UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2017

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      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      No  .

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

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

The number of shares of Class A common stock outstanding at April 30, 2017 was 337,874,535.

 

 

 


 

FORM 10-Q

March 31, 2017

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2017 (Unaudited) and December 31, 2016

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2017 and
2016 (Unaudited)

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31,
2017 and 2016 (Unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and
2016 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the three months ended March 31, 2017 (Unaudited)

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

Item 2.

 

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

 

26

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

43

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

44

 

 

 

 

 

Item 1A.

 

Risk Factors

 

44

 

 

 

 

 

Item 5.

 

Other Information

 

44

 

 

 

 

 

Item 6.

 

Exhibits

 

44

 

 

 

 

 

Signatures

 

48

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

533,281

 

 

$

762,576

 

Restricted cash

 

 

59,046

 

 

 

68,836

 

Receivables, less allowance for doubtful accounts of $40,286 and $39,469 at March 31, 2017

   and December 31, 2016, respectively

 

 

2,499,115

 

 

 

2,605,602

 

Warehouse receivables

 

 

685,133

 

 

 

1,276,047

 

Income taxes receivable

 

 

55,438

 

 

 

45,626

 

Prepaid expenses

 

 

212,336

 

 

 

184,107

 

Other current assets

 

 

201,111

 

 

 

179,656

 

Total Current Assets

 

 

4,245,460

 

 

 

5,122,450

 

Property and equipment, net

 

 

551,633

 

 

 

560,756

 

Goodwill

 

 

3,019,585

 

 

 

2,981,392

 

Other intangible assets, net of accumulated amortization of $825,419 and $771,673 at

   March 31, 2017 and December 31, 2016, respectively

 

 

1,403,262

 

 

 

1,411,039

 

Investments in unconsolidated subsidiaries

 

 

242,486

 

 

 

232,238

 

Deferred tax assets, net

 

 

94,653

 

 

 

105,324

 

Other assets, net

 

 

370,033

 

 

 

366,388

 

Total Assets

 

$

9,927,112

 

 

$

10,779,587

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,320,584

 

 

$

1,446,438

 

Compensation and employee benefits payable

 

 

719,967

 

 

 

772,922

 

Accrued bonus and profit sharing

 

 

467,717

 

 

 

890,321

 

Income taxes payable

 

 

109,894

 

 

 

58,351

 

Short-term borrowings:

 

 

 

 

 

 

 

 

Warehouse lines of credit (which fund loans that U.S. Government Sponsored Entities

   have committed to purchase)

 

 

671,453

 

 

 

1,254,653

 

Revolving credit facility

 

 

120,000

 

 

 

-

 

Other

 

 

16

 

 

 

16

 

Total short-term borrowings

 

 

791,469

 

 

 

1,254,669

 

Current maturities of long-term debt

 

 

12

 

 

 

11

 

Other current liabilities

 

 

63,537

 

 

 

102,717

 

Total Current Liabilities

 

 

3,473,180

 

 

 

4,525,429

 

Long-term debt, net of current maturities

 

 

2,549,258

 

 

 

2,548,126

 

Deferred tax liabilities, net

 

 

78,142

 

 

 

70,719

 

Non-current tax liabilities

 

 

40,770

 

 

 

54,042

 

Other liabilities

 

 

527,523

 

 

 

524,026

 

Total Liabilities

 

 

6,668,873

 

 

 

7,722,342

 

Commitments and contingencies

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 337,874,535

   and 337,279,449 shares issued and outstanding at March 31, 2017 and December 31,

   2016, respectively

 

 

3,379

 

 

 

3,373

 

Additional paid-in capital

 

 

1,159,294

 

 

 

1,145,226

 

Accumulated earnings

 

 

2,786,503

 

 

 

2,656,906

 

Accumulated other comprehensive loss

 

 

(737,231

)

 

 

(791,018

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

3,211,945

 

 

 

3,014,487

 

Non-controlling interests

 

 

46,294

 

 

 

42,758

 

Total Equity

 

 

3,258,239

 

 

 

3,057,245

 

Total Liabilities and Equity

 

$

9,927,112

 

 

$

10,779,587

 

 

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

 

1


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATONS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Revenue

 

$

2,981,204

 

 

$

2,846,734

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of services

 

 

2,087,079

 

 

 

2,013,613

 

Operating, administrative and other

 

 

606,231

 

 

 

643,366

 

Depreciation and amortization

 

 

94,037

 

 

 

86,994

 

Total costs and expenses

 

 

2,787,347

 

 

 

2,743,973

 

Gain on disposition of real estate

 

 

1,385

 

 

 

4,819

 

Operating income

 

 

195,242

 

 

 

107,580

 

Equity income from unconsolidated subsidiaries

 

 

15,018

 

 

 

57,301

 

Other income

 

 

4,115

 

 

 

3,215

 

Interest income

 

 

2,411

 

 

 

1,459

 

Interest expense

 

 

34,010

 

 

 

34,790

 

Income before provision for income taxes

 

 

182,776

 

 

 

134,765

 

Provision for income taxes

 

 

51,273

 

 

 

50,125

 

Net income

 

 

131,503

 

 

 

84,640

 

Less:  Net income attributable to non-controlling interests

 

 

1,906

 

 

 

2,473

 

Net income attributable to CBRE Group, Inc.

 

$

129,597

 

 

$

82,167

 

Basic income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.38

 

 

$

0.25

 

Weighted average shares outstanding for basic income per share

 

 

336,907,836

 

 

 

333,992,935

 

Diluted income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.38

 

 

$

0.24

 

Weighted average shares outstanding for diluted income per share

 

 

339,690,579

 

 

 

337,506,232

 

 

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

2


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

131,503

 

 

$

84,640

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

51,089

 

 

 

16,594

 

Amounts reclassified from accumulated other comprehensive loss to

   interest expense, net of tax

 

 

1,508

 

 

 

1,743

 

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

 

 

294

 

 

 

(2,909

)

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

   net of tax

 

 

923

 

 

 

(929

)

Other, net

 

 

(6

)

 

 

(57

)

Total other comprehensive income

 

 

53,808

 

 

 

14,442

 

Comprehensive income

 

 

185,311

 

 

 

99,082

 

Less: Comprehensive income attributable to non-controlling interests

 

 

1,927

 

 

 

2,595

 

Comprehensive income attributable to CBRE Group, Inc.

 

$

183,384

 

 

$

96,487

 

 

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

3


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

131,503

 

 

$

84,640

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

94,037

 

 

 

86,994

 

Amortization of financing costs

 

 

2,439

 

 

 

2,648

 

Gain on sale of loans, servicing rights and other assets

 

 

(37,939

)

 

 

(29,010

)

Net realized and unrealized gain from investments

 

 

(4,115

)

 

 

(3,215

)

Equity income from unconsolidated subsidiaries

 

 

(15,018

)

 

 

(57,301

)

(Recovery of) provision for doubtful accounts

 

 

(928

)

 

 

3,420

 

Compensation expense for equity awards

 

 

15,411

 

 

 

12,594

 

Distribution of earnings from unconsolidated subsidiaries

 

 

3,206

 

 

 

11,017

 

Tenant concessions received

 

 

3,776

 

 

 

1,755

 

Purchase of trading securities

 

 

(22,986

)

 

 

(20,815

)

Proceeds from sale of trading securities

 

 

15,270

 

 

 

22,688

 

Decrease in receivables

 

 

146,191

 

 

 

145,976

 

Increase in prepaid expenses and other assets

 

 

(50,164

)

 

 

(29,731

)

Decrease in accounts payable and accrued expenses

 

 

(133,231

)

 

 

(148,316

)

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

 

 

(491,251

)

 

 

(385,314

)

Decrease (increase) in income taxes receivable/payable

 

 

13,193

 

 

 

(34,159

)

(Decrease) increase in other liabilities

 

 

(7,876

)

 

 

8,195

 

Other operating activities, net

 

 

(3,548

)

 

 

(706

)

Net cash used in operating activities

 

 

(342,030

)

 

 

(328,640

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(23,735

)

 

 

(33,468

)

Acquisition of businesses (other than Global Workplace Solutions (GWS)), including net assets

   acquired, intangibles and goodwill

 

 

(21,204

)

 

 

(3,298

)

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

 

 

-

 

 

 

(21,900

)

Contributions to unconsolidated subsidiaries

 

 

(14,567

)

 

 

(10,923

)

Distributions from unconsolidated subsidiaries

 

 

15,995

 

 

 

55,571

 

Proceeds from the sale of servicing rights and other assets

 

 

11,365

 

 

 

5,603

 

Decrease in restricted cash

 

 

10,463

 

 

 

9,771

 

Purchase of available for sale securities

 

 

(7,289

)

 

 

(7,716

)

Proceeds from the sale of available for sale securities

 

 

7,220

 

 

 

9,969

 

Other investing activities, net

 

 

1,227

 

 

 

(2,303

)

Net cash (used in) provided by investing activities

 

 

(20,525

)

 

 

1,306

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of senior term loans

 

 

-

 

 

 

(5,625

)

Proceeds from revolving credit facility

 

 

266,000

 

 

 

565,000

 

Repayment of revolving credit facility

 

 

(146,000

)

 

 

(285,000

)

Repayment of notes payable on real estate held for investment

 

 

(435

)

 

 

-

 

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

 

 

1,711

 

 

 

12,427

 

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

 

 

(2,744

)

 

 

(4,102

)

Units repurchased for payment of taxes on equity awards

 

 

(1,900

)

 

 

(4,252

)

Non-controlling interest contributions

 

 

1,574

 

 

 

27

 

Non-controlling interest distributions

 

 

(744

)

 

 

(1,138

)

Payment of financing costs

 

 

-

 

 

 

(4,787

)

Other financing activities, net

 

 

308

 

 

 

(236

)

Net cash provided by financing activities

 

 

117,770

 

 

 

272,314

 

Effect of currency exchange rate changes on cash and cash equivalents

 

 

15,490

 

 

 

3,846

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(229,295

)

 

 

(51,174

)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

 

762,576

 

 

 

540,403

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

533,281

 

 

$

489,229

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

52,027

 

 

$

54,205

 

Income taxes, net

 

$

37,333

 

 

$

82,978

 

 

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

4


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

 

 

CBRE Group, Inc. Shareholders

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

common

 

 

paid-in

 

 

Accumulated

 

 

Accumulated other

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

earnings

 

 

comprehensive loss

 

 

interests

 

 

Total

 

Balance at December 31, 2016

 

$

3,373

 

 

$

1,145,226

 

 

$

2,656,906

 

 

$

(791,018

)

 

$

42,758

 

 

$

3,057,245

 

Net income

 

 

 

 

 

 

 

 

129,597

 

 

 

 

 

 

1,906

 

 

 

131,503

 

Compensation expense for equity awards

 

 

 

 

 

15,411

 

 

 

 

 

 

 

 

 

 

 

 

15,411

 

Units repurchased for payment of taxes

   on equity awards

 

 

 

 

 

(1,900

)

 

 

 

 

 

 

 

 

 

 

 

(1,900

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

51,068

 

 

 

21

 

 

 

51,089

 

Amounts reclassified from accumulated

   other comprehensive loss to interest

   expense, net of tax

 

 

 

 

 

 

 

 

 

 

 

1,508

 

 

 

 

 

 

1,508

 

Unrealized gains on interest rate swaps,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

294

 

Unrealized holding gains on available

   for sale securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

923

 

 

 

 

 

 

923

 

Contributions from non-controlling

   interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,574

 

 

 

1,574

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(744

)

 

 

(744

)

Other

 

 

6

 

 

 

557

 

 

 

 

 

 

(6

)

 

 

779

 

 

 

1,336

 

Balance at March 31, 2017

 

$

3,379

 

 

$

1,159,294

 

 

$

2,786,503

 

 

$

(737,231

)

 

$

46,294

 

 

$

3,258,239

 

 

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

 

 

5


 

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Basis of Presentation

Readers of this Quarterly Report on Form 10-Q (Quarterly Report) should refer to the audited financial statements and notes to 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”), for the year ended December 31, 2016, which are included in our 2016 Annual Report on Form 10-K (2016 Annual Report), filed with the United States Securities and Exchange Commission (SEC) and also available on our website (www.cbre.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements.  You should also refer to Note 2, Significant Accounting Policies, in the notes to consolidated financial statements in our 2016 Annual Report for further discussion of our significant accounting policies and estimates.

The accompanying consolidated financial statements 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.

The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2017.

2.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.”  This ASU clarifies that a change in one of the parties to a derivative contract (through novation) that is part of a hedge accounting relationship does not, by itself, require designation of that relationship, as long as all other hedge accounting criteria continue to be met.  This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2016, with early adoption permitted.  The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-07, “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.”  This ASU eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting.  ASU 2016-07 should be applied prospectively upon its effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.  This ASU is effective for all entities for interim and annual periods in fiscal years beginning after December 15, 2016, with early application permitted.  The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

6


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control.”  This ASU changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity.  This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted.  The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements.”  This ASU amends a number of Topics in the FASB Accounting Standards Codification (ASC). The ASU is part of an ongoing FASB project to facilitate Codification updates for non-substantive technical corrections, clarifications, and improvements that are not expected to have a significant effect on accounting practice or create a significant administrative cost to most entities. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted.  The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”  This ASU clarifies the definition of a business, affecting all companies and other reporting organizations that must determine whether they have acquired or sold a business.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  We elected to early adopt the provisions of ASU 2017-01 during the first quarter of 2017.  The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

Recent Accounting Pronouncements Pending Adoption

The FASB has recently issued five ASUs related to revenue recognition (“new revenue recognition guidance”), all of which will become effective for the company on January 1, 2018.  The ASUs issued are: (1) in May 2014, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606);” (2) in March 2016, ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” (3) in April 2016, ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (4) in May 2016, ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope Improvements and Practical Expedients;” and (5) in December 2016, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers.”  ASU 2014-09 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 and will replace most existing revenue recognition guidance under GAAP.  This ASU permits the use of either the retrospective or cumulative effect transition method.  ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations.  ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09.  ASU 2016-12 clarifies guidance in certain narrow areas and adds some practical expedients.  ASU 2016-20 also clarifies guidance in certain narrow areas and adds optional exemptions to certain disclosure requirements.

We plan to adopt the new revenue recognition guidance in the first quarter of 2018 and are evaluating the application of a transition method. We continue to evaluate the impact that adoption of these updates will have on our consolidated financial statements and related disclosures. Based on our initial assessment, the impact of the application of the new revenue recognition guidance will likely result in an acceleration of some revenues that are based, in part, on future contingent events. For example, some brokerage revenues from leasing commissions in various countries where we operate will get recognized earlier. Under current GAAP, a portion of these commissions are deferred until a future contingency is resolved (e.g. tenant move-in or payment of first month’s rent). Under the new revenue guidance, CBRE’s performance obligation will be typically satisfied at lease signing and therefore the portion of the commission that is contingent on a future event will likely be recognized earlier if deemed not subject to significant reversal. We are currently evaluating the impact of principal versus agent guidance in relation to third-party costs which are billed to clients in association with facilities management services and the impact on our consolidated financial statements. 

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  This ASU will significantly change the income statement impact of equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.  Early adoption is not permitted, except for the provisions related to the recognition of changes in fair value of financial liabilities when the fair value option is elected.  We do not believe the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).”  This ASU requires lessees to recognize most leases on the balance sheet as liabilities, with corresponding right-of-use assets.  For income statement recognition purposes, leases will be classified as either a finance or operating lease in a manner similar to the requirements under the current lease accounting literature, but without relying upon the bright-line tests.  This ASU is effective for annual periods in fiscal years beginning after December 15, 2018 and mandates a modified retrospective transition method for all entities.  We plan to adopt ASU 2016-02 in the first quarter of 2019 and are currently evaluating the magnitude of its impact on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.”  This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted.  We are evaluating the effect that ASU 2016-13 will have on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  We are evaluating the effect that ASU 2016-15 will have on our consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  At this point in time, we do not believe the adoption of ASU 2016-16 will have a material impact on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.”  This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  We do not believe the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test. This ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.  This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted.  We are evaluating the effect that ASU 2017-04 will have on our goodwill assessment process, but do not believe the adoption of ASU 2017-04 will have a material impact on our consolidated financial statements and related disclosures.

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In February 2017, the FASB issued ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” This ASU clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and also defines the term in substance nonfinancial asset.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.  We are evaluating the effect that ASU 2017-05 will have on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.”  This ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.  We are evaluating the effect that ASU 2017-08 will have on our consolidated financial statements and related disclosures.

 

3.

Variable Interest Entities (VIEs)

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

As of March 31, 2017 and December 31, 2016, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Investments in unconsolidated subsidiaries

 

$

31,651

 

 

$

31,041

 

Other current assets

 

 

3,403

 

 

 

3,314

 

Co-investment commitments

 

 

164

 

 

 

168

 

Maximum exposure to loss

 

$

35,218

 

 

$

34,523

 

 

4.

Fair Value Measurements

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

 

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

 

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

 

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

There were no significant transfers in or out of Level 1 and Level 2 during the three months ended March 31, 2017 and 2016.  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 2016 Annual Report.

9


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (dollars in thousands):

 

 

 

As of March 31, 2017

 

 

 

Fair Value Measured and Recorded Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

8,973

 

 

$

 

 

$

 

 

$

8,973

 

Debt securities issued by U.S. federal

   agencies

 

 

 

 

 

4,830

 

 

 

 

 

 

4,830

 

Corporate debt securities

 

 

 

 

 

17,407

 

 

 

 

 

 

17,407

 

Asset-backed securities

 

 

 

 

 

1,842

 

 

 

 

 

 

1,842

 

Collateralized mortgage obligations

 

 

 

 

 

983

 

 

 

 

 

 

983

 

Total debt securities

 

 

8,973

 

 

 

25,062

 

 

 

 

 

 

34,035

 

Equity securities

 

 

24,540

 

 

 

 

 

 

 

 

 

24,540

 

Total available for sale securities

 

 

33,513

 

 

 

25,062

 

 

 

 

 

 

58,575

 

Trading securities

 

 

64,423

 

 

 

 

 

 

 

 

 

64,423

 

Warehouse receivables

 

 

 

 

 

685,133

 

 

 

 

 

 

685,133

 

Foreign currency exchange forward contracts

 

 

 

 

 

1,352

 

 

 

 

 

 

1,352

 

Total assets at fair value

 

$

97,936

 

 

$

711,547

 

 

$

 

 

$

809,483

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

10,341

 

 

$

 

 

$

10,341

 

Securities sold, not yet purchased

 

 

4,111

 

 

 

 

 

 

 

 

 

4,111

 

Total liabilities at fair value

 

$

4,111

 

 

$

10,341

 

 

$

 

 

$

14,452

 

 

 

 

As of December 31, 2016

 

 

 

Fair Value Measured and Recorded Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

8,485

 

 

$

 

 

$

 

 

$

8,485

 

Debt securities issued by U.S. federal

   agencies

 

 

 

 

 

5,046

 

 

 

 

 

 

5,046

 

Corporate debt securities

 

 

 

 

 

17,094

 

 

 

 

 

 

17,094

 

Asset-backed securities

 

 

 

 

 

2,695

 

 

 

 

 

 

2,695

 

Collateralized mortgage obligations

 

 

 

 

 

1,010

 

 

 

 

 

 

1,010

 

Total debt securities

 

 

8,485

 

 

 

25,845

 

 

 

 

 

 

34,330

 

Equity securities

 

 

22,744

 

 

 

 

 

 

 

 

 

22,744

 

Total available for sale securities

 

 

31,229

 

 

 

25,845

 

 

 

 

 

 

57,074

 

Trading securities

 

 

52,629

 

 

 

 

 

 

 

 

 

52,629

 

Warehouse receivables

 

 

 

 

 

1,276,047

 

 

 

 

 

 

1,276,047

 

Foreign currency exchange forward contracts

 

 

 

 

 

1,471

 

 

 

 

 

 

1,471

 

Total assets at fair value

 

$

83,858

 

 

$

1,303,363

 

 

$

 

 

$

1,387,221

 

Liabilities