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, 2018 and 2017, 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, 2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, 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, 2018 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
CBRE Group, Inc. acquired FacilitySource during 2018 (the Acquired Business) as defined in Note 4 to the consolidated financial statements, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, the Acquired Business’s internal control over financial reporting associated with total assets of $372.5 million and total revenues of $121.6 million included in the consolidated financial statements of CBRE Group, Inc. and subsidiaries as of and for the year ended December 31, 2018. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of the Acquired Business.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers in 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
Basis for Opinions
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, 2019
CBRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| (As Adjusted) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 777,219 | $ | 751,774 | ||||
| Restricted cash | 86,725 | 73,045 | ||||||
| Receivables, less allowance for doubtful accounts of $60,348 and $46,789 at December 31, 2018 and 2017, respectively | 3,668,591 | 3,112,289 | ||||||
| Warehouse receivables | 1,342,468 | 928,038 | ||||||
| Contract assets | 307,020 | 273,053 | ||||||
| Prepaid expenses | 254,892 | 215,336 | ||||||
| Income taxes receivable | 71,684 | 49,628 | ||||||
| Other current assets | 245,611 | 227,421 | ||||||
| Total Current Assets | 6,754,210 | 5,630,584 | ||||||
| Property and equipment, net | 721,692 | 617,739 | ||||||
| Goodwill | 3,652,309 | 3,254,740 | ||||||
| Other intangible assets, net of accumulated amortization of $1,180,393 and $1,000,738 at December 31, 2018 and 2017, respectively | 1,441,308 | 1,399,112 | ||||||
| Investments in unconsolidated subsidiaries | 216,174 | 238,001 | ||||||
| Deferred tax assets, net | 51,703 | 98,746 | ||||||
| Other assets, net | 619,397 | 479,474 | ||||||
| Total Assets | $ | 13,456,793 | $ | 11,718,396 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,919,827 | $ | 1,573,672 | ||||
| Accrued bonus and profit sharing | 1,189,395 | 1,078,345 | ||||||
| Compensation and employee benefits payable | 1,121,179 | 904,434 | ||||||
| Contract liabilities | 82,227 | 100,615 | ||||||
| Income taxes payable | 68,100 | 70,634 | ||||||
| Short-term borrowings: | ||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) | 1,328,761 | 910,766 | ||||||
| Other | — | 16 | ||||||
| Total short-term borrowings | 1,328,761 | 910,782 | ||||||
| Current maturities of long-term debt | 3,146 | 8 | ||||||
| Other current liabilities | 90,745 | 74,454 | ||||||
| Total Current Liabilities | 5,803,380 | 4,712,944 | ||||||
| Long-term debt, net of current maturities | 1,767,260 | 1,999,603 | ||||||
| Non-current tax liabilities | 172,626 | 140,792 | ||||||
| Deferred tax liabilities, net | 107,425 | 147,218 | ||||||
| Other liabilities | 596,200 | 543,225 | ||||||
| Total Liabilities | 8,446,891 | 7,543,782 | ||||||
| Commitments and contingencies | — | — | ||||||
| Equity: | ||||||||
| CBRE Group, Inc. Stockholders’ Equity: | ||||||||
| Class A common stock; $0.01 par value; 525,000,000 shares authorized; 336,912,783 and 339,459,138 shares issued and outstanding at December 31, 2018 and 2017, respectively | 3,369 | 3,395 | ||||||
| Additional paid-in capital | 1,149,013 | 1,220,508 | ||||||
| Accumulated earnings | 4,504,684 | 3,443,007 | ||||||
| Accumulated other comprehensive loss | (718,269 | ) | (552,414 | ) | ||||
| Total CBRE Group, Inc. Stockholders’ Equity | 4,938,797 | 4,114,496 | ||||||
| Non-controlling interests | 71,105 | 60,118 | ||||||
| Total Equity | 5,009,902 | 4,174,614 | ||||||
| Total Liabilities and Equity | $ | 13,456,793 | $ | 11,718,396 |
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) | (As Adjusted) | |||||||||||
| Revenue | $ | 21,340,088 | $ | 18,628,787 | $ | 17,369,108 | ||||||
| Costs and expenses: | ||||||||||||
| Cost of services | 16,449,212 | 14,305,099 | 13,420,911 | |||||||||
| Operating, administrative and other | 3,365,773 | 2,858,720 | 2,780,301 | |||||||||
| Depreciation and amortization | 451,988 | 406,114 | 366,927 | |||||||||
| Total costs and expenses | 20,266,973 | 17,569,933 | 16,568,139 | |||||||||
| Gain on disposition of real estate | 14,874 | 19,828 | 15,862 | |||||||||
| Operating income | 1,087,989 | 1,078,682 | 816,831 | |||||||||
| Equity income from unconsolidated subsidiaries | 324,664 | 210,207 | 197,351 | |||||||||
| Other income | 93,020 | 9,405 | 4,688 | |||||||||
| Interest income | 8,585 | 9,853 | 8,051 | |||||||||
| Interest expense | 107,270 | 136,814 | 144,851 | |||||||||
| Write-off of financing costs on extinguished debt | 27,982 | — | — | |||||||||
| Income before provision for income taxes | 1,379,006 | 1,171,333 | 882,070 | |||||||||
| Provision for income taxes | 313,058 | 467,757 | 296,900 | |||||||||
| Net income | 1,065,948 | 703,576 | 585,170 | |||||||||
| Less: Net income attributable to non-controlling interests | 2,729 | 6,467 | 12,091 | |||||||||
| Net income attributable to CBRE Group, Inc. | $ | 1,063,219 | $ | 697,109 | $ | 573,079 | ||||||
| Basic income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 3.13 | $ | 2.06 | $ | 1.71 | ||||||
| Weighted average shares outstanding for basic income per share | 339,321,056 | 337,658,017 | 335,414,831 | |||||||||
| Diluted income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 3.10 | $ | 2.05 | $ | 1.69 | ||||||
| Weighted average shares outstanding for diluted income per share | 343,122,741 | 340,783,556 | 338,424,563 |
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) | (As Adjusted) | |||||||||||
| Net income | $ | 1,065,948 | $ | 703,576 | $ | 585,170 | ||||||
| Other comprehensive (loss) income: | ||||||||||||
| Foreign currency translation (loss) gain | (161,384 | ) | 218,001 | (235,614 | ) | |||||||
| Adoption of Accounting Standards Update 2016-01, net of $2,141 income tax benefit for the year ended December 31, 2018 | (3,964 | ) | — | — | ||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of $876, $3,066 and $4,443 income tax expense for the years ended December 31, 2018, 2017 and 2016, respectively | 2,439 | 4,964 | 6,839 | |||||||||
| Unrealized gains (losses) on interest rate swaps, net of $254 and $362 income tax expense and $929 income tax benefit for the years ended December 31, 2018, 2017 and 2016, respectively | 708 | 585 | (1,431 | ) | ||||||||
| Unrealized holding (losses) gains on available for sale debt securities, net of $349 income tax benefit and $1,685 and $250 income tax expense for the years ended December 31, 2018, 2017 and 2016, respectively | (971 | ) | 2,737 | 384 | ||||||||
| Pension liability adjustments, net of $269 and $2,601 income tax expense and $13,057 income tax benefit for the years ended December 31, 2018, 2017 and 2016, respectively | 1,315 | 12,701 | (63,749 | ) | ||||||||
| Other, net of $3,550 income tax benefit, $342 income tax expense and $3,705 income tax benefit for the years ended December 31, 2018, 2017 and 2016, respectively | (5,070 | ) | 364 | (12,091 | ) | |||||||
| Total other comprehensive (loss) income | (166,927 | ) | 239,352 | (305,662 | ) | |||||||
| Comprehensive income | 899,021 | 942,928 | 279,508 | |||||||||
| Less: Comprehensive income attributable to non-controlling interests | 1,657 | 6,879 | 12,108 | |||||||||
| Comprehensive income attributable to CBRE Group, Inc. | $ | 897,364 | $ | 936,049 | $ | 267,400 |
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) | (As Adjusted) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | 1,065,948 | $ | 703,576 | $ | 585,170 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 451,988 | 406,114 | 366,927 | |||||||||
| Amortization and write-off of financing costs on extinguished debt | 35,175 | 10,783 | 10,935 | |||||||||
| Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets | (229,376 | ) | (200,386 | ) | (201,362 | ) | ||||||
| Gain associated with remeasuring our investment in a previously unconsolidated subsidiary to fair value as of the date we acquired the remaining interest | (100,420 | ) | — | — | ||||||||
| Gains on disposition of real estate held for investment | (3,197 | ) | — | (9,901 | ) | |||||||
| Net realized and unrealized losses (gains) from investments | 7,400 | (9,405 | ) | (4,688 | ) | |||||||
| Equity income from unconsolidated subsidiaries | (324,664 | ) | (210,207 | ) | (197,351 | ) | ||||||
| Provision for doubtful accounts | 19,760 | 8,044 | 4,711 | |||||||||
| Deferred income taxes | (11,401 | ) | (7,161 | ) | (9,403 | ) | ||||||
| Compensation expense for equity awards | 128,171 | 93,087 | 63,484 | |||||||||
| Proceeds from sale of mortgage loans | 20,230,676 | 18,052,756 | 15,833,633 | |||||||||
| Origination of mortgage loans | (20,591,602 | ) | (17,655,104 | ) | (15,297,471 | ) | ||||||
| Increase (decrease) in warehouse lines of credit | 417,995 | (343,887 | ) | (496,128 | ) | |||||||
| Distribution of earnings from unconsolidated subsidiaries | 336,925 | 211,855 | 195,702 | |||||||||
| Tenant concessions received | 38,400 | 19,337 | 22,547 | |||||||||
| Purchase of equity securities | (99,789 | ) | (110,570 | ) | (87,765 | ) | ||||||
| Proceeds from sale of equity securities | 75,120 | 68,547 | 105,866 | |||||||||
| Proceeds from securities sold, not yet purchased | 12,721 | 13,320 | 17,932 | |||||||||
| Securities purchased to cover short sales | (12,530 | ) | (13,840 | ) | (19,017 | ) | ||||||
| Increase in receivables, prepaid expenses and other assets (including contract assets) | (777,630 | ) | (540,117 | ) | (336,342 | ) | ||||||
| Increase in accounts payable and accrued expenses and other liabilities (including contract liabilities) | 273,782 | 159,145 | 15,382 | |||||||||
| Increase in compensation and employee benefits payable and accrued bonus and profit sharing | 270,371 | 148,714 | 123,653 | |||||||||
| (Increase) decrease in net income taxes receivable/payable | (47,074 | ) | 108,151 | (6,334 | ) | |||||||
| Other operating activities, net | (35,500 | ) | (18,341 | ) | (63,195 | ) | ||||||
| Net cash provided by operating activities | 1,131,249 | 894,411 | 616,985 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Capital expenditures | (227,803 | ) | (178,042 | ) | (191,205 | ) | ||||||
| Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired | (322,573 | ) | (118,427 | ) | (21,077 | ) | ||||||
| Contributions to unconsolidated subsidiaries | (62,802 | ) | (68,700 | ) | (66,816 | ) | ||||||
| Distributions from unconsolidated subsidiaries | 61,709 | 63,664 | 46,775 | |||||||||
| Net proceeds from disposition of real estate held for investment | 14,174 | — | 44,326 | |||||||||
| Purchase of equity securities | (21,402 | ) | (15,584 | ) | (15,506 | ) | ||||||
| Proceeds from sale of equity securities | 16,314 | 15,587 | 16,954 | |||||||||
| Purchase of available for sale debt securities | (23,360 | ) | (19,280 | ) | (22,155 | ) | ||||||
| Proceeds from the sale of available for sale debt securities | 5,792 | 15,790 | 18,097 | |||||||||
| Other investing activities, net | (733 | ) | 2,392 | 40,083 | ||||||||
| Net cash used in investing activities | (560,684 | ) | (302,600 | ) | (150,524 | ) |
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) | (As Adjusted) | |||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from senior term loans | 1,002,745 | 200,000 | — | |||||||||
| Repayment of senior term loans | (450,000 | ) | (751,876 | ) | (136,250 | ) | ||||||
| Proceeds from revolving credit facility | 3,258,000 | 1,521,000 | 2,909,000 | |||||||||
| Repayment of revolving credit facility | (3,258,000 | ) | (1,521,000 | ) | (2,909,000 | ) | ||||||
| Repayment of 5.00% senior notes (including premium) | (820,000 | ) | — | — | ||||||||
| Proceeds from notes payable on real estate | 7,599 | 4,333 | 25,001 | |||||||||
| Repayment of notes payable on real estate | (19,058 | ) | (12,556 | ) | (38,046 | ) | ||||||
| Repayment of debt assumed in acquisition of FacilitySource | (26,295 | ) | — | — | ||||||||
| Repurchase of common stock | (161,034 | ) | — | — | ||||||||
| Acquisition of businesses (cash paid for acquisitions more than three months after purchase date) | (18,660 | ) | (24,006 | ) | (21,034 | ) | ||||||
| Units repurchased for payment of taxes on equity awards | (29,386 | ) | (29,549 | ) | (27,426 | ) | ||||||
| Non-controlling interest contributions | 25,355 | 5,301 | 2,272 | |||||||||
| Non-controlling interest distributions | (13,413 | ) | (8,715 | ) | (19,133 | ) | ||||||
| Payment of financing costs | (2,088 | ) | (7,999 | ) | (5,618 | ) | ||||||
| Other financing activities, net | (2,365 | ) | (2,675 | ) | (443 | ) | ||||||
| Net cash used in financing activities | (506,600 | ) | (627,742 | ) | (220,677 | ) | ||||||
| Effect of currency exchange rate changes on cash and cash equivalents and restricted cash | (24,840 | ) | 29,338 | (27,539 | ) | |||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 39,125 | (6,593 | ) | 218,245 | ||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD | 824,819 | 831,412 | 613,167 | |||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD | $ | 863,944 | $ | 824,819 | $ | 831,412 | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||
| Cash paid during the period for: | ||||||||||||
| Interest | $ | 104,165 | $ | 117,164 | $ | 125,800 | ||||||
| Income taxes, net | $ | 375,849 | $ | 356,997 | $ | 294,848 |
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 | ||||||||||||||||||||||||||||||||
| Shares | Class A common stock | Additional paid-in capital | Accumulated earnings | Minimum pension liability | Foreign currency translation and other | Non- controlling interests | Total | |||||||||||||||||||||||||
| 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 | |||||||||||||||
| Adoption of new revenue recognition guidance, net of tax (see Note 3) | — | — | — | 87,885 | — | — | — | 87,885 | ||||||||||||||||||||||||
| Net income (As Adjusted) | — | — | — | 573,079 | — | — | 12,091 | 585,170 | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||
| Unrealized losses on interest rate swaps, net of tax | — | — | — | — | — | (1,431 | ) | — | (1,431 | ) | ||||||||||||||||||||||
| Unrealized holding gains on available for sale debt securities, net of tax | — | — | — | — | — | 384 | — | 384 | ||||||||||||||||||||||||
| Foreign currency translation (loss) gain (As Adjusted) | — | — | — | — | — | (235,631 | ) | 17 | (235,614 | ) | ||||||||||||||||||||||
| 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 (As Adjusted) | 337,279,449 | 3,373 | 1,145,226 | 2,745,897 | (165,670 | ) | (625,684 | ) | 42,758 | 3,145,900 | ||||||||||||||||||||||
| Net income (As Adjusted) | — | — | — | 697,109 | — | — | 6,467 | 703,576 | ||||||||||||||||||||||||
| 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 |
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 | ||||||||||||||||||||||||||||||||
| Shares | Class A common stock | Additional paid-in capital | Accumulated earnings | Minimum pension liability | Foreign currency translation and other | Non- controlling interests | Total | |||||||||||||||||||||||||
| Unrealized gains on interest rate swaps, net of tax | — | — | — | — | — | 585 | — | 585 | ||||||||||||||||||||||||
| Unrealized holding gains on available for sale debt securities, net of tax | — | — | — | — | — | 2,737 | — | 2,737 | ||||||||||||||||||||||||
| Foreign currency translation gain (As Adjusted) | — | — | — | — | — | 217,589 | 412 | 218,001 | ||||||||||||||||||||||||
| 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 | 1 | — | 364 | 1,224 | 1,662 | ||||||||||||||||||||||||
| Balance at December 31, 2017 (As Adjusted) | 339,459,138 | 3,395 | 1,220,508 | 3,443,007 | (152,969 | ) | (399,445 | ) | 60,118 | 4,174,614 | ||||||||||||||||||||||
| Net income | — | — | — | 1,063,219 | — | — | 2,729 | 1,065,948 | ||||||||||||||||||||||||
| Adoption of Accounting Standards Update 2016-01, net of tax (see Note 3) | — | — | — | 3,964 | — | (3,964 | ) | — | — | |||||||||||||||||||||||
| Pension liability adjustments, net of tax | — | — | — | — | 1,315 | — | — | 1,315 | ||||||||||||||||||||||||
| Restricted stock awards vesting | 1,424,462 | 14 | (14 | ) | — | — | — | — | — | |||||||||||||||||||||||
| Compensation expense for equity awards | — | — | 128,171 | — | — | — | — | 128,171 | ||||||||||||||||||||||||
| Reclassification of stock incentive plan award from an equity award to a liability award | — | — | (9,074 | ) | — | — | — | — | (9,074 | ) | ||||||||||||||||||||||
| Units repurchased for payment of taxes on equity awards | — | — | (29,386 | ) | — | — | — | — | (29,386 | ) | ||||||||||||||||||||||
| Repurchase of common stock | (3,980,656 | ) | (40 | ) | (160,994 | ) | — | — | — | — | (161,034 | ) | ||||||||||||||||||||
| Foreign currency translation loss | — | — | — | — | — | (160,312 | ) | (1,072 | ) | (161,384 | ) | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | — | — | — | — | 2,439 | — | 2,439 | ||||||||||||||||||||||||
| Unrealized gains on interest rate swaps, net of tax | — | — | — | — | — | 708 | — | 708 | ||||||||||||||||||||||||
| Unrealized holding losses on available for sale debt securities, net of tax | — | — | — | — | — | (971 | ) | — | (971 | ) | ||||||||||||||||||||||
| Contributions from non-controlling interests | — | — | — | — | — | — | 25,355 | 25,355 | ||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | — | — | (13,413 | ) | (13,413 | ) | ||||||||||||||||||||||
| Other | 9,839 | — | (198 | ) | (5,506 | ) | 3,747 | (8,817 | ) | (2,612 | ) | (13,386 | ) | |||||||||||||||||||
| Balance at December 31, 2018 | 336,912,783 | $ | 3,369 | $ | 1,149,013 | $ | 4,504,684 | $ | (147,907 | ) | $ | (570,362 | ) | $ | 71,105 | $ | 5,009,902 |
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 2018 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 and investors in real estate. For occupiers, we provide facilities management, project management, transaction (both property sales and 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, 2018, we operated in more than 480 offices worldwide with over 90,000 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 6).
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.
Marketable Securities
We account for investments in marketable debt securities in accordance with the “Investments – Debt and Equity Securities” Topic of the FASB ASC (Topic 320). Debt securities are classified as held to maturity when we have the positive intent and ability to hold the securities to maturity. Marketable debt securities not classified as held to maturity are classified as available for sale. Available for sale debt securities are carried at their fair value and any difference between cost and fair value is recorded as an 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 debt 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.
As described in the “New Accounting Pronouncements” footnote 3, we adopted ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” effective January 1, 2018. As a result, all equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income.
Impairment Evaluation
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. Based on our review, we did not record any significant other-than-temporary impairment losses during the years ending December 31, 2018, 2017 and 2016.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2018 and 2017 is cash and cash equivalents of $155.2 million and $123.8 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 Fiduciary Funds discussion below).
Restricted Cash
Included in the accompanying consolidated balance sheets as of December 31, 2018 and 2017 is restricted cash of $86.7 million and $73.0 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.
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 $5.9 billion and $4.0 billion at December 31, 2018 and 2017, respectively.
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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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), our acquisition of Johnson Controls, Inc. (JCI)’s Global Workplace Solutions (JCI-GWS) business in 2015 and our acquisition of FacilitySource Holdings, LLC (FacilitySource) in 2018. 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, trade names and management contracts, which are all being amortized over estimated useful lives ranging up to 20 years.
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, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.” ASC paragraphs 350-20-35-3 through 35-3B permit, but do not require an entity to perform a qualitative assessment with respect to any of its reporting units to determine whether a quantitative impairment test is needed. Entities are permitted to assess based on qualitative factors whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the quantitative goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity conducts the quantitative goodwill impairment test. If not, the entity does not need to apply the quantitative test. The qualitative test is elective and an entity can go directly to the quantitative test rather than making a more-likely-than-not assessment based on an evaluation of qualitative factors. When performing a quantitative test, 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.
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 $18.3 million and $23.0 million as of December 31, 2018 and 2017, respectively.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During 2018, we redeemed in full our $800.0 million aggregate outstanding principal amount of 5.00% senior notes. In connection with this early redemption, we incurred costs, including a $20.0 million premium paid and the write-off of $8.0 million of unamortized deferred financing costs, both of which were included in write-off of financing costs on extinguished debt in the accompanying consolidated statements of operations.
During 2017, we entered into a new credit agreement providing for a $750.0 million 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.
See Note 11 for additional information on activities associated with our debt.
Revenue Recognition
We account for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers.” Topic 606 also includes Subtopic 340-40, “Other Assets and Deferred Costs – Contracts with Customers,” which requires deferral of incremental costs to obtain and fulfill a contract with a customer. We adopted new revenue recognition guidance on January 1, 2018, using the full retrospective method (see Note 3). Revenue is recognized when or as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
The following is a description of principal activities – separated by reportable segments – from which we generate revenue. For more detailed information about our reportable segments, see Notes 17 and 18.
The Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific
The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the U.S., in the largest regions of Canada and in key markets in Latin America. The primary services offered consist of the following: property leasing, property sales, mortgage services, appraisal and valuation, occupier outsourcing and property management 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.
Property Leasing and Property Sales
We provide strategic advice and execution for owners, investors, and occupiers of real estate in connection with the leasing of office, industrial and retail space. We also offer clients fully integrated property sales services under the CBRE Capital Markets brand. We are compensated for our services in the form of a commission and, in some instances may earn various forms of variable incentive consideration. Our commission is paid upon the occurrence of certain contractual event(s) which may be contingent. For example, a portion of our leasing commission may be paid upon signing of the lease by the tenant, with the remaining paid upon occurrence of another future contingent event (e.g. payment of first month’s rent or tenant move-in). For leases, we typically satisfy our performance obligation at a point in time when control is transferred; generally, at the time of the first contractual event where there is a present right to payment. We look to history, experience with a customer, and deal specific considerations as part of the most likely outcome estimation approach to support our judgement that the second contingency (if applicable) will be met. Therefore, we typically accelerate the recognition of the revenue associated with the second contingent event. For sales, our commission is typically paid at the closing of the sale, which represents transfer of control for services to the customer.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In addition to our commission, we may recognize other forms of variable consideration which can include, but are not limited to, commissions subject to concession or claw back and volume based discounts or rebates. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We recognize variable consideration if it is deemed probable that there will not be significant reversal in the future.
Mortgage Originations and Loan Sales
We offer clients commercial mortgage and structured financing services. Fees from services within our mortgage brokerage business that are in the scope of Topic 606 include fees earned for the brokering of commercial mortgage loans primarily through relationships established with investment banking firms, national and regional banks, credit companies, insurance companies and pension funds. We are compensated for our brokerage services via a fee paid upon successful placement of a commercial mortgage borrower with a lender who will provide financing. The fee earned is contingent upon the funding of the loan, which represents the transfer of control for services to the customer. Therefore, we typically satisfy our performance obligation at the point in time of the funding of the loan.
We also earn fees from the origination and sale of commercial mortgage loans for which the company retains the servicing rights. These fees are governed by the “Fair Value Measurements and Disclosures” topic (Topic 820) and “Transfers and Servicing” topic (Topic 860) of the FASB ASC. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights (MSR) to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Upon sale, we record a servicing asset or liability based on the fair value of the retained MSR associated with the transferred loan. 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 the servicing income is expected to be received.
Valuation Services
We provide valuation services that include market-value appraisals, litigation support, discounted cash flow analyses, feasibility studies as well as consulting services such as property condition reports, hotel advisory and environmental consulting. We are compensated for valuation services in the form of a fee, which is payable on the occurrence of certain events (e.g., a portion on the delivery of a draft report with the remaining on the delivery of the final report). For consulting services, we may be paid based on the occurrence of time or event-based milestones (such as the delivery of draft reports). We typically satisfy our performance obligation for valuation services as services are rendered over time.
Occupier Outsourcing Services
We provide a broad suite of services to occupiers of real estate, including facilities management, project management, transaction management and strategic consulting.
Facilities management involves the day-to-day management of client-occupied space and includes headquarter buildings, regional offices, administrative offices, data centers and other critical facilities, manufacturing and laboratory facilities, distribution facilities and retail space. Contracts for facilities management services are often structured so we are reimbursed for client-dedicated personnel costs and subcontracted vendor costs as well as associated overhead expenses plus a monthly fee, and, in some cases, annual incentives tied to agreed-upon performance targets, with any penalties typically capped. In addition, we have contracts for facilities management services based on fixed fees or guaranteed maximum prices. Fixed fee contracts are typically structured where an agreed upon scope of work is delivered for a fixed price while guaranteed maximum price contracts are structured with an agreed upon scope of work that will be provided to the client for a not to exceed price. Facilities management services represent a series of distinct daily services rendered over time. Consistent with the transfer of control for distinct, daily services to the customer, revenue is typically recognized at the end of each period for the fees associated with the services performed.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Project management services are often provided on a portfolio wide or programmatic basis. Revenues from project management services generally includes fixed management fees, variable fees, and incentive fees if certain agreed-upon performance targets are met. Revenues from project management may also include reimbursement of payroll and related costs for personnel providing the services and subcontracted vendor costs. Project management services represent a series of distinct daily services rendered over time. Consistent with the transfer of control for distinct, daily services to the customer, revenue is typically recognized at the end of each period for the fees associated with the services performed.
The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. The amount of revenue recognized related to the majority of facilities management contracts and certain project management arrangements is presented gross (with offsetting expense recorded in cost of services) for reimbursements of costs of third-party services because we control those services that are delivered to the client. In the instances when we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements.
In addition to our management fee, we receive various types of variable consideration which can include, but is not limited to; key performance indicator bonuses or penalties which may be linked to subcontractor performance, gross maximum price, glidepaths, savings guarantees, shared savings, or fixed fee structures. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Using management assessment, historical results and statistics, we recognize revenue if it is deemed probable there will not be significant reversal in the future.
Property Management Services
We provide property management services on a contractual basis for owners of and investors in office, industrial and retail properties. These services include construction management, marketing, building engineering, accounting and financial services. We are compensated for our services through a monthly management fee earned based on either a specified percentage of the monthly rental income, rental receipts generated from the property under management or a fixed fee. We are also often reimbursed for our administrative and payroll costs directly attributable to the properties under management. Property management services represent a series of distinct daily services rendered over time. Consistent with the transfer of control for distinct, daily services to the customer, revenue is recognized at the end of each period for the fees associated with the services performed. The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. We generally do not control third-party services delivered to property management clients. As such, we report revenues net of third-party reimbursements.
Global Investment Management
Our Global Investment Management business segment provides investment management services to pension funds, insurance companies, sovereign wealth funds, foundations, endowments and other institutional investors seeking to generate returns and diversification through investment in real estate. We sponsor investment programs that span the risk/return spectrum in: North America, Europe, Asia and Australia. We are typically compensated in the form of a base management fee, disposition fees, acquisition fees and incentive fees in the form of performance fees or carried interest based on fund type (open or closed ended, respectively). For the base management fee, we typically satisfy the performance obligation as service is rendered over time pursuant to the series guidance. Consistent with the transfer of control for distinct, daily services to the customer, revenue is recognized at the end of each period for the fees associated with the services performed. For acquisition and disposition services, we typically satisfy the performance obligation at a point in time (at acquisition or upon disposition). For contracts with contingent fees, including performance fees, incentive fees and carried interest, we assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Revenue associated with performance fees and carried interest are typically constrained due to volatility in the real estate market, a broad range of possible outcomes, and other factors in the market that are outside of our control.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Development Services
Our Development Services business segment consists of real estate development and investment activities in the United States to users of and investors in commercial real estate, as well as for our own account. We pursue opportunistic, risk-mitigated development and investment in commercial real estate across a wide spectrum of property types, including: industrial, office and retail properties; healthcare facilities of all types (medical office buildings, hospitals and ambulatory surgery centers); and residential/mixed-use projects. We pursue development and investment activity on behalf of our clients on a fee basis with no, or limited, ownership interest in a property, in partnership with our clients through co-investment – either on an individual project basis or through programs with certain strategic capital partners or for our own account with 100% ownership. Development services represent a series of distinct daily services rendered over time. Consistent with the transfer of control for distinct, daily services to the customer, revenue is recognized at the end of each period for the fees associated with the services performed. Fees are typically payable monthly over the service term or upon contractual defined events, like project milestones. In addition to development fee revenue, we receive various types of variable consideration which can include, but is not limited to, contingent lease-up bonuses, cost saving incentives, profit sharing on sales and at-risk fees. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We accelerate revenue if it is deemed probable there will not be significant reversal in the future.
Accounts Receivable and Allowance for Doubtful Accounts
We record accounts receivable for our unconditional rights to consideration arising from our performance under contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate our allowance for doubtful accounts for specific accounts receivable balances based on historical collection trends, the age of outstanding accounts receivables and existing economic conditions associated with the receivables. Past-due accounts receivable balances are written off when our internal collection efforts have been unsuccessful. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised service to a customer and when the customer pays for that service will be one year or less. We do not typically include extended payment terms in our contracts with customers.
Remaining Performance Obligations
Remaining performance obligations represent the aggregate transaction prices for contracts where our performance obligations have not yet been satisfied. As of December 31, 2018, the aggregate amount of transaction price allocated to remaining performance obligations in our property leasing business was not significant. We apply the practical expedient related to remaining performance obligations that are part of a contract that has an original expected duration of one year or less and the practical expedient related to variable consideration from remaining performance obligations pursuant to the series guidance. All of our remaining performance obligations apply to one of these practical expedients.
Contract Assets and Contract Liabilities
Contract assets represent assets for revenue that has been recognized in advance of billing the customer and for which the right to bill is contingent upon something other than the passage of time. This is common for contingent portions of commissions in brokerage and incentive fees present in various businesses. Billing requirements vary by contract but are generally structured around fixed monthly fees, reimbursement of employee and other third-party costs, and the achievement or completion of certain contingent events.
When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of the services contract, we record deferred revenue, which represents a contract liability. We recognize the contract liability as revenue once we have transferred control of service to the customer and all revenue recognition criteria are met.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Contract assets and contract liabilities are determined for each contract on a net basis. For contract assets, we classify the short-term portion as a separate line item within current assets and the long-term portion within other assets, long-term in the accompanying consolidated balance sheets. For contract liabilities, we classify the short-term portion as a separate line item within current liabilities and the long-term portion within other liabilities, long-term in the accompanying consolidated balance sheets.
Contract Costs
Contract costs primarily consist of upfront costs incurred to obtain or to fulfill a contract. These costs are typically found within our Occupier Outsourcing business line. Such costs relate to transition costs to fulfill contracts prior to services being rendered and are included within other intangible assets in the accompanying consolidated balance sheets. Capitalized transition costs are amortized based on the transfer of services to which the assets relate which can vary on a contract by contract basis, and are included in cost of services in the accompanying consolidated statement of operations. For contract costs that are recognized as assets, we periodically review for impairment.
Applying the contract cost practical expedient, we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.
Business Promotion and Advertising Costs
The costs of business promotion and advertising are expensed as incurred. Business promotion and advertising costs of $74.8 million, $63.1 million and $65.8 million were included in operating, administrative and other expenses for the years ended December 31, 2018, 2017 and 2016, 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.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive (loss) income. In the accompanying consolidated balance sheets, accumulated other comprehensive loss primarily consists of foreign currency translation adjustments, fees associated with the termination of interest rate swaps, unrealized gains (losses) on interest rate swaps, unrealized holding (losses) gains on available for sale debt 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).
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, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS). Under these arrangements, before loans are originated through
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2018 and 2017, 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.
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, 2018 and 2017 was as follows (dollars in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Beginning balance, mortgage servicing rights | $ | 373,131 | $ | 320,524 | ||||
| Mortgage servicing rights recognized | 173,737 | 145,103 | ||||||
| Mortgage servicing rights sold | — | (71 | ) | |||||
| Amortization expense | (115,743 | ) | (98,559 | ) | ||||
| Other | (6,655 | ) | 6,134 | |||||
| Ending balance, mortgage servicing rights | $ | 424,470 | $ | 373,131 |
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, 2018, 2017 and 2016 in measuring fair value were as follows:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Discount rate | 10.00 | % | 10.06 | % | 10.16 | % | ||||||
| Conditional prepayment rate | 8.89 | % | 8.88 | % | 9.66 | % |
The estimated fair value of our MSRs was $554.2 million and $446.3 million as of December 31, 2018 and 2017, 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, 2018, 2017 or 2016. No valuation allowance was created previously and we did not record a valuation allowance for MSRs in 2018 or 2017.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Included in revenue in the accompanying consolidated statements of operations are contractually specified servicing fees from loans serviced for others of $167.5 million, $144.2 million and $115.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, and prepayment fees/late fees/ancillary income earned from loans serviced for others of $15.9 million, $13.2 million and $7.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
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, 2018 and 2017, our reserves for claims under these insurance programs were $113.0 million and $93.7 million, respectively, of which $2.7 million and $2.8 million, respectively, represented our estimated current liabilities.
Reclassifications
Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation in connection with our adoption of new revenue recognition guidance (as further described in note 3). In addition, certain reclassifications have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. Such reclassifications primarily relate to the adoption of ASU 2016‑01, ASU 2016-15 and ASU 2016-18 as further described in Note 3.
| 3. | New Accounting Pronouncements |
|---|
Recently Adopted Accounting Pronouncements
The FASB previously issued five ASUs related to revenue recognition (“new revenue recognition guidance”). The ASUs issued were: (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.” As mentioned in Note 2, we adopted the new revenue recognition guidance in the first quarter of 2018 using the full retrospective transition method. This resulted in a cumulative adjustment of $94.6 million to the accumulated earnings balance reflected in the accompanying consolidated balance sheets at December 31, 2017, including an $87.9 million impact of adoption effective January 1, 2016 as well as the impact from restatements of full year statements of operations for the years ended December 31, 2017 and 2016 resulting in adjustments of $5.6 million and $1.1 million, respectively. The impact of the application of the new revenue recognition guidance resulted in an acceleration of revenues that were based, in part, on future contingent events. For example, some leasing commission revenues in various countries where we operate were recognized earlier. Under former GAAP, a portion of these lease commission revenues was deferred until a future contingency was resolved (e.g., tenant move-in or payment of first month’s rent). Under the new revenue guidance, our performance obligation will be typically satisfied at lease signing and therefore the portion of the commission that is contingent on a future event has been recognized earlier if deemed probable that there will not be significant reversal in the future. The acceleration of the timing of revenue recognition also resulted in the acceleration of expense recognition relating to direct commissions payable to brokers. In addition, the acceleration of these revenues and expenses resulted in an increase in total assets and liabilities to reflect contract assets and accrued commissions payable.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We evaluated the impact of the updated principal versus agent guidance on our consolidated financial statements. Under former GAAP, certain third-party costs associated with our facilities and project management contracts were 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 new revenue recognition guidance, control of the services before transfer to the client is the primary factor in determining principal versus agent assessments. Payment risk is no longer a determining factor under Topic 606. We have determined that we control the services provided by third parties on behalf of certain of our facilities and project management clients. Accordingly, under the new guidance, we are accounting for the cost of services provided by third parties and the related reimbursement revenue on a gross basis.
The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated balance sheet as of December 31, 2017 (dollars in thousands):
| As Reported | Adoption of New Revenue Recognition Guidance | As Adjusted | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Receivables | $ | 3,207,285 | $ | (94,996 | ) | $ | 3,112,289 | |||||
| Contract assets | — | 273,053 | 273,053 | |||||||||
| Total current assets | 5,452,527 | 178,057 | 5,630,584 | |||||||||
| Other assets, net | 422,965 | 56,509 | 479,474 | |||||||||
| Total assets | 11,483,830 | 234,566 | 11,718,396 | |||||||||
| Accounts payable and accrued expenses | 1,674,287 | (100,615 | ) | 1,573,672 | ||||||||
| Accrued bonus and profit sharing | 1,072,976 | 5,369 | 1,078,345 | |||||||||
| Compensation and employee benefits payable | 803,504 | 100,930 | 904,434 | |||||||||
| Contract liabilities | — | 100,615 | 100,615 | |||||||||
| Total current liabilities | 4,606,645 | 106,299 | 4,712,944 | |||||||||
| Deferred tax liabilities, net | 114,017 | 33,201 | 147,218 | |||||||||
| Total liabilities | 7,404,282 | 139,500 | 7,543,782 | |||||||||
| Accumulated earnings | 3,348,385 | 94,622 | 3,443,007 | |||||||||
| Accumulated other comprehensive loss | (552,858 | ) | 444 | (552,414 | ) | |||||||
| Total CBRE Group, Inc. stockholders' equity | 4,019,430 | 95,066 | 4,114,496 | |||||||||
| Total liabilities and equity | 11,483,830 | 234,566 | 11,718,396 |
The following tables present the effects of the adoption of the new revenue recognition guidance on our consolidated statements of operations for the years ended December 31, 2017 and 2016 (dollars in thousands, except share amounts):
| Year Ended December 31, 2017 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | Adoption of New Revenue Recognition Guidance | As Adjusted | ||||||||||
| Revenue | $ | 14,209,608 | $ | 4,419,179 | $ | 18,628,787 | ||||||
| Cost of services | 9,893,226 | 4,411,873 | 14,305,099 | |||||||||
| Operating, administrative and other | 2,858,654 | 66 | 2,858,720 | |||||||||
| Operating income | 1,071,442 | 7,240 | 1,078,682 | |||||||||
| Income before provision for income taxes | 1,164,093 | 7,240 | 1,171,333 | |||||||||
| Provision for income taxes | 466,147 | 1,610 | 467,757 | |||||||||
| Net income | 697,946 | 5,630 | 703,576 | |||||||||
| Net income attributable to CBRE Group, Inc. | 691,479 | 5,630 | 697,109 | |||||||||
| Earnings per share: | ||||||||||||
| Basic income per share | $ | 2.05 | $ | 0.01 | $ | 2.06 | ||||||
| Diluted income per share | 2.03 | 0.02 | 2.05 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year Ended December 31, 2016 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | Adoption of New Revenue Recognition Guidance | As Adjusted | ||||||||||
| Revenue | $ | 13,071,589 | $ | 4,297,519 | $ | 17,369,108 | ||||||
| Cost of services | 9,123,727 | 4,297,184 | 13,420,911 | |||||||||
| Operating, administrative and other | 2,781,310 | (1,009 | ) | 2,780,301 | ||||||||
| Operating income | 815,487 | 1,344 | 816,831 | |||||||||
| Income before provision for income taxes | 880,726 | 1,344 | 882,070 | |||||||||
| Provision for income taxes | 296,662 | 238 | 296,900 | |||||||||
| Net income | 584,064 | 1,106 | 585,170 | |||||||||
| Net income attributable to CBRE Group, Inc. | 571,973 | 1,106 | 573,079 | |||||||||
| Earnings per share: | ||||||||||||
| Basic income per share | $ | 1.71 | $ | — | $ | 1.71 | ||||||
| Diluted income per share | 1.69 | — | 1.69 |
See Note 2 for further discussion of the effects of the adoption of the new revenue recognition guidance on our significant accounting policies.
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 2016-01 states that entities will have to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. Under the new guidance, entities will measure equity investments in the scope of the guidance at the end of each reporting period. We will no longer be able to classify equity investments as trading or available for sale, and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available for sale in other comprehensive income (loss). However, the guidance for classifying and measuring investments in debt securities and loans is unchanged. We adopted ASU 2016‑01 in the first quarter of 2018, which resulted in a cumulative adjustment to accumulated earnings of $4.0 million on January 1, 2018, representing the accumulated unrealized gains (net of tax) reported in accumulated other comprehensive loss for available for sale equity securities on December 31, 2017.
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 addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016‑15 in the first quarter of 2018. This resulted in changes to our consolidated statement of cash flows included in the accompanying consolidated financial statements, including:
| • | An accounting policy election was made in the first quarter of 2018 to classify distributions from all of our equity method investments based on the “nature of distribution method”. Under this approach, we classify the distributions based on the nature of the activities of the investee that generated the distribution. This resulted in $183.9 million and $166.7 million of distributions from equity method investments being reclassified from cash flows from investing activities to cash flows from operating activities for the years ended December 31, 2017 and 2016, respectively; |
|---|
| • | Purchase price payments made related to acquisitions more than three months after the acquisition closed are to be reflected as cash flows from financing activities (assuming they do not exceed the amount recorded in the initial measurement period). If we record an increase to the estimated purchase price liability post-measurement period, then such increase (i.e. amounts we pay out above and beyond initial estimate of liability) would get recorded as an operating cash flow. This resulted in $24.0 million and $21.0 million of cash paid for acquisitions being reclassified from cash used in investing activities to cash used in financing activities for the years ended December 31, 2017 and 2016, respectively; |
|---|
| • | Payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment are to be reflected as cash used in financing activities. During the year ended December 31, 2018, we paid a $20.0 million premium in connection with the early redemption of our 5.00% senior notes (see Note 11). Such premium has been reflected in cash used in financing activities in the consolidated statement of cash flows for the year ended December 31, 2018. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. We adopted ASU 2016-18 in the first quarter of 2018 and, as a result, restricted cash has been 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.
Recent Accounting Pronouncements Pending Adoption
The FASB previously issued four ASUs related to leases. The ASUs issued were: (1) in February 2016, ASU 2016-02, “Leases (Topic 842)”, (2) in July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, (3) in July 2018, ASU 2018-11, “Target Improvements” and (4) in December 2018, ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors.” ASU 2016-02 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. The amendments in ASU 2018-10 affect narrow aspects of the guidance issued in the amendments in ASU 2016-02. The amendments in ASU 2018-11 provide an optional method for adopting the new leasing guidance and provide lessors with a practical expedient to combine lease and associated non-lease components by class of underlying asset in contracts that meet certain criteria. The amendments in ASU 2018-20 provide an accounting policy election permitting lessors to treat certain sales and other similar taxes incurred as lessee costs, guidance on the treatment of certain lessor costs and guidance on recognizing variable payments for contracts with a lease and non-lease component. These ASUs are effective for annual periods in fiscal years beginning after December 15, 2018.
We plan to adopt these ASUs in the first quarter of 2019 by using the optional transitional method associated with a cumulative-effect adjustment to the opening balance of retained earnings. Therefore, comparative financial statements presented for prior periods will not be impacted by adoption. We will elect certain practical expedients, including the package of transition practical expedients and the practical expedient to forego separating lease and non-lease components in our lessee contracts. We will make an accounting policy election to exempt short-term leases of 12 months or less from balance sheet recognition requirements associated with the new standard; fixed rental payments for short-term leases will be recognized as a straight-line expense over the lease term.
We estimate that, as a result of the adoption of the leasing guidance, the consolidated balance sheet as of January 1, 2019 will reflect between $1.2 billion to $1.4 billion of additional lease liabilities. We expect to record corresponding right-of-use assets below this range, reflecting adjustments for items such as prepaid and deferred rent, unamortized initial direct costs, and unamortized lease incentive balances. We do not expect that the adoption of the leasing guidance will have a material impact on our consolidated statements of operations.
The FASB previously issued two ASUs related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and (2) in November 2018, ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” ASU 2016-13 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. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leasing standard. These ASUs are 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 and ASU 2018-19 will have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017‑04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU eliminates Step 2 from the goodwill impairment test. This ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2017‑04 will have on our goodwill assessment process, but do not believe the adoption of ASU 2017‑04 will have a material impact on our consolidated financial statements and related disclosures.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
The FASB previously issued two ASUs related to derivatives and hedging. The ASUs issued were: (1) in August 2017, ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” and (2) in October 2018, ASU 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.” ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. ASU 2018-16 adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. These ASUs are 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 and ASU 2018-16 will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.
In February 2018, the FASB issued ASU 2018‑02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We are evaluating the effect that ASU 2018‑02 will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.
In July 2018, the FASB issued ASU 2018‑09, “Codification Improvements.” The amendments in ASU 2018-09 represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. This ASU is effective for fiscal years beginning after December 15, 2018. We are evaluating the effect that ASU 2018‑09 will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.
In August 2018, the FASB issued ASU 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. As ASU 2018-13 only revises disclosure requirements, it will not have any impact on our consolidated financial statements. We are evaluating the effect, if any, that ASU 2018‑13 will have on our disclosures.
In August 2018, the FASB issued ASU 2018‑14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As ASU 2018-14 only revises disclosure requirements, it will not have any impact on our consolidated financial statements. We are evaluating the effect, if any, that ASU 2018‑14 will have on our disclosures.
In October 2018, the FASB issued ASU 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU amends the guidance for determining whether a decision-making fee is a variable interest and requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). 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 2018-17 will have on our consolidated financial statements and related disclosures.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In November 2018, the FASB issued ASU 2018‑18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.” This ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard and provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. 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 2018-18 will have on our consolidated financial statements and related disclosures.
| 4. | FacilitySource Acquisition |
|---|
On June 12, 2018, CBRE Jason Acquisition LLC (Merger Sub), our wholly-owned subsidiary, and FacilitySource Holdings, LLC (FacilitySource), WP X Finance, LP and Warburg Pincus X Partners, LP (collectively, the Stockholders) entered into a stock purchase agreement and plan of merger (the Merger Agreement). As part of the Merger Agreement, (i) we purchased from the Stockholders all the outstanding shares of capital stock of FS WP Holdco, Inc (Blocker Corp), which owned 1,686,013 Class A units (the Blocker Units) and (ii) immediately following the acquisition of Blocker Corp, Merger Sub merged with FacilitySource, with FacilitySource continuing as the surviving company and our wholly-owned subsidiary within our Americas segment (the FacilitySource Acquisition), with the remaining Blocker Units not held by Blocker Corp. canceled and converted into the right to receive cash consideration as set forth in the Merger Agreement. The estimated net initial purchase price was approximately $266.5 million, with $263.0 million paid in cash. We financed the transaction with cash on hand and borrowings under our revolving credit facility. We completed the FacilitySource Acquisition to help us (i) build a tech-enabled supply chain capability for the occupier outsourcing industry and (ii) drive meaningfully differentiated outcomes for leading occupiers of real estate.
The following represents a summary of the excess purchase price over the estimated fair value of net assets acquired (dollars in thousands):
| Estimated purchase price | $ | 266,465 | ||
|---|---|---|---|---|
| Add: Estimated fair value of net liabilities assumed (see table below) | 8,632 | |||
| Excess purchase price over estimated fair value of net assets acquired | $ | 275,097 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The preliminary purchase accounting related to the FacilitySource Acquisition has been recorded in the accompanying consolidated financial statements. The excess purchase price over the estimated fair value of net assets acquired has been recorded to goodwill. The goodwill arising from the FacilitySource Acquisition consists largely of the synergies and economies of scale expected from combining the operations acquired from FacilitySource with ours. We are currently assessing if any portion of the goodwill recorded in connection with the FacilitySource Acquisition will be deductible for tax purposes, but do not expect any tax deductible goodwill to be significant. Given the complexity of the transaction, the calculation of the fair value of certain assets and liabilities acquired, primarily income tax items, is still preliminary. The purchase price allocation is expected to be completed as soon as practicable, but no later than one year from the acquisition date. The following table summarizes the aggregate estimated fair values of the assets acquired and the liabilities assumed in the FacilitySource Acquisition (dollars in thousands):
| Assets Acquired: | ||||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 2,627 | ||
| Receivables, net | 37,902 | |||
| Prepaid expenses | 477 | |||
| Property and equipment | 41,680 | |||
| Other intangible assets | 48,200 | |||
| Other assets | 114 | |||
| Total assets acquired | 131,000 | |||
| Liabilities Assumed: | ||||
| Accounts payable and accrued expenses | 48,273 | |||
| Accrued bonus and profit sharing | 5,036 | |||
| Compensation and employee benefits payable | 1,472 | |||
| Line of credit and term loan | 26,295 | |||
| Deferred tax liabilities, net | 57,428 | |||
| Other liabilities | 1,128 | |||
| Total liabilities assumed | 139,632 | |||
| Estimated Fair Value of Net Liabilities Assumed | $ | (8,632 | ) |
The following is a summary of the preliminary estimate of the amortizable intangible assets and depreciable computer software acquired in connection with the FacilitySource Acquisition (dollars in thousands):
| As of December 31, 2018 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Class | Weighted Average Amortization/ Depreciation Period | Amount Assigned at Acquisition Date | Accumulated Amortization and Depreciation | Net Carrying Value | ||||||||||
| Intangibles | ||||||||||||||
| Trade name | 20 years | $ | 37,200 | $ | 1,007 | $ | 36,193 | |||||||
| Customer relationships | 6.67 years | 11,000 | 894 | 10,106 | ||||||||||
| Total amortizable intangible assets acquired | 16.96 years | $ | 48,200 | $ | 1,901 | $ | 46,299 | |||||||
| Property and Equipment | ||||||||||||||
| Computer software | 10 years | $ | 38,800 | $ | 2,102 | $ | 36,698 |
Upon close of the FacilitySource Acquisition, we immediately repaid the line of credit and term loan assumed from FacilitySource.
The accompanying consolidated statement of operations for the year ended December 31, 2018 includes revenue, an operating loss and a net loss of $121.6 million, ($3.9) million and ($2.9) million, respectively attributable to the FacilitySource Acquisition. This does not include direct transaction and integration costs of $6.7 million and depreciation and amortization expense of $4.0 million related to computer software and intangible assets acquired, all of which were incurred during the year ended December 31, 2018 in connection with the FacilitySource Acquisition.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Unaudited pro forma results, assuming the FacilitySource Acquisition had occurred as of January 1, 2016 for purposes of the pro forma disclosures for the years ended December 31, 2018, 2017 and 2016 are presented below. They include certain adjustments for increased depreciation and amortization expense related to acquired computer software and intangible assets as well as increased interest expense associated with borrowings under our revolving credit facility used to fund the acquisition, as follows (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Depreciation expense | $ | 1,253 | $ | 3,054 | $ | 3,298 | ||||||
| Amortization expense | 1,019 | 2,190 | 2,190 | |||||||||
| Interest expense | 2,748 | 6,098 | 6,098 |
Pro forma adjustments also include the removal of historical amortization of goodwill recorded by FacilitySource before we acquired them and $6.7 million of direct costs incurred by us during the year ended December 31, 2018 as well as the tax impact of all pro forma adjustments for all periods presented. These unaudited 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 FacilitySource Acquisition occurred on January 1, 2016 and may not be indicative of future operating results (dollars in thousands, except share data):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Revenue | $ | 21,437,014 | $ | 18,778,312 | $ | 17,472,602 | ||||||
| Operating income | 1,089,738 | 1,058,834 | 794,495 | |||||||||
| Net income attributable to CBRE Group, Inc. | 1,061,916 | 680,392 | 555,332 | |||||||||
| Basic income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 3.13 | $ | 2.02 | $ | 1.66 | ||||||
| Weighted average shares outstanding for basic income per share | 339,321,056 | 337,658,017 | 335,414,831 | |||||||||
| Diluted income per share: | ||||||||||||
| Net income per share attributable to CBRE Group, Inc. | $ | 3.09 | $ | 2.00 | $ | 1.64 | ||||||
| Weighted average shares outstanding for diluted income per share | 343,122,741 | 340,783,556 | 338,424,563 |
| 5. | Warehouse Receivables & Warehouse Lines of Credit |
|---|
A rollforward of our warehouse receivables is as follows (dollars in thousands):
| Beginning balance at December 31, 2017 | $ | 928,038 | ||
|---|---|---|---|---|
| Origination of mortgage loans | 20,591,602 | |||
| Gains (premiums on loan sales) | 56,000 | |||
| Proceeds from sale of mortgage loans: | ||||
| Sale of mortgage loans | (20,174,676 | ) | ||
| Cash collections of premiums on loan sales | (56,000 | ) | ||
| Proceeds from sale of mortgage loans | (20,230,676 | ) | ||
| Net decrease in mortgage servicing rights included in warehouse receivables | (2,496 | ) | ||
| Ending balance at December 31, 2018 | $ | 1,342,468 |
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, 2018 and 2017 (dollars in thousands):
| December 31, 2018 | December 31, 2017 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Lender | Current Maturity | Pricing | Maximum Facility Size | Carrying Value | Maximum Facility Size | Carrying Value | ||||||||||||||
| JP Morgan Chase Bank, N.A. (JP Morgan) | 10/21/2019 | daily one-month LIBOR plus 1.30% | $ | 985,000 | $ | 871,680 | $ | 1,000,000 | $ | 192,180 | ||||||||||
| JP Morgan | 10/21/2019 | daily one-month LIBOR plus 2.75% | 15,000 | — | 25,000 | 5,800 | ||||||||||||||
| Fannie Mae Multifamily As Soon As Pooled Plus Agreement and Multifamily As Soon As Pooled Sale Agreement (ASAP) Program | Cancelable anytime | daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35% | 450,000 | 149,089 | 450,000 | 205,827 | ||||||||||||||
| TD Bank, N.A. (TD Bank) (1) | 6/30/2019 | daily one-month LIBOR plus 1.20% | 400,000 | 165,945 | 800,000 | 225,416 | ||||||||||||||
| Bank of America, N.A. (BofA) (2) | 6/4/2019 | daily one-month LIBOR plus 1.30% | 425,000 | 21,852 | 337,500 | 130,443 | ||||||||||||||
| Capital One, N.A. (Capital One) (3) | 7/27/2019 | daily one-month LIBOR plus 1.35% | 325,000 | 120,195 | 387,500 | 151,100 | ||||||||||||||
| $ | 2,600,000 | $ | 1,328,761 | $ | 3,000,000 | $ | 910,766 |
| (1) | Line was temporarily increased from $400.0 million to $800.0 million to accommodate 2017 year-end volume. Maximum facility reverted to $400.0 million on February 1, 2018. |
|---|
| (2) | Line was temporarily increased from $225.0 million to $337.5 million to accommodate 2017 year-end volume. Maximum facility reverted back to $225.0 million on January 27, 2018. During 2018, an additional $200.0 million line of credit was added. |
|---|
| (3) | Line was temporarily increased from $200.0 million to $387.5 million to accommodate 2017 year-end volume. Maximum facility reverted back to $200.0 million on January 9, 2018. During 2018, the maximum facility size was increased to $325.0 million. |
|---|
During the year ended December 31, 2018, we had a maximum of $2.8 billion of warehouse lines of credit principal outstanding.
| 6. | 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, 2018 and 2017, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Investments in unconsolidated subsidiaries | $ | 23,266 | $ | 26,273 | ||||
| Other current assets | 3,827 | 3,401 | ||||||
| Co-investment commitments | 22,363 | 2,364 | ||||||
| Maximum exposure to loss | $ | 49,456 | $ | 32,038 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 7. | Fair Value Measurements |
|---|
The “Fair Value Measurements and Disclosures” topic (Topic 820) of the FASB ASC defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
-
Level 1 – Quoted prices in active markets for identical assets or liabilities.
-
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
-
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
There were no significant transfers in or out of Level 1 and Level 2 during the years ended December 31, 2018 and 2017.
The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017 (dollars in thousands):
| As of December 31, 2018 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value Measured and Recorded Using | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Available for sale securities: | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| U.S. treasury securities | $ | 3,138 | $ | — | $ | — | $ | 3,138 | ||||||||
| Debt securities issued by U.S. federal agencies | — | 11,196 | — | 11,196 | ||||||||||||
| Corporate debt securities | — | 27,201 | — | 27,201 | ||||||||||||
| Asset-backed securities | — | 5,017 | — | 5,017 | ||||||||||||
| Collateralized mortgage obligations | — | 2,224 | — | 2,224 | ||||||||||||
| Total available for sale debt securities | 3,138 | 45,638 | — | 48,776 | ||||||||||||
| Equity securities | 153,762 | — | — | 153,762 | ||||||||||||
| Warehouse receivables | — | 1,342,468 | — | 1,342,468 | ||||||||||||
| Total assets at fair value | $ | 156,900 | $ | 1,388,106 | $ | — | $ | 1,545,006 | ||||||||
| Liabilities | ||||||||||||||||
| Interest rate swaps | $ | — | $ | 1,070 | $ | — | $ | 1,070 | ||||||||
| Securities sold, not yet purchased | 3,133 | — | — | 3,133 | ||||||||||||
| Total liabilities at fair value | $ | 3,133 | $ | 1,070 | $ | — | $ | 4,203 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 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 available for sale debt securities | 3,820 | 30,867 | — | 34,687 | ||||||||||||
| Equity securities | 133,595 | — | — | 133,595 | ||||||||||||
| 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 |
During the year ended December 31, 2018, we recorded a gain of $100.4 million associated with remeasuring our 50% investment in a previously unconsolidated subsidiary in New England to fair value as of the date we acquired the remaining 50% controlling interest. Fair value of this investment in unconsolidated subsidiary at acquisition date was $110.1 million, based upon the purchase price paid for the remaining 50% interest acquired, excluding the estimated control premium paid, which falls under Level 3 of the fair value hierarchy. Such gain was reflected in other income in our Americas segment in the accompanying consolidated statements of operations for the year ended December 31, 2018.
There were no significant non-recurring fair value measurements recorded during the years ended December 31, 2017 and 2016.
The fair values of the warehouse receivables are primarily calculated based on already locked in security buy prices. At December 31, 2018 and 2017, 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 5). These assets are classified as Level 2 in the fair value hierarchy as a substantial majority of 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 debt 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 equity 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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. The primary source of value is either a contractual purchase commitment from Freddie Mac or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS (see Notes 2 and 5). |
|---|
| • | Available For Sale Debt Securities – These investments are carried at their fair value. |
|---|
| • | Equity Securities – These investments are carried at their fair value. |
|---|
| • | 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. |
|---|
| • | Securities Sold, not yet Purchased – These liabilities are carried at their fair value. |
|---|
| • | Short-Term Borrowings – 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 5 and 11). |
|---|
| • | 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 $757.0 million and $199.9 million at December 31, 2018 and 2017, respectively. Their actual carrying value, net of unamortized debt issuance costs, totaled $751.3 million and $193.5 million at December 31, 2018 and 2017, 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 11). |
|---|
| • | Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $616.4 million and $443.7 million, respectively, at December 31, 2018 and $645.7 million and $468.0 million, respectively, at December 31, 2017. The actual carrying value of our 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 $592.8 million and $422.7 million, respectively, at December 31, 2018 and $592.0 million and $422.4 million, respectively, at December 31, 2017. In March 2018, we redeemed our 5.00% senior notes in full (see Note 11). At December 31, 2017, the estimated fair value (based on dealers’ quotes) and actual carrying value (net of unamortized debt issuance costs) of our 5.00% senior notes was $823.8 million and $791.7 million, respectively. |
|---|
| • | Notes Payable on Real Estate – As of December 31, 2018 and 2017, the carrying value of our notes payable on real estate, net of unamortized debt issuance costs, was $6.3 million and $17.9 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. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 8. | Property and Equipment |
|---|
Property and equipment consists of the following (dollars in thousands):
| December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Useful Lives | 2018 | 2017 | ||||||||
| Computer hardware and software | 3-10 years | $ | 838,301 | $ | 670,059 | |||||
| Leasehold improvements | 1-15 years | 472,952 | 415,947 | |||||||
| Furniture and equipment | 1-10 years | 307,812 | 279,621 | |||||||
| Equipment under capital leases | 3-5 years | 10,654 | 10,803 | |||||||
| Total cost | 1,629,719 | 1,376,430 | ||||||||
| Accumulated depreciation and amortization | (908,027 | ) | (758,691 | ) | ||||||
| Property and equipment, net | $ | 721,692 | $ | 617,739 |
Depreciation and amortization expense associated with property and equipment was $192.8 million, $166.0 million and $151.2 million for the years ended December 31, 2018, 2017 and 2016, 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, 2018 and 2017 (dollars in thousands):
| Americas | EMEA | Asia Pacific | Global Investment Management | Development Services | Total | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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 | |||||||||||||||||||
| Purchase accounting entries related to acquisitions | 450,380 | 17,838 | 8,096 | (5,110 | ) | — | 471,204 | |||||||||||||||||
| Foreign exchange movement | (1,623 | ) | (51,753 | ) | (8,556 | ) | (11,703 | ) | — | (73,635 | ) | |||||||||||||
| Balance as of December 31, 2018: | ||||||||||||||||||||||||
| Goodwill | 2,857,333 | 1,122,543 | 165,648 | 488,628 | 86,663 | 4,720,815 | ||||||||||||||||||
| Accumulated impairment losses | (798,290 | ) | (138,631 | ) | — | (44,922 | ) | (86,663 | ) | (1,068,506 | ) | |||||||||||||
| $ | 2,059,043 | $ | 983,912 | $ | 165,648 | $ | 443,706 | $ | — | $ | 3,652,309 |
In the second quarter of 2018, we completed the FacilitySource Acquisition (see Note 4). Additionally, during 2018, we acquired a retail leasing and property management firm in Australia, two firms in Israel (our former affiliate and a majority interest in a local facilities management provider), a commercial real estate services provider in San Antonio, a provider of real estate and facilities consulting services to healthcare companies across the United States and the remaining 50% equity interest in our longstanding New England joint venture.
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.
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 2018, 2017 and 2016 assessments as of October 1. When we performed our required annual goodwill impairment review as of October 1, 2018, 2017 and 2016, 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 $1.2 billion as of December 31, 2018, and $1.4 billion, net of accumulated amortization of $1.0 billion, as of December 31, 2017 and are comprised of the following (dollars in thousands):
| December 31, | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
| Unamortizable intangible assets: | ||||||||||||||||
| Management contracts | $ | 86,585 | $ | 90,503 | ||||||||||||
| Trademarks | 56,800 | 56,800 | ||||||||||||||
| Trade names | 16,250 | 16,250 | ||||||||||||||
| 159,635 | 163,553 | |||||||||||||||
| Amortizable intangible assets: | ||||||||||||||||
| Customer relationships | 843,387 | $ | (435,225 | ) | 802,597 | $ | (355,642 | ) | ||||||||
| Mortgage servicing rights | 697,322 | (272,852 | ) | 608,757 | (235,626 | ) | ||||||||||
| Trademarks/Trade name | 312,699 | (76,514 | ) | 321,406 | (64,866 | ) | ||||||||||
| Management contracts | 200,251 | (135,835 | ) | 203,291 | (122,450 | ) | ||||||||||
| Covenant not to compete | 73,750 | (73,750 | ) | 73,750 | (57,358 | ) | ||||||||||
| Other | 334,657 | (186,217 | ) | 226,496 | (164,796 | ) | ||||||||||
| 2,462,066 | (1,180,393 | ) | 2,236,297 | (1,000,738 | ) | |||||||||||
| Total intangible assets | $ | 2,621,701 | $ | (1,180,393 | ) | $ | 2,399,850 | $ | (1,000,738 | ) |
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 acquired through acquisitions mainly in the brokerage, occupier outsourcing and property management lines of business that 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.
A covenant not to compete of approximately $74 million was separately identified in connection with the GWS Acquisition and was amortized over three years.
Other amortizable intangible assets mainly represent transition costs, which primarily get amortized to cost of services over the life of the associated contract.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amortization expense related to intangible assets was $258.7 million, $238.7 million and $211.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. The estimated annual amortization expense for each of the years ending December 31, 2019 through December 31, 2023 approximates $208.2 million, $182.2 million, $151.4 million, $134.1 million and $119.9 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 30.0% in our Development Services segment, and up to 50.0% in our other business segments.
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, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Global Investment Management | ||||||||
| Current assets | $ | 824,884 | $ | 1,304,249 | ||||
| Non-current assets | 16,296,613 | 15,369,496 | ||||||
| Total assets | $ | 17,121,497 | $ | 16,673,745 | ||||
| Current liabilities | $ | 409,014 | $ | 526,777 | ||||
| Non-current liabilities | 4,423,313 | 4,354,825 | ||||||
| Total liabilities | $ | 4,832,327 | $ | 4,881,602 | ||||
| Non-controlling interests | $ | 261,654 | $ | 83,579 | ||||
| Development Services | ||||||||
| Current assets | $ | 3,058,166 | $ | 2,995,449 | ||||
| Non-current assets | 99,728 | 102,508 | ||||||
| Total assets | $ | 3,157,894 | $ | 3,097,957 | ||||
| Current liabilities | $ | 1,478,461 | $ | 1,451,239 | ||||
| Non-current liabilities | 67,913 | 110,649 | ||||||
| Total liabilities | $ | 1,546,374 | $ | 1,561,888 | ||||
| Other | ||||||||
| Current assets | $ | 48,061 | $ | 86,171 | ||||
| Non-current assets | 182,564 | 76,577 | ||||||
| Total assets | $ | 230,625 | $ | 162,748 | ||||
| Current liabilities | $ | 32,480 | $ | 54,211 | ||||
| Non-current liabilities | 3,891 | 1,340 | ||||||
| Total liabilities | $ | 36,371 | $ | 55,551 | ||||
| Total | ||||||||
| Current assets | $ | 3,931,111 | $ | 4,385,869 | ||||
| Non-current assets | 16,578,905 | 15,548,581 | ||||||
| Total assets | $ | 20,510,016 | $ | 19,934,450 | ||||
| Current liabilities | $ | 1,919,955 | $ | 2,032,227 | ||||
| Non-current liabilities | 4,495,117 | 4,466,814 | ||||||
| Total liabilities | $ | 6,415,072 | $ | 6,499,041 | ||||
| Non-controlling interests | $ | 261,654 | $ | 83,579 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Operations Information:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Global Investment Management | ||||||||||||
| Revenue | $ | 1,199,641 | $ | 1,108,125 | $ | 1,184,573 | ||||||
| Operating income | 641,150 | 972,493 | 209,230 | |||||||||
| Net income | 463,560 | 833,189 | 122,560 | |||||||||
| Development Services | ||||||||||||
| Revenue | $ | 124,175 | $ | 104,816 | $ | 85,594 | ||||||
| Operating income | 254,191 | 427,407 | 292,141 | |||||||||
| Net income | 204,619 | 395,697 | 269,841 | |||||||||
| Other | ||||||||||||
| Revenue | $ | 200,869 | $ | 179,649 | $ | 156,035 | ||||||
| Operating income | 11,548 | 25,924 | 26,500 | |||||||||
| Net income | 11,533 | 25,459 | 26,350 | |||||||||
| Total | ||||||||||||
| Revenue | $ | 1,524,685 | $ | 1,392,590 | $ | 1,426,202 | ||||||
| Operating income | 906,889 | 1,425,824 | 527,871 | |||||||||
| Net income | 679,712 | 1,254,345 | 418,751 |
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 $134.3 million, $100.3 million and $86.8 million during the years ended December 31, 2018, 2017 and 2016, 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, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Long-Term Debt | ||||||||
| Senior term loans, with interest ranging from 0.75% to 3.38%, due through 2023 | $ | 758,452 | $ | 200,000 | ||||
| 4.875% senior notes due in 2026, net of unamortized discount | 596,653 | 596,273 | ||||||
| 5.25% senior notes due in 2025, net of unamortized premium | 426,134 | 426,317 | ||||||
| 5.00% senior notes, redeemed in March 2018 | — | 800,000 | ||||||
| Other | 3,682 | 8 | ||||||
| Total long-term debt | 1,784,921 | 2,022,598 | ||||||
| Less: current maturities of long-term debt | (3,146 | ) | (8 | ) | ||||
| Less: unamortized debt issuance costs | (14,515 | ) | (22,987 | ) | ||||
| Total long-term debt, net of current maturities | $ | 1,767,260 | $ | 1,999,603 | ||||
| Short-Term Borrowings | ||||||||
| Warehouse lines of credit, with interest ranging from 2.82% to 5.25%, due in 2019 | $ | 1,328,761 | $ | 910,766 | ||||
| Other | — | 16 | ||||||
| Total short-term borrowings | $ | 1,328,761 | $ | 910,782 |
Future annual aggregate maturities of total consolidated gross debt (excluding unamortized discount, premium and deferred financing costs) at December 31, 2018 are as follows (dollars in thousands): 2019—$1,331,907; 2020—$536; 2021—$0; 2022—$300,000; 2023—$458,452 and $1,025,000 thereafter.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-Term Debt
We maintain credit facilities with third-party lenders, which we use for a variety of purposes. On January 9, 2015, CBRE Services, our wholly-owned subsidiary, 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 Credit Suisse AG (CS). 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. On December 20, 2018, CBRE Global Acquisition Company, a wholly-owned subsidiary of CBRE Services, entered into an incremental term loan assumption agreement with a syndicate of banks jointly led by Wells Fargo Bank and National Westminster Bank plc to establish a new euro term loan facility under the 2017 Credit Agreement in an aggregate principal amount of 400.0 million euros. The proceeds of the new euro term loan facility were used to repay a portion of the U.S. dollar denominated term loans outstanding under the 2017 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, 2018, 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; (2) a $750.0 million delayed draw tranche A term loan facility, requiring quarterly principal payments, which began 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 and (3) a 400.0 million euro term loan facility due and payable in full at maturity on December 20, 2023.
As of December 31, 2018, borrowings under the tranche A term loan facility under the 2017 Credit Agreement 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) and borrowings under the euro term loan facility under the 2017 Credit Agreement bear interest at a minimum rate of 0.75% plus EURIBOR (as of December 31, 2018, EURIBOR was negative). We had $294.4 million and $193.5 million of tranche A term loan borrowings outstanding under the 2017 Credit Agreement (at interest rates of 3.36% and 2.51%), net of unamortized debt issuance costs, included in the accompanying consolidated balance sheets at December 31, 2018 and 2017, respectively. In addition, as of December 31, 2018, we had $456.9 million of euro term loan borrowings outstanding under the 2017 Credit Agreement (at an interest rate of 0.75%), net of unamortized debt issuance costs, which was included in the accompanying consolidated balance sheets.
In March 2011, we entered into five interest rate swap agreements, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. The purpose of these interest rate swap agreements is to attempt to hedge potential changes to our cash flows due to the variable interest nature of our senior term loan facilities. The total notional amount of these interest rate swap agreements is $400.0 million, with $200.0 million 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, 2018, 2017 and 2016. The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss on the balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. We reclassified $2.7 million, $7.4 million and $10.7 million for the years ended December 31, 2018, 2017, and 2016, respectively, from accumulated other comprehensive loss to interest expense. During the next twelve months, we estimate that $1.1 million will be reclassified from accumulated other comprehensive loss to interest expense. In addition, we recorded net gains of $1.0 million and $0.9 million and a net loss of $2.4 million for the years ended December 31, 2018, 2017 and 2016, respectively, to other comprehensive loss in relation to such interest rate swap agreements. As of December 31, 2018 and 2017, the fair values of such interest rate swap agreements were reflected as a $1.1 million liability (included in other current liabilities) and a $4.8 million liability (included in other liabilities), respectively, 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 $592.8 million and $592.0 million at December 31, 2018 and 2017, 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 $422.7 million and $422.4 million at December 31, 2018 and 2017, 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 were 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 were jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guaranteed our 2017 Credit Agreement. Interest accrued at a rate of 5.00% per year and was payable semi-annually in arrears on March 15 and September 15. The 5.00% senior notes were redeemable at our option, in whole or in part, on March 15, 2018 at a redemption price of 102.5% of the principal amount on that date. We redeemed these notes in full on March 15, 2018 and incurred 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 funded this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under our 2017 Credit Agreement. 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 at December 31, 2017.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The indentures governing our 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 20.61x for the year ended December 31, 2018, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.61x as of December 31, 2018.
Short-Term Borrowings
We had short-term borrowings of $1.3 billion and $910.8 million as of December 31, 2018 and 2017, respectively, with related weighted average interest rates of 3.8% and 2.7%, 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). As of both December 31, 2018 and 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.
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 5 for additional information.
| 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our leases generally relate to office space that we occupy, have varying terms and expire at various dates through 2036. The following is a schedule by year of future minimum lease payments for noncancelable operating leases as of December 31, 2018 (dollars in thousands):
| 2019 | $ | 238,954 | ||
|---|---|---|---|---|
| 2020 | 219,351 | |||
| 2021 | 202,205 | |||
| 2022 | 172,267 | |||
| 2023 | 145,705 | |||
| Thereafter | 510,741 | |||
| Total minimum payment required | $ | 1,489,223 |
Total minimum payments for noncancelable operating leases were not reduced by the minimum sublease rental income of $15.4 million due in the future under noncancelable subleases.
Substantially all leases require us to pay maintenance costs, insurance and property taxes. The composition of total rental expense under noncancelable operating leases consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Minimum rentals | $ | 294,107 | $ | 276,676 | $ | 252,285 | ||||||
| Less sublease rentals | (2,808 | ) | (3,446 | ) | (4,322 | ) | ||||||
| $ | 291,299 | $ | 273,230 | $ | 247,963 |
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 typically, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $23.2 billion at December 31, 2018. 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, 2018 and 2017, CBRE MCI had a $64.0 million and a $58.0 million, respectively, letter of credit under this reserve arrangement, and had recorded a liability of approximately $37.9 million and $32.9 million, respectively, for its loan loss guarantee obligation under such arrangement. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which assets totaled approximately $946.9 million (including $677.4 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, 2018.
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 both December 31, 2018 and 2017, CBRE Capital Markets had posted a $5.0 million letter of credit under this reserve arrangement.
We had outstanding letters of credit totaling $74.9 million as of December 31, 2018, 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 $69.0 million as of December 31, 2018 referred to in the preceding paragraphs represented the majority of the $74.9 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 2019.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We had guarantees totaling $56.3 million as of December 31, 2018, 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 $56.3 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, 2018, 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, 2018, we had aggregate commitments of $53.7 million to fund future co-investments.
Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of December 31, 2018, we had committed to fund $34.7 million of additional capital to these unconsolidated subsidiaries.
| 13. | Employee Benefit Plans |
|---|
Stock Incentive Plans
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, 2018, assuming the maximum number of shares under our performance-based awards will later be issued, 3,255,964 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
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, 2018, assuming the maximum number of shares under our performance-based awards will later be issued, 3,632,717 shares remained available for future grants under this plan.
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, 2018, 2017 and 2016.
| • | During the year ended December 31, 2018, we granted RSUs that are performance vesting in nature, with 1,014,269 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 1,332,085 RSUs that are time vesting in nature. |
|---|
| • | 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. |
|---|
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, we made a special 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. During 2018, we made additional grants under this Special RSU grant program to certain of our employees, with 122,610 reflecting the maximum number of RSUs that may be issued if all of the performance targets are satisfied at their highest levels, and 35,031 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. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Time Vesting and TSR Performance RSUs subject to the Special RSU grants vest on December 1, 2023, while the EPS Performance RSUs subject to the Special RSU grants vest on December 31, 2023.
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:
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Volatility of common stock | 25.02 | % | 27.85 | % | ||||
| Expected dividend yield | 0.00 | % | 0.00 | % | ||||
| Risk-free interest rate | 2.73 | % | 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, 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 | ||||||
| Granted | 2,023,266 | 45.70 | ||||||
| Vested | (1,894,847 | ) | 34.29 | |||||
| Forfeited | (623,161 | ) | 40.85 | |||||
| Balance at December 31, 2018 | 7,182,360 | 41.04 |
Total compensation expense related to non-vested stock awards was $128.2 million, $93.1 million and $63.5 million for the years ended December 31, 2018, 2017 and 2016, respectively. At December 31, 2018, total unrecognized estimated compensation cost related to non-vested stock awards was approximately $197.3 million, which is expected to be recognized over a weighted average period of approximately 3.3 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 $363.6 million, $286.5 million and $248.1 million for the years ended December 31, 2018, 2017 and 2016, 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 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, and non-plan electing unions 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 are employed. All participants hired before January 1, 2007 are immediately vested in company match contributions. For 2018, we contributed a 67% match on the first 6% of annual compensation for participants with an annual base salary of less than $100,000 and we contributed a 50% match on the first 6% of annual compensation for participants with an annual base salary of $100,000 or more (up to $150,000 of compensation). For both 2017 and 2016, we contributed a 50% match on the first 6% of annual compensation (up to $150,000 of compensation) deferred by each participant. In connection with the 401(k) Plan, we charged to expense $46.3 million, $38.8 million and $44.3 million for the years ended December 31, 2018, 2017 and 2016, 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, 2018, approximately 1.3 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, 2018 and 2017, the fair values of pension plan assets were $274.4 million and $333.5 million, respectively, and the fair values of projected benefit obligations in aggregate were $387.4 million and $455.6 million, respectively. As a result, the plans were underfunded by approximately $113.0 million and $122.1 million at December 31, 2018 and 2017, 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 $192.7 million and $194.3 million at December 31, 2018 and 2017, 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, 2018, 2017 and 2016.
| 14. | Income Taxes |
|---|
The components of income before provision for income taxes consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1 ) | (As Adjusted) (1) | |||||||||||
| Domestic | $ | 807,590 | $ | 575,222 | $ | 536,709 | ||||||
| Foreign | 571,416 | 596,111 | 345,361 | |||||||||
| $ | 1,379,006 | $ | 1,171,333 | $ | 882,070 |
Our tax provision (benefit) consisted of the following (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1 ) | (As Adjusted) (1) | |||||||||||
| Federal: | ||||||||||||
| Current | $ | 166,024 | $ | 275,475 | $ | 172,380 | ||||||
| Deferred | (7,667 | ) | 39,045 | 27,428 | ||||||||
| 158,357 | 314,520 | 199,808 | ||||||||||
| State: | ||||||||||||
| Current | 43,320 | 21,212 | 20,946 | |||||||||
| Deferred | (3,692 | ) | 5,573 | 375 | ||||||||
| 39,628 | 26,785 | 21,321 | ||||||||||
| Foreign: | ||||||||||||
| Current | 149,194 | 123,840 | 94,910 | |||||||||
| Deferred | (34,121 | ) | 2,612 | (19,139 | ) | |||||||
| 115,073 | 126,452 | 75,771 | ||||||||||
| $ | 313,058 | $ | 467,757 | $ | 296,900 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Federal statutory tax rate | 21 | % | 35 | % | 35 | % | ||||||
| State taxes, net of federal benefit | 3 | 2 | 2 | |||||||||
| Non-deductible expenses | 2 | 2 | — | |||||||||
| Tax Reform | 1 | 12 | — | |||||||||
| Change in valuation allowance | (1 | ) | (2 | ) | 2 | |||||||
| Acquisition-related costs | (2 | ) | — | — | ||||||||
| Credits and exemptions | (2 | ) | (3 | ) | (2 | ) | ||||||
| Foreign rate differential | — | (5 | ) | (2 | ) | |||||||
| Reserves for uncertain tax positions | — | (2 | ) | — | ||||||||
| Other | 1 | 1 | (1 | ) | ||||||||
| Effective tax rate | 23 | % | 40 | % | 34 | % |
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 (i.e. toll charge) 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. In March 2018, the FASB issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which added SEC guidance related to SAB 118.
The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent attributed to foreign cash and certain other net current assets, and 8% on the remainder. We recorded a provisional amount for our one-time transitional tax liability of $158.0 million for the year ended December 31, 2017 representing our estimate of the U.S. federal and state tax impact of 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 due to the re-measurement of net U.S. federal deferred tax assets and liabilities primarily related to a reduced U.S. federal statutory rate of 21% (after considering certain other measures of the Tax Act that affected our existing deferred tax assets).
During 2018, we continued to analyze the impact of the Tax Act and interpreted the additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies. Our provision for income taxes for 2018 included a net expense true-up of $13.3 million associated with the Tax Act, including an additional $5.3 million charge related to the transition tax on unremitted earnings of our foreign operations and an $8.0 million reduction to the net income tax benefit related to the remeasurement of deferred taxes initially recorded in 2017, based upon our final analysis. As of December 31, 2018, we have completed our analysis and the final net expense associated with the Tax Act was $156.7 million. We were able to apply existing foreign income tax credits to reduce the amount payable associated with Tax Act. The federal tax liability for the transition tax can be paid in annual interest-free installments over a period of eight years through 2025, which we have elected to do. The state tax liability for the transition tax was required to be paid in full in 2018. As of December 31, 2018, the second installment due in 2019 of $7.4 million is included within income taxes payable and the remaining long-term taxes payable related to the Tax Act of $91.7 million is included within non-current tax liabilities in the accompanying consolidated balance sheets.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 did not elect a policy for the year ended December 31, 2017 as we continued to analyze our global income to determine whether we expected 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 could be reasonably estimated. During 2018, as a result of completing our analysis of the Tax Act, we made an accounting policy election to account for GILTI using the period cost method.
Cumulative tax effects of temporary differences are shown below at December 31, 2018 and 2017 (dollars in thousands):
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| (As Adjusted) (1) | ||||||||
| Asset (Liability) | ||||||||
| Bonus and deferred compensation | $ | 276,572 | $ | 208,198 | ||||
| Net operating losses (NOLs) and state tax credits | 275,574 | 283,353 | ||||||
| Bad debt and other reserves | 57,506 | 56,313 | ||||||
| Pension obligation | 22,950 | 22,148 | ||||||
| Investments | 5,211 | 5,573 | ||||||
| Tax effect on revenue items related to new revenue recognition guidance | (38,510 | ) | (55,306 | ) | ||||
| Property and equipment | (49,935 | ) | (40,024 | ) | ||||
| Unconsolidated affiliates and partnerships | (64,448 | ) | 6,267 | |||||
| Capitalized costs and intangibles | (289,674 | ) | (256,087 | ) | ||||
| All other | (2,457 | ) | (1,441 | ) | ||||
| Net deferred tax assets before valuation allowance | 192,789 | 228,994 | ||||||
| Valuation allowance | (248,511 | ) | (277,466 | ) | ||||
| Net deferred tax (liabilities) assets | $ | (55,722 | ) | $ | (48,472 | ) |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
As of December 31, 2018, we had U.S. federal NOLs, net of related reserves for uncertain tax positions of approximately $72.7 million, translating to a deferred tax asset before valuation allowance of $15.3 million, which will begin to expire in 2027. As of December 31, 2018, there were also deferred tax assets before valuation allowances of approximately $3.5 million related to state NOLs as well as $255.9 million related to foreign NOLs. The state and foreign NOLs both begin to expire in 2019, 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.
We determined that as of December 31, 2018, $248.5 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, 2018, our valuation allowance decreased by approximately $29.0 million. The decrease was driven by $11.8 million associated with foreign currency translation and tax rate changes, the release of valuation allowances of $11.6 million (due to current and forecasted earnings of our U.S. and foreign subsidiaries resulting in an expectation that the benefit for NOLs may be utilized before expiration), $5.5 million related to adjustments to both the valuation allowance and related deferred tax asset for foreign NOLs, $2.0 million related to foreign NOL utilization and $1.8 million of U.S. NOL utilization. These decreases were partially offset by a $3.7 million increase in valuation allowance related to current year increases in foreign 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Our foreign subsidiaries have accumulated $2.1 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. While federal and state current income tax expense has been recognized as a result of the Tax Act, we have not provided any additional deferred taxes with respect to items such as foreign withholding taxes, state income tax or foreign exchange gain or loss that would be due when cash is actually repatriated to the U.S. because those foreign earnings are considered permanently reinvested in the business or may be remitted substantially free of any additional local taxes. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings if eventually remitted is not practicable.
The total amount of gross unrecognized tax benefits was approximately $95.0 million and $35.8 million as of December 31, 2018 and 2017, respectively. The total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, is $50.2 million ($49.2 million, net of federal benefit received from state positions) and $18.8 million ($18.0 million, net of federal benefit received from state positions) as of December 31, 2018 and 2017, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows (dollars in thousands):
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Beginning balance, unrecognized tax benefits | $ | (35,826 | ) | $ | (94,915 | ) | ||
| Gross increases - tax positions in prior period | (49,412 | ) | (1,400 | ) | ||||
| Gross decreases - tax positions in prior period | — | 23,896 | ||||||
| Gross increases - current-period tax positions | (18,861 | ) | (4,142 | ) | ||||
| Decreases relating to settlements | 4,619 | 34,259 | ||||||
| Reductions as a result of lapse of statute of limitations | 4,531 | 6,497 | ||||||
| Foreign exchange movement | (13 | ) | (21 | ) | ||||
| Ending balance, unrecognized tax benefits | $ | (94,962 | ) | $ | (35,826 | ) |
During the year ended December 31, 2018, we released $4.5 million of gross unrecognized tax benefits primarily due to expiration of the U.S. federal statute of limitations related to the 2014 tax year. As a result, we recognized $3.1 million of income tax benefits related to decreases in tax positions and $0.4 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, 2018, 2017 and 2016, we accrued an additional $0.6 million, $1.0 million and $2.9 million, respectively, in interest and penalties associated with uncertain tax positions. As of December 31, 2018, and 2017, we have recognized a liability for interest and penalties of $4.0 million ($3.5 million, net of related federal benefit received from interest expense) and $3.9 million ($3.4 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 2015. 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 2011.
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.
On October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250.0 million of our Class A common stock over three years. During the year ended December 31, 2018, we spent $161.0 million to repurchase 3,980,656 shares of our Class A common stock with an average price paid per share of $40.43. No shares were repurchased during the years ended December 31, 2017 and 2016.
| 16. | Income Per Share Information |
|---|
The following is a calculation of income per share (dollars in thousands, except share data):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1) | (As Adjusted) (1) | |||||||||||
| Basic Income Per Share | ||||||||||||
| Net income attributable to CBRE Group, Inc. shareholders | $ | 1,063,219 | $ | 697,109 | $ | 573,079 | ||||||
| Weighted average shares outstanding for basic income per share | 339,321,056 | 337,658,017 | 335,414,831 | |||||||||
| Basic income per share attributable to CBRE Group, Inc. shareholders | $ | 3.13 | $ | 2.06 | $ | 1.71 | ||||||
| Diluted Income Per Share | ||||||||||||
| Net income attributable to CBRE Group, Inc. shareholders | $ | 1,063,219 | $ | 697,109 | $ | 573,079 | ||||||
| Weighted average shares outstanding for basic income per share | 339,321,056 | 337,658,017 | 335,414,831 | |||||||||
| Dilutive effect of contingently issuable shares | 3,801,293 | 3,121,987 | 2,982,431 | |||||||||
| Dilutive effect of stock options | 392 | 3,552 | 27,301 | |||||||||
| Weighted average shares outstanding for diluted income per share | 343,122,741 | 340,783,556 | 338,424,563 | |||||||||
| Diluted income per share attributable to CBRE Group, Inc. shareholders | $ | 3.10 | $ | 2.05 | $ | 1.69 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
For the years ended December 31, 2018, 2017 and 2016, 259,274, 621,805 and 1,833,941, 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.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 17. | Revenue from Contracts with Customers |
|---|
Disaggregated Revenue
The following tables represent a disaggregation of revenue from contracts with customers for the years ended December 31, 2018, 2017 and 2016 by type of service and business segment (dollars in thousands):
| Year Ended December 31, 2018 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Americas | EMEA | APAC | Global Investment Management | Development Services | Consolidated | |||||||||||||||||||
| Topic 606 Revenue: | ||||||||||||||||||||||||
| Occupier outsourcing | $ | 7,797,742 | $ | 4,030,257 | $ | 1,076,742 | $ | — | $ | — | $ | 12,904,741 | ||||||||||||
| Leasing | 2,423,248 | 526,372 | 421,255 | — | 4,683 | 3,375,558 | ||||||||||||||||||
| Sales | 1,189,368 | 428,810 | 300,312 | — | 650 | 1,919,140 | ||||||||||||||||||
| Property management | 709,213 | 244,370 | 281,882 | — | 8,666 | 1,244,131 | ||||||||||||||||||
| Valuation | 261,559 | 187,515 | 111,741 | — | — | 560,815 | ||||||||||||||||||
| Commercial mortgage origination (1) | 125,731 | 5,768 | 2,330 | — | — | 133,829 | ||||||||||||||||||
| Investment management | — | — | — | 434,405 | — | 434,405 | ||||||||||||||||||
| Development services | — | — | — | — | 86,320 | 86,320 | ||||||||||||||||||
| Topic 606 Revenue | 12,506,861 | 5,423,092 | 2,194,262 | 434,405 | 100,319 | 20,658,939 | ||||||||||||||||||
| Out of Scope of Topic 606 Revenue: | ||||||||||||||||||||||||
| Commercial mortgage origination | 402,607 | — | — | — | — | 402,607 | ||||||||||||||||||
| Loan servicing | 172,096 | 10,755 | 570 | — | — | 183,421 | ||||||||||||||||||
| Other revenue | 50,342 | 32,076 | 12,703 | — | — | 95,121 | ||||||||||||||||||
| Total Out of Scope of Topic 606 Revenue | 625,045 | 42,831 | 13,273 | — | — | 681,149 | ||||||||||||||||||
| Total revenue | $ | 13,131,906 | $ | 5,465,923 | $ | 2,207,535 | $ | 434,405 | $ | 100,319 | $ | 21,340,088 |
| Year Ended December 31, 2017 (As Adjusted) (2) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Americas | EMEA | APAC | Global Investment Management | Development Services | Consolidated | |||||||||||||||||||
| Topic 606 Revenue: | ||||||||||||||||||||||||
| Occupier outsourcing | $ | 7,089,660 | $ | 3,101,518 | $ | 954,396 | $ | — | $ | — | $ | 11,145,574 | ||||||||||||
| Leasing | 2,054,872 | 446,446 | 357,983 | — | 4,051 | 2,863,352 | ||||||||||||||||||
| Sales | 1,103,862 | 397,130 | 304,344 | — | 977 | 1,806,313 | ||||||||||||||||||
| Property management | 660,147 | 243,630 | 237,631 | — | 13,914 | 1,155,322 | ||||||||||||||||||
| Valuation | 245,179 | 165,082 | 117,377 | — | — | 527,638 | ||||||||||||||||||
| Commercial mortgage origination (1) | 104,565 | 5,447 | 2,119 | — | — | 112,131 | ||||||||||||||||||
| Investment management | — | — | — | 377,644 | — | 377,644 | ||||||||||||||||||
| Development services | — | — | — | — | 60,513 | 60,513 | ||||||||||||||||||
| Topic 606 Revenue | 11,258,285 | 4,359,253 | 1,973,850 | 377,644 | 79,455 | 18,048,487 | ||||||||||||||||||
| Out of Scope of Topic 606 Revenue: | ||||||||||||||||||||||||
| Commercial mortgage origination | 338,390 | — | — | — | — | 338,390 | ||||||||||||||||||
| Loan servicing | 146,460 | 10,989 | — | — | — | 157,449 | ||||||||||||||||||
| Other revenue | 48,242 | 26,583 | 9,636 | — | — | 84,461 | ||||||||||||||||||
| Total Out of Scope of Topic 606 Revenue | 533,092 | 37,572 | 9,636 | — | — | 580,300 | ||||||||||||||||||
| Total revenue | $ | 11,791,377 | $ | 4,396,825 | $ | 1,983,486 | $ | 377,644 | $ | 79,455 | $ | 18,628,787 |
| (1) | We earn fees for arranging financing for borrowers with third-party lender contacts. Such fees are in scope of Topic 606. |
|---|
| (2) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Year Ended December 31, 2016 (As Adjusted) (2) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Americas | EMEA | APAC | Global Investment Management | Development Services | Consolidated | |||||||||||||||||||
| Topic 606 Revenue: | ||||||||||||||||||||||||
| Occupier outsourcing | $ | 6,570,559 | $ | 2,975,106 | $ | 828,194 | $ | — | $ | — | $ | 10,373,859 | ||||||||||||
| Leasing | 1,924,361 | 411,005 | 312,184 | — | 4,436 | 2,651,986 | ||||||||||||||||||
| Sales | 1,103,452 | 334,398 | 261,320 | — | 1,333 | 1,700,503 | ||||||||||||||||||
| Property management | 621,452 | 221,904 | 203,176 | — | 9,502 | 1,056,034 | ||||||||||||||||||
| Valuation | 245,389 | 148,856 | 110,125 | — | — | 504,370 | ||||||||||||||||||
| Commercial mortgage origination (1) | 112,797 | 2,881 | 2,136 | — | — | 117,814 | ||||||||||||||||||
| Investment management | — | — | — | 369,800 | — | 369,800 | ||||||||||||||||||
| Development services | — | — | — | — | 55,638 | 55,638 | ||||||||||||||||||
| Topic 606 Revenue | 10,578,010 | 4,094,150 | 1,717,135 | 369,800 | 70,909 | 16,830,004 | ||||||||||||||||||
| Out of Scope of Topic 606 Revenue: | ||||||||||||||||||||||||
| Commercial mortgage origination | 330,352 | — | — | — | — | 330,352 | ||||||||||||||||||
| Loan servicing | 111,373 | 11,144 | — | — | — | 122,517 | ||||||||||||||||||
| Other revenue | 50,230 | 23,612 | 12,393 | — | — | 86,235 | ||||||||||||||||||
| Total Out of Scope of Topic 606 Revenue | 491,955 | 34,756 | 12,393 | — | — | 539,104 | ||||||||||||||||||
| Total revenue | $ | 11,069,965 | $ | 4,128,906 | $ | 1,729,528 | $ | 369,800 | $ | 70,909 | $ | 17,369,108 |
| (1) | We earn fees for arranging financing for borrowers with third-party lender contacts. Such fees are in scope of Topic 606. |
|---|
| (2) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
Contract Assets and Liabilities
We had contract assets totaling $381.8 million ($307.0 million of which was current) and $330.9 million ($273.1 million of which was current) as of December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, our contract assets increased by $50.9 million, primarily due to an increase in contract assets in our leasing business.
We had contract liabilities totaling $92.5 million ($82.2 million of which was current) and $100.6 million (all of which was current) as of December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, we recognized revenue of $80.5 million that was included in the contract liability balance at December 31, 2017.
Contract Costs
Within our Occupier Outsourcing business line, we incur transition costs to fulfil contracts prior to services being rendered. We capitalized $45.7 million, $31.9 million and $26.1 million, respectively, of transition costs during the years ended December 31, 2018, 2017 and 2016. We recorded amortization of transition costs of $23.4 million, $19.2 million and $11.9 million, respectively, during the years ended December 31, 2018, 2017 and 2016. No impairment loss in relation to the costs capitalized was recorded during the years ended December 31, 2018, 2017 or 2016.
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.
Summarized financial information by segment is as follows (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1) | (As Adjusted) (1) (2) | |||||||||||
| Revenue | ||||||||||||
| Americas | $ | 13,131,906 | $ | 11,791,377 | $ | 11,069,965 | ||||||
| EMEA | 5,465,923 | 4,396,825 | 4,128,906 | |||||||||
| Asia Pacific | 2,207,535 | 1,983,486 | 1,729,528 | |||||||||
| Global Investment Management | 434,405 | 377,644 | 369,800 | |||||||||
| Development Services | 100,319 | 79,455 | 70,909 | |||||||||
| Total revenue | $ | 21,340,088 | $ | 18,628,787 | $ | 17,369,108 | ||||||
| Depreciation and Amortization | ||||||||||||
| Americas | $ | 327,556 | $ | 289,338 | $ | 254,118 | ||||||
| EMEA | 80,290 | 72,322 | 66,619 | |||||||||
| Asia Pacific | 20,297 | 18,258 | 17,810 | |||||||||
| Global Investment Management | 23,017 | 24,123 | 25,911 | |||||||||
| Development Services | 828 | 2,073 | 2,469 | |||||||||
| Total depreciation and amortization | $ | 451,988 | $ | 406,114 | $ | 366,927 |
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1) | (As Adjusted) (1) (2) | |||||||||||
| Equity Income from Unconsolidated Subsidiaries | ||||||||||||
| Americas | $ | 14,177 | $ | 18,789 | $ | 17,892 | ||||||
| EMEA | 1,523 | 1,553 | 1,817 | |||||||||
| Asia Pacific | 433 | 397 | 223 | |||||||||
| Global Investment Management | 6,131 | 7,923 | 7,243 | |||||||||
| Development Services | 302,400 | 181,545 | 170,176 | |||||||||
| Total equity income from unconsolidated subsidiaries | $ | 324,664 | $ | 210,207 | $ | 197,351 | ||||||
| Adjusted EBITDA | ||||||||||||
| Americas | $ | 1,111,014 | $ | 1,011,643 | $ | 950,573 | ||||||
| EMEA | 329,522 | 309,233 | 272,894 | |||||||||
| Asia Pacific | 197,684 | 180,043 | 142,299 | |||||||||
| Global Investment Management | 78,469 | 94,373 | 83,150 | |||||||||
| Development Services | 188,479 | 121,482 | 113,431 | |||||||||
| Total Adjusted EBITDA | $ | 1,905,168 | $ | 1,716,774 | $ | 1,562,347 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information |
|---|
| (2) | In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. 2016 amounts were reclassified to conform with the 2017 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 items related to acquisitions, costs associated with our reorganization, including cost-savings initiatives, certain carried interest incentive compensation reversal to align with the timing of associated revenue and other non-recurring costs.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Adjusted EBITDA is calculated as follows (dollars in thousands):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1) | (As Adjusted) (1) | |||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 1,063,219 | $ | 697,109 | $ | 573,079 | ||||||
| Add: | ||||||||||||
| Depreciation and amortization | 451,988 | 406,114 | 366,927 | |||||||||
| Interest expense | 107,270 | 136,814 | 144,851 | |||||||||
| Write-off of financing costs on extinguished debt | 27,982 | — | — | |||||||||
| Provision for income taxes | 313,058 | 467,757 | 296,900 | |||||||||
| Less: | ||||||||||||
| Interest income | 8,585 | 9,853 | 8,051 | |||||||||
| EBITDA | 1,954,932 | 1,697,941 | 1,373,706 | |||||||||
| Adjustments: | ||||||||||||
| Costs associated with our reorganization, including cost-savings initiatives (2) | 37,925 | — | — | |||||||||
| Integration and other costs related to acquisitions | 9,124 | 27,351 | 125,743 | |||||||||
| Costs incurred in connection with litigation settlement | 8,868 | — | — | |||||||||
| Carried interest incentive compensation reversal to align with the timing of associated revenue | (5,261 | ) | (8,518 | ) | (15,558 | ) | ||||||
| One-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired | (100,420 | ) | — | — | ||||||||
| Cost-elimination expenses (3) | — | — | 78,456 | |||||||||
| Adjusted EBITDA | $ | 1,905,168 | $ | 1,716,774 | $ | 1,562,347 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
| (2) | Primarily represents severance costs related to headcount reductions in connection with our reorganization announced in the third quarter of 2018 that became effective January 1, 2019. |
|---|
| (3) | 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 structure after several years of significant revenue and related cost growth. Cost-elimination expenses incurred during the year ended December 31, 2016 consisted of $73.6 million of severance costs related to headcount reductions in connection with the program and $4.9 million of third-party contract termination costs. The total amount for each period does have a cash impact. |
|---|
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| Capital Expenditures | ||||||||||||
| Americas | $ | 131,055 | $ | 127,135 | $ | 134,046 | ||||||
| EMEA | 63,947 | 28,716 | 35,452 | |||||||||
| Asia Pacific | 17,122 | 19,360 | 19,179 | |||||||||
| Global Investment Management | 15,348 | 2,776 | 2,273 | |||||||||
| Development Services | 331 | 55 | 255 | |||||||||
| Total capital expenditures | $ | 227,803 | $ | 178,042 | $ | 191,205 |
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| (As Adjusted) (1) | ||||||||
| Identifiable Assets | ||||||||
| Americas | $ | 7,432,532 | $ | 5,808,332 | ||||
| EMEA | 3,168,050 | 3,013,586 | ||||||
| Asia Pacific | 978,331 | 894,066 | ||||||
| Global Investment Management | 1,018,999 | 1,075,691 | ||||||
| Development Services | 166,864 | 176,971 | ||||||
| Corporate | 692,017 | 749,750 | ||||||
| Total identifiable assets | $ | 13,456,793 | $ | 11,718,396 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Investments in Unconsolidated Subsidiaries | ||||||||
| Americas | $ | 41,446 | $ | 39,105 | ||||
| EMEA | 864 | 852 | ||||||
| Asia Pacific | 6,845 | 6,581 | ||||||
| Global Investment Management | 77,926 | 83,430 | ||||||
| Development Services | 89,093 | 108,033 | ||||||
| Total investments in unconsolidated subsidiaries | $ | 216,174 | $ | 238,001 |
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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | 2016 | ||||||||||
| (As Adjusted) (1) | (As Adjusted) (1) | |||||||||||
| Revenue | ||||||||||||
| United States | $ | 12,264,188 | $ | 10,954,608 | $ | 10,434,782 | ||||||
| United Kingdom | 2,586,890 | 2,242,973 | 2,150,428 | |||||||||
| All other countries | 6,489,010 | 5,431,206 | 4,783,898 | |||||||||
| Total revenue | $ | 21,340,088 | $ | 18,628,787 | $ | 17,369,108 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
The long-lived assets in the table below are comprised of net property and equipment (dollars in thousands).
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2017 | |||||||
| Property and Equipment, Net | ||||||||
| United States | $ | 512,110 | $ | 432,102 | ||||
| United Kingdom | 71,119 | 61,335 | ||||||
| All other countries | 138,463 | 124,302 | ||||||
| Total property and equipment, net | $ | 721,692 | $ | 617,739 |
On August 17, 2018, we announced a new organization structure that became effective on January 1, 2019. Under the new structure, we will organize our operations around, and publicly report our financial results on, three global business segments: (1) Advisory Services, (2) Global Workplace Solutions and (3) Real Estate Investments. For 2018, we are reporting our financial results under our business segments as they existed throughout the year.
| 19. | Related Party Transactions |
|---|
The accompanying consolidated balance sheets include loans to related parties, primarily employees other than our executive officers, of $350.1 million and $291.2 million as of December 31, 2018 and 2017, 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 2.89% per annum and mature on various dates through 2028.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 20. | Guarantor and Nonguarantor Financial Statements |
|---|
The following condensed consolidating financial information includes condensed consolidating balance sheets as of December 31, 2018 and 2017, 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, 2018, 2017 and 2016 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, 2018 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 7 | $ | 34,063 | $ | 261,181 | $ | 481,968 | $ | — | $ | 777,219 | ||||||||||||
| Restricted cash | — | — | 13,767 | 72,958 | — | 86,725 | ||||||||||||||||||
| Receivables, net | — | 5 | 1,340,120 | 2,328,466 | — | 3,668,591 | ||||||||||||||||||
| Warehouse receivables (1) | — | — | 664,095 | 678,373 | — | 1,342,468 | ||||||||||||||||||
| Contract assets | — | — | 289,214 | 17,806 | — | 307,020 | ||||||||||||||||||
| Prepaid expenses | — | — | 122,305 | 132,587 | — | 254,892 | ||||||||||||||||||
| Income taxes receivable | 6,099 | — | 18,992 | 52,692 | (6,099 | ) | 71,684 | |||||||||||||||||
| Other current assets | — | — | 56,853 | 188,758 | — | 245,611 | ||||||||||||||||||
| Total Current Assets | 6,106 | 34,068 | 2,766,527 | 3,953,608 | (6,099 | ) | 6,754,210 | |||||||||||||||||
| Property and equipment, net | — | — | 512,110 | 209,582 | — | 721,692 | ||||||||||||||||||
| Goodwill | — | — | 2,224,909 | 1,427,400 | — | 3,652,309 | ||||||||||||||||||
| Other intangible assets, net | — | — | 835,270 | 606,038 | — | 1,441,308 | ||||||||||||||||||
| Investments in unconsolidated subsidiaries | — | — | 170,698 | 45,476 | — | 216,174 | ||||||||||||||||||
| Investments in consolidated subsidiaries | 6,759,815 | 5,595,831 | 3,228,512 | — | (15,584,158 | ) | — | |||||||||||||||||
| Intercompany loan receivable | — | 2,440,775 | 700,000 | 711,244 | (3,852,019 | ) | — | |||||||||||||||||
| Deferred tax assets, net | — | — | 2,666 | 51,755 | (2,718 | ) | 51,703 | |||||||||||||||||
| Other assets, net | — | 18,257 | 483,790 | 117,350 | — | 619,397 | ||||||||||||||||||
| Total Assets | $ | 6,765,921 | $ | 8,088,931 | $ | 10,924,482 | $ | 7,122,453 | $ | (19,444,994 | ) | $ | 13,456,793 | |||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 40 | $ | 17,450 | $ | 655,582 | $ | 1,246,755 | $ | — | $ | 1,919,827 | ||||||||||||
| Accrued bonus and profit sharing | — | — | 685,521 | 503,874 | — | 1,189,395 | ||||||||||||||||||
| Compensation and employee benefits payable | — | — | 662,196 | 458,983 | — | 1,121,179 | ||||||||||||||||||
| Contract liabilities | — | — | 41,045 | 41,182 | — | 82,227 | ||||||||||||||||||
| Income taxes payable | — | 720 | 6,417 | 67,062 | (6,099 | ) | 68,100 | |||||||||||||||||
| Short-term borrowings: | ||||||||||||||||||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1) | — | — | 657,731 | 671,030 | — | 1,328,761 | ||||||||||||||||||
| Total short-term borrowings | — | — | 657,731 | 671,030 | — | 1,328,761 | ||||||||||||||||||
| Current maturities of long-term debt | — | — | 39 | 3,107 | — | 3,146 | ||||||||||||||||||
| Other current liabilities | — | 1,070 | 70,202 | 19,473 | — | 90,745 | ||||||||||||||||||
| Total Current Liabilities | 40 | 19,240 | 2,778,733 | 3,011,466 | (6,099 | ) | 5,803,380 | |||||||||||||||||
| Long-Term Debt, net: | ||||||||||||||||||||||||
| Long-term debt, net | — | 1,309,876 | 18 | 457,366 | — | 1,767,260 | ||||||||||||||||||
| Intercompany loan payable | 1,827,084 | — | 2,024,935 | — | (3,852,019 | ) | — | |||||||||||||||||
| Total Long-Term Debt, net | 1,827,084 | 1,309,876 | 2,024,953 | 457,366 | (3,852,019 | ) | 1,767,260 | |||||||||||||||||
| Non-current tax liabilities | — | — | 164,857 | 7,769 | — | 172,626 | ||||||||||||||||||
| Deferred tax liabilities, net | — | — | — | 110,143 | (2,718 | ) | 107,425 | |||||||||||||||||
| Other liabilities | — | — | 360,108 | 236,092 | — | 596,200 | ||||||||||||||||||
| Total Liabilities | 1,827,124 | 1,329,116 | 5,328,651 | 3,822,836 | (3,860,836 | ) | 8,446,891 | |||||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
| Equity: | ||||||||||||||||||||||||
| CBRE Group, Inc. Stockholders’ Equity | 4,938,797 | 6,759,815 | 5,595,831 | 3,228,512 | (15,584,158 | ) | 4,938,797 | |||||||||||||||||
| Non-controlling interests | — | — | — | 71,105 | — | 71,105 | ||||||||||||||||||
| Total Equity | 4,938,797 | 6,759,815 | 5,595,831 | 3,299,617 | (15,584,158 | ) | 5,009,902 | |||||||||||||||||
| Total Liabilities and Equity | $ | 6,765,921 | $ | 8,088,931 | $ | 10,924,482 | $ | 7,122,453 | $ | (19,444,994 | ) | $ | 13,456,793 |
| (1) | Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 4.875% senior notes, 5.25% senior notes and our 2017 Credit Agreement, a substantial majority of warehouse receivables funded under JP Morgan, TD Bank, Fannie Mae ASAP, Capital One and BofA lines of credit are pledged to JP Morgan, TD Bank, Fannie Mae, 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, 2017 (As Adjusted) (1) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated 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 | — | — | 990,923 | 2,121,366 | — | 3,112,289 | ||||||||||||||||||
| Warehouse receivables (2) | — | — | 479,628 | 448,410 | — | 928,038 | ||||||||||||||||||
| Contract assets | — | — | 263,756 | 9,297 | — | 273,053 | ||||||||||||||||||
| 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 | 1,980,112 | 3,634,861 | (2,162 | ) | 5,630,584 | |||||||||||||||||
| 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 | 5,551,781 | 4,930,109 | 3,066,303 | — | (13,548,193 | ) | — | |||||||||||||||||
| 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 | 348,191 | 108,473 | — | 479,474 | ||||||||||||||||||
| Total Assets | $ | 5,553,950 | $ | 7,589,853 | $ | 9,255,515 | $ | 6,196,063 | $ | (16,876,985 | ) | $ | 11,718,396 | |||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | — | $ | 29,708 | $ | 404,367 | $ | 1,139,597 | $ | — | $ | 1,573,672 | ||||||||||||
| Accrued bonus and profit sharing | — | — | 590,534 | 487,811 | — | 1,078,345 | ||||||||||||||||||
| Compensation and employee benefits payable | — | 626 | 479,306 | 424,502 | — | 904,434 | ||||||||||||||||||
| Contract liabilities | — | — | 42,994 | 57,621 | — | 100,615 | ||||||||||||||||||
| 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) (2) | — | — | 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 | 56,260 | 18,139 | — | 74,454 | ||||||||||||||||||
| Total Current Liabilities | — | 33,703 | 2,061,376 | 2,620,027 | (2,162 | ) | 4,712,944 | |||||||||||||||||
| 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 | — | — | 29,785 | 122,733 | (5,300 | ) | 147,218 | |||||||||||||||||
| Other liabilities | — | 4,766 | 300,299 | 238,160 | — | 543,225 | ||||||||||||||||||
| Total Liabilities | 1,439,454 | 2,038,072 | 4,325,406 | 3,069,642 | (3,328,792 | ) | 7,543,782 | |||||||||||||||||
| Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
| Equity: | ||||||||||||||||||||||||
| CBRE Group, Inc. Stockholders’ Equity | 4,114,496 | 5,551,781 | 4,930,109 | 3,066,303 | (13,548,193 | ) | 4,114,496 | |||||||||||||||||
| Non-controlling interests | — | — | — | 60,118 | — | 60,118 | ||||||||||||||||||
| Total Equity | 4,114,496 | 5,551,781 | 4,930,109 | 3,126,421 | (13,548,193 | ) | 4,174,614 | |||||||||||||||||
| Total Liabilities and Equity | $ | 5,553,950 | $ | 7,589,853 | $ | 9,255,515 | $ | 6,196,063 | $ | (16,876,985 | ) | $ | 11,718,396 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
| (2) | 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, 2018 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 11,998,469 | $ | 9,341,619 | $ | — | $ | 21,340,088 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 9,513,947 | 6,935,265 | — | 16,449,212 | ||||||||||||||||||
| Operating, administrative and other | 24,523 | 1,156 | 1,773,860 | 1,566,234 | — | 3,365,773 | ||||||||||||||||||
| Depreciation and amortization | — | — | 271,378 | 180,610 | — | 451,988 | ||||||||||||||||||
| Total costs and expenses | 24,523 | 1,156 | 11,559,185 | 8,682,109 | — | 20,266,973 | ||||||||||||||||||
| Gain on disposition of real estate | — | — | 7,705 | 7,169 | — | 14,874 | ||||||||||||||||||
| Operating (loss) income | (24,523 | ) | (1,156 | ) | 446,989 | 666,679 | — | 1,087,989 | ||||||||||||||||
| Equity income from unconsolidated subsidiaries | — | — | 323,080 | 1,584 | — | 324,664 | ||||||||||||||||||
| Other income (loss) | — | 1 | 103,657 | (10,638 | ) | — | 93,020 | |||||||||||||||||
| Interest income | — | 134,259 | 6,805 | 214,780 | (347,259 | ) | 8,585 | |||||||||||||||||
| Interest expense | — | 102,228 | 328,638 | 23,663 | (347,259 | ) | 107,270 | |||||||||||||||||
| Write-off of financing costs on extinguished debt | — | 27,982 | — | — | — | 27,982 | ||||||||||||||||||
| Royalty and management service (income) expense | — | — | (111,883 | ) | 111,883 | — | — | |||||||||||||||||
| Income from consolidated subsidiaries | 1,081,643 | 1,079,469 | 579,523 | — | (2,740,635 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 1,057,120 | 1,082,363 | 1,243,299 | 736,859 | (2,740,635 | ) | 1,379,006 | |||||||||||||||||
| (Benefit of) provision for income taxes | (6,099 | ) | 720 | 163,830 | 154,607 | — | 313,058 | |||||||||||||||||
| Net income | 1,063,219 | 1,081,643 | 1,079,469 | 582,252 | (2,740,635 | ) | 1,065,948 | |||||||||||||||||
| Less: Net income attributable to non-controlling interests | — | — | — | 2,729 | — | 2,729 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 1,063,219 | $ | 1,081,643 | $ | 1,079,469 | $ | 579,523 | $ | (2,740,635 | ) | $ | 1,063,219 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Operations
| For the Year Ended December 31, 2017 (As Adjusted) (1) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 10,702,005 | $ | 7,926,782 | $ | — | $ | 18,628,787 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 8,517,114 | 5,787,985 | — | 14,305,099 | ||||||||||||||||||
| Operating, administrative and other | 5,661 | 1,972 | 1,485,605 | 1,365,482 | — | 2,858,720 | ||||||||||||||||||
| Depreciation and amortization | — | — | 239,863 | 166,251 | — | 406,114 | ||||||||||||||||||
| Total costs and expenses | 5,661 | 1,972 | 10,242,582 | 7,319,718 | — | 17,569,933 | ||||||||||||||||||
| Gain on disposition of real estate | — | — | 6,037 | 13,791 | — | 19,828 | ||||||||||||||||||
| Operating (loss) income | (5,661 | ) | (1,972 | ) | 465,460 | 620,855 | — | 1,078,682 | ||||||||||||||||
| 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 | 700,608 | 695,245 | 461,769 | — | (1,857,622 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 694,947 | 703,922 | 1,007,462 | 622,624 | (1,857,622 | ) | 1,171,333 | |||||||||||||||||
| (Benefit of) provision for income taxes | (2,162 | ) | 3,314 | 312,217 | 154,388 | — | 467,757 | |||||||||||||||||
| Net income | 697,109 | 700,608 | 695,245 | 468,236 | (1,857,622 | ) | 703,576 | |||||||||||||||||
| Less: Net income attributable to non-controlling interests | — | — | — | 6,467 | — | 6,467 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 697,109 | $ | 700,608 | $ | 695,245 | $ | 461,769 | $ | (1,857,622 | ) | $ | 697,109 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Operations
| For the Year Ended December 31, 2016 (As Adjusted) (1) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Revenue | $ | — | $ | — | $ | 10,169,361 | $ | 7,199,747 | $ | — | $ | 17,369,108 | ||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||
| Cost of services | — | — | 8,133,496 | 5,287,415 | — | 13,420,911 | ||||||||||||||||||
| Operating, administrative and other | 5,003 | (8,231 | ) | 1,454,435 | 1,329,094 | — | 2,780,301 | |||||||||||||||||
| Depreciation and amortization | — | — | 225,552 | 141,375 | — | 366,927 | ||||||||||||||||||
| Total costs and expenses | 5,003 | (8,231 | ) | 9,813,483 | 6,757,884 | — | 16,568,139 | |||||||||||||||||
| Gain on disposition of real estate | — | — | 3,669 | 12,193 | — | 15,862 | ||||||||||||||||||
| Operating (loss) income | (5,003 | ) | 8,231 | 359,547 | 454,056 | — | 816,831 | |||||||||||||||||
| 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 | 576,167 | 604,177 | 242,732 | — | (1,423,076 | ) | — | |||||||||||||||||
| Income before (benefit of) provision for income taxes | 571,164 | 558,803 | 786,640 | 388,539 | (1,423,076 | ) | 882,070 | |||||||||||||||||
| (Benefit of) provision for income taxes | (1,915 | ) | (17,364 | ) | 182,463 | 133,716 | — | 296,900 | ||||||||||||||||
| Net income | 573,079 | 576,167 | 604,177 | 254,823 | (1,423,076 | ) | 585,170 | |||||||||||||||||
| Less: Net income attributable to non-controlling interests | — | — | — | 12,091 | — | 12,091 | ||||||||||||||||||
| Net income attributable to CBRE Group, Inc. | $ | 573,079 | $ | 576,167 | $ | 604,177 | $ | 242,732 | $ | (1,423,076 | ) | $ | 573,079 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Comprehensive Income
| For the Year Ended December 31, 2018 | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Net income | $ | 1,063,219 | $ | 1,081,643 | $ | 1,079,469 | $ | 582,252 | $ | (2,740,635 | ) | $ | 1,065,948 | |||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | (161,384 | ) | — | (161,384 | ) | ||||||||||||||||
| Adoption of Accounting Standards Update 2016-01, net | — | — | (3,964 | ) | — | — | (3,964 | ) | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to interest expense, net | — | 2,439 | — | — | — | 2,439 | ||||||||||||||||||
| Unrealized gains on interest rate swaps, net | — | 708 | — | — | — | 708 | ||||||||||||||||||
| Unrealized holding losses on available for sale debt securities, net | — | — | (971 | ) | — | — | (971 | ) | ||||||||||||||||
| Pension liability adjustments, net | — | — | — | 1,315 | — | 1,315 | ||||||||||||||||||
| Other, net | — | — | 7 | (5,077 | ) | — | (5,070 | ) | ||||||||||||||||
| Total other comprehensive income (loss) | — | 3,147 | (4,928 | ) | (165,146 | ) | — | (166,927 | ) | |||||||||||||||
| Comprehensive income | 1,063,219 | 1,084,790 | 1,074,541 | 417,106 | (2,740,635 | ) | 899,021 | |||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 1,657 | — | 1,657 | ||||||||||||||||||
| Comprehensive income attributable to CBRE Group, Inc. | $ | 1,063,219 | $ | 1,084,790 | $ | 1,074,541 | $ | 415,449 | $ | (2,740,635 | ) | $ | 897,364 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Comprehensive Income
| For the Year Ended December 31, 2017 (As Adjusted) (1) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Net income | $ | 697,109 | $ | 700,608 | $ | 695,245 | $ | 468,236 | $ | (1,857,622 | ) | $ | 703,576 | |||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||||||||||
| Foreign currency translation gain | — | — | — | 218,001 | — | 218,001 | ||||||||||||||||||
| 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 debt 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 | 231,269 | — | 239,352 | |||||||||||||||||
| Comprehensive income | 697,107 | 706,157 | 697,781 | 699,505 | (1,857,622 | ) | 942,928 | |||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 6,879 | — | 6,879 | ||||||||||||||||||
| Comprehensive income attributable to CBRE Group, Inc. | $ | 697,107 | $ | 706,157 | $ | 697,781 | $ | 692,626 | $ | (1,857,622 | ) | $ | 936,049 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Comprehensive Income (Loss)
| For the Year Ended December 31, 2016 (As Adjusted) (1) | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Eliminations | Consolidated Total | |||||||||||||||||||
| Net income | $ | 573,079 | $ | 576,167 | $ | 604,177 | $ | 254,823 | $ | (1,423,076 | ) | $ | 585,170 | |||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | (235,614 | ) | — | (235,614 | ) | ||||||||||||||||
| 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 debt 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 | ) | (310,491 | ) | — | (305,662 | ) | |||||||||||||||
| Comprehensive income (loss) | 573,079 | 581,575 | 603,598 | (55,668 | ) | (1,423,076 | ) | 279,508 | ||||||||||||||||
| Less: Comprehensive income attributable to non-controlling interests | — | — | — | 12,108 | — | 12,108 | ||||||||||||||||||
| Comprehensive income (loss) attributable to CBRE Group, Inc. | $ | 573,079 | $ | 581,575 | $ | 603,598 | $ | (67,776 | ) | $ | (1,423,076 | ) | $ | 267,400 | ||||||||||
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Cash Flow
| For the Year Ended December 31, 2018 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Consolidated Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | $ | 105,850 | $ | 21,834 | $ | 429,540 | $ | 574,025 | $ | 1,131,249 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (140,670 | ) | (87,133 | ) | (227,803 | ) | ||||||||||||
| Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (305,315 | ) | (17,258 | ) | (322,573 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (51,046 | ) | (11,756 | ) | (62,802 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 57,269 | 4,440 | 61,709 | |||||||||||||||
| Net proceeds from disposition of real estate held for investment | — | — | — | 14,174 | 14,174 | |||||||||||||||
| Purchase of equity securities | — | — | (21,402 | ) | — | (21,402 | ) | |||||||||||||
| Proceeds from sale of equity securities | — | — | 16,314 | — | 16,314 | |||||||||||||||
| Purchase of available for sale debt securities | — | — | (23,360 | ) | — | (23,360 | ) | |||||||||||||
| Proceeds from the sale of available for sale debt securities | — | — | 5,792 | — | 5,792 | |||||||||||||||
| Other investing activities, net | — | — | 2,793 | (3,526 | ) | (733 | ) | |||||||||||||
| Net cash used in investing activities | — | — | (459,625 | ) | (101,059 | ) | (560,684 | ) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||
| Proceeds from senior term loans | — | 550,000 | — | 452,745 | 1,002,745 | |||||||||||||||
| Repayment of senior term loans | — | (450,000 | ) | — | — | (450,000 | ) | |||||||||||||
| Proceeds from revolving credit facility | — | 3,258,000 | — | — | 3,258,000 | |||||||||||||||
| Repayment of revolving credit facility | — | (3,258,000 | ) | — | — | (3,258,000 | ) | |||||||||||||
| Repayment of 5.00% senior notes (including premium) | — | (820,000 | ) | — | — | (820,000 | ) | |||||||||||||
| Proceeds from notes payable on real estate | — | — | — | 7,599 | 7,599 | |||||||||||||||
| Repayment of notes payable on real estate | — | — | — | (19,058 | ) | (19,058 | ) | |||||||||||||
| Repayment of debt assumed in acquisition of FacilitySource | — | — | (26,295 | ) | — | (26,295 | ) | |||||||||||||
| Repurchase of common stock | (161,034 | ) | — | — | — | (161,034 | ) | |||||||||||||
| Acquisition of businesses (cash paid for acquisitions more than three months after purchase date) | — | — | (16,774 | ) | (1,886 | ) | (18,660 | ) | ||||||||||||
| Units repurchased for payment of taxes on equity awards | (29,386 | ) | — | — | — | (29,386 | ) | |||||||||||||
| Non-controlling interest contributions | — | — | — | 25,355 | 25,355 | |||||||||||||||
| Non-controlling interest distributions | — | — | — | (13,413 | ) | (13,413 | ) | |||||||||||||
| Payment of financing costs | — | (212 | ) | — | (1,876 | ) | (2,088 | ) | ||||||||||||
| Decrease (increase) in intercompany receivables, net | 84,213 | 716,837 | 233,975 | (1,035,025 | ) | — | ||||||||||||||
| Other financing activities, net | 357 | — | (16 | ) | (2,706 | ) | (2,365 | ) | ||||||||||||
| Net cash (used in) provided by financing activities | (105,850 | ) | (3,375 | ) | 190,890 | (588,265 | ) | (506,600 | ) | |||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents and restricted cash | — | — | — | (24,840 | ) | (24,840 | ) | |||||||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | — | 18,459 | 160,805 | (140,139 | ) | 39,125 | ||||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD | 7 | 15,604 | 114,143 | 695,065 | 824,819 | |||||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD | $ | 7 | $ | 34,063 | $ | 274,948 | $ | 554,926 | $ | 863,944 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||||||||||||||
| Cash paid during the period for: | ||||||||||||||||||||
| Interest | $ | — | $ | 102,491 | $ | — | $ | 1,674 | $ | 104,165 | ||||||||||
| Income taxes, net | $ | — | $ | — | $ | 198,930 | $ | 176,919 | $ | 375,849 |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Cash Flows
| For the Year Ended December 31, 2017 (As Adjusted) (1) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Consolidated Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | $ | 89,341 | $ | 37,990 | $ | 424,787 | $ | 342,293 | $ | 894,411 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (121,347 | ) | (56,695 | ) | (178,042 | ) | ||||||||||||
| Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (87,248 | ) | (31,179 | ) | (118,427 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (63,119 | ) | (5,581 | ) | (68,700 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 52,896 | 10,768 | 63,664 | |||||||||||||||
| Purchase of equity securities | — | — | (15,584 | ) | — | (15,584 | ) | |||||||||||||
| Proceeds from sale of equity securities | — | — | 15,587 | — | 15,587 | |||||||||||||||
| Purchase of available for sale debt securities | — | — | (19,280 | ) | — | (19,280 | ) | |||||||||||||
| Proceeds from the sale of available for sale debt securities | — | — | 15,790 | — | 15,790 | |||||||||||||||
| Other investing activities, net | — | — | 1,968 | 424 | 2,392 | |||||||||||||||
| Net cash used in investing activities | — | — | (220,337 | ) | (82,263 | ) | (302,600 | ) | ||||||||||||
| 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 | — | — | — | 4,333 | 4,333 | |||||||||||||||
| Repayment of notes payable on real estate | — | — | — | (12,556 | ) | (12,556 | ) | |||||||||||||
| Acquisition of businesses (cash paid for acquisitions more than three months after purchase date) | — | — | (19,854 | ) | (4,152 | ) | (24,006 | ) | ||||||||||||
| 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 | (338,396 | ) | (121,912 | ) | — | ||||||||||||
| Other financing activities, net | 479 | — | (3,145 | ) | (9 | ) | (2,675 | ) | ||||||||||||
| Net cash used in financing activities | (89,341 | ) | (39,275 | ) | (361,395 | ) | (137,731 | ) | (627,742 | ) | ||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents and restricted cash | — | — | — | 29,338 | 29,338 | |||||||||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | — | (1,285 | ) | (156,945 | ) | 151,637 | (6,593 | ) | ||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD | 7 | 16,889 | 271,088 | 543,428 | 831,412 | |||||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD | $ | 7 | $ | 15,604 | $ | 114,143 | $ | 695,065 | $ | 824,819 | ||||||||||
| 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 | ||||||||||
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Consolidating Statement of Cash Flows
| For the Year Ended December 31, 2016 (As Adjusted) (1) | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Parent | CBRE Services | Guarantor Subsidiaries | Nonguarantor Subsidiaries | Consolidated Total | ||||||||||||||||
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: | $ | 84,393 | $ | (23,643 | ) | $ | 296,501 | $ | 259,734 | $ | 616,985 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||
| Capital expenditures | — | — | (115,049 | ) | (76,156 | ) | (191,205 | ) | ||||||||||||
| Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired | — | — | (2,191 | ) | (18,886 | ) | (21,077 | ) | ||||||||||||
| Contributions to unconsolidated subsidiaries | — | — | (47,192 | ) | (19,624 | ) | (66,816 | ) | ||||||||||||
| Distributions from unconsolidated subsidiaries | — | — | 39,340 | 7,435 | 46,775 | |||||||||||||||
| Net proceeds from disposition of real estate held for investment | — | — | — | 44,326 | 44,326 | |||||||||||||||
| Purchase of equity securities | — | — | (15,506 | ) | — | (15,506 | ) | |||||||||||||
| Proceeds from sale of equity securities | — | — | 16,954 | — | 16,954 | |||||||||||||||
| Purchase of available for sale debt securities | — | — | (22,155 | ) | — | (22,155 | ) | |||||||||||||
| Proceeds from the sale of available for sale debt securities | — | — | 18,097 | — | 18,097 | |||||||||||||||
| Other investing activities, net | — | — | 19,178 | 20,905 | 40,083 | |||||||||||||||
| Net cash used in investing activities | — | — | (108,524 | ) | (42,000 | ) | (150,524 | ) | ||||||||||||
| 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 | — | — | — | 25,001 | 25,001 | |||||||||||||||
| Repayment of notes payable on real estate | — | — | — | (38,046 | ) | (38,046 | ) | |||||||||||||
| Acquisition of businesses (cash paid for acquisitions more than three months after purchase date) | — | — | (1,125 | ) | (19,909 | ) | (21,034 | ) | ||||||||||||
| 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 | (68,422 | ) | (47,460 | ) | — | ||||||||||||
| Other financing activities, net | 915 | — | (1,173 | ) | (185 | ) | (443 | ) | ||||||||||||
| Net cash (used in) provided by financing activities | (84,391 | ) | 32,053 | (70,720 | ) | (97,619 | ) | (220,677 | ) | |||||||||||
| Effect of currency exchange rate changes on cash and cash equivalents and restricted cash | — | — | — | (27,539 | ) | (27,539 | ) | |||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 2 | 8,410 | 117,257 | 92,576 | 218,245 | |||||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD | 5 | 8,479 | 153,831 | 450,852 | 613,167 | |||||||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD | $ | 7 | $ | 16,889 | $ | 271,088 | $ | 543,428 | $ | 831,412 | ||||||||||
| 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 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information. |
|---|
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 21. | Subsequent Event |
|---|
During the month of January 2019, we spent $45.1 million to repurchase an additional 1,144,449 shares of our Class A common stock with an average price paid per share of $39.38. Additionally, on February 28, 2019, our board of directors authorized a new program for the company to repurchase up to $300.0 million of our Class A common stock over three years, effective March 11, 2019. The existing program will terminate upon the effectiveness of the new program.
CBRE GROUP, INC.
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
| Three Months Ended December 31, 2018 | Three Months Ended September 30, 2018 | Three Months Ended June 30, 2018 | Three Months Ended March 31, 2018 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except share data) | ||||||||||||||||
| Revenue | $ | 6,293,748 | $ | 5,260,954 | $ | 5,111,434 | $ | 4,673,952 | ||||||||
| Operating income | $ | 459,347 | $ | 189,717 | $ | 225,316 | $ | 213,609 | ||||||||
| Net income attributable to CBRE Group, Inc. | $ | 393,795 | $ | 290,469 | $ | 228,667 | $ | 150,288 | ||||||||
| Basic income per share | $ | 1.16 | $ | 0.86 | $ | 0.67 | $ | 0.44 | ||||||||
| Weighted average shares outstanding for basic income per share | 339,823,278 | 339,477,316 | 339,081,556 | 338,890,098 | ||||||||||||
| Diluted income per share | $ | 1.15 | $ | 0.85 | $ | 0.67 | $ | 0.44 | ||||||||
| Weighted average shares outstanding for diluted income per share | 342,683,720 | 343,733,947 | 343,471,513 | 342,589,810 | ||||||||||||
| Three Months Ended December 31, 2017 | Three Months Ended September 30, 2017 | Three Months Ended June 30, 2017 | Three Months Ended March 31, 2017 | |||||||||||||
| (As Adjusted) (1) | ||||||||||||||||
| (Dollars in thousands, except share data) | ||||||||||||||||
| Revenue | $ | 5,499,654 | $ | 4,638,596 | $ | 4,439,571 | $ | 4,050,966 | ||||||||
| Operating income | $ | 406,187 | $ | 238,956 | $ | 228,328 | $ | 205,211 | ||||||||
| Net income attributable to CBRE Group, Inc. | $ | 159,224 | $ | 199,088 | $ | 201,777 | $ | 137,020 | ||||||||
| Basic income per share | $ | 0.47 | $ | 0.59 | $ | 0.60 | $ | 0.41 | ||||||||
| 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 | $ | 0.47 | $ | 0.58 | $ | 0.59 | $ | 0.40 | ||||||||
| Weighted average shares outstanding for diluted income per share | 341,728,078 | 341,186,431 | 340,882,603 | 339,690,579 |
| (1) | We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 and 2016 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for more information. |
|---|
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