $ 103,575      $ 16,540      $ (232,278   $ 105,464   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2015

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 2,499,462      $ 1,943,547      $ —        $ 4,443,009   

Costs and expenses:

           

Cost of services

    —          —          1,566,774        1,211,977        —          2,778,751   

Operating, administrative and other

    25,506        (6,922     585,999        537,350        —          1,141,933   

Depreciation and amortization

    —          —          75,809        64,642        —          140,451   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    25,506        (6,922     2,228,582        1,813,969        —          4,061,135   

Gain on disposition of real estate

    —          —          141        6,845        —          6,986   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (25,506     6,922        271,021        136,423        —          388,860   

Equity income (loss) from unconsolidated subsidiaries

    —          —          23,912        (1,768     —          22,144   

Other income (loss)

    —          1        1,259        (1,242     —          18   

Interest income

    —          107,728        78,873        2,613        (185,515     3,699   

Interest expense

    —          127,702        75,775        34,406        (185,515     52,368   

Write-off of financing costs

    —          2,685        —          —          —          2,685   

Royalty and management service (income) expense

    —          —          (3,866     3,866        —          —     

Income from consolidated subsidiaries

    233,847        243,645        43,905        —          (521,397     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    208,341        227,909        347,061        97,754        (521,397     359,668   

(Benefit of) provision for income taxes

    (9,625     (5,938     103,416        45,524        —          133,377   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    217,966        233,847        243,645        52,230        (521,397     226,291   

Less: Net income attributable to non-controlling interests

    —          —          —          8,325        —          8,325   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 217,966      $ 233,847      $ 243,645      $ 43,905      $ (521,397   $ 217,966   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $