form10q.htm
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-Q
S Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended March 31, 2009
Or
£ Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from _____ to _____
Commission
File Number 1-13145
Jones
Lang LaSalle Incorporated
(Exact
name of registrant as specified
in its
charter)
Maryland
(State or
other jurisdiction of incorporation or organization)
36-4150422
(I.R.S.
Employer Identification No.)
200 East Randolph Drive, Chicago,
IL
|
60601
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: 312-782-5800
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 S No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large
accelerated filer S
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No S
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on May 5, 2009 was 34,754,429.
Part
I
|
Financial
Information
|
|
|
|
|
Item
1.
|
|
3
|
|
|
|
|
|
3
|
|
|
|
|
|
4
|
|
|
|
|
|
5
|
|
|
|
|
|
6
|
|
|
|
|
|
7
|
|
|
|
Item
2.
|
|
18
|
|
|
|
Item
3.
|
|
28
|
|
|
|
Item
4.
|
|
29
|
|
|
|
|
|
|
Part
II
|
Other
Information
|
|
|
|
|
Item
1.
|
|
29
|
|
|
|
Item
5.
|
|
29
|
|
|
|
Item
6.
|
|
33
|
Part
I Financial Information
JONES
LANG LASALLE INCORPORATED
March
31, 2009 and December 31, 2008
($ in
thousands, except share data)
|
|
March
31,
|
|
|
|
|
|
|
2009
|
|
|
December
31,
|
|
Assets
|
|
(unaudited)
|
|
|
2008
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$ |
46,019 |
|
|
|
45,893 |
|
Trade
receivables, net of allowances of $27,628 and $23,847
|
|
|
587,359 |
|
|
|
718,804 |
|
Notes and
other receivables
|
|
|
76,758 |
|
|
|
89,636 |
|
Prepaid
expenses
|
|
|
35,624 |
|
|
|
32,990 |
|
Deferred
tax assets
|
|
|
118,285 |
|
|
|
102,934 |
|
Other
|
|
|
10,511 |
|
|
|
9,511 |
|
Total
current assets
|
|
|
874,556 |
|
|
|
999,768 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $236,006 and
$225,496
|
|
|
214,031 |
|
|
|
224,845 |
|
Goodwill,
with indefinite useful lives
|
|
|
1,434,722 |
|
|
|
1,448,663 |
|
Identified
intangibles, with finite useful lives, net of accumulated amortization of
$56,505 and $46,936
|
|
|
48,545 |
|
|
|
59,319 |
|
Investments in real
estate ventures
|
|
|
145,209 |
|
|
|
179,875 |
|
Long-term
receivables
|
|
|
49,959 |
|
|
|
51,974 |
|
Deferred
tax assets
|
|
|
59,426 |
|
|
|
58,639 |
|
Other,
net
|
|
|
52,589 |
|
|
|
53,942 |
|
Total
assets
|
|
$ |
2,879,037 |
|
|
|
3,077,025 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
295,673 |
|
|
|
352,489 |
|
Accrued
compensation
|
|
|
420,748 |
|
|
|
487,895 |
|
Short-term
borrowings
|
|
|
38,551 |
|
|
|
24,570 |
|
Deferred
tax liabilities
|
|
|
3,503 |
|
|
|
2,698 |
|
Deferred
income
|
|
|
33,904 |
|
|
|
29,213 |
|
Deferred
business acquisition obligations
|
|
|
23,398 |
|
|
|
13,073 |
|
Other
|
|
|
85,153 |
|
|
|
77,947 |
|
Total
current liabilities
|
|
|
900,930 |
|
|
|
987,885 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
496,008 |
|
|
|
483,942 |
|
Deferred
tax liabilities
|
|
|
4,351 |
|
|
|
4,429 |
|
Deferred
compensation
|
|
|
31,291 |
|
|
|
44,888 |
|
Pension
liabilities
|
|
|
3,938 |
|
|
|
4,101 |
|
Deferred
business acquisition obligations
|
|
|
354,044 |
|
|
|
371,636 |
|
Minority
shareholder redemption liability
|
|
|
43,500 |
|
|
|
43,313 |
|
Other
|
|
|
57,091 |
|
|
|
65,026 |
|
Total
liabilities
|
|
|
1,891,153 |
|
|
|
2,005,220 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized; 34,734,550
and 34,561,648 shares issued and outstanding
|
|
|
347 |
|
|
|
346 |
|
Additional paid-in
capital
|
|
|
616,472 |
|
|
|
599,742 |
|
Retained
earnings
|
|
|
481,843 |
|
|
|
543,318 |
|
Shares
held in trust
|
|
|
(3,504 |
) |
|
|
(3,504 |
) |
Accumulated other
comprehensive loss
|
|
|
(112,520 |
) |
|
|
(72,220 |
) |
Total
Company shareholders’equity
|
|
|
982,638 |
|
|
|
1,067,682 |
|
Noncontrolling
interest
|
|
|
5,246 |
|
|
|
4,123 |
|
Total
equity
|
|
|
987,884 |
|
|
|
1,071,805 |
|
Total
liabilities and equity
|
|
$ |
2,879,037 |
|
|
|
3,077,025 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Three Months Ended March 31, 2009 and 2008
($ in
thousands, except share data) (unaudited)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
494,211 |
|
|
|
563,920 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
342,555 |
|
|
|
378,873 |
|
Operating,
administrative and other
|
|
|
137,623 |
|
|
|
160,866 |
|
Depreciation
and amortization
|
|
|
24,520 |
|
|
|
16,446 |
|
Restructuring
charges (credits)
|
|
|
17,042 |
|
|
|
(188 |
) |
Total
operating expenses
|
|
|
521,740 |
|
|
|
555,997 |
|
|
|
|
|
|
|
|
|
|
Operating
(loss) income
|
|
|
(27,529 |
) |
|
|
7,923 |
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
12,758 |
|
|
|
1,176 |
|
Equity
in losses from unconsolidated ventures
|
|
|
(32,022 |
) |
|
|
(2,213 |
) |
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and noncontrolling interest
|
|
|
(72,309 |
) |
|
|
4,534 |
|
|
|
|
|
|
|
|
|
|
(Benefit)
provision for income taxes
|
|
|
(10,846 |
) |
|
|
1,143 |
|
Net
(loss) income
|
|
|
(61,463 |
) |
|
|
3,391 |
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
|
12 |
|
|
|
552 |
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to the Company
|
|
|
(61,475 |
) |
|
|
2,839 |
|
Net
(loss) income attributable to common shareholders
|
|
$ |
(61,475 |
) |
|
|
2,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings per common share
|
|
$ |
(1.78 |
) |
|
|
0.09 |
|
Basic
weighted average shares outstanding
|
|
|
34,617,894 |
|
|
|
31,772,825 |
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) earnings per common share
|
|
$ |
(1.78 |
) |
|
|
0.09 |
|
Diluted
weighted average shares outstanding
|
|
|
34,617,894 |
|
|
|
33,229,444 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Three Months Ended March 31, 2009
($ in
thousands, except share data) (unaudited)
|
|
Company
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Shares
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Held
in
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Trust
|
|
|
Loss
|
|
|
Interest
|
|
|
Equity
|
|
Balances
at December 31, 2008
|
|
|
34,561,648 |
|
|
$ |
346 |
|
|
|
599,742 |
|
|
|
543,318 |
|
|
|
(3,504 |
) |
|
|
(72,220 |
) |
|
|
4,123 |
|
|
$ |
1,071,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(61,475 |
) |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
(61,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
195,662 |
|
|
|
1 |
|
|
|
2,368 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
repurchased for payment of taxes on stock awards
|
|
|
(22,760 |
) |
|
|
— |
|
|
|
(625 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
tax adjustments due to vestings and exercises
|
|
|
— |
|
|
|
— |
|
|
|
(1,098 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
16,085 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in amounts due to noncontrolling interest
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,111 |
|
|
|
1,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40,300 |
) |
|
|
— |
|
|
|
(40,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2009
|
|
|
34,734,550 |
|
|
$ |
347 |
|
|
|
616,472 |
|
|
|
481,843 |
|
|
|
(3,504 |
) |
|
|
(112,520 |
) |
|
|
5,246 |
|
|
$ |
987,884 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
For
the Three Months Ended March 31, 2009 and 2008
($ in
thousands) (unaudited)
|
|
Three
|
|
|
Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(61,475 |
) |
|
|
2,839 |
|
Reconciliation
of net income to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
24,520 |
|
|
|
16,446 |
|
Equity
in losses from real estate ventures
|
|
|
32,022 |
|
|
|
2,213 |
|
Operating
distributions from real estate ventures
|
|
|
— |
|
|
|
59 |
|
Provision
for loss on receivables and other assets
|
|
|
7,592 |
|
|
|
9,109 |
|
Minority
interest, net of tax
|
|
|
12 |
|
|
|
552 |
|
Amortization
of deferred compensation
|
|
|
14,311 |
|
|
|
15,955 |
|
Amortization
of debt issuance costs
|
|
|
946 |
|
|
|
141 |
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
122,003 |
|
|
|
52,071 |
|
Prepaid
expenses and other assets
|
|
|
(3,452 |
) |
|
|
(2,001 |
) |
Deferred
tax assets, net
|
|
|
(15,409 |
) |
|
|
(18,040 |
) |
Excess
tax adjustment from share-based payment arrangements
|
|
|
— |
|
|
|
(856 |
) |
Accounts payable, accrued liabilities and accrued
compensation
|
|
|
(124,935 |
) |
|
|
(350,338 |
) |
Net
cash used in operating activities
|
|
|
(3,865 |
) |
|
|
(271,850 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(6,952 |
) |
|
|
(18,787 |
) |
Business
acquisitions
|
|
|
(13,783 |
) |
|
|
(40,752 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
— |
|
|
|
(10,400 |
) |
Distributions, repayments of advances and sale of
investments
|
|
|
873 |
|
|
|
6 |
|
Net
cash used in investing activities
|
|
|
(19,862 |
) |
|
|
(69,933 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
242,619 |
|
|
|
545,067 |
|
Repayments
of borrowings under credit facilities
|
|
|
(216,572 |
) |
|
|
(209,006 |
) |
Debt
issuance costs
|
|
|
(3,938 |
) |
|
|
— |
|
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(625 |
) |
|
|
(1,650 |
) |
Excess
tax adjustment from share-based payment arrangements
|
|
|
— |
|
|
|
856 |
|
Common stock issued under stock option plan and
stock purchase programs
|
|
|
2,369 |
|
|
|
2,584 |
|
Net
cash provided by financing activities
|
|
|
23,853 |
|
|
|
337,851 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
126 |
|
|
|
(3,932 |
) |
Cash and cash equivalents, January
1
|
|
|
45,893 |
|
|
|
78,580 |
|
Cash and cash equivalents, March
31
|
|
$ |
46,019 |
|
|
|
74,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
6,160 |
|
|
|
780 |
|
Income
taxes, net of refunds
|
|
|
8,141 |
|
|
|
45,836 |
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
|
3,054 |
|
|
|
15,602 |
|
See
accompanying notes to consolidated financial statements.
JONES
LANG LASALLE INCORPORATED
Readers
of this quarterly report should refer to the audited financial statements of
Jones Lang LaSalle Incorporated (“Jones Lang LaSalle”, which may also be
referred to as “the Company” or as “the Firm,” “we,” “us” or “our”) for the year
ended December 31, 2008, which are included in Jones Lang LaSalle’s 2008 Annual
Report on Form 10-K, filed with the United States Securities and Exchange
Commission (“SEC”) and also available on our website (www.joneslanglasalle.com),
since we have omitted from this report certain footnote disclosures which would
substantially duplicate those contained in such audited financial statements.
You should also refer to the “Summary of Critical Accounting Policies and
Estimates” section within Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contained herein, for further
discussion of our accounting policies and estimates.
(1)
Interim Information
Our
consolidated financial statements as of March 31, 2009 and for the three months
ended March 31, 2009 and 2008 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements for
these interim periods have been included.
Historically,
our revenue and profits have tended to be higher in the third and fourth
quarters of each year than in the first two quarters. This is the result of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year. Our Investment Management segment earns
investment-generated performance fees on clients’ real estate investment returns
and co-investment equity gains, generally when assets are sold, the timing of
which is geared towards the benefit of our clients. Within our Investor and
Occupier Services segments, revenue for capital markets activities relates to
the size and timing of our clients’ transactions and can fluctuate significantly
from period to period. Non-variable operating expenses, which are treated as
expenses when they are incurred during the year, are relatively constant on a
quarterly basis. As a result, the results for the periods ended March 31, 2009
and 2008 are not indicative of the results to be obtained for the full fiscal
year.
(2)
New Accounting Standards
Fair
Value Measurements
In 2006,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) 157, “Fair Value Measurements.” SFAS 157 defines
fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. SFAS 157 applies to accounting pronouncements that require or
permit fair value measurements, except for share-based payment transactions
under SFAS 123R.
On
January 1, 2008 the Company adopted SFAS 157 with respect to its financial
assets and liabilities that are measured at fair value, and on January 1, 2009
the Company adopted SFAS 157 with respect to its non-financial assets and
liabilities that are measured at fair value. The adoption of these provisions
did not have a material impact on our consolidated financial
statements.
SFAS 157
establishes a three-tier fair value hierarchy which prioritizes the inputs used
in measuring fair value as follows:
|
·
|
Level
1. Observable inputs such as quoted prices in active
markets;
|
|
·
|
Level
2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly;
and
|
|
·
|
Level
3. Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own
assumptions.
|
We
regularly use foreign currency forward contracts to manage our currency exchange
rate risk related to intercompany lending and cash management practices. We
determine the fair value of these contracts based on widely accepted valuation
techniques. The inputs for these valuation techniques are primarily Level 2
inputs in the hierarchy of SFAS 157. At March 31, 2009, we had forward exchange
contracts in effect with a gross notional value of $571.2 million and a net fair
value gain of $0.2 million, recorded as a current asset of $6.1 million and a
current liability of $5.9 million. This net carrying gain is offset
by a carrying loss in the associated intercompany loans such that the net impact
to earnings is not significant.
See Note
6. Investments in Real Estate Ventures and “Asset Impairments, Investments in
Real Estate Ventures” in our Summary of Critical Accounting Policies and
Estimates in Management’s Discussion and Analysis for discussion of our
processes for evaluating investments in real estate ventures for impairment on a
quarterly basis. The inputs to this quarterly impairment analysis are Level 3
inputs in the fair value hierarchy under SFAS 157.
Business
Combinations
In
December 2007, the FASB issued SFAS 141(revised), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) changes how identifiable assets acquired and the
liabilities assumed in a business combination are recorded in the financial
statements. SFAS 141(R) requires the acquiring entity in a business combination
to recognize the full fair value of assets acquired and liabilities assumed in
the transaction (whether a full or partial acquisition); establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed; and requires expensing of most transaction and
restructuring costs. SFAS 141(R) principally applies prospectively to business
combinations for which the acquisition date is after December 31, 2008. The
impact of the application of SFAS 141(R) on our consolidated financial
statements will depend on the contract terms of business combinations we
complete in the future.
Noncontrolling
Interests
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”). SFAS 160 requires reporting entities to present
noncontrolling (minority) interests as equity (as opposed to a liability or
mezzanine equity) and provides guidance on the accounting for transactions
between an entity and noncontrolling interests. We applied the provisions of
SFAS 160 prospectively starting January 1, 2009. The adoption of SFAS 160 did
not have a material impact on our consolidated financial
statements.
Disclosures
about Derivative Instruments and Hedging Activities
SFAS 161,
“Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”)
requires enhanced disclosures about an entity’s derivative and hedging
activities and became effective for the Company in the first quarter of 2009. As
a firm, we do not enter into derivative financial instruments for trading or
speculative purposes. However, we do use derivative financial instruments in the
form of forward foreign currency exchange contracts to manage selected foreign
currency risks that arise in the normal course of business. These contracts are
marked-to-market each period with changes in unrealized gains or losses
recognized in earnings as a component of Operating, administrative and other
expenses and offset by gains and losses in associated intercompany loans such
that the net impact to earnings is not significant (see Fair Value Measurements
above). At March 31, 2009, we had forward exchange contracts in effect with a
gross notional value of $571.2 million and a net fair value gain of $0.2
million, recorded as a current asset of $6.1 million and a current liability of
$5.9 million. We have considered the counterparty credit risk related
to these forward foreign currency exchange contracts and do not deem any
counterparty credit risk material at this time.
(3)
Revenue Recognition
We earn
revenue from the following principal sources:
|
·
|
Transaction
commissions;
|
|
·
|
Advisory and management
fees;
|
|
·
|
Project and development
management fees; and
|
|
·
|
Construction management
fees.
|
We
recognize transaction
commissions related to agency leasing services, capital markets services
and tenant representation services as income when we provide the related service
unless future contingencies exist. If future contingencies exist, we
defer recognition of this revenue until the respective contingencies have been
satisfied.
We
recognize advisory and
management fees related to property management services, valuation
services, corporate property services, strategic consulting and money management
as income in the period in which we perform the related services.
We
recognize incentive fees
based on the performance of underlying funds’ investments and the contractual
benchmarks, formulas and timing of the measurement period with
clients.
We
recognize project and
development management and construction management fees by applying the
“percentage of completion” method of accounting. We use the efforts expended
method to determine the extent of progress towards completion for project and
development management fees and costs incurred to total estimated costs for
construction management fees.
Construction management fees,
which are gross construction services revenues net of subcontract costs, were
$3.1 million and $3.7 million for the three months ended March 31, 2009 and
2008, respectively. Gross construction services revenues totaled $42.7 million
and $56.7 million for the three months ended March 31, 2009 and 2008,
respectively. Subcontract costs totaled $39.6 million and $53.0 million for the
three months ended March 31, 2009 and 2008, respectively.
We
include costs in excess of billings on uncompleted construction contracts of
$12.4 million and $9.8 million in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $2.4 million and $5.9 million in
“Deferred income,” respectively, in our March 31, 2009 and December 31, 2008
consolidated balance sheets.
In
certain of our businesses, primarily those involving management services, our
clients reimburse us for expenses incurred on their behalf. We base the
treatment of reimbursable expenses for financial reporting purposes upon the fee
structure of the underlying contracts. We follow the guidance of EITF 99-19,
“Reporting Revenue Gross as a Principal versus Net as an Agent,” when accounting
for reimbursable personnel and other costs. We report a contract that provides a
fixed fee billing, fully inclusive of all personnel or other recoverable
expenses incurred but not separately scheduled, on a gross basis. When
accounting on a gross basis, our reported revenues include the full billing to
our client and our reported expenses include all costs associated with the
client.
We
account for a contract on a net basis when the fee structure is comprised of at
least two distinct elements, namely (i) a fixed management fee and (ii) a
separate component that allows for scheduled reimbursable personnel costs or
other expenses to be billed directly to the client. When accounting on a net
basis, we include the fixed management fee in reported revenues and net the
reimbursement against expenses. We base this accounting on the following
factors, which define us as an agent rather than a principal:
|
·
|
The
property owner, with ultimate approval rights relating to the employment
and compensation of on-site personnel, and bearing all of the economic
costs of such personnel, is determined to be the primary obligor in the
arrangement;
|
|
·
|
Reimbursement
to Jones Lang LaSalle is generally completed simultaneously with payment
of payroll or soon thereafter;
|
|
·
|
Because
the property owner is contractually obligated to fund all operating costs
of the property from existing cash flow or direct funding from its
building operating account, Jones Lang LaSalle bears little or no credit
risk; and
|
|
·
|
Jones
Lang LaSalle generally earns no margin in the reimbursement aspect of the
arrangement, obtaining reimbursement
only for actual costs
incurred.
|
Most of
our service contracts use the latter structure and we account for them on a net
basis. We have always presented the above reimbursable contract costs on a net
basis in accordance with U.S. GAAP. These costs aggregated approximately $264.3
million and $282.0 million for the three months ended March 31, 2009 and 2008,
respectively. This treatment has no impact on operating income, net income or
cash flows.
(4)
Business Segments
We manage
and report our operations as four business segments:
The three
geographic regions of Investor and Occupier Services ("IOS"):
|
(ii)
|
Europe,
Middle East and Africa (“EMEA”),
|
|
(iv)
|
Investment
Management, which offers investment management services on a global
basis.
|
Each
geographic region offers our full range of Investor Services, Capital Markets
and Occupier Services. The IOS business consists primarily of tenant
representation and agency leasing, capital markets and valuation services
(collectively "transaction services") and property management, facilities
management, project and development management, energy management and
sustainability and construction management services (collectively "management
services"). The Investment Management segment provides investment
management services to institutional investors and high-net-worth
individuals.
Operating
income represents total revenue less direct and indirect allocable expenses. We
allocate all expenses, other than interest and income taxes, as nearly all
expenses incurred benefit one or more of the segments. Allocated expenses
primarily consist of corporate global overhead. We allocate these corporate
global overhead expenses to the business segments based on the relative
operating income of each segment.
For
segment reporting we show equity in earnings (losses) from real estate ventures
within our revenue line, especially since it is an integral part of our
Investment Management segment. Our measure of segment reporting results also
excludes restructuring charges. The Chief Operating Decision Maker of Jones Lang
LaSalle measures the segment results with “Equity in earnings (losses) from real
estate ventures,” and without restructuring charges. We define the Chief
Operating Decision Maker collectively as our Global Executive Committee, which
is comprised of our Global Chief Executive Officer, Global Chief Operating and
Financial Officer, the Chief Executive Officers of each of our four reporting
segments, and the Chairman of Asia Pacific and Jones Lang LaSalle
Hotels.
Summarized
unaudited financial information by business segment for the three months ended
March 31, 2009 and 2008 is as follows ($ in thousands):
|
|
2009
|
|
|
2008
|
|
Investor
and Occupier Services
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
106,609 |
|
|
|
79,360 |
|
Management
services
|
|
|
84,647 |
|
|
|
88,748 |
|
Equity
losses
|
|
|
(1,445 |
) |
|
|
— |
|
Other
services
|
|
|
9,779 |
|
|
|
5,757 |
|
|
|
$ |
199,590 |
|
|
|
173,865 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
188,158 |
|
|
|
166,569 |
|
Depreciation
and amortization
|
|
|
15,916 |
|
|
|
7,048 |
|
Operating
(loss) income
|
|
$ |
(4,484 |
) |
|
|
248 |
|
|
|
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
73,730 |
|
|
|
132,414 |
|
Management
services
|
|
|
45,276 |
|
|
|
48,177 |
|
Equity
(losses) earnings
|
|
|
(379 |
) |
|
|
16 |
|
Other
services
|
|
|
2,132 |
|
|
|
2,455 |
|
|
|
$ |
120,759 |
|
|
|
183,062 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
136,943 |
|
|
|
184,060 |
|
Depreciation
and amortization
|
|
|
5,142 |
|
|
|
6,021 |
|
Operating
loss
|
|
$ |
(21,326 |
) |
|
|
(7,019 |
) |
|
|
|
|
|
|
|
|
|
Asia
Pacific
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
37,690 |
|
|
|
58,883 |
|
Management
services
|
|
|
66,741 |
|
|
|
57,073 |
|
Equity
losses
|
|
|
(971 |
) |
|
|
(62 |
) |
Other
services
|
|
|
1,371 |
|
|
|
1,504 |
|
|
|
$ |
104,831 |
|
|
|
117,398 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
105,517 |
|
|
|
122,407 |
|
Depreciation
and amortization
|
|
|
2,921 |
|
|
|
2,877 |
|
Operating
loss
|
|
$ |
(3,607 |
) |
|
|
(7,886 |
) |
|
|
|
|
|
|
|
|
|
Investment
Management
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
1,197 |
|
|
|
4,225 |
|
Advisory
fees
|
|
|
60,073 |
|
|
|
72,130 |
|
Incentive
fees
|
|
|
4,966 |
|
|
|
13,194 |
|
Equity
losses
|
|
|
(29,228 |
) |
|
|
(2,167 |
) |
|
|
$ |
37,008 |
|
|
|
87,382 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
49,560 |
|
|
|
66,703 |
|
Depreciation
and amortization
|
|
|
541 |
|
|
|
500 |
|
Operating
(loss) income
|
|
$ |
(13,093 |
) |
|
|
20,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items:
|
|
|
|
|
|
|
|
|
Total
segment revenue
|
|
$ |
462,188 |
|
|
|
561,707 |
|
Reclassification
of equity losses
|
|
|
(32,023 |
) |
|
|
(2,213 |
) |
Total
revenue
|
|
$ |
494,211 |
|
|
|
563,920 |
|
|
|
|
|
|
|
|
|
|
Total
operating expenses before restructuring charges (credits)
|
|
|
504,698 |
|
|
|
556,185 |
|
Restructuring
charges (credits)
|
|
|
17,042 |
|
|
|
(188 |
) |
Operating
(loss) income
|
|
$ |
(27,529 |
) |
|
|
7,923 |
|
(5)
Business Combinations, Goodwill and Other Intangible Assets
2009
Business Combinations Activity
In the
first three months of 2009, we paid $10.3 million to satisfy deferred business
acquisition obligations, primarily related to the Americas’ 2006 acquisition of
Spaulding & Slye. We also made $1.6 million of earn-out payments related to
three acquisitions that were completed in 2007 and 2008. No new
acquisitions were completed in the first three months of 2009.
Earn-out
payments
At March
31, 2009 we had the potential to make earn-out payments on 18 acquisitions that
are subject to the achievement of certain performance conditions. The maximum
amount of the potential earn-out payments of 17 of these acquisitions was $186.9
million at March 31, 2009. We expect these amounts will come due at various
times over the next five years. The
earn-out provisions of our acquisition of Indian real estate services company
Trammell Crow Meghraj (“TCM”) are based on formulas and independent valuations
such that the future payments are not quantifiable at this time; this obligation
is reflected on our consolidated balance sheet as a Minority shareholder
redemption liability.
Goodwill
and Other Intangible Assets
We have
$1,483.2 million of unamortized intangibles and goodwill as of March 31, 2009
that are subject to the provisions of SFAS 142, “Goodwill and Other Intangible
Assets.” A significant portion of these unamortized intangibles and goodwill are
denominated in currencies other than U.S. dollars, which means that a portion of
the movements in the reported book value of these balances are attributable to
movements in foreign currency exchange rates. The tables below set forth further
details on the foreign exchange impact on intangible and goodwill balances. Of
the $1,483.2 million of unamortized intangibles and goodwill, $1,434.7 million
represents goodwill with indefinite useful lives, which is not amortized. We
will amortize the remaining $48.5 million of identifiable intangibles over their
remaining finite useful lives.
The
following table sets forth, by reporting segment, the current year movements in
goodwill with indefinite useful lives ($ in thousands):
|
|
Investor and Occupier
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2009
|
|
$ |
939,933 |
|
|
|
316,581 |
|
|
|
174,970 |
|
|
|
17,179 |
|
|
|
1,448,663 |
|
Additions
(adjustments)
|
|
|
(1,121 |
) |
|
|
718 |
|
|
|
697 |
|
|
|
— |
|
|
|
294 |
|
Impact of exchange rate
movements
|
|
|
(9 |
) |
|
|
(13,237 |
) |
|
|
(653 |
) |
|
|
(336 |
) |
|
|
(14,235 |
) |
Balance
as of March 31, 2009
|
|
$ |
938,803 |
|
|
|
304,062 |
|
|
|
175,014 |
|
|
|
16,843 |
|
|
|
1,434,722 |
|
The
following table sets forth, by reporting segment, the current year movements in
the gross carrying amount and accumulated amortization of our intangibles with
finite useful lives ($ in thousands):
|
|
Investor and Occupier
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
Investment
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Pacific
|
|
|
Management
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2009
|
|
$ |
80,592 |
|
|
|
14,645 |
|
|
|
10,891 |
|
|
|
127 |
|
|
|
106,255 |
|
Adjustments
|
|
|
(323 |
) |
|
|
(279 |
) |
|
|
— |
|
|
|
— |
|
|
|
(602 |
) |
Impact of exchange rate
movements
|
|
|
— |
|
|
|
(504 |
) |
|
|
(88 |
) |
|
|
(10 |
) |
|
|
(602 |
) |
Balance
as of March 31, 2009
|
|
$ |
80,269 |
|
|
|
13,862 |
|
|
|
10,803 |
|
|
|
117 |
|
|
|
105,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2009
|
|
$ |
(33,979 |
) |
|
|
(9,396 |
) |
|
|
(3,487 |
) |
|
|
(74 |
) |
|
|
(46,936 |
) |
Amortization
expense
|
|
|
(8,248 |
) |
|
|
(917 |
) |
|
|
(583 |
) |
|
|
(16 |
) |
|
|
(9,764 |
) |
Impact of exchange rate
movements
|
|
|
— |
|
|
|
280 |
|
|
|
(93 |
) |
|
|
7 |
|
|
|
194 |
|
Balance
as of March 31, 2009
|
|
|
(42,227 |
) |
|
|
(10,033 |
) |
|
|
(4,163 |
) |
|
|
(83 |
) |
|
|
(56,506 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as of March 31,
2009
|
|
$ |
38,042 |
|
|
|
3,829 |
|
|
|
6,640 |
|
|
|
34 |
|
|
|
48,545 |
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2009
|
|
|
12.5 |
|
2010
|
|
|
10.3 |
|
2011
|
|
|
8.2 |
|
2012
|
|
|
6.0 |
|
2013
|
|
|
4.6 |
|
Thereafter
|
|
|
6.9 |
|
Total
|
|
$ |
48.5 |
|
(6)
Investments in Real Estate Ventures
As of
March 31, 2009, we had total investments and loans of $145.2 million in
approximately 40 separate property or fund co-investments. Within this $145.2
million are loans of $2.8 million to real estate ventures which bear an 8.0%
interest rate and are to be repaid by 2013.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At March 31, 2009, our maximum
potential unfunded commitment to LIC I was euro 17.3 million ($22.9
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At March 31, 2009, LIC II has
unfunded capital commitments for future fundings of co-investments of $353.8
million, of which our 48.78% share is $172.6 million. The $172.6 million
commitment is part of our maximum potential unfunded commitment to LIC II
at March 31, 2009 of $398.7 million.
LIC I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC II,
respectively. We account for our investments in LIC I and LIC II under the
equity method of accounting in the accompanying consolidated financial
statements. Additionally, a non-executive Director of Jones Lang LaSalle is an
investor in LIC I on equivalent terms to other investors.
LIC I’s
and LIC II’s exposures to liabilities and losses of the ventures are limited to
their existing capital contributions and remaining capital commitments. We
expect that LIC I will draw down on our commitment over the next three to five
years to satisfy its existing commitments to underlying funds, and we expect
that LIC II will draw down on our commitment over the next four to eight
years as it enters into new commitments. Our Board of Directors has endorsed the
use of our co-investment capital in particular situations to control or bridge
finance existing real estate assets or portfolios to seed future investments
within LIC II. The purpose is to accelerate capital raising and growth in assets
under management. Approvals for such activity are handled consistently with
those of the Firm’s co-investment capital. At March 31, 2009, no bridge
financing arrangements were outstanding.
As of
March 31, 2009, LIC I maintains a euro 10.0 million ($13.2 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $50.0 million
revolving credit facility (the "LIC II Facility"), principally for their working
capital needs.
Each
facility contains a credit rating trigger and a material adverse condition
clause. If either of the credit rating trigger or the material adverse condition
clauses becomes triggered, the facility to which that condition relates would be
in default and outstanding borrowings would need to be repaid. Such a condition
would require us to fund our pro-rata share of the then outstanding balance on
the related facility, which is the limit of our liability. The maximum exposure
to Jones Lang LaSalle, assuming that the LIC I Facility were fully drawn, would
be euro 4.8 million ($6.3 million); assuming that the LIC II Facility were fully
drawn, the maximum exposure to Jones Lang LaSalle would be $24.4 million. Each
exposure is included within and cannot exceed our maximum potential unfunded
commitments to LIC I of euro 17.3 million ($22.9 million) and to LIC II of
$398.7 million. As of March 31, 2009, LIC I had $2.1 million of outstanding
borrowings on the LIC I Facility, and LIC II had $34.6 million of outstanding
borrowings on the LIC II Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum of
which is $8.6 million at March 31, 2009.
Impairment
We apply
the provisions of APB 18, SAB 59, and SFAS 144 when evaluating investments in
real estate ventures for impairment, including impairment evaluations of the
individual assets underlying our investments. We review our investments in real
estate ventures on a quarterly basis for indications of whether the carrying
value of the real estate assets underlying our investments in real estate
ventures may not be recoverable or whether our investment in these
co-investments is other than temporarily impaired. When events or changes in
circumstances indicate that the carrying amount of a real estate asset
underlying one of our investments in real estate ventures may be impaired, we
review the recoverability of the carrying amount of the real estate asset in
comparison to an estimate of the future undiscounted cash flows expected to be
generated by the underlying asset. When the carrying amount of the real estate
asset is in excess of the future undiscounted cash flows, we use a discounted
cash flow approach to determine the fair value of the asset in computing the
amount of the impairment. Additionally, we consider a number of factors,
including our share of co-investment cash flows and the fair value of
our co-investments in determining whether or not our investment is other than
temporarily impaired.
Due to
further declines in real estate markets, which we expect are having an
adverse impact on rental income assumptions and forecasted exit capitalization
rates, we determined that certain real estate investments had become impaired in
the first quarter of 2009. The results of these impairment analyses were
primarily responsible for the recognition of $28.9 million of non-cash charges
in the first quarter of 2009, which are included in equity losses from real
estate ventures, representing our equity share of these charges. It
is reasonably possible that if real estate values continue to decline we may
sustain additional impairment charges on our investments in real estate ventures
in future periods. No impairment charges were recognized in the first three
months of 2008.
(7)
Stock-based Compensation
Restricted
Stock Unit Awards
Along
with cash base salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended March 31, 2009 is as
follows:
|
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Grant Date
|
|
Remaining
|
|
Intrinsic Value
|
|
|
|
(thousands)
|
|
|
Fair Value
|
|
Contractual Life
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2009
|
|
|
1,992.6 |
|
|
$ |
69.90 |
|
|
|
|
|
Granted
|
|
|
1,537.4 |
|
|
|
29.45 |
|
|
|
|
|
Vested
|
|
|
(91.3 |
) |
|
|
61.96 |
|
|
|
|
|
Forfeited
|
|
|
(19.6 |
) |
|
|
66.15 |
|
|
|
|
|
Unvested at March 31, 2009
|
|
|
3,419.1 |
|
|
$ |
51.95 |
|
2.12 years
|
|
$ |
79.5 |
|
Unvested shares expected to
vest
|
|
|
3,323.8 |
|
|
$ |
51.91 |
|
2.13 years
|
|
$ |
77.3 |
|
The fair
value of restricted stock units is determined based on the market price of the
Company’s common stock on the grant date. As of March 31, 2009, there was $64.5
million of remaining unamortized deferred compensation related to unvested
restricted stock units. We will recognize the remaining cost of
unvested restricted stock units granted through March 31, 2009 over varying
periods into 2014.
Shares
vesting during the three months ended March 31, 2009 and 2008 had fair values of
$5.7 million and $4.7 million, respectively.
Stock
Option Awards
We have
granted stock options at the market value of our common stock at the date of
grant. Our options vested at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the related
award agreements; the most recent options, granted in 2003, vested over periods
of up to five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation
program.
Stock
option activity for the three months ended March 31, 2009 is as
follows:
|
|
|
|
|
|
|
Weighted Average
|
|
Aggregate
|
|
|
|
Options
|
|
|
Weighted Average
|
|
Remaining
|
|
Intrinsic Value
|
|
|
|
(thousands)
|
|
|
Exercise Price
|
|
Contractual Life
|
|
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
|
118.0 |
|
|
|
$
20.30 |
|
|
|
|
|
Exercised
|
|
|
(5.3 |
) |
|
|
22.25 |
|
|
|
|
|
Forfeited
|
|
|
(8.0 |
) |
|
|
29.20 |
|
|
|
|
|
Outstanding at March 31,
2009
|
|
|
104.7 |
|
|
|
$ 19.53 |
|
1.74 years
|
|
|
$ 0.4 |
|
Exercisable at March 31,
2009
|
|
|
104.7 |
|
|
|
$ 19.53 |
|
1.74 years
|
|
|
$ 0.4 |
|
As of
March 31, 2009, we have approximately 104,700 options outstanding, all of which
have vested. Accordingly, we recognized no compensation expense related to
unvested options for the first three months of 2009.
Approximately
5,300 options were exercised during the first quarter of 2009, having an
intrinsic value of less than $0.01 million. For the same period in 2008,
approximately 20,500 options were exercised, having an intrinsic value of $1.2
million. As a result of these exercises, we received cash of $0.1 million and
$0.8 million for the three months ended March 31, 2009 and 2008,
respectively.
Other
Stock Compensation Programs
U.S.
Employee Stock Purchase Plan - In 1998, we adopted an Employee Stock Purchase
Plan ("ESPP") for eligible U.S.-based employees. Through March 31, 2009, we
enhanced employee contributions for stock purchases through an additional
contribution of a 5% discount on the purchase price as of the end of a program
period; program periods were three months in length as of March 31, 2009.
Employee contributions and our contributions vest immediately. Since its
inception, 1,636,678 shares have been purchased under the program through March
31, 2009. In the first quarter of 2009, 96,046 shares having a grant date market
value of $23.26 were purchased under the program. Effective April 1,
2009 the 5% discount has been discontinued, program periods are one month in
length, and purchases are broker-assisted on the open market. We do not record
any compensation expense with respect to this program.
SAYE - In
November 2001, we adopted the Jones Lang LaSalle Savings Related Share Option
(UK) Plan (“Save As You Earn” or “SAYE”) for eligible employees of our UK based
operations. In November 2006, we extended the SAYE plan to employees in our
Ireland operations. Under this plan, employees make an election to contribute to
the plan in order that their savings might be used to purchase stock at a 15%
discount provided by the Company. The options to purchase stock with such
savings vest over a period of three or five years. In the first quarter of 2009,
the Company issued approximately 326,000 options at an exercise price of $19.47
under the SAYE plan. The fair values of the options granted under this plan are
being amortized over their respective vesting periods. At March 31, 2009, there
were approximately 418,000 options outstanding under the SAYE plan.
(8)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31 measurement date for our plans.
Net
periodic pension cost consisted of the following for the three months ended
March 31, 2009 and 2008 ($ in thousands):
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the period
|
|
$ |
637 |
|
|
|
988 |
|
Interest
cost on projected benefit obligation
|
|
|
2,064 |
|
|
|
3,032 |
|
Expected
return on plan assets
|
|
|
(2,235 |
) |
|
|
(3,496 |
) |
Net
amortization/deferrals
|
|
|
43 |
|
|
|
55 |
|
Recognized actual loss
|
|
|
(6 |
) |
|
|
42 |
|
Net periodic pension cost
|
|
$ |
503 |
|
|
|
621 |
|
In the
three months ended March 31, 2009, we have made $0.9 million in payments to our
defined benefit pension plans. We expect to contribute a total of $3.3 million
to our defined benefit pension plans in 2009. We made $7.6 million of
contributions to these plans in the twelve months ended December 31,
2008.
(9)
Comprehensive (Loss) Income
For the
three months ended March 31, 2009 and 2008, comprehensive (loss) income was as
follows ($ in thousands):
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(61,463 |
) |
|
|
3,391 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments
|
|
|
(40,300 |
) |
|
|
46,835 |
|
Comprehensive
(loss) income
|
|
|
(101,763 |
) |
|
|
50,226 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income
attributable to
noncontrolling
interest
|
|
|
12 |
|
|
|
552 |
|
Comprehensive (loss)
income attributable to the Company
|
|
$ |
(101,775 |
) |
|
|
49,674 |
|
(10)
Debt
As of
March 31, 2009, we had the ability to borrow up to $865.0 million on an
unsecured revolving credit facility and a term loan agreement (together the
“Facilities”), with capacity to borrow up to an additional $40.9 million under
local overdraft facilities. There are currently 17 banks participating in our
Facilities, which have a maturity of June 2012. Pricing on the Facilities ranges
from LIBOR plus 200 basis points to LIBOR plus 350 basis points. As of March 31,
2009, our pricing on the Facilities was LIBOR plus 300 basis
points. The Facilities will continue to be utilized for working
capital needs, investments, capital expenditures, and acquisitions. Interest and
principal payments on outstanding borrowings against the facilities will
fluctuate based on our level of borrowing.
As of
March 31, 2009, we had $496.0 million outstanding on the Facilities ($306.0
million on our revolving credit facility and $190.0 million on our term loan
facility). We also had short-term borrowings (including capital lease
obligations and local overdraft facilities) of $38.6 million outstanding at
March 31, 2009, with $30.3 million attributable to local overdraft
facilities.
With
respect to the Facilities, we must maintain a consolidated net worth of at least
$894 million, a leverage ratio not exceeding 3.50 to 1 through September 30,
2009 and 3.25 to 1 thereafter, and a minimum cash interest coverage ratio of 2.0
to 1. Included in debt for the calculation of the leverage ratio is the present
value of deferred business acquisition obligations and included in Adjusted
EBITDA (as defined in the Facilities) are, among other things, an add-back for
stock compensation expense, an add-back for the EBITDA of acquired companies,
including Staubach, earned prior to acquisition, as well as add-backs for
certain impairment and non-recurring charges. Rent expense is added
back to both Adjusted EBITDA and cash paid interest for the calculation of the
cash interest coverage ratio. In addition, we are restricted from, among other
things, incurring certain levels of indebtedness to lenders outside of the
Facilities and disposing of a significant portion of our assets. Lender approval
or waiver is required for certain levels of co-investment, acquisitions, capital
expenditures and dividend increases. We are in compliance with all covenants as
of March 31, 2009. The deferred business acquisition obligation
provisions of the Staubach Merger Agreement also contain certain conditions
which are considerably less restrictive than those we have under our
Facilities.
The
Facilities bear variable rates of interest based on market rates. We are
authorized to use interest rate swaps to convert a portion of the floating rate
indebtedness to a fixed rate; however, none were used during 2008 or the first
three months of 2009, and none were outstanding as of March 31,
2009.
The
effective interest rate on our debt was 3.7% in the first quarter of 2009,
compared with 4.1% in the first quarter of 2008.
(11)
Restructuring
In the
first three months of 2009, we recognized $17.0 million of restructuring
charges, consisting of $15.8 million of employee termination costs and $1.2
million of integration-related costs incurred as a result of the Staubach
acquisition for office moving costs, employee retention payments, training,
re-branding and other transition-related costs.
At
December 31, 2008 we had $9.4 million of employee termination costs accrued as
part of 2008 restructuring charges. We paid employee termination costs of $11.0
million in the first three months of 2009, leaving $14.2 million of accrued
employee termination costs in Accrued compensation on our consolidated balance
sheet at March 31, 2009.
(12)
Commitments and Contingencies
We are a
defendant in various litigation matters arising in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. Many of these litigation matters are covered by insurance (including
insurance provided through a captive insurance company), although they may
nevertheless be subject to large deductibles or retentions and the amounts being
claimed may exceed the available insurance. Although the ultimate liability for
these matters cannot be determined, based upon information currently available,
we believe the ultimate resolution of such claims and litigation will not have a
material adverse effect on our financial position, results of operations or
liquidity.
(13)
Income Taxes
The
effective tax rate for the first quarter of 2009 was 15.0%, compared to an
effective tax rate of 24.9% for all of 2008. Based on our forecasted results for
the full year, we estimate that our effective tax rate will be 15.0% for
all of 2009. The forecasted decrease in our effective tax rate is primarily due
to lower forecasted earnings in high tax rate jurisdictions compared to last
year.
(14)
Subsequent Events
On April
28, 2009, the Company announced that its Board of Directors has declared a semi-annual cash dividend
of $0.10 per share of its Common Stock. The dividend payment will be made on
June 15, 2009 to holders of record at the close of business on May 15,
2009. At the Company’s discretion, a dividend-equivalent in the same
amount also will be paid simultaneously on outstanding but unvested shares of
restricted stock units granted under the Company’s Stock Award and Incentive
Plan. There can be no assurances that future dividends will be declared since
the actual declaration of future dividends, and the establishment of record and
payment dates, remains subject to final determination by the Company’s Board of
Directors.
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
months ended March 31, 2009, included herein, and Jones Lang LaSalle’s audited
consolidated financial statements and notes thereto for the fiscal year ended
December 31, 2008, which have been filed with the SEC as part of our 2008 Annual
Report on Form 10-K and are also available on our website (www.joneslanglasalle.com).
The
following discussion and analysis contains certain forward-looking statements
which are generally identified by the words anticipates, believes, estimates,
expects, plans, intends and other similar expressions. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause Jones Lang LaSalle’s actual results, performance, achievements,
plans and objectives to be materially different from any future results,
performance, achievements, plans and objectives expressed or implied by such
forward-looking statements. See the Cautionary Note Regarding Forward-Looking
Statements in Part II, Item 5. Other Information.
We
present our quarterly Management’s Discussion and Analysis in five sections, as
follows:
(1) A
summary of our critical accounting policies and estimates,
(2)
Certain items affecting the comparability of results and certain market and
other risks that we face,
(3) The
results of our operations, first on a consolidated basis and then for each of
our business segments,
(4)
Consolidated cash flows, and
(5)
Liquidity and capital resources.
Summary
of Critical Accounting Policies and Estimates
An
understanding of our accounting policies is necessary for a complete analysis of
our results, financial position, liquidity and trends. See Note 2 of notes to
consolidated financial statements in our 2008 Annual Report of Form 10-K for a
summary of our significant accounting policies.
The
preparation of our financial statements requires management to make certain
critical accounting estimates that impact the stated amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues and expenses during
the reporting periods. These accounting estimates are based on management’s
judgment and are considered to be critical because of their significance to the
financial statements and the possibility that future events may differ from
current judgments, or that the use of different assumptions could result in
materially different estimates. We review these estimates on a periodic basis to
ensure reasonableness. Although actual amounts likely differ from such estimated
amounts, we believe such differences are not likely to be material.
Asset
Impairments
Within
the balances of property and equipment used in our business, we have computer
equipment and software; leasehold improvements; furniture, fixtures and
equipment; and automobiles. We have recorded goodwill and other identified
intangibles from a series of acquisitions. We also invest in certain
real estate ventures that own and operate commercial real estate. Typically,
these are co-investments in funds that our Investment Management business
establishes in the ordinary course of business for its clients. These
investments include non-controlling ownership interests generally ranging from
less than 1% to 48.78% of the respective ventures. We generally account for
these interests under the equity method of accounting in the accompanying
Consolidated Financial Statements due to the nature of our non-controlling
ownership.
Property and Equipment—We
apply Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),
to recognize and measure impairment of property and equipment owned or under
capital lease. We review property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset group
may not be recoverable. If impairment exists due to the inability to recover the
carrying value of an asset group, we record an impairment loss to the extent
that the carrying value exceeds the estimated fair value. We did not recognize
an impairment loss related to property and equipment in the first three months
of 2009 or 2008.
Goodwill and Other Intangible
Assets—We apply SFAS No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”), when accounting for goodwill and other intangible assets. SFAS 142
requires that goodwill and intangible assets with indefinite useful lives not be
amortized, but instead evaluated for impairment at least annually. To accomplish
this annual evaluation which we complete in the third quarter of each year, we
determine the carrying value of each reporting unit by assigning assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of evaluation. Under SFAS 142, we define
reporting units as Americas IOS, EMEA IOS, Asia Pacific IOS and Investment
Management. We then determine the fair value of each reporting unit on the basis
of a discounted cash flow methodology and compare it to the reporting unit’s
carrying value. The result of the 2008 evaluation was that the fair value of
each reporting unit exceeded its carrying amount, and therefore we did not
recognize an impairment loss.
In
addition to our annual impairment evaluation, we evaluate whether events or
circumstances have occurred in the period subsequent to our annual impairment
testing which indicate that it is more likely than not an impairment loss has
occurred. In the fourth quarter of 2008, we evaluated the continued
applicability of our annual evaluation in light of the continued deterioration
in the global economy and corresponding fall in our stock price during that
quarter, the first quarter in which our book value exceeded our market
capitalization. We updated that evaluation in the first quarter of 2009. Based
on our forecasts of continued annual profitability and EBITDA generated by each
of our reporting units sufficient to support the book values of net assets of
each of these reporting units at industry-specific multiples, there have been no
changes to our conclusion that goodwill and intangible assets with identifiable
useful lives are not impaired. However, it is possible our determination that
goodwill for a reporting unit is not impaired could change in the future if the
current economic conditions continue to deteriorate or persist for an extended
period of time. Management will continue to monitor the relationship between the
Company’s market capitalization and book value, as well as the ability of our
reporting units to deliver current and projected EBITDA and cash flows
sufficient to support the book values of the net assets of their respective
businesses.
Investments in Real Estate
Ventures—We apply the provisions of APB 18, SEC Staff Accounting
Bulletin Topic 5-M, “Other Than Temporary Impairment Of Certain Investments
In Debt And Equity Securities” (“SAB 59”), and SFAS 144 when
evaluating investments in real estate ventures for impairment, including
impairment evaluations of the individual assets underlying
our investments. We review investments in real estate ventures on a
quarterly basis for indications of whether the carrying value of the
real estate assets underlying our investments in real estate ventures
may not be recoverable or whether our investment in these co-investments is
other than temporarily impaired. When events or changes in
circumstances indicate that the carrying amount of a real estate asset
underlying one of our investments in real estate ventures may be
impaired, we review the recoverability of the carrying amount of the real estate
asset in comparison to an estimate of the future undiscounted cash
flows expected to be generated by the underlying asset. When the
carrying amount of the real estate asset is in excess of the future undiscounted
cash flows, we use a discounted cash flow approach to determine the
fair value of the asset in computing the amount of the impairment. We then
record the portion of the impairment loss related to our investment in the
reporting period. Additionally, we consider a number of factors,
including our share of co-investment cash flows and the fair value of
our co- investments in determining whether or not our investment is other than
temporarily impaired.
Due to
further declines in real estate markets, which we expect are having an
adverse impact on rental income assumptions and forecasted exit
capitalization rates, we determined that certain real estate investments
had become impaired in the first quarter of 2009. The results of
these impairment analyses were primarily responsible for the recognition of
$28.9 million of non-cash charges in the first quarter of 2009 included
in equity losses from real estate ventures, representing our equity share
of these charges. It is reasonably possible that if real estate
values continue to decline we may sustain additional impairment charges on our
investments in real estate ventures in future periods. No impairment
charges were recognized in the first three months of 2008.
Interim
Period Accounting for Incentive Compensation
An
important part of our overall compensation package is incentive compensation,
which we typically pay to our employees in the first or second quarter of the
year after it is earned. In our interim financial statements, we accrue for most
incentive compensation based on (1) a percentage of compensation costs and (2)
an adjusted operating income recorded to date, relative to forecasted
compensation costs and adjusted operating income for the full year, as
substantially all incentive compensation pools are based upon full year results.
As noted in “Interim Information” of Note 1 of the notes to consolidated
financial statements, quarterly revenues and profits have historically tended to
be higher in the third and fourth quarters of each year than in the first two
quarters. The impact of this incentive compensation accrual methodology is that
we accrue smaller percentages of incentive compensation in the first half of the
year, compared to the percentage of our incentive compensation we accrue in the
third and fourth quarters. We adjust the incentive compensation accrual in those
unusual cases where we have paid earned incentive compensation to employees. We
exclude incentive compensation pools that are not subject to the normal
performance criteria from the standard accrual methodology and accrue for them
on a straight-line basis.
Certain
employees receive a portion of their incentive compensation in the form of
restricted stock units of our common stock. We recognize this compensation over
the vesting period of these restricted stock units, which has the effect of
deferring a portion of incentive compensation to later years. We recognize the
benefit of deferring certain compensation under the stock ownership program in a
manner consistent with the accrual of the underlying incentive compensation
expense.
Given
that we do not finalize individual incentive compensation awards until after
year-end, we must estimate the portion of the overall incentive compensation
pool that will qualify for this restricted stock program. This estimation
factors in the performance of the Company and individual business units,
together with the target bonuses for qualified individuals. Then, when we
determine and announce compensation in the year following that to which the
incentive compensation relates, we true-up the estimated stock ownership program
deferral and related amortization.
The table
below sets forth the deferral estimated at year end, and the adjustment made in
the first quarter of the following year to true-up the deferral and related
amortization ($ in millions):
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
Deferral
of compensation, net of related amortization expense
|
|
$ |
14.8 |
|
|
|
24.5 |
|
Change
in estimated deferred compensation in the first quarter of the following year
|
|
|
(0.5 |
) |
|
|
(1.0 |
) |
The table
below sets forth the amortization expense related to the stock ownership program
for the three months ended March 31, 2009 and 2008 ($ in millions):
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
8.2 |
|
|
|
8.0 |
|
Current
deferral of compensation, net of related amortization expense
|
|
|
(1.0 |
) |
|
|
(3.2 |
) |
Self-insurance
Programs
In our
Americas business, and in common with many other American companies, we have
chosen to retain certain risks regarding health insurance and workers’
compensation rather than purchase third-party insurance. Estimating our exposure
to such risks involves subjective judgments about future developments. We
supplement our traditional global insurance program by the use of a captive
insurance company to provide professional indemnity and employment practices
insurance on a “claims made” basis. As professional indemnity claims can be
complex and take a number of years to resolve, we are required to estimate the
ultimate cost of claims.
• Health
Insurance – We self-insure our health benefits for all U.S.-based employees,
although we purchase stop loss coverage on an annual basis to limit our
exposure. We self-insure because we believe that on the basis of our historic
claims experience, the demographics of our workforce and trends in the health
insurance industry, we incur reduced expense by self-insuring our health
benefits as opposed to purchasing health insurance through a third party. We
estimate our likely full-year health costs at the beginning of the year and
expense this cost on a straight-line basis throughout the year. In the fourth
quarter, we estimate the required reserve for unpaid health costs required at
year-end.
Given the
nature of medical claims, it may take up to 24 months for claims to be processed
and recorded. The reserve balances for the programs related to 2009 and 2008 are
$6.6 million and $0.5 million, respectively, at March 31, 2009.
The table
below sets out certain information related to the cost of this program for the
three months ended March 31, 2009 and 2008 ($ in millions):
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
6.3 |
|
|
|
4.9 |
|
Employee
contributions
|
|
|
1.6 |
|
|
|
1.2 |
|
Adjustment to prior year
reserve
|
|
|
— |
|
|
|
(0.9 |
) |
Total program cost
|
|
$ |
7.9 |
|
|
|
5.2 |
|
• Workers’
Compensation Insurance – Given our belief, based on historical experience, that
our workforce has experienced lower costs than is normal for our industry, we
have been self-insured for workers’ compensation insurance for a number of
years. We purchase stop loss coverage to limit our exposure to large, individual
claims. On a periodic basis we accrue using various state rates based on job
classifications. On an annual basis in the third quarter, we engage in a
comprehensive analysis to develop a range of potential exposure, and considering
actual experience, we reserve within that range. We accrue the estimated
adjustment to income for the differences between this estimate and our reserve.
The credits taken to revenue for the three months ended March 31, 2009 and 2008
were $0.9 million and $0.8 million, respectively.
The
reserves, which can relate to multiple years, were $12.6 million and $12.1
million, as of March 31, 2009 and December 31, 2008, respectively.
• Captive
Insurance Company – In order to better manage our global insurance program and
support our risk management efforts, we supplement our traditional insurance
program by the use of a wholly-owned captive insurance company to provide
professional indemnity and employment practices liability insurance coverage on
a “claims made” basis. The level of risk retained by our captive is up to $2.5
million per claim (depending upon the location of the claim) and up to $12.5
million in the aggregate.
Professional
indemnity insurance claims can be complex and take a number of years to resolve.
Within our captive insurance company, we estimate the ultimate cost of these
claims by way of specific claim reserves developed through periodic reviews of
the circumstances of individual claims, as well as reserves against current year
exposures on the basis of our historic loss ratio. The increase in the level of
risk retained by the captive means we would expect that the amount and the
volatility of our estimate of reserves will be increased over time. With respect
to the consolidated financial statements, when a potential loss event occurs,
management estimates the ultimate cost of the claims and accrues the related
cost in accordance with SFAS 5, “Accounting for Contingencies.”
The
reserves estimated and accrued in accordance with SFAS 5, which relate to
multiple years, were $7.2 million and $6.2 million, net of receivables from
third party insurers, as of March 31, 2009 and December 31, 2008,
respectively.
Income
Taxes
We
account for income taxes under the asset and liability method. We recognize
deferred tax assets and liabilities for the future tax consequences attributable
to (i) differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and (ii) operating loss
and tax credit carryforwards. We measure deferred tax assets and liabilities
using enacted tax rates expected to apply to taxable income in the years in
which we expect those temporary differences to be recovered or settled. We
recognize the effect on deferred tax assets and liabilities of a change in tax
rates in income in the period that includes the enactment date.
Because
of the global and cross border nature of our business, our corporate tax
position is complex. We generally provide for taxes in each tax jurisdiction in
which we operate based on local tax regulations and rules. Such taxes are
provided on net earnings and include the provision of taxes on substantively all
differences between financial statement amounts and amounts used in tax returns,
excluding certain non-deductible items and permanent differences.
Our
global effective tax rate is sensitive to the complexity of our operations as
well as to changes in the mix of our geographic profitability, as local
statutory tax rates range from 10% to 42% in the countries in which we have
significant operations. We evaluate our estimated annual effective
tax rate on a quarterly basis to reflect forecasted changes in:
|
(i)
|
Our
geographic mix of income,
|
|
(ii)
|
Legislative
actions on statutory tax rates,
|
|
(iii)
|
The
impact of tax planning to reduce losses in jurisdictions where we cannot
recognize the tax benefit of those losses,
and
|
|
(iv)
|
Tax
planning for jurisdictions affected by double
taxation.
|
We
continuously seek to develop and implement potential strategies and/or actions
that would reduce our overall effective tax rate. We reflect the benefit from
tax planning actions when we believe that they meet the recognition criteria
under FIN 48, which usually requires that certain actions have been initiated.
We provide for the effects of income taxes on interim financial statements based
on our estimate of the effective tax rate for the full year.
Based on
our forecasted results for the full year, we have estimated an effective tax
rate of 15.0% for 2009. We believe that this is an achievable rate due to the
mix of our income and the impact of tax planning activities. For the three
months ended March 31, 2009, we used an effective tax rate of 15.0%; we
ultimately achieved an effective tax rate of 24.9% for the year ended December
31, 2008. The estimated rate for 2009 differs from the prior year rate primarily
due to a lower earnings forecast in high tax jurisdictions compared to last
year.
Items
Affecting Comparability
Macroeconomic
Conditions
Our
results of operations and the variability of these results are significantly
influenced by macroeconomic trends, the global and regional real estate markets
and the financial and credit markets. Recent restrictions on credit and the
general decline of the global economy have significantly impacted the global
real estate market and our results of operations. These trends have had, and we
expect to continue to have, a significant impact on the variability of our
results of operations.
LaSalle
Investment Management Revenues
Our
investment management business is in part compensated through the receipt of
incentive fees where performance of underlying funds’ investments exceeds
agreed-to benchmark levels. Depending upon performance and the contractual
timing of measurement periods with clients, these fees can be significant and
vary substantially from period to period.
“Equity
in earnings (losses) from real estate ventures” may also vary substantially from
period to period for a variety of reasons, including as a result of: (i)
impairment charges, (ii) realized gains on asset dispositions, or (iii)
incentive fees recorded as equity earnings. The timing of recognition of these
items may impact comparability between quarters, in any one year, or compared to
a prior year.
The
comparability of these items can be seen in Note 4 of the notes to consolidated
financial statements and is discussed further in Segment Operating Results
included herein.
Transactional-Based
Revenues
Transactional-based
services for real estate investment banking, capital markets activities and
other transactional-based services within our Investor and Occupier Services
businesses increase the variability of the revenues we receive that relate to
the size and timing of our clients’ transactions. During 2008 and into 2009,
capital market transactions decreased significantly due to deteriorating
economic conditions and the global credit crisis. The timing and the magnitude
of these fees can vary significantly from year to year and quarter to
quarter.
Foreign
Currency
We
conduct business using a variety of currencies, but report our results in U.S.
dollars, as a result of which our reported results may be positively or
negatively impacted by the volatility of currencies against the U.S. dollar.
This volatility can make it more difficult to perform period-to-period
comparisons of the reported U.S. dollar results of operations; as such results
demonstrate a growth rate that might not have been consistent with the real
underlying growth or decline rate in the local operations. As a result, we
provide information about the impact of foreign currencies in the
period-to-period comparisons of the reported results of operations in our
discussion and analysis of financial condition in the Results of Operations
section below.
Seasonality
Historically,
our revenue and profits have tended to be higher in the third and fourth
quarters of each year than in the first two quarters. This is the result of a
general focus in the real estate industry on completing or documenting
transactions by calendar-year-end and the fact that certain expenses are
constant throughout the year.
Our
Investment Management segment generally earns investment-generated performance
fees on clients’ real estate investment returns and co-investment equity gains
when assets are sold, the timing of which is geared towards the benefit of our
clients.
Within
our Investor and Occupier Services segments, revenue for capital markets
activities relates to the size and timing of our clients’ transactions and can
fluctuate significantly from period to period. Non-variable operating expenses,
which we treat as expenses when they are incurred during the year, are
relatively constant on a quarterly basis. Consequently, the results for the
periods ended March 31, 2009 and 2008 are not indicative of the results to be
obtained for the full fiscal year.
Results
of Operations
Reclassifications
We report
“Equity in earnings (losses) from unconsolidated ventures” in the consolidated
statement of earnings after “Operating (loss) income.” However, for segment
reporting we reflect “Equity in earnings (losses) from real estate ventures”
within “Total revenue.” See Note 4 of the notes to consolidated financial
statements for “Equity in earnings (losses) from real estate ventures” reflected
within segment revenues, as well as discussion of how the Chief Operating
Decision Maker (as defined in Note 4) measures segment results with “Equity in
earnings (losses) from real estate ventures” included in segment
revenues.
Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
In order
to provide more meaningful year-to-year comparisons of our reported results, we
have included in the table below the U.S. dollar and local currency movements in
the consolidated statements of earnings ($ in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
in
Local
|
|
|
|
2009
|
|
|
2008
|
|
|
in U.S. dollars
|
|
|
Currencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$ |
494.2 |
|
|
$ |
563.9 |
|
|
$ |
(69.7 |
) |
|
|
(12 |
%) |
|
|
(1 |
%) |
Compensation
and benefits
|
|
|
342.6 |
|
|
|
378.9 |
|
|
|
(36.3 |
) |
|
|
(10 |
%) |
|
|
3 |
% |
Operating,
administrative and other
|
|
|
137.6 |
|
|
|
160.9 |
|
|
|
(23.3 |
) |
|
|
(14 |
%) |
|
|
(4 |
%) |
Depreciation
and amortization
|
|
|
24.5 |
|
|
|
16.4 |
|
|
|
8.1 |
|
|
|
49 |
% |
|
|
61 |
% |
Restructuring charges
(credits)
|
|
|
17.0 |
|
|
|
(0.2 |
) |
|
|
17.2 |
|
|
n.m.
|
|
|
n.m.
|
|
Total operating expenses
|
|
|
521.7 |
|
|
|
556.0 |
|
|
|
(34.3 |
) |
|
|
(6 |
%) |
|
|
6 |
% |
Operating (loss) income
|
|
$ |
(27.5 |
) |
|
$ |
7.9 |
|
|
$ |
(35.4 |
) |
|
n.m.
|
|
|
n.m.
|
|
(n.m. –
not meaningful; change greater than 100%)
Revenue
for the first quarter of 2009 was $494 million, a 12% decrease in U.S. dollars,
but down only 1% in local currency, compared with the first quarter of 2008.
Solid revenue growth in the Americas segment driven by leasing revenue from the
Staubach acquisition and continued growth in our Corporate Solutions business
was offset by the seasonality of our business and weak transaction markets.
Despite an increase in leasing revenue, total transaction services revenue
across the Company decreased 19% in U.S. dollars, and 8% in local currency. Total
management services revenue increased 1% in U.S. dollars, and 12% in local
currency. LaSalle Investment Management’s advisory fee revenue decreased 17% in
U.S. dollars, but increased 3% in local currency.
In the
first quarter of 2009, we expanded on our 2008 actions to reduce staff and
eliminate significant discretionary spending, incurring $17 million of
Restructuring charges. Excluding Restructuring charges, operating expenses were
$505 million for the first quarter, compared with $556 million in the first
quarter of 2008. On a local currency basis, operating expenses excluding
restructuring charges increased only 3% despite the added cost structure from
the seven acquisitions completed since the first quarter of 2008, including
Staubach and Kemper’s. We will continue our cost reduction efforts in 2009 and
expect annualized base compensation and benefits savings of $100 million as a
result of our cumulative actions.
Interest
expense, net of interest income was $13 million in the first quarter of 2009, a
$12 million increase over the first quarter of 2008 due to increases in non-cash
interest accrued on deferred business obligations and in interest expense as a
result of the increase in average debt balances.
Equity in
losses from real estate ventures in the first quarter of 2009 were $32 million,
compared to losses of $2 million in the first quarter of 2008, driven by $29
million of non-cash charges, primarily impairments. Due to further declines in
real estate markets having an adverse impact on rental income assumptions and
forecasted exit capitalization rates, we determined that certain real estate
investments had become impaired in the first quarter of 2009.
The
effective tax rate for the first quarter of 2009 was 15.0%, compared to an
effective tax rate of 24.9% for all of 2008. Based on our forecasted results for
the full year, we estimate that our effective tax rate will be 15.0% for
all of 2009. The forecasted decrease in our effective tax rate is primarily due
to lower forecasted earnings in high tax rate jurisdictions compared to last
year.
Segment
Operating Results
We manage
and report our operations as four business segments:
|
The
three geographic regions of Investor and Occupier Services
("IOS"):
|
|
(ii)
|
Europe,
Middle East and Africa
(“EMEA”),
|
|
(iv)
|
Investment
Management, which offers investment management services on a global basis,
and
|
Each
geographic region offers our full range of Investor Services, Capital Markets
and Occupier Services. The IOS business consists primarily of tenant
representation and agency leasing, capital markets, and valuation services
(collectively "transaction services"); and property management, facilities
management, project and development management, energy management and
sustainability, and construction management services (collectively "management
services"). The Investment Management segment provides investment
management services to institutional investors and high-net-worth
individuals.
We have
not allocated “Restructuring charges (credits)” to the business segments for
segment reporting purposes; therefore, these costs are not included in the
discussions below. Also, for segment reporting we continue to show “Equity in
earnings (losses) from real estate ventures” within our revenue line, especially
since it is a very integral part of our Investment Management
segment.
Investor
and Occupier Services
Americas
|
|
2009
|
|
|
2008
|
|
|
Increase(Decrease)
|
|
Revenue
|
|
$ |
199.6 |
|
|
$ |
173.9 |
|
|
$ |
25.7 |
|
|
|
15 |
% |
Operating expense
|
|
|
204.1 |
|
|
|
173.6 |
|
|
|
30.5 |
|
|
|
18 |
% |
Operating
(loss) income
|
|
$ |
(4.5 |
) |
|
$ |
0.3 |
|
|
$ |
(4.8 |
) |
|
n.m.
|
|
(n.m.
– not meaningful; change greater than 100%)
First-quarter
2009 revenue in the Americas region was $200 million, an increase of 15% over
the prior year, primarily as a result of the Staubach acquisition. Transaction
Services revenue increased 34%, to $107 million in the first
quarter. The region’s total Leasing revenue for the quarter increased
50%, to $86 million, up from $57 million in 2008. Management Services
revenue for the first quarter of 2009 decreased 5%, to $85 million, driven
primarily by project and development services as clients continue to reduce
capital expenditures. The firm won significant new Corporate outsourcing
assignments for real estate services in the quarter as the outsourcing trend
continued.
Operating
expenses were $204 million in the first three months of 2009, an increase of 18%
over the prior year. The year-over-year increase was due to additional cost
structure from the Staubach acquisition, including $7 million of non-cash
amortization expense related to purchased intangible assets.
EMEA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Increase(Decrease)
|
|
|
in
Local
|
|
|
|
2009
|
|
|
2008
|
|
|
in U.S. dollars
|
|
|
Currencies
|
|
Revenue
|
|
$ |
120.8 |
|
|
$ |
183.1 |
|
|
$ |
(62.3 |
) |
|
|
(34 |
%) |
|
|
(19 |
%) |
Operating expense
|
|
|
142.1 |
|
|
|
190.1 |
|
|
|
(48.0 |
) |
|
|
(25 |
%) |
|
|
(7 |
%) |
Operating
loss
|
|
$ |
(21.3 |
) |
|
$ |
(7.0 |
) |
|
$ |
(14.3 |
) |
|
n.m.
|
|
|
n.m.
|
|
(n.m.
– not meaningful; change greater than 100%)
EMEA’s
first-quarter 2009 revenue was $121 million compared with $183 million in 2008,
a decrease of 34%, 19% in local currency, driven by continued reductions in
transaction volumes across the region. On a U.S. dollar basis, the decreases
were driven by Capital Markets and Hotels, down $26 million for the three-month
period, or 62%, and Leasing revenue, down $16 million, or
35%. Capital Markets and Hotels revenue was down 53% in local
currency while Leasing was down 20% in local currency. Management Services
revenue, which is primarily annuity revenue, decreased $3 million, or 6% for the
quarter, to $45 million, but increased 14% in local currency.
Operating
expenses were $142 million in the first quarter, a decrease of 25% from the
prior year, 7% in local currency, driven by aggressive cost-saving actions taken
across the region. The cost reductions were achieved despite the
additional cost structure from three acquisitions completed since the first
quarter of 2008.
Asia
Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Increase(Decrease)
|
|
|
in
Local
|
|
|
|
2009
|
|
|
2008
|
|
|
in U.S. dollars
|
|
|
Currencies
|
|
Revenue
|
|
$ |
104.8 |
|
|
$ |
117.4 |
|
|
$ |
(12.6 |
) |
|
|
(11 |
%) |
|
|
1 |
% |
Operating expense
|
|
|
108.4 |
|
|
|
125.3 |
|
|
|
(16.9 |
) |
|
|
(13 |
%) |
|
|
(2 |
%) |
Operating
loss
|
|
$ |
(3.6 |
) |
|
$ |
(7.9 |
) |
|
$ |
(4.3 |
) |
|
|
(54 |
%) |
|
|
(54 |
%) |
Revenue
for the Asia Pacific region was $105 million for the first quarter of 2009,
compared with $117 million for the same period in 2008. Excluding the
impact of foreign currency exchange, revenue was up 1%. Management Services
revenue in the region increased to $67 million, a 17% increase from the first
quarter of 2008 and 30% in local currency. The significant
year-over-year increase demonstrates the firm’s continued strength in corporate
outsourcing, facility management and property management. Transaction Services
revenue was $38 million for the quarter, a 36% decrease from 2008, 25% in local
currency. Within Transaction Services revenue, Capital Markets and
Hotels revenue was down 34% but only 15% in local currency, and Leasing revenue
was down 33%, 24% in local currency, for the first three months of
2009.
Operating
expenses for the region were $108 million for the quarter. With an
aggressive focus on costs, operating expenses decreased 13% year-over-year, 2%
in local currency, despite incremental costs related to serving more corporate
outsourcing clients and higher occupancy costs compared with the first quarter
of 2008.
Investment
Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
Increase(Decrease)
|
|
|
in
Local
|
|
|
|
2009
|
|
|
2008
|
|
|
in U.S. dollars
|
|
|
Currencies
|
|
Revenue
|
|
$ |
66.2 |
|
|
$ |
89.6 |
|
|
$ |
(23.4 |
) |
|
|
(26 |
%) |
|
|
(8 |
%) |
Equity losses
|
|
|
(29.2 |
) |
|
|
(2.2 |
) |
|
|
(27.0 |
) |
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
37.0 |
|
|
|
87.4 |
|
|
|
(50.4 |
) |
|
|
(58 |
%) |
|
|
(27 |
%) |
Operating expense
|
|
|
50.1 |
|
|
|
67.2 |
|
|
|
(17.1 |
) |
|
|
(25 |
%) |
|
|
(4 |
%) |
Operating
(loss) income
|
|
$ |
(13.1 |
) |
|
$ |
20.2 |
|
|
$ |
(33.3 |
) |
|
n.m.
|
|
|
n.m.
|
|
(n.m.
– not meaningful; change greater than 100%)
LaSalle
Investment Management’s first-quarter revenue was $37 million, compared with $87
million in the prior year. Equity losses of $29 million, primarily
from non-cash charges related to co-investments, were included in first-quarter
2009 revenue. Advisory fees were $60 million in the quarter, down $12
million from the first quarter of 2008 with valuations in Public Securities
contributing significantly to the decline. First-quarter 2009
Advisory fees compared favorably with Advisory fees of $62 million in the fourth
quarter of 2008 despite the challenging operating environment.
The
business recognized $5 million of Incentive fees in the first quarter of 2009
after reaching specified performance objectives against established
benchmarks. Asset sales, a key driver of Incentive and Transaction
fees, continued to be limited by restrictions in the availability of financing
for potential buyers.
LaSalle
Investment Management raised $485 million of equity from clients during the
first three months of 2009. Investments made on behalf of clients
totaled $300 million. Assets under management declined to $41
billion, an 11% decrease, due to the impact of the current economic environment
on asset valuations.
Consolidated
Cash Flows
Cash
Flows Used For Operating Activities
During
the first quarter of 2009, cash used in operating activities was $4 million, a
decrease of $268 million from the $272 million used in the first quarter of
2008. The year-over-year change from $3 million in net income in 2008 to a net
loss of $61 million in 2009 was offset by a decrease in cash used for working
capital. In the first quarter of 2009, $125 million was used for changes in
accounts payable, accrued liabilities, and accrued compensation, a decrease of
$225 million, from the $350 million used in the first quarter of 2008. This
decrease was primarily due to the deferral to the second quarter of 2009 of
certain incentive compensation payments for 2008 performance, whereas payment of
comparable incentive compensation was made in the first quarter of 2008. Due to
strong performance in 2007, incentive compensation payments made in 2008 were
significantly higher then incentive compensation payments made in the first and
second quarters of 2009. Cash from changes in receivables also increased $70
million compared to the prior year, driven in part by more effective collection
efforts.
Cash
Flows Used For Investing Activities
We used
$20 million of cash for investing activities in the first quarter of 2009, a $50
million decrease compared to the $70 million used in the first quarter of 2008.
This $50 million decrease was due to a $12 million decrease in capital
expenditures, a $27 million decrease in cash used for business acquisitions, and
a net $11 million decrease in cash used for investments in real estate ventures.
In the first quarter of 2009, we completed no new business acquisitions and used
$14 million relative to acquisitions completed in prior years, primarily for
deferred payments and earn-out payments.
Cash
Flows from Financing Activities
Financing
activities provided $24 million of net cash in the first quarter of 2009
compared with $338 million in the first quarter of 2008. This decrease was
driven by a decrease in net borrowings of $310 million from the first quarter of
2008. Net borrowings decreased in the first quarter of 2009 due
primarily to reduced investing activities and the deferral of payment of certain
incentive compensation to the second quarter of 2009.
Liquidity
and Capital Resources
Historically,
we have financed our operations, co-investment activities, dividend payments and
share repurchases, capital expenditures and acquisitions with internally
generated funds, issuances of our common stock and borrowings under our credit
facilities.
Credit
Facilities
In July
2008, we exercised the accordion feature on our unsecured revolving credit
facility to increase the facility from $575 million to $675
million. In addition, we entered into a $200 million term loan
agreement (which was fully drawn and requires eight quarterly principal payments
of $5 million commencing December 31, 2008, six quarterly principal payments of
$7.5 million commencing December 31, 2010 and the balance payable June 6, 2012),
with terms and pricing similar to our existing revolving credit facility. As a
result of these changes, the total capacity of both the revolving facility and
term loan (together the “Facilities”), increased to $875 million. Total capacity
of the Facilities was $865 million as of March 31, 2009. In December 2008, the
Facilities were amended to increase the maximum allowable leverage ratio to 3.50
to 1, from 3.25 to 1, through September 2009 (at which point the maximum
allowable leverage ratio will revert back to 3.25 to 1), provide additions to
Adjusted EBITDA for certain non-recurring charges and modify certain other
definitions and pricing while keeping the borrowing capacity and the maturity,
June 6, 2012, unchanged. As of March 31, 2009, pricing on the Facilities was
LIBOR plus 300 basis points. The Facilities will continue to be utilized for
working capital needs (including payment of accrued incentive compensation),
co-investment activities, dividend payments and share repurchases, capital
expenditures and acquisitions. Interest and principal payments on outstanding
borrowings against the facility will fluctuate based on our level of borrowing
needs. We also have capacity to borrow an additional $40.9 million under local
overdraft facilities.
As of
March 31, 2009, we had $496.0 million outstanding on the Facilities ($306.0
million on our revolving credit facility and $190.0 million on our term loan
facility). The average borrowing rate on the Facilities was 3.7% in the first
quarter of 2009 as compared with an average borrowing rate of 4.1% in the first
quarter of 2008. We also had short-term borrowings (including capital lease
obligations and local overdraft facilities) of $38.6 million outstanding at
March 31, 2009, with $30.3 million attributable to local overdraft
facilities.
With
respect to the Facilities, we must maintain a consolidated net worth of at least
$894 million, a leverage ratio not exceeding 3.50 to 1 through September 30,
2009 and 3.25 to 1 thereafter, and a minimum cash interest coverage ratio of 2.0
to 1. Included in debt for the calculation of the leverage ratio is the present
value of deferred business acquisition obligations and included in Adjusted
EBITDA (as defined in the Facilities) are, among other things, an add-back for
stock compensation expense, an add-back for the EBITDA of acquired companies,
including Staubach, earned prior to acquisition, as well as add-backs for
certain impairment and non-recurring charges. Rent expense is added
back to both Adjusted EBITDA and cash paid interest for the calculation of the
cash interest coverage ratio. In addition, we are restricted from, among other
things, incurring certain levels of indebtedness to lenders outside of the
Facilities and disposing of a significant portion of our assets. Lender approval
or waiver is required for certain levels of co-investment, acquisitions, capital
expenditures and dividend increases. We are in compliance with all covenants as
of March 31, 2009. The deferred business acquisition obligation provisions of
the Staubach Merger Agreement also contain certain conditions which are
considerably less restrictive than those we have under our
Facilities.
The
Facilities bear variable rates of interest based on market rates. We are
authorized to use interest rate swaps to convert a portion of the floating rate
indebtedness to a fixed rate; however, none were used during 2008 or the first
three months of 2009, and none were outstanding as of March 31,
2009.
We
currently believe that the Facilities, together with our local borrowing
facilities and cash flow generated from operations, will provide adequate
liquidity and financial flexibility to meet our foreseeable needs to fund
working capital, co-investment activities, dividend payments, capital
expenditures and acquisitions. Due to current economic conditions and overall
uncertainty in the global economy we are taking steps to prudently manage our
balance sheet and conserve cash. We anticipate significantly reducing our
expenditures on items such as capital expenditures and acquisitions in
2009.
Co-investment
Activity
As of
March 31, 2009, we had total investments and loans of $145.2 million in
approximately 40 separate property or fund co-investments. Within this $145.2
million are loans of $2.8 million to real estate ventures which bear an 8.0%
interest rate and are to be repaid by 2013.
We
utilize two investment vehicles to facilitate the majority of our co-investment
activity. LaSalle Investment Company I (“LIC I”) is a series of four parallel
limited partnerships which serve as our investment vehicle for substantially all
co-investment commitments made through December 31, 2005. LIC I is fully
committed to underlying real estate ventures. At March 31, 2009, our maximum
potential unfunded commitment to LIC I was euro 17.3 million ($22.9
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicle for most new co-investments. At March 31, 2009, LIC II has
unfunded capital commitments for future fundings of co-investments of $353.8
million, of which our 48.78% share is $172.6 million. The $172.6 million
commitment is part of our maximum potential unfunded commitment to LIC II
at March 31, 2009 of $398.7 million.
LIC I and
LIC II invest in certain real estate ventures that own and operate commercial
real estate. We have an effective 47.85% ownership interest in LIC I, and
an effective 48.78% ownership interest in LIC II; primarily institutional
investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC II,
respectively. We account for our investments in LIC I and LIC II under the
equity method of accounting in the accompanying consolidated financial
statements. Additionally, a non-executive Director of Jones Lang LaSalle is an
investor in LIC I on equivalent terms to other investors.
LIC I’s
and LIC II’s exposures to liabilities and losses of the ventures are limited to
their existing capital contributions and remaining capital commitments. We
expect that LIC I will draw down on our commitment over the next three to five
years to satisfy its existing commitments to underlying funds, and we expect
that LIC II will draw down on our commitment over the next four to eight
years as it enters into new commitments. Our Board of Directors has endorsed the
use of our co-investment capital in particular situations to control or bridge
finance existing real estate assets or portfolios to seed future investments
within LIC II. The purpose is to accelerate capital raising and growth in assets
under management. Approvals for such activity are handled consistently with
those of the Firm’s co-investment capital. At March 31, 2009, no bridge
financing arrangements were outstanding.
As of
March 31, 2009, LIC I maintains a euro 10.0 million ($13.2 million) revolving
credit facility (the "LIC I Facility"), and LIC II maintains a $50.0 million
revolving credit facility (the "LIC II Facility"), principally for their working
capital needs.
Each
facility contains a credit rating trigger and a material adverse condition
clause. If either of the credit rating trigger or the material adverse condition
clauses becomes triggered, the facility to which that condition relates would be
in default and outstanding borrowings would need to be repaid. Such a condition
would require us to fund our pro-rata share of the then outstanding balance on
the related facility, which is the limit of our liability. The maximum exposure
to Jones Lang LaSalle, assuming that the LIC I Facility were fully drawn, would
be euro 4.8 million ($6.3 million); assuming that the LIC II Facility were fully
drawn, the maximum exposure to Jones Lang LaSalle would be $24.4 million. Each
exposure is included within and cannot exceed our maximum potential unfunded
commitments to LIC I of euro 17.3 million ($22.9 million) and to LIC II of
$398.7 million. As of March 31, 2009, LIC I had $2.1 million of outstanding
borrowings on the LIC I Facility, and LIC II had $34.6 million of outstanding
borrowings on the LIC II Facility.
Exclusive
of our LIC I and LIC II commitment structures, we have potential obligations
related to unfunded commitments to other real estate ventures, the maximum of
which is $8.6 million at March 31, 2009.
We expect
to continue to pursue co-investment opportunities with our real estate money
management clients in the Americas, EMEA and Asia Pacific. Co-investment remains
very important to the continued growth of Investment Management. The net
co-investment funding for 2009 is anticipated to be between $40 million and $50
million (planned co-investment less return of capital from liquidated
co-investments).
Share
Repurchase and Dividend Programs
Since
October 2002, our Board of Directors has approved five share repurchase
programs. At March 31, 2009, we have 1,563,100 shares that we are authorized to
repurchase under the current share repurchase program. We made no share
repurchases in 2008 or in the first three months of 2009. Our current
share repurchase program allows the Company to purchase our common stock in the
open market and in privately negotiated transactions. The repurchase of shares
is primarily intended to offset dilution resulting from both stock and stock
option grants made under our existing stock plans.
On April
28, 2009, the Company announced that its Board of Directors has declared a semi-annual cash dividend
of $0.10 per share of its Common Stock. The dividend payment will be made on
June 15, 2009 to holders of record at the close of business on May 15,
2009. At the Company’s discretion, a dividend-equivalent in the same
amount also will be paid simultaneously on outstanding but unvested shares of
restricted stock units granted under the Company’s Stock Award and Incentive
Plan. There can be no assurance that future dividends will be declared since the
actual declaration of future dividends and the establishment of record and
payment dates, remains subject to final determination by the Company's Board of
Directors.
Capital
Expenditures and Business Acquisitions
Capital
expenditures for the first three months of 2009 were $7 million, net, compared
to $19 million for the same period in 2008. Our capital expenditures are
primarily for ongoing improvements to computer hardware and information systems
and improvements to leased space. We anticipate that capital expenditures will
decrease significantly from 2008, as we have completed the implementation of
several global information systems and anticipate spending less on capital items
related to acquisition integrations.
In the
first quarter of 2009, we completed no new acquisitions and used $14 million
relative to acquisitions completed in prior years, primarily for deferred
payments and earn-out payments. Terms for our acquisitions completed in prior
years included cash paid at closing, with provisions for additional
consideration and earn-outs subject to certain contract provisions and
performance. Deferred business acquisition obligations totaling $377 million at
March 31, 2009 on our consolidated balance sheet represent the current
discounted values of payments to sellers of businesses for which our acquisition
has closed as of the balance sheet date and for which the only remaining
condition on those payments is the passage of time. At March 31, 2009 we had the
potential to make earn-out payments on 18 acquisitions that are subject to the
achievement of certain performance conditions. The maximum amount of
the potential earn-out payments for 17 of these acquisitions was $187 million at
March 31, 2009. We expect these amounts will come due at various times over the
next five years. The earn-out provisions of our acquisition of Indian real
estate services company Trammell Crow Meghraj (“TCM”) are based on formulas and
independent valuations such that the future payments are not quantifiable at
this time; this obligation is reflected on our consolidated balance sheet as a
Minority shareholder redemption liability.
Market
and Other Risk Factors
Market
Risk
The
principal market risks (namely, the risk of loss arising from adverse changes in
market rates and prices) to which we are exposed are:
•
|
Interest
rates on our credit facilities;
and
|
In the
normal course of business, we manage these risks through a variety of
strategies, including the use of hedging transactions using various derivative
financial instruments such as foreign currency forward contracts. We enter into
derivative instruments with high credit-quality counterparties and diversify our
positions across such counterparties in order to reduce our exposure to credit
losses. We do not enter into derivative transactions for trading or speculative
purposes.
Interest
Rates
We
centrally manage our debt, considering investment opportunities and risks, tax
consequences and overall financing strategies. We are primarily exposed to
interest rate risk on our revolving multi-currency credit facility and our term
loan facility, together the “Facilities”, which are available for working
capital, investments, capital expenditures and acquisitions. Our average
outstanding borrowings under the Facilities were $547 million during the three
months ended March 31, 2009, and the effective interest rate was
3.7%. As of March 31, 2009, we had $496 million outstanding under the
Facilities that bear a variable rate of interest based on market rates. The
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower the overall borrowing costs. To
achieve this objective, in the past we have entered into derivative financial
instruments such as interest rate swap agreements when appropriate and may do so
in the future. We entered into no such agreements in 2008 or the first three
months of 2009, and we had no such agreements outstanding at March 31,
2009.
Foreign
Exchange
Foreign
exchange risk is the risk that we will incur economic losses due to adverse
changes in foreign currency exchange rates. Our revenues outside of the United
States totaled 55% and 60% of our total revenues for the three months ended
March 31, 2009 and 2008, respectively. Operating in international markets means
that we are exposed to movements in foreign exchange rates, primarily the euro
(15% of revenues for the three months ended March 31, 2009) and the British
pound (11% of revenues for the three months ended March 31, 2009).
We
mitigate our foreign currency exchange risk principally by establishing local
operations in the markets we serve and invoicing customers in the same currency
as the source of the costs. The British pound expenses incurred as a result of
our European region headquarters being located in London act as a partial
operational hedge against our translation exposure to British
pounds.
We enter
into forward foreign currency exchange contracts to manage currency risks
associated with intercompany loan balances. At March 31, 2009, we had forward
exchange contracts in effect with a gross notional value of $571.2 million
($520.4 million on a net basis) with a fair value gain of $0.2 million. This
carrying gain is offset by a carrying loss in associated intercompany loans such
that the net impact to earnings is not significant.
Disclosure
of Limitations
As the
information presented above includes only those exposures that exist as of March
31, 2009, it does not consider those exposures or positions which could arise
after that date. The information represented herein has limited predictive
value. As a result, the ultimate realized gain or loss with respect to interest
rate and foreign currency fluctuations will depend on the exposures that arise
during the period, the hedging strategies at the time and interest and foreign
currency rates.
For other
risk factors inherent in our business, see Item 1A. Risk Factors in our 2008
Annual Report on Form 10-K.
Jones
Lang LaSalle (the Company) has established disclosure controls and procedures to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to the officers who certify the
Company’s financial reports and to the members of senior management and the
Board of Directors.
Under the
supervision and with the participation of the Company’s management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report. There were no changes in the Company’s
internal control over financial reporting during the quarter ended March 31,
2009 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Part
II
We are a
defendant in various litigation matters arising in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. Many of these litigation matters are covered by insurance (including
insurance provided through a captive insurance company), although they may
nevertheless be subject to large deductibles or retentions and the amounts being
claimed may exceed the available insurance. Although the ultimate liability for
these matters cannot be determined, based upon information currently available,
we believe the ultimate resolution of such claims and litigation will not have a
material adverse effect on our financial position, results of operations or
liquidity.
Proposed
changes to the composition of our Board of Directors
As
previously disclosed in our Notice of the 2009 Annual Meeting of Shareholders
and Proxy Statement, we announced the following prospective changes to the
composition of our Board of Directors:
|
•
|
The
Board has nominated Ming Lu, a Partner with KKR & Co., for election to
the Board by the Company's shareholders at the 2009 Annual
Meeting.
|
|
•
|
Professor
Henri-Claude de Bettignies has decided to retire from Board service
effective on May 28, 2009, and will not stand for re-election at the 2009
Annual Meeting. Professor de Bettignies has served on the Board
since March 1999.
|
|
•
|
Alain
Monie has decided to resign from the Board effective on May 28, 2009 in
order to devote more time to his other business activities and also will
not stand for re-election at the 2009 Annual Meeting. Mr. Monie, who is
the President and Chief Operating Officer of Ingram Micro Inc. and also a
member of the Board of Directors of Amazon.com, Inc., has served on the
Board since October 2005.
|
Corporate
Governance
Our
policies and practices reflect corporate governance initiatives that we believe
comply with the listing requirements of the New York Stock Exchange, on which
our common stock is traded, the corporate governance requirements of the
Sarbanes-Oxley Act of 2002 as currently in effect, various regulations issued by
the United States Securities and Exchange Commission and certain provisions of
the General Corporation Law in the State of Maryland, where Jones Lang LaSalle
is incorporated.
We
maintain a corporate governance section on our public website which includes key
information about our corporate governance initiatives, such as our Corporate
Governance Guidelines, Charters for the three Committees of our Board of
Directors, a Statement of Qualifications of Members of the Board of Directors
and our Code of Business Ethics. The Board of Directors regularly reviews
corporate governance developments and modifies our Guidelines and Charters as
warranted. The corporate governance section can be found on our website at www.joneslanglasalle.com
by clicking “Investor Relations” and then “Board of Directors and Corporate
Governance.”
Corporate
Officers
The names
and titles of our corporate executive officers are as follows:
Global Executive
Committee
Colin
Dyer
Chief
Executive Officer and President
Lauralee
E. Martin
Executive
Vice President, Chief Operating and Financial Officer
Peter A.
Barge
Chairman,
Asia Pacific, and Chairman, Jones Lang LaSalle Hotels
Alastair
Hughes
Chief
Executive Officer, Asia Pacific
Jeff A.
Jacobson
Chief
Executive Officer, LaSalle Investment Management
Peter C.
Roberts
Chief
Executive Officer, Americas
Christian
Ulbrich
Chief
Executive Officer, Europe, Middle East and Africa
Additional Global Corporate
Officers
Charles
J. Doyle
Chief
Marketing and Communications Officer
Mark K.
Engel
Controller
James S.
Jasionowski
Chief
Tax Officer
David A.
Johnson
Chief
Information Officer
Mark J.
Ohringer
General
Counsel and Corporate Secretary
Marissa
R. Prizant
Director
of Internal Audit
Nazneen
Razi
Chief
Human Resources Officer
Joseph J.
Romenesko
Treasurer
Cautionary
Note Regarding Forward-Looking Statements
Certain
statements in this filing and elsewhere (such as in reports, other filings with
the United States Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management and
written and oral statements) regarding, among other things, future financial
results and performance, achievements, plans and objectives, dividend payments
and share repurchases may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause Jones Lang LaSalle’s actual results, performance,
achievements, plans and objectives to be materially different from any of the
future results, performance, achievements, plans and objectives expressed or
implied by such forward-looking statements.
We
discuss those risks, uncertainties and other factors in (i) our Annual Report on
Form 10-K for the year ended December 31, 2008 in Item 1A. Risk Factors; Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations; Item 7A. Quantitative and Qualitative Disclosures About Market Risk;
Item 8. Financial Statements and Supplementary Data – Notes to Consolidated
Financial Statements; and elsewhere, (ii) in this Quarterly Report on Form 10-Q
in Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations; Item 3. Quantitative and Qualitative Disclosures About
Market Risk; and elsewhere, and (iii) the other reports we file with the United
States Securities and Exchange Commission. Important factors that could cause
actual results to differ from those in our forward-looking statements include
(without limitation):
|
•
|
The
effect of political, economic and market conditions and geopolitical
events;
|
|
•
|
The
logistical and other challenges inherent in operating in numerous
different countries;
|
|
•
|
The
actions and initiatives of current and potential
competitors;
|
|
•
|
The
level and volatility of real estate prices, interest rates, currency
values and other market indices;
|
|
•
|
The
outcome of pending litigation; and
|
|
•
|
The
impact of current, pending and future legislation and
regulation.
|
Moreover,
there can be no assurance that future dividends will be declared since the
actual declaration of future dividends, and the establishment of record and
payment dates, remain subject to final determination by the Company’s Board of
Directors.
Accordingly,
we caution our readers not to place undue reliance on forward-looking
statements, which speak only as of the date on which they are made. Jones Lang
LaSalle expressly disclaims any obligation or undertaking to update or revise
any forward-looking statements to reflect any changes in events or circumstances
or in its expectations or results.
Signature
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 8th day of May,
2009.
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
/s/ Lauralee E. Martin
|
|
|
|
By:
Lauralee E.
Martin
|
|
Executive
Vice President and
|
|
Chief
Operating and Financial Officer
|
|
(Authorized
Officer and
|
|
Principal
Financial Officer)
|
Exhibit
10.1
|
Form
of Amendment to Bylaws of the Company, effective as of April 15, 2009
Incorporated by reference to Exhibit 99.1 to the registrant’s Current
Report on Form 8-K filed with the SEC on April 27, 2009 (File Number
001-13145)
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
*Filed
herewith
33