form10-q.htm
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
Form
10-Q
T Quarterly
Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the
quarterly period ended September 30, 2009
Or
o 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 x No o
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 T
Accelerated filer o
Non-accelerated filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No T
The
number of shares outstanding of the registrant’s common stock (par value $0.01)
as of the close of business on October 28, 2009 was 41,835,565.
Table
of Contents
Part
I
|
|
Financial
Information
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
3
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of September 30, 2009 and December 31,
2008
|
|
3
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the Three and Nine Months Ended September 30,
2009 and 2008
|
|
4
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Equity for the Nine Months Ended September 30,
2009
|
|
5
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2009 and
2008
|
|
6
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
|
7
|
|
|
|
|
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
20
|
|
|
|
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
32
|
|
|
|
|
|
Item
4.
|
|
Controls
and Procedures
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Part
II
|
|
Other
Information
|
|
|
|
|
|
|
|
Item
1.
|
|
Legal
Proceedings
|
|
33
|
|
|
|
|
|
Item
5.
|
|
Other
Information
|
|
34
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
37
|
Part
I Financial Information
|
|
|
|
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
September
30, 2009 and December 31, 2008
|
|
|
|
|
|
|
($
in thousands, except share data)
|
|
September
30,
|
|
|
|
|
|
|
2009
|
|
|
December
31,
|
|
Assets
|
|
(unaudited)
|
|
|
2008
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
56,611 |
|
|
|
45,893 |
|
Trade
receivables, net of allowances of $27,336 and $23,847
|
|
|
572,981 |
|
|
|
718,804 |
|
Notes
and other receivables
|
|
|
77,874 |
|
|
|
89,636 |
|
Prepaid
expenses
|
|
|
36,668 |
|
|
|
32,990 |
|
Deferred
tax assets
|
|
|
129,177 |
|
|
|
102,934 |
|
Other
|
|
|
15,175 |
|
|
|
9,511 |
|
Total
current assets
|
|
|
888,486 |
|
|
|
999,768 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $276,479 and
$225,496
|
|
|
216,115 |
|
|
|
224,845 |
|
Goodwill,
with indefinite useful lives
|
|
|
1,447,611 |
|
|
|
1,448,663 |
|
Identified
intangibles, with finite useful lives, net of accumulated amortization of
$67,471 and
$46,936
|
|
|
39,947 |
|
|
|
59,319 |
|
Investments
in real estate ventures
|
|
|
157,093 |
|
|
|
179,875 |
|
Long-term
receivables
|
|
|
54,009 |
|
|
|
51,974 |
|
Deferred
tax assets
|
|
|
74,733 |
|
|
|
58,639 |
|
Other
|
|
|
115,415 |
|
|
|
53,942 |
|
Total
assets
|
|
$ |
2,993,409 |
|
|
|
3,077,025 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
305,711 |
|
|
|
352,489 |
|
Accrued
compensation
|
|
|
313,999 |
|
|
|
487,895 |
|
Short-term
borrowings
|
|
|
57,161 |
|
|
|
24,570 |
|
Deferred
tax liabilities
|
|
|
3,357 |
|
|
|
2,698 |
|
Deferred
income
|
|
|
35,160 |
|
|
|
29,213 |
|
Deferred
business acquisition obligations
|
|
|
101,794 |
|
|
|
13,073 |
|
Other
|
|
|
84,951 |
|
|
|
77,947 |
|
Total
current liabilities
|
|
|
902,133 |
|
|
|
987,885 |
|
|
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
|
|
|
Credit
facilities
|
|
|
292,286 |
|
|
|
483,942 |
|
Deferred
tax liabilities
|
|
|
4,511 |
|
|
|
4,429 |
|
Deferred
compensation
|
|
|
28,191 |
|
|
|
44,888 |
|
Pension
liabilities
|
|
|
4,360 |
|
|
|
4,101 |
|
Deferred
business acquisition obligations
|
|
|
290,518 |
|
|
|
371,636 |
|
Minority
shareholder redemption liability
|
|
|
45,914 |
|
|
|
43,313 |
|
Other
|
|
|
84,770 |
|
|
|
65,026 |
|
Total
liabilities
|
|
|
1,652,683 |
|
|
|
2,005,220 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Shareholders' Equity:
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value per share, 100,000,000 shares authorized; 41,834,319
and 34,561,648 shares issued and outstanding
|
|
|
418 |
|
|
|
346 |
|
Additional
paid-in capital
|
|
|
841,430 |
|
|
|
599,742 |
|
Retained
earnings
|
|
|
483,654 |
|
|
|
543,318 |
|
Shares
held in trust
|
|
|
(5,276 |
) |
|
|
(3,504 |
) |
Accumulated
other comprehensive income (loss)
|
|
|
16,688 |
|
|
|
(72,220 |
) |
Total
Company shareholders’ equity
|
|
|
1,336,914 |
|
|
|
1,067,682 |
|
Noncontrolling
interest
|
|
|
3,812 |
|
|
|
4,123 |
|
Total
equity
|
|
|
1,340,726 |
|
|
|
1,071,805 |
|
Total
liabilities and equity
|
|
$ |
2,993,409 |
|
|
|
3,077,025 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three and Nine Months Ended September 30, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
($
in thousands, except share data) (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
595,302 |
|
|
|
677,084 |
|
|
|
1,665,651 |
|
|
|
1,900,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
380,029 |
|
|
|
449,185 |
|
|
|
1,103,960 |
|
|
|
1,259,233 |
|
Operating,
administrative and other
|
|
|
147,744 |
|
|
|
154,767 |
|
|
|
426,020 |
|
|
|
487,508 |
|
Depreciation
and amortization
|
|
|
18,720 |
|
|
|
29,194 |
|
|
|
64,608 |
|
|
|
63,908 |
|
Restructuring
charges
|
|
|
4,181 |
|
|
|
10,461 |
|
|
|
36,608 |
|
|
|
10,273 |
|
Total
operating expenses
|
|
|
550,674 |
|
|
|
643,607 |
|
|
|
1,631,196 |
|
|
|
1,820,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
44,628 |
|
|
|
33,477 |
|
|
|
34,455 |
|
|
|
79,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net of interest income
|
|
|
16,304 |
|
|
|
12,496 |
|
|
|
43,590 |
|
|
|
17,232 |
|
Equity
in losses from unconsolidated ventures
|
|
|
(4,960 |
) |
|
|
(694 |
) |
|
|
(56,230 |
) |
|
|
(1,938 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes and noncontrolling interest
|
|
|
23,364 |
|
|
|
20,287 |
|
|
|
(65,365 |
) |
|
|
60,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
3,505 |
|
|
|
5,112 |
|
|
|
(9,806 |
) |
|
|
15,228 |
|
Net
income (loss)
|
|
|
19,859 |
|
|
|
15,175 |
|
|
|
(55,559 |
) |
|
|
45,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
|
88 |
|
|
|
171 |
|
|
|
290 |
|
|
|
1,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to the Company
|
|
|
19,771 |
|
|
|
15,004 |
|
|
|
(55,849 |
) |
|
|
43,361 |
|
Net
income (loss) attributable to common shareholders
|
|
$ |
19,771 |
|
|
|
15,004 |
|
|
|
(56,135 |
) |
|
|
42,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per common share
|
|
$ |
0.47 |
|
|
$ |
0.44 |
|
|
$ |
(1.50 |
) |
|
$ |
1.30 |
|
Basic
weighted average shares outstanding
|
|
|
41,762,451 |
|
|
|
34,217,379 |
|
|
|
37,432,242 |
|
|
|
32,627,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per common share
|
|
$ |
0.46 |
|
|
$ |
0.43 |
|
|
$ |
(1.50 |
) |
|
$ |
1.25 |
|
Diluted
weighted average shares outstanding
|
|
|
43,299,868 |
|
|
|
35,035,602 |
|
|
|
37,432,242 |
|
|
|
33,965,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended September 30, 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
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(55,849 |
) |
|
|
— |
|
|
|
— |
|
|
|
290 |
|
|
|
(55,559 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued under stock compensation programs
|
|
|
958,754 |
|
|
|
9 |
|
|
|
3,216 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
repurchased for payment of taxes on stock awards
|
|
|
(222,271 |
) |
|
|
(2 |
) |
|
|
(7,157 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
adjustments due to vestings and exercises
|
|
|
— |
|
|
|
— |
|
|
|
(8,326 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of stock compensation
|
|
|
— |
|
|
|
— |
|
|
|
35,140 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
35,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
6,500,000 |
|
|
|
65 |
|
|
|
217,252 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
217,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for acquisitions
|
|
|
36,188 |
|
|
|
— |
|
|
|
1,563 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,815 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,815 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
held in trust
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,772 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,772 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
distributions to noncontrolling interest
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(601 |
) |
|
|
(601 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
88,908 |
|
|
|
— |
|
|
|
88,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2009
|
|
|
41,834,319 |
|
|
$ |
418 |
|
|
|
841,430 |
|
|
|
483,654 |
|
|
|
(5,276 |
) |
|
|
16,688 |
|
|
|
3,812 |
|
|
$ |
1,340,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JONES
LANG LASALLE INCORPORATED
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
For
the Nine Months Ended September 30, 2009 and 2008
|
|
Nine
|
|
|
Nine
|
|
($
in thousands) (unaudited)
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(55,559 |
) |
|
|
45,199 |
|
Reconciliation
of net (loss) income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
64,608 |
|
|
|
63,908 |
|
Equity
in losses from real estate ventures
|
|
|
56,230 |
|
|
|
1,938 |
|
Gain
on investments
|
|
|
(1,381 |
) |
|
|
— |
|
Operating
distributions from real estate ventures
|
|
|
— |
|
|
|
1,767 |
|
Provision
for loss on receivables and other assets
|
|
|
14,306 |
|
|
|
16,013 |
|
Amortization
of deferred compensation
|
|
|
32,901 |
|
|
|
39,558 |
|
Amortization
of debt issuance costs
|
|
|
3,524 |
|
|
|
2,308 |
|
Change
in:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
173,565 |
|
|
|
124,085 |
|
Prepaid
expenses and other assets
|
|
|
(19,912 |
) |
|
|
(7,316 |
) |
Deferred
tax assets, net
|
|
|
(41,595 |
) |
|
|
2,495 |
|
Excess
tax benefit from share-based payment arrangements
|
|
|
— |
|
|
|
(4,013 |
) |
Accounts
payable, accrued liabilities and accrued compensation
|
|
|
(182,826 |
) |
|
|
(399,064 |
) |
Net
cash provided by (used in) operating activities
|
|
|
43,861 |
|
|
|
(113,122 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Net
capital additions – property and equipment
|
|
|
(31,234 |
) |
|
|
(72,243 |
) |
Business
acquisitions
|
|
|
(14,845 |
) |
|
|
(282,950 |
) |
Capital
contributions and advances to real estate ventures
|
|
|
(26,461 |
) |
|
|
(36,634 |
) |
Distributions,
repayments of advances and sale of investments
|
|
|
875 |
|
|
|
29 |
|
Net
cash used in investing activities
|
|
|
(71,665 |
) |
|
|
(391,798 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from borrowings under credit facilities
|
|
|
890,290 |
|
|
|
1,278,124 |
|
Repayments
of borrowings under credit facilities
|
|
|
(1,050,525 |
) |
|
|
(759,838 |
) |
Debt
issuance costs
|
|
|
(11,183 |
) |
|
|
(9,498 |
) |
Issuance
of common stock, net
|
|
|
217,689 |
|
|
|
— |
|
Shares
repurchased for payment of employee taxes on stock awards
|
|
|
(7,159 |
) |
|
|
(13,876 |
) |
Common
stock issued under option and stock purchase programs
|
|
|
3,225 |
|
|
|
8,268 |
|
Excess
tax benefit from share-based payment arrangements
|
|
|
— |
|
|
|
4,013 |
|
Payment
of dividends
|
|
|
(3,815 |
) |
|
|
(17,290 |
) |
Net
cash provided by financing activities
|
|
|
38,522 |
|
|
|
489,903 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
10,718 |
|
|
|
(15,017 |
) |
Cash
and cash equivalents, January 1
|
|
|
45,893 |
|
|
|
78,580 |
|
Cash
and cash equivalents, September 30
|
|
$ |
56,611 |
|
|
|
63,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
20,490 |
|
|
|
10,290 |
|
Income
taxes, net of refunds
|
|
|
30,140 |
|
|
|
71,243 |
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Deferred
business acquisition obligations
|
|
$ |
5,419 |
|
|
|
331,559 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
|
|
|
|
|
|
|
JONES
LANG LASALLE INCORPORATED
Notes
to Consolidated Financial Statements (Unaudited)
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 our 2008 Annual Report, 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 and in our 2008
Annual Report for further discussion of our accounting policies and
estimates.
(1)
Interim Information
Our
consolidated financial statements as of September 30, 2009 and for the three and
nine months ended September 30, 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
recognized evenly 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. As such, the results for the periods ended
September 30, 2009 and 2008 are not indicative of the results to be obtained for
the full fiscal year.
(2)
New Accounting Standards
Codification
of FASB Accounting Standards
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) 168, “The FASB Accounting Standards
CodificationTM
(“ASC”) and the Hierarchy of Generally Accepted Accounting Principles, a
Replacement of FASB Statement No. 162.” Under the provisions of SFAS 168, the
ASC is established as the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. In the FASB’s view, the issuance of SFAS
168 and the ASC will not change GAAP for SEC registrants. The ASC became the
exclusive authoritative reference for use in the Company’s consolidated
financial statements beginning with the periods ended September 30,
2009.
Fair
Value Measurements
ASC Topic
820, “Fair Value Measurements and Disclosures,” establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. ASC Topic 820 applies to accounting
pronouncements that require or permit fair value measurements, except for
share-based payment transactions under ASC Topic 718.
On
January 1, 2008 the Company adopted these accounting standards with respect to
its financial assets and liabilities that are measured at fair value, and on
January 1, 2009 the Company adopted these standards 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.
ASC Topic
820 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 of the hierarchy. At September 30, 2009, we had forward exchange
contracts in effect with a gross notional value of $654.3 million and a net fair
value gain of $3.3 million, recorded as a current asset of $9.2 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.
Business
Combinations
In
December 2007, the FASB issued SFAS 141(revised), “Business Combinations” (“SFAS
141(R)”). SFAS 141(R) now embedded within ASC Topic 805, “Business
Combinations,” changes how we record in our consolidated financial statements
identifiable assets acquired and the liabilities assumed in business
combinations. This accounting standard 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. ASC Topic 805 principally applies
prospectively to business combinations for which the acquisition date is after
December 31, 2008, and the impact of its application on our consolidated
financial statements will depend on the contract terms of any business
combinations we may 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, now ASC Section 810-10-65, 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 this standard prospectively starting January 1, 2009, and its
adoption did not have a material impact on our consolidated financial
statements.
Disclosures
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities.” SFAS 161, now ASC Subtopic 815-50, 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. We mark these contracts to
market each period and recognize in earnings changes in unrealized gains or
losses as a component of Operating, administrative and other
expenses. These gains and losses are offset by the associated gains
and losses on intercompany loans such that the net impact to earnings is not
significant (see Fair Value Measurements above). At September 30, 2009, we had
forward exchange contracts in effect with a gross notional value of $654.3
million and a net fair value gain of $3.3 million, recorded as a current asset
of $9.2 million in Other current assets and a current liability of $5.9 million
in Other current liabilities. 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.
Fair
Value of Financial Instruments
In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments.” This FSP, now
ASC Section 825-10-65, requires publicly traded companies to disclose the fair
value of financial instruments in interim financial statements, adding to the
current requirement to make these disclosures in annual financial
statements.
Our
financial instruments include cash and cash equivalents, receivables, accounts
payable, short-term borrowings, borrowings under our credit Facilities and
foreign currency forward contracts. The carrying values of cash and cash
equivalents, receivables, accounts payable and short-term borrowings approximate
their estimated fair values due to the short maturity of these instruments. The
estimated fair value of our borrowings under our credit Facilities approximates
their carrying value due to their variable interest rate terms. The fair values
of our foreign currency forward contracts are disclosed above under the headings
“Fair Value Measurements” and “Disclosures about Derivative Instruments and
Hedging Activities.”
Subsequent
Events
In May
2009, the FASB issued SFAS 165, “Subsequent Events.” SFAS 165, now ASC Topic
855, establishes general standards of accounting for, and disclosures of, events
that occur after the balance sheet date but before financial statements are
issued. This standard, now effective, requires recognition in the
financial statements of the effect of all subsequent events that provide
additional evidence about conditions that existed at the balance sheet date, and
disclosures of the date through which subsequent events have been
evaluated.
Consolidation
of Variable Interest Entities
In June
2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation (“FIN”) No.
46(R).” SFAS 167 amends FIN 46(R) to require an enterprise to perform an
analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. The
analysis identifies the primary beneficiary of a variable interest entity as the
enterprise that has both (i) the power to direct the activities of a variable
interest entity that most significantly impact the entity’s economic
performance, and (ii) the obligation to absorb losses of, or the right to
receive benefits from, the variable interest entity that could potentially be
significant to the entity. SFAS 167 also amends guidance in FIN 46(R) (i) for
determining when an entity is a variable interest entity, including an
additional reconsideration event for such determinations, (ii) to require
ongoing reassessments of whether an enterprise is the primary beneficiary of a
variable interest entity, (iii) to eliminate the quantitative approach
previously required for determining the primary beneficiary, and (iv) to enhance
disclosures regarding an enterprise’s involvement in a variable interest entity.
SFAS 167 will be effective for the Company as of January 1, 2010, with early
adoption prohibited. Management has not yet determined what impact the
application of this standard will have on our consolidated financial
statements.
(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
$2.2 million and $6.1 million for the three months ended September 30, 2009 and
2008, respectively, and $7.8 million and $12.7 million for the nine months ended
September 30, 2009 and 2008, respectively. Gross construction services revenues
totaled $35.1 million and $78.7 million for the three months ended September 30,
2009 and 2008, respectively, and $119.9 million and $192.2 million for the nine
months ended September 30, 2009 and 2008, respectively. Subcontract costs
totaled $32.9 million and $72.6 million for the three months ended September 30,
2009 and 2008, respectively, and $112.1 million and $179.5 million for the nine
months ended September 30, 2009 and 2008, respectively.
We
include costs in excess of billings on uncompleted construction contracts of
$8.1 million and $9.8 million in “Trade receivables,” and billings in excess of
costs on uncompleted construction contracts of $4.2 million and $5.9 million in
“Deferred income,” respectively, in our September 30, 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.
Accordingly,
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 or client, 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 reimbursable contract costs on a net basis in
accordance with U.S. GAAP. These costs aggregated approximately $242.3 million
and $286.9 million for the three months ended September 30, 2009 and 2008,
respectively, and approximately $823.1 million and $860.3 million for the nine
months ended September 30, 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"). We consider “property management” as services
provided to non-occupying property investors and “facilities management” as a
service provided to owner-occupiers.
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 corporate global
overhead expenses to the business segments based on the budgeted operating
expenses of each segment.
For
segment reporting we show equity in (losses) earnings from real estate ventures
within our revenue line 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 (losses) earnings 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 and the Chief Executive Officers of each of our four reporting
segments.
Summarized
unaudited financial information by business segment for the three and nine
months ended September 30, 2009 and 2008 is as follows ($ in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
Investor
and Occupier Services |
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
130,346 |
|
|
|
134,176 |
|
|
|
376,757 |
|
|
|
301,599 |
|
Management
services
|
|
|
105,264 |
|
|
|
116,332 |
|
|
|
301,424 |
|
|
|
304,631 |
|
Equity
income (losses)
|
|
|
30 |
|
|
|
- |
|
|
|
(1,181 |
) |
|
|
41 |
|
Other
services
|
|
|
3,124 |
|
|
|
3,564 |
|
|
|
9,941 |
|
|
|
11,538 |
|
|
|
$ |
238,764 |
|
|
|
254,072 |
|
|
|
686,941 |
|
|
|
617,809 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
199,816 |
|
|
|
220,378 |
|
|
|
605,390 |
|
|
|
558,773 |
|
Depreciation
and amortization
|
|
|
9,672 |
|
|
|
16,820 |
|
|
|
38,111 |
|
|
|
31,363 |
|
Operating
income
|
|
$ |
29,276 |
|
|
|
16,874 |
|
|
|
43,440 |
|
|
|
27,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
98,773 |
|
|
|
147,436 |
|
|
|
264,735 |
|
|
|
454,307 |
|
Management
services
|
|
|
55,196 |
|
|
|
54,288 |
|
|
|
149,675 |
|
|
|
162,876 |
|
Equity
income (losses)
|
|
|
19 |
|
|
|
(3 |
) |
|
|
(940 |
) |
|
|
99 |
|
Other
services
|
|
|
254 |
|
|
|
6,840 |
|
|
|
4,404 |
|
|
|
10,441 |
|
|
|
$ |
154,242 |
|
|
|
208,561 |
|
|
|
417,874 |
|
|
|
627,723 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
152,909 |
|
|
|
194,693 |
|
|
|
428,225 |
|
|
|
605,652 |
|
Depreciation
and amortization
|
|
|
5,265 |
|
|
|
7,978 |
|
|
|
15,641 |
|
|
|
20,864 |
|
Operating
(loss) income
|
|
$ |
(3,932 |
) |
|
|
5,890 |
|
|
|
(25,992 |
) |
|
|
1,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
services
|
|
$ |
62,272 |
|
|
|
70,384 |
|
|
|
150,653 |
|
|
|
207,014 |
|
Management
services
|
|
|
71,943 |
|
|
|
61,568 |
|
|
|
206,736 |
|
|
|
180,087 |
|
Equity
losses
|
|
|
- |
|
|
|
(556 |
) |
|
|
(2,371 |
) |
|
|
(705 |
) |
Other
services
|
|
|
2,216 |
|
|
|
1,159 |
|
|
|
5,515 |
|
|
|
5,337 |
|
|
|
$ |
136,431 |
|
|
|
132,555 |
|
|
|
360,533 |
|
|
|
391,733 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
126,076 |
|
|
|
128,978 |
|
|
|
345,131 |
|
|
|
384,938 |
|
Depreciation
and amortization
|
|
|
3,205 |
|
|
|
3,634 |
|
|
|
9,198 |
|
|
|
9,962 |
|
Operating
income (loss)
|
|
$ |
7,150 |
|
|
|
(57 |
) |
|
|
6,204 |
|
|
|
(3,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
and other services
|
|
$ |
1,213 |
|
|
|
4,047 |
|
|
|
3,881 |
|
|
|
14,485 |
|
Advisory
fees
|
|
|
61,177 |
|
|
|
70,963 |
|
|
|
180,063 |
|
|
|
215,647 |
|
Incentive
fees
|
|
|
3,524 |
|
|
|
6,327 |
|
|
|
11,867 |
|
|
|
32,557 |
|
Equity
losses
|
|
|
(5,009 |
) |
|
|
(135 |
) |
|
|
(51,738 |
) |
|
|
(1,373 |
) |
|
|
$ |
60,905 |
|
|
|
81,202 |
|
|
|
144,073 |
|
|
|
261,316 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation,
operating and administrative expenses
|
|
|
48,972 |
|
|
|
59,903 |
|
|
|
151,235 |
|
|
|
197,378 |
|
Depreciation
and amortization
|
|
|
578 |
|
|
|
762 |
|
|
|
1,657 |
|
|
|
1,719 |
|
Operating
income (loss)
|
|
$ |
11,355 |
|
|
|
20,537 |
|
|
|
(8,819 |
) |
|
|
62,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment revenue |
|
$ |
590,342 |
|
|
|
676,390 |
|
|
|
1,609,421 |
|
|
|
1,898,581 |
|
Reclassification of equity losses |
|
|
(4,960 |
) |
|
|
(694 |
) |
|
|
(56,230 |
) |
|
|
(1,938 |
) |
Total
revenue
|
|
$ |
595,302 |
|
|
|
677,084 |
|
|
|
1,665,651 |
|
|
|
1,900,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses before restructuring charges |
|
|
546,493 |
|
|
|
633,146 |
|
|
|
1,594,588 |
|
|
|
1,810,649 |
|
Restructuring charges |
|
|
4,181 |
|
|
|
10,461 |
|
|
|
36,608 |
|
|
|
10,273 |
|
Operating
income
|
|
$ |
44,628 |
|
|
|
33,477 |
|
|
|
34,455 |
|
|
|
79,597 |
|
(5)
Business Combinations, Goodwill and Other Intangible Assets
2009
Business Combinations Activity
In the
first nine months of 2009, we paid $13.2 million to satisfy deferred business
acquisition obligations, primarily related to the Americas’ 2006 acquisition of
Spaulding & Slye. We also recognized earn-out obligations of $11.6 million
for (i) acquisitions completed in prior years resulting in payments of $4.6
million, (ii) additional deferred business acquisition obligations of $5.4
million that will be paid in the next year, and (iii) the issuance of 36,188
shares of the Company’s common stock, valued at $1.6 million, issued as part of
an earn-out agreement for the 2006 acquisition of RSP Group, a Dubai-based real
estate investment advisory firm.
In the
third quarter of 2009, the Company finalized its allocation of the purchase
price of the 2008 acquisition of Staubach Holdings Inc. (“Staubach”). The final
allocation of the $506.9 million of purchase consideration included increases in
accounts receivable and other assets, increases in current liabilities, and
decreases in identifiable intangible assets acquired, resulting in a net $49.3
million decrease in goodwill from the allocation of purchase price consideration
at December 31, 2008. The final allocation of the purchase price is as follows
($ in thousands):
Accounts
receivable and other assets
|
|
$ |
121,312 |
|
Current
liabilities
|
|
|
(100,915 |
) |
Current
and deferred tax liabilities
|
|
|
(72,647 |
) |
Identifiable
intangible assets
|
|
|
34,902 |
|
Goodwill
|
|
|
524,234 |
|
|
|
$ |
506,886 |
|
Earn-out
payments
At
September 30, 2009, we had the potential to make earn-out payments on 16
acquisitions that are subject to the achievement of certain performance
conditions. The maximum amount of the potential earn-out payments for these
acquisitions was $184.6 million at September 30, 2009. These amounts will come
due at various times over the next five years assuming the achievement of the
applicable performance conditions.
Goodwill
and Other Intangible Assets
We have
$1.5 billion of unamortized intangibles and goodwill as of September 30, 2009. 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 $1.5 billion of unamortized intangibles and goodwill, $1.448 billion
represents goodwill with indefinite useful lives, which is not amortized. We
will amortize the remaining $40 million of identifiable intangibles over their
remaining finite useful lives.
The
following table sets forth, by reporting segment, the current year movements in
goodwill with indefinite useful lives ($ 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,
net of adjustments
|
|
|
(46,048 |
) |
|
|
11,075 |
|
|
|
708 |
|
|
|
— |
|
|
|
(34,265 |
) |
Impact
of exchange rate movements
|
|
|
(7 |
) |
|
|
20,496 |
|
|
|
11,420 |
|
|
|
1,304 |
|
|
|
33,213 |
|
Balance
as of September 30, 2009
|
|
$ |
893,878 |
|
|
|
348,152 |
|
|
|
187,098 |
|
|
|
18,483 |
|
|
|
1,447,611 |
|
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 |
) |
|
|
113 |
|
|
|
— |
|
|
|
(489 |
) |
Impact
of exchange rate movements
|
|
|
— |
|
|
|
1,193 |
|
|
|
458 |
|
|
|
1 |
|
|
|
1,652 |
|
Balance
as of September 30, 2009
|
|
$ |
80,269 |
|
|
|
15,559 |
|
|
|
11,462 |
|
|
|
128 |
|
|
|
107,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2009
|
|
$ |
(33,979 |
) |
|
|
(9,396 |
) |
|
|
(3,487 |
) |
|
|
(74 |
) |
|
|
(46,936 |
) |
Amortization
expense
|
|
|
(14,740 |
) |
|
|
(2,685 |
) |
|
|
(1,774 |
) |
|
|
(46 |
) |
|
|
(19,245 |
) |
Impact
of exchange rate movements
|
|
|
— |
|
|
|
(885 |
) |
|
|
(402 |
) |
|
|
(3 |
) |
|
|
(1,290 |
) |
Balance
as of September 30, 2009
|
|
$ |
(48,719 |
) |
|
|
(12,966 |
) |
|
|
(5,663 |
) |
|
|
(123 |
) |
|
|
(67,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value as of September 30, 2009
|
|
$ |
31,550 |
|
|
|
2,593 |
|
|
|
5,799 |
|
|
|
5 |
|
|
|
39,947 |
|
Remaining
estimated future amortization expense for our intangibles with finite useful
lives ($ in millions):
2009
|
|
$ |
3.8 |
|
2010
|
|
|
10.4 |
|
2011
|
|
|
8.2 |
|
2012
|
|
|
6.0 |
|
2013
|
|
|
4.6 |
|
Thereafter
|
|
|
6.9 |
|
Total
|
|
$ |
39.9 |
|
(6)
Investments in Real Estate Ventures
As of
September 30, 2009, we had total investments in real estate ventures of $157.1
million in approximately 40 separate property or fund
co-investments.
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 vehicles for substantially
all co-investment commitments made through December 31, 2005. LIC I is
fully committed to underlying real estate ventures. At September 30, 2009, our
maximum potential unfunded commitment to LIC I was euro 12.3 million ($18.0
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicles for most new co-investments. At September 30, 2009, LIC II
has unfunded capital commitments for future fundings of co-investments of $282.5
million, of which our 48.78% share is $137.8 million. The $137.8 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2009 of $376.8 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. We handle approvals for such activity
consistently with those of the Firm’s co-investment capital. At September 30,
2009, no bridge-financing arrangements were outstanding.
As of
September 30, 2009, LIC I maintains a euro 10.0 million ($14.6 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 ($7.0 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 12.3 million ($18.0 million) and to LIC II of
$376.8 million. As of September 30, 2009, LIC I had $0.3 million of outstanding
borrowings on the LIC I Facility, and LIC II had $22.4 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 $8.7 million at September 30, 2009.
Impairment
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 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
nine months of 2009. The results of these impairment analyses were primarily
responsible for our recognition of $47.6 million of non-cash charges in the
first nine months 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. We recorded $0.9 million of impairment charges in the first nine
months of 2008.
(7)
Stock-based Compensation
Restricted
Stock Unit Awards
Along
with cash base salaries and performance-based annual cash incentive awards,
restricted stock unit awards represent a primary element of our compensation
program for Company officers, managers and professionals.
Restricted
stock unit activity for the three months ended September 30, 2009 is as
follows:
|
|
Shares
(thousands)
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2009
|
|
|
3,418.7 |
|
|
$ |
51.67 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
13.4 |
|
|
|
35.44 |
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(707.1
|
) |
|
|
66.04 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(25.3
|
) |
|
|
52.30 |
|
|
|
|
|
|
|
|
|
Unvested
at September 30, 2009
|
|
|
2,699.7 |
|
|
$ |
47.82 |
|
|
2.00
years
|
|
|
$ |
127.9 |
|
Restricted
stock unit activity for the nine months ended September 30, 2009 is as
follows:
|
|
Shares
(thousands)
|
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at January 1, 2009
|
|
|
1,994.2 |
|
|
$ |
69.89 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,583.6 |
|
|
|
29.59 |
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(823.5 |
) |
|
|
65.39 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(54.6 |
) |
|
|
60.00 |
|
|
|
|
|
|
|
|
|
Unvested
at September 30, 2009
|
|
|
2,699.7 |
|
|
$ |
47.82 |
|
|
2.00
years
|
|
|
$ |
127.9 |
|
Unvested
shares expected to vest
|
|
|
2,593.7 |
|
|
$ |
47.69 |
|
|
2.01
years
|
|
|
$ |
122.9 |
|
We
determined the fair value of restricted stock units based on the market price of
the Company’s common stock on the grant date. As of September 30, 2009, there
was $45.7 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 September 30, 2009 over varying
periods into 2014.
Shares
vesting during the nine months ended September 30, 2009 and 2008 had fair values
of $53.9 million and $41.4 million, respectively.
Stock
Option Awards
We have
granted stock options at the market value of our common stock on the date of
grant. Our options vested at such times and conditions as the Compensation
Committee of our Board of Directors determined and set forth in the related
award agreements; the most recent options, granted in 2003, vested over periods
of up to five years. As a result of a change in compensation strategy, we do not
currently use stock option grants as part of our employee compensation
program.
Stock
option activity for the three months ended September 30, 2009 is as
follows:
|
|
Options
(thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2009
|
|
|
67.5 |
|
|
$ |
17.42 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(0.5 |
) |
|
|
20.25 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
|
67.0 |
|
|
$ |
17.40 |
|
|
2.14
years
|
|
|
$ |
2.0 |
|
Stock
option activity for the nine months ended September 30, 2009 is as
follows:
|
|
Options
(thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
($
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2009
|
|
|
118.0 |
|
|
$ |
20.30 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(33.0 |
) |
|
|
22.83 |
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(18.0 |
) |
|
|
26.47 |
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2009
|
|
|
67.0 |
|
|
$ |
17.40 |
|
|
|
2.14
years |
|
|
$ |
2.0 |
|
Exercisable
at September 30, 2009
|
|
|
67.0 |
|
|
$ |
17.40 |
|
|
|
2.14
years |
|
|
$ |
2.0 |
|
As of
September 30, 2009, we have approximately 67,000 options outstanding, all of
which vested prior to 2009. Accordingly, we recognized no compensation expense
related to unvested options for the first nine months of 2009.
Approximately
33,000 options were exercised during the first nine months of 2009, having an
intrinsic value of $0.8 million. For the same period in 2008, approximately
64,000 options were exercised, having an intrinsic value of $1.7 million. As a
result of these exercises, we received cash of $0.9 million and $2.2 million for
the nine months ended September 30, 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 each three
month program period. 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 now 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 –
The Jones Lang LaSalle Savings Related Share Option Plan (“Save As You Earn” or
“SAYE”) is for eligible employees of our UK and Ireland based 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 $19.47 under the SAYE
plan; no options were issued in the second or third quarters of 2009. The fair
values of the options granted under this plan are being amortized over their
respective vesting periods. At September 30, 2009, there were approximately
382,000 options outstanding under the SAYE plan.
(8)
Retirement Plans
We
maintain contributory defined benefit pension plans in the United Kingdom,
Ireland and Holland to provide retirement benefits to eligible employees. It is
our policy to fund the minimum annual contributions required by applicable
regulations. We use a December 31st measurement date for our plans.
Net
periodic pension cost consisted of the following for the three and nine months
ended September 30, 2009 and 2008 ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
September
30, 2009
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer
service cost - benefits earned during the period
|
|
$ |
647 |
|
|
|
960 |
|
|
|
1,837 |
|
|
|
2,950 |
|
Interest
cost on projected benefit obligation
|
|
|
2,209 |
|
|
|
2,905 |
|
|
|
6,251 |
|
|
|
8,972 |
|
Expected
return on plan assets
|
|
|
(2,409 |
) |
|
|
(3,349 |
) |
|
|
(6,816 |
) |
|
|
(10,343 |
) |
Net
amortization/deferrals
|
|
|
42 |
|
|
|
52 |
|
|
|
120 |
|
|
|
162 |
|
Recognized
actual (gains) losses
|
|
|
(40 |
) |
|
|
38 |
|
|
|
(116 |
) |
|
|
121 |
|
Net
periodic pension cost
|
|
$ |
449 |
|
|
|
606 |
|
|
|
1,276 |
|
|
|
1,862 |
|
For the
nine months ended September 30, 2009, we have made $3.9 million in payments to
our defined benefit pension plans. We expect to contribute a total of $4.0
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)
Earnings (Loss) Per Share and Net Income Available to Common
Shareholders
We
calculate earnings (loss) per share by dividing net income (loss) available to
common shareholders by weighted average shares outstanding. To calculate net
income (loss) available to common shareholders, we subtract dividend-equivalents
(net of tax) to be paid on outstanding but unvested shares of restricted stock
units from net income (loss) in the period the dividend is declared. Included in
the calculations of net income (loss) available to common shareholders are
dividend-equivalents of $0.3 million net of tax, declared and paid in the second
quarter of 2009, and $1.0 million net of tax, declared and paid in the second
quarter of 2008.
The
difference between basic weighted average shares outstanding and diluted
weighted average shares outstanding is the dilutive impact of common stock
equivalents. Common stock equivalents consist primarily of shares to be issued
under employee stock compensation programs and outstanding stock options whose
exercise price was less than the average market price of our stock during these
periods. Due to the net loss for the nine months ended September 30, 2009, basic
shares were not increased by common stock equivalents in the calculations of
diluted shares as the impact would have been anti-dilutive.
The
following table details the calculations of basic and diluted earnings per
common share for the three and nine months ended September 30, 2009 and 2008 ($
in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to the Company
|
|
$ |
19,771 |
|
|
|
15,004 |
|
|
|
(55,849 |
) |
|
|
43,361 |
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
286 |
|
|
|
1,003 |
|
Net
income (loss) attributable to common shareholders
|
|
$ |
19,771 |
|
|
|
15,004 |
|
|
|
(56,135 |
) |
|
|
42,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
41,762,451 |
|
|
|
34,217,379 |
|
|
|
37,432,242 |
|
|
|
32,627,905 |
|
Basic
income (loss) per common share before dividends
on unvested common stock
|
|
$ |
0.47 |
|
|
|
0.44 |
|
|
|
(1.49 |
) |
|
|
1.33 |
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
(0.01 |
) |
|
|
(0.03 |
) |
Basic
earnings (loss) per common share
|
|
$ |
0.47 |
|
|
|
0.44 |
|
|
|
(1.50 |
) |
|
|
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
43,299,868 |
|
|
|
35,035,602 |
|
|
|
37,432,242 |
|
|
|
33,965,981 |
|
Diluted
income (loss) per common share before dividends
on unvested common stock
|
|
$ |
0.46 |
|
|
|
0.43 |
|
|
|
(1.49 |
) |
|
|
1.28 |
|
Dividends
on unvested common stock, net of tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
(0.01 |
) |
|
|
(0.03 |
) |
Diluted
earnings (loss) per common share
|
|
$ |
0.46 |
|
|
|
0.43 |
|
|
|
(1.50 |
) |
|
|
1.25 |
|
(10)
Comprehensive Income (Loss)
For the
three and nine months ended September 30, 2009 and 2008, comprehensive income
(loss) was as follows ($ in thousands):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
19,859 |
|
|
|
15,175 |
|
|
|
(55,559 |
) |
|
|
45,199 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
32,018 |
|
|
|
(127,305 |
) |
|
|
88,908 |
|
|
|
(75,760 |
) |
Comprehensive
income (loss)
|
|
|
51,877 |
|
|
|
(112,130 |
) |
|
|
33,349 |
|
|
|
(30,561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to noncontrolling interest
|
|
|
88 |
|
|
|
171 |
|
|
|
290 |
|
|
|
1,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) attributable to the Company
|
|
$ |
51,789 |
|
|
|
(112,301 |
) |
|
|
33,059 |
|
|
|
(32,399 |
) |
(11)
Debt
As of
September 30, 2009, we had the ability to borrow up to $855.0 million on an
unsecured revolving credit facility and a term loan agreement (together the
“Facilities”), with capacity to borrow up to an additional $58.2 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 225 basis points to LIBOR plus 400 basis points, with a LIBOR
floor of 125 basis points. As of September 30, 2009, our pricing on the
Facilities was 4.25%. 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
September 30, 2009, we had $292.3 million outstanding on the Facilities ($112.3
million on our revolving credit facility and $180.0 million on our term loan
facility). We also had short-term borrowings (including capital lease
obligations and local overdraft facilities) of $57.2 million outstanding at
September 30, 2009, with $48.4 million attributable to local overdraft
facilities.
With
respect to the Facilities, we must maintain a leverage ratio not exceeding 3.75
to 1 through March 2011, at which point the maximum allowable leverage ratio
decreases to 3.50 to 1 through September 2011 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 must maintain certain consolidated net worth requirements
(as defined in the Facilities) and 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 September 30, 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
nine months of 2009, and none were outstanding as of September 30,
2009.
The
effective interest rate on our debt was 4.1% in the third quarter of 2009,
compared with 4.7% in the third quarter of 2008.
(12)
Restructuring
In the
first nine months of 2009, we recognized $36.6 million of restructuring charges,
consisting of $28.8 million of employee termination costs, $6.0 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, and $1.8 million of lease exit
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 $30.8
million in the first nine months of 2009, and have $7.4 million of accrued
employee termination costs in Accrued compensation on our consolidated balance
sheet at September 30, 2009.
(13)
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.
(14)
Income Taxes
The
effective tax rate for the first nine months 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.
(15)
Subsequent Events
We have
evaluated events and transactions that have occurred subsequent to September 30,
2009 through November 5, 2009, the date of issuance of our consolidated
financial statements, for potential recognition or disclosure in these
consolidated financial statements.
The
Company announced on October 27, 2009 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 Tuesday, December 15, 2009, to holders of record at the
close of business on Friday, November 13, 2009. A dividend-equivalent in the
same per share amount will also be paid simultaneously on outstanding but
unvested shares of restricted stock units granted under the Company’s Stock
Award and Incentive Plan.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the three
and nine months ended September 30, 2009, included herein, and Jones Lang
LaSalle’s audited consolidated financial statements and notes thereto for the
fiscal year ended December 31, 2008, which are included in our 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).
You should also refer to Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contained in our 2008 Annual
Report on Form 10-K.
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 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
review property and equipment owned or under capital lease 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 nine
months of 2009 or 2008.
Goodwill — Goodwill is not
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, to those reporting units as of the
date of evaluation. 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 2009 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 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, as our book value also
exceeded our market capitalization on March 31, 2009. There were no changes in
our conclusion, in either period, that goodwill is not impaired, 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.
In June
2009, we completed a public offering of our common stock at a price which
indicated that our market capitalization exceeds our book value. On September
30, 2009, our market capitalization also exceeded our book value. With no
significant changes in our long-term outlook of annual profitability and EBITDA
generation, we continue to maintain our conclusion that goodwill is not
impaired. However, it is possible our determination that goodwill for a
reporting unit is not impaired could change in the future if economic conditions
deteriorate 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 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
nine months of 2009. The results of these impairment analyses were primarily
responsible for the recognition of $47.6 million of non-cash charges in the
first nine months 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. We
recognized $0.9 million of impairment charges in the first nine 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 consolidated financial statements, we
accrue for most incentive compensation based on (i) a percentage of compensation
costs and (ii) 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
|
|
$ |
14.3 |
|
|
|
24.3 |
|
Change
in estimated deferred compensation in the first quarter of the following year
|
|
|
(1.2 |
) |
|
|
(1.0 |
) |
The table
below sets forth the amortization expense related to the stock ownership program
for the three and nine months ended September 30, 2009 and 2008 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
compensation expense amortization for prior year programs
|
|
$ |
3.6 |
|
|
|
2.5 |
|
|
|
18.0 |
|
|
|
17.1 |
|
Current
deferral of compensation net of related
amortization
|
|
|
(2.6 |
) |
|
|
(3.0 |
) |
|
|
(6.1 |
) |
|
|
(12.9 |
) |
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 balance for the program related to 2009 is $4.5
million at September 30, 2009.
The table
below sets out certain information related to the cost of this program for the
three and nine months ended September 30, 2009 and 2008 ($ in
millions):
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
to Company
|
|
$ |
6.1 |
|
|
|
4.6 |
|
|
|
18.5 |
|
|
|
14.0 |
|
Employee
contributions
|
|
|
1.5 |
|
|
|
1.2 |
|
|
|
4.6 |
|
|
|
3.5 |
|
Adjustment to prior year
reserve
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(2.0 |
) |
Total program cost
|
|
$ |
7.8 |
|
|
|
5.6 |
|
|
|
22.9 |
|
|
|
15.5 |
|
• 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 income through the three months ended September 30, 2009
and 2008 were $4.0 million and $0.9 million, respectively. The
credits taken to income through the nine months ended September 30, 2009 and
2008 were $5.8 million and $2.6 million, respectively.
The
reserves, which can relate to multiple years, were $12.2 million and $12.1
million, as of September 30, 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 when probable and estimable.
The
reserves for professional indemnity insurance claims maintained by our captive
insurance company, which relate to multiple years, were $5.6 million and $6.2
million, net of receivables from third party insurers, as of September 30, 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 criteria for
recognition, 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 due to the mix of our income and the impact of tax
planning activities. For the three and nine month periods ended September 30,
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 (losses) earnings 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 September 30, 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 (losses) earnings from unconsolidated ventures” in the consolidated
statement of earnings after “Operating (loss) income.” However, for segment
reporting we reflect “Equity in (losses) earnings from real estate ventures”
within “Total revenue.” See Note 4 of the notes to consolidated financial
statements for “Equity in (losses) earnings 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
(losses) earnings from real estate ventures” included in segment
revenues.
Three
and Nine Months Ended September 30, 2009 Compared to Three and Nine Months Ended
September 30, 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)
|
|
Three
Months
Ended
September
30, 2009
|
|
|
Three
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
%
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
595.3
|
|
|
$
|
677.1
|
|
|
$
|
(81.8
|
)
|
|
|
(12
|
%)
|
|
|
(9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
380.1
|
|
|
|
449.2
|
|
|
|
(69.1
|
)
|
|
|
(15
|
%)
|
|
|
(12
|
%)
|
Operating,
administrative and other
|
|
|
147.7
|
|
|
|
154.8
|
|
|
|
(7.1
|
)
|
|
|
(5
|
%)
|
|
|
(2
|
%)
|
Depreciation
and amortization
|
|
|
18.7
|
|
|
|
29.2
|
|
|
|
(10.5
|
)
|
|
|
(36
|
%)
|
|
|
(33
|
%)
|
Restructuring
charges
|
|
|
4.2
|
|
|
|
10.4
|
|
|
|
(6.2
|
)
|
|
n.m.
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
550.7
|
|
|
|
643.6
|
|
|
|
(92.9
|
)
|
|
|
(14
|
%)
|
|
|
(12
|
%)
|
Operating
income
|
|
$
|
44.6
|
|
|
$
|
33.5
|
|
|
$
|
11.1
|
|
|
|
33
|
%
|
|
|
37
|
%
|
($
in millions)
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Nine
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
%
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
1,665.7
|
|
|
$
|
1,900.5
|
|
|
$
|
(234.8
|
)
|
|
|
(12
|
%)
|
|
|
(6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
1,104.0
|
|
|
|
1,259.2
|
|
|
|
(155.2
|
)
|
|
|
(12
|
%)
|
|
|
(6
|
%)
|
Operating,
administrative and other
|
|
|
426.0
|
|
|
|
487.5
|
|
|
|
(61.5
|
)
|
|
|
(13
|
%)
|
|
|
(6
|
%)
|
Depreciation
and amortization
|
|
|
64.6
|
|
|
|
63.9
|
|
|
|
0.7
|
|
|
|
1
|
%
|
|
|
7
|
%
|
Restructuring
charges
|
|
|
36.6
|
|
|
|
10.3
|
|
|
|
26.3
|
|
|
n.m.
|
|
|
n.m.
|
|
Total
operating expenses
|
|
|
1,631.2
|
|
|
|
1,820.9
|
|
|
|
(189.7
|
)
|
|
|
(10
|
%)
|
|
|
(4
|
%)
|
Operating
income
|
|
$
|
34.5
|
|
|
$
|
79.6
|
|
|
$
|
(45.1
|
)
|
|
|
(57
|
%)
|
|
|
(62
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(n.m.
- not meaningful )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
for the third quarter of 2009 was $595 million, a decrease of 12% in U.S.
dollars and 9% in local currency, compared with the second quarter of 2008. The
year-over-year decrease was due to a 14% decrease in transaction services
revenue and a 16% decrease in Investment Management revenue, and partially
off-set by a 2% increase in management services revenue due to continued growth
in Corporate Outsourcing.
Revenue
for the first nine months of 2009 was $1.7 billion, a decrease of 12% in U.S.
dollars and 6% in local currency, compared with the first nine months of 2008.
Weak transaction markets were partially off-set by growth in our Corporate
Outsourcing business and growth in the Americas driven by the Staubach
acquisition.
We have
continued to focus on cost control and have begun to realize the benefits from
the cost reduction actions we have already taken. Excluding Restructuring
charges, operating expenses were $546 million, compared with $633 million in the
third quarter of 2008, a decrease of 14% in U.S. dollars and 11% in local
currency. On a year-to-date basis, operating expenses excluding Restructuring
charges decreased 12% in U.S. dollars and 5% in local currency.
Interest
expense, net of interest income, was $44 million for the first nine months of
2009, a $27 million increase over the net interest expense of $17 million for
the first nine months of 2008. The increase was due primarily to increases in
non-cash interest accrued on deferred business obligations, increased average
borrowing and costs incurred related to amendments to our credit
Facilities.
Equity in
losses from real estate ventures in the first nine months of 2009 were $56
million, compared to losses of $2 million in the first nine months of 2008,
driven by $48 million of non-cash charges, primarily impairments. We determined
that certain real estate investments had become impaired due to further declines
in real estate markets having an adverse impact on rental income assumptions and
forecasted exit capitalization rates.
The
effective tax rate for the first nine months 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.
|
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"). We consider “property management” as services
provided to non-occupying property investors and “facilities management” as a
service provided to owner-occupiers.
The
Investment Management segment provides investment management services to
institutional investors and high-net-worth individuals.
We have
not allocated “Restructuring charges” to the business segments for segment
reporting purposes; therefore, these costs are not included in the discussions
below. Also, for segment reporting we show “Equity in (losses) earnings from
real estate ventures” within our revenue line since it is an integral part of
our Investment Management segment.
Investor
and Occupier Services
Americas
($
in millions)
|
|
Three
Months
Ended
September
30, 2009
|
|
|
Three
Months
Ended
September
30, 2008
|
|
|
Change
|
Revenue
|
|
$
|
238.8
|
|
|
$
|
254.1
|
|
|
$
|
(15.3
|
)
|
|
|
(6
|
%)
|
Operating
expense
|
|
|
209.5
|
|
|
|
237.2
|
|
|
|
(27.7
|
)
|
|
|
(12
|
%)
|
Operating
income
|
|
$
|
29.3
|
|
|
$
|
16.9
|
|
|
$
|
12.4
|
|
|
|
73
|
%
|
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Nine
Months
Ended
September
30, 2008
|
|
|
Change
|
Revenue
|
|
$
|
686.9
|
|
|
$
|
617.8
|
|
|
$
|
69.1
|
|
|
|
11
|
%
|
Operating
expense
|
|
|
643.5
|
|
|
|
590.1
|
|
|
|
53.4
|
|
|
|
9
|
%
|
Operating
income
|
|
$
|
43.4
|
|
|
$
|
27.7
|
|
|
$
|
15.7
|
|
|
|
57
|
%
|
Third-quarter
revenue in the Americas region was $239 million, a decrease of 6% from the prior
year. Revenue for the first nine months of 2009 was $687 million, an
increase of 11% over the first nine months of 2008, primarily as a result of the
Staubach acquisition in the third quarter of 2008.
Transaction
Services revenue decreased 3% in the third quarter, to $130 million, but
increased 25% year to date, to $377 million. Total Leasing revenue increased 23%
in the quarter, to $120 million, up from $98 million in 2008. In the first nine
months of 2009, Leasing revenue increased 53%, to $327
million. Management Services revenue for the third quarter of 2009
decreased 10%, to $105 million, and 1% year-to-date, to $301 million, as revenue
from new Corporate Outsourcing wins was more than offset by reductions in
Project & Development Services with clients remaining cautious about capital
expenditures.
Operating
expenses were $209 million in the third quarter of 2009, a decrease of 12% from
the same period of 2008 despite incurring 10 additional days of cost due to the
inclusion of Staubach for the full third quarter of 2009 compared with a partial
quarter in 2008. Year-to-date operating expenses were $644 million,
an increase of 9% from $590 million in 2008 primarily due to the additional cost
structure from the Staubach acquisition in the third quarter of 2008, which has
impacted all of 2009.
EMEA
($
in millions)
|
|
Three
Months
Ended
September
30, 2009
|
|
|
Three
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
154.2
|
|
|
$
|
208.6
|
|
|
$
|
(54.4
|
)
|
|
|
(26
|
%)
|
|
|
(19
|
%)
|
Operating
expense
|
|
|
158.1
|
|
|
|
202.7
|
|
|
|
(44.6
|
)
|
|
|
(22
|
%)
|
|
|
(14
|
%)
|
Operating
(loss) income
|
|
$
|
(3.9
|
)
|
|
$
|
5.9
|
|
|
$
|
(9.8
|
)
|
|
n.m.
|
|
|
n.m.
|
|
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Nine
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
417.9
|
|
|
$
|
627.7
|
|
|
$
|
(209.8
|
)
|
|
|
(33
|
%)
|
|
|
(22
|
%)
|
Operating
expense
|
|
|
443.9
|
|
|
|
626.5
|
|
|
|
(182.6
|
)
|
|
|
(29
|
%)
|
|
|
(17
|
%)
|
Operating
(loss) income
|
|
$
|
(26.0
|
)
|
|
$
|
1.2
|
|
|
$
|
(27.2
|
)
|
|
n.m.
|
|
|
n.m.
|
|
EMEA’s
third-quarter 2009 revenue was $154 million compared with $209 million in 2008,
a decrease of 26%, 19% in local currency, driven by continued reductions in
transaction volumes across the region. Revenue on a year-to-date
basis was $418 million, compared with $628 million for the first nine months of
2008, a reduction of 33%, 22% in local currency. On a U.S. dollar
basis, the decreases were driven by Capital Markets and Hotels, down $15 million
in the third quarter and $69 million year to date, and Leasing revenue, down $27
million for the quarter and $70 million year to date. Capital Markets and Hotels
revenue was down 26% in local currency for the quarter and 42% on a year-to-date
basis. Leasing revenue was down 37% in local currency for the quarter and 31%
for the first nine months of 2009. Management Services revenue, which
is primarily annuity revenue, increased 2% for the quarter, 10% in local
currency. For the first nine months of 2009, Management Services
revenue was $150 million, down 8% compared with the same period of 2008 but up
7% in local currency.
Operating
expenses were $158 million in the third quarter, $444 million year to date,
decreases of 22% and 29%, respectively, from the prior year. Third
quarter expenses included incentive compensation accruals in the period
reflecting improved seasonal performance in certain businesses despite the
regional loss. In local currency, the quarterly and year-to-date decreases were
14% and 17%, respectively. Cost reductions were the result of
aggressive actions taken across the region.
Asia
Pacific
($
in millions)
|
|
Three
Months
Ended
September
30, 2009
|
|
|
Three
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
136.4
|
|
|
$
|
132.6
|
|
|
$
|
3.8
|
|
|
|
3
|
%
|
|
|
5
|
%
|
Operating
expense
|
|
|
129.2
|
|
|
|
132.6
|
|
|
|
(3.4
|
)
|
|
|
(3
|
%)
|
|
|
(1
|
%)
|
Operating
income
|
|
$
|
7.2
|
|
|
$
|
-
|
|
|
$
|
7.2
|
|
|
n.m.
|
|
|
n.m.
|
|
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Nine
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
360.5
|
|
|
$
|
391.7
|
|
|
$
|
(31.2
|
)
|
|
|
(8
|
%)
|
|
|
(1
|
%)
|
Operating
expense
|
|
|
354.3
|
|
|
|
394.9
|
|
|
|
(40.6
|
)
|
|
|
(10
|
%)
|
|
|
(3
|
%)
|
Operating
income (loss)
|
|
$
|
6.2
|
|
|
$
|
(3.2
|
)
|
|
$
|
9.4
|
|
|
n.m.
|
|
|
n.m.
|
|
Revenue
for the Asia Pacific region was $136 million for the third quarter of 2009,
compared with $133 million for the same period in 2008. On a
year-to-date basis, revenue was $361 million in 2009 compared with $392 million
in 2008. In local currency, revenue was up 5% in quarter and down 1%
year to date compared with 2008.
Management
Services revenue in the region increased to $72 million, a 17% increase from the
third quarter of 2008, 18% in local currency. On a year-to-date basis,
Management Services revenue increased 15%, 22% 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 $62 million for the quarter, a 12% decrease
from 2008, 9% in local currency. Transaction Services revenue decreased 27% for
the first nine months of the year, 20% in local currency, to $151
million. Within Transaction Services revenue, Capital Markets and
Hotels revenue was up 8% in local currency in the quarter but down 10% year to
date. Leasing revenue was down 19% in local currency for the quarter and 25% in
local currency year to date.
Operating
expenses for the region were $129 million for the third quarter, $354 million
for the first nine months of 2009. Operating expenses decreased 3%
for the quarter, 1% in local currency, and 10% year to date, 3% in local
currency. The decreases were achieved despite incremental costs
primarily related to serving more Corporate Outsourcing clients compared with
the same periods of 2008.
Investment
Management
($
in millions)
|
|
Three
Months
Ended
September
30, 2009
|
|
|
Three
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
65.9
|
|
|
$
|
81.2
|
|
|
$
|
(15.3
|
)
|
|
|
(19
|
%)
|
|
|
(16
|
%)
|
Equity
losses
|
|
|
(5.0
|
)
|
|
|
-
|
|
|
|
(5.0
|
)
|
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
60.9
|
|
|
|
81.2
|
|
|
|
(20.3
|
)
|
|
|
(25
|
%)
|
|
|
(22
|
%)
|
Operating
expense
|
|
|
49.5
|
|
|
|
60.7
|
|
|
|
(11.2
|
)
|
|
|
(18
|
%)
|
|
|
(16
|
%)
|
Operating
income
|
|
$
|
11.4
|
|
|
$
|
20.5
|
|
|
$
|
(9.1
|
)
|
|
|
(44
|
%)
|
|
|
(41
|
%)
|
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Nine
Months
Ended
September
30, 2008
|
|
|
Change
in
U.S.
dollars
|
|
Change
in
Local
Currency
|
|
Revenue
|
|
$
|
195.8
|
|
|
$
|
262.7
|
|
|
$
|
(66.9
|
)
|
|
|
(25
|
%)
|
|
|
(20
|
%)
|
Equity
losses
|
|
|
(51.7
|
)
|
|
|
(1.4
|
)
|
|
|
(50.3
|
)
|
|
n.m.
|
|
|
n.m.
|
|
Total
revenue
|
|
|
144.1
|
|
|
|
261.3
|
|
|
|
(117.2
|
)
|
|
|
(45
|
%)
|
|
|
(39
|
%)
|
Operating
expense
|
|
|
152.9
|
|
|
|
199.1
|
|
|
|
(46.2
|
)
|
|
|
(23
|
%)
|
|
|
(18
|
%)
|
Operating
(loss) income
|
|
$
|
(8.8
|
)
|
|
$
|
62.2
|
|
|
$
|
(71.0
|
)
|
|
n.m.
|
|
|
n.m.
|
|
LaSalle
Investment Management’s third-quarter revenue was $61 million, compared with $81
million in the prior year. On a year-to-date basis, revenue was $144 million
compared with $261 million in the first nine months of 2008. Equity losses of $5
million and $52 million, primarily from non-cash charges related to
co-investments, were included in third-quarter and year-to-date 2009 revenue,
respectively. Advisory fees were $61 million in the quarter, down $10 million
from the third quarter of 2008 or 14%, 10% in local currency. Third-quarter 2009
Advisory fees compared favorably with Advisory fees of approximately $60 million
in each of the first and second quarters of 2009 despite valuation decline
impacts and market fee pressures.
The
business recognized $4 million of Incentive fees in the third quarter of 2009 as
a result of liquidating a matured fund, and $12 million in the first nine months
of the year. Asset purchases, a key driver of Transaction fees,
continued to be limited by the cautious view of the market.
LaSalle
Investment Management raised $1.5 billion of equity from clients during the
third quarter of 2009, $3.1 billion year to date, and assets under management
were $37.6 billion.
Consolidated
Cash Flows
Cash
Flows Provided By (Used In) Operating Activities
During
the first nine months of 2009, cash generated from operating activities was $44
million, an increase of $157 million from the $113 million used in operating
activities in the first nine months of 2008. The year-over-year $157 million
increase in cash generated from operating activities was driven by a net $213
million decrease in cash used for working capital, with the most significant
portion of the change due to incentive compensation payments made in 2009 for
2008 performance compared with 2008 incentive compensation payments made for
2007 performance. The decrease in cash used for working capital was partially
offset by less cash provided by earnings. Net income was $45 million for the
nine months ended September 30, 2008 compared to a net loss of $56 million for
the nine months ended September 30, 2009, though a significant portion of this
$101 million decrease was the result of an increase of $54 million in equity
losses.
Cash
Flows Used In Investing Activities
We used
$72 million of cash for investing activities in the first nine months of 2009, a
$320 million decrease from the $392 million used in the first nine months of
2008. The $320 million decrease was due to a $268 million decrease in cash used
for business acquisitions, a $41 million decrease in capital expenditures, and
an $11 million net decrease in cash used for investments in real estate
ventures. In the first nine months of 2009, we used $15 million for business
acquisitions primarily for deferred payments and earn-out payments related to
acquisitions completed in prior years. In the first nine months of 2008 we used
$283 million relative to 15 acquisitions completed in 2008 and a deferred
payment for a 2006 acquisition.
Cash
Flows Provided By Financing Activities
Financing
activities provided $39 million of net cash in the first nine months of 2009
compared with $490 million in the first nine months of 2008, a $451 million
year-over-year decrease. In June 2009, we sold 6,500,000 shares of our common
stock, at a sale price of $35.00 per share in an underwritten secondary public
stock offering, resulting in net proceeds of $218 million. In the first nine
months of 2009, we also made net repayments of $160 million of borrowings under
our credit facilities, a $678 million decrease from the $518 million of net
borrowing under our credit facilities in the first nine months of
2008. Also contributing to the year-over-year increase in cash flow
was a $13 million decrease in dividend payments.
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
$855 million as of September 30, 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, 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.
In June
2009, the Facilities were further amended to (i) increase the maximum allowable
leverage ratio to 3.75 to 1 through March 2011, at which point the maximum
allowable leverage ratio will decrease to 3.50 to 1 through September 2011 and
3.25 to 1 thereafter, (ii) increase the permitted additions to Adjusted EBITDA
for certain non-recurring charges and (iii) modify certain other definitions and
pricing while keeping the unsecured borrowing capacity and the maturity, June 6,
2012, unchanged.
Under the
Facilities, we must maintain 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 must maintain certain consolidated
net worth requirements (as defined in the Facilities) and 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 September 30, 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.
As of
September 30, 2009, pricing on the Facilities was 4.25%. 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 revolving facility will fluctuate
based on our level of borrowing needs. We also have capacity to borrow an
additional $58.2 million under local overdraft facilities.
As of
September 30, 2009, we had $292.3 million outstanding on the Facilities ($112.3
million on our revolving credit facility and $180.0 million on our term loan
facility). The average borrowing rate on the Facilities was 4.1% in the third
quarter of 2009 as compared with an average borrowing rate of 4.7% in the third
quarter of 2008. We also had short-term borrowings (including capital lease
obligations and local overdraft facilities) of $57.2 million outstanding at
September 30, 2009, with $48.4 million attributable to local overdraft
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
nine months of 2009, and none were outstanding as of September 30,
2009.
We
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 continue to prudently manage our balance sheet, by taking
actions such as significantly reducing our capital expenditures and acquisitions
in 2009.
Issuance
of Common Stock
In June
2009, we sold 6,500,000 shares of our common stock, par value $0.01 per share,
at a sale price of $35.00 per share in an underwritten secondary public stock
offering. This public offering was conducted under our shelf registration
statement filed with the SEC. The net proceeds, after the underwriting discount,
commissions and other expenses, of $217.7 million were used to repay outstanding
indebtedness on our unsecured revolving credit facility.
Co-investment
Activity
As of
September 30, 2009, we had total investments in real estate ventures of $157.1
million in approximately 40 separate property or fund
co-investments.
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 vehicles for substantially
all co-investment commitments made through December 31, 2005. LIC I is
fully committed to underlying real estate ventures. At September 30, 2009, our
maximum potential unfunded commitment to LIC I was euro 12.3 million ($18.0
million). LaSalle Investment Company II (“LIC II”), formed in January 2006,
is comprised of two parallel limited partnerships which serve as our investment
vehicles for most new co-investments. At September 30, 2009, LIC II
has unfunded capital commitments for future fundings of co-investments of $282.5
million, of which our 48.78% share is $137.8 million. The $137.8 million
commitment is part of our maximum potential unfunded commitment to LIC II
at September 30, 2009 of $376.8 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. We handle approvals for such activity
consistently with those of the Firm’s co-investment capital. At September 30,
2009, no bridge financing arrangements were outstanding.
As of
September 30, 2009, LIC I maintains a euro 10.0 million ($14.6 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 ($7.0 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 12.3 million ($18.0 million) and to LIC II of
$376.8 million. As of September 30, 2009, LIC I had $0.3 million of outstanding
borrowings on the LIC I Facility, and LIC II had $22.4 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 $8.7 million at September 30, 2009.
We expect
to continue to pursue co-investment opportunities with our real estate
investment 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
$35 million and $40 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 September 30, 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 nine 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.
The
Company paid a cash dividend of $0.10 per share of its common stock 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 per share amount was
paid simultaneously on outstanding but unvested shares of restricted stock units
granted under the Company’s Stock Award and Incentive Plan.
The
Company announced on October 27, 2009 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 Tuesday, December 15, 2009, to holders of record at the
close of business on Friday, November 13, 2009. A dividend-equivalent in the
same per share amount will also 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 nine months of 2009 were $31 million, net, compared
to $72 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. Capital expenditures have decreased
significantly from 2008, as we have completed the implementation of several
global information systems in 2008 and have spent less on capital items related
to acquisition integrations.
In the
first nine months of 2009, we used $15 million in connection with acquisitions,
primarily for deferred payments and earn-out payments related to acquisitions
completed in prior years. 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 $392 million at September 30, 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 September 30, 2009, we had the potential to make
earn-out payments on 16 acquisitions that are subject to the achievement of
certain performance conditions. The maximum amount of the potential earn-out
payments for these acquisitions was $185 million at September 30, 2009. These
amounts will come due at various times over the next five years assuming the
achievement of the applicable performance conditions. In
relation to our 2007 acquisition of Indian real estate services company Trammell
Crow Meghraj (TCM), provisions for payments to be made for the repurchases in
2010 and 2012 of shares exchanged in the third quarter 2008 legal merger of TCM
into the Company’s India operations are based on formulas and independent
valuations such that those payments are not quantifiable at this time; however,
an estimate of the related obligation based on the third quarter 2008 value of
shares exchanged is reflected on our balance sheet within the Minority
shareholder redemption liability.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
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
• Foreign
exchange risks
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 $412 million during the three
months ended September 30, 2009, and the effective interest rate was 4.1%. As of
September 30, 2009, we had $292 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 nine months of
2009, and we had no such agreements outstanding at September 30,
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 59% of our total revenues for the nine months ended
September 30, 2009 and 2008, respectively. Operating in international markets
means that we are exposed to movements in foreign exchange rates, primarily the
euro (14% of revenues for the nine months ended September 30, 2009) and the
British pound (11% of revenues for the nine months ended September 30,
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 September 30, 2009, we had
forward exchange contracts in effect with a gross notional value of $654.3
million ($598.8 million on a net basis) with a fair value gain of $3.3 million.
This carrying gain is offset by a carrying loss in the 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
September 30, 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.
Item
4. Controls and Procedures
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 September 30,
2009 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
Part
II. Other Information
Item
1. Legal Proceedings
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.
Item
5. Other Information
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
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
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 5th day of November,
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)
|
Item
6. Exhibits
Exhibit
|
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
37