Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2011

 

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

For the Transition Period from             to            

Commission File Number 001 – 32205

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   94-3391143

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification Number)

11150 Santa Monica Boulevard, Suite 1600

Los Angeles, California

  90025
(Address of principal executive offices)   (Zip Code)
(310) 405-8900   CB RICHARD ELLIS GROUP, INC.
(Registrant’s telephone number, including area code)  

(Former name, former address and

former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨.

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

Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨

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

The number of shares of Class A common stock outstanding at October 31, 2011 was 327,967,523.

 

 

 


Table of Contents

FORM 10-Q

September 30, 2011

TABLE OF CONTENTS

 

          Page  
PART I—FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010      3   
   Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010 (Unaudited)      4   
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)      5   
   Consolidated Statement of Equity for the nine months ended September 30, 2011 (Unaudited)      6   
   Notes to Consolidated Financial Statements (Unaudited)      7   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      34   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      60   

Item 4.

   Controls and Procedures      61   
PART II—OTHER INFORMATION   

Item 1.

   Legal Proceedings      63   

Item 1A.

   Risk Factors      63   

Item 6.

   Exhibits      64   

Signatures

     66   

 

2


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

    September 30,
2011
    December 31,
2010
 
    (Unaudited)        
ASSETS    

Current Assets:

   

Cash and cash equivalents

  $ 662,594      $ 506,574   

Restricted cash

    388,068        52,257   

Receivables, less allowance for doubtful accounts of $36,179 and $33,272 at September 30, 2011 and December 31, 2010, respectively

    997,931        940,167   

Warehouse receivables

    690,229        485,433   

Trading securities

    116,530        —     

Income taxes receivable

    9,080        —     

Prepaid expenses

    104,339        96,951   

Deferred tax assets, net

    113,978        112,304   

Real estate under development

    55,766        —     

Real estate and other assets held for sale

    29,589        16,295   

Other current assets

    57,807        50,889   
 

 

 

   

 

 

 

Total Current Assets

    3,225,911        2,260,870   

Property and equipment, net

    249,889        188,397   

Goodwill

    1,581,760        1,323,801   

Other intangible assets, net of accumulated amortization of $193,829 and $166,295 at September 30, 2011 and December 31, 2010, respectively

    514,662        332,855   

Investments in unconsolidated subsidiaries

    145,882        138,973   

Deferred tax assets, net

    —          10,320   

Real estate under development

    40,882        112,819   

Real estate held for investment

    484,667        626,395   

Available for sale securities

    35,370        31,936   

Other assets, net

    136,080        95,202   
 

 

 

   

 

 

 

Total Assets

  $ 6,415,103      $ 5,121,568   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current Liabilities:

   

Accounts payable and accrued expenses

  $ 495,833      $ 445,337   

Compensation and employee benefits payable

    318,984        346,539   

Accrued bonus and profit sharing

    340,907        455,523   

Securities sold, not yet purchased

    99,727        —     

Income taxes payable

    —          18,398   

Short-term borrowings:

   

Warehouse lines of credit

    676,796        453,835   

Revolving credit facility

    41,254        17,516   

Other

    16        16   
 

 

 

   

 

 

 

Total short-term borrowings

    718,066        471,367   

Current maturities of long-term debt

    46,018        38,086   

Notes payable on real estate

    166,056        154,213   

Liabilities related to real estate and other assets held for sale

    20,703        12,152   

Other current liabilities

    21,877        15,153   
 

 

 

   

 

 

 

Total Current Liabilities

    2,228,171        1,956,768   

Long-Term Debt:

   

Senior secured term loans

    1,364,000        602,500   

11.625% senior subordinated notes, net of unamortized discount of $11,333 and $12,318 at September 30, 2011 and December 31, 2010, respectively

    438,667        437,682   

6.625% senior notes

    350,000        350,000   

Other long-term debt

    84        54   
 

 

 

   

 

 

 

Total Long-Term Debt

    2,152,751        1,390,236   

Pension liability

    38,140        40,007   

Deferred tax liabilities, net

    28,084        —     

Non-current tax liabilities

    83,680        78,306   

Notes payable on real estate

    313,576        461,665   

Other liabilities

    212,639        128,791   
 

 

 

   

 

 

 

Total Liabilities

    5,057,041        4,055,773   

Commitments and contingencies

    —          —     

Equity:

   

CBRE Group, Inc. Stockholders’ Equity:

   

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 327,906,396 and 323,594,919 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

    3,279        3,236   

Additional paid-in capital

    871,254        814,244   

Accumulated earnings

    344,736        185,337   

Accumulated other comprehensive loss

    (136,895     (94,602
 

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

    1,082,374        908,215   

Non-controlling interests

    275,688        157,580   
 

 

 

   

 

 

 

Total Equity

    1,358,062        1,065,795   
 

 

 

   

 

 

 

Total Liabilities and Equity

  $ 6,415,103      $ 5,121,568   
 

 

 

   

 

 

 

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

 

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Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2011     2010     2011     2010  

Revenue

  $ 1,534,463      $ 1,266,218      $ 4,141,786      $ 3,464,020   

Costs and expenses:

       

Cost of services

    894,607        735,393        2,448,184        2,029,301   

Operating, administrative and other

    469,138        374,815        1,279,019        1,085,554   

Depreciation and amortization

    31,308        25,605        79,871        79,516   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    1,395,053        1,135,813        3,807,074        3,194,371   

Gain on disposition of real estate

    3,595        174        11,594        3,797   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    143,005        130,579        346,306        273,446   

Equity income from unconsolidated subsidiaries

    6,714        3,682        38,961        11,333   

Other loss

    5,809        —          5,809        —     

Interest income

    2,493        1,463        7,063        6,374   

Interest expense

    39,080        49,755        107,014        149,822   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

    107,323        85,969        279,507        141,331   

Provision for income taxes

    47,290        38,075        117,032        72,078   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    60,033        47,894        162,475        69,253   

Income from discontinued operations, net of income taxes

    —          7,821        16,911        14,961   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    60,033        55,715        179,386        84,214   

Less: Net (loss) income attributable to non-controlling interests

    (3,774     (1,323     19,987        (20,987
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 63,807      $ 57,038      $ 159,399      $ 105,201   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.20      $ 0.17      $ 0.50      $ 0.31   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          0.01        —          0.03   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.20      $ 0.18      $ 0.50      $ 0.34   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for basic income per share

    318,867,447        313,791,661        317,718,150        313,197,421   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.20      $ 0.17      $ 0.49      $ 0.30   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          0.01        —          0.03   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.20      $ 0.18      $ 0.49      $ 0.33   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    323,714,703        319,353,359        323,584,637        318,278,968   
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to CBRE Group, Inc. shareholders

       

Income from continuing operations, net of tax

  $ 63,807      $ 55,563      $ 159,399      $ 96,215   

Income from discontinued operations, net of tax

    —          1,475        —          8,986   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 63,807      $ 57,038      $ 159,399      $ 105,201   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

    Nine Months Ended
September 30,
 
    2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net income

  $ 179,386      $ 84,214   

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

    80,396        79,717   

Amortization of financing costs

    5,141        8,305   

Write-down of impaired real estate and other assets

    1,625        2,592   

Gain on sale of loans, servicing rights and other assets

    (50,913     (47,782

Net realized gain from investments

    (9,400     —     

Net change in unrealized gains/losses from investments

    15,209        —     

Gain on disposition of real estate held for investment

    (20,383     (16,945

Equity income from unconsolidated subsidiaries

    (38,961     (11,333

Provision for doubtful accounts

    6,996        13,997   

Compensation expense related to stock options and non-vested stock awards

    32,866        35,353   

Incremental tax benefit from stock options exercised

    (15,266     (801

Distribution of earnings from unconsolidated subsidiaries

    15,441        14,065   

Tenant concessions received

    38,669        4,588   

Purchase of trading securities

    (63,449     —     

Proceeds from sale of trading securities

    156,876        —     

Proceeds from securities sold, not yet purchased

    108,206        —     

Securities purchased to cover short sales

    (90,364     —     

Increase in receivables

    (35,810     (51,268

(Increase) decrease in prepaid expenses and other assets

    (15,561     22,561   

Decrease in real estate held for sale and under development

    25,502        23,331   

(Decrease) increase in accounts payable and accrued expenses

    (32,471     4,109   

(Decrease) increase in compensation and employee benefits payable and accrued bonus and profit sharing

    (160,634     58,521   

(Increase) decrease in income taxes receivable

    (30,449     103,036   

Increase (decrease) in other liabilities

    5,856        (1,657

Other operating activities, net

    (4,384     321   
 

 

 

   

 

 

 

Net cash provided by operating activities

    104,124        324,924   

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Capital expenditures

    (95,398     (17,885

Acquisition of Clarion Real Estate Securities, including net assets acquired, intangibles and goodwill, net of cash acquired

    (215,865     —     

Acquisition of businesses (other than Clarion Real Estate Securities), including net assets acquired, intangibles and goodwill, net of cash acquired

    (49,790     (68,620

Contributions to unconsolidated subsidiaries

    (22,245     (22,646

Distributions from unconsolidated subsidiaries

    42,048        19,243   

Net proceeds from disposition of real estate held for investment

    115,514        76,504   

Additions to real estate held for investment

    (7,454     (22,861

Proceeds from the sale of servicing rights and other assets

    16,958        22,522   

Increase in restricted cash

    (328,344     (5,726

Other investing activities, net

    (1,965     (1,386
 

 

 

   

 

 

 

Net cash used in investing activities

    (546,541     (20,855

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Proceeds from senior secured term loans

    800,000        —     

Repayment of senior secured term loans

    (30,500     (214,880

Proceeds from revolving credit facility

    993,733        16,349   

Repayment of revolving credit facility

    (967,414     (19,190

Proceeds from notes payable on real estate held for investment

    5,697        18,981   

Repayment of notes payable on real estate held for investment

    (98,964     (79,555

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

    4,684        3,603   

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

    (26,594     (9,953

Repayment of short-term borrowings and other loans, net

    —          (4,048

Proceeds from exercise of stock options

    7,059        578   

Incremental tax benefit from stock options exercised

    15,266        801   

Non-controlling interests contributions

    9,400        27,367   

Non-controlling interests distributions

    (90,584     (6,725

Payment of financing costs

    (22,150     (6,066

Other financing activities, net

    (112     (283
 

 

 

   

 

 

 

Net cash provided by (used in) financing activities

    599,521        (273,021

Effect of currency exchange rate changes on cash and cash equivalents

    (1,084     (3,930
 

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

    156,020        27,118   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

    506,574        741,557   
 

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

  $ 662,594      $ 768,675   
 

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   

Cash paid (received) during the period for:

   

Interest

  $ 79,077      $ 122,631   
 

 

 

   

 

 

 

Income tax payments (refunds), net

  $ 144,877      $ (26,808
 

 

 

   

 

 

 

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

 

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Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

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

Balance at December 31, 2010

  $ 3,236      $ 814,244      $ 185,337      $ (94,602   $ 157,580      $ 1,065,795   

Net income

    —          —          159,399        —          19,987        179,386   

Stock options exercised (including tax benefit)

    16        22,309        —          —          —          22,325   

Compensation expense for stock options and non-vested stock awards

    —          32,866        —          —          —          32,866   

Foreign currency translation loss

    —          —          —          (21,196     (1,181     (22,377

Unrealized losses on interest rate swaps and interest rate caps, net

    —          —          —          (23,062     —          (23,062

Contributions from non-controlling interests

    —          —          —          —          9,400        9,400   

Distributions to non-controlling interests

    —          —          —          —          (90,584     (90,584

Acquisition of non-controlling interests

    —          —          —          —          182,898        182,898   

Other, net

    27        1,835        —          1,965        (2,412     1,415   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

  $ 3,279      $ 871,254      $ 344,736      $ (136,895   $ 275,688      $ 1,358,062   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of CBRE Group, Inc., a Delaware corporation formerly known as CB Richard Ellis Group, Inc. (which may be referred to in these financial statements as the “company”, “we”, “us” and “our”), have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (GAAP) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of revenue and expenses. Such estimates include the value of real estate assets, accounts receivable, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2011. The consolidated financial statements and notes to consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2010.

2. New Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-29, “Business Combinations (Topic 805), Disclosure of Supplementary Pro Forma Information for Business Combinations.” ASU 2010-29 specifies that when a public company completes a business combination, the company should disclose revenue and earnings of the combined entity as though the business combination occurred as of the beginning of the comparable prior annual reporting period. The update also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and earnings. The requirements of ASU 2010-29 are effective for business combinations that occur on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860), Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 specifies when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. The requirements of ASU 2011-03 will be effective for the first interim or annual period beginning on or after December 15, 2011, with early adoption prohibited. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” These amendments were issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for level 3 fair value measurements. This ASU is effective for interim and annual periods beginning after December 15, 2011, with early adoption prohibited. We are currently evaluating the impact of adoption of this update on our consolidated financial statements, but do not expect it to have a material impact.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This ASU eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted, and will require retrospective application for all periods presented. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives companies the option to perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

3. REIM Acquisitions

On February 15, 2011, we announced that we had entered into definitive agreements to acquire the majority of the real estate investment management business of Netherlands-based ING Group N.V. (ING) for approximately $940 million in cash. The acquisitions include substantially all of the ING Real Estate Investment Management (REIM) operations in Europe and Asia, as well as substantially all of Clarion Real Estate Securities (CRES), its U.S.-based global real estate listed securities business (collectively referred to as ING REIM). On February 15, 2011, we also announced that we expected to acquire approximately $55 million of CRES co-investments from ING and potentially additional interests in other funds managed by ING REIM Europe and ING REIM Asia. Upon completion of the acquisitions (which we refer to as the REIM Acquisitions), ING REIM became part of our Global Investment Management segment (which conducts business through our indirect wholly-owned subsidiary, CBRE Global Investors, formerly known as CBRE Investors), which will continue to be an independently operated business segment. In addition, we expect to incur transaction costs relating to the REIM Acquisitions of approximately $150 million (pre-tax), including financing, retention and integration costs. We secured borrowings of $800.0 million of new term loans to finance the REIM Acquisitions (see Note 9). Of this amount, $400.0 million was drawn on June 30, 2011 to finance the CRES portion of the REIM Acquisitions, which closed on July 1, 2011. On August 31, 2011, we drew down the remaining $400.0 million, part of which was used to finance the ING REIM Asia portion of the REIM Acquisitions, which closed on October 3, 2011, and the remainder, along with cash on hand and borrowings under our revolving credit facility, was used to finance the ING REIM Europe portion of the REIM Acquisitions, which closed on October 31, 2011 (see Note 17).

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The purchase price for the CRES portion of the REIM Acquisitions was $323.9 million. In connection with our acquisition of CRES, we acquired CRES co-investments from ING in three funds (CRES Funds) for an aggregate purchase price of $58.6 million. We determined that the CRES Funds were not variable interest entities and accordingly determined the method of accounting based upon voting control. The limited partners/members of the CRES Funds lack substantive rights that would overcome our presumption of control. Accordingly, we began consolidating the CRES Funds as of the acquisition date of July 1, 2011. Included in the accompanying consolidated balance sheets as of September 30, 2011, is cash held by the CRES Funds totaling $191.7 million, which is not available for general corporate use.

The preliminary purchase accounting adjustments for CRES have been recorded in the accompanying consolidated financial statements as of, and for periods subsequent to July 1, 2011. Assets acquired include $166.6 million of cash and cash equivalents, $235.3 million of trading securities, $156.4 million of identified intangibles and $223.4 million of goodwill. Assumed liabilities include $101.6 million of securities sold, not yet purchased and $62.6 million of deferred tax liabilities. In addition, $182.9 million of non-controlling interests were assumed. The trading securities and the securities sold, not yet purchased are Level 1 securities under the “Fair Value Measurements and Disclosures” Topic of the FASB Accounting Standards Codification (ASC) (Topic 820). Given the complexity of the transaction, the calculation of the fair value of certain assets and liabilities acquired, primarily intangible assets and 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.

4. Fair Value Measurements

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

 

   

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

 

   

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

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The fair value measurements employed for our impairment evaluations were generally based on a discounted cash flow approach and/or review of comparable activities in the market place. Inputs used in these evaluations included risk-free rates of return, estimated risk premiums as well as other economic variables.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following non-recurring fair value measurements were recorded during the three and nine months ended September 30, 2011 (dollars in thousands):

 

     Net Carrying Value
as of
September 30, 2011
     Fair Value Measured and Recorded Using      Total Impairment
Charges for the
Three and
Nine Months Ended
September 30, 2011
 
          Level 1              Level 2              Level 3         

Investments in unconsolidated subsidiaries

   $ 22,054       $ —         $ —         $ 22,054       $ 4,601   

Real estate

   $ 31,619       $ —         $ —         $ 31,619         1,625   
              

 

 

 

Total impairment charges

               $ 6,226   
              

 

 

 

The following non-recurring fair value measurements were recorded during the three and nine months ended September 30, 2010 (dollars in thousands):

 

     Net Carrying  Value
as of
September 30, 2010
     Fair Value Measured and Recorded Using      Total Impairment
Charges for the
Three Months Ended

September 30, 2010
 
          Level 1              Level 2              Level 3         

Investments in unconsolidated subsidiaries

   $ 20,494       $ —         $ —         $ 20,494       $ 1,594   

Real estate

   $ 11,219       $ —         $ —         $ 11,219         2,342   

Note receivable

   $ —         $ —         $ —         $ —           250   
              

 

 

 

Total impairment charges

               $ 4,186   
              

 

 

 

 

     Net Carrying  Value
as of
September 30, 2010
     Fair Value Measured and Recorded Using      Total  Impairment
Charges for the
Nine Months Ended

September 30, 2010
 
          Level 1              Level 2              Level 3         

Investments in unconsolidated subsidiaries

   $ 33,612       $ —         $ —         $ 33,612       $ 8,541   

Real estate

   $ 11,219       $ —         $ —         $ 11,219         2,342   

Note receivable

   $ —         $ —         $ —         $ —           250   
              

 

 

 

Total impairment charges

               $ 11,133   
              

 

 

 

Investments in Unconsolidated Subsidiaries

During the three and nine months ended September 30, 2011, we recorded write-downs of $4.6 million, of which $4.5 million was reported in our Global Investment Management segment and $0.1 million was reported in our Development Services segment. These write-downs were primarily driven by a decrease in the estimated holding period of certain assets.

During the three and nine months ended September 30, 2010, we recorded write-downs of $1.6 million and $8.5 million, respectively, of which $0.1 million and $2.6 million, respectively, were attributable to non-controlling interests. During the three and nine months ended September 30, 2010, $1.3 million and $7.2 million, respectively, of the investments write-downs were reported in our Global Investment Management segment and driven by a decrease in the estimated holding period of certain assets. In addition, during the nine

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

months ended September 30, 2010, we incurred an additional $1.0 million of impairment charges in our Global Investment Management segment and during the three and nine months ended September 30, 2010, we incurred write-downs of $0.3 million in our Development Services segment, all driven by a decline in value of several investments attributable to continued capital markets disruption.

All of our impairment charges related to investments in unconsolidated subsidiaries were included in equity income (loss) from unconsolidated subsidiaries in the accompanying consolidated statements of operations. When we performed our impairment analysis, the assumptions utilized reflected our outlook for the commercial real estate industry and the impact on our business. This outlook incorporated our belief that market conditions deteriorated and that these challenging conditions could persist for some time.

Real Estate

During the three and nine months ended September 30, 2011, we recorded a $1.3 million provision for losses on real estate held for sale. This charge reduced the carrying value of certain assets to their fair value, less cost to sell, primarily due to reduced expected selling prices resulting from continued challenging market conditions. In addition, during the three and nine months ended September 30, 2011, we recorded an impairment charge of $0.3 million related to real estate held for investment, the majority of which was attributable to non-controlling interests. This investment write-down was attributable to slower than expected leasing.

During the three and nine months ended September 30, 2010, we recorded impairment charges of $2.3 million related to real estate held for investment, $1.6 million of which was attributable to non-controlling interests. These write-downs were primarily attributable to a decrease in the estimated holding period of one project as well as continued capital markets disruption.

All of our impairment charges related to real estate were included in operating, administrative and other expenses in the accompanying consolidated statements of operations within our Development Services segment. If conditions in the broader economy, commercial real estate industry, specific markets or product types in which we operate worsen, we may be required to evaluate additional projects or re-evaluate previously impaired projects for potential impairment. These evaluations could result in additional impairment charges, which may be material.

Notes Receivable

During the three and nine months ended September 30, 2010 we recorded a $0.3 million impairment charge on a note receivable secured by real estate, due to a decrease in value of the borrower’s real estate project, the proceeds from the sale of which would be used to repay the note receivable. This impairment charge was included in operating, administrative and other expenses in the accompanying consolidated statement of operations within our Development Services segment.

We do not have any material assets or liabilities that are required to be recorded at fair value on a recurring basis.

Topic 820 also requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets, 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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

Warehouse Receivables: These balances are carried at fair value based on market prices at the balance sheet date.

Trading and Available for Sale Securities: These investments are carried at their fair value.

Securities Sold, Not Yet Purchased: These liabilities are carried at their fair value.

Short-Term Borrowings: The majority of this balance represents our warehouse lines of credit outstanding for CBRE Capital Markets and our revolving credit facility. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value.

Senior Secured Term Loans: Based upon information from third-party banks, the estimated fair value of our senior secured term loans was approximately $1.4 billion at September 30, 2011, which approximates their actual carrying value at September 30, 2011 (see Note 9).

11.625% Senior Subordinated Notes: Based on dealers’ quotes, the estimated fair value of our 11.625% senior subordinated notes was $495.7 million at September 30, 2011. Their actual carrying value totaled $438.7 million at September 30, 2011.

6.625% Senior Notes: Based on dealers’ quotes, the estimated fair value of our 6.625% senior notes was $337.3 million at September 30, 2011. Their actual carrying value totaled $350.0 million at September 30, 2011.

Notes Payable on Real Estate: As of September 30, 2011, the carrying value of our notes payable on real estate was $499.3 million (see Note 8). These borrowings mostly have floating interest rates at spreads over a market rate index. It is likely that some portion of our notes payable on real estate have fair values lower than actual carrying values. Given our volume of notes payable and the cost involved in estimating their fair value, we determined it was not practicable to determine an estimated fair value for these notes payable. Additionally, only $13.6 million of these notes payable are recourse to us as of September 30, 2011.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

5. Investments in Unconsolidated Subsidiaries

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Global Investment Management:

        

Revenue

   $ 144,728      $ 137,453      $ 443,883      $ 413,277   

Operating loss

   $ (88,371   $ (125,640   $ (131,669   $ (481,362

Net income (loss)

   $ 157,754      $ (214,204   $ 87,487      $ (576,419

Development Services:

        

Revenue

   $ 38,235      $ 32,509      $ 85,816      $ 85,070   

Operating income (loss)

   $ 8,218      $ (4,419   $ 85,015      $ 30,650   

Net (loss) income

   $ (2,463   $ (17,295   $ 56,668      $ (3,831

Other:

        

Revenue

   $ 54,300      $ 14,354      $ 121,102      $ 75,248   

Operating income

   $ 9,655      $ 4,823      $ 18,088      $ 12,327   

Net income

   $ 9,840      $ 4,975      $ 18,339      $ 12,750   

Total:

        

Revenue

   $   237,263      $    184,316      $    650,801      $    573,595   

Operating loss

   $ (70,498   $ (125,236   $ (28,566   $ (438,385

Net income (loss)

   $ 165,131      $ (226,524   $ 162,494      $ (567,500

During the three and nine months ended September 30, 2011, we recorded non-cash write-downs of investments of $4.6 million within our Global Investment Management and Development Services segments. During the three and nine months ended September 30, 2010, we recorded non-cash write-downs of investments of $1.6 million and $8.5 million, respectively, within our Global Investment Management and Development Services segments. See Note 4 for additional information.

Our Global Investment Management segment involves investing our own capital in certain real estate investments with clients. We have provided investment management, property management, brokerage and other professional services in connection with these real estate investments on an arm’s length basis and earned revenues from these unconsolidated subsidiaries. We have also provided development, property management and brokerage services to certain of our unconsolidated subsidiaries in our Development Services segment on an arm’s length basis and earned revenues from these unconsolidated subsidiaries.

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

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Real estate and other assets held for sale and related liabilities were as follows (dollars in thousands):

 

     September 30, 2011      December 31, 2010  

Assets:

     

Real estate held for sale (see Note 7)

   $ 25,255       $ 15,399   

Other current assets

     576         20   

Property and equipment, net

     —           869   

Other assets

     3,758         7   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     29,589         16,295   

Liabilities:

     

Notes payable on real estate held for sale (see Note 8)

     19,697         11,650   

Accounts payable and accrued expenses

     869         370   

Other current liabilities

     8         28   

Other liabilities

     129         104   
  

 

 

    

 

 

 

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

     20,703         12,152   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 8,886       $ 4,143   
  

 

 

    

 

 

 

7. Real Estate

We provide build-to-suit services for our clients and also develop or purchase certain projects which we intend to sell to institutional investors upon project completion or redevelopment. Therefore, we have ownership of real estate until such projects are sold or otherwise disposed. Additionally, we consolidate certain variable interest entities that hold investments in real estate. Certain real estate assets secure the outstanding balances of underlying mortgage or construction loans. Our real estate is reported in our Development Services and Global Investment Management segments and consisted of the following (dollars in thousands):

 

     September 30, 2011      December 31, 2010  

Real estate included in assets held for sale (see Note 6)

   $ 25,255       $ 15,399   

Real estate under development (current)

     55,766         —     

Real estate under development (non-current)

     40,882         112,819   

Real estate held for investment (1)

     484,667         626,395   
  

 

 

    

 

 

 

Total real estate (2)

   $ 606,570       $ 754,613   
  

 

 

    

 

 

 

 

(1) Net of accumulated depreciation of $43.2 million and $37.8 million at September 30, 2011 and December 31, 2010, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $8.7 million and $2.2 million, respectively, at September 30, 2011 and $10.1 million and $3.3 million, respectively, at December 31, 2010. We record lease intangibles and tenant origination costs upon acquiring real estate projects with in-place leases. The balances are shown net of amortization, which is recorded as an increase to, or a reduction of, rental income for lease intangibles and as amortization expense for tenant origination costs.

During the three and nine months ended September 30, 2011, we recorded a $1.3 million provision for losses on real estate held for sale within our Development Services segment. In addition, during the three and nine months ended September 30, 2011, we recorded an impairment charge of $0.3 million related to real estate held for investment. See Note 4 for additional information.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

8. Notes Payable on Real Estate

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

 

     September 30, 2011      December 31, 2010  

Current portion of notes payable on real estate

   $ 166,056       $ 154,213   

Notes payable on real estate included in liabilities related to real estate and other assets held for sale (see Note 6)

     19,697         11,650   
  

 

 

    

 

 

 

Total notes payable on real estate, current portion

     185,753         165,863   

Notes payable on real estate, non-current portion

     313,576         461,665   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 499,329       $ 627,528   
  

 

 

    

 

 

 

At September 30, 2011 and December 31, 2010, $11.5 million and $1.4 million, respectively, of the non-current portion of notes payable on real estate and $2.1 million and $2.3 million, respectively, of the current portion of notes payable on real estate were recourse to us, beyond being recourse to the single-purpose entity that held the real estate asset and was the primary obligor on the note payable.

9. Debt

Since 2001, we have maintained credit facilities with Credit Suisse Group AG (CS) and other lenders to fund strategic acquisitions and to provide for our working capital needs. On November 10, 2010, we entered into a new credit agreement (as amended, the Credit Agreement) with a syndicate of banks led by CS, as administrative and collateral agent, to completely refinance our previous credit facilities. On March 4, 2011, we entered into an amendment to our Credit Agreement to, among other things, increase flexibility to various covenants to accommodate the REIM Acquisitions and to maintain the availability of the $800.0 million incremental facility under the Credit Agreement. On March 4, 2011, we also entered into an incremental assumption agreement to allow for the establishment of new tranche C and tranche D term loan facilities.

As of September 30, 2011, our Credit Agreement provides for the following: (1) a $700.0 million revolving credit facility, including revolving credit loans, letters of credit and a swingline loan facility, maturing on May 10, 2015; (2) a $350.0 million tranche A term loan facility requiring quarterly principal payments, which began on December 31, 2010 and continue through September 30, 2015, with the balance payable on November 10, 2015, (3) a $300.0 million tranche B term loan facility requiring quarterly principal payments, which began on December 31, 2010 and continue through September 30, 2016, with the balance payable on November 10, 2016; 4) a $400.0 million tranche C term loan facility requiring quarterly principal payments, which began on September 30, 2011 and continue through December 31, 2017, with the balance payable on March 4, 2018; (5) a $400.0 million tranche D term loan facility requiring quarterly principal payments, which began on September 30, 2011 and continue through June 30, 2019, with the balance payable on September 4, 2019; and (6) an accordion provision which provides the ability to borrow an additional $800.0 million, which can be further expanded, subject to the satisfaction of what we believe are customary conditions. In regards to the tranche C and tranche D term loan facilities, we had up to 180 days from the date we entered into the incremental assumption agreement to draw on these facilities, which we elected to do, during which period we were required to pay a fee on the unused portions of each facility. On June 30, 2011, we drew down $400.0 million of the tranche D term loan facility to finance the CRES portion of the REIM Acquisitions, which closed on July 1, 2011 (see Note 3). On August 31, 2011, we drew down $400.0 million of the tranche C term loan facility, part of

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

which was used to finance the ING REIM Asia portion of the REIM Acquisitions, which closed on October 3, 2011 (see Note 17). The remaining unused borrowings were deposited in an escrow account, which has been included in restricted cash in the accompanying consolidated balance sheets as of September 30, 2011, and were used to finance the acquisition of ING REIM’s operations in Europe, which closed on October 31, 2011 (see Note 17).

The revolving credit facility allows for borrowings outside of the United States (U.S.), with sub-facilities of $5.0 million available to one of our Canadian subsidiaries, $35.0 million in aggregate available to one of our Australian and one of our New Zealand subsidiaries and $50.0 million available to one of our United Kingdom (U.K.) subsidiaries. Additionally, outstanding borrowings under these sub-facilities may be up to 5.0% higher as allowed under the currency fluctuation provision in the Credit Agreement. Borrowings under the revolving credit facility as of September 30, 2011 bear interest at varying rates, based at our option, on either the applicable fixed rate plus 1.65% to 3.15% or the daily rate plus 0.65% to 2.15% as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). As of September 30, 2011 and December 31, 2010, we had $41.3 million and $17.5 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 5.2% and 3.5%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of September 30, 2011, letters of credit totaling $13.3 million were outstanding under the revolving credit facility. These letters of credit were primarily issued in the normal course of business as well as in connection with certain insurance programs and reduce the amount we may borrow under the revolving credit facility.

Borrowings under the term loan facilities as of September 30, 2011 bear interest, based at our option, on the following: for the tranche A term loan facility, on either the applicable fixed rate plus 2.00% to 3.75% or the daily rate plus 1.00% to 2.75%, as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement), for the tranche B term loan facility, on either the applicable fixed rate plus 3.25% or the daily rate plus 2.25%, for the tranche C term loan facility, on either the applicable fixed rate plus 3.25% or the daily rate plus 2.25% and for the tranche D term loan facility, on either the applicable fixed rate plus 3.50% or the daily rate plus 2.50%. As of September 30, 2011 and December 31, 2010, we had $315.0 million and $341.3 million, respectively, of tranche A term loan facility principal outstanding and $297.0 million and $299.2 million, respectively, of tranche B term loan facility principal outstanding, which are included in the accompanying consolidated balance sheets. As of September 30, 2011, we also had $399.0 million of both tranche C and tranche D term loan facilities principal outstanding, which are 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 hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. The total notional amount of these interest rate swap agreements is $400.0 million, with $200.0 million expiring in October 2017 and $200.0 million expiring in September 2019. There was no hedge ineffectiveness for the three and nine months ended September 30, 2011. During the three and nine months ended September 30, 2011, we recorded net losses of $27.5 million and $39.1 million, respectively, to other comprehensive loss in relation to these interest rate swap agreements. As of September 30, 2011, the fair values of these interest rate swap agreements were reflected as a $39.1 million liability and were included in other long-term liabilities in the accompanying consolidated balance sheets. The fair value measurements employed for these interest rate swap agreements were based on observable market data, which falls within Level 2 of the fair value hierarchy.

The Credit Agreement is jointly and severally guaranteed by us and substantially all of our domestic subsidiaries. Borrowings under our Credit Agreement are secured by a pledge of substantially all of the capital

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

stock of our U.S. subsidiaries and 65.0% of the capital stock of certain non-U.S. subsidiaries. Also, the Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment.

Our Credit Agreement and the indentures governing our 6.625% senior notes and 11.625% senior subordinated notes contain numerous restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, create or permit liens on assets, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. Our Credit Agreement also currently requires us to maintain a minimum coverage ratio of EBITDA (as defined in the Credit Agreement) to total interest expense of 2.25x and a maximum leverage ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement) of 3.75x. Our coverage ratio of EBITDA to total interest expense was 16.36x for the trailing twelve months ended September 30, 2011 and our leverage ratio of total debt less available cash to EBITDA was 1.55x as of September 30, 2011.

10. Commitments and Contingencies

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, the ordinary course of our business. Our management believes that any liability imposed on us that may result from disposition of these lawsuits will not have a material effect on our business, consolidated financial position, cash flows or results of operations.

We had outstanding letters of credit totaling $12.6 million as of September 30, 2011, 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. These letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through September 2012.

We had guarantees totaling $24.9 million as of September 30, 2011, 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 operating leases. The $24.9 million primarily consists of guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through November 2013.

In addition, as of September 30, 2011, we had numerous completion and budget guarantees relating to development projects. These guarantees are made by us in the ordinary course of our Development Services business. Each of these guarantees requires 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 have “guaranteed maximum price” contracts with reputable 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.

From time to time, we act as a general contractor with respect to construction projects. We do not consider these activities to be a material part of our business. In connection with these activities, we seek to subcontract construction work for certain projects to reputable subcontractors. Should construction defects arise relating to the underlying projects, we could potentially be liable to the client for the costs to repair such defects, although we would generally look to the subcontractor that performed the work to remedy the defect and also look to insurance policies that cover this work. While there can be no assurance, we do not expect to incur material losses with respect to construction defects.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In January 2008, CBRE Multifamily Capital, Inc. (CBRE MCI), a wholly-owned subsidiary of CBRE Capital Markets, Inc., entered into an agreement with Fannie Mae, under Fannie Mae’s DUS Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and in selected cases, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $2.9 billion at September 30, 2011. Additionally, CBRE MCI has funded loans under the DUS Program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $522.6 million at September 30, 2011. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of September 30, 2011 and December 31, 2010, CBRE MCI had $3.7 million and $2.2 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $5.5 million and $4.0 million, respectively, of loan loss accruals. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which totaled approximately $272.2 million (including $215.8 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 September 30, 2011.

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2.0% to 5.0% of the equity in a particular fund. As of September 30, 2011, we had aggregate commitments of $18.6 million to fund future co-investments.

Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of September 30, 2011, we had committed to fund $15.4 million of additional capital to these unconsolidated subsidiaries.

11. Income Per Share Information

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

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2011     2010     2011     2010  

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

       

Net income attributable to CBRE Group, Inc. shareholders

  $ 63,807      $ 57,038      $ 159,399      $ 105,201   

Weighted average shares outstanding for basic income per share

    318,867,447        313,791,661        317,718,150        313,197,421   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.20      $ 0.18      $ 0.50      $ 0.34   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2011     2010     2011     2010  

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

       

Net income attributable to CBRE Group, Inc. shareholders

  $ 63,807      $ 57,038      $ 159,399      $ 105,201   

Weighted average shares outstanding for basic income per share

    318,867,447        313,791,661        317,718,150        313,197,421   

Dilutive effect of contingently issuable shares

    3,125,397        2,887,979        3,559,385        2,527,199   

Dilutive effect of stock options

    1,721,859        2,673,719        2,307,102        2,554,348   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    323,714,703        319,353,359        323,584,637        318,278,968   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.20      $ 0.18      $ 0.49      $ 0.33   
 

 

 

   

 

 

   

 

 

   

 

 

 

For the three and nine months ended September 30, 2011, options to purchase 132,749 shares and 55,587 shares, respectively, of common stock and 547,434 shares and 11,880 shares, respectively, of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

For the three and nine months ended September 30, 2010, options to purchase 597,547 shares of common stock and 1,651,677 shares of contingently issuable shares were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

12. Comprehensive (Loss) Income

The following table provides a summary of comprehensive (loss) income (dollars in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Net income

   $ 60,033      $ 55,715      $ 179,386      $ 84,214   

Other comprehensive (loss) income:

        

Foreign currency translation (loss) gain

     (67,922     61,191        (22,377     597   

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

     (16,285     86        (23,062     382   

Other, net

     1,459        (198     1,965        2,015   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (82,748     61,079        (43,474     2,994   

Comprehensive (loss) income

     (22,715     116,794        135,912        87,208   

Less: Comprehensive (loss) income attributable to non-controlling interests

     (5,785     (643     18,806        (21,031
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ (16,930   $ 117,437      $ 117,106      $ 108,239   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

13. Pensions

We have two contributory defined benefit pension plans in the U.K., which we acquired in connection with previous acquisitions. Our subsidiaries based in the U.K. maintain the plans to provide retirement benefits to existing and former employees participating in these plans. During 2007, we reached agreements with the active members of these plans to freeze future pension plan benefits. In return, the active members became eligible to enroll in the CBRE Group Personal Pension Plan, a defined contribution plan in the U.K.

Net periodic pension cost consisted of the following (dollars in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Interest cost

   $ 4,182      $ 4,050      $ 12,504      $ 11,997   

Expected return on plan assets

     (4,295     (3,757     (12,868     (11,133

Amortization of unrecognized net loss

     343        552        1,025        1,637   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 230      $ 845      $ 661      $ 2,501   
  

 

 

   

 

 

   

 

 

   

 

 

 

We contributed $0.9 million and $2.7 million to fund our pension plans during the three and nine months ended September 30, 2011, respectively. We expect to contribute a total of $5.0 million to fund our pension plans for the year ending December 31, 2011.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

14. Discontinued Operations

In the ordinary course of business, we dispose of real estate assets, or hold real estate assets for sale, that may be considered components of an entity in accordance with Topic 360. If we do not have, or expect to have, significant continuing involvement with the operation of these real estate assets after disposition, we are required to recognize operating profits or losses and gains or losses on disposition of these assets as discontinued operations in our consolidated statements of operations in the periods in which they occur. Real estate operations and dispositions accounted for as discontinued operations for the three and nine months ended September 30, 2011 and 2010 were reported in our Global Investment Management and Development Services segments as follows (dollars in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
         2011              2010              2011              2010      

Revenue

   $ —         $ 704       $ 2,385       $ 1,682   

Costs and expenses:

           

Operating, administrative and other

     —           500         1,234         856   

Depreciation and amortization

     —           33         525         201   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and expenses

     —           533         1,759         1,057   

Gain on disposition of real estate

     —           8,520         17,638         20,399   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     —           8,691         18,264         21,024   

Interest income

     —           —           —           1   

Interest expense

     —           372         1,353         1,087   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from discontinued operations before provision for income taxes

     —           8,319         16,911         19,938   

Provision for income taxes

     —           498         —           4,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from discontinued operations, net of income taxes

     —           7,821         16,911         14,961   

Less: Income from discontinued operations attributable to non-controlling interests

     —           6,346         16,911         5,975   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from discontinued operations attributable to CBRE Group, Inc.

   $ —         $ 1,475       $ —         $ 8,986   
  

 

 

    

 

 

    

 

 

    

 

 

 

15. Industry Segments

We report our operations through the following segments: (1) Americas, (2) EMEA, (3) Asia Pacific, (4) Global Investment Management and (5) Development Services.

The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the U.S. and in the largest regions of Canada and selected parts of Latin America. The primary services offered consist of the following: real estate services, mortgage loan origination and servicing, valuation services, asset services and corporate services.

Our EMEA and Asia Pacific segments provide services similar to the Americas business segment. The EMEA segment has operations primarily in Europe, while the Asia Pacific segment has operations primarily in Asia, Australia and New Zealand.

Our Global Investment Management business provides investment management services to clients seeking to generate returns and diversification through direct and indirect investments in real estate in the U.S., Europe and Asia.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

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

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Revenue

           

Americas

   $ 954,213       $ 812,287       $ 2,602,156       $ 2,180,153   

EMEA

     275,958         215,768         742,013         629,306   

Asia Pacific

     208,055         167,357         557,101         460,467   

Global Investment Management

     77,426         49,518         185,302         135,821   

Development Services

     18,811         21,288         55,214         58,273   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,534,463       $ 1,266,218       $ 4,141,786       $ 3,464,020   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

EBITDA

           

Americas

   $ 126,156       $ 110,487       $ 319,659       $ 262,322   

EMEA

     21,089         17,786         45,470         41,776   

Asia Pacific

     21,817         15,554         51,696         36,589   

Global Investment Management

     6,154         16,680         14,614         22,516   

Development Services

     3,776         9,406         26,692         43,304   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 178,992       $ 169,913       $ 458,131       $ 406,507   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization. Our management believes EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses EBITDA as a measure to evaluate the operating performance of our various business segments and for other discretionary purposes, including as a significant component when measuring our operating performance under our employee incentive programs. Additionally, we believe EBITDA is useful to investors to assist them in getting a more complete picture of our results from operations.

However, EBITDA is not a recognized measurement under GAAP and when analyzing our operating performance, readers should use EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Net interest expense has been expensed in the segment incurred. Provision for (benefit of) income taxes has been allocated among our segments by using applicable U.S. and foreign effective tax rates. EBITDA for our segments is calculated as follows (dollars in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Americas

        

Net income attributable to CBRE Group, Inc.

   $ 54,908      $ 41,500      $ 136,432      $ 79,084   

Add:

        

Depreciation and amortization

     15,855        13,943        43,517        43,630   

Interest expense

     30,197        36,724        81,769        115,410   

Royalty and management service income

     (7,188     (4,909     (20,703     (14,401

Provision for income taxes

     34,196        24,277        83,523        41,708   

Less:

        

Interest income

     1,812        1,048        4,879        3,109   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 126,156      $ 110,487      $ 319,659      $ 262,322   
  

 

 

   

 

 

   

 

 

   

 

 

 

EMEA

        

Net income attributable to CBRE Group, Inc.

   $ 3,929      $ 5,445      $ 14,321      $ 11,695   

Add:

        

Depreciation and amortization

     3,191        2,289        7,706        7,063   

Interest expense

     30        64        187        189   

Royalty and management service expense

     3,507        2,767        9,660        8,308   

Provision for income taxes

     10,680        7,500        14,468        15,484   

Less:

        

Interest income

     248        279        872        963   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 21,089      $ 17,786      $ 45,470      $ 41,776   
  

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

        

Net income attributable to CBRE Group, Inc.

   $ 6,585      $ 2,726      $ 15,672      $ 9,376   

Add:

        

Depreciation and amortization

     2,979        1,943        6,950        6,062   

Interest expense

     1,395        547        2,624        1,717   

Royalty and management service expense

     3,468        1,949        10,314        5,487   

Provision for income taxes

     7,550        8,488        17,085        15,976   

Less:

        

Interest income

     160        99        949        2,029   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 21,817      $ 15,554      $ 51,696      $ 36,589   
  

 

 

   

 

 

   

 

 

   

 

 

 

Global Investment Management

        

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

   $ (17   $ 4,835      $ (12,249   $ (4,752

Add:

        

Depreciation and amortization (1)

     6,281        3,632        13,472        10,102   

Interest expense (2)

     4,097        8,049        14,186        18,527   

Royalty and management service expense

     213        193        729        606   

Benefit of income taxes

     (4,156     (4     (1,223     (1,774

Less:

        

Interest income

     264        25        301        193   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (3)

   $ 6,154      $ 16,680      $ 14,614      $ 22,516   
  

 

 

   

 

 

   

 

 

   

 

 

 

Development Services

        

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

   $ (1,598   $ 2,532      $ 5,223      $ 9,798   

Add:

        

Depreciation and amortization (4)

     3,002        3,831        8,751        12,860   

Interest expense (5)

     3,361        4,743        9,601        15,066   

(Benefit of) provision for income taxes (6)

     (980     (1,688     3,179        5,661   

Less:

        

Interest income

     9        12        62        81   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (7)

   $ 3,776      $ 9,406      $ 26,692      $ 43,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

23


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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

(1) Includes depreciation and amortization related to discontinued operations of $0.5 million for the nine months ended September 30, 2011.
(2) Includes interest expense related to discontinued operations of $1.4 million for the nine months ended September 30, 2011.
(3) Includes EBITDA related to discontinued operations of $1.9 million for the nine months ended September 30, 2011.
(4) Includes depreciation and amortization related to discontinued operations of $0.03 million and $0.2 million for the three and nine months ended September 30, 2010, respectively.
(5) Includes interest expense related to discontinued operations of $0.4 million and $1.1 million for the three and nine months ended September 30, 2010, respectively.
(6) Includes provision for income taxes related to discontinued operations of $0.5 million and $5.0 million for the three and nine months ended September 30, 2010, respectively.
(7) Includes EBITDA related to discontinued operations of $2.4 million and $15.3 million for the three and nine months ended September 30, 2010, respectively.

 

     September 30,
2011
     December 31,
2010
 
     (Dollars in thousands)  

Identifiable assets

     

Americas

   $ 2,684,612       $ 2,337,183   

EMEA

     794,383         749,159   

Asia Pacific

     394,994         372,068   

Global Investment Management

     1,123,172         500,023   

Development Services

     498,081         533,937   

Corporate

     919,861         629,198   
  

 

 

    

 

 

 
   $ 6,415,103       $ 5,121,568   
  

 

 

    

 

 

 

Identifiable assets by industry segment are those assets used in our operations in each segment. Corporate identifiable assets include cash and cash equivalents, restricted cash and net deferred tax assets.

16. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010; condensed consolidating statements of operations for the three and nine months ended September 30, 2011 and 2010; and condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2010, of (a) CBRE Group, Inc. as the parent, (b) CBRE Services, Inc. (CBRE) as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) CBRE Group, Inc. on a consolidated basis; and

(2) Elimination entries necessary to consolidate CBRE Group, Inc. as the parent, with CBRE and its guarantor and nonguarantor subsidiaries.

Investments in consolidated subsidiaries are presented using the equity method of accounting. The principal elimination entries eliminate investments in consolidated subsidiaries and intercompany balances and transactions.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER 30, 2011

(Dollars in thousands)

 

     Parent      CBRE      Guarantor
Subsidiaries
     Nonguarantor
Subsidiaries
     Elimination     Consolidated
Total
 

Current Assets:

                

Cash and cash equivalents

   $ 5       $ 165,451       $ 66,410       $ 430,728       $ —        $ 662,594   

Restricted cash

     —           339,853         22,441         25,774         —          388,068   

Receivables, net

     —           —           432,006         565,925         —          997,931   

Warehouse receivables (a)

     —           —           690,229         —           —          690,229   

Trading securities

     —           —           82         116,448         —          116,530   

Income taxes receivable

     11,755         2,983         —           8,721         (14,379     9,080   

Prepaid expenses

     —           2,251         38,903         63,185         —          104,339   

Deferred tax assets, net

     —           —           92,205         21,773         —          113,978   

Real estate under development

     —           —           —           55,766         —          55,766   

Real estate and other assets held for sale

     —           —           —           29,589         —          29,589   

Other current assets

     —           —           35,768         22,039         —          57,807   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Current Assets

     11,760         510,538         1,378,044         1,339,948         (14,379     3,225,911   

Property and equipment, net

     —           —           171,644         78,245         —          249,889   

Goodwill

     —           —           1,026,336         555,424         —          1,581,760   

Other intangible assets, net

     —           —           466,982         47,680         —          514,662   

Investments in unconsolidated subsidiaries

     —           —           100,378         45,504         —          145,882   

Investments in consolidated subsidiaries

     1,352,338         1,644,356         1,179,231         —           (4,175,925     —     

Intercompany loan receivable

     —           1,426,219         700,000         117,070         (2,243,289     —     

Deferred tax assets, net

     —           —           —           40,217         (40,217     —     

Real estate under development

     —           —           8,808         32,074         —          40,882   

Real estate held for investment

     —           —           4,223         480,444         —          484,667   

Available for sale securities

     —           —           35,370         —           —          35,370   

Other assets, net

     —           49,334         46,204         40,542         —          136,080   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Assets

   $ 1,364,098       $ 3,630,447       $ 5,117,220       $ 2,777,148       $ (6,473,810   $ 6,415,103   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Current Liabilities:

                

Accounts payable and accrued expenses

   $ —         $ 29,624       $ 145,350       $ 320,859       $ —        $ 495,833   

Compensation and employee benefits payable

     —           626         180,885         137,473         —          318,984   

Accrued bonus and profit sharing

     —           —           212,148         128,759         —          340,907   

Securities sold, not yet purchased

     —           —           —           99,727         —          99,727   

Income taxes payable

     —           —           14,379         —           (14,379     —     

Short-term borrowings:

                

Warehouse lines of credit (a)

     —           —           676,796         —           —          676,796   

Revolving credit facility

     —           10,133         —           31,121         —          41,254   

Other

     —           —           16         —           —          16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total short-term borrowings

     —           10,133         676,812         31,121         —          718,066   

Current maturities of long-term debt

     —           46,000         —           18         —          46,018   

Notes payable on real estate

     —           —           —           166,056         —          166,056   

Liabilities related to real estate and other assets held for sale

     —           —           —           20,703         —          20,703   

Other current liabilities

     —           —           19,057         2,820         —          21,877   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Current Liabilities

     —           86,383         1,248,631         907,536         (14,379     2,228,171   

Long-Term Debt:

                

Senior secured term loans

     —           1,364,000         —           —           —          1,364,000   

11.625% senior subordinated notes, net

     —           438,667         —           —           —          438,667   

6.625% senior notes

     —           350,000         —           —           —          350,000   

Other long-term debt

     —           —           —           84         —          84   

Intercompany loan payable

     281,724         —           1,961,565         —           (2,243,289     —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Long-Term Debt

     281,724         2,152,667         1,961,565         84         (2,243,289     2,152,751   

Pension liability

     —           —           —           38,140         —          38,140   

Deferred tax liabilities, net

     —           —           68,301         —           (40,217     28,084   

Non-current tax liabilities

     —           —           83,680         —           —          83,680   

Notes payable on real estate

     —           —           —           313,576         —          313,576   

Other liabilities

     —           39,059         110,687         62,893         —          212,639   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities

     281,724         2,278,109         3,472,864         1,322,229         (2,297,885     5,057,041   

Commitments and contingencies

     —           —           —           —           —          —     

Equity:

                

CBRE Group, Inc. Stockholders’ Equity

     1,082,374         1,352,338         1,644,356         1,179,231         (4,175,925     1,082,374   

Non-controlling interests

     —           —           —           275,688         —          275,688   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Equity

     1,082,374         1,352,338         1,644,356         1,454,919         (4,175,925     1,358,062   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,364,098       $ 3,630,447       $ 5,117,220       $ 2,777,148       $ (6,473,810   $ 6,415,103   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our 11.625% senior subordinated notes, our 6.625% senior notes and our Credit Agreement, a substantial majority of warehouse receivables funded under the Kemps Landing Capital Company, LLC (Kemps Landing), JP Morgan Chase Bank, N.A. (JP Morgan), Fannie Mae As Soon As Pooled (ASAP) Program, TD Bank, N.A. (TD Bank) and Bank of America (BofA) lines of credit are pledged to Kemps Landing, JP Morgan, Fannie Mae, TD Bank and BofA, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

25


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 4      $ 223,845      $ 96,862      $ 185,863      $ —        $ 506,574   

Restricted cash

    —          4,830        16,086        31,341        —          52,257   

Receivables, net

    —          —          364,634        575,533        —          940,167   

Warehouse receivables (a)

    —          —          485,433        —          —          485,433   

Income taxes receivable

    16,581        28,957        —          3,915        (49,453     —     

Prepaid expenses

    —          —          40,653        56,298        —          96,951   

Deferred tax assets, net

    —          —          92,205        20,099        —          112,304   

Real estate and other assets held for sale

    —          —          558        15,737        —          16,295   

Other current assets

    —          —          31,401        19,488        —          50,889   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    16,585        257,632        1,127,832        908,274        (49,453     2,260,870   

Property and equipment, net

    —          —          118,425        69,972        —          188,397   

Goodwill

    —          —          803,075        520,726        —          1,323,801   

Other intangible assets, net

    —          —          304,639        28,216        —          332,855   

Investments in unconsolidated subsidiaries

    —          —          82,593        56,380        —          138,973   

Investments in consolidated subsidiaries

    1,132,091        856,753        1,042,686        —          (3,031,530     —     

Intercompany loan receivable

    —          1,434,571        635,000        177,302        (2,246,873     —     

Deferred tax assets, net

    —          —          —          40,185        (29,865     10,320   

Real estate under development

    —          —          —          112,819        —          112,819   

Real estate held for investment

    —          —          4,214        622,181        —          626,395   

Available for sale securities

    —          —          31,936        —          —          31,936   

Other assets, net

    —          31,274        22,985        40,943        —          95,202   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,148,676      $ 2,580,230      $ 4,173,385      $ 2,576,998      $ (5,357,721   $ 5,121,568   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 9,211      $ 138,613      $ 297,513      $ —        $ 445,337   

Compensation and employee benefits payable

    —          626        204,034        141,879        —          346,539   

Accrued bonus and profit sharing

    —          —          235,694        219,829        —          455,523   

Income taxes payable

    —          —          67,851        —          (49,453     18,398   

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          453,835        —          —          453,835   

Revolving credit facility

    —          10,120        —          7,396        —          17,516   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,120        453,851        7,396        —          471,367   

Current maturities of long-term debt

    —          38,000        —          86        —          38,086   

Notes payable on real estate

    —          —          —          154,213        —          154,213   

Liabilities related to real estate and other assets held for sale

    —          —          86        12,066        —          12,152   

Other current liabilities

    —          —          12,621        2,532        —          15,153   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          57,957        1,112,750        835,514        (49,453     1,956,768   

Long-Term Debt:

           

Senior secured term loans

    —          602,500        —          —          —          602,500   

11.625% senior subordinated notes, net

    —          437,682        —          —          —          437,682   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          —          54        —          54   

Intercompany loan payable

    240,461        —          2,006,412        —          (2,246,873     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    240,461        1,390,182        2,006,412        54        (2,246,873     1,390,236   

Pension liability

    —          —          —          40,007        —          40,007   

Deferred tax liabilities, net

    —          —          29,865        —          (29,865     —     

Non-current tax liabilities

    —          —          78,306        —          —          78,306   

Notes payable on real estate

    —          —          —          461,665        —          461,665   

Other liabilities

    —          —          89,299        39,492        —          128,791   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    240,461        1,448,139        3,316,632        1,376,732        (2,326,191     4,055,773   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    908,215        1,132,091        856,753        1,042,686        (3,031,530     908,215   

Non-controlling interests

    —          —          —          157,580        —          157,580   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    908,215        1,132,091        856,753        1,200,266        (3,031,530     1,065,795   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,148,676      $ 2,580,230      $ 4,173,385      $ 2,576,998      $ (5,357,721   $ 5,121,568   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our 11.625% senior subordinated notes, our 6.625% senior notes and our Credit Agreement, a substantial majority of warehouse receivables funded under the Kemps Landing, JP Morgan, BofA and Fannie Mae ASAP lines of credit are pledged to Kemps Landing, JP Morgan, BofA and Fannie Mae, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

26


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 889,381      $ 645,082      $ —        $ 1,534,463   

Costs and expenses:

           

Cost of services

    —          —          531,466        363,141        —          894,607   

Operating, administrative and other

    12,272        3,027        244,144        209,695        —          469,138   

Depreciation and amortization

    —          —          19,458        11,850        —          31,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    12,272        3,027        795,068        584,686        —          1,395,053   

Gain on disposition of real estate

    —          —          2,814        781        —          3,595   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (12,272     (3,027     97,127        61,177        —          143,005   

Equity income (loss) from unconsolidated subsidiaries

    —          —          7,174        (460     —          6,714   

Other loss

    —          —          12        5,797        —          5,809   

Interest income

    —          26,866        709        2,378        (27,460     2,493   

Interest expense

    —          30,621        28,514        7,405        (27,460     39,080   

Royalty and management service (income) expense

    —          —          (8,373     8,373        —          —     

Income from consolidated subsidiaries

    71,461        75,710        20,730        —          (167,901     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before (benefit of) provision for income taxes

    59,189        68,928        105,587        41,520        (167,901     107,323   

(Benefit of) provision for income taxes

    (4,618     (2,533     29,877        24,564        —          47,290   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    63,807        71,461        75,710        16,956        (167,901     60,033   

Income from discontinued operations, net of income taxes

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    63,807        71,461        75,710        16,956        (167,901     60,033   

Less: Net loss attributable to non-controlling interests

    —          —          —          (3,774     —          (3,774
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 63,807      $ 71,461      $ 75,710      $ 20,730      $ (167,901   $ 63,807   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 745,374      $ 520,844      $ —        $ 1,266,218   

Costs and expenses:

           

Cost of services

    —          —          449,176        286,217        —          735,393   

Operating, administrative and other

    12,851        1,592        189,778        170,594        —          374,815   

Depreciation and amortization

    —          —          13,510        12,095        —          25,605   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    12,851        1,592        652,464        468,906        —          1,135,813   

Gain on disposition of real estate

    —          —          68        106        —          174   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (12,851     (1,592     92,978        52,044        —          130,579   

Equity income (loss) from unconsolidated subsidiaries

    —          —          5,182        (1,500     —          3,682   

Interest income

    —          44        644        912        (137     1,463   

Interest expense

    —          37,194        1,975        10,723        (137     49,755   

Royalty and management service (income) expense

    —          —          (5,819     5,819        —          —     

Income from consolidated subsidiaries

    64,785        88,138        24,366        —          (177,289     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before (benefit of) provision for income taxes

    51,934        49,396        127,014        34,914        (177,289     85,969   

(Benefit of) provision for income taxes

    (5,104     (15,389     38,876        19,692        —          38,075   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    57,038        64,785        88,138        15,222        (177,289     47,894   

Income from discontinued operations, net of income taxes

    —          —          —          7,821        —          7,821   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    57,038        64,785        88,138        23,043        (177,289     55,715   

Less: Net loss attributable to non-controlling interests

    —          —          —          (1,323     —          (1,323
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 57,038      $ 64,785      $ 88,138      $ 24,366      $ (177,289   $ 57,038   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 2,420,468      $ 1,721,318      $ —        $ 4,141,786   

Costs and expenses:

           

Cost of services

    —          —          1,454,736        993,448        —          2,448,184   

Operating, administrative and other

    31,514        4,915        684,384        558,206        —          1,279,019   

Depreciation and amortization

    —          —          46,063        33,808        —          79,871   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    31,514        4,915        2,185,183        1,585,462        —          3,807,074   

Gain on disposition of real estate

    —          —          2,814        8,780        —          11,594   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (31,514     (4,915     238,099        144,636        —          346,306   

Equity income from unconsolidated subsidiaries

    —          —          35,601        3,360        —          38,961   

Other loss

    —          —          12        5,797        —          5,809   

Interest income

    —          79,413        1,950        5,919        (80,219     7,063   

Interest expense