filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
All other schedules are omitted because they are either not applicable, not required or the information required is included in the Consolidated Financial Statements, including the notes thereto.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors CBRE Group, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of CBRE Group, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, cash flows, and equity for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2008.
Los Angeles, California March 1, 2018
CBRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 751,774 | $ | 762,576 | ||||
| Restricted cash | 73,045 | 68,836 | ||||||
| Receivables, less allowance for doubtful accounts of $46,789 and $39,469 at December 31, 2017 and 2016, respectively | 3,207,285 | 2,605,602 | ||||||
| Warehouse receivables | 928,038 | 1,276,047 | ||||||
| Prepaid expenses | 215,336 | 184,107 | ||||||
| Income taxes receivable | 49,628 | 45,626 | ||||||
| Other current assets | 227,421 | 179,656 | ||||||
| Total Current Assets | 5,452,527 | 5,122,450 | ||||||
| Property and equipment, net | 617,739 | 560,756 | ||||||
| Goodwill | 3,254,740 | 2,981,392 | ||||||
| Other intangible assets, net of accumulated amortization of $1,000,738 and $771,673 at December 31, 2017 and 2016, respectively | 1,399,112 | 1,411,039 | ||||||
| Investments in unconsolidated subsidiaries | 238,001 | 232,238 | ||||||
| Deferred tax assets, net | 98,746 | 105,324 | ||||||
| Other assets, net | 422,965 | 366,388 | ||||||
| Total Assets | $ | 11,483,830 | $ | 10,779,587 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,674,287 | $ | 1,446,438 | ||||
| Accrued bonus and profit sharing | 1,072,976 | 890,321 | ||||||
| Compensation and employee benefits payable | 803,504 | 772,922 | ||||||
| Income taxes payable | 70,634 | 58,351 | ||||||
| Short-term borrowings: | ||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) | 910,766 | 1,254,653 | ||||||
| Other | 16 | 16 | ||||||
| Total short-term borrowings | 910,782 | 1,254,669 | ||||||
| Current maturities of long-term debt | 8 | 11 | ||||||
| Other current liabilities | 74,454 | 102,717 | ||||||
| Total Current Liabilities | 4,606,645 | 4,525,429 | ||||||
| Long-term debt, net of current maturities | 1,999,603 | 2,548,126 | ||||||
| Non-current tax liabilities | 140,792 | 54,042 | ||||||
| Deferred tax liabilities, net | 114,017 | 70,719 | ||||||
| Other liabilities | 543,225 | 524,026 | ||||||
| Total Liabilities | 7,404,282 | 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; 339,459,138 and 337,279,449 shares issued and outstanding at December 31, 2017 and 2016, respectively | 3,395 | 3,373 | ||||||
| Additional paid-in capital | 1,220,508 | 1,145,226 | ||||||
| Accumulated earnings | 3,348,385 | 2,656,906 | ||||||
| Accumulated other comprehensive loss | (552,858 | ) | (791,018 | ) | ||||
| Total CBRE Group, Inc. Stockholders’ Equity | 4,019,430 | 3,014,487 | ||||||
| Non-controlling interests | 60,118 | 42,758 | ||||||
| Total Equity | 4,079,548 | 3,057,245 | ||||||
| Total Liabilities and Equity | $ | 11,483,830 | $ | 10,779,587 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Revenue | $ | 14,209,608 | $ | 13,071,589 | $ | 10,855,810 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of services | 9,893,226 | 9,123,727 | 7,082,932 | |||||||||
| Operating, administrative and other | 2,858,654 | 2,781,310 | 2,633,609 | |||||||||
| Depreciation and amortization | 406,114 | 366,927 | 314,096 | |||||||||
| Total costs and expenses | 13,157,994 | 12,271,964 | 10,030,637 | |||||||||
| Gain on disposition of real estate | 19,828 | 15,862 | 10,771 | |||||||||
| Operating income | 1,071,442 | 815,487 | 835,944 | |||||||||
| Equity income from unconsolidated subsidiaries | 210,207 | 197,351 | 162,849 | |||||||||
| Other income (loss) | 9,405 | 4,688 | (3,809 | ) | ||||||||
| Interest income | 9,853 | 8,051 | 6,311 | |||||||||
| Interest expense | 136,814 | 144,851 | 118,880 | |||||||||
| Write-off of financing costs on extinguished debt | — | — | 2,685 | |||||||||
| Income before provision for income taxes | 1,164,093 | 880,726 | 879,730 | |||||||||
| Provision for income taxes | 466,147 | 296,662 | 320,853 | |||||||||
| Net income | 697,946 | 584,064 | 558,877 | |||||||||
| Less: Net income attributable to non-controlling interests | 6,467 | 12,091 | 11,745 | |||||||||
| Net income attributable to CBRE Group, Inc. | $ | 691,479 | $ | 571,973 | $ | 547,132 | ||||||
| Basic income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 2.05 | $ | 1.71 | $ | 1.64 | ||||||
| Weighted average shares outstanding for basic income per share | 337,658,017 | 335,414,831 | 332,616,301 | |||||||||
| Diluted income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 2.03 | $ | 1.69 | $ | 1.63 | ||||||
| Weighted average shares outstanding for diluted income per share | 340,783,556 | 338,424,563 | 336,414,856 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Net income | $ | 697,946 | $ | 584,064 | $ | 558,877 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation gain (loss) | 217,221 | (235,278 | ) | (164,350 | ) | |||||||
| Fees associated with termination of interest rate swaps, net of $2,244 income tax benefit for the year ended December 31, 2015 | — | — | (3,908 | ) | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of $3,066, $4,443 and $4,411 income tax expense for the years ended December 31, 2017, 2016 and 2015, respectively | 4,964 | 6,839 | 7,680 | |||||||||
| Unrealized gains (losses) on interest rate swaps, net of $362 income tax expense, and $929 and $2,358 income tax benefit for the years ended December 31, 2017, 2016 and 2015, respectively | 585 | (1,431 | ) | (4,107 | ) | |||||||
| Unrealized holding gains (losses) on available for sale securities, net of $1,685 and $250 income tax expense and $405 income tax benefit for the years ended December 31, 2017, 2016 and 2015, respectively | 2,737 | 384 | (705 | ) | ||||||||
| Pension liability adjustments, net of $2,601 income tax expense, $13,057 income tax benefit and $773 income tax expense for the years ended December 31, 2017, 2016 and 2015, respectively | 12,701 | (63,749 | ) | 3,741 | ||||||||
| Other, net of $342 income tax expense and $3,705 income tax benefit for the years ended December 31, 2017 and 2016, respectively | 364 | (12,091 | ) | 3 | ||||||||
| Total other comprehensive income (loss) | 238,572 | (305,326 | ) | (161,646 | ) | |||||||
| Comprehensive income | 936,518 | 278,738 | 397,231 | |||||||||
| Less: Comprehensive income attributable to non-controlling interests | 6,879 | 12,108 | 11,754 | |||||||||
| Comprehensive income attributable to CBRE Group, Inc. | $ | 929,639 | $ | 266,630 | $ | 385,477 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 697,946 | $ | 584,064 | $ | 558,877 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 406,114 | 366,927 | 314,096 | |||||||||
| Amortization and write-off of financing costs on extinguished debt | 10,783 | 10,935 | 12,311 | |||||||||
| Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets | (200,386 | ) | (201,362 | ) | (140,828 | ) | ||||||
| Net realized and unrealized (gains) losses from investments | (9,405 | ) | (4,688 | ) | 3,809 | |||||||
| Gain on disposition of real estate held for investment | — | (9,901 | ) | (8,573 | ) | |||||||
| Equity income from unconsolidated subsidiaries | (210,207 | ) | (197,351 | ) | (162,849 | ) | ||||||
| Provision for doubtful accounts | 8,044 | 4,711 | 10,211 | |||||||||
| Deferred income taxes | (8,989 | ) | (9,642 | ) | (14,935 | ) | ||||||
| Compensation expense for equity awards | 93,087 | 63,484 | 74,709 | |||||||||
| Proceeds from sale of mortgage loans | 18,052,756 | 15,833,633 | 11,266,224 | |||||||||
| Origination of mortgage loans | (17,655,104 | ) | (15,297,471 | ) | (12,488,511 | ) | ||||||
| (Decrease) increase in warehouse lines of credit | (343,887 | ) | (496,128 | ) | 1,249,596 | |||||||
| Distribution of earnings from unconsolidated subsidiaries | 27,945 | 29,031 | 36,630 | |||||||||
| Tenant concessions received | 19,337 | 22,547 | 7,861 | |||||||||
| Purchase of trading securities | (110,570 | ) | (87,765 | ) | (85,707 | ) | ||||||
| Proceeds from sale of trading securities | 68,547 | 105,866 | 78,798 | |||||||||
| Proceeds from securities sold, not yet purchased | 13,320 | 17,932 | 16,014 | |||||||||
| Securities purchased to cover short sales | (13,840 | ) | (19,017 | ) | (13,147 | ) | ||||||
| Increase in receivables | (483,712 | ) | (234,720 | ) | (230,307 | ) | ||||||
| Increase in prepaid expenses and other assets | (66,452 | ) | (93,192 | ) | (84,997 | ) | ||||||
| Decrease (increase) in real estate held for sale and under development | 8,399 | (2,245 | ) | (16,003 | ) | |||||||
| Increase in accounts payable and accrued expenses | 171,346 | 2,235 | 177,567 | |||||||||
| Increase in compensation and employee benefits payable and accrued bonus and profit sharing | 152,235 | 132,947 | 115,805 | |||||||||
| Decrease (increase) in income taxes receivable/payable | 108,151 | (6,334 | ) | 43,085 | ||||||||
| Increase (decrease) in other liabilities | 1,787 | (3,231 | ) | (15,543 | ) | |||||||
| Other operating activities, net | (26,740 | ) | (60,950 | ) | (52,296 | ) | ||||||
| Net cash provided by operating activities | 710,505 | 450,315 | 651,897 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Capital expenditures | (178,042 | ) | (191,205 | ) | (139,464 | ) | ||||||
| Acquisition of Global Workplace Solutions (GWS), including net assets acquired, intangibles and goodwill, net of cash acquired | — | (10,477 | ) | (1,421,663 | ) | |||||||
| Acquisition of businesses (other than GWS), including net assets acquired, intangibles and goodwill, net of cash acquired | (142,433 | ) | (31,634 | ) | (161,106 | ) | ||||||
| Contributions to unconsolidated subsidiaries | (68,700 | ) | (66,816 | ) | (71,208 | ) | ||||||
| Distributions from unconsolidated subsidiaries | 247,574 | 213,446 | 187,577 | |||||||||
| Net proceeds from disposition of real estate held for investment | — | 44,326 | 3,584 | |||||||||
| Decrease (increase) in restricted cash | 1,281 | (2,552 | ) | (49,012 | ) | |||||||
| Purchase of available for sale securities | (34,864 | ) | (37,661 | ) | (40,287 | ) | ||||||
| Proceeds from the sale of available for sale securities | 31,377 | 35,051 | 42,572 | |||||||||
| Other investing activities, net | 2,392 | 40,083 | 30,048 | |||||||||
| Net cash used in investing activities | (141,415 | ) | (7,439 | ) | (1,618,959 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from senior term loans | 200,000 | — | 900,000 | |||||||||
| Repayment of senior term loans | (751,876 | ) | (136,250 | ) | (657,488 | ) | ||||||
| Proceeds from revolving credit facility | 1,521,000 | 2,909,000 | 2,643,500 | |||||||||
| Repayment of revolving credit facility | (1,521,000 | ) | (2,909,000 | ) | (2,648,012 | ) | ||||||
| Proceeds from issuance of 4.875% senior notes, net | — | — | 595,440 | |||||||||
| Proceeds from notes payable on real estate held for investment | 137 | 7,274 | — | |||||||||
| Repayment of notes payable on real estate held for investment | (1,779 | ) | (33,944 | ) | (1,576 | ) | ||||||
| Proceeds from notes payable on real estate held for sale and under development | 4,196 | 17,727 | 20,879 | |||||||||
| Repayment of notes payable on real estate held for sale and under development | (10,777 | ) | (4,102 | ) | (1,186 | ) | ||||||
| Shares and units repurchased for payment of taxes on equity awards | (29,549 | ) | (27,426 | ) | (24,523 | ) | ||||||
| Non-controlling interest contributions | 5,301 | 2,272 | 5,909 | |||||||||
| Non-controlling interest distributions | (8,715 | ) | (19,133 | ) | (16,582 | ) | ||||||
| Payment of financing costs | (7,999 | ) | (5,618 | ) | (30,664 | ) | ||||||
| Other financing activities, net | (2,675 | ) | (443 | ) | 3,851 | |||||||
| Net cash (used in) provided by financing activities | (603,736 | ) | (199,643 | ) | 789,548 | |||||||
| Effect of currency exchange rate changes on cash and cash equivalents | 23,844 | (21,060 | ) | (22,967 | ) | |||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (10,802 | ) | 222,173 | (200,481 | ) | |||||||
| CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD | 762,576 | 540,403 | 740,884 | |||||||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 751,774 | $ | 762,576 | $ | 540,403 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Interest | $ | 117,164 | $ | 125,800 | $ | 88,078 | ||||||
| Income taxes, net | $ | 356,997 | $ | 294,848 | $ | 285,730 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
| CBRE Group, Inc. Shareholders | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Accumulated other | ||||||||||||||||||||||||||||||||
| comprehensive loss | ||||||||||||||||||||||||||||||||
| Foreign | ||||||||||||||||||||||||||||||||
| Class A | Additional | Minimum | currency | |||||||||||||||||||||||||||||
| common | paid-in | Accumulated | pension | translation | Non-controlling | |||||||||||||||||||||||||||
| Shares | stock | capital | earnings | liability | and other | interests | Total | |||||||||||||||||||||||||
| Balance at December 31, 2014 | 332,991,031 | $ | 3,330 | $ | 1,039,425 | $ | 1,541,095 | $ | (105,662 | ) | $ | (218,358 | ) | $ | 41,568 | $ | 2,301,398 | |||||||||||||||
| Net income | — | — | — | 547,132 | — | — | 11,745 | 558,877 | ||||||||||||||||||||||||
| Pension liability adjustments, net of tax | — | — | — | — | 3,741 | — | — | 3,741 | ||||||||||||||||||||||||
| Stock options exercised (including tax benefit) | 561,583 | 6 | 9,796 | — | — | — | — | 9,802 | ||||||||||||||||||||||||
| Restricted stock awards vesting (including tax benefit) | 1,021,950 | 10 | 6,714 | — | — | — | — | 6,724 | ||||||||||||||||||||||||
| Compensation expense for equity awards | — | — | 74,709 | — | — | — | — | 74,709 | ||||||||||||||||||||||||
| Shares and units repurchased for payment of taxes on equity awards | (332,799 | ) | (3 | ) | (24,520 | ) | — | — | — | — | (24,523 | ) | ||||||||||||||||||||
| Fees associated with termination of interest rate swaps, net of tax (see Note 7) | — | — | — | — | — | (3,908 | ) | — | (3,908 | ) | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | — | — | — | — | 7,680 | — | 7,680 | ||||||||||||||||||||||||
| Unrealized losses on interest rate swaps, net of tax | — | — | — | — | — | (4,107 | ) | — | (4,107 | ) | ||||||||||||||||||||||
| Unrealized holding losses on available for sale securities, net of tax | — | — | — | — | — | (705 | ) | — | (705 | ) | ||||||||||||||||||||||
| Foreign currency translation (loss) gain | — | — | — | — | — | (164,359 | ) | 9 | (164,350 | ) | ||||||||||||||||||||||
| Cancellation of non-vested stock awards | (13,338 | ) | (1 | ) | — | — | — | — | — | (1 | ) | |||||||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | — | 5,909 | 5,909 | ||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | (16,582 | ) | (16,582 | ) | ||||||||||||||||||||||
| Other | 2,069 | — | 634 | — | — | 3 | 3,769 | 4,406 | ||||||||||||||||||||||||
| Balance at December 31, 2015 | 334,230,496 | $ | 3,342 | $ | 1,106,758 | $ | 2,088,227 | $ | (101,921 | ) | $ | (383,754 | ) | $ | 46,418 | $ | 2,759,070 | |||||||||||||||
| Net income | — | — | — | 571,973 | — | — | 12,091 | 584,064 | ||||||||||||||||||||||||
| Adoption of Accounting Standards Update 2016-09, net of tax (see Note 2) | — | — | 4,975 | (3,294 | ) | — | — | — | 1,681 | |||||||||||||||||||||||
| Pension liability adjustments, net of tax | — | — | − | — | (63,749 | ) | — | — | (63,749 | ) | ||||||||||||||||||||||
| Stock options exercised | 89,727 | 1 | 914 | — | — | — | — | 915 | ||||||||||||||||||||||||
| Restricted stock awards vesting | 2,955,142 | 30 | (30 | ) | — | — | — | — | — | |||||||||||||||||||||||
| Compensation expense for equity awards | — | — | 63,484 | — | — | — | — | 63,484 | ||||||||||||||||||||||||
| Units repurchased for payment of taxes on equity awards | — | — | (27,426 | ) | — | — | — | — | (27,426 | ) | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | — | — | — | — | 6,839 | — | 6,839 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
| CBRE Group, Inc. Shareholders | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Accumulated other | ||||||||||||||||||||||||||||||||
| comprehensive loss | ||||||||||||||||||||||||||||||||
| Foreign | ||||||||||||||||||||||||||||||||
| Class A | Additional | Minimum | currency | |||||||||||||||||||||||||||||
| common | paid-in | Accumulated | pension | translation | Non-controlling | |||||||||||||||||||||||||||
| Shares | stock | capital | earnings | liability | and other | interests | Total | |||||||||||||||||||||||||
| Unrealized losses on interest rate swaps, net of tax | — | — | — | — | — | (1,431 | ) | — | (1,431 | ) | ||||||||||||||||||||||
| Unrealized holding gains on available for sale securities, net of tax | — | — | — | — | — | 384 | — | 384 | ||||||||||||||||||||||||
| Foreign currency translation (loss) gain | — | — | — | — | — | (235,295 | ) | 17 | (235,278 | ) | ||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | − | 2,272 | 2,272 | ||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | − | (19,133 | ) | (19,133 | ) | ||||||||||||||||||||||
| Other | 4,084 | — | (3,449 | ) | — | — | (12,091 | ) | 1,093 | (14,447 | ) | |||||||||||||||||||||
| Balance at December 31, 2016 | 337,279,449 | $ | 3,373 | $ | 1,145,226 | $ | 2,656,906 | $ | (165,670 | ) | $ | (625,348 | ) | $ | 42,758 | $ | 3,057,245 | |||||||||||||||
| Net income | — | — | — | 691,479 | — | — | 6,467 | 697,946 | ||||||||||||||||||||||||
| Pension liability adjustments, net of tax | — | — | — | — | 12,701 | — | — | 12,701 | ||||||||||||||||||||||||
| Non-cash issuance of common stock related to acquisition | 495,828 | 5 | 11,688 | — | — | — | — | 11,693 | ||||||||||||||||||||||||
| Restricted stock awards vesting | 1,660,269 | 17 | (17 | ) | — | — | — | — | — | |||||||||||||||||||||||
| Compensation expense for equity awards | — | — | 93,087 | — | — | — | — | 93,087 | ||||||||||||||||||||||||
| Units repurchased for payment of taxes on equity awards | — | — | (29,549 | ) | — | — | — | — | (29,549 | ) | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | — | — | — | — | 4,964 | — | 4,964 | ||||||||||||||||||||||||
| Unrealized gains on interest rate swaps, net of tax | — | — | — | — | — | 585 | — | 585 | ||||||||||||||||||||||||
| Unrealized holding gains on available for sale securities, net of tax | — | — | — | — | — | 2,737 | — | 2,737 | ||||||||||||||||||||||||
| Foreign currency translation gain | — | — | — | — | — | 216,809 | 412 | 217,221 | ||||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | — | 5,301 | 5,301 | ||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | (8,715 | ) | (8,715 | ) | ||||||||||||||||||||||
| Acquisition of non-controlling interests | — | — | — | — | — | — | 12,671 | 12,671 | ||||||||||||||||||||||||
| Other | 23,592 | — | 73 | — | — | 364 | 1,224 | 1,661 | ||||||||||||||||||||||||
| Balance at December 31, 2017 | 339,459,138 | $ | 3,395 | $ | 1,220,508 | $ | 3,348,385 | $ | (152,969 | ) | $ | (399,889 | ) | $ | 60,118 | $ | 4,079,548 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Nature of Operations |
|---|
CBRE Group, Inc., a Delaware corporation (which may be referred to in these financial statements as the “company”, “we”, “us” and “our”), was incorporated on February 20, 2001. We are the world’s largest commercial real estate services and investment firm, based on 2017 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. Our business is focused on providing services to both occupiers of real estate and investors in real estate. For occupiers, we provide facilities management, project management, transaction (both property sales and tenant leasing) and consulting services, among others. For investors, we provide capital markets (property sales, commercial mortgage brokerage, loan origination and servicing), leasing, investment management, property management, valuation and development services, among others. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. As of December 31, 2017, we operated in more than 450 offices worldwide with over 80,000 employees, excluding independent affiliates, providing commercial real estate services under the “CBRE” brand name, investment management services under the “CBRE Global Investors” brand name and development services under the “Trammell Crow Company” brand name.
| 2. | Significant Accounting Policies |
|---|
Principles of Consolidation
The accompanying consolidated financial statements include our accounts and those of our consolidated subsidiaries, which are comprised of variable interest entities in which we are the primary beneficiary and voting interest entities, in which we determined we have a controlling financial interest, under the “Consolidations” Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) (Topic 810). The equity attributable to non-controlling interests in subsidiaries is shown separately in the accompanying consolidated balance sheets. All significant intercompany accounts and transactions have been eliminated in consolidation.
Variable Interest Entities (VIEs)
We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. Our determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in the VIE. Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to sell or liquidate the entity. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion continually.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We consolidate any VIE of which we are the primary beneficiary and disclose significant VIEs of which we are not the primary beneficiary, if any, as well as disclose our maximum exposure to loss related to VIEs that are not consolidated (see Note 5).
Voting Interest Entities (VOEs)
For VOEs, we consolidate the entity if we have a controlling financial interest. We have a controlling financial interest in a VOE if (i) for legal entities other than limited partnerships, we own a majority voting interest in the VOE or, for limited partnerships and similar entities, we own a majority of the entity’s kick-out rights through voting limited partnership interests and (ii) non-controlling shareholders or partners do not hold substantive participating rights and no other conditions exist that would indicate that we do not control the entity.
Other Investments
Our investments in unconsolidated subsidiaries in which we have the ability to exercise significant influence over operating and financial policies, but do not control, or entities which are variable interest entities in which we are not the primary beneficiary are accounted for under the equity method. We eliminate transactions with such equity method subsidiaries to the extent of our ownership in such subsidiaries. Accordingly, our share of the earnings from these equity-method basis companies is included in consolidated net income. All other investments held on a long-term basis are valued at cost less any impairment in value.
Impairment Evaluation
Under either the equity or cost method, impairment losses are recognized upon evidence of other-than-temporary losses of value. When testing for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our investments and/or look to comparable activities in the marketplace. Management’s judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include net asset values, internal rates of return, discount and capitalization rates, interest rates and financing terms, rental rates, timing of leasing activity, estimates of lease terms and related concessions, etc. When determining if impairment is other-than-temporary, we also look to the length of time and the extent to which fair value has been less than cost as well as the financial condition and near-term prospects of each investment.
Use of Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.), or GAAP, which require management to make estimates and assumptions about future events. These estimates and assumptions affect the amounts of assets, liabilities, revenue and expenses we report. Such estimates include the value of goodwill, intangibles and other long-lived assets, accounts receivable, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best judgment, and are evaluated on an ongoing basis and adjusted, as needed, using historical experience and other factors, including consideration of the macroeconomic environment. As future events and their effects cannot be forecast with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash and highly liquid investments with an original maturity of three months or less. Included in the accompanying consolidated balance sheets as of December 31, 2017 and 2016 is cash and cash equivalents of $123.8 million and $73.3 million, respectively, from consolidated funds and other entities, which are not available for general corporate use. We also manage certain cash and cash equivalents as an agent for our investment and property and facilities management clients. These amounts are not included in the accompanying consolidated balance sheets (see Note 17).
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Restricted Cash
Included in the accompanying consolidated balance sheets as of December 31, 2017 and 2016 is restricted cash of $73.0 million and $68.8 million, respectively. The balances primarily include restricted cash set aside to cover funding obligations as required by contracts executed by us in the ordinary course of business.
Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of trade receivables and interest-bearing investments. Users of real estate services account for a substantial portion of trade receivables and collateral is generally not required. The risk associated with this concentration is limited due to the large number of users and their geographic dispersion.
We place substantially all of our interest-bearing investments with several major financial institutions to limit the amount of credit exposure with any one financial institution.
Property and Equipment
Property and equipment, which includes leasehold improvements, is stated at cost, net of accumulated depreciation. Depreciation and amortization of property and equipment is computed primarily using the straight-line method over estimated useful lives ranging up to 10 years. Leasehold improvements are amortized over the term of their associated leases, excluding options to renew, since such leases generally do not carry prohibitive penalties for non-renewal. We capitalize expenditures that significantly increase the life of our assets and expense the costs of maintenance and repairs.
We review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If this review indicates that such assets are considered to be impaired, the impairment is recognized in the period the changes occur and represents the amount by which the carrying value exceeds the fair value of the asset.
Certain costs related to the development or purchase of internal-use software are capitalized. Internal-use software costs that are incurred in the preliminary project stage are expensed as incurred. Significant direct consulting costs and certain payroll and related costs, which are incurred during the development stage of a project are generally capitalized and amortized over a three-year period (except for enterprise software development platforms, which range from three to seven years) when placed into production.
Goodwill and Other Intangible Assets
Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. The majority of our goodwill balance has resulted from our acquisition of CBRE Services, Inc. (CBRE Services) in 2001 (the 2001 Acquisition), our acquisition of Insignia Financial Group, Inc. (Insignia) in 2003 (the Insignia Acquisition), our acquisition of the Trammell Crow Company in 2006 (the Trammell Crow Company Acquisition), our acquisition of substantially all of the ING Group N.V. (ING) Real Estate Investment Management (REIM) operations in Europe and Asia, as well as substantially all of Clarion Real Estate Securities (CRES) in 2011 (collectively referred to as the REIM Acquisitions), our acquisition of Norland Managed Services Ltd (Norland) in 2013 (the Norland Acquisition) and our acquisition of Johnson Controls, Inc. (JCI)’s Global Workplace Solutions (JCI-GWS) business in 2015. Other intangible assets that have indefinite estimated useful lives that are not being amortized include certain management contracts identified in the REIM Acquisitions, a trademark, which was separately identified as a result of the 2001 Acquisition, as well as a trade name separately identified as a result of the REIM Acquisitions. The remaining other intangible assets primarily include customer relationships, mortgage servicing rights, trademarks, management contracts and covenants not to compete, which are all being amortized over estimated useful lives ranging up to 20 years.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We are required to test goodwill and other intangible assets deemed to have indefinite useful lives for impairment at least annually, or more often if circumstances or events indicate a change in the impairment status. The goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. We use a discounted cash flow approach to estimate the fair value of our reporting units. Management’s judgment is required in developing the assumptions for the discounted cash flow model. These assumptions include revenue growth rates, profit margin percentages, discount rates, etc. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. The second step of the process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated impairment. The implied fair value of goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.
Deferred Financing Costs
Costs incurred in connection with financing activities are generally deferred and amortized over the terms of the related debt agreements ranging up to ten years. Debt issuance costs related to a recognized debt liability are presented in the accompanying consolidated balance sheets as a direct deduction from the carrying amount of that debt liability. Amortization of these costs is charged to interest expense in the accompanying consolidated statements of operations. Accounting Standards Update (ASU) 2015-15, “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” permits classifying debt issuance costs associated with a line of credit arrangement as an asset, regardless of whether there are any outstanding borrowings on the arrangement. Total deferred financing costs, net of accumulated amortization, related to our revolving line of credit have been included in other assets in the accompanying consolidated balance sheets and were $23.0 million and $22.2 million as of December 31, 2017 and 2016, respectively.
During 2017, we entered into a new credit agreement providing for a $750.0 million delayed draw tranche A term loan facility and a $2.8 billion revolving credit facility. During the year ended December 31, 2017, in connection with these financing activities, we incurred approximately $8.0 million of financing costs.
On March 21, 2016, we executed an amendment to our 2015 amended and restated credit agreement which, among other things, extended the maturity on our revolving credit facility and increased the borrowing capacity under our revolving credit facility. In connection with this amendment, we incurred approximately $5.4 million of financing costs.
During 2015, we entered into our 2015 amended and restated credit agreement providing for a $500.0 million tranche A term loan facility and a $2.6 billion revolving credit facility. In addition, we added new tranche B-1 and tranche B-2 term loan facilities under this same credit facility pursuant to which we borrowed an additional $400.0 million in aggregate principal amount. During the year ended December 31, 2015, in connection with these financing activities, we incurred approximately $21.7 million of financing costs, of which $1.0 million was expensed. In addition, we expensed $1.7 million of previously-deferred financing costs. All of these write-offs were included in write-off of financing costs on extinguished debt in the accompanying consolidated statements of operations.
See Note 11 for additional information on activities associated with our debt.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue Recognition
We record commission revenue on real estate sales generally upon close of escrow or transfer of title, except when future contingencies exist. Real estate commissions on leases are generally recorded in revenue when all obligations under the commission agreement are satisfied. Terms and conditions of a commission agreement may include, but are not limited to, execution of a signed lease agreement and future contingencies including tenant occupancy, payment of a deposit or payment of a first month’s rent (or a combination thereof). A commission agreement may provide that we earn a portion of a lease commission upon the execution of the lease agreement by the tenant and landlord, with the remaining portion(s) of the lease commission earned at a later date, usually upon tenant occupancy or payment of rent. The existence of any significant future contingencies results in the delay of recognition of corresponding revenue until such contingencies are satisfied. For example, if we do not earn all or a portion of the lease commission until the tenant pays its first month’s rent, and the lease agreement provides the tenant with a free rent period, we delay revenue recognition until rent is paid by the tenant. As some of these conditions are outside of our control and are often not clearly defined, judgment must be exercised in determining when such required events have occurred in order to recognize revenue.
Property and facilities management revenues are generally based on measures consistent with the terms of the customer contracts. These contracts are negotiated utilizing a variety of terms covering various lengths of time. The fees are recognized when earned under the provisions of the related agreements. We also may earn revenue based on certain qualitative and quantitative performance measures. We recognize this revenue when the performance has been completed, the measure has been calculated and fees are deemed collectible.
Our clients reimburse us for certain expenses incurred on their behalf, primarily in our property and facilities management operations. Our treatment of these reimbursements is based upon the terms of the underlying contract. We use certain indicators as to whether we record the reimbursements on a gross versus net basis, such as whether we are the primary obligor on the contracts, whether the contract is based on a fixed fee, credit risk and our discretion in making vendor selections and establishing prices.
In certain instances, we have determined we are acting as the principal in the transaction and, accordingly, report these reimbursements as revenue on a gross basis with the total costs reflected in cost of services. Reimbursement revenue is recognized when the underlying reimbursable costs are incurred. When we determine we are not the primary obligor and are acting as an agent, we account for the transaction on a net basis.
Investment management fees are based predominantly upon a percentage of the equity deployed on behalf of our limited partners. Fees related to our indirect investment management programs are based upon a percentage of the fair value of those investments. These fees are recognized when earned under the provisions of the related investment management agreements. Our Global Investment Management segment earns performance-based incentive fees with regard to many of its investments. Such revenue is recognized at the end of the measurement periods when the conditions of the applicable incentive fee arrangements have been satisfied and following the expiration of any potential claw back provision. With many of these investments, our Global Investment Management professionals have participation interests in such incentive fees, which are commonly referred to as carried interest. This carried interest expense is generally accrued for based upon the probability of such performance-based incentive fees being earned over the related vesting period. In addition, our Global Investment Management segment also earns success-based transaction fees with regard to buying or selling properties on behalf of certain funds and separate accounts. Such revenue is recognized at the completion of a successful transaction and is not subject to any claw back provision.
Appraisal fees are recorded after services have been rendered. Loan origination fees are recognized at the time a loan closes and we have no significant remaining obligations for performance in connection with the transaction, while loan servicing fees are recorded in revenue as monthly principal and interest payments are collected from mortgagors. Other commissions, consulting fees and referral fees are recorded as revenue at the time the related services have been performed, unless future contingencies exist.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Development services and project management services generate fees from development and construction management projects. Most development and construction management and project management assignments are subject to agreements that describe the calculation of fees and when we earn such fees. The earnings terms of these agreements dictate when we recognize the related revenue. Generally, development fees are recognized based on the lower of the amount billed or the amount determined on a straight-line basis over the development period. We may earn incentive fees for project management services based upon achievement of certain performance criteria as set forth in the project management services agreement. Incentive development fees are recognized when quantitative criteria have been met (such as specified leasing, budget or time-based targets) or for those incentive fees based on qualitative criteria, upon approval of the fee by our clients. Certain incentive development fees allow us to share in the fair value of the developed real estate asset above cost. This sharing creates additional revenue potential to us with no exposure to loss other than opportunity cost. We recognize such fees when the specified target is attained and fees are deemed collectible.
We record deferred income to the extent that cash payments have been received in accordance with the terms of underlying agreements, but such amounts have not yet met the criteria for revenue recognition in accordance with generally accepted accounting principles. We recognize such revenues when the appropriate criteria are met.
In establishing the appropriate provisions for trade receivables, we make assumptions with respect to future collectability. Our assumptions are based on an assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivables balances. In addition to these assessments, in general, outstanding trade accounts receivable amounts that are more than 180 days overdue are evaluated for collectability and fully provided for if deemed uncollectible. Historically, our credit losses have generally been insignificant. However, estimating losses requires significant judgment, and conditions may change or new information may become known after any periodic evaluation. As a result, actual credit losses may differ from our estimates.
Business Promotion and Advertising Costs
The costs of business promotion and advertising are expensed as incurred. Business promotion and advertising costs of $63.1 million, $65.8 million and $62.7 million were included in operating, administrative and other expenses for the years ended December 31, 2017, 2016 and 2015, respectively.
Foreign Currencies
The financial statements of subsidiaries located outside the U.S. are generally measured using the local currency as the functional currency. The assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date, and income and expenses are translated at the average monthly rate. The resulting translation adjustments are included in the accumulated other comprehensive loss component of equity. Gains and losses resulting from foreign currency transactions are included in the results of operations.
Derivative Financial Instruments and Hedging Activities
As required by FASB ASC Topic 815 “Derivatives and Hedging,” we record all derivatives on the balance sheet at fair value. We do not net derivatives on our balance sheet. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. In all cases, we view derivative financial instruments as a risk management tool and, accordingly, do not use derivatives for trading or speculative purposes.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). In the accompanying consolidated balance sheets, accumulated other comprehensive loss consists of foreign currency translation adjustments, fees associated with the termination of interest rate swaps, unrealized gains (losses) on interest rate swaps, unrealized holding gains (losses) on available for sale securities and pension liability adjustments. Foreign currency translation adjustments exclude any income tax effect given that earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time (see Note 14).
Marketable Securities
We account for investments in marketable debt and equity securities in accordance with the “Investments – Debt and Equity Securities” Topic of the FASB ASC (Topic 320). We determine the appropriate classification of debt and equity securities at the time of purchase and reevaluate such designation as of each balance sheet date. Marketable securities we acquire with the intent to generate a profit from short-term movements in market prices are classified as trading securities. Debt securities are classified as held to maturity when we have the positive intent and ability to hold the securities to maturity. Marketable equity and debt securities not classified as trading or held to maturity are classified as available for sale.
Trading securities are carried at their fair value with realized and unrealized gains and losses included in net income. Available for sale securities are carried at their fair value and any difference between cost and fair value is recorded as unrealized gain or loss, net of income taxes, and is reported as accumulated other comprehensive loss in the consolidated statement of equity. Premiums and discounts are recognized in interest using the effective interest method. Realized gains and losses and declines in value expected to be other-than-temporary on available for sale securities have not been significant. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available for sale are included in interest income.
For investments classified as available for sale, we assess impairment at the individual security level. An investment is impaired if the fair value of the investment is less than its amortized cost basis. When an impairment exists, we assess whether such impairment is temporary or other-than-temporary. We review the volatility and intended holding period of our investments and also determine if we believe that there is a reasonable possibility that the value would be recovered over the intended holding period. Based on our review, we did not record any significant other-than-temporary impairment losses during the years ending December 31, 2017, 2016 and 2015.
Warehouse Receivables
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 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 Mae or Ginnie Mae MBS that will be secured by the loans. The warehouse lines of credit are generally repaid within a one-month period 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. Loans are funded at the prevailing market rates. We elect the fair value option for all warehouse receivables. At December 31, 2017 and 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Mortgage Servicing Rights
In connection with the origination and sale of mortgage loans with servicing rights retained, we record servicing assets or liabilities based on the fair value of the mortgage servicing rights on the date the loans are sold. Our mortgage service rights (MSRs) are initially recorded at fair value. Subsequent to the initial recording, MSRs are amortized and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that net servicing income is expected to be received based on projections and timing of estimated future net cash flows.
Our initial recording of MSRs at their fair value resulted in net gains, as the fair value of servicing contracts that result in MSR assets exceeded the fair value of servicing contracts that result in MSR liabilities. The net assets and net gains are presented in the accompanying consolidated financial statements. The amount of MSRs recognized during the years ended December 31, 2017 and 2016 was as follows (dollars in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Beginning balance, mortgage servicing rights | $ | 320,524 | $ | 244,723 | ||||
| Mortgage servicing rights recognized | 145,103 | 154,040 | ||||||
| Mortgage servicing rights sold | (71 | ) | (790 | ) | ||||
| Amortization expense | (98,559 | ) | (73,273 | ) | ||||
| Other | 6,134 | (4,176 | ) | |||||
| Ending balance, mortgage servicing rights | $ | 373,131 | $ | 320,524 |
MSRs do not actively trade in an open market with readily available observable prices; therefore, fair value is determined based on certain assumptions and judgments, including the estimation of the present value of future cash flows realized from servicing the underlying mortgage loans. Management’s assumptions include the benefits of servicing (servicing fee income and interest on escrow deposits), inflation, the cost of servicing, prepayment rates, delinquencies, discount rates and the estimated life of servicing cash flows. The assumptions used are subject to change based on management’s judgments and estimates of changes in future cash flows and interest rates, among other things. The key assumptions used during the years ended December 31, 2017, 2016 and 2015 in measuring fair value were as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Discount rate | 10.06 | % | 10.16 | % | 10.11 | % | ||||||
| Conditional prepayment rate | 8.88 | % | 9.66 | % | 6.03 | % |
The estimated fair value of our MSRs was $446.3 million and $375.5 million as of December 31, 2017 and 2016, respectively. Impairment is evaluated through a comparison of the carrying amount and fair value of the MSRs, and recognized with the establishment of a valuation allowance. We did not incur any impairment charges related to our MSRs during the years ended December 31, 2017, 2016 or 2015. No valuation allowance was created previously and we did not record a valuation allowance for MSRs in 2017 or 2016.
Included in revenue in the accompanying consolidated statements of operations are contractually specified servicing fees from loans serviced for others of $144.2 million, $115.3 million and $92.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, and prepayment fees/late fees/ancillary income earned from loans serviced for others of $13.2 million, $7.2 million and $8.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting for Broker Draws
As part of our recruitment efforts relative to new U.S. brokers, we offer a transitional broker draw arrangement. Our broker draw arrangements generally last until such time as a broker’s pipeline of business is sufficient to allow him or her to earn sustainable commissions. This program is intended to provide the broker with a minimal amount of cash flow to allow adequate time for his or her training as well as time for him or her to develop business relationships. Similar to traditional salaries, the broker draws are paid irrespective of the actual revenues generated by the broker. Often these broker draws represent the only form of compensation received by the broker. Furthermore, it is not our general policy to pursue collection of unearned broker draws paid under this arrangement. As a result, we have concluded that broker draws are economically equivalent to salaries paid and accordingly charge them to compensation expense as incurred. The broker is also entitled to earn a commission on completed revenue transactions. This amount is calculated as the commission that would have been payable under our full commission program, less any amounts previously paid to the broker in the form of a draw.
Stock-Based Compensation
We account for all employee awards under the fair value recognition provisions of the “Compensation – Stock Compensation” Topic of the FASB ASC (Topic 718). Topic 718 requires the measurement of compensation cost at the grant date, based upon the estimated fair value of the award, and requires amortization of the related expense over the employee’s requisite service period.
In the third quarter of 2016, we elected to early adopt the provisions of ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which required us to reflect any adjustments as of January 1, 2016. ASU 2016-09 permitted companies to make an accounting policy election to either estimate forfeitures on share-based payment awards, as previously required, or to recognize forfeitures as they occur. We elected to change our accounting policy to recognize forfeitures when they occur and the impact of this change in accounting policy was recorded as a $3.3 million cumulative effect adjustment to accumulated earnings as of January 1, 2016.
See Note 13 for additional information on our stock-based compensation plans.
Income Per Share
Basic income per share attributable to CBRE Group, Inc. is computed by dividing net income attributable to CBRE Group, Inc. shareholders by the weighted average number of common shares outstanding during each period. The computation of diluted income per share attributable to CBRE Group, Inc. generally further assumes the dilutive effect of potential common shares, which include stock options and certain contingently issuable shares. Contingently issuable shares consist of non-vested stock awards.
Income Taxes
Income taxes are accounted for under the asset and liability method in accordance with the “Accounting for Income Taxes” Topic of the FASB ASC (Topic 740). Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.
See Note 14 for additional information on income taxes, including a discussion of the impact of the Tax Cuts and Jobs Act (the Tax Act), which was signed into law on December 22, 2017.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Self-Insurance
Our wholly-owned captive insurance company, which is subject to applicable insurance rules and regulations, insures our exposure related to workers’ compensation insurance, general liability insurance and automotive insurance for our U.S. operations risk on a primary basis and we purchase excess coverage from unrelated insurance carriers. The captive insurance company also insures primary risk relating to professional indemnity claims globally. Given the nature of these types of claims, it may take several years for resolution and determination of the cost of these claims. We are required to estimate the cost of these claims in our financial statements.
The estimates that we utilize to record our potential losses on claims are inherently subjective, and actual claims could differ from amounts recorded, which could result in increased or decreased expense in future periods. As of December 31, 2017 and 2016, our reserves for claims under these insurance programs were $93.7 million and $80.6 million, respectively, of which $2.8 million and $1.7 million, respectively, represented our estimated current liabilities.
New Accounting Pronouncements
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. The ASU also requires entities to disclose both quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. 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 using the retrospective transition method. 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 leasing commission revenues in various countries where we operate will be recognized earlier. Under current GAAP, a portion of these lease commission revenues 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 expect the earlier recognition of these revenues to result in an increase in total assets and liabilities to reflect contract assets and accrued commissions payable.
We have evaluated the impact of the updated principal versus agent guidance on our consolidated financial statements. Under existing GAAP, certain of our facilities and project management contracts are accounted for on a net basis because the contracts include provisions such as “pay when paid” that mitigate payment risk with respect to services provided by third parties to our clients. Under the updated guidance, control of the services before transfer to the client is the primary factor in determining principal versus agent assessments. Payment risk will no longer be a determining factor under ASC Topic 606. Based on our evaluation of the updated guidance, we have determined that we control the services provided by third parties on behalf of certain of our facilities and project
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
management clients. Accordingly, under the new guidance, we will account for the cost of services provided by third parties and the related reimbursement revenue on a gross basis. Under the retrospective method, based upon our evaluations which are not yet complete, we estimate that the 2016 and 2017 consolidated statements of operations will reflect approximately $4 to $5 billion of additional revenue and cost of services as a result of this change, with no impact on profitability.
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 continuing to evaluate 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 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Reclassifications
Certain reclassifications have been made to the 2016 and 2015 financial statements to conform with the 2017 presentation.
| 3. | Acquisition of Global Workplace Solutions (GWS) |
|---|
On September 1, 2015, CBRE, Inc., our wholly-owned subsidiary, pursuant to a Stock and Asset Purchase Agreement with JCI, acquired JCI’s GWS business (we refer to as the GWS Acquisition). The acquired JCI-GWS business was a market-leading provider of integrated facilities management solutions for major occupiers of commercial real estate and had significant operations around the world. The purchase price was $1.475 billion, paid in cash, plus adjustments totaling $46.5 million for working capital and other items. We completed the GWS Acquisition in order to advance our strategy of delivering globally integrated services to major occupiers in our Americas, EMEA and Asia Pacific segments. We merged the acquired JCI-GWS business with our existing occupier outsourcing business line, and the new combined business adopted the “Global Workplace Solutions” name.
We financed the transaction with: (i) an issuance in August 2015 of $600.0 million in aggregate principal amount of 4.875% senior notes due March 1, 2026; (ii) borrowings in September 2015 of $400.0 million in aggregate principal amount of tranche B-1 and tranche B-2 term loan facilities under our amended and restated credit agreement dated January 9, 2015 (2015 Credit Agreement); (iii) borrowings under the revolving credit facility under the 2015 Credit Agreement; and (iv) cash on hand. See Note 11 for more information on the abovementioned debt instruments.
The accompanying consolidated statement of operations for the year ended December 31, 2015 included revenue, operating income and net income of $982.0 million, $27.7 million and $18.8 million, respectively, attributable to the GWS Acquisition. This does not include direct transaction and integration costs of $48.9 million
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and amortization expense related to intangible assets acquired of $24.2 million, all of which were incurred during the year ended December 31, 2015 in connection with the GWS Acquisition.
Unaudited pro forma results, assuming the GWS Acquisition had occurred as of January 1, 2015 for purposes of the 2015 pro forma disclosures, are presented below. They include certain adjustments for the year ended December 31, 2015, including $47.5 million of increased amortization expense as a result of intangible assets acquired in the GWS Acquisition, $23.9 million of additional interest expense as a result of debt incurred to finance the GWS Acquisition, the removal of $48.9 million of direct costs incurred by us related to the GWS Acquisition, and the tax impact for the year ended December 31, 2015 of these pro forma adjustments.
These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the GWS Acquisition occurred on January 1, 2015 and may not be indicative of future operating results (dollars in thousands, except share data):
| 2015 | ||||
|---|---|---|---|---|
| Revenue | $ | 12,972,810 | ||
| Operating income | $ | 902,612 | ||
| Net income attributable to CBRE Group, Inc. | $ | 580,928 | ||
| Basic income per share: | ||||
| Net income per share attributable to CBRE Group, Inc. | $ | 1.75 | ||
| Weighted average shares outstanding for basic income per share | 332,616,301 | |||
| Diluted income per share: | ||||
| Net income per share attributable to CBRE Group, Inc. | $ | 1.73 | ||
| Weighted average shares outstanding for diluted income per share | 336,414,856 |
| 4. | Warehouse Receivables & Warehouse Lines of Credit |
|---|
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 | 17,655,104 | |||
| Gains (premiums on loan sales) | 52,742 | |||
| Sale of mortgage loans | (18,000,014 | ) | ||
| Cash collections of premiums on loan sales | (52,742 | ) | ||
| Proceeds from sale of mortgage loans | (18,052,756 | ) | ||
| Net decrease in mortgage servicing rights included in warehouse receivables | (3,099 | ) | ||
| Ending balance at December 31, 2017 | $ | 928,038 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table is a summary of our warehouse lines of credit in place as of December 31, 2017 and 2016 (dollars in thousands):
| December 31, 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 | 10/23/2018 | daily one-month LIBOR plus 1.45% | 1,000,000 | 192,180 | 700,000 | — | ||||||||||||||
| JP Morgan | 10/23/2018 | daily one-month LIBOR plus 2.75% | 25,000 | 5,800 | 25,000 | 3,768 | ||||||||||||||
| Bank of America, N.A. (BofA) (1) | 1/30/2017 | daily one-month LIBOR plus 1.60% | — | — | 300,000 | 300,000 | ||||||||||||||
| BofA (2) | 6/5/2018 | daily one-month LIBOR plus 1.40% | 337,500 | 130,443 | 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 | 205,827 | 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 (3) | 6/30/2018 | daily one-month LIBOR plus 1.25% | 800,000 | 225,416 | 400,000 | — | ||||||||||||||
| Capital One, N.A. (Capital One) (1) | 1/23/2017 | daily one-month LIBOR plus 1.45% | — | — | 250,000 | 191,193 | ||||||||||||||
| Capital One (4) | 7/27/2018 | daily one-month LIBOR plus 1.40% | 387,500 | 151,100 | 200,000 | — | ||||||||||||||
| $ | 3,000,000 | $ | 910,766 | $ | 3,400,000 | $ | 1,254,653 |
| (1) | Temporary facility to accommodate year-end volume. |
|---|
| (2) | Line was temporarily increased from $200.0 million to $337.5 million to accommodate year-end volume. Maximum facility reverted back to $200.0 million on January 27, 2018. |
|---|
| (3) | Line was temporarily increased from $400.0 million to $800.0 million to accommodate year-end volume. Maximum facility reverted back to $400.0 million on February 1, 2018. |
|---|
| (4) | Line was temporarily increased from $200.0 million to $387.5 million to accommodate year-end volume. Maximum facility reverted back to $200.0 million on January 9, 2018. |
|---|
During the year ended December 31, 2017, we had a maximum of $2.3 billion of warehouse lines of credit principal outstanding.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 5. | 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 December 31, 2017 and 2016, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Investments in unconsolidated subsidiaries | $ | 26,273 | $ | 31,041 | ||||
| Other current assets | 3,401 | 3,314 | ||||||
| Co-investment commitments | 2,364 | 168 | ||||||
| Maximum exposure to loss | $ | 32,038 | $ | 34,523 |
| 6. | 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. |
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| • | 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 years ended December 31, 2017 and 2016.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 (dollars in thousands):
| As of December 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 | $ | 3,820 | $ | — | $ | — | $ | 3,820 | ||||||||
| Debt securities issued by U.S. federal agencies | — | 4,901 | — | 4,901 | ||||||||||||
| Corporate debt securities | — | 20,023 | — | 20,023 | ||||||||||||
| Asset-backed securities | — | 3,577 | — | 3,577 | ||||||||||||
| Collateralized mortgage obligations | — | 2,366 | — | 2,366 | ||||||||||||
| Total debt securities | 3,820 | 30,867 | — | 34,687 | ||||||||||||
| Equity securities | 29,758 | — | — | 29,758 | ||||||||||||
| Total available for sale securities | 33,578 | 30,867 | — | 64,445 | ||||||||||||
| Trading securities | 103,837 | — | — | 103,837 | ||||||||||||
| Warehouse receivables | — | 928,038 | — | 928,038 | ||||||||||||
| Total assets at fair value | $ | 137,415 | $ | 958,905 | $ | — | $ | 1,096,320 | ||||||||
| Liabilities | ||||||||||||||||
| Interest rate swaps | $ | — | $ | 4,766 | $ | — | $ | 4,766 | ||||||||
| Securities sold, not yet purchased | 3,431 | — | — | 3,431 | ||||||||||||
| Foreign currency exchange forward contracts | — | 55 | — | 55 | ||||||||||||
| Total liabilities at fair value | $ | 3,431 | $ | 4,821 | $ | — | $ | 8,252 |
| 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 | ||||||||||||||||
| Interest rate swaps | $ | — | $ | 13,162 | $ | — | $ | 13,162 | ||||||||
| Securities sold, not yet purchased | 3,591 | — | — | 3,591 | ||||||||||||
| Total liabilities at fair value | $ | 3,591 | $ | 13,162 | $ | — | $ | 16,753 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair values of the warehouse receivables are calculated based on already locked in security buy prices. At December 31, 2017 and 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 (See Notes 2 and 4). These assets are classified as Level 2 in the fair value hierarchy as all inputs are readily observable.
The valuation of interest rate swaps and foreign currency exchange forward contracts is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate and foreign currency exchange forward curves. The fair values of interest rate swaps and foreign currency exchange forward contracts are determined using the market standard methodology of netting the discounted future estimated cash payments/receipts. The estimated cash flows are based on an expectation of future interest rates or foreign currency exchange rates using forward curves derived from observable market interest rate and foreign currency exchange forward curves.
Fair value measurements for our available for sale securities are obtained from independent pricing services which utilize observable market data that may include quoted market prices, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument's terms and conditions.
The trading securities and securities sold, not yet purchased are primarily in the U.S. and are generally valued at the last reported sales price on the day of valuation or, if no sales occurred on the valuation date, at the mean of the bid and asked prices on such date.
There were no significant non-recurring fair value measurements recorded during the years ended December 31, 2017, 2016 and 2015.
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. |
|---|
| • | 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. |
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| • | Foreign Currency Exchange Forward Contracts – 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. |
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| • | 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 of our wholly-owned subsidiary, CBRE Capital Markets. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (see Notes 4 and 11). |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| • | 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 $199.9 million and $751.4 million at December 31, 2017 and 2016, respectively. Their actual carrying value, net of unamortized debt issuance costs, totaled $193.5 million and $744.3 million at December 31, 2017 and 2016, 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 7). |
|---|
| • | Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 5.00% senior notes, 4.875% senior notes and 5.25% senior notes were $823.8 million, $645.7 million and $468.0 million, respectively, at December 31, 2017 and $827.6 million, $607.0 million and $439.3 million, respectively, at December 31, 2016. The actual carrying value of our 5.00% senior notes, 4.875% senior notes and 5.25% senior notes, net of unamortized debt issuance costs as well as unamortized discount or premium, if applicable, totaled $791.7 million, $592.0 million and $422.4 million, respectively, at December 31, 2017 and $790.4 million, $591.2 million and $422.2 million, respectively, at December 31, 2016 (see Note 11). |
|---|
| • | Notes Payable on Real Estate: As of December 31, 2017 and 2016, the carrying value of our notes payable on real estate, net of unamortized debt issuance costs, was $17.9 million and $26.0 million, respectively. These notes payable were not recourse to CBRE Group, Inc., except for being recourse to the single-purpose entities that held the real estate assets and were the primary obligors on the notes payable. These borrowings have either fixed interest rates or floating interest rates at spreads added to a market index. Although it is possible that certain portions of our notes payable on real estate may have fair values that differ from their carrying values, based on the terms of such loans as compared to current market conditions, or other factors specific to the borrower entity, we do not believe that the fair value of our notes payable is significantly different than their carrying value. |
|---|
| 7. | 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 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 July 2015, we entered into three interest rate swap agreements with an aggregate notional amount of $300.0 million, all with effective dates in August 2015, and designated them as cash flow hedges in accordance with FASB ASC Topic 815, “Derivatives and Hedging.” We structured these swap agreements to attempt to hedge the variability of future interest payments due to changes in interest rates prior to us issuing the 4.875% senior notes (see Note 11). In August 2015, we elected to terminate these agreements and paid a $6.2 million cash settlement, which was recorded to accumulated other comprehensive loss in the accompanying consolidated balance sheets and is being amortized to interest expense throughout the remaining term of the terminated hedge transaction until August 2025. There was no hedge ineffectiveness for the years ended December 31, 2017, 2016 and 2015. We reclassified $0.6 million in each of the years ended December 31, 2017 and 2016 from accumulated other comprehensive loss to interest expense. During the next twelve months, we estimate that $0.6 million will be reclassified from accumulated other comprehensive loss to interest expense.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. 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 having expired 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 years ended December 31, 2017, 2016 and 2015. 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 $7.4 million, $10.7 million and $11.9 million for the years ended December 31, 2017, 2016, and 2015, respectively, from accumulated other comprehensive loss to interest expense. During the next twelve months, we estimate that $3.1 million will be reclassified from accumulated other comprehensive loss to interest expense. In addition, we recorded a net gain of $0.9 million, and net losses of $2.4 million and $6.5 million for the years ended December 31, 2017, 2016 and 2015, respectively, to other comprehensive loss in relation to such interest rate swap agreements. As of December 31, 2017 and 2016, the fair values of such interest rate swap agreements were reflected as a $4.8 million liability and a $13.2 million liability, respectively, and were included in other 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 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. The purpose of these forward contracts was 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 were recorded directly in earnings. As of December 31, 2017 and 2016, we had no foreign currency exchange forward contracts outstanding as the program expired in December 2016. Included in the consolidated statement of operations were net gains of $7.7 million and $24.2 million for the years ended December 31, 2016 and 2015, respectively, resulting from net gains on foreign currency exchange forward contracts.
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. The net impact on our financial position and earnings resulting from these foreign currency exchange forward and options contracts has not been significant.
| 8. | Property and Equipment |
|---|
Property and equipment consists of the following (dollars in thousands):
| December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Useful Lives | 2017 | 2016 | ||||||||
| Computer hardware and software | 3-10 years | $ | 670,059 | $ | 683,738 | |||||
| Leasehold improvements | 1-15 years | 415,947 | 342,940 | |||||||
| Furniture and equipment | 1-10 years | 279,621 | 247,768 | |||||||
| Equipment under capital leases | 3-5 years | 10,803 | 10,755 | |||||||
| Total cost | 1,376,430 | 1,285,201 | ||||||||
| Accumulated depreciation and amortization | (758,691 | ) | (724,445 | ) | ||||||
| Property and equipment, net | $ | 617,739 | $ | 560,756 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Depreciation and amortization expense associated with property and equipment was $166.0 million, $151.2 million and $137.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.
| 9. | Goodwill and Other Intangible Assets |
|---|
The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 (dollars in thousands):
| Global | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asia | Investment | Development | ||||||||||||||||||||||
| Americas | EMEA | Pacific | Management | Services | Total | |||||||||||||||||||
| Balance as of December 31, 2015 | ||||||||||||||||||||||||
| Goodwill | $ | 2,260,076 | $ | 1,172,150 | $ | 155,875 | $ | 479,739 | $ | 86,663 | $ | 4,154,503 | ||||||||||||
| Accumulated impairment losses | (798,290 | ) | (138,631 | ) | — | (44,922 | ) | (86,663 | ) | (1,068,506 | ) | |||||||||||||
| 1,461,786 | 1,033,519 | 155,875 | 434,817 | — | 3,085,997 | |||||||||||||||||||
| Purchase accounting entries related to acquisitions | 42,080 | 36,929 | (3,922 | ) | 350 | — | 75,437 | |||||||||||||||||
| Foreign exchange movement | 773 | (161,784 | ) | (1,247 | ) | (17,784 | ) | — | (180,042 | ) | ||||||||||||||
| Balance as of December 31, 2016 | ||||||||||||||||||||||||
| Goodwill | 2,302,929 | 1,047,295 | 150,706 | 462,305 | 86,663 | 4,049,898 | ||||||||||||||||||
| Accumulated impairment losses | (798,290 | ) | (138,631 | ) | — | (44,922 | ) | (86,663 | ) | (1,068,506 | ) | |||||||||||||
| 1,504,639 | 908,664 | 150,706 | 417,383 | — | 2,981,392 | |||||||||||||||||||
| Purchase accounting entries related to acquisitions | 104,654 | 17,402 | 4,198 | 17,568 | — | 143,822 | ||||||||||||||||||
| Foreign exchange movement | 993 | 91,761 | 11,204 | 25,568 | — | 129,526 | ||||||||||||||||||
| Balance as of December 31, 2017 | ||||||||||||||||||||||||
| Goodwill | 2,408,576 | 1,156,458 | 166,108 | 505,441 | 86,663 | 4,323,246 | ||||||||||||||||||
| Accumulated impairment losses | (798,290 | ) | (138,631 | ) | — | (44,922 | ) | (86,663 | ) | (1,068,506 | ) | |||||||||||||
| $ | 1,610,286 | $ | 1,017,827 | $ | 166,108 | $ | 460,519 | $ | — | $ | 3,254,740 |
During 2017, we completed 11 in-fill acquisitions, including two leading Software as a Service (SaaS) platforms – one that produces scalable interactive visualization technologies for commercial real estate and one that provides technology solutions for facilities management operations, a healthcare-focused project manager in Australia, a full-service brokerage and management boutique in South Florida, a technology-enabled national boutique commercial real estate finance and consulting firm in the United States, a retail consultancy in France, a majority interest in a Toronto-based investment management business specializing in private infrastructure and private equity investments, a San Francisco-based technology-focused boutique real estate brokerage firm, a project management and design engineering firm operating across the United States, a Washington, D.C.-based retail brokerage operation and a leading technical engineering services provider in Italy. During 2016, we acquired our independent affiliate in Norway, a London-based retail property advisor specializing in the luxury goods retail sector and a leading provider of retail project management, shopping center development and tenant coordination services in the U.S.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our annual assessment of goodwill and other intangible assets deemed to have indefinite lives has historically been completed as of the beginning of the fourth quarter of each year. We performed the 2017, 2016 and 2015 assessments as of October 1. When we performed our required annual goodwill impairment review as of October 1, 2017, 2016 and 2015, we determined that no impairment existed as the estimated fair value of our reporting units was in excess of their carrying value.
Other intangible assets totaled $1.4 billion, net of accumulated amortization of $1.0 billion as of December 31, 2017, and $1.4 billion, net of accumulated amortization of $771.7 million, as of December 31, 2017 and 2016, respectively, and are comprised of the following (dollars in thousands):
| December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
| Unamortizable intangible assets | ||||||||||||||||
| Management contracts | $ | 90,503 | $ | 101,355 | ||||||||||||
| Trademarks | 56,800 | 56,800 | ||||||||||||||
| Trade names | 16,250 | 18,100 | ||||||||||||||
| $ | 163,553 | $ | 176,255 | |||||||||||||
| Amortizable intangible assets | ||||||||||||||||
| Customer relationships | $ | 802,597 | $ | (355,642 | ) | $ | 761,290 | $ | (270,447 | ) | ||||||
| Mortgage servicing rights | 608,757 | (235,626 | ) | 501,087 | (180,563 | ) | ||||||||||
| Trademarks/Trade name | 321,406 | (64,866 | ) | 306,559 | (46,837 | ) | ||||||||||
| Management contracts | 203,291 | (122,450 | ) | 177,014 | (99,733 | ) | ||||||||||
| Covenant not to compete | 73,750 | (57,358 | ) | 73,750 | (32,777 | ) | ||||||||||
| Other | 226,496 | (164,796 | ) | 186,757 | (141,316 | ) | ||||||||||
| $ | 2,236,297 | $ | (1,000,738 | ) | $ | 2,006,457 | $ | (771,673 | ) | |||||||
| Total intangible assets | $ | 2,399,850 | $ | (1,000,738 | ) | $ | 2,182,712 | $ | (771,673 | ) |
Unamortizable intangible assets include management contracts identified as a result of the REIM Acquisitions relating to relationships with open-end funds, a trademark separately identified as a result of the 2001 Acquisition and a trade name separately identified in connection with the REIM Acquisitions, which represents the Clarion Partners trade name in the U.S. These intangible assets have indefinite useful lives and accordingly are not being amortized.
Customer relationships relate to existing relationships mainly in the brokerage, occupier outsourcing and property management lines of business that were primarily identified in the Trammell Crow Company Acquisition, the Norland Acquisition and the GWS Acquisition. These intangible assets are being amortized over useful lives of up to 20 years.
Mortgage servicing rights represent the carrying value of servicing assets in our mortgage brokerage line of business in the U.S. The mortgage servicing rights are being amortized over the estimated period that net servicing income is expected to be received, which is typically up to ten years.
In connection with the GWS Acquisition, trademarks of approximately $280 million were separately identified and are being amortized over 20 years.
Management contracts consist primarily of asset management contracts relating to relationships with closed-end funds and separate accounts in the U.S., Europe and Asia that were separately identified as a result of the REIM Acquisitions. These management contracts are being amortized over useful lives of up to 13 years.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A covenant not to compete of approximately $74 million was separately identified in connection with the GWS Acquisition and is being amortized over three years.
Other amortizable intangible assets mainly represent transition costs, which get amortized as a reduction of revenue over the life of the associated contract.
Amortization expense related to intangible assets was $238.7 million, $211.7 million and $175.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. The estimated annual amortization expense for each of the years ending December 31, 2018 through December 31, 2022 approximates $216.2 million, $165.0 million, $138.2 million, $117.0 million and $107.1 million, respectively.
| 10. | Investments in Unconsolidated Subsidiaries |
|---|
Investments in unconsolidated subsidiaries are accounted for under the equity method of accounting. Our investment ownership percentages in equity method investments vary, generally ranging up to 5.0% in our Global Investment Management segment, up to 10.0% in our Development Services segment, and up to 50.0% in our other business segments.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Combined condensed financial information for the entities accounted for using the equity method is as follows (dollars in thousands):
Condensed Balance Sheets Information:
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Global Investment Management | ||||||||
| Current assets | $ | 1,304,249 | $ | 1,787,277 | ||||
| Non-current assets | 15,369,496 | 13,711,080 | ||||||
| Total assets | $ | 16,673,745 | $ | 15,498,357 | ||||
| Current liabilities | $ | 526,777 | $ | 1,237,589 | ||||
| Non-current liabilities | 4,354,825 | 4,402,376 | ||||||
| Total liabilities | $ | 4,881,602 | $ | 5,639,965 | ||||
| Non-controlling interests | $ | 83,579 | $ | 31,265 | ||||
| Development Services | ||||||||
| Current assets | $ | 2,995,449 | $ | 2,717,146 | ||||
| Non-current assets | 102,508 | 122,457 | ||||||
| Total assets | $ | 3,097,957 | $ | 2,839,603 | ||||
| Current liabilities | $ | 1,451,239 | $ | 1,153,833 | ||||
| Non-current liabilities | 110,649 | 167,757 | ||||||
| Total liabilities | $ | 1,561,888 | $ | 1,321,590 | ||||
| Other | ||||||||
| Current assets | $ | 86,171 | $ | 69,466 | ||||
| Non-current assets | 76,577 | 38,318 | ||||||
| Total assets | $ | 162,748 | $ | 107,784 | ||||
| Current liabilities | $ | 54,211 | $ | 46,623 | ||||
| Non-current liabilities | 1,340 | 1,668 | ||||||
| Total liabilities | $ | 55,551 | $ | 48,291 | ||||
| Total | ||||||||
| Current assets | $ | 4,385,869 | $ | 4,573,889 | ||||
| Non-current assets | 15,548,581 | 13,871,855 | ||||||
| Total assets | $ | 19,934,450 | $ | 18,445,744 | ||||
| Current liabilities | $ | 2,032,227 | $ | 2,438,045 | ||||
| Non-current liabilities | 4,466,814 | 4,571,801 | ||||||
| Total liabilities | $ | 6,499,041 | $ | 7,009,846 | ||||
| Non-controlling interests | $ | 83,579 | $ | 31,265 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Operations Information:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Global Investment Management | ||||||||||||
| Revenue | $ | 1,108,125 | $ | 1,184,573 | $ | 585,495 | ||||||
| Operating income (loss) | $ | 972,493 | $ | 209,230 | $ | (414,538 | ) | |||||
| Net income (loss) | $ | 833,189 | $ | 122,560 | $ | (481,405 | ) | |||||
| Development Services | ||||||||||||
| Revenue | $ | 104,816 | $ | 85,594 | $ | 62,191 | ||||||
| Operating income | $ | 427,407 | $ | 292,141 | $ | 251,557 | ||||||
| Net income | $ | 395,697 | $ | 269,841 | $ | 240,034 | ||||||
| Other | ||||||||||||
| Revenue | $ | 179,649 | $ | 156,035 | $ | 169,078 | ||||||
| Operating income | $ | 25,924 | $ | 26,500 | $ | 30,566 | ||||||
| Net income | $ | 25,459 | $ | 26,350 | $ | 31,050 | ||||||
| Total | ||||||||||||
| Revenue | $ | 1,392,590 | $ | 1,426,202 | $ | 816,764 | ||||||
| Operating income (loss) | $ | 1,425,824 | $ | 527,871 | $ | (132,415 | ) | |||||
| Net income (loss) | $ | 1,254,345 | $ | 418,751 | $ | (210,321 | ) |
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 of $100.3 million, $86.8 million and $98.1 million during the years ended December 31, 2017, 2016 and 2015, respectively.
| 11. | Long-Term Debt and Short-Term Borrowings |
|---|
Total long-term debt and short-term borrowings consist of the following (dollars in thousands):
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Long-Term Debt: | ||||||||
| Senior term loans, with interest ranging from 1.77% to 2.51%, due through 2022 | $ | 200,000 | $ | 751,875 | ||||
| 5.00% senior notes due in 2023 | 800,000 | 800,000 | ||||||
| 4.875% senior notes due in 2026, net of unamortized discount | 596,273 | 595,912 | ||||||
| 5.25% senior notes due in 2025, net of unamortized premium | 426,317 | 426,500 | ||||||
| Other | 8 | 14 | ||||||
| Total long-term debt | 2,022,598 | 2,574,301 | ||||||
| Less: current maturities of long-term debt | (8 | ) | (11 | ) | ||||
| Less: unamortized debt issuance costs | (22,987 | ) | (26,164 | ) | ||||
| Total long-term debt, net of current maturities | $ | 1,999,603 | $ | 2,548,126 | ||||
| Short-Term Borrowings: | ||||||||
| Warehouse lines of credit, with interest ranging from 1.70% to 4.31%, due in 2018 | $ | 910,766 | $ | 1,254,653 | ||||
| Other | 16 | 16 | ||||||
| Total short-term borrowings | $ | 910,782 | $ | 1,254,669 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Future annual aggregate maturities of total consolidated gross debt (excluding unamortized discount, premium and deferred financing costs) at December 31, 2017 are as follows (dollars in thousands): 2018—$910,790; 2019—$0; 2020—$0; 2021—$0; 2022—$200,000 and $1,825,000 thereafter.
Long-Term Debt
We maintain credit facilities with third-party lenders, which we use for a variety of purposes. On March 28, 2013, CBRE Services, our wholly-owned subsidiary, entered into a credit agreement (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, CBRE Services entered into an amended and restated credit agreement (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. On September 3, 2015, CBRE Services entered into an incremental assumption agreement with a syndicate of banks jointly led by Wells Fargo Securities, LLC and CS to establish new tranche B-1 and tranche B-2 term loan facilities under the 2015 Credit Agreement in an aggregate principal amount of $400.0 million. On March 21, 2016, CBRE Services executed an amendment to the 2015 Credit Agreement that, among other things, extended the maturity on the revolving credit facility to March 2021 and increased the borrowing capacity under the revolving credit facility by $200.0 million. On October 31, 2017, CBRE Services entered into a new Credit Agreement (the 2017 Credit Agreement), which refinanced and replaced the 2015 Credit Agreement. We used $200.0 million of borrowings from the tranche A term loan facility and $83.0 million of revolving credit facility borrowings under the 2017 Credit Agreement, in addition to cash on hand, to repay all amounts outstanding under the 2015 Credit Agreement.
The 2017 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. As of December 31, 2017, the 2017 Credit Agreement provided for the following: (1) a $2.8 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and matures on October 31, 2022 and (2) a $750.0 million delayed draw tranche A term loan facility, requiring quarterly principal payments, which begin on March 5, 2018 and continue through maturity on October 31, 2022, provided that in the event that our leverage ratio (as defined in the 2017 Credit Agreement) is less than or equal to 2.50 to 1.00 on the last day of the fiscal quarter immediately preceding any such payment date, no such quarterly principal payment shall be required on such date.
Borrowings under the term loan facilities under the 2017 Credit Agreement as of December 31, 2017 bear interest, based at our option, on either (1) the applicable fixed rate plus 0.875% 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 2017 Credit Agreement). As of December 31, 2017, we had $193.5 million of term loan borrowings outstanding of tranche A term loan facility (at an interest rate of 2.51%), net of unamortized debt issuance costs, under the 2017 Credit Agreement, which was included in the accompanying consolidated balance sheets.
Our 2015 Credit Agreement was an unsecured credit facility that was jointly and severally guaranteed by us and substantially all of our material domestic subsidiaries. Our 2015 Credit Agreement provided for the following: (1) a $2.8 billion revolving credit facility, which included the capacity to obtain letters of credit and swingline loans and had a maturity date of March 21, 2021; (2) a $500.0 million tranche A term loan facility requiring quarterly principal payments, which began on June 30, 2015 and would have continued through maturity on January 9, 2020; (3) a $270.0 million tranche B-1 term loan facility requiring quarterly principal payments, which began on December 31, 2015 and would have continued through maturity on September 3, 2020; and (4) a $130.0 million tranche B-2 term loan facility requiring quarterly principal payments, which began on December 31, 2015 and would have continued through maturity on September 3, 2022. On November 1, 2016, we prepaid a total of $101.9 million of the 2017 and 2018 required amortization on our senior term loans under the 2015 Credit Agreement, which included $59.4 million for the tranche A term loan facility, $28.7 million for the tranche B-1 term loan facility and $13.8 million for the tranche B-2 term loan facility. As of December 31, 2016, we had $744.3 million of term loan borrowings outstanding, net of unamortized debt issuance costs, under the 2015 Credit Agreement (consisting of $404.6 million of tranche A term loan facility, $229.4 million of tranche B-1 term loan facility and $110.3 million of tranche B-2 term loan facility), which was included in the accompanying consolidated balance sheets.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On August 13, 2015, CBRE Services issued $600.0 million in aggregate principal amount of 4.875% senior notes due March 1, 2026 at a price equal to 99.24% of their face value. The 4.875% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 4.875% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 4.875% per year and is payable semi-annually in arrears on March 1 and September 1, with the first interest payment made on March 1, 2016. The 4.875% senior notes are redeemable at our option, in whole or in part, prior to December 1, 2025 at a redemption price equal to the greater of (1) 100% of the principal amount of the 4.875% senior notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon to December 1, 2025 (not including any portions of payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indenture governing these notes). In addition, at any time on or after December 1, 2025, the 4.875% senior notes may be redeemed by us, in whole or in part, at a redemption price equal to 100.0% of the principal amount, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption. If a change of control triggering event (as defined in the indenture governing these notes) occurs, we are obligated to make an offer to purchase the then outstanding 4.875% senior notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The amount of the 4.875% senior notes, net of unamortized discount and unamortized debt issuance costs, included in the accompanying consolidated balance sheets was $592.0 million and $591.2 million at December 31, 2017 and 2016, respectively.
On September 26, 2014, CBRE Services issued $300.0 million in aggregate principal amount of 5.25% senior notes due March 15, 2025. On December 12, 2014, CBRE Services issued an additional $125.0 million in aggregate principal amount of 5.25% senior notes due March 15, 2025 at a price equal to 101.5% of their face value, plus interest deemed to have accrued from September 26, 2014. The 5.25% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.25% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 5.25% per year and is payable semi-annually in arrears on March 15 and September 15, with the first interest payment made on March 15, 2015. The 5.25% senior notes are redeemable at our option, in whole or in part, prior to December 15, 2024 at a redemption price equal to the greater of (1) 100% of the principal amount of the 5.25% senior notes to be redeemed and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon to December 15, 2024 (not including any portions of payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indentures governing these notes). In addition, at any time on or after December 15, 2024, the 5.25% senior notes may be redeemed by us, in whole or in part, at a redemption price equal to 100.0% of the principal amount, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption. If a change of control triggering event (as defined in the indenture governing these notes) occurs, we are obligated to make an offer to purchase the then outstanding 5.25% senior notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest, if any, to the date of purchase. The amount of the 5.25% senior notes, net of unamortized premium and unamortized debt issuance costs, included in the accompanying consolidated balance sheets was $422.4 million and $422.2 million at December 31, 2017 and 2016, respectively.
On March 14, 2013, CBRE Services issued $800.0 million in aggregate principal amount of 5.00% senior notes due March 15, 2023. The 5.00% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.00% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 5.00% per year and is payable semi-annually in arrears on March 15 and September 15, with the first interest payment made on September 15, 2013. The 5.00% senior notes are redeemable at our option, in whole or in part, on or after March 15, 2018 at a redemption price of 102.5% of the principal amount on that date and at declining prices thereafter. At any time prior to March 15, 2016, we could have redeemed up to 35.0% of the original principal amount of the 5.00% senior notes using the net cash proceeds from certain public offerings, which we did not elect to do. In addition, at any time prior to March 15, 2018, the 5.00% senior notes may be redeemed by us, in whole or in part, at a redemption price equal to 100.0% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, and an applicable premium (as defined in the indenture governing these notes), which is based on the
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
excess of the present value of the March 15, 2018 redemption price plus all remaining interest payments through March 15, 2018, over the principal amount of the 5.00% senior notes on such redemption date. If a change of control triggering event (as defined in the indenture governing these notes) occurs, we are obligated to make an offer to purchase the then outstanding 5.00% senior notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest, if any. The amount of the 5.00% senior notes, net of unamortized debt issuance costs, included in the accompanying consolidated balance sheets was $791.7 million and $790.4 million at December 31, 2017 and 2016, respectively.
The indentures governing our 5.00% senior notes, 4.875% senior notes and 5.25% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers. In addition, our 2017 Credit Agreement also requires us to maintain a minimum coverage ratio of consolidated EBITDA (as defined in the 2017 Credit Agreement) to consolidated interest expense of 2.00x and a maximum leverage ratio of total debt less available cash to consolidated EBITDA (as defined in the 2017 Credit Agreement) of 4.25x (and in the case of the first four full fiscal quarters following consummation of a qualified acquisition (as defined in the 2017 Credit Agreement), 4.75x) as of the end of each fiscal quarter. On this basis, our coverage ratio of consolidated EBITDA to consolidated interest expense was 14.74x for the year ended December 31, 2017, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.79x as of December 31, 2017.
Short-Term Borrowings
We had short-term borrowings of $910.8 million and $1.3 billion as of December 31, 2017 and 2016, respectively, with related weighted average interest rates of 2.7% and 2.1%, respectively, which are included in the accompanying consolidated balance sheets.
Revolving Credit Facility
The revolving credit facility under the 2017 Credit Agreement allows for borrowings outside of the U.S., with a $200.0 million sub-facility available to one of our Canadian subsidiaries, 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. Borrowings under the revolving credit facility bear interest at varying rates, based at our option, on either (1) the applicable fixed rate plus 0.775% to 1.075% or (2) the daily rate plus 0.0% to 0.075%, in each case as determined by reference to our Credit Rating (as defined in the 2017 Credit Agreement). The 2017 Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused) and a ticking fee to the lenders under the tranche A term loan facility (which commenced on January 30, 2018 and ends on July 31, 2018 (or such earlier date as the tranche A term loan facility is terminated or drawn in its entirety)). As of December 31, 2017, 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.
The revolving credit facility under the 2015 Credit Agreement allowed for borrowings outside of the 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 could have been up to 5.0% higher as allowed under the currency fluctuation provision in the 2015 Credit Agreement. Borrowings under the revolving credit facility bore 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 required us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused). As of December 31, 2016, no amounts were outstanding under our revolving credit facility under the 2015 Credit Agreement other than letters of credit totaling $2.0 million. These letters of credit, which reduced the amount we could borrow under the revolving credit facility, were primarily issued in the ordinary course of business.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Warehouse Lines of Credit
CBRE Capital Markets has warehouse lines of credit with third-party lenders for the purpose of funding mortgage loans that will be resold, and a funding arrangement with Fannie Mae for the purpose of selling a percentage of certain closed multifamily loans to Fannie Mae. These warehouse lines are recourse only to CBRE Capital Markets and are secured by our related warehouse receivables. See Note 4 for additional information.
Other
On March 2, 2007, we entered into a $50.0 million credit note with Wells Fargo Bank for the purpose of purchasing eligible investments, which include cash equivalents, agency securities, A1/P1 commercial paper and eligible money market funds. The proceeds of this note are not made generally available to us, but instead are deposited in an investment account maintained by Wells Fargo Bank and used and applied solely to purchase eligible investment securities. This agreement has been amended several times and as of December 31, 2017 provides for a $5.0 million revolving credit note, bears interest at 0.25% per year and has a maturity date of April 30, 2018. As of December 31, 2017 and 2016, there were no amounts outstanding under this note.
| 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.
Our leases generally relate to office space that we occupy, have varying terms and expire at various dates through 2030. The following is a schedule by year of future minimum lease payments for noncancellable operating leases as of December 31, 2017 (dollars in thousands):
| 2018 | $ | 230,083 | ||
|---|---|---|---|---|
| 2019 | 207,129 | |||
| 2020 | 184,872 | |||
| 2021 | 167,879 | |||
| 2022 | 135,451 | |||
| Thereafter | 438,121 | |||
| Total minimum payment required | $ | 1,363,535 |
Total minimum payments for noncancellable operating leases were not reduced by the minimum sublease rental income of $12.9 million due in the future under noncancellable subleases.
Substantially all leases require us to pay maintenance costs, insurance and property taxes. The composition of total rental expense under noncancellable operating leases consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Minimum rentals | $ | 276,676 | $ | 252,285 | $ | 236,965 | ||||||
| Less sublease rentals | (3,446 | ) | (4,322 | ) | (4,673 | ) | ||||||
| $ | 273,230 | $ | 247,963 | $ | 232,292 |
In January 2008, CBRE MCI, a wholly-owned subsidiary of CBRE Capital Markets, entered into an agreement with Fannie Mae under Fannie Mae’s DUS Program to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and in selected cases, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
unpaid principal balances of $19.8 billion at December 31, 2017. 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 December 31, 2017 and 2016, CBRE MCI had a $58.0 million and a $45.0 million, respectively, letter of credit under this reserve arrangement, and had recorded a liability of approximately $32.9 million and $28.2 million, respectively, for loan loss under such guarantee obligation. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which assets totaled approximately $614.5 million (including $370.9 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 December 31, 2017.
CBRE Capital Markets participates in Freddie Mac’s Multifamily Small Balance Loan (SBL) Program. Under the SBL program, CBRE Capital Markets has certain repurchase and loss reimbursement obligations. These obligations are for the period from origination of the loan to the securitization date. CBRE Capital Markets must post a cash reserve or other acceptable collateral to provide for sufficient capital in the event the obligations are triggered. As of December 31, 2017, CBRE Capital Markets had posted a $5.0 million letter of credit under this reserve arrangement.
We had outstanding letters of credit totaling $69.4 million as of December 31, 2017, 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. The CBRE Capital Markets letters of credit totaling $63.0 million as of December 31, 2017 referred to in the preceding paragraphs represented the majority of the $69.4 million outstanding letters of credit as of such date. The remaining letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through September 2018.
We had guarantees totaling $56.1 million as of December 31, 2017, 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 $56.1 million primarily represents guarantees executed by us in the ordinary course of business, including various guarantees of management and vendor contracts in our operations overseas, which expire at the end of each of the respective agreements.
In addition, as of December 31, 2017, we had issued numerous non-recourse carveout, completion and budget guarantees relating to development projects for the benefit of third parties. 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 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 generally total up to 2.0% of the equity in a particular fund. As of December 31, 2017, we had aggregate commitments of $38.6 million to fund future co-investments.
Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of December 31, 2017, we had committed to fund $20.8 million of additional capital to these unconsolidated subsidiaries.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 13. | Employee Benefit Plans |
|---|
Stock Incentive Plans
Second Amended and Restated 2004 Stock Incentive Plan. Our 2004 stock incentive plan was adopted by our board of directors and approved by our stockholders on April 21, 2004, and was amended several times subsequently. The 2004 stock incentive plan authorized the grant of stock-based awards to our employees, directors and independent contractors. However, our 2004 stock incentive plan was terminated in May 2012 in connection with the adoption of our 2012 equity incentive plan, which is described below. At termination, all unissued shares from the 2004 stock incentive plan were allocated to the 2012 equity incentive plan for potential future issuance. Since our 2004 stock incentive plan has been terminated, no new awards may be granted under it. However, as of December 31, 2017, outstanding stock options granted under the 2004 stock incentive plan to acquire 5,658 shares of our Class A common stock remain outstanding according to their terms, and we will continue to issue shares to the extent required under the terms of such outstanding awards.
2012 Equity Incentive Plan. Our 2012 equity incentive plan was adopted by our board of directors and approved by our stockholders on May 8, 2012. The 2012 equity incentive plan authorized the grant of stock-based awards to our employees, directors and independent contractors. However, our 2012 stock incentive plan was terminated in May 2017 in connection with the adoption of our 2017 equity incentive plan, which is described below. At termination, no unissued shares from the 2012 stock incentive plan were allocated to the 2017 equity incentive plan for potential future issuance. Since our 2012 stock incentive plan has been terminated, no new awards may be granted under it. However, as of December 31, 2017, assuming the maximum number of shares under our performance-based awards will later be issued, 5,829,189 outstanding restricted stock unit (RSU) awards granted under the 2012 stock incentive plan to acquire shares of our Class A common stock remain outstanding according to their terms, and we will continue to issue shares to the extent required under the terms of such outstanding awards. Shares underlying awards that expire, terminate or lapse under the 2012 stock incentive plan will not become available for grant under the 2017 equity incentive plan.
2017 Equity Incentive Plan. Our 2017 equity incentive plan was adopted by our board of directors and approved by our stockholders on May 19, 2017. The 2017 equity incentive plan authorizes the grant of stock-based awards to our employees, directors and independent contractors. Unless terminated earlier, the 2017 equity incentive plan will terminate on March 3, 2027. A total of 10,000,000 shares of our Class A common stock were reserved for issuance under the 2017 equity incentive plan. Additionally, shares underlying expired, canceled, forfeited or terminated awards (other than awards granted in substitution of an award previously granted), plus those utilized to pay tax withholding obligations with respect to an award (other than an option or stock appreciation right) will be available for issuance under the 2017 equity incentive plan. No person is eligible to be granted equity awards in the aggregate covering more than 3,300,000 shares during any fiscal year or cash awards in excess of $5.0 million for any fiscal year. The number of shares issued or reserved pursuant to the 2017 equity incentive plan, or pursuant to outstanding awards, is subject to adjustment on account of a stock split of our outstanding shares, stock dividend, dividend payable in a form other than shares in an amount that has a material effect on the price of the shares, consolidation, combination or reclassification of the shares, recapitalization, spin-off, or other similar occurrence. Stock options and stock appreciation rights granted under the 2017 equity incentive plan are subject to a maximum term of ten years from the date of grant. All awards are generally subject to a minimum three year vesting schedule. As of December 31, 2017, assuming the maximum number of shares under our performance-based awards will later be issued, 5,573,842 shares remained available for future grants under this plan.
Stock Options
As of December 31, 2017, no shares were subject to options issued under our 2017 or 2012 equity incentive plans. No options were granted during the years ended December 31, 2017, 2016 and 2015. All options that have been granted under the 2004 stock incentive plan have a term of five or seven years from the date of grant.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $0.4 million, $1.6 million and $13.1 million, respectively. We recorded cash received from stock option exercises of $0.4 million, $0.9 million and $7.5 million during the years ended December 31, 2017, 2016 and 2015, respectively, and related tax benefit of $0.1 million, $0.4 million and $3.2 million during the years ended December 31, 2017, 2016 and 2015, respectively. Upon option exercise, we issue new shares of stock. Excess tax benefits exist when the tax deduction resulting from the exercise of options exceeds the compensation cost recorded.
Non-Vested Stock Awards
We have issued non-vested stock awards, including restricted stock units and restricted shares, in our Class A common stock to certain of our employees, independent contractors and members of our board of directors. The following is a summary of the awards granted during the years ended December 31, 2017, 2016 and 2015.
| • | During the year ended December 31, 2017, we granted RSUs that are performance vesting in nature, with 1,458,033 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 1,466,986 RSUs that are time vesting in nature. |
|---|
| • | During the year ended December 31, 2016, we granted RSUs that are performance vesting in nature, with 60,098 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 1,436,310 RSUs that are time vesting in nature. |
|---|
| • | During the year ended December 31, 2015, we granted RSUs that are performance vesting in nature, with 1,281,267 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 1,535,940 RSUs that are time vesting in nature. |
|---|
Our annual performance-vesting awards generally vest in full three years from the grant date, based on our achievement against various adjusted income per share performance targets, or in some cases against adjusted EBITDA performance targets of our consolidated business, business lines or regions. Our time-vesting awards generally vest 25% per year over four years from the grant date.
In addition, on December 1, 2017 (Grant Date), we made a special one-time grant of RSUs under our 2017 equity incentive plan (Special RSU grant) to certain of our employees, with 3,288,618 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 939,605 RSUs that are time vesting in nature. As a condition to this special RSU grant, each participant has agreed to execute a Restrictive Covenants Agreement. Each Special RSU grant consisted of:
| (i) | Time Vesting RSUs with respect to 33.3% of the total number of target RSUs subject to the grant. |
|---|
| (ii) | Total Shareholder Return (TSR) Performance RSUs with respect to 33.3% of the total number of target RSUs subject to the grant. The actual number of TSR Performance RSUs that will vest is determined by measuring our cumulative TSR against the cumulative TSR of each of the other companies comprising the S&P 500 on the Grant Date (the Comparison Group) over a six-year measurement period commencing on the Grant Date and ending on December 1, 2023. For purposes of measuring TSR, the initial value of our common stock will be the average closing price of such common stock for the 60 trading days immediately preceding the Grant Date and the final value of our common stock will be the average closing price of such common stock for the 60 trading days immediately preceding December 1, 2023. |
|---|
| (iii) | EPS Performance RSUs with respect to 33.3% of the total number of target RSUs subject to the grant. The actual number of EPS Performance RSUs that will vest is determined by measuring our cumulative adjusted income per share growth against the cumulative EPS growth, as reported under GAAP (GAAP EPS), of each of the other members of the Comparison Group over a six-year measurement period commencing on January 1, 2018 and ending on December 31, 2023. |
|---|
Each type of RSU subject to the Special RSU grant generally vests in full six years from the grant date.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We estimated the fair value of the TSR Performance RSUs referred to above on the date of the grant using a Monte Carlo simulation with the following assumptions:
| Volatility of common stock | 27.85 | % | ||
|---|---|---|---|---|
| Expected dividend yield | 0.00 | % | ||
| Risk-free interest rate | 2.33 | % |
Lastly, on December 15, 2017, we granted 127,160 RSUs that are time vesting in nature to certain senior brokers. Such awards generally vest in full three years from the grant date.
A summary of the status of our non-vested stock awards is presented in the table below:
| Shares/Units | Weighted Average Market Value Per Share | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance at December 31, 2014 | 7,542,096 | $ | 22.53 | |||||
| Granted | 2,195,638 | 36.80 | ||||||
| Vested | (2,033,263 | ) | 21.29 | |||||
| Forfeited | (237,406 | ) | 26.10 | |||||
| Balance at December 31, 2015 | 7,467,065 | 29.08 | ||||||
| Granted | 1,496,408 | 29.24 | ||||||
| Vested | (3,840,379 | ) | 25.09 | |||||
| Forfeited | (279,821 | ) | 28.62 | |||||
| Balance at December 31, 2016 | 4,843,273 | 31.66 | ||||||
| Granted | 5,152,082 | 40.11 | ||||||
| Vested | (2,020,812 | ) | 29.75 | |||||
| Forfeited | (297,441 | ) | 32.85 | |||||
| Balance at December 31, 2017 | 7,677,102 | 37.76 |
Total compensation expense related to non-vested stock awards was $93.1 million, $63.5 million and $74.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, total unrecognized estimated compensation cost related to non-vested stock awards was approximately $243.3 million, which is expected to be recognized over a weighted average period of approximately 3.8 years.
Bonuses. We have bonus programs covering select employees, including senior management. Awards are based on the position and performance of the employee and the achievement of pre-established financial, operating and strategic objectives. The amounts charged to expense for bonuses were $286.1 million, $248.1 million and $231.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
401(k) Plan. Our CBRE 401(k) Plan (401(k) Plan) is a defined contribution savings plan that allows participant deferrals under Section 401(k) of the Internal Revenue Code (IRC). Most of our non-union U.S. employees, other than qualified real estate agents having the status of independent contractors under section 3508 of the IRC of 1986, as amended, are eligible to participate in the plan. The 401(k) Plan provides for participant contributions as well as a company match. A participant is allowed to contribute to the 401(k) Plan from 1% to 75% of his or her compensation, subject to limits imposed by applicable law. Effective January 1, 2007, all participants hired post January 1, 2007 vest in company match contributions 20% per year for each plan year they work 1,000 hours. All participants hired before January 1, 2007 are immediately vested in company match contributions. For 2017, 2016, and 2015, we contributed a 50% match on the first 6%, 6% and 5%, respectively, of annual compensation (up to $150,000 of compensation) deferred by each participant. In connection with the 401(k) Plan, we charged to expense $38.8 million, $44.3 million and $29.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Participants are entitled to invest up to 25% of their 401(k) account balance in shares of our common stock. As of December 31, 2017, approximately 1.2 million shares of our common stock were held as investments by participants in our 401(k) Plan.
Pension Plans. We have two contributory defined benefit pension plans in the United Kingdom (U.K.). The London-based firm of Hillier Parker May & Rowden, which we acquired in 1998, had a contributory defined benefit pension plan. A subsidiary of Insignia, which we acquired in connection with the Insignia Acquisition in 2003, also had a contributory defined benefit pension plan in the U.K. Our subsidiaries based in the U.K. maintain the plans to provide retirement benefits to existing and former employees participating in these plans. With respect to these 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. Effective July 1, 2007, we reached agreements with the active members of these plans to freeze future pension plan benefits. In return, the active members became eligible to enroll in a defined contribution plan. As of December 31, 2017 and 2016, the fair values of pension plan assets were $333.5 million and $286.6 million, respectively, and the fair values of projected benefit obligations in aggregate were $455.6 million and $416.9 million, respectively. As a result, the plans were underfunded by approximately $122.1 million and $130.3 million at December 31, 2017 and 2016, respectively, and were recorded as net liabilities included in other long term liabilities in the accompanying consolidated balance sheets. Items not yet recognized as a component of net periodic pension cost (benefit) were $194.3 million and $209.6 million at December 31, 2017 and 2016, respectively, and were included in accumulated other comprehensive loss in the accompanying consolidated balance sheets. Net periodic pension cost (benefit) was not material for the years ended December 31, 2017, 2016 and 2015.
| 14. | Income Taxes |
|---|
The components of income from continuing operations before provision for income taxes consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Domestic | $ | 577,098 | $ | 536,869 | $ | 600,939 | ||||||
| Foreign | 586,995 | 343,857 | 278,791 | |||||||||
| $ | 1,164,093 | $ | 880,726 | $ | 879,730 |
Our tax provision (benefit) consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Federal: | ||||||||||||
| Current | $ | 275,475 | $ | 172,380 | $ | 215,703 | ||||||
| Deferred | 39,563 | 27,463 | 1,559 | |||||||||
| 315,038 | 199,843 | 217,262 | ||||||||||
| State: | ||||||||||||
| Current | 21,212 | 20,946 | 24,476 | |||||||||
| Deferred | 5,646 | 375 | 861 | |||||||||
| 26,858 | 21,321 | 25,337 | ||||||||||
| Foreign: | ||||||||||||
| Current | 123,840 | 94,909 | 91,048 | |||||||||
| Deferred | 411 | (19,411 | ) | (12,794 | ) | |||||||
| 124,251 | 75,498 | 78,254 | ||||||||||
| $ | 466,147 | $ | 296,662 | $ | 320,853 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a reconciliation stated as a percentage of pre-tax income of the U.S. statutory federal income tax rate to our effective tax rate:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Federal statutory tax rate | 35 | % | 35 | % | 35 | % | ||||||
| Tax Reform | 12 | — | — | |||||||||
| State taxes, net of federal benefit | 2 | 2 | 3 | |||||||||
| Non-deductible expenses | 2 | — | 1 | |||||||||
| Change in valuation allowance | (2 | ) | 2 | (1 | ) | |||||||
| Reserves for uncertain tax positions | (2 | ) | — | 1 | ||||||||
| Credits and exemptions | (3 | ) | (2 | ) | (2 | ) | ||||||
| Foreign rate differential | (5 | ) | (2 | ) | (2 | ) | ||||||
| Other | 1 | (1 | ) | 1 | ||||||||
| Effective tax rate | 40 | % | 34 | % | 36 | % |
On December 22, 2017, the Tax Act was signed into law making significant changes to the IRC, including, but not limited to: (i) a U.S. corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017; (ii) the transition of U.S. international taxation from a worldwide tax system to a territorial system; and (iii) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Our provision for income taxes for 2017 included a net charge of $143.4 million attributable to the Tax Act, with a provisional amount of $158.0 million representing our estimate of the U.S. federal and state tax impact of the transition tax (which includes the anticipated income tax benefit of the release of valuation allowances on foreign income tax credits that will be used to reduce the tax liability resulting from the transition tax), partially offset by a net income tax benefit of $14.6 million related to the re-measurement of U.S. federal deferred tax assets and liabilities (after considering certain other measures of the Act that affected our existing deferred tax assets). These amounts are based upon our best estimate of the impact of the Tax Act in accordance with our understanding of the Tax Act and the related guidance available. Additional work is necessary on the provisional amount related to the transition tax, which includes performing a more detailed analysis of historic foreign earnings and tax pools and potential corresponding adjustments.
The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from changes to current-year earnings estimates and foreign exchange rates of foreign subsidiaries. Our accounting for the effects of the Tax Act is expected to be completed within the measurement period provided by SAB 118. Any subsequent adjustments to these amounts will be recorded to income tax expense from continuing operations.
The Tax Act also includes provisions for Global Intangible Low-Taxed Income (GILTI) wherein taxes on foreign earnings are imposed for more than a deemed return on tangible assets of foreign corporations. An accounting policy election allows to either: (i) account for GILTI as a component of tax expense in the period in which we are subject to the rules (the “period cost method”) or (ii) account for GILTI in our measurement of deferred taxes (the “deferred method”). Due to the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of Topic 740. Our accounting policy election will depend, in part on analyzing our global income to determine whether we expect material tax liabilities resulting from the application of this provision and if so, whether and when to record related current and deferred income taxes and whether such amounts can be reasonably estimated. Anticipated further guidance from the Internal Revenue Service (IRS) will clarify the manner in which the GILTI tax is computed. For these reasons, we have not recorded a deferred tax expense or benefit relating to potential GILTI tax for the year ended December 31, 2017 and have not made a policy decision regarding whether to record deferred taxes on GILTI or account for the GILTI entirely as a period cost.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the years ended December 31, 2017, 2016 and 2015, respectively, we recorded a $0.1 million, $0.4 million and $3.2 million income tax benefit in connection with stock options exercised. Of this income tax benefit, $2.3 million was charged directly to additional paid-in capital within the equity section of the accompanying consolidated balance sheets in 2015. With our adoption of ASU 2016-09 in the third quarter of 2016, which has been applied on a prospective basis to settlements of share-based payment awards occurring on or after January 1, 2016, excess tax benefits for 2016 have been recognized as income tax benefits in the income statement rather than to additional paid-in capital.
Cumulative tax effects of temporary differences are shown below at December 31, 2017 and 2016 (dollars in thousands):
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Asset (Liability) | ||||||||
| Bonus and deferred compensation | $ | 186,093 | $ | 265,043 | ||||
| Net operating losses (NOLs) and state tax credits | 283,353 | 245,681 | ||||||
| Bad debt and other reserves | 56,313 | 75,620 | ||||||
| Pension obligation | 22,148 | 29,382 | ||||||
| Unconsolidated affiliates | 6,267 | 28,107 | ||||||
| Investments | 5,573 | 7,142 | ||||||
| Foreign tax credits | — | 53,976 | ||||||
| Derivative financial instruments | — | 7,308 | ||||||
| Property and equipment | (40,024 | ) | (87,679 | ) | ||||
| Capitalized costs and intangibles | (256,087 | ) | (307,301 | ) | ||||
| All other | (1,441 | ) | 2,049 | |||||
| Net deferred tax assets before valuation allowance | 262,195 | 319,328 | ||||||
| Valuation allowance | (277,466 | ) | (284,723 | ) | ||||
| Net deferred tax (liabilities) assets | $ | (15,271 | ) | $ | 34,605 |
As of December 31, 2017, we re-measured the U.S. component of the non-current deferred tax assets and liabilities at the applicable tax rate of 21% in accordance with the Tax Act.
As of December 31, 2017, we had U.S. federal NOLs of approximately $27.5 million, translating to a deferred tax asset before valuation allowance of $5.8 million, which will begin to expire in 2023. As of December 31, 2017, there were also deferred tax assets before valuation allowances of approximately $3.3 million related to state NOLs as well as $273.1 million related to foreign NOLs. The state and foreign NOLs both begin to expire in 2018, but the majority carry forward indefinitely. The utilization of NOLs may be subject to certain limitations under U.S. federal, state and foreign laws. We have recorded a full valuation allowance for NOLs that we believe will not be fully utilized.
In addition, as of December 31, 2017, we had deferred tax assets of $55.4 million related to foreign income tax credits that were reclassed to income taxes payable due to being utilized to reduce the liability related to the transition tax associated with the Tax Act.
We determined that as of December 31, 2017, $277.5 million of deferred tax assets do not satisfy the realization criteria set forth in Topic 740. Accordingly, a valuation allowance has been recorded for this amount. If released, the entire amount would result in a benefit to continuing operations. During the year ended December 31, 2017, our valuation allowance decreased by approximately $7.3 million. This resulted from the release of valuation allowances of $42.3 million related to foreign income tax credits primarily in connection with the enactment of the Tax Act, $6.2 million of U.S. net operating loss utilization, $5.2 million related to re-measurement due to the enactment of the Tax Act and $4.7 million of foreign net operating loss utilization. These decreases were partially offset by $28.8 million of foreign currency translation, a $20.3 million increase in valuation allowances related to current year increases in foreign NOLs and $2.0 million for the establishment of valuation allowances related to
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
U.S. NOLs. We believe it is more likely than not that future operations will generate sufficient taxable income to realize the benefit of the deferred tax assets recorded net of these valuation allowances.
Our foreign subsidiaries have accumulated $2.5 billion of undistributed earnings for which we have not recorded a deferred tax liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, in connection with the enactment of the Tax Act, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Although tax liabilities might result from dividends being paid out of these earnings, or as a result of a sale or liquidation of foreign subsidiaries, these earnings are permanently reinvested outside of the U.S. and we do not have any plans to repatriate them or to sell or liquidate any of our non-U.S. subsidiaries. To the extent that we are able to repatriate the earnings in a tax efficient manner, we would be required to accrue and pay U.S. taxes to repatriate these funds, net of foreign tax credits. Determining our tax liability upon repatriation is not practicable.
The total amount of gross unrecognized tax benefits was approximately $35.8 million and $94.9 million as of December 31, 2017 and 2016, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $18.8 million ($18.0 million, net of federal benefit received from state positions) and $39.1 million ($35.7 million, net of federal benefit received from state positions) as of December 31, 2017 and 2016, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017 and 2016 is as follows (dollars in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Beginning balance, unrecognized tax benefits | $ | (94,915 | ) | $ | (92,538 | ) | ||
| Gross increases - tax positions in prior period | (1,400 | ) | (514 | ) | ||||
| Gross decreases - tax positions in prior period | 23,896 | 358 | ||||||
| Gross increases - current-period tax positions | (4,142 | ) | (4,237 | ) | ||||
| Decreases relating to settlements | 34,259 | 2,541 | ||||||
| Reductions as a result of lapse of statute of limitations | 6,497 | 235 | ||||||
| Foreign exchange movement | (21 | ) | (760 | ) | ||||
| Ending balance, unrecognized tax benefits | $ | (35,826 | ) | $ | (94,915 | ) |
During the year ended December 31, 2017, we released $58.2 million of gross unrecognized tax benefits primarily due to settlement of federal tax audits for tax years 2005 to 2012. As a result, we recognized $17.0 million of income tax benefits related to decreases in tax positions and $15.3 million of income tax benefits related to interest and penalties. We believe the amount of gross unrecognized tax benefits that will be settled during the next twelve months due to filing amended returns and settling ongoing exams cannot be reasonably estimated but will not be significant.
Our continuing practice is to recognize potential accrued interest and/or penalties related to income tax matters within income tax expense. During the years ended December 31, 2017, 2016 and 2015, we accrued an additional $1.0 million, $2.9 million and $3.2 million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2017, and 2016, we have recognized a liability for interest and penalties of $3.9 million ($3.4 million, net of related federal benefit received from interest expense) and $31.7 million ($24.3 million, net of related federal benefit received from interest expense), respectively.
We conduct business globally and, as a result, one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and in multiple state, local and foreign jurisdictions. We are no longer open to assessment by the U.S. Internal Revenue Service for years prior to 2014. With limited exception, our significant state and foreign tax jurisdictions are no longer subject to audit by the various tax authorities for tax years prior to 2009.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 15. | Stockholders’ Equity |
|---|
Our board of directors is authorized, subject to any limitations imposed by law, without the approval of our stockholders, to issue a total of 25,000,000 shares of preferred stock, in one or more series, with each such series having rights and preferences including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as our board of directors may determine.
We may repurchase shares awarded to certain grant recipients under our various equity compensation plans to satisfy minimum statutory federal, state and local tax withholding obligations arising from the vesting of their equity awards. During the year ended December 31, 2015, 332,799 shares with an average price paid per share of $32.87 were repurchased relating thereto. No shares were repurchased during the years ended December 31, 2017 and 2016.
On October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250 million of our Class A common stock over three years. As of December 31, 2017, the authorization remained unused.
| 16. | Income Per Share Information |
|---|
The following is a calculation of income per share (dollars in thousands, except share data):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Basic Income Per Share | ||||||||||||
| Net income attributable to CBRE Group, Inc. shareholders | $ | 691,479 | $ | 571,973 | $ | 547,132 | ||||||
| Weighted average shares outstanding for basic income per share | 337,658,017 | 335,414,831 | 332,616,301 | |||||||||
| Basic income per share attributable to CBRE Group, Inc. shareholders | $ | 2.05 | $ | 1.71 | $ | 1.64 | ||||||
| Diluted Income Per Share | ||||||||||||
| Net income attributable to CBRE Group, Inc. shareholders | $ | 691,479 | $ | 571,973 | $ | 547,132 | ||||||
| Weighted average shares outstanding for basic income per share | 337,658,017 | 335,414,831 | 332,616,301 | |||||||||
| Dilutive effect of contingently issuable shares | 3,121,987 | 2,982,431 | 3,620,194 | |||||||||
| Dilutive effect of stock options | 3,552 | 27,301 | 178,361 | |||||||||
| Weighted average shares outstanding for diluted income per share | 340,783,556 | 338,424,563 | 336,414,856 | |||||||||
| Diluted income per share attributable to CBRE Group, Inc. shareholders | $ | 2.03 | $ | 1.69 | $ | 1.63 |
For the years ended December 31, 2017, 2016 and 2015, 621,805, 1,833,941 and 372,020, respectively, of contingently issuable shares were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.
| 17. | Fiduciary Funds |
|---|
The accompanying consolidated balance sheets do not include the net assets of escrow, agency and fiduciary funds, which are held by us on behalf of clients and which amounted to $4.0 billion and $3.4 billion at December 31, 2017 and 2016, respectively.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 18. | 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: property sales, property leasing, mortgage services, appraisal and valuation, property management and occupier outsourcing services.
Our EMEA and Asia Pacific segments generally provide services similar to the Americas business segment. The EMEA segment has operations primarily in Europe, while the Asia Pacific segment has operations in Asia, Australia and New Zealand.
Our Global Investment Management business provides investment management services to clients seeking to generate returns and diversification through direct and indirect investments in real estate in North America, Europe and Asia Pacific.
Our Development Services business consists of real estate development and investment activities primarily in the U.S.
Summarized financial information by segment is as follows (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 (1) | 2015 (1) | ||||||||||
| Revenue | ||||||||||||
| Americas | $ | 7,860,239 | $ | 7,246,459 | $ | 6,201,676 | ||||||
| EMEA | 4,164,789 | 3,884,596 | 2,984,312 | |||||||||
| Asia Pacific | 1,729,309 | 1,499,320 | 1,143,479 | |||||||||
| Global Investment Management | 377,644 | 369,800 | 460,700 | |||||||||
| Development Services | 77,627 | 71,414 | 65,643 | |||||||||
| Total revenue | $ | 14,209,608 | $ | 13,071,589 | $ | 10,855,810 | ||||||
| Depreciation and amortization | ||||||||||||
| Americas | $ | 289,338 | $ | 254,118 | $ | 198,986 | ||||||
| EMEA | 72,322 | 66,619 | 68,263 | |||||||||
| Asia Pacific | 18,258 | 17,810 | 15,609 | |||||||||
| Global Investment Management | 24,123 | 25,911 | 29,020 | |||||||||
| Development Services | 2,073 | 2,469 | 2,218 | |||||||||
| Total depreciation and amortization | $ | 406,114 | $ | 366,927 | $ | 314,096 |
| (1) | In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 (1) | 2015 (1) | ||||||||||
| Equity income from unconsolidated subsidiaries | ||||||||||||
| Americas | $ | 18,789 | $ | 17,892 | $ | 18,413 | ||||||
| EMEA | 1,553 | 1,817 | 1,934 | |||||||||
| Asia Pacific | 397 | 223 | 83 | |||||||||
| Global Investment Management | 7,923 | 7,243 | 5,972 | |||||||||
| Development Services | 181,545 | 170,176 | 136,447 | |||||||||
| Total equity income from unconsolidated subsidiaries | $ | 210,207 | $ | 197,351 | $ | 162,849 | ||||||
| Adjusted EBITDA | ||||||||||||
| Americas | $ | 1,013,864 | $ | 950,355 | $ | 858,174 | ||||||
| EMEA | 305,743 | 271,648 | 212,687 | |||||||||
| Asia Pacific | 175,900 | 141,912 | 117,557 | |||||||||
| Global Investment Management | 94,373 | 83,151 | 134,240 | |||||||||
| Development Services | 119,654 | 113,937 | 90,066 | |||||||||
| Total Adjusted EBITDA | $ | 1,709,534 | $ | 1,561,003 | $ | 1,412,724 |
| (1) | In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. |
|---|
Adjusted EBITDA is the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to each segment and assessing performance of each segment. EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions, cost-elimination expenses and certain carried interest incentive compensation (reversal) expense to align with the timing of associated revenue.
Adjusted EBITDA is calculated as follows (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 691,479 | $ | 571,973 | $ | 547,132 | ||||||
| Add: | ||||||||||||
| Depreciation and amortization | 406,114 | 366,927 | 314,096 | |||||||||
| Interest expense | 136,814 | 144,851 | 118,880 | |||||||||
| Write-off of financing costs on extinguished debt | — | — | 2,685 | |||||||||
| Provision for income taxes | 466,147 | 296,662 | 320,853 | |||||||||
| Less: | ||||||||||||
| Interest income | 9,853 | 8,051 | 6,311 | |||||||||
| EBITDA | 1,690,701 | 1,372,362 | 1,297,335 | |||||||||
| Adjustments: | ||||||||||||
| Integration and other costs related to acquisitions | 27,351 | 125,743 | 48,865 | |||||||||
| Carried interest incentive compensation (reversal) expense to align with the timing of associated revenue | (8,518 | ) | (15,558 | ) | 26,085 | |||||||
| Cost-elimination expenses (2) | — | 78,456 | 40,439 | |||||||||
| Adjusted EBITDA | $ | 1,709,534 | $ | 1,561,003 | $ | 1,412,724 |
| (2) | Represents cost-elimination expenses relating to a program initiated in the fourth quarter of 2015 and completed in the third quarter of 2016 (our cost-elimination project) to reduce the company’s global cost |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| structure after several years of significant revenue and related cost growth. Cost-elimination expenses incurred during the years ended December 31, 2016 and 2015 consisted of $73.6 million and $32.6 million, respectively, of severance costs related to headcount reductions in connection with the program and $4.9 million and $7.8 million, respectively, of third-party contract termination costs. The total amount for each period does have a cash impact. |
|---|
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| (Dollars in thousands) | ||||||||||||
| Capital expenditures | ||||||||||||
| Americas | $ | 127,135 | $ | 134,046 | $ | 94,376 | ||||||
| EMEA | 28,716 | 35,452 | 33,092 | |||||||||
| Asia Pacific | 19,360 | 19,179 | 7,911 | |||||||||
| Global Investment Management | 2,776 | 2,273 | 3,558 | |||||||||
| Development Services | 55 | 255 | 527 | |||||||||
| Total capital expenditures | $ | 178,042 | $ | 191,205 | $ | 139,464 |
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
| Identifiable assets | ||||||||
| Americas | $ | 5,599,820 | $ | 5,555,400 | ||||
| EMEA | 3,005,122 | 2,592,800 | ||||||
| Asia Pacific | 888,992 | 712,271 | ||||||
| Global Investment Management | 1,075,691 | 913,563 | ||||||
| Development Services | 164,455 | 188,762 | ||||||
| Corporate | 749,750 | 816,791 | ||||||
| Total identifiable assets | $ | 11,483,830 | $ | 10,779,587 |
Identifiable assets by segment are those assets used in our operations in each segment. Corporate identifiable assets primarily include cash and cash equivalents available for general corporate use and net deferred tax assets.
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| (Dollars in thousands) | ||||||||
| Investments in unconsolidated subsidiaries | ||||||||
| Americas | $ | 39,105 | $ | 20,202 | ||||
| EMEA | 852 | 388 | ||||||
| Asia Pacific | 6,581 | 5,802 | ||||||
| Global Investment Management | 83,430 | 87,501 | ||||||
| Development Services | 108,033 | 118,345 | ||||||
| Total investments in unconsolidated subsidiaries | $ | 238,001 | $ | 232,238 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Geographic Information
Revenue in the table below is allocated based upon the country in which services are performed (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||||||
| Revenue | ||||||||||||
| United States | $ | 7,424,249 | $ | 6,917,221 | $ | 5,991,826 | ||||||
| United Kingdom | 2,104,517 | 2,008,776 | 1,861,199 | |||||||||
| All other countries | 4,680,842 | 4,145,592 | 3,002,785 | |||||||||
| Total revenue | $ | 14,209,608 | $ | 13,071,589 | $ | 10,855,810 |
The long-lived assets in the table below are comprised of net property and equipment (dollars in thousands).
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | |||||||
| Property and equipment, net | ||||||||
| United States | $ | 432,102 | $ | 396,608 | ||||
| United Kingdom | 61,335 | 61,327 | ||||||
| All other countries | 124,302 | 102,821 | ||||||
| Total property and equipment, net | $ | 617,739 | $ | 560,756 |
| 19. | Related Party Transactions |
|---|
The accompanying consolidated balance sheets include loans to related parties, primarily employees other than our executive officers, of $291.2 million and $233.8 million as of December 31, 2017 and 2016, respectively. The majority of these loans represent sign-on and retention bonuses issued or assumed in connection with acquisitions and prepaid commissions as well as prepaid retention and recruitment awards issued to employees. These loans are at varying principal amounts, bear interest at rates up to 3.75% per annum and mature on various dates through 2027.
| 20. | Guarantor and Nonguarantor Financial Statements |
|---|
The following condensed consolidating financial information includes condensed consolidating balance sheets as of December 31, 2017 and 2016, condensed consolidating statements of operations, condensed consolidating statements of comprehensive income (loss) and condensed consolidating statements of cash flows for the years ended December 31, 2017, 2016 and 2015 of:
| • | CBRE Group, Inc., as the parent; CBRE Services, as the subsidiary issuer; the guarantor subsidiaries; the nonguarantor subsidiaries; |
|---|
| • | Elimination entries necessary to consolidate CBRE Group, Inc., as the parent, with CBRE Services and its guarantor and nonguarantor subsidiaries; and |
|---|
| • | CBRE Group, Inc., on a consolidated basis. |
|---|
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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2017
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 7 | $ | 15,604 | $ | 112,048 | $ | 624,115 | $ | — | $ | 751,774 | ||||||||||||
| Restricted cash | — | — | 2,095 | 70,950 | — | 73,045 | ||||||||||||||||||
| Receivables, net | — | — | 1,096,327 | 2,110,958 | — | 3,207,285 | ||||||||||||||||||
| Warehouse receivables (1) | — | — | 479,628 | 448,410 | — | 928,038 | ||||||||||||||||||
| Prepaid expenses | — | — | 81,106 | 134,230 | — | 215,336 | ||||||||||||||||||
| Income taxes receivable | 2,162 | − | − | 49,628 | (2,162 | ) | 49,628 | |||||||||||||||||
| Other current assets | — | − | 50,556 | 176,865 | — | 227,421 | ||||||||||||||||||
| Total Current Assets | 2,169 | 15,604 | 1,821,760 | 3,615,156 | (2,162 | ) | 5,452,527 | |||||||||||||||||
| Property and equipment, net | — | — | 431,755 | 185,984 | — | 617,739 | ||||||||||||||||||
| Goodwill | — | — | 1,774,529 | 1,480,211 | — | 3,254,740 | ||||||||||||||||||
| Other intangible assets, net | — | — | 751,930 | 647,182 | — | 1,399,112 | ||||||||||||||||||
| Investments in unconsolidated subsidiaries | — | — | 197,395 | 40,606 | — | 238,001 | ||||||||||||||||||
| Investments in consolidated subsidiaries | 5,456,715 | 4,835,043 | 3,053,260 | — | (13,345,018 | ) | — | |||||||||||||||||
| Intercompany loan receivable | — | 2,621,330 | 700,000 | — | (3,321,330 | ) | — | |||||||||||||||||
| Deferred tax assets, net | — | — | 5,300 | 98,746 | (5,300 | ) | 98,746 | |||||||||||||||||
| Other assets, net | — | 22,810 | 290,675 | 109,480 | — | 422,965 | ||||||||||||||||||
| Total Assets | $ | 5,458,884 | $ | 7,494,787 | $ | 9,026,604 | $ | 6,177,365 | $ | (16,673,810 | ) | $ | 11,483,830 | |||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | — | $ | 29,708 | $ | 445,687 | $ | 1,198,892 | $ | — | $ | 1,674,287 | ||||||||||||
| Accrued bonus and profit sharing | — | — | 585,165 | 487,811 | — | 1,072,976 | ||||||||||||||||||
| Compensation and employee benefits payable | — | 626 | 380,803 | 422,075 | — | 803,504 | ||||||||||||||||||
| Income taxes payable | — | 3,314 | 13,704 | 55,778 | (2,162 | ) | 70,634 | |||||||||||||||||
| Short-term borrowings: | — | |||||||||||||||||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1) | — | — | 474,195 | 436,571 | — | 910,766 | ||||||||||||||||||
| Other | — | — | 16 | — | — | 16 | ||||||||||||||||||
| Total short-term borrowings | — | — | 474,211 | 436,571 | — | 910,782 | ||||||||||||||||||
| Current maturities of long-term debt | — | — | — | 8 | — | 8 | ||||||||||||||||||
| Other current liabilities | — | 55 | 57,746 | 16,653 | — | 74,454 | ||||||||||||||||||
| Total Current Liabilities | — | 33,703 | 1,957,316 | 2,617,788 | (2,162 | ) | 4,606,645 | |||||||||||||||||
| Long-Term Debt, net: | ||||||||||||||||||||||||
| Long-term debt, net | — | 1,999,603 | — | − | — | 1,999,603 | ||||||||||||||||||
| Intercompany loan payable | 1,439,454 | — | 1,798,550 | 83,326 | (3,321,330 | ) | — | |||||||||||||||||
| Total Long-Term Debt, net | 1,439,454 | 1,999,603 | 1,798,550 | 83,326 | (3,321,330 | ) | 1,999,603 | |||||||||||||||||
| Non-current tax liabilities | — | — | 135,396 | 5,396 | — | 140,792 | ||||||||||||||||||
| Deferred tax liabilities, net | — | — | — | 119,317 | (5,300 | ) | 114,017 | |||||||||||||||||
| Other liabilities | — | 4,766 | 300,299 | 238,160 | — | 543,225 | ||||||||||||||||||
| Total Liabilities | 1,439,454 | 2,038,072 | 4,191,561 | 3,063,987 | (3,328,792 | ) | 7,404,282 | |||||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
| Equity: | ||||||||||||||||||||||||
| CBRE Group, Inc. Stockholders’ Equity | 4,019,430 | 5,456,715 | 4,835,043 | 3,053,260 | (13,345,018 | ) | 4,019,430 | |||||||||||||||||
| Non-controlling interests | — | — | — | 60,118 | — | 60,118 | ||||||||||||||||||
| Total Equity | 4,019,430 | 5,456,715 | 4,835,043 | 3,113,378 | (13,345,018 | ) | 4,079,548 | |||||||||||||||||
| Total Liabilities and Equity | $ | 5,458,884 | $ | 7,494,787 | $ | 9,026,604 | $ | 6,177,365 | $ | (16,673,810 | ) | $ | 11,483,830 |
| (1) | Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 5.00% senior notes, 4.875% senior notes, 5.25% senior notes and our 2017 Credit Agreement, a substantial majority of warehouse receivables funded under TD Bank, Fannie Mae ASAP, JP Morgan, Capital One and BofA lines of credit are pledged to TD Bank, Fannie Mae, JP Morgan, Capital One and BofA, and accordingly, are not included as collateral for these notes or our other outstanding debt. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2016
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 7 | $ | 16,889 | $ | 264,121 | $ | 481,559 | $ | — | $ | 762,576 | ||||||||||||
| Restricted cash | — | — | 6,967 | 61,869 | — | 68,836 | ||||||||||||||||||
| Receivables, net | — | — | 943,028 | 1,662,574 | — | 2,605,602 | ||||||||||||||||||
| Warehouse receivables (1) | — | — | 687,454 | 588,593 | — | 1,276,047 | ||||||||||||||||||
| Prepaid expenses | — | — | 78,296 | 105,811 | — | 184,107 | ||||||||||||||||||
| Income taxes receivable | 1,915 | 17,364 | 8,170 | 37,456 | (19,279 | ) | 45,626 | |||||||||||||||||
| Other current assets | — | 1,421 | 64,576 | 113,659 | — | 179,656 | ||||||||||||||||||
| Total Current Assets | 1,922 | 35,674 | 2,052,612 | 3,051,521 | (19,279 | ) | 5,122,450 | |||||||||||||||||
| Property and equipment, net | — | — | 395,749 | 165,007 | — | 560,756 | ||||||||||||||||||
| Goodwill | — | — | 1,669,683 | 1,311,709 | — | 2,981,392 | ||||||||||||||||||
| Other intangible assets, net | — | — | 793,525 | 617,514 | — | 1,411,039 | ||||||||||||||||||
| Investments in unconsolidated subsidiaries | — | — | 189,455 | 42,783 | — | 232,238 | ||||||||||||||||||
| Investments in consolidated subsidiaries | 4,226,629 | 4,076,265 | 2,314,549 | — | (10,617,443 | ) | — | |||||||||||||||||
| Intercompany loan receivable | — | 2,684,421 | 700,000 | — | (3,384,421 | ) | — | |||||||||||||||||
| Deferred tax assets, net | — | — | 72,325 | 90,334 | (57,335 | ) | 105,324 | |||||||||||||||||
| Other assets, net | — | 22,229 | 240,707 | 103,452 | — | 366,388 | ||||||||||||||||||
| Total Assets | $ | 4,228,551 | $ | 6,818,589 | $ | 8,428,605 | $ | 5,382,320 | $ | (14,078,478 | ) | $ | 10,779,587 | |||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | — | $ | 30,049 | $ | 409,470 | $ | 1,006,919 | $ | — | $ | 1,446,438 | ||||||||||||
| Accrued bonus and profit sharing | — | — | 506,715 | 383,606 | — | 890,321 | ||||||||||||||||||
| Compensation and employee benefits payable | — | 626 | 402,719 | 369,577 | — | 772,922 | ||||||||||||||||||
| Income taxes payable | — | — | 40,946 | 36,684 | (19,279 | ) | 58,351 | |||||||||||||||||
| Short-term borrowings: | — | |||||||||||||||||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1) | — | — | 680,473 | 574,180 | — | 1,254,653 | ||||||||||||||||||
| Other | — | — | 16 | — | — | 16 | ||||||||||||||||||
| Total short-term borrowings | — | — | 680,489 | 574,180 | — | 1,254,669 | ||||||||||||||||||
| Current maturities of long-term debt | — | — | — | 11 | — | 11 | ||||||||||||||||||
| Other current liabilities | — | — | 81,590 | 21,127 | — | 102,717 | ||||||||||||||||||
| Total Current Liabilities | — | 30,675 | 2,121,929 | 2,392,104 | (19,279 | ) | 4,525,429 | |||||||||||||||||
| Long-Term Debt, net: | ||||||||||||||||||||||||
| Long-term debt, net | — | 2,548,123 | — | 3 | — | 2,548,126 | ||||||||||||||||||
| Intercompany loan payable | 1,214,064 | — | 1,916,675 | 253,682 | (3,384,421 | ) | — | |||||||||||||||||
| Total Long-Term Debt, net | 1,214,064 | 2,548,123 | 1,916,675 | 253,685 | (3,384,421 | ) | 2,548,126 | |||||||||||||||||
| Non-current tax liabilities | — | — | 53,422 | 620 | — | 54,042 | ||||||||||||||||||
| Deferred tax liabilities, net | — | — | — | 128,054 | (57,335 | ) | 70,719 | |||||||||||||||||
| Other liabilities | — | 13,162 | 260,314 | 250,550 | — | 524,026 | ||||||||||||||||||
| Total Liabilities | 1,214,064 | 2,591,960 | 4,352,340 | 3,025,013 | (3,461,035 | ) | 7,722,342 | |||||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
| Equity: | ||||||||||||||||||||||||
| CBRE Group, Inc. Stockholders’ Equity | 3,014,487 | 4,226,629 | 4,076,265 | 2,314,549 | (10,617,443 | ) | 3,014,487 | |||||||||||||||||
| Non-controlling interests | — | — | — | 42,758 | — | 42,758 | ||||||||||||||||||
| Total Equity | 3,014,487 | 4,226,629 | 4,076,265 | 2,357,307 | (10,617,443 | ) | 3,057,245 | |||||||||||||||||
| Total Liabilities and Equity | $ | 4,228,551 | $ | 6,818,589 | $ | 8,428,605 | $ | 5,382,320 | $ | (14,078,478 | ) | $ | 10,779,587 |
| (1) | Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 5.00% senior notes, 4.875% senior notes, 5.25% senior notes and our 2015 Credit Agreement, a substantial majority of warehouse receivables funded under BofA, Fannie Mae ASAP, JP Morgan, Capital One and TD Bank lines of credit are pledged to BofA, Fannie Mae, JP Morgan, Capital One and TD Bank, and accordingly, are not included as collateral for these notes or our other outstanding debt. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 7,171,828 | $ | 7,037,780 | $ | — | $ | 14,209,608 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 4,985,201 | 4,908,025 | — | 9,893,226 | ||||||||||||||||||
| Operating, administrative and other | 5,661 | 1,972 | 1,485,464 | 1,365,557 | — | 2,858,654 | ||||||||||||||||||
| Depreciation and amortization | — | — | 239,863 | 166,251 | — | 406,114 | ||||||||||||||||||
| Total costs and expenses | 5,661 | 1,972 | 6,710,528 | 6,439,833 | — | 13,157,994 | ||||||||||||||||||
| Gain on disposition of real estate | — | — | 6,037 | 13,791 | — | 19,828 | ||||||||||||||||||
| Operating (loss) income | (5,661 | ) | (1,972 | ) | 467,337 | 611,738 | — | 1,071,442 | ||||||||||||||||
| Equity income from unconsolidated subsidiaries | — | — | 206,655 | 3,552 | — | 210,207 | ||||||||||||||||||
| Other income | — | 1 | 22 | 9,382 | — | 9,405 | ||||||||||||||||||
| Interest income | — | 143,425 | 5,453 | 4,400 | (143,425 | ) | 9,853 | |||||||||||||||||
| Interest expense | — | 132,777 | 115,947 | 31,515 | (143,425 | ) | 136,814 | |||||||||||||||||
| Royalty and management service expense (income) | — | — | 15,950 | (15,950 | ) | — | — | |||||||||||||||||
| Income from consolidated subsidiaries | 694,978 | 689,615 | 454,850 | — | (1,839,443 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 689,317 | 698,292 | 1,002,420 | 613,507 | (1,839,443 | ) | 1,164,093 | |||||||||||||||||
| (Benefit of) provision for income taxes | (2,162 | ) | 3,314 | 312,805 | 152,190 | — | 466,147 | |||||||||||||||||
| Net income | 691,479 | 694,978 | 689,615 | 461,317 | (1,839,443 | ) | 697,946 | |||||||||||||||||
| Less: Net income attributable to non- controlling interests | — | — | — | 6,467 | — | 6,467 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 691,479 | $ | 694,978 | $ | 689,615 | $ | 454,850 | $ | (1,839,443 | ) | $ | 691,479 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2016
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 6,671,793 | $ | 6,399,796 | $ | — | $ | 13,071,589 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 4,635,426 | 4,488,301 | — | 9,123,727 | ||||||||||||||||||
| Operating, administrative and other | 5,003 | (8,231 | ) | 1,454,777 | 1,329,761 | — | 2,781,310 | |||||||||||||||||
| Depreciation and amortization | — | — | 225,552 | 141,375 | — | 366,927 | ||||||||||||||||||
| Total costs and expenses | 5,003 | (8,231 | ) | 6,315,755 | 5,959,437 | — | 12,271,964 | |||||||||||||||||
| Gain on disposition of real estate | — | — | 3,669 | 12,193 | — | 15,862 | ||||||||||||||||||
| Operating (loss) income | (5,003 | ) | 8,231 | 359,707 | 452,552 | — | 815,487 | |||||||||||||||||
| Equity income from unconsolidated subsidiaries | — | — | 192,811 | 4,540 | — | 197,351 | ||||||||||||||||||
| Other income (loss) | — | 1 | (89 | ) | 4,776 | — | 4,688 | |||||||||||||||||
| Interest income | — | 131,132 | 50,272 | 5,146 | (178,499 | ) | 8,051 | |||||||||||||||||
| Interest expense | — | 184,738 | 97,815 | 40,797 | (178,499 | ) | 144,851 | |||||||||||||||||
| Royalty and management service (income) expense | — | — | (39,182 | ) | 39,182 | — | — | |||||||||||||||||
| Income from consolidated subsidiaries | 575,061 | 603,071 | 241,790 | — | (1,419,922 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 570,058 | 557,697 | 785,858 | 387,035 | (1,419,922 | ) | 880,726 | |||||||||||||||||
| (Benefit of) provision for income taxes | (1,915 | ) | (17,364 | ) | 182,787 | 133,154 | — | 296,662 | ||||||||||||||||
| Net income | 571,973 | 575,061 | 603,071 | 253,881 | (1,419,922 | ) | 584,064 | |||||||||||||||||
| Less: Net income attributable to non- controlling interests | — | — | — | 12,091 | — | 12,091 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 571,973 | $ | 575,061 | $ | 603,071 | $ | 241,790 | $ | (1,419,922 | ) | $ | 571,973 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 5,817,752 | $ | 5,038,058 | $ | — | $ | 10,855,810 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 3,782,705 | 3,300,227 | — | 7,082,932 | ||||||||||||||||||
| Operating, administrative and other | 67,549 | (23,833 | ) | 1,349,874 | 1,240,019 | — | 2,633,609 | |||||||||||||||||
| Depreciation and amortization | — | — | 173,741 | 140,355 | — | 314,096 | ||||||||||||||||||
| Total costs and expenses | 67,549 | (23,833 | ) | 5,306,320 | 4,680,601 | — | 10,030,637 | |||||||||||||||||
| Gain on disposition of real estate | — | — | 3,859 | 6,912 | — | 10,771 | ||||||||||||||||||
| Operating (loss) income | (67,549 | ) | 23,833 | 515,291 | 364,369 | — | 835,944 | |||||||||||||||||
| Equity income from unconsolidated subsidiaries | — | — | 161,404 | 1,445 | — | 162,849 | ||||||||||||||||||
| Other income (loss) | — | 1 | 1,483 | (5,293 | ) | — | (3,809 | ) | ||||||||||||||||
| Interest income | — | 196,439 | 122,260 | 4,087 | (316,475 | ) | 6,311 | |||||||||||||||||
| Interest expense | — | 234,180 | 137,281 | 63,894 | (316,475 | ) | 118,880 | |||||||||||||||||
| Write-off of financing costs on extinguished debt | — | 2,685 | — | — | — | 2,685 | ||||||||||||||||||
| Royalty and management service (income) expense | — | — | (27,445 | ) | 27,445 | — | — | |||||||||||||||||
| Income from consolidated subsidiaries | 588,769 | 598,996 | 151,723 | — | (1,339,488 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 521,220 | 582,404 | 842,325 | 273,269 | (1,339,488 | ) | 879,730 | |||||||||||||||||
| (Benefit of) provision for income taxes | (25,912 | ) | (6,365 | ) | 243,329 | 109,801 | — | 320,853 | ||||||||||||||||
| Net income | 547,132 | 588,769 | 598,996 | 163,468 | (1,339,488 | ) | 558,877 | |||||||||||||||||
| Less: Net income attributable to non- controlling interests | — | — | — | 11,745 | — | 11,745 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 547,132 | $ | 588,769 | $ | 598,996 | $ | 151,723 | $ | (1,339,488 | ) | $ | 547,132 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2017
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Net income | $ | 691,479 | $ | 694,978 | $ | 689,615 | $ | 461,317 | $ | (1,839,443 | ) | $ | 697,946 | |||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||
| Foreign currency translation gain | — | — | — | 217,221 | — | 217,221 | ||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net | — | 4,964 | — | — | — | 4,964 | ||||||||||||||||||
| Unrealized gains on interest rate swaps, net | — | 585 | — | — | — | 585 | ||||||||||||||||||
| Unrealized holding gains on available for sale securities, net | — | — | 2,557 | 180 | — | 2,737 | ||||||||||||||||||
| Pension liability adjustments, net | — | — | — | 12,701 | — | 12,701 | ||||||||||||||||||
| Other, net | (2 | ) | — | (21 | ) | 387 | — | 364 | ||||||||||||||||
| Total other comprehensive (loss) income | (2 | ) | 5,549 | 2,536 | 230,489 | — | 238,572 | |||||||||||||||||
| Comprehensive income | 691,477 | 700,527 | 692,151 | 691,806 | (1,839,443 | ) | 936,518 | |||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 6,879 | — | 6,879 | ||||||||||||||||||
| Comprehensive income attributable to CBRE Group, Inc. | $ | 691,477 | $ | 700,527 | $ | 692,151 | $ | 684,927 | $ | (1,839,443 | ) | $ | 929,639 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2016
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Net income | $ | 571,973 | $ | 575,061 | $ | 603,071 | $ | 253,881 | $ | (1,419,922 | ) | $ | 584,064 | |||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | (235,278 | ) | — | (235,278 | ) | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net | — | 6,839 | — | — | — | 6,839 | ||||||||||||||||||
| Unrealized losses on interest rate swaps, net | — | (1,431 | ) | — | — | — | (1,431 | ) | ||||||||||||||||
| Unrealized holding gains on available for sale securities, net | — | — | 180 | 204 | — | 384 | ||||||||||||||||||
| Pension liability adjustments, net | — | — | — | (63,749 | ) | — | (63,749 | ) | ||||||||||||||||
| Other, net | — | — | (759 | ) | (11,332 | ) | — | (12,091 | ) | |||||||||||||||
| Total other comprehensive income (loss) | — | 5,408 | (579 | ) | (310,155 | ) | — | (305,326 | ) | |||||||||||||||
| Comprehensive income (loss) | 571,973 | 580,469 | 602,492 | (56,274 | ) | (1,419,922 | ) | 278,738 | ||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 12,108 | — | 12,108 | ||||||||||||||||||
| Comprehensive income (loss) attributable to CBRE Group, Inc. | $ | 571,973 | $ | 580,469 | $ | 602,492 | $ | (68,382 | ) | $ | (1,419,922 | ) | $ | 266,630 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||||
| Net income | $ | 547,132 | $ | 588,769 | $ | 598,996 | $ | 163,468 | $ | (1,339,488 | ) | $ | 558,877 | |||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | (164,350 | ) | — | (164,350 | ) | ||||||||||||||||
| Fees associated with termination of interest rate swaps, net | — | (3,908 | ) | — | — | — | (3,908 | ) | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net | — | 7,680 | — | — | — | 7,680 | ||||||||||||||||||
| Unrealized losses on interest rate swaps, net | — | (4,107 | ) | — | — | — | (4,107 | ) | ||||||||||||||||
| Unrealized holding losses on available for sale securities, net | — | — | (674 | ) | (31 | ) | — | (705 | ) | |||||||||||||||
| Pension liability adjustments, net | — | — | — | 3,741 | — | 3,741 | ||||||||||||||||||
| Other, net | — | — | 3 | — | — | 3 | ||||||||||||||||||
| Total other comprehensive loss | — | (335 | ) | (671 | ) | (160,640 | ) | — | (161,646 | ) | ||||||||||||||
| Comprehensive income | 547,132 | 588,434 | 598,325 | 2,828 | (1,339,488 | ) | 397,231 | |||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 11,754 | — | 11,754 | ||||||||||||||||||
| Comprehensive income (loss) attributable to CBRE Group, Inc. | $ | 547,132 | $ | 588,434 | $ | 598,325 | $ | (8,926 | ) | $ | (1,339,488 | ) | $ | 385,477 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2017
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | $ | 89,341 | $ | 37,990 | $ | 241,015 | $ | 342,159 | $ | 710,505 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (121,347 | ) | (56,695 | ) | (178,042 | ) | ||||||||||||
| Acquisition of businesses (other than GWS) , including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (107,102 | ) | (35,331 | ) | (142,433 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (63,119 | ) | (5,581 | ) | (68,700 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 236,806 | 10,768 | 247,574 | |||||||||||||||
| Decrease (Increase) in restricted cash | — | — | 4,872 | (3,591 | ) | 1,281 | ||||||||||||||
| Purchase of available for sale securities | — | — | (34,864 | ) | — | (34,864 | ) | |||||||||||||
| Proceeds from the sale of available for sale securities | — | — | 31,377 | — | 31,377 | |||||||||||||||
| Other investing activities, net | — | — | 1,968 | 424 | 2,392 | |||||||||||||||
| Net cash used in investing activities | — | — | (51,409 | ) | (90,006 | ) | (141,415 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Proceeds from senior term loans | — | 200,000 | — | — | 200,000 | |||||||||||||||
| Repayment of senior term loans | — | (751,876 | ) | — | — | (751,876 | ) | |||||||||||||
| Proceeds from revolving credit facility | — | 1,521,000 | — | — | 1,521,000 | |||||||||||||||
| Repayment of revolving credit facility | — | (1,521,000 | ) | — | — | (1,521,000 | ) | |||||||||||||
| Proceeds from notes payable on real estate held for investment | — | — | — | 137 | 137 | |||||||||||||||
| Repayment of notes payable on real estate held for investment | — | — | — | (1,779 | ) | (1,779 | ) | |||||||||||||
| Proceeds from notes payable on real estate held for sale and under development | — | — | — | 4,196 | 4,196 | |||||||||||||||
| Repayment of notes payable on real estate held for sale and under development | — | — | — | (10,777 | ) | (10,777 | ) | |||||||||||||
| Units repurchased for payment of taxes on equity awards | (29,549 | ) | — | — | — | (29,549 | ) | |||||||||||||
| Non-controlling interest contributions | — | — | — | 5,301 | 5,301 | |||||||||||||||
| Non-controlling interest distributions | — | — | — | (8,715 | ) | (8,715 | ) | |||||||||||||
| Payment of financing costs | — | (7,978 | ) | — | (21 | ) | (7,999 | ) | ||||||||||||
| (Increase) decrease in intercompany receivables, net | (60,271 | ) | 520,579 | (338,534 | ) | (121,774 | ) | — | ||||||||||||
| Other financing activities, net | 479 | — | (3,145 | ) | (9 | ) | (2,675 | ) | ||||||||||||
| Net cash used in financing activities | (89,341 | ) | (39,275 | ) | (341,679 | ) | (133,441 | ) | (603,736 | ) | ||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | — | — | — | 23,844 | 23,844 | |||||||||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (1,285 | ) | (152,073 | ) | 142,556 | (10,802 | ) | ||||||||||||
| CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD | 7 | 16,889 | 264,121 | 481,559 | 762,576 | |||||||||||||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 7 | $ | 15,604 | $ | 112,048 | $ | 624,115 | $ | 751,774 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||
| Interest | $ | — | $ | 117,072 | $ | — | $ | 92 | $ | 117,164 | ||||||||||
| Income taxes, net | $ | — | $ | — | $ | 198,520 | $ | 158,477 | $ | 356,997 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2016
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: | $ | 84,393 | $ | (23,643 | ) | $ | 212,841 | $ | 176,724 | $ | 450,315 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (115,049 | ) | (76,156 | ) | (191,205 | ) | ||||||||||||
| Acquisition of GWS, including net assets acquired, intangibles and goodwill | — | — | 3,256 | (13,733 | ) | (10,477 | ) | |||||||||||||
| Acquisition of businesses (other than GWS), including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (6,572 | ) | (25,062 | ) | (31,634 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (47,192 | ) | (19,624 | ) | (66,816 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 206,011 | 7,435 | 213,446 | |||||||||||||||
| Net proceeds from disposition of real estate held for investment | — | — | — | 44,326 | 44,326 | |||||||||||||||
| Increase in restricted cash | — | — | (546 | ) | (2,006 | ) | (2,552 | ) | ||||||||||||
| Purchase of available for sale securities | — | — | (37,661 | ) | — | (37,661 | ) | |||||||||||||
| Proceeds from the sale of available for sale securities | — | — | 35,051 | — | 35,051 | |||||||||||||||
| Other investing activities, net | — | — | 19,178 | 20,905 | 40,083 | |||||||||||||||
| Net cash provided by (used in) investing activities | — | — | 56,476 | (63,915 | ) | (7,439 | ) | |||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Repayment of senior term loans | — | (136,250 | ) | — | — | (136,250 | ) | |||||||||||||
| Proceeds from revolving credit facility | — | 2,909,000 | — | — | 2,909,000 | |||||||||||||||
| Repayment of revolving credit facility | — | (2,909,000 | ) | — | — | (2,909,000 | ) | |||||||||||||
| Proceeds from notes payable on real estate held for investment | — | — | — | 7,274 | 7,274 | |||||||||||||||
| Repayment of notes payable on real estate held for investment | — | — | — | (33,944 | ) | (33,944 | ) | |||||||||||||
| Proceeds from notes payable on real estate held for sale and under development | — | — | — | 17,727 | 17,727 | |||||||||||||||
| Repayment of notes payable on real estate held for sale and under development | — | — | — | (4,102 | ) | (4,102 | ) | |||||||||||||
| Units repurchased for payment of taxes on equity awards | (27,426 | ) | — | — | — | (27,426 | ) | |||||||||||||
| Non-controlling interest contributions | — | — | — | 2,272 | 2,272 | |||||||||||||||
| Non-controlling interest distributions | — | — | — | (19,133 | ) | (19,133 | ) | |||||||||||||
| Payment of financing costs | — | (5,459 | ) | — | (159 | ) | (5,618 | ) | ||||||||||||
| (Increase) decrease in intercompany receivables, net | (57,880 | ) | 173,762 | (151,433 | ) | 35,551 | — | |||||||||||||
| Other financing activities, net | 915 | — | (1,173 | ) | (185 | ) | (443 | ) | ||||||||||||
| Net cash (used in) provided by financing activities | (84,391 | ) | 32,053 | (152,606 | ) | 5,301 | (199,643 | ) | ||||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | — | — | — | (21,060 | ) | (21,060 | ) | |||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 2 | 8,410 | 116,711 | 97,050 | 222,173 | |||||||||||||||
| CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD | 5 | 8,479 | 147,410 | 384,509 | 540,403 | |||||||||||||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 7 | $ | 16,889 | $ | 264,121 | $ | 481,559 | $ | 762,576 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||
| Interest | $ | — | $ | 122,605 | $ | — | $ | 3,195 | $ | 125,800 | ||||||||||
| Income taxes, net | $ | — | $ | — | $ | 174,164 | $ | 120,684 | $ | 294,848 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2015
(Dollars in thousands)
| CBRE | Guarantor | Nonguarantor | Consolidated | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | Services | Subsidiaries | Subsidiaries | Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: | $ | 33,959 | $ | (7,477 | ) | $ | 452,304 | $ | 173,111 | $ | 651,897 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (84,933 | ) | (54,531 | ) | (139,464 | ) | ||||||||||||
| Acquisition of GWS, including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (729,729 | ) | (691,934 | ) | (1,421,663 | ) | ||||||||||||
| Acquisition of businesses (other than GWS), including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (153,690 | ) | (7,416 | ) | (161,106 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (66,966 | ) | (4,242 | ) | (71,208 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 179,699 | 7,878 | 187,577 | |||||||||||||||
| Net proceeds from disposition of real estate held for investment | — | — | — | 3,584 | 3,584 | |||||||||||||||
| Increase in restricted cash | — | — | (5,791 | ) | (43,221 | ) | (49,012 | ) | ||||||||||||
| Purchase of available for sale securities | — | — | (40,287 | ) | — | (40,287 | ) | |||||||||||||
| Proceeds from the sale of available for sale securities | — | — | 42,572 | — | 42,572 | |||||||||||||||
| Other investing activities, net | — | — | 16,172 | 13,876 | 30,048 | |||||||||||||||
| Net cash used in investing activities | — | — | (842,953 | ) | (776,006 | ) | (1,618,959 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Proceeds from senior term loans | — | 900,000 | — | — | 900,000 | |||||||||||||||
| Repayment of senior term loans | — | (657,488 | ) | — | — | (657,488 | ) | |||||||||||||
| Proceeds from revolving credit facility | — | 2,643,500 | — | — | 2,643,500 | |||||||||||||||
| Repayment of revolving credit facility | — | (2,643,500 | ) | — | (4,512 | ) | (2,648,012 | ) | ||||||||||||
| Proceeds from issuance of 4.875% senior notes, net | — | 595,440 | — | — | 595,440 | |||||||||||||||
| Repayment of notes payable on real estate held for investment | — | — | — | (1,576 | ) | (1,576 | ) | |||||||||||||
| Proceeds from notes payable on real estate held for sale and under development | — | — | — | 20,879 | 20,879 | |||||||||||||||
| Repayment of notes payable on real estate held for sale and under development | — | — | — | (1,186 | ) | (1,186 | ) | |||||||||||||
| Shares and units repurchased for payment of taxes on equity awards | (24,523 | ) | — | — | — | (24,523 | ) | |||||||||||||
| Non-controlling interest contributions | — | — | — | 5,909 | 5,909 | |||||||||||||||
| Non-controlling interest distributions | — | — | — | (16,582 | ) | (16,582 | ) | |||||||||||||
| Payment of financing costs | — | (30,579 | ) | — | (85 | ) | (30,664 | ) | ||||||||||||
| (Increase) decrease in intercompany receivables, net | (19,238 | ) | (809,679 | ) | 167,505 | 661,412 | — | |||||||||||||
| Other financing activities, net | 9,802 | — | (3,549 | ) | (2,402 | ) | 3,851 | |||||||||||||
| Net cash (used in) provided by financing activities | (33,959 | ) | (2,306 | ) | 163,956 | 661,857 | 789,548 | |||||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | — | — | — | (22,967 | ) | (22,967 | ) | |||||||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — | (9,783 | ) | (226,693 | ) | 35,995 | (200,481 | ) | ||||||||||||
| CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD | 5 | 18,262 | 374,103 | 348,514 | 740,884 | |||||||||||||||
| CASH AND CASH EQUIVALENTS, AT END OF PERIOD | $ | 5 | $ | 8,479 | $ | 147,410 | $ | 384,509 | $ | 540,403 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||
| Interest | $ | — | $ | 86,562 | $ | 126 | $ | 1,390 | $ | 88,078 | ||||||||||
| Income taxes, net | $ | — | $ | — | $ | 179,418 | $ | 106,312 | $ | 285,730 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 21. | Subsequent Event |
|---|
In February 2018, we gave the notice required under the indenture governing our 5.00% senior notes of our intent to redeem such notes in full on March 15, 2018. In connection with this early redemption, we will incur charges of $28.0 million, including a premium of $20.0 million and the write-off of $8.0 million of unamortized deferred financing costs. We intend to fund this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under the 2017 Credit Agreement as well as with cash on hand.
CBRE GROUP, INC.
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
| Three Months | Three Months | Three Months | Three Months | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ended | Ended | Ended | Ended | |||||||||||||
| December 31, | September 30, | June 30, | March 31, | |||||||||||||
| 2017 | 2017 | 2017 | 2017 | |||||||||||||
| (Dollars in thousands, except share data) | ||||||||||||||||
| Revenue | $ | 4,336,212 | $ | 3,549,977 | $ | 3,342,215 | $ | 2,981,204 | ||||||||
| Operating income | $ | 418,718 | $ | 235,291 | $ | 222,191 | $ | 195,242 | ||||||||
| Net income attributable to CBRE Group, Inc. | $ | 168,400 | $ | 196,317 | $ | 197,165 | $ | 129,597 | ||||||||
| Basic income per share | $ | 0.50 | $ | 0.58 | $ | 0.59 | $ | 0.38 | ||||||||
| Weighted average shares outstanding for basic income per share | 338,777,028 | 337,948,324 | 336,975,149 | 336,907,836 | ||||||||||||
| Diluted income per share | $ | 0.49 | $ | 0.58 | $ | 0.58 | $ | 0.38 | ||||||||
| Weighted average shares outstanding for diluted income per share | 341,728,078 | 341,186,431 | 340,882,603 | 339,690,579 | ||||||||||||
| Three Months | Three Months | Three Months | Three Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| December 31, | September 30, | June 30, | March 31, | |||||||||||||
| 2016 | 2016 | 2016 | 2016 | |||||||||||||
| (Dollars in thousands, except share data) | ||||||||||||||||
| Revenue | $ | 3,823,831 | $ | 3,193,487 | $ | 3,207,537 | $ | 2,846,734 | ||||||||
| Operating income | $ | 352,821 | $ | 172,492 | $ | 182,594 | $ | 107,580 | ||||||||
| Net income attributable to CBRE Group, Inc. | $ | 263,975 | $ | 104,163 | $ | 121,668 | $ | 82,167 | ||||||||
| Basic income per share | $ | 0.78 | $ | 0.31 | $ | 0.36 | $ | 0.25 | ||||||||
| Weighted average shares outstanding for basic income per share | 336,843,925 | 335,770,122 | 335,076,746 | 333,992,935 | ||||||||||||
| Diluted income per share | $ | 0.78 | $ | 0.31 | $ | 0.36 | $ | 0.24 | ||||||||
| Weighted average shares outstanding for diluted income per share | 338,839,469 | 338,488,975 | 338,080,641 | 337,506,232 |
Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure