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 September 30, 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 |
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94-3391143 |
(State or other jurisdiction of |
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(I.R.S. Employer |
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400 South Hope Street, 25th Floor |
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90071 |
(Address of principal executive offices) |
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(Zip Code) |
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(213) 613-3333 |
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Not applicable |
(Registrant's telephone number, including area code) |
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(Former name, former address and |
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 October 31, 2017 was 339,459,138.
September 30, 2017
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets at September 30, 2017 (Unaudited) and December 31, 2016 |
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1 |
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2 |
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3 |
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4 |
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Consolidated Statement of Equity for the nine months ended September 30, 2017 (Unaudited) |
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5 |
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6 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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34 |
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Item 3. |
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57 |
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Item 4. |
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58 |
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Item 1. |
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59 |
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Item 1A. |
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59 |
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Item 6. |
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59 |
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62 |
PART I – FINANCIAL INFORMATION
CBRE GROUP, INC.
(Dollars in thousands, except share data)
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September 30, |
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December 31, |
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2017 |
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2016 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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$ |
955,605 |
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$ |
762,576 |
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Restricted cash |
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84,794 |
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68,836 |
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Receivables, less allowance for doubtful accounts of $47,596 and $39,469 at September 30, 2017 and December 31, 2016, respectively |
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2,843,126 |
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2,605,602 |
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Warehouse receivables |
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1,434,910 |
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1,276,047 |
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Income taxes receivable |
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66,386 |
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45,626 |
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Prepaid expenses |
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218,049 |
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184,107 |
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Other current assets |
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201,864 |
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179,656 |
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Total Current Assets |
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5,804,734 |
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5,122,450 |
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Property and equipment, net |
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574,266 |
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560,756 |
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Goodwill |
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3,135,208 |
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2,981,392 |
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Other intangible assets, net of accumulated amortization of $943,587 and $771,673 at September 30, 2017 and December 31, 2016, respectively |
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1,400,699 |
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1,411,039 |
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Investments in unconsolidated subsidiaries |
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233,634 |
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232,238 |
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Deferred tax assets, net |
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94,250 |
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|
105,324 |
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Other assets, net |
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409,223 |
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|
366,388 |
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Total Assets |
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$ |
11,652,014 |
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$ |
10,779,587 |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Accounts payable and accrued expenses |
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$ |
1,505,860 |
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$ |
1,446,438 |
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Compensation and employee benefits payable |
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763,554 |
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772,922 |
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Accrued bonus and profit sharing |
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727,066 |
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|
890,321 |
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Income taxes payable |
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82,106 |
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|
58,351 |
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Short-term borrowings: |
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Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) |
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1,416,253 |
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1,254,653 |
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Other |
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16 |
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|
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16 |
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Total short-term borrowings |
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1,416,269 |
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1,254,669 |
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Current maturities of long-term debt |
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10 |
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|
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11 |
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Other current liabilities |
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56,512 |
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102,717 |
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Total Current Liabilities |
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4,551,377 |
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4,525,429 |
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Long-term debt, net of current maturities |
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2,551,568 |
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2,548,126 |
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Deferred tax liabilities, net |
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125,782 |
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70,719 |
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Non-current tax liabilities |
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17,851 |
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54,042 |
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Other liabilities |
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553,600 |
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524,026 |
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Total Liabilities |
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7,800,178 |
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7,722,342 |
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Commitments and contingencies |
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— |
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— |
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Equity: |
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CBRE Group, Inc. Stockholders’ Equity: |
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Class A common stock; $0.01 par value; 525,000,000 shares authorized; 339,459,138 and 337,279,449 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
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3,395 |
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3,373 |
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Additional paid-in capital |
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1,192,855 |
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1,145,226 |
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Accumulated earnings |
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3,179,985 |
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2,656,906 |
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Accumulated other comprehensive loss |
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(580,765 |
) |
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(791,018 |
) |
Total CBRE Group, Inc. Stockholders’ Equity |
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3,795,470 |
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3,014,487 |
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Non-controlling interests |
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56,366 |
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42,758 |
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Total Equity |
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3,851,836 |
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3,057,245 |
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Total Liabilities and Equity |
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$ |
11,652,014 |
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$ |
10,779,587 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF OPERATONS
(Unaudited)
(Dollars in thousands, except share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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Revenue |
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$ |
3,549,977 |
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$ |
3,193,487 |
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$ |
9,873,396 |
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$ |
9,247,758 |
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Costs and expenses: |
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Cost of services |
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2,513,377 |
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2,252,783 |
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6,919,018 |
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6,520,629 |
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Operating, administrative and other |
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704,898 |
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686,530 |
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2,023,503 |
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2,010,338 |
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Depreciation and amortization |
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102,591 |
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92,725 |
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297,014 |
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269,987 |
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Total costs and expenses |
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3,320,866 |
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3,032,038 |
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9,239,535 |
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8,800,954 |
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Gain on disposition of real estate |
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6,180 |
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11,043 |
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18,863 |
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15,862 |
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Operating income |
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235,291 |
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172,492 |
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652,724 |
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462,666 |
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Equity income from unconsolidated subsidiaries |
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67,834 |
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24,672 |
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158,236 |
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116,902 |
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Other income |
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1,768 |
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1,356 |
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9,069 |
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8,453 |
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Interest income |
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3,129 |
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1,020 |
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6,967 |
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5,545 |
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Interest expense |
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34,483 |
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37,273 |
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103,923 |
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109,050 |
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Income before provision for income taxes |
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273,539 |
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162,267 |
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723,073 |
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484,516 |
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Provision for income taxes |
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76,178 |
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51,414 |
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195,813 |
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165,578 |
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Net income |
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197,361 |
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110,853 |
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527,260 |
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318,938 |
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Less: Net income attributable to non- controlling interests |
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1,044 |
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6,690 |
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4,181 |
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10,940 |
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Net income attributable to CBRE Group, Inc. |
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$ |
196,317 |
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$ |
104,163 |
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$ |
523,079 |
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$ |
307,998 |
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Basic income per share: |
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Net income per share attributable to CBRE Group, Inc. |
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$ |
0.58 |
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$ |
0.31 |
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$ |
1.55 |
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$ |
0.92 |
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Weighted average shares outstanding for basic income per share |
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337,948,324 |
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335,770,122 |
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337,280,914 |
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334,949,606 |
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Diluted income per share: |
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Net income per share attributable to CBRE Group, Inc. |
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$ |
0.58 |
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$ |
0.31 |
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$ |
1.54 |
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$ |
0.91 |
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Weighted average shares outstanding for diluted income per share |
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341,186,431 |
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338,488,975 |
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340,502,432 |
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338,053,297 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
|
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Three Months Ended |
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Nine Months Ended |
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September 30, |
|
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September 30, |
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||||||||||
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2017 |
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2016 |
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2017 |
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2016 |
|
||||
Net income |
|
$ |
197,361 |
|
|
$ |
110,853 |
|
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$ |
527,260 |
|
|
$ |
318,938 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
64,711 |
|
|
|
(15,940 |
) |
|
|
204,147 |
|
|
|
(101,654 |
) |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax |
|
|
1,260 |
|
|
|
1,720 |
|
|
|
4,148 |
|
|
|
5,196 |
|
Unrealized gains (losses) on interest rate swaps, net of tax |
|
|
25 |
|
|
|
788 |
|
|
|
102 |
|
|
|
(3,327 |
) |
Unrealized holding gains on available for sale securities, net of tax |
|
|
339 |
|
|
|
348 |
|
|
|
2,239 |
|
|
|
993 |
|
Other, net |
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(4 |
) |
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2 |
|
|
|
(20 |
) |
|
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(757 |
) |
Total other comprehensive income (loss) |
|
|
66,331 |
|
|
|
(13,082 |
) |
|
|
210,616 |
|
|
|
(99,549 |
) |
Comprehensive income |
|
|
263,692 |
|
|
|
97,771 |
|
|
|
737,876 |
|
|
|
219,389 |
|
Less: Comprehensive income attributable to non-controlling interests |
|
|
1,227 |
|
|
|
6,768 |
|
|
|
4,544 |
|
|
|
11,057 |
|
Comprehensive income attributable to CBRE Group, Inc. |
|
$ |
262,465 |
|
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$ |
91,003 |
|
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$ |
733,332 |
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$ |
208,332 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
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Nine Months Ended |
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September 30, |
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|||||
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2017 |
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2016 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
527,260 |
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$ |
318,938 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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|
|
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Depreciation and amortization |
|
|
297,014 |
|
|
|
269,987 |
|
Amortization of financing costs |
|
|
7,371 |
|
|
|
8,302 |
|
Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets |
|
|
(131,062 |
) |
|
|
(134,775 |
) |
Net realized and unrealized gains from investments |
|
|
(9,069 |
) |
|
|
(8,453 |
) |
Gain on disposition of real estate held for investment |
|
— |
|
|
|
(9,901 |
) |
|
Equity income from unconsolidated subsidiaries |
|
|
(158,236 |
) |
|
|
(116,902 |
) |
Provision for doubtful accounts |
|
|
7,442 |
|
|
|
6,805 |
|
Compensation expense for equity awards |
|
|
68,975 |
|
|
|
43,346 |
|
Proceeds from sale of mortgage loans |
|
|
11,316,041 |
|
|
|
10,075,850 |
|
Origination of mortgage loans |
|
|
(11,441,884 |
) |
|
|
(9,917,310 |
) |
Increase (decrease) in warehouse lines of credit |
|
|
161,600 |
|
|
|
(131,690 |
) |
Distribution of earnings from unconsolidated subsidiaries |
|
|
17,612 |
|
|
|
19,982 |
|
Tenant concessions received |
|
|
14,739 |
|
|
|
7,667 |
|
Purchase of trading securities |
|
|
(61,813 |
) |
|
|
(76,136 |
) |
Proceeds from sale of trading securities |
|
|
53,251 |
|
|
|
84,234 |
|
(Increase) decrease in receivables |
|
|
(90,526 |
) |
|
|
46,289 |
|
Increase in prepaid expenses and other assets |
|
|
(82,673 |
) |
|
|
(101,916 |
) |
Decrease in real estate held for sale and under development |
|
|
10,784 |
|
|
|
2,870 |
|
Decrease in accounts payable and accrued expenses |
|
|
(4,876 |
) |
|
|
(125,471 |
) |
Decrease in compensation and employee benefits payable and accrued bonus and profit sharing |
|
|
(224,798 |
) |
|
|
(210,670 |
) |
Increase in income taxes receivable/payable |
|
|
(10,631 |
) |
|
|
(66,589 |
) |
Increase in other liabilities |
|
|
1,162 |
|
|
|
8,807 |
|
Other operating activities, net |
|
|
(20,415 |
) |
|
|
(46,453 |
) |
Net cash provided by (used in) operating activities |
|
|
247,268 |
|
|
|
(53,189 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(101,606 |
) |
|
|
(134,357 |
) |
Acquisition of businesses (other than Global Workplace Solutions (GWS)), including net assets acquired, intangibles and goodwill, net of cash acquired |
|
|
(59,394 |
) |
|
|
(22,066 |
) |
Acquisition of GWS, including net assets acquired, intangibles and goodwill |
|
— |
|
|
|
(10,477 |
) |
|
Contributions to unconsolidated subsidiaries |
|
|
(36,659 |
) |
|
|
(57,295 |
) |
Distributions from unconsolidated subsidiaries |
|
|
177,506 |
|
|
|
119,539 |
|
Net proceeds from disposition of real estate held for investment |
|
— |
|
|
|
44,326 |
|
|
Increase in restricted cash |
|
|
(11,020 |
) |
|
|
(1,623 |
) |
Purchase of available for sale securities |
|
|
(29,408 |
) |
|
|
(31,413 |
) |
Proceeds from the sale of available for sale securities |
|
|
25,618 |
|
|
|
29,560 |
|
Other investing activities, net |
|
|
1,156 |
|
|
|
24,185 |
|
Net cash used in investing activities |
|
|
(33,807 |
) |
|
|
(39,621 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Repayment of senior term loans |
|
— |
|
|
|
(23,125 |
) |
|
Proceeds from revolving credit facility |
|
|
911,000 |
|
|
|
2,195,000 |
|
Repayment of revolving credit facility |
|
|
(911,000 |
) |
|
|
(2,112,000 |
) |
Proceeds from notes payable on real estate held for investment |
|
|
79 |
|
|
|
7,274 |
|
Repayment of notes payable on real estate held for investment |
|
|
(1,324 |
) |
|
|
(33,516 |
) |
Proceeds from notes payable on real estate held for sale and under development |
|
|
3,341 |
|
|
|
15,110 |
|
Repayment of notes payable on real estate held for sale and under development |
|
|
(10,777 |
) |
|
|
(4,102 |
) |
Units repurchased for payment of taxes on equity awards |
|
|
(29,549 |
) |
|
|
(27,796 |
) |
Non-controlling interest contributions |
|
|
3,410 |
|
|
|
1,478 |
|
Non-controlling interest distributions |
|
|
(6,643 |
) |
|
|
(12,800 |
) |
Payment of financing costs |
|
|
(21 |
) |
|
|
(5,601 |
) |
Other financing activities, net |
|
|
(2,673 |
) |
|
|
(761 |
) |
Net cash used in financing activities |
|
|
(44,157 |
) |
|
|
(839 |
) |
Effect of currency exchange rate changes on cash and cash equivalents |
|
|
23,725 |
|
|
|
(408 |
) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
193,029 |
|
|
|
(94,057 |
) |
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD |
|
|
762,576 |
|
|
|
540,403 |
|
CASH AND CASH EQUIVALENTS, AT END OF PERIOD |
|
$ |
955,605 |
|
|
$ |
446,346 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
111,826 |
|
|
$ |
118,272 |
|
Income taxes, net |
|
$ |
204,228 |
|
|
$ |
225,129 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
(Dollars in thousands)
|
|
CBRE Group, Inc. Shareholders |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Class A |
|
|
Additional |
|
|
|
|
|
|
other |
|
|
Non- |
|
|
|
|
|
||||
|
|
common |
|
|
paid-in |
|
|
Accumulated |
|
|
comprehensive |
|
|
controlling |
|
|
|
|
|
|||||
|
|
stock |
|
|
capital |
|
|
earnings |
|
|
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 |
|
|
— |
|
|
|
— |
|
|
|
523,079 |
|
|
|
— |
|
|
|
4,181 |
|
|
|
527,260 |
|
Non-cash issuance of common stock related to acquisition |
|
|
5 |
|
|
|
7,586 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,591 |
|
Compensation expense for equity awards |
|
|
— |
|
|
|
68,975 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
68,975 |
|
Units repurchased for payment of taxes on equity awards |
|
|
— |
|
|
|
(29,549 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29,549 |
) |
Foreign currency translation gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
203,784 |
|
|
|
363 |
|
|
|
204,147 |
|
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,148 |
|
|
|
— |
|
|
|
4,148 |
|
Unrealized gains on interest rate swaps, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
102 |
|
|
|
— |
|
|
|
102 |
|
Unrealized holding gains on available for sale securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,239 |
|
|
|
— |
|
|
|
2,239 |
|
Contributions from non- controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,410 |
|
|
|
3,410 |
|
Distributions to non- controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,643 |
) |
|
|
(6,643 |
) |
Acquisition of non- controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,671 |
|
|
|
12,671 |
|
Other |
|
|
17 |
|
|
|
617 |
|
|
|
— |
|
|
|
(20 |
) |
|
|
(374 |
) |
|
|
240 |
|
Balance at September 30, 2017 |
|
$ |
3,395 |
|
|
$ |
1,192,855 |
|
|
$ |
3,179,985 |
|
|
$ |
(580,765 |
) |
|
$ |
56,366 |
|
|
$ |
3,851,836 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
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 (U.S.), or 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 2016 financial statements to conform with the 2017 presentation.
The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2017.
2. |
New Accounting Pronouncements |
Recent Accounting Pronouncements Pending Adoption
The Financial Accounting Standards Board (FASB) has recently issued five Accounting Standards Updates (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
6
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 using the retrospective 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 assessment, the impact of the application of the new revenue recognition guidance will 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, the company’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 have evaluated the impact of the updated principal versus agent guidance on our consolidated financial statements in relation to third-party costs which are billed to clients in association with facilities management and project management services. We determined a significant amount of additional contracts will be accounted for on a gross basis, resulting in a significant gross up of third-party costs as compared to our current presentation, with no impact on profitability. This is driven by a change in the indicators used to assess if we control these third-party service providers.
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. At this point in time, we do not believe the adoption of ASU 2016-15 will have a material impact 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
7
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. At this point in time, 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. 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.
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. At this point in time, we do not believe the adoption of ASU 2017-05 will have a material impact 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.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This ASU refines and expands hedge accounting for both financial and commodity risks. 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 2017-12 will have on our consolidated financial statements and related disclosures.
3. |
Warehouse Receivables & Warehouse Lines of Credit |
Our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) is a Federal Home Loan Mortgage Corporation (Freddie Mac) approved Multifamily Program Plus Seller/Servicer and an approved Federal National Mortgage Association (Fannie Mae) Aggregation and Negotiated Transaction Seller/Servicer. In addition, CBRE Capital Markets’ wholly-owned subsidiary CBRE Multifamily Capital, Inc. (CBRE MCI) is an approved Fannie Mae Delegated Underwriting and Servicing (DUS) Seller/Servicer and CBRE Capital Markets’ wholly-owned subsidiary CBRE HMF, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS). Under these arrangements, before loans are originated through proceeds from warehouse lines of credit, we obtain either a contractual loan purchase commitment from either Freddie Mac or Fannie Mae or a confirmed forward trade commitment for the issuance and purchase of a Fannie
8
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Mae or Ginnie Mae MBS that will be secured by the loans. Loans funded from the warehouse lines of credit are generally repaid within a one-month period, on average, when Freddie Mac or Fannie Mae buys the loans or upon settlement of the Fannie Mae or Ginnie Mae MBS, while we retain the servicing rights. Such loans are funded at the prevailing market rates. The warehouse lines of credit are recourse only to CBRE Capital Markets and are secured by our related warehouse receivables. We elect the fair value option for all warehouse receivables. At September 30, 2017 and December 31, 2016, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage-backed securities that will be secured by the underlying loans.
A rollforward of our warehouse receivables is as follows (dollars in thousands):
Beginning balance at January 1, 2017 |
|
$ |
1,276,047 |
|
Origination of mortgage loans |
|
|
11,441,884 |
|
Gains (premiums on loan sales) |
|
|
32,711 |
|
|
|
|
|
|
Sale of mortgage loans |
|
|
(11,283,330 |
) |
Cash collections of premiums on loan sales |
|
|
(32,711 |
) |
Proceeds from sale of mortgage loans |
|
|
(11,316,041 |
) |
|
|
|
|
|
Net increase in mortgage servicing rights included in warehouse receivables |
|
|
309 |
|
Ending balance at September 30, 2017 |
|
$ |
1,434,910 |
|
9
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table is a summary of our warehouse lines of credit in place as of September 30, 2017 and December 31, 2016 (dollars in thousands):
|
|
|
|
|
|
September 30, 2017 |
|
|
December 31, 2016 |
|
||||||||||
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
Maximum |
|
|
|
|
|
||
Lender |
|
Current Maturity |
|
Pricing |
|
Facility Size |
|
|
Carrying Value |
|
|
Facility Size |
|
|
Carrying Value |
|
||||
JP Morgan Chase Bank, N.A. (JP Morgan) (1) |
|
2/28/2017 |
|
daily one-month LIBOR plus 1.45% |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
300,000 |
|
|
$ |
275,945 |
|
JP Morgan (2) |
|
10/23/2017 |
|
daily one-month LIBOR plus 1.45% |
|
|
800,000 |
|
|
|
704,908 |
|
|
|
700,000 |
|
|
|
— |
|
JP Morgan (2) |
|
10/23/2017 |
|
daily one-month LIBOR plus 2.75% |
|
|
25,000 |
|
|
|
1,487 |
|
|
|
25,000 |
|
|
|
3,768 |
|
Bank of America (BofA) (1) |
|
1/30/2017 |
|
daily one-month LIBOR plus 1.60% |
|
|
— |
|
|
|
— |
|
|
|
300,000 |
|
|
|
300,000 |
|
BofA |
|
6/5/2018 |
|
daily one-month LIBOR plus 1.40% |
|
|
225,000 |
|
|
|
155,744 |
|
|
|
200,000 |
|
|
|
18,555 |
|
Fannie Mae Multifamily As Soon As Pooled Plus Agreement and Multifamily As Soon As Pooled Sale Agreement (ASAP) Program (1) |
|
1/17/2017 |
|
daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35% |
|
|
— |
|
|
|
— |
|
|
|
200,000 |
|
|
|
200,000 |
|
Fannie Mae ASAP Program |
|
Cancelable anytime |
|
daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35% |
|
|
450,000 |
|
|
|
94,250 |
|
|
|
450,000 |
|
|
|
111,160 |
|
TD Bank, N.A. (TD Bank) (1) |
|
2/28/2017 |
|
daily one-month LIBOR plus 1.35% |
|
|
— |
|
|
|
— |
|
|
|
375,000 |
|
|
|
154,032 |
|
TD Bank |
|
6/30/2018 |
|
daily one-month LIBOR plus 1.25% |
|
|
400,000 |
|
|
|
366,600 |
|
|
|
400,000 |
|
|
|
— |
|
Capital One, N.A. (Capital One) (1) |
|
1/23/2017 |
|
daily one-month LIBOR plus 1.45% |