Form 10-Q

 

 

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 March 31, 2012

 

¨ 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  
(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 the 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 April 30, 2012 was 328,062,470.

 

 

 


FORM 10-Q

March 31, 2012

TABLE OF CONTENTS

 

           Page  
PART I—FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Balance Sheets at March 31, 2012 (Unaudited) and December 31, 2011      3   
   Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (Unaudited)      4   
   Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and 2011 (Unaudited)      5   
   Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (Unaudited)      6   
   Consolidated Statement of Equity for the three months ended March 31, 2012 (Unaudited)      7   
   Notes to Consolidated Financial Statements (Unaudited)      8   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      35   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      57   

Item 4.

   Controls and Procedures      58   
PART II—OTHER INFORMATION   

Item 1.

   Legal Proceedings      59   

Item 1A.

   Risk Factors      59   

Item 6.

   Exhibits      60   

Signatures

     62   

 

2


CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

    March 31,
2012
    December 31,
2011
 
    (Unaudited)        
ASSETS    

Current Assets:

   

Cash and cash equivalents

  $ 703,937      $ 1,093,182   

Restricted cash

    60,873        67,138   

Receivables, less allowance for doubtful accounts of $35,377 and $33,915 at March 31, 2012 and December 31, 2011, respectively

    1,075,495        1,135,371   

Warehouse receivables

    418,111        720,061   

Trading securities

    124,841        151,484   

Income taxes receivable

    32,725        —     

Prepaid expenses

    115,519        111,879   

Deferred tax assets, net

    170,451        168,939   

Real estate under development

    31,153        30,617   

Real estate and other assets held for sale

    1,415        26,201   

Available for sale securities

    2,073        2,790   

Other current assets

    45,112        42,385   
 

 

 

   

 

 

 

Total Current Assets

    2,781,705        3,550,047   

Property and equipment, net

    287,548        295,488   

Goodwill

    1,838,601        1,828,407   

Other intangible assets, net of accumulated amortization of $221,722 and $194,982 at March 31, 2012 and December 31, 2011, respectively

    795,615        794,325   

Investments in unconsolidated subsidiaries

    186,875        166,832   

Real estate under development

    6,891        3,952   

Real estate held for investment

    447,989        403,698   

Available for sale securities

    52,368        34,605   

Other assets, net

    141,965        141,789   
 

 

 

   

 

 

 

Total Assets

  $ 6,539,557      $ 7,219,143   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current Liabilities:

   

Accounts payable and accrued expenses

  $ 524,233      $ 574,136   

Compensation and employee benefits payable

    363,176        398,688   

Accrued bonus and profit sharing

    323,668        544,628   

Securities sold, not yet purchased

    52,398        98,810   

Income taxes payable

    —          28,368   

Short-term borrowings:

   

Warehouse lines of credit

    410,259        713,362   

Revolving credit facility

    34,906        44,825   

Other

    16        16   
 

 

 

   

 

 

 

Total short-term borrowings

    445,181        758,203   

Current maturities of long-term debt

    68,494        67,838   

Notes payable on real estate

    169,723        146,120   

Liabilities related to real estate and other assets held for sale

    1,345        21,482   

Other current liabilities

    44,461        42,375   
 

 

 

   

 

 

 

Total Current Liabilities

    1,992,679        2,680,648   

Long-Term Debt:

   

Senior secured term loans

    1,606,795        1,615,773   

11.625% senior subordinated notes, net of unamortized discount of $10,624 and $10,984 at March 31, 2012 and December 31, 2011, respectively

    439,376        439,016   

6.625% senior notes

    350,000        350,000   

Other long-term debt

    56        59   
 

 

 

   

 

 

 

Total Long-Term Debt

    2,396,227        2,404,848   

Notes payable on real estate

    220,524        206,339   

Deferred tax liabilities, net

    166,014        148,969   

Non-current tax liabilities

    82,277        79,927   

Pension liability

    62,267        60,860   

Other liabilities

    217,226        220,389   
 

 

 

   

 

 

 

Total Liabilities

    5,137,214        5,801,980   

Commitments and contingencies

    —          —     

Equity:

   

CBRE Group, Inc. Stockholders’ Equity:

   

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 328,044,115 and 327,972,156 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively

    3,280        3,280   

Additional paid-in capital

    895,918        882,141   

Accumulated earnings

    451,474        424,499   

Accumulated other comprehensive loss

    (138,445     (158,439
 

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

    1,212,227        1,151,481   

Non-controlling interests

    190,116        265,682   
 

 

 

   

 

 

 

Total Equity

    1,402,343        1,417,163   
 

 

 

   

 

 

 

Total Liabilities and Equity

  $ 6,539,557      $ 7,219,143   
 

 

 

   

 

 

 

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

 

3


CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

     Three Months Ended
March 31,
 
     2012      2011  

Revenue

   $ 1,349,989       $ 1,185,105   

Costs and expenses:

     

Cost of services

     787,556         713,755   

Operating, administrative and other

     440,722         377,025   

Depreciation and amortization

     46,457         23,178   
  

 

 

    

 

 

 

Total costs and expenses

     1,274,735         1,113,958   

Gain on disposition of real estate

     809         1,972   
  

 

 

    

 

 

 

Operating income

     76,063         73,119   

Equity income from unconsolidated subsidiaries

     14,386         15,179   

Other income

     6,588         —     

Interest income

     2,303         2,668   

Interest expense

     43,981         33,718   
  

 

 

    

 

 

 

Income from continuing operations before provision for income taxes

     55,359         57,248   

Provision for income taxes

     25,413         23,406   
  

 

 

    

 

 

 

Income from continuing operations

     29,946         33,842   

Income from discontinued operations, net of income taxes

     —           10,644   
  

 

 

    

 

 

 

Net income

     29,946         44,486   

Less: Net income attributable to non-controlling interests

     2,971         10,117   
  

 

 

    

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 26,975       $ 34,369   
  

 

 

    

 

 

 

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

     

Income from continuing operations attributable to CBRE Group, Inc.

   $ 0.08       $ 0.11   

Income from discontinued operations attributable to CBRE Group, Inc.

     —           —     
  

 

 

    

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 0.08       $ 0.11   
  

 

 

    

 

 

 

Weighted average shares outstanding for basic income per share

     320,671,395         316,563,392   
  

 

 

    

 

 

 

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

     

Income from continuing operations attributable to CBRE Group, Inc.

   $ 0.08       $ 0.11   

Income from discontinued operations attributable to CBRE Group, Inc.

     —           —     
  

 

 

    

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 0.08       $ 0.11   
  

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     325,738,859         322,920,829   
  

 

 

    

 

 

 

Amounts attributable to CBRE Group, Inc. shareholders

     

Income from continuing operations, net of tax

   $ 26,975       $ 34,369   

Income from discontinued operations, net of tax

     —           —     
  

 

 

    

 

 

 

Net income

   $ 26,975       $ 34,369   
  

 

 

    

 

 

 

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

 

4


CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

     Three Months Ended
March 31,
 
     2012     2011  

Net income

   $ 29,946      $ 44,486   

Other comprehensive income:

    

Foreign currency translation gain

     18,522        29,995   

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

     1,254        1,056   

Unrealized gains on available for sale securities, net

     914        94   

Other, net

     (500     (586
  

 

 

   

 

 

 

Total other comprehensive income

     20,190        30,559   

Comprehensive income

     50,136        75,045   

Less: Comprehensive income attributable to non-controlling interests

     3,167        10,475   
  

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

   $ 46,969      $ 64,570   
  

 

 

   

 

 

 

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

 

5


CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

    Three Months Ended
March  31,
 
    2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

   

Net income

  $ 29,946      $ 44,486   

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

   

Depreciation and amortization

    46,457        23,469   

Amortization of financing costs

    2,344        1,751   

Gain on sale of loans, servicing rights and other assets

    (18,938     (11,815

Net realized and unrealized gains from investments

    (6,588     —     

Gain on disposition of real estate held for investment

    —          (13,094

Equity income from unconsolidated subsidiaries

    (14,386     (15,179

Provision for doubtful accounts

    1,501        1,440   

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

    11,639        10,619   

Incremental tax benefit from stock options exercised

    (39     (10,487

Distribution of earnings from unconsolidated subsidiaries

    3,264        5,833   

Tenant concessions received

    3,851        587   

Purchase of trading securities

    (84,627     —     

Proceeds from sale of trading securities

    44,799        —     

Proceeds from securities sold, not yet purchased

    30,275        —     

Securities purchased to cover short sales

    (27,809     —     

Decrease in receivables

    52,310        89,002   

(Increase) decrease in prepaid expenses and other assets

    (3,448     6,106   

(Increase) decrease in real estate held for sale and under development

    (2,538     4,364   

Decrease in accounts payable and accrued expenses

    (51,491     (25,406

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

    (266,149     (198,356

Increase in income taxes receivable/payable

    (45,795     (31,671

(Decrease) increase in other liabilities

    (4,031     4,374   

Other operating activities, net

    504        95   
 

 

 

   

 

 

 

Net cash used in operating activities

    (298,949     (113,882

CASH FLOWS FROM INVESTING ACTIVITIES:

   

Capital expenditures

    (8,086     (13,622

Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired

    —          (244

Contributions to unconsolidated subsidiaries

    (11,355     (7,680

Distributions from unconsolidated subsidiaries

    4,650        11,168   

Net proceeds from disposition of real estate held for investment

    —          66,748   

Additions to real estate held for investment

    (1,171     (1,488

Proceeds from the sale of servicing rights and other assets

    6,009        5,207   

Decrease in restricted cash

    6,845        5,984   

Decrease in cash due to deconsolidation of CBRE Clarion U.S., L.P. (see Note 3)

    (73,187     —     

Other investing activities, net

    1,900        (752
 

 

 

   

 

 

 

Net cash (used in) provided by investing activities

    (74,395     65,321   

CASH FLOWS FROM FINANCING ACTIVITIES:

   

Repayment of senior secured term loans

    (17,063     (9,500

Proceeds from revolving credit facility

    —          230,000   

Repayment of revolving credit facility

    (10,795     (187,000

Proceeds from notes payable on real estate held for investment

    3,251        1,209   

Repayment of notes payable on real estate held for investment

    (1,716     (53,237

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

    1,207        549   

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

    (561     (6,090

Incremental tax benefit from stock options exercised

    39        10,487   

Non-controlling interests contributions

    15,186        208   

Non-controlling interests distributions

    (14,117     (14,188

Payment of financing costs

    (35     (14,172

Other financing activities, net

    2,119        2,570   
 

 

 

   

 

 

 

Net cash used in financing activities

    (22,485     (39,164

Effect of currency exchange rate changes on cash and cash equivalents

    6,584        8,796   
 

 

 

   

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

    (389,245     (78,929

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

    1,093,182        506,574   
 

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

  $ 703,937      $ 427,645   
 

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   

Cash paid during the period for:

   

Interest

  $ 21,660      $ 12,757   
 

 

 

   

 

 

 

Income tax payments, net

  $ 74,621      $ 54,130   
 

 

 

   

 

 

 

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

 

6


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, 2011

  $ 3,280      $ 882,141      $ 424,499      $ (158,439   $ 265,682      $ 1,417,163   

Net income

    —          —          26,975        —          2,971        29,946   

Stock options exercised (including tax benefit)

    2        2,162        —          —          —          2,164   

Compensation expense for stock options and non-vested stock awards

    —          11,639        —          —          —          11,639   

Foreign currency translation gain

    —          —          —          18,326        196        18,522   

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

    —          —          —          1,254        —          1,254   

Unrealized holding gains on available for sale securities, net

    —          —          —          914        —          914   

Contributions from non-controlling interests

    —          —          —          —          15,186        15,186   

Distributions to non-controlling interests

    —          —          —          —          (14,117     (14,117

Deconsolidation of CBRE Clarion U.S., L.P. (see Note 3)

    —          —          —          —          (91,580     (91,580

Other

    (2     (24     —          (500     11,778        11,252   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

  $ 3,280      $ 895,918      $ 451,474      $ (138,445   $ 190,116      $ 1,402,343   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

7


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 (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 months ended March 31, 2012 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2012. 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, 2011, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2011.

2. New Accounting Pronouncements

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 are effective for the first interim or annual period beginning on or after December 15, 2011, with early adoption prohibited. The adoption of this update on January 1, 2012 did not have a material effect on our consolidated financial position or results of operations.

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. The adoption of this update on January 1, 2012 did not have a material effect on our consolidated financial position, results of operations or disclosure requirements for our consolidated financial statements.

 

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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. The adoption of this update on January 1, 2012 did not have a material effect on our consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-10, “Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate – a Scope Clarification.” This ASU requires that a reporting entity that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt would apply FASB ASC Subtopic 360-20, Property, Plant, and Equipment – Real Estate Sales, to determine whether to derecognize assets and liabilities of that subsidiary. ASU 2011-10 is effective prospectively for a deconsolidation event that takes place in fiscal years, and interim periods within those years, beginning on or after June 15, 2012. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, with retrospective application required. 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 included substantially all of ING’s 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 (collectively referred 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, an independently operated business segment). We completed the REIM Acquisitions in order to significantly enhance our ability to meet the needs of institutional investors across global markets with a full spectrum of investment programs and strategies.

We secured borrowings of $800.0 million of term loans to finance the REIM Acquisitions (see Note 10). 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.

 

9


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following represents a summary of the purchase price for the REIM Acquisitions (dollars in thousands):

 

Purchase of CRES on July 1, 2011

   $ 323,896   

Purchase of CRES co-investments on July 1, 2011

     58,566   

Purchase of ING REIM Asia on October 3, 2011

     45,315   

Purchase of ING REIM Europe on October 31, 2011

     442,543   
  

 

 

 

Total purchase price

   $ 870,320   
  

 

 

 

Our initial estimate of $940 million in total purchase price for the REIM Acquisitions has been reduced by approximately $47 million for certain fund and separate account management contracts that were not acquired and for certain balance sheet adjustments. As of March 31, 2012, there is a possibility of an additional closing of approximately $80 million and co-investments of up to $65 million in the future related to our acquisition of ING REIM Europe.

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, which has been included above. 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 consolidation of the CRES Funds on July 1, 2011 was $182.9 million of non-controlling interests. In connection with the REIM Acquisitions, we also acquired three ING REIM Asia co-investments from ING for an aggregate amount of $13.9 million on October 3, 2011 and two ING REIM Europe co-investments, one for $7.4 million on October 31, 2011 and one for $2.5 million on March 1, 2012.

In January 2012, one of the CRES Funds (CBRE Clarion U.S., L.P.) was converted to a registered mutual fund, the CBRE Clarion Long/Short Fund (the Fund). As a result of this triggering event, we determined that the Fund became a variable interest entity and that we were not the primary beneficiary. Accordingly, in the first quarter of 2012, the Fund was deconsolidated from our consolidated financial statements and we recorded an investment in available for sale securities of $14.3 million, which is included in the accompanying consolidated balance sheets as of March 31, 2012. No gain or loss was recognized in our consolidated statement of operations as a result of this deconsolidation. We continue to act as the Fund’s adviser, make investment decisions for the Fund and review, supervise and administer the Fund’s investment program.

The preliminary purchase accounting adjustments related to the REIM Acquisitions have been recorded in the accompanying consolidated financial statements. The excess purchase price over the estimated fair value of net assets acquired has been recorded to goodwill. 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.

Unaudited pro forma results, assuming the REIM Acquisitions had occurred as of January 1, 2011 for purposes of the 2011 pro forma disclosures, are presented below. They include certain adjustments for the three months ended March 31, 2011, including $6.4 million of increased amortization expense as a result of intangible assets acquired in the REIM Acquisitions, $8.2 million of additional interest expense as a result of debt incurred to finance the REIM Acquisitions, the removal of $7.6 million of direct costs incurred by us and ING related to the REIM Acquisitions, and the tax impact of the pro forma adjustments. These unaudited pro forma results have

 

10


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the REIM Acquisitions occurred on January 1, 2011 and may not be indicative of future operating results (dollars in thousands, except share data):

 

     Three Months Ended
March  31, 2011
 

Revenue

   $ 1,262,475   

Operating income

   $ 88,968   

Net income attributable to CBRE Group, Inc.

   $ 42,754   

Basic income per share

   $ 0.14   

Weighted average shares outstanding for basic income per share

     316,563,392   

Diluted income per share

   $ 0.13   

Weighted average shares outstanding for diluted income per share

     322,920,829   

4. Variable Interest Entities (VIEs)

A consolidated subsidiary (the Venture) in our Global Investment Management segment has sponsored investments by third-party investors in certain commercial properties through the formation of tenant-in-common limited liability companies and Delaware Statutory Trusts (collectively referred to as “the Entities”) that are owned by the third-party investors. The Venture also has formed and is a member of a limited liability company for each property that serves as master tenant (Master Tenant). Each Master Tenant leases the property from the Entities through a master lease agreement. Pursuant to the master lease agreements, the Master Tenant has the power to direct the day-to-day asset management activities that most significantly impact the economic performance of the Entities. As a result, the Entities were deemed to be VIEs since the third-party investors holding the equity investment at risk in the Entities do not direct the day-to-day activities that most significantly impact the economic performance of the properties held by the Entities. An additional entity was consolidated during the three months ended March 31, 2012. The related real estate assets held for investment were $26.8 million, nonrecourse mortgage notes payable were $16.0 million and non-controlling interests were $11.0 million as of March 31, 2012.

The Venture has made and may continue to make voluntary contributions to each of these properties to support their operations beyond the cash flow generated by the properties themselves. As of the most recent reconsideration date, such financial support has been significant enough that the Venture was deemed to be the primary beneficiary of each entity. During the three months ended March 31, 2012 and 2011, the Venture funded $0.2 million and $0.1 million, respectively, of financial support to the Entities.

Operating results relating to the Entities for the three months ended March 31, 2012 and 2011 include the following (dollars in thousands):

 

     Three Months Ended
March 31,
 
     2012     2011  

Revenue

   $ 2,874      $ 8,565   

Operating, administrative and other expenses

   $ 1,666      $ 3,715   

Income from discontinued operations, net of income taxes

   $ —        $ 10,644   

Net (loss) income attributable to non-controlling interests

   $ (847   $ 8,977   

Investments in real estate of $87.4 million and $61.3 million and nonrecourse mortgage notes payable of $77.1 million ($19.1 million of which is current) and $60.9 million ($1.2 million of which is current) are included in real estate assets held for investment and notes payable on real estate, respectively, in the

 

11


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively. In addition, non-controlling interests of $11.8 million and $1.6 million in the accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively, are attributable to the Entities.

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

As of March 31, 2012 and December 31, 2011, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

     March 31, 2012      December 31, 2011  

Investments in unconsolidated subsidiaries

   $ 18,893       $ 15,483   

Available for sale securities

     14,817         —     

Other assets, current

     2,977         —     

Co-investment commitments

     33,349         37,019   
  

 

 

    

 

 

 

Maximum exposure to loss

   $ 70,036       $ 52,502   
  

 

 

    

 

 

 

5. Fair Value Measurements

The “Fair Value Measurements and Disclosures” Topic of the FASB Accounting Standards Codification (ASC) (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.

There were no significant transfers in and out of Level 1 and Level 2 during the three months ended March 31, 2012 and 2011.

 

12


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011 (dollars in thousands):

 

     As of March 31, 2012  
     Fair Value Measured and Recorded Using         
         Level 1              Level 2              Level 3          Total  

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 9,796       $ —         $ —         $ 9,796   

Debt securities issued by U.S. federal agencies

     —           3,389         —           3,389   

Corporate debt securities

     —           8,836         —           8,836   

Asset-backed securities

     —           5,577         —           5,577   

Collateralized mortgage obligations

     —           2,975         —           2,975   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     9,796         20,777         —           30,573   

Equity securities

     23,868         —           —           23,868   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     33,664         20,777         —           54,441   

Trading securities

     124,841         —           —           124,841   

Warehouse receivables

     —           418,111         —           418,111   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 158,505       $ 438,888       $ —         $ 597,393   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Securities sold, not yet purchased

   $ 52,398       $ —         $ —         $ 52,398   

Interest rate swaps

     —           37,793         —           37,793   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 52,398       $ 37,793       $ —         $ 90,191   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31, 2011  
     Fair Value Measured and Recorded Using         
         Level 1              Level 2              Level 3          Total  

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 6,838       $ —         $ —         $ 6,838   

Debt securities issued by U.S. federal agencies

     —           6,024         —           6,024   

Corporate debt securities

     —           9,969         —           9,969   

Asset-backed securities

     —           5,226         —           5,226   

Collateralized mortgage obligations

     —           3,037         —           3,037   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     6,838         24,256         —           31,094   

Equity securities

     6,301         —           —           6,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     13,139         24,256         —           37,395   

Trading securities

     151,484         —           —           151,484   

Warehouse receivables

     —           720,061         —           720,061   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 164,623       $ 744,317       $ —         $ 908,940   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Securities sold, not yet purchased

   $ 98,810       $ —         $ —         $ 98,810   

Interest rate swaps

     —           39,872         —           39,872   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 98,810       $ 39,872       $ —         $ 138,682   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Fair value measurements for our available for sale securities are obtained from independent pricing services which utilize observable market data that may include quoted market prices, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

The trading securities and securities sold, not yet purchased are primarily in the U.S. and are generally valued at the last reported sales price on the day of valuation or, if no sales occurred on the valuation date, at the mean of the bid and asked prices on such date.

The fair values of the warehouse receivables are calculated based on already locked in security buy prices. At March 31, 2012 and December 31, 2011, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae mortgage backed securities that will be secured by the underlying warehouse lines of credit. These assets are classified as Level 2 in the fair value hierarchy as all inputs are readily observable.

The valuation of interest rate swaps is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate forward curves. To comply with the provisions of Topic 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with our adoption of ASU 2011-04, we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of March 31, 2012, we have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2012 and 2011.

FASB ASC Topic 825, “Financial Instruments” also requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Our financial instruments, excluding those included in the preceding fair value tables above, are as follows:

Cash and Cash Equivalents and Restricted Cash: These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.

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

 

14


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Short-Term Borrowings: The majority of this balance represents our revolving credit facility and our warehouse lines of credit outstanding for CBRE Capital Markets. 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 (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior secured term loans was approximately $1.7 billion at March 31, 2012, which approximates their actual carrying value at March 31, 2012 (see Note 10).

11.625% Senior Subordinated Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 11.625% senior subordinated notes was $499.8 million at March 31, 2012. Their actual carrying value totaled $439.4 million at March 31, 2012.

6.625% Senior Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 6.625% senior notes was $373.1 million at March 31, 2012. Their actual carrying value totaled $350.0 million at March 31, 2012.

Notes Payable on Real Estate: As of March 31, 2012, the carrying value of our notes payable on real estate was $391.6 million (see Note 9). 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 do so. Additionally, only $13.6 million of these notes payable are recourse to us as of March 31, 2012.

6. 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
March 31,
 
     2012     2011  

Global Investment Management:

    

Revenue

   $ 170,720      $ 140,252   

Operating loss

   $ (10,474   $ (34,662

Net income (loss)

   $ 43,206      $ (50,165

Development Services:

    

Revenue

   $ 17,981      $ 19,414   

Operating income

   $ 26,432      $ 39,373   

Net income

   $ 20,952      $ 32,442   

Other:

    

Revenue

   $ 31,521      $ 34,385   

Operating income

   $ 3,047      $ 3,790   

Net income

   $ 3,116      $ 3,859   

Total:

    

Revenue

   $   220,222      $   194,051   

Operating income

   $ 19,005      $ 8,501   

Net income (loss)

   $ 67,274      $ (13,864

 

15


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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.

7. 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.

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

 

     March 31, 2012      December 31, 2011  

Assets:

     

Real estate held for sale (see Note 8)

   $ 1,411       $ 21,833   

Other current assets

     —           531   

Other assets

     4         3,837   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     1,415         26,201   

Liabilities:

     

Notes payable on real estate held for sale (see Note 9)

     1,341         20,453   

Accounts payable and accrued expenses

     4         891   

Other current liabilities

     —           8   

Other liabilities

     —           130   
  

 

 

    

 

 

 

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

     1,345         21,482   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 70       $ 4,719   
  

 

 

    

 

 

 

8. 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. 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):

 

     March 31, 2012      December 31, 2011  

Real estate included in assets held for sale (see Note 7)

   $ 1,411       $ 21,833   

Real estate under development (current)

     31,153         30,617   

Real estate under development (non-current)

     6,891         3,952   

Real estate held for investment (1)

     447,989         403,698   
  

 

 

    

 

 

 

Total real estate (2)

   $ 487,444       $ 460,100   
  

 

 

    

 

 

 

 

16


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

(1) Net of accumulated depreciation of $45.1 million and $40.7 million at March 31, 2012 and December 31, 2011, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $8.6 million and $1.9 million, respectively, at March 31, 2012 and $8.7 million and $2.0 million, respectively, at December 31, 2011. 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.

9. Notes Payable on Real Estate

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

 

     March 31, 2012      December 31, 2011  

Current portion of notes payable on real estate

   $ 169,723       $ 146,120   

Notes payable on real estate included in liabilities related to real estate and other assets held for sale (see Note 7)

     1,341         20,453   
  

 

 

    

 

 

 

Total notes payable on real estate, current portion

     171,064         166,573   

Notes payable on real estate, non-current portion

     220,524         206,339   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 391,588       $ 372,912   
  

 

 

    

 

 

 

At both March 31, 2012 and December 31, 2011, $11.2 million of the non-current portion of notes payable on real estate and $2.4 million 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.

10. 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. On November 10, 2011, we entered into an incremental assumption agreement led jointly by HSBC Bank USA, N.A. and J.P. Morgan Securities LLC to allow for the establishment of a new tranche A-1 term loan facility, which also reduced the $800.0 million incremental facility under the Credit Agreement.

As of March 31, 2012, 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 £187.0 million (approximately $300.0 million) tranche A-1 term loan facility requiring quarterly principal payments, which began on December 30, 2011 and continue through March 31, 2016, with

 

17


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

the balance payable on May 10, 2016; (4) 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; (5) 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; (6) 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 (7) an accordion provision which provides the ability to borrow additional funds under an incremental facility. The incremental facility is equivalent to the sum of $800.0 million and the aggregate amount of all repayments of term loans and permanent reductions of revolver commitments under the Credit Agreement. However, at no time may the sum of all outstanding amounts under the Credit Agreement exceed $2.95 billion. On November 10, 2011, we utilized the incremental facility to issue the tranche A-1 term loan facility.

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 related incremental assumption agreement to draw on these facilities 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. On August 31, 2011, we drew down $400.0 million of the tranche C term loan facility, part of which was used to finance the ING REIM Asia portion of the REIM Acquisitions, which closed on October 3, 2011. The remaining borrowings were used to finance the acquisition of ING REIM’s operations in Europe, which closed on October 31, 2011.

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 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 March 31, 2012 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 March 31, 2012 and December 31, 2011, we had $34.9 million and $44.8 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 4.9% and 4.3%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of March 31, 2012, letters of credit totaling $17.2 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 March 31, 2012 bear interest, based at our option, on the following: for the tranche A and A-1 term loan facilities, 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 March 31, 2012 and December 31, 2011, we had $297.5 million and $306.3 million, respectively, of tranche A term loan facility principal outstanding, $288.3 million and $285.1 million, respectively, of tranche A-1 term loan facility principal outstanding, $295.5 million and $296.3 million, respectively, of tranche B term loan facility principal outstanding, $397.0 million and $398.0 million, respectively, of tranche C term loan facility principal outstanding and $397.0 million and $398.0 million, respectively, of tranche D term loan facility principal outstanding, which are included in the accompanying consolidated balance sheets.

 

18


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 months ended March 31, 2012 and 2011. During the three months ended March 31, 2012 and 2011, we recorded net gains of $2.1 million and $1.7 million, respectively, to other comprehensive income in relation to these interest rate swap agreements. As of March 31, 2012 and December 31, 2011, the fair values of these interest rate swap agreements were reflected as a $37.8 million liability and a $39.9 million liability, respectively, and were included in other long-term liabilities in the accompanying consolidated balance sheets.

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 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 12.59x for the trailing twelve months ended March 31, 2012 and our leverage ratio of total debt less available cash to EBITDA was 1.80x as of March 31, 2012.

11. Commitments and Contingencies

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. Our management believes that any losses in excess of the amounts accrued arising from such lawsuits are remote, but that litigation is inherently uncertain and there is the potential for a material adverse effect on our financial statements if one or more matters are resolved in a particular period in an amount in excess of that anticipated by management.

We had outstanding letters of credit totaling $16.7 million as of March 31, 2012, 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 March 2013.

We had guarantees totaling $37.6 million as of March 31, 2012, 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 $37.6 million primarily consists of guarantees related to our defined benefit pension plans in the U.K. (in excess of our outstanding pension liability of $62.3 million as of March 31, 2012), which are continuous guarantees that will not expire until all amounts

 

19


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

have been paid out for our pension liabilities. The remainder of the guarantees mainly represent guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through November 2013, as well as various guarantees of management contracts in our operations overseas, which expire at the end of each of the respective agreements.

In addition, as of March 31, 2012, 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.

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 $3.8 billion at March 31, 2012. Additionally, CBRE MCI has funded loans under the DUS Program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $518.0 million at March 31, 2012. 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 March 31, 2012 and December 31, 2011, CBRE MCI had $5.5 million and $4.6 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $7.0 million and $6.4 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 $269.4 million (including $196.2 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 March 31, 2012.

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 March 31, 2012, we had aggregate commitments of $58.1 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 March 31, 2012, we had committed to fund $17.3 million of additional capital to these unconsolidated subsidiaries.

 

20


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

12. Income Per Share Information

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

 

     Three Months Ended
March 31,
 
     2012      2011  

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

     

Net income attributable to CBRE Group, Inc. shareholders

   $ 26,975       $ 34,369   

Weighted average shares outstanding for basic income per share

     320,671,395         316,563,392   
  

 

 

    

 

 

 

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

   $ 0.08       $ 0.11   
  

 

 

    

 

 

 

 

     Three Months Ended
March 31,
 
     2012      2011  

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

     

Net income attributable to CBRE Group, Inc. shareholders

   $ 26,975       $ 34,369   

Weighted average shares outstanding for basic income per share

     320,671,395         316,563,392   

Dilutive effect of contingently issuable shares

     3,233,304         3,512,674   

Dilutive effect of stock options

     1,834,160         2,844,763   
  

 

 

    

 

 

 

Weighted average shares outstanding for diluted income per share

     325,738,859         322,920,829   
  

 

 

    

 

 

 

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

   $ 0.08       $ 0.11   
  

 

 

    

 

 

 

For the three months ended March 31, 2012, 44,814 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 months ended March 31, 2012 and 2011, options to purchase 103,423 shares and 51,523 shares, respectively, of common stock were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

13. Pensions

We have two contributory defined benefit pension plans in the United Kingdom (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.

 

21


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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

 

     Three Months Ended
March 31,
 
     2012     2011  

Interest cost

   $ 3,860      $ 4,113   

Expected return on plan assets

     (3,599     (4,236

Amortization of unrecognized net loss

     581        337   
  

 

 

   

 

 

 

Net periodic pension cost

   $ 842      $ 214   
  

 

 

   

 

 

 

We contributed $1.5 million to fund our pension plans during the three months ended March 31, 2012. We expect to contribute a total of $5.9 million to fund our pension plans for the year ending December 31, 2012.

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 months ended March 31, 2011 were reported in our Global Investment Management segment as follows (dollars in thousands):

 

     Three Months Ended
March  31,
2011
 

Revenue

   $ 1,030   

Costs and expenses:

  

Operating, administrative and other

     382   

Depreciation and amortization

     291   
  

 

 

 

Total costs and expenses

     673   

Gain on disposition of real estate

     11,037   
  

 

 

 

Operating income

     11,394   

Interest expense

     750   
  

 

 

 

Income from discontinued operations, before provision for income taxes

     10,644   

Provision for income taxes

     —     
  

 

 

 

Income from discontinued operations, net of income taxes

     10,644   

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

     10,644   
  

 

 

 

Income from discontinued operations attributable to CBRE Group, Inc.

   $ —     
  

 

 

 

15. Segments

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

 

22


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the U.S. and in the largest regions of Canada and key markets in Latin America. The primary services offered consist of the following: 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 North America, Europe and Asia.

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
March 31,
 
     2012     2011  

Revenue

    

Americas

   $ 845,326      $ 750,115   

EMEA

     197,386        204,968   

Asia Pacific

     167,201        160,500   

Global Investment Management

     125,200        50,322   

Development Services

     14,876        19,200   
  

 

 

   

 

 

 
   $ 1,349,989      $ 1,185,105   
  

 

 

   

 

 

 
     Three Months Ended
March 31,
 
     2012     2011  

EBITDA

    

Americas

   $ 101,237      $ 78,128   

EMEA

     (7,097     3,006   

Asia Pacific

     2,283        12,442   

Global Investment Management

     34,593        5,990   

Development Services

     9,507        13,478   
  

 

 

   

 

 

 
   $ 140,523      $ 113,044   
  

 

 

   

 

 

 

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,

 

23


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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.

 

24


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
March 31,
 
     2012     2011  

Americas

    

Net income attributable to CBRE Group, Inc.

   $ 33,567      $ 29,509   

Add:

    

Depreciation and amortization

     18,326        12,831   

Interest expense

     35,601        25,832   

Royalty and management service income

     (6,617     (6,620

Provision for income taxes

     21,753        18,376   

Less:

    

Interest income

     1,393        1,800   
  

 

 

   

 

 

 

EBITDA

   $ 101,237      $ 78,128   
  

 

 

   

 

 

 

EMEA

    

Net loss attributable to CBRE Group, Inc.

   $ (9,376   $ (149

Add:

    

Depreciation and amortization

     3,291        2,262   

Interest expense

     2,468        139   

Royalty and management service expense

     2,608        2,731   

Benefit of income taxes

     (1,410     (1,460

Less:

    

Interest income

     4,678        517   
  

 

 

   

 

 

 

EBITDA

   $ (7,097   $ 3,006   
  

 

 

   

 

 

 

Asia Pacific

    

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

   $ (3,135   $ 2,901   

Add:

    

Depreciation and amortization

     2,739        1,983   

Interest expense

     861        420   

Royalty and management service expense

     3,962        3,607   

(Benefit of) provision for income taxes

     (1,999     3,790   

Less:

    

Interest income

     145        259   
  

 

 

   

 

 

 

EBITDA

   $ 2,283      $ 12,442   
  

 

 

   

 

 

 

Global Investment Management

    

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

   $ 3,591      $ (2,455

Add:

    

Depreciation and amortization (1)

     19,225        3,786   

Interest expense (2)

     6,359        4,590   

Royalty and management service expense

     47        282   

Provision for (benefit of) income taxes

     5,652        (160

Less:

    

Interest income

     281        53   
  

 

 

   

 

 

 

EBITDA (3)

   $ 34,593      $ 5,990   
  

 

 

   

 

 

 

Development Services

    

Net income attributable to CBRE Group, Inc.

   $ 2,328      $ 4,563   

Add:

    

Depreciation and amortization

     2,876        2,607   

Interest expense

     2,972        3,487   

Provision for income taxes

     1,417        2,860   

Less:

    

Interest income

     86        39   
  

 

 

   

 

 

 

EBITDA

   $ 9,507      $ 13,478   
  

 

 

   

 

 

 

 

25


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

(1) Includes depreciation and amortization related to discontinued operations of $0.3 million for the three months ended March 31, 2011.
(2) Includes interest expense related to discontinued operations of $0.7 million for the three months ended March 31, 2011.
(3) Includes EBITDA related to discontinued operations of $1.0 million for the three months ended March 31, 2011.

16. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011; condensed consolidating statements of operations for the three months ended March 31, 2012 and 2011; condensed consolidating statements of comprehensive income for the three months ended March 31, 2012 and 2011; and condensed consolidating statements of cash flows for the three months ended March 31, 2012 and 2011 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.

 

26


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 95,912      $ 271,994      $ 336,026      $ —        $ 703,937   

Restricted cash

    —          4,860        25,394        30,619        —          60,873   

Receivables, net

    —          5        461,191        614,299        —          1,075,495   

Warehouse receivables (a)

    —          —          418,111        —          —          418,111   

Trading securities

    —          —          98        124,743        —          124,841   

Income taxes receivable

    3,846        5,085        —          27,950        (4,156     32,725   

Prepaid expenses

    —          1,956        40,567        72,996        —          115,519   

Deferred tax assets, net

    —          —          144,799        25,652        —          170,451   

Real estate under development

    —          —          —          31,153        —          31,153   

Real estate and other assets held for sale

    —          —          —          1,415        —          1,415   

Available for sale securities

    —          —          2,073        —          —          2,073   

Other current assets

    —          —          27,574        17,538        —          45,112   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    3,851        107,818        1,391,801        1,282,391        (4,156     2,781,705   

Property and equipment, net

    —          —          194,420        93,128        —          287,548   

Goodwill

    —          —          1,003,751        834,850        —          1,838,601   

Other intangible assets, net

    —          —          509,857        285,758        —          795,615   

Investments in unconsolidated subsidiaries

    —          —          123,262        63,613        —          186,875   

Investments in consolidated subsidiaries

    1,548,535        2,116,018        1,221,667        —          (4,886,220     —     

Intercompany loan receivable

    —          1,531,237        700,000        4,557        (2,235,794     —     

Real estate under development

    —          —          766        6,125        —          6,891   

Real estate held for investment

    —          —          4,007        443,982        —          447,989   

Available for sale securities

    —          —          52,368        —          —          52,368   

Other assets, net

    —          47,342        45,472        49,151        —          141,965   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,552,386      $ 3,802,415      $ 5,247,371      $ 3,063,555      $ (7,126,170   $ 6,539,557   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 28,675      $ 111,427      $ 384,131      $ —        $ 524,233   

Compensation and employee benefits payable

    —          626        190,619        171,931        —          363,176   

Accrued bonus and profit sharing

    —          —          136,824        186,844        —          323,668   

Securities sold, not yet purchased

    —          —          —          52,398        —          52,398   

Income taxes payable

    —          —          4,156        —          (4,156     —     

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          410,259        —          —          410,259   

Revolving credit facility

    —          10,410        —          24,496        —          34,906   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,410        410,275        24,496        —          445,181   

Current maturities of long-term debt

    —          46,000        —          22,494        —          68,494   

Notes payable on real estate

    —          —          —          169,723        —          169,723   

Liabilities related to real estate and other assets held for sale

    —          —          —          1,345        —          1,345   

Other current liabilities

    —          —          41,939        2,522        —          44,461   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          85,711        895,240        1,015,884        (4,156     1,992,679   

Long-Term Debt:

           

Senior secured term loans

    —          1,341,000        —          265,795        —          1,606,795   

11.625% senior subordinated notes, net

    —          439,376        —          —          —          439,376   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          —          56        —          56   

Intercompany loan payable

    340,159        —          1,895,635        —          (2,235,794     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    340,159        2,130,376        1,895,635        265,851        (2,235,794     2,396,227   

Notes payable on real estate

    —          —          —          220,524        —          220,524   

Deferred tax liabilities, net

    —          —          149,677        16,337        —          166,014   

Non-current tax liabilities

    —          —          79,137        3,140        —          82,277   

Pension liability

    —          —          —          62,267        —          62,267   

Other liabilities

    —          37,793        111,664        67,769        —          217,226   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    340,159        2,253,880        3,131,353        1,651,772        (2,239,950     5,137,214   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    1,212,227        1,548,535        2,116,018        1,221,667        (4,886,220     1,212,227   

Non-controlling interests

    —          —          —          190,116        —          190,116   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    1,212,227        1,548,535        2,116,018        1,411,783        (4,886,220     1,402,343   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,552,386      $ 3,802,415      $ 5,247,371      $ 3,063,555      $ (7,126,170   $ 6,539,557   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 JP Morgan Chase Bank, N.A. (JP Morgan), Fannie Mae As Soon As Pooled (ASAP) Program, Bank of America (BofA) and TD Bank, N.A. (TD Bank) lines of credit are pledged to JP Morgan, Fannie Mae, BofA and TD Bank, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

27


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 298,370      $ 375,176      $ 419,631      $ —        $ 1,093,182   

Restricted cash

    —          4,845        21,827        40,466        —          67,138   

Receivables, net

    —          —          405,902        729,469        —          1,135,371   

Warehouse receivables (a)

    —          —          720,061        —          —          720,061   

Trading securities

    —          —          83        151,401        —          151,484   

Income taxes receivable

    15,526        6,879        —          3,669        (26,074     —     

Prepaid expenses

    —          —          46,040        65,839        —          111,879   

Deferred tax assets, net

    —          —          143,065        25,874        —          168,939   

Real estate under development

    —          —          —          30,617        —          30,617   

Real estate and other assets held for sale

    —          —          —          26,201        —          26,201   

Available for sale securities

    —          —          2,790        —          —          2,790   

Other current assets

    —          —          26,468        15,917        —          42,385   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    15,531        310,094        1,741,412        1,509,084        (26,074     3,550,047   

Property and equipment, net

    —          —          202,674        92,814        —          295,488   

Goodwill

    —          —          1,004,875        823,532        —          1,828,407   

Other intangible assets, net

    —          —          510,219        284,106        —          794,325   

Investments in unconsolidated subsidiaries

    —          —          105,664        61,168        —          166,832   

Investments in consolidated subsidiaries

    1,432,638        1,832,044        1,211,409        —          (4,476,091     —     

Intercompany loan receivable

    —          1,490,897        700,000        34,378        (2,225,275     —     

Real estate under development

    —          —          693        3,259        —          3,952   

Real estate held for investment

    —          —          4,007        399,691        —          403,698   

Available for sale securities

    —          —          34,605        —          —          34,605   

Other assets, net

    —          49,389        48,603        43,797        —          141,789   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,448,169      $ 3,682,424      $ 5,564,161      $ 3,251,829      $ (6,727,440   $ 7,219,143   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 11,674      $ 151,260      $ 411,202      $ —        $ 574,136   

Compensation and employee benefits payable

    —          626        208,692        189,370        —          398,688   

Accrued bonus and profit sharing

    —          —          308,748        235,880        —          544,628   

Securities sold, not yet purchased

    —          —          —          98,810        —          98,810   

Income taxes payable

    —          —          54,442        —          (26,074     28,368   

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          713,362        —          —          713,362   

Revolving credit facility

    —          10,098        —          34,727        —          44,825   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,098        713,378        34,727        —          758,203   

Current maturities of long-term debt

    —          46,000        —          21,838        —          67,838   

Notes payable on real estate

    —          —          —          146,120        —          146,120   

Liabilities related to real estate and other assets held for sale

    —          —          —          21,482        —          21,482   

Other current liabilities

    —          —          39,885        2,490        —          42,375   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          68,398        1,476,405        1,161,919        (26,074     2,680,648   

Long-Term Debt:

           

Senior secured term loans

    —          1,352,500        —          263,273        —          1,615,773   

11.625% senior subordinated notes, net

    —          439,016        —          —          —          439,016   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          —          59        —          59   

Intercompany loan payable

    296,688        —          1,928,587        —          (2,225,275     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    296,688        2,141,516        1,928,587        263,332        (2,225,275     2,404,848   

Notes payable on real estate

    —          —          —          206,339        —          206,339   

Deferred tax liabilities, net

    —          —          135,500        13,469        —          148,969   

Non-current tax liabilities

    —          —          77,595        2,332        —          79,927   

Pension liability

    —          —          —          60,860        —          60,860   

Other liabilities

    —          39,872        114,030        66,487        —          220,389   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    296,688        2,249,786        3,732,117        1,774,738        (2,251,349     5,801,980   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    1,151,481        1,432,638        1,832,044        1,211,409        (4,476,091     1,151,481   

Non-controlling interests

    —          —          —          265,682        —          265,682   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    1,151,481        1,432,638        1,832,044        1,477,091        (4,476,091     1,417,163   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,448,169      $ 3,682,424      $ 5,564,161      $ 3,251,829      $ (6,727,440   $ 7,219,143   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, TD Bank, Fannie Mae ASAP Program and BofA lines of credit are pledged to Kemps Landing, JP Morgan, TD Bank, Fannie Mae and BofA, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

28


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 797,035      $ 552,954      $ —        $ 1,349,989   

Costs and expenses:

           

Cost of services

    —          —          481,776        305,780        —          787,556   

Operating, administrative and other

    10,328        941        207,698        221,755        —          440,722   

Depreciation and amortization

    —          —          20,907        25,550        —          46,457   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    10,328        941        710,381        553,085        —          1,274,735   

Gain on disposition of real estate

    —          —          —          809        —          809   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (10,328     (941     86,654        678        —          76,063   

Equity income from unconsolidated subsidiaries

    —          —          13,294        1,092        —          14,386   

Other income

    —          —          267        6,321        —          6,588   

Interest income

    —          23,077        975        777        (22,526     2,303   

Interest expense

    —          35,791        22,652        8,064        (22,526     43,981   

Royalty and management service (income) expense

    —          —          (7,861     7,861        —          —     

Income (loss) from consolidated subsidiaries

    33,457        42,027        (10,818     —          (64,666     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before (benefit of) provision for income taxes

    23,129        28,372        75,581        (7,057     (64,666     55,359   

(Benefit of) provision for income taxes

    (3,846     (5,085     33,554        790        —          25,413   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    26,975        33,457        42,027        (7,847     (64,666     29,946   

Less: Net income attributable to non-controlling interests

    —          —          —          2,971        —          2,971   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 26,975      $ 33,457      $ 42,027      $ (10,818   $ (64,666   $ 26,975   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 696,135      $ 488,970      $ —        $ 1,185,105   

Costs and expenses:

           

Cost of services

    —          —          420,960        292,795        —          713,755   

Operating, administrative and other

    9,805        187        208,423        158,610        —          377,025   

Depreciation and amortization

    —          —          12,285        10,893        —          23,178   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    9,805        187        641,668        462,298        —          1,113,958   

Gain on disposition of real estate

    —          —          —          1,972        —          1,972   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (9,805     (187     54,467        28,644        —          73,119   

Equity income (loss) from unconsolidated subsidiaries

    —          —          16,448        (1,269     —          15,179   

Interest income

    —          26,055        841        1,502        (25,730     2,668   

Interest expense

    —          25,894        24,494        9,060        (25,730     33,718   

Royalty and management service (income) expense

    —          —          (8,247     8,247        —          —     

Income from consolidated subsidiaries

    40,539        40,555        5,430        —          (86,524     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    30,734        40,529        60,939        11,570        (86,524     57,248   

(Benefit of) provision for income taxes

    (3,635     (10     20,384        6,667        —          23,406   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    34,369        40,539        40,555        4,903        (86,524     33,842   

Income from discontinued operations, net of income taxes

    —          —          —          10,644        —          10,644   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    34,369        40,539        40,555        15,547        (86,524     44,486   

Less: Net income attributable to non-controlling interests

    —          —          —          10,117        —          10,117   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 34,369      $ 40,539      $ 40,555      $ 5,430      $ (86,524   $ 34,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Dollars in thousands)

 

     Parent      CBRE      Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Net income (loss)

   $ 26,975       $ 33,457       $ 42,027      $ (7,847   $ (64,666   $ 29,946   

Other comprehensive income (loss):

              

Foreign currency translation gain

     —           —           —          18,522        —          18,522   

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

     —           1,252         —          2        —          1,254   

Unrealized gains on available for sale securities, net

     —           —           914        —          —          914   

Other, net

     —           —           (500     —          —          (500
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     —           1,252         414        18,524        —          20,190   

Comprehensive income

     26,975         34,709         42,441        10,677        (64,666     50,136   

Less: Comprehensive income attributable to non-controlling interests

     —           —           —          3,167        —          3,167   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

   $ 26,975       $ 34,709       $ 42,441      $ 7,510      $ (64,666   $ 46,969   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

31


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(Dollars in thousands)

 

     Parent      CBRE      Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
     Elimination     Consolidated
Total
 

Net income

   $ 34,369       $ 40,539       $ 40,555      $ 15,547       $ (86,524   $ 44,486   

Other comprehensive income (loss):

               

Foreign currency translation gain

     —           —           —          29,995         —          29,995   

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

     —           1,030         —          26         —          1,056   

Unrealized gains on available for sale securities, net

     —           —           94        —           —          94   

Other, net

     —           —           (586     —           —          (586
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total other comprehensive income (loss)

     —           1,030         (492     30,021         —          30,559   

Comprehensive income

     34,369         41,569         40,063        45,568         (86,524     75,045   

Less: Comprehensive income attributable to non-controlling interests

     —           —           —          10,475         —          10,475   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

   $ 34,369       $ 41,569       $ 40,063      $ 35,093       $ (86,524   $ 64,570   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

32


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Consolidated
Total
 

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:

  $ 16,837      $ 10,685      $ (272,348   $ (54,123   $ (298,949

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Capital expenditures

    —          —          (1,910     (6,176     (8,086

Contributions to unconsolidated subsidiaries

    —          —          (8,272     (3,083     (11,355

Distributions from unconsolidated subsidiaries

    —          —          1,859        2,791        4,650   

Additions to real estate held for investment

    —          —          —          (1,171     (1,171

Proceeds from the sale of servicing rights and other assets

    —          —          5,971        38        6,009   

(Increase) decrease in restricted cash

    —          (15     (3,567     10,427        6,845   

Decrease in cash due to deconsolidation of CBRE Clarion
U.S., L.P.

    —          —          —          (73,187     (73,187

Other investing activities, net

    —          —          1,659        241        1,900   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

    —          (15     (4,260     (70,120     (74,395

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Repayment of senior secured term loans

    —          (11,500     —          (5,563     (17,063

Repayment of revolving credit facility

    —          —          —          (10,795     (10,795

Proceeds from notes payable on real estate held for investment

    —          —          —          3,251        3,251   

Repayment of notes payable on real estate held for investment

    —          —          —          (1,716     (1,716

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

    —          —          —          1,207        1,207   

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

    —          —          —          (561     (561

Incremental tax benefit from stock options exercised

    39        —          —          —          39   

Non-controlling interests contributions

    —          —          —          15,186        15,186   

Non-controlling interests distributions

    —          —          —          (14,117     (14,117

Payment of financing costs

    —          (15     —          (20     (35

(Increase) decrease in intercompany receivables, net

    (19,001     (201,613     173,426        47,188        —     

Other financing activities, net

    2,125        —          —          (6     2,119   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

    (16,837     (213,128     173,426        34,054        (22,485

Effect of currency exchange rate changes on cash and cash equivalents

    —          —          —          6,584        6,584