NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle Incorporated ("JLL," which may also be referred to as "the Company" or as "we," "us" or "our") for the year ended
December 31, 2015
, which are included in our
2015
Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission ("SEC") and also available on our website (
www.jll.com
), since we have omitted from this quarterly 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 7 and to Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in our
2015
Annual Report on Form 10-K for further discussion of our significant accounting policies and estimates.
Our Condensed Consolidated Financial Statements as of
June 30, 2016
and
December 31, 2015
, and for the three and
six months ended June 30, 2016
and
2015
, are unaudited. In the opinion of management, we have included all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements for these interim periods. We have reclassified certain prior year amounts to conform to the current year presentation, including condensing the comparative information in the Condensed Consolidated Statements of Cash Flows.
Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is the result of a general focus in the real estate industry on completing transactions by calendar year-end, while we recognize certain expenses evenly throughout the year. Our LaSalle Investment Management ("LaSalle") 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 toward the benefit of our clients. Within our Real Estate Services ("RES") segments, revenue from capital markets activities is driven by the size and timing of our clients' transactions and can fluctuate significantly from period to period.
A significant portion of our compensation and benefits expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. This process can result in significant fluctuations in quarterly compensation and benefits expense from period to period. Non-variable operating expenses, which we recognize when incurred during the year, are relatively constant on a quarterly basis.
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, which is based on forecasted income by country and expected enacted tax rates. Changes in the geographic mix of income can impact our estimated effective tax rate.
As a result of the items mentioned above, the results for the periods ended
June 30, 2016
and
2015
are not fully indicative of what our results will be for the full fiscal year.
|
|
2.
|
NEW ACCOUNTING STANDARDS
|
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13,
Financial Instruments - Credit Losses (Topic 326)
, which creates a new framework to evaluate financial instruments, such as trade receivables, for expected credit losses. This new framework replaces the existing incurred loss approach and is expected to result in more timely recognition of credit losses. ASU No. 2016-13 is effective for annual and interim periods beginning after December 15, 2019 and early adoption is not permitted until years beginning after December 15, 2018. We are evaluating the effect this guidance will have on our financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies various aspects of the accounting for share-based payment transactions. This includes the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the presentation of related amounts within the statement of cash flows. The ASU is effective for annual and interim periods beginning after December 15, 2016, with early adoption permitted. We do not believe this guidance will have a material impact on our financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies the implementation guidance on principal versus agent considerations and together with ASU No. 2014-09 (collectively the "ASUs"), as discussed below, amends and comprises ASC Topic 606,
Revenue from Contracts with Customers
. In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. These ASUs, and other related ASUs, will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles ("U.S. GAAP") when effective. The final standard is effective for annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted for annual and interim periods in fiscal years beginning after December 15, 2016. We are evaluating the effect these ASUs will have on our financial statements and related disclosures. We have not yet selected a transition method.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which increases transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet as well as requiring the disclosure of key information about leasing arrangements. The ASU is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We are evaluating the effect the guidance will have on our financial statements and related disclosures.
In November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2016, with early adoption permitted. We adopted this ASU effective January 1, 2016 as a change in accounting principle. We elected prospective application and, therefore, we did not retrospectively adjust the comparative balance sheet information. Had we adopted ASU No. 2015-17 retrospectively, our total Deferred tax assets and total Deferred tax liabilities would have each decreased
$41.3 million
, as of
December 31, 2015
. The adoption of ASU No. 2015-17 had no impact on our condensed consolidated statements of comprehensive income or cash flows.
In April 2015, the FASB issued ASU No. 2015-03,
Interest - Imputation of Interest
, which simplifies the presentation of debt issuance costs by requiring them to be presented as a direct deduction from the related debt liability on the balance sheet, consistent with the treatment of debt discounts. In August 2015, the FASB issued ASU No. 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
, which permits the presentation of debt issuance costs associated to line-of-credit arrangements as an asset, regardless of whether there are any outstanding borrowings on the arrangement. ASU No. 2015-03 is effective for annual and interim periods in fiscal years beginning after December 15, 2015, and requires retrospective application, and ASU No. 2015-15 is effective upon the adoption of ASU No. 2015-03. We adopted ASU No. 2015-03 (and therefore ASU No. 2015-15) effective January 1, 2016 as a change in accounting principle. As retrospective application is required, we adjusted the comparative balance sheet information; we have reclassified debt issuance costs of
$18.1 million
as of December 31, 2015 from Other assets to Credit facility (
$15.4 million
) and Long-term senior notes (
$2.7 million
). The adoption of ASU No. 2015-03 had no impact on our condensed consolidated statements of comprehensive income or cash flows.
In February 2015, the FASB issued ASU No. 2015-02,
Amendments to the Consolidation Analysis
, which improves targeted areas of the consolidation guidance and reduces the number of consolidation models. The amendments in the ASU are effective for annual and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. We adopted ASU No. 2015-02 effective January 1, 2016 as a change in accounting principle and elected modified retrospective application. The adoption of ASU No. 2015-02 had no material impact on our Condensed Consolidated Financial Statements.
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 leasing services and capital markets services as revenue when we provide the related services, unless future contingencies exist. We recognize advisory and management fees related to property and facility management services, valuation services, corporate property services, consulting services and investment management in the period in which we perform the related services. We recognize incentive fees in the period earned, based on the performance of funds' investments, contractual benchmarks and other contractual formulas. If future contingencies exist, we defer recognition of the related revenue until the respective contingencies have been satisfied.
We recognize project and development management and construction management fees by applying the percentage of completion method of accounting. We use the costs incurred to total estimated costs method to determine the extent of progress towards completion.
Gross and Net Accounting
We follow the guidance of the FASB's Accounting Standards Codification ("ASC") 605-45,
Principal and Agent Considerations
, when accounting for reimbursements received from clients. 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 contract. Accordingly, we report a contract that provides for fixed fees, fully inclusive of all personnel and other recoverable expenses, on a gross basis. When accounting on a gross basis, our reported revenue comprises the entire amount billed to our client and our reported expenses include all costs associated with the client. Certain contractual arrangements in our project and development services, including fit-out business activities and our facility management services, tend to have characteristics that result in accounting on a gross basis. In Note 4, Business Segments, for client assignments in property and facility management and in project and development services accounted for on a gross basis, we identify the reimbursable gross contract costs, including vendor and subcontractor costs ("gross contract costs"), and present separately their impact on both revenue and operating expense in our RES segments. We exclude these gross contract costs from revenue and operating expenses in determining "fee revenue" and "fee-based operating expenses" in our segment presentation.
We account for a contract on a net basis when the fee structure is comprised of at least two distinct elements, namely (1) a fixed management fee and (2) 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 revenue 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 JLL is generally completed simultaneously with payment of payroll or soon thereafter;
|
|
|
•
|
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 and JLL bears little or no credit risk; and
|
|
|
•
|
JLL generally earns little to no margin on the reimbursement aspect of the arrangement, obtaining reimbursement only for actual costs incurred.
|
We account for the majority of our service contracts on a net basis. The presentation of expenses pursuant to these arrangements under either a gross or net basis has no impact on operating income, net income or cash flows.
Contracts accounted for on a gross basis resulted in certain costs reflected in both revenue and operating expenses (gross contract costs) of
$258.2 million
and
$191.7 million
for the
three months ended June 30, 2016
and
2015
, respectively, and
$477.5 million
and
$366.1 million
for the
six months ended June 30, 2016
and
2015
, respectively.
We manage and report our operations as four business segments:
The three geographic regions of RES including:
(1) Americas,
(2) Europe, Middle East and Africa ("EMEA"), and
(3) Asia Pacific;
and
(4) LaSalle, which offers investment management services on a global basis.
Each geographic region offers our full range of Real Estate Services, including agency leasing and tenant representation, capital markets and hotels, property management, facilities management, project and development management, energy management and sustainability, construction management, and advisory, consulting and valuation services. We define "property management" to mean services we provide to non-occupying property investors, "facilities management" means services we provide to owner-occupiers. LaSalle provides investment management services to institutional investors and high-net-worth individuals.
Operating income represents total revenue less direct and allocated indirect expenses. We allocate all indirect expenses to our segments, 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, which we allocate to the business segments based on the budgeted operating expenses of each segment.
For segment reporting, we present revenue net of gross contract costs in our RES segments. Excluding these costs from revenue and expenses results in a "net" presentation of "fee revenue" and "fee-based operating expenses" that we believe more accurately reflects how we manage our expense base and operating margins. See Note 3 for additional information on our gross and net accounting policies. For segment reporting, we present Equity earnings from real estate ventures within total segment revenue, since the related activity is an integral part of LaSalle. Finally, our measure of segment results excludes Restructuring and acquisition charges.
The Chief Operating Decision Maker of JLL measures the segment results net of gross contract costs, inclusive of Equity earnings from real estate ventures, and excluding Restructuring and acquisition charges. We define the Chief Operating Decision Maker collectively as our Global Executive Board, which is comprised of our Global Chief Executive Officer, Global Chief Financial Officer, the Chief Executive Officers of each of our four business segments, and the Chair of the Global Corporate Solutions Board.
Summarized financial information by business segment is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(in millions)
|
2016
|
2015
|
2016
|
2015
|
Real Estate Services
|
|
|
|
|
Americas
|
|
|
|
|
Revenue
|
$
|
672.9
|
|
597.5
|
|
$
|
1,276.4
|
|
1,151.7
|
|
Equity earnings
|
0.4
|
|
0.5
|
|
0.7
|
|
0.9
|
|
Total segment revenue
|
673.3
|
|
598.0
|
|
1,277.1
|
|
1,152.6
|
|
Gross contract costs
|
(43.4
|
)
|
(52.9
|
)
|
(92.2
|
)
|
(105.9
|
)
|
Total segment fee revenue
|
629.9
|
|
545.1
|
|
1,184.9
|
|
1,046.7
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Compensation, operating and administrative expenses
|
607.4
|
|
536.7
|
|
1,162.0
|
|
1,040.3
|
|
Depreciation and amortization
|
18.4
|
|
15.3
|
|
37.3
|
|
30.9
|
|
Total segment operating expenses
|
625.8
|
|
552.0
|
|
1,199.3
|
|
1,071.2
|
|
Gross contract costs
|
(43.4
|
)
|
(52.9
|
)
|
(92.2
|
)
|
(105.9
|
)
|
Total fee-based segment operating expenses
|
582.4
|
|
499.1
|
|
1,107.1
|
|
965.3
|
|
Operating income
|
$
|
47.5
|
|
46.0
|
|
$
|
77.8
|
|
81.4
|
|
|
|
|
|
|
EMEA
|
|
|
|
|
Revenue
|
$
|
481.3
|
|
416.3
|
|
$
|
850.7
|
|
742.0
|
|
Equity earnings (losses)
|
—
|
|
1.1
|
|
(0.1
|
)
|
0.8
|
|
Total segment revenue
|
481.3
|
|
417.4
|
|
850.6
|
|
742.8
|
|
Gross contract costs
|
(148.2
|
)
|
(90.1
|
)
|
(261.1
|
)
|
(161.9
|
)
|
Total segment fee revenue
|
333.1
|
|
327.3
|
|
589.5
|
|
580.9
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Compensation, operating and administrative expenses
|
453.1
|
|
379.1
|
|
826.8
|
|
702.2
|
|
Depreciation and amortization
|
8.2
|
|
6.1
|
|
15.8
|
|
11.3
|
|
Total segment operating expenses
|
461.3
|
|
385.2
|
|
842.6
|
|
713.5
|
|
Gross contract costs
|
(148.2
|
)
|
(90.1
|
)
|
(261.1
|
)
|
(161.9
|
)
|
Total fee-based segment operating expenses
|
313.1
|
|
295.1
|
|
581.5
|
|
551.6
|
|
Operating income
|
$
|
20.0
|
|
32.2
|
|
$
|
8.0
|
|
29.3
|
|
Continued: Summarized financial information by business segment is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(in millions)
|
2016
|
2015
|
2016
|
2015
|
Real Estate Services
|
|
|
|
|
Asia Pacific
|
|
|
|
|
Revenue
|
$
|
322.4
|
|
279.6
|
|
$
|
585.8
|
|
517.3
|
|
Equity (losses) earnings
|
(0.1
|
)
|
0.1
|
|
—
|
|
—
|
|
Total segment revenue
|
322.3
|
|
279.7
|
|
585.8
|
|
517.3
|
|
Gross contract costs
|
(66.6
|
)
|
(48.7
|
)
|
(124.2
|
)
|
(98.3
|
)
|
Total segment fee revenue
|
255.7
|
|
231.0
|
|
461.6
|
|
419.0
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Compensation, operating and administrative expenses
|
299.9
|
|
259.9
|
|
561.4
|
|
489.5
|
|
Depreciation and amortization
|
4.1
|
|
3.6
|
|
8.2
|
|
7.2
|
|
Total segment operating expenses
|
304.0
|
|
263.5
|
|
569.6
|
|
496.7
|
|
Gross contract costs
|
(66.6
|
)
|
(48.7
|
)
|
(124.2
|
)
|
(98.3
|
)
|
Total fee-based segment operating expenses
|
237.4
|
|
214.8
|
|
445.4
|
|
398.4
|
|
Operating income
|
$
|
18.3
|
|
16.2
|
|
$
|
16.2
|
|
20.6
|
|
|
|
|
|
|
LaSalle
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
127.0
|
|
80.1
|
|
$
|
227.5
|
|
166.0
|
|
Equity earnings
|
8.9
|
|
25.4
|
|
21.6
|
|
36.8
|
|
Total segment revenue
|
135.9
|
|
105.5
|
|
249.1
|
|
202.8
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Compensation, operating and administrative expenses
|
87.6
|
|
67.5
|
|
166.4
|
|
136.4
|
|
Depreciation and amortization
|
0.7
|
|
0.5
|
|
1.3
|
|
1.0
|
|
Total segment operating expenses
|
88.3
|
|
68.0
|
|
167.7
|
|
137.4
|
|
Operating income
|
$
|
47.6
|
|
37.5
|
|
$
|
81.4
|
|
65.4
|
|
|
|
|
|
|
Segment Reconciling Items
|
|
|
|
|
|
|
|
|
Total segment revenue
|
$
|
1,612.8
|
|
1,400.6
|
|
$
|
2,962.6
|
|
2,615.5
|
|
Reclassification of equity earnings
|
9.2
|
|
27.1
|
|
22.2
|
|
38.5
|
|
Total revenue
|
1,603.6
|
|
1,373.5
|
|
2,940.4
|
|
2,577.0
|
|
Total segment operating expenses before restructuring and acquisition charges
|
1,479.4
|
|
1,268.7
|
|
2,779.2
|
|
2,418.8
|
|
Operating income before restructuring and acquisition charges
|
124.2
|
|
104.8
|
|
161.2
|
|
158.2
|
|
Restructuring and acquisition charges
|
10.3
|
|
1.8
|
|
17.9
|
|
2.6
|
|
Operating income
|
$
|
113.9
|
|
103.0
|
|
$
|
143.3
|
|
155.6
|
|
|
|
5.
|
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
|
2016 Business Combinations Activity
During the
six months ended June 30, 2016
, we completed
16
new acquisitions, as presented in the table below. These acquisitions reflect continued expansion of our annuity businesses while also more broadly growing scale in key regional markets across all business lines.
|
|
|
|
Acquired Company
|
Country
|
Service Line
|
Bill Goold Realty
|
Canada
|
Capital Markets & Hotels
|
Dazheng
|
China
|
Advisory, Consulting and Other
|
Procofin
|
Finland
|
Project & Development Services
|
CTH
|
France
|
Project & Development Services
|
Véronique Nocquet
|
France
|
Leasing
|
ACREST
|
Germany
|
Property & Facility Management
|
Morii Appraisal and Investment Consulting
|
Japan
|
Advisory, Consulting and Other
|
Cobertura SA
|
Portugal
|
Capital Markets & Hotels
|
Trussard Property Consultants
|
South Africa
|
Leasing
|
Big Red Rooster
|
United States
|
Project & Development Services
|
Colliers Baltimore
|
United States
|
Leasing/Property & Facility Management
|
Harry K. Moore
|
United States
|
Leasing
|
Huntley, Mullaney, Spargo & Sullivan, Inc.
|
United States
|
Capital Markets & Hotels
|
Merritt & Harris
|
United States
|
Project & Development Services
|
Strategic Advisory Group
|
United States
|
Advisory, Consulting and Other
|
Washington Partners
|
United States
|
Leasing
|
Aggregate terms of these acquisitions included: (1) cash paid at closing of
$93.0 million
, (2) guaranteed deferred consideration of
$29.4 million
subject only to the passage of time, and (3) contingent earn-out consideration of
$47.2 million
, which we will pay upon satisfaction of certain performance conditions and which we have recorded at their respective acquisition date fair value.
A preliminary allocation of this purchase consideration resulted in goodwill of
$143.8 million
, identifiable intangibles of
$20.3 million
, and other net assets (acquired assets less assumed liabilities) of
$5.5 million
. As of
June 30, 2016
, we have not completed our analysis to assign fair values to all the identifiable intangible and tangible assets acquired and, therefore, we may further refine the purchase price allocations for our 2016 acquisitions during their open measurement periods.
During the
six months ended June 30, 2016
, we paid
$30.6 million
for deferred business acquisition and earn-out obligations for acquisitions completed in prior years. We also paid
$2.8 million
to acquire a portion of the redeemable noncontrolling interest related to our 2014 acquisition of Tenzing AB, a Swedish real estate services provider.
On June 6, 2016, we announced we had reached a definitive agreement to acquire Integral UK Ltd., a leading provider of mechanical and electrical property maintenance in the United Kingdom ("UK"). The acquisition will make JLL one of the largest mobile engineering services providers for property worldwide and will strengthen our ability to self-perform property maintenance for clients across EMEA, adding to the already strong base of transactional services. Refer to additional discussion on the closing of the acquisition in Note 14, Subsequent Events.
2015 Business Combination Activity
During the
six months ended June 30, 2016
, we made adjustments to our preliminary allocation of the purchase consideration for certain acquisitions completed in 2015. These adjustments resulted in an
$8.7 million
increase to goodwill and related decreases of
$4.5 million
and
$4.2 million
to identifiable intangibles and other net assets acquired (assets less acquired liabilities), respectively. As of
June 30, 2016
, we have not completed our analysis to assign fair values to all the identifiable intangible and tangible assets acquired and, therefore, we may further refine the purchase price allocations for our 2015 acquisitions with open measurement periods.
Earn-Out Payments
As of
June 30, 2016
, we had the potential to make a maximum of
$301.4 million
(undiscounted) in earn-out payments on
43
completed acquisitions, subject to the achievement of certain performance criteria. We accrued
$169.6 million
, representing the fair value of these obligations as of
June 30, 2016
, which we include in Other current and Other long-term liabilities within our Condensed Consolidated Balance Sheet. Assuming the achievement of the applicable performance criteria, we anticipate making these earn-out payments over the next seven years.
As of
December 31, 2015
, we had the potential to make a maximum of
$230.4 million
(undiscounted) in earn-out payments on
28
completed acquisitions, subject to the achievement of certain performance criteria. We accrued
$127.3 million
, representing the fair value of these obligations as of
December 31, 2015
, which is included in Other current and Other long-term liabilities within our Condensed Consolidated Balance Sheet.
Goodwill and Other Intangible Assets
Significant portions of our goodwill and unamortized intangibles are denominated in currencies other than the U.S. dollar, which means a portion of the movements in the reported book value of these balances is attributable to movements in foreign currency exchange rates. The tables below detail the foreign exchange impact on our goodwill and intangible balances. Goodwill and unamortized intangibles of
$2,496.4 million
as of
June 30, 2016
consisted of: (1) goodwill of
$2,262.7 million
with indefinite useful lives that are not amortized, (2) identifiable intangibles of
$220.8 million
amortized over their remaining finite useful lives, and (3)
$12.9 million
of identifiable intangibles with indefinite useful lives that are not amortized.
The following tables detail, by reporting segment, movements in goodwill with indefinite useful lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
|
|
|
(in millions)
|
Americas
|
EMEA
|
Asia Pacific
|
LaSalle
|
Consolidated
|
Balance as of December 31, 2015
|
$
|
1,161.1
|
|
696.2
|
|
266.6
|
|
17.6
|
|
2,141.5
|
|
Additions, net of adjustments
|
102.7
|
|
36.6
|
|
13.2
|
|
—
|
|
152.5
|
|
Impact of exchange rate movements
|
0.9
|
|
(34.7
|
)
|
3.6
|
|
(1.1
|
)
|
(31.3
|
)
|
Balance as of June 30, 2016
|
$
|
1,264.7
|
|
698.1
|
|
283.4
|
|
16.5
|
|
2,262.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
|
|
|
(in millions)
|
Americas
|
EMEA
|
Asia Pacific
|
LaSalle
|
Consolidated
|
Balance as of December 31, 2014
|
$
|
1,008.3
|
|
650.4
|
|
230.8
|
|
18.4
|
|
1,907.9
|
|
Additions, net of adjustments
|
10.0
|
|
15.3
|
|
18.7
|
|
—
|
|
44.0
|
|
Impact of exchange rate movements
|
(0.6
|
)
|
(14.1
|
)
|
(4.0
|
)
|
0.1
|
|
(18.6
|
)
|
Balance as of June 30, 2015
|
$
|
1,017.7
|
|
651.6
|
|
245.5
|
|
18.5
|
|
1,933.3
|
|
The following tables detail, by reporting segment, movements in the gross carrying amount and accumulated amortization of our identifiable intangibles.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
|
|
|
(in millions)
|
Americas
|
EMEA
|
Asia Pacific
|
LaSalle
|
Consolidated
|
Gross Book Value
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
297.1
|
|
48.5
|
|
14.3
|
|
6.3
|
|
366.2
|
|
Additions, net of adjustments
|
19.3
|
|
6.6
|
|
1.2
|
|
—
|
|
27.1
|
|
Impact of exchange rate movements
|
(0.2
|
)
|
(3.3
|
)
|
0.3
|
|
0.2
|
|
(3.0
|
)
|
Balance as of June 30, 2016
|
$
|
316.2
|
|
51.8
|
|
15.8
|
|
6.5
|
|
390.3
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
(97.0
|
)
|
(32.6
|
)
|
(9.3
|
)
|
(0.1
|
)
|
(139.0
|
)
|
Amortization, net
|
(15.6
|
)
|
(4.0
|
)
|
(0.7
|
)
|
—
|
|
(20.3
|
)
|
Impact of exchange rate movements
|
0.3
|
|
2.6
|
|
(0.2
|
)
|
—
|
|
2.7
|
|
Balance as of June 30, 2016
|
$
|
(112.3
|
)
|
(34.0
|
)
|
(10.2
|
)
|
(0.1
|
)
|
(156.6
|
)
|
|
|
|
|
|
|
Net book value as of June 30, 2016
|
$
|
203.9
|
|
17.8
|
|
5.6
|
|
6.4
|
|
233.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Services
|
|
|
(in millions)
|
Americas
|
EMEA
|
Asia Pacific
|
LaSalle
|
Consolidated
|
Gross Book Value
|
|
|
|
|
|
Balance as of December 31, 2014
|
$
|
103.4
|
|
43.8
|
|
9.5
|
|
7.0
|
|
163.7
|
|
Additions, net of adjustments
|
2.3
|
|
0.7
|
|
1.9
|
|
—
|
|
4.9
|
|
Impact of exchange rate movements
|
—
|
|
(0.4
|
)
|
(0.2
|
)
|
(0.2
|
)
|
(0.8
|
)
|
Balance as of June 30, 2015
|
$
|
105.7
|
|
44.1
|
|
11.2
|
|
6.8
|
|
167.8
|
|
|
|
|
|
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
$
|
(84.9
|
)
|
(31.0
|
)
|
(8.9
|
)
|
(0.1
|
)
|
(124.9
|
)
|
Amortization, net
|
(3.4
|
)
|
(1.3
|
)
|
(0.2
|
)
|
—
|
|
(4.9
|
)
|
Impact of exchange rate movements
|
—
|
|
0.3
|
|
0.1
|
|
—
|
|
0.4
|
|
Balance as of June 30, 2015
|
$
|
(88.3
|
)
|
(32.0
|
)
|
(9.0
|
)
|
(0.1
|
)
|
(129.4
|
)
|
|
|
|
|
|
|
Net book value as of June 30, 2015
|
$
|
17.4
|
|
12.1
|
|
2.2
|
|
6.7
|
|
38.4
|
|
We amortize our identifiable intangible assets with finite lives on a straight-line basis over their useful lives. The remaining estimated future amortization expense by year as of
June 30, 2016
is presented in the following table.
|
|
|
|
|
(in millions)
|
|
2016 (6 months)
|
$
|
23.2
|
|
2017
|
41.4
|
|
2018
|
37.4
|
|
2019
|
31.2
|
|
2020
|
25.6
|
|
2021
|
16.9
|
|
Thereafter
|
45.1
|
|
Total
|
$
|
220.8
|
|
|
|
6.
|
INVESTMENTS IN REAL ESTATE VENTURES
|
As of
June 30, 2016
and
December 31, 2015
, we had Investments in real estate ventures of
$357.8 million
and
$311.5 million
, respectively.
Approximately 60% of our investments are direct co-investments in
51
separate property or commingled funds for which we also have an advisory agreement. Our investment ownership percentages in these funds generally range from less than
1%
to
15%
. The remaining
40%
of our Investments in real estate ventures as of
June 30, 2016
were attributable to investment vehicles that use our capital and outside capital primarily provided by institutional investors to invest in certain real estate ventures that own and operate real estate. Of our investments attributable to investment vehicles, the majority was invested in LaSalle Investment Company II ("LIC II"), in which we held an effective ownership interest of
48.78%
.
Typically, our investments in real estate ventures are not redeemable until the earlier of the disposition of the underlying real estate investments or the end of the fund's life, which is generally five to seven years.
As of
June 30, 2016
, LIC II had unfunded capital commitments to underlying ventures of
$72.5 million
and a
$10.0 million
revolving credit facility (the "LIC II Facility"), principally for working capital needs. LIC II's exposure to the liabilities and losses of the underlying real estate ventures in which it has invested is limited to existing capital contributions and remaining unfunded capital commitments. Considering our proportionate share of LIC II's commitments to underlying funds and our exposure to fund our proportionate share of the then outstanding balance on the LIC II facility, our maximum potential unfunded commitment to LIC II was
$69.9 million
as of
June 30, 2016
. We expect LIC II to draw down on our commitments over the next
three
years to satisfy its existing commitments to underlying real estate ventures.
The following table summarizes the above discussion relative to LIC II:
|
|
|
|
|
($ in millions)
|
June 30, 2016
|
Our effective ownership interest in co-investment vehicle
|
48.78
|
%
|
Our maximum potential unfunded commitments in LIC II
|
$
|
69.9
|
|
Our share of unfunded capital commitments to underlying funds
|
35.4
|
|
Our share of exposure on outstanding borrowings
|
3.6
|
|
Our maximum exposure, assuming facility is fully drawn
|
4.9
|
|
Exclusive of our LIC II commitment structure, we have potential unfunded commitments to other similar investment vehicles or direct investments, the aggregate maximum of which is
$97.1 million
as of
June 30, 2016
.
We evaluate our less-than-wholly-owned investments to determine whether the underlying entities are classified as variable interest entities ("VIEs"); we assess each identified VIE to determine whether we are the primary beneficiary. We have determined that we are the primary beneficiary of certain VIEs and accordingly, we have consolidated such entities. The assets of the consolidated VIEs are available only for the settlement of the obligations of the respective entities and the mortgage loans of the consolidated VIEs are non-recourse to JLL.
Summarized financial information for our consolidated VIEs is presented in the following tables.
|
|
|
|
|
|
|
(in millions)
|
June 30, 2016
|
December 31, 2015
|
Property and equipment, net
|
$
|
13.9
|
|
32.6
|
|
Investment in real estate venture
|
7.0
|
|
6.6
|
|
Other assets
|
43.2
|
|
4.9
|
|
Total assets
|
$
|
64.1
|
|
44.1
|
|
Mortgage indebtedness
|
$
|
9.8
|
|
25.8
|
|
Other liabilities
|
0.9
|
|
—
|
|
Total liabilities
|
10.7
|
|
25.8
|
|
Members' equity
|
53.4
|
|
18.3
|
|
Total liabilities and members' equity
|
$
|
64.1
|
|
44.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
(in millions)
|
2016
|
2015
|
2016
|
2015
|
Revenue
|
$
|
1.1
|
|
1.3
|
|
$
|
3.0
|
|
2.4
|
|
Operating and other expenses
|
(0.1
|
)
|
(0.9
|
)
|
(2.0
|
)
|
(1.8
|
)
|
Gain on sale of investment
|
13.3
|
|
—
|
|
13.3
|
|
1.3
|
|
Net income
|
$
|
14.3
|
|
0.4
|
|
$
|
14.3
|
|
1.9
|
|
We allocate the members' equity and net income of the consolidated VIEs to the noncontrolling interest holders as Noncontrolling interest on our Condensed Consolidated Balance Sheets and as Net income attributable to noncontrolling interest in our Condensed Consolidated Statements of Comprehensive Income, respectively.
Impairment
We evaluate our investments in real estate ventures accounted for under the equity method on a quarterly basis, or as otherwise deemed necessary, for indications we may not be able to recover the carrying value of our investments and whether such investments are other than temporarily impaired. Our assessments consider the existence of impairment indicators in the underlying real estate assets that comprise the majority of our investments. We base such assessments, in regard to both the investment and underlying asset levels, on evaluations of regular updates to future cash flow models and on factors such as operational performance, market conditions, major tenancy matters, legal and environmental concerns, and our ability and intent to hold each investment. When events or changes in circumstances indicate the carrying amount of one of our investments in real estate ventures may be other than temporarily impaired, we consider the likelihood of recoverability of the carrying amount of our investment as well as the estimated fair value and, as applicable, record an impairment charge. Impairment charges to write down the carrying value of the real estate assets underlying our investments, our proportionate share of which we recognize within Equity earnings from real estate ventures, are generally the result of completing discounted cash flow models that primarily rely upon Level 3 inputs to determine fair value. Impairment charges aggregated to
$0.2 million
and
$0.6 million
for the
three months ended June 30, 2016
and
2015
, respectively, and
$0.7 million
and
$4.2 million
for the
six months ended June 30, 2016
and
2015
, respectively.
Fair Value
We report our investments in certain real estate ventures at fair value. For such investments, we increase or decrease our investment each reporting period by the estimated change in fair value, which activity we reflect as gains or losses in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings from real estate ventures. The table below shows the movement in our investments in real estate ventures reported at fair value.
|
|
|
|
|
|
|
(in millions)
|
2016
|
2015
|
Fair value investments as of January 1,
|
$
|
155.2
|
|
113.6
|
|
Investments
|
52.0
|
|
22.7
|
|
Distributions
|
(21.9
|
)
|
(2.7
|
)
|
Change in fair value
|
12.2
|
|
7.0
|
|
Foreign currency translation adjustments, net
|
6.3
|
|
(1.6
|
)
|
Fair value investments as of June 30,
|
$
|
203.8
|
|
139.0
|
|
|
|
7.
|
STOCK-BASED COMPENSATION
|
Restricted Stock Unit Awards
Along with cash-based salaries and performance-based annual cash incentive awards, restricted stock unit awards represent an important element of our compensation program. Restricted stock unit activity is presented in the following tables.
|
|
|
|
|
|
|
|
|
|
Shares
(thousands)
|
|
Weighted Average
Grant Date
Fair Value
|
Weighted Average
Remaining
Contractual Life
(in years)
|
Unvested as of March 31, 2016
|
820.4
|
|
|
$
|
112.83
|
|
2.21
|
Granted
|
49.7
|
|
|
108.75
|
|
|
Vested
|
(9.7
|
)
|
|
92.60
|
|
|
Forfeited
|
(43.1
|
)
|
|
117.52
|
|
|
Unvested as of June 30, 2016
|
817.3
|
|
|
$
|
112.58
|
|
2.00
|
Unvested shares expected to vest as of June 30, 2016
|
796.1
|
|
|
$
|
112.69
|
|
2.00
|
|
|
|
|
|
Unvested as of March 31, 2015
|
819.6
|
|
|
$
|
101.13
|
|
2.35
|
Granted
|
10.2
|
|
|
172.93
|
|
|
Vested
|
(14.3
|
)
|
|
85.82
|
|
|
Forfeited
|
(6.5
|
)
|
|
87.58
|
|
|
Unvested as of June 30, 2015
|
809.0
|
|
|
$
|
102.41
|
|
2.15
|
Unvested shares expected to vest as of June 30, 2015
|
785.9
|
|
|
$
|
102.62
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
Shares
(thousands)
|
|
Weighted Average
Grant Date
Fair Value
|
Weighted Average
Remaining
Contractual Life
(in years)
|
Unvested as of December 31, 2015
|
706.0
|
|
|
$
|
111.78
|
|
2.03
|
Granted
|
250.6
|
|
|
107.45
|
|
|
Vested
|
(94.6
|
)
|
|
91.22
|
|
|
Forfeited
|
(44.7
|
)
|
|
116.50
|
|
|
Unvested as of June 30, 2016
|
817.3
|
|
|
$
|
112.58
|
|
1.99
|
Unvested shares expected to vest as of June 30, 2016
|
796.1
|
|
|
$
|
112.69
|
|
2.00
|
|
|
|
|
|
Unvested as of December 31, 2014
|
745.3
|
|
|
$
|
90.43
|
|
2.38
|
Granted
|
130.3
|
|
|
160.91
|
|
|
Vested
|
(56.1
|
)
|
|
81.94
|
|
|
Forfeited
|
(10.5
|
)
|
|
88.16
|
|
|
Unvested as of June 30, 2015
|
809.0
|
|
|
$
|
102.41
|
|
2.15
|
Unvested shares expected to vest as of June 30, 2015
|
785.9
|
|
|
$
|
102.62
|
|
2.16
|
We determine the fair value of restricted stock units based on the closing market price of the Company's common stock on the grant date. As of
June 30, 2016
, we had
$37.0 million
of unamortized deferred compensation related to unvested restricted stock units, which we anticipate recognizing over varying periods into
2020
.
Shares that vested during the
three months ended June 30, 2016
and
2015
, had grant date fair values of
$0.9 million
and
$1.2 million
, respectively, and
$8.6 million
and
$4.6 million
for the
six months ended June 30, 2016
and
2015
, respectively. Shares we granted during the
three months ended June 30, 2016
and
2015
, had grant date fair values of
$5.4 million
and
$1.8 million
, respectively, and
$26.9 million
and
$21.0 million
for the
six months ended June 30, 2016
and
2015
, respectively.
|
|
8.
|
FAIR VALUE MEASUREMENTS
|
We measure certain assets and liabilities in accordance with ASC 820,
Fair Value Measurements and Disclosures
, which defines fair value as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants on the measurement date. In addition, it establishes a framework for measuring fair value according to the following three-tier fair value hierarchy:
|
|
•
|
Level 1 - Quoted prices for identical assets or liabilities in active markets accessible as of the measurement date;
|
|
|
•
|
Level 2 - Inputs, other than 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 had no transfers among levels of the fair value hierarchy during the three and
six months ended June 30, 2016
and
2015
. Our policy is to recognize transfers at the end of quarterly reporting periods.
Financial Instruments
Our financial instruments include Cash and cash equivalents, Trade receivables, Notes and other receivables, Warehouse receivables, restricted cash, Accounts payable, Short-term borrowings, Warehouse facility, Credit facility, Long-term senior notes and foreign currency exchange contracts. The carrying amounts of Cash and cash equivalents, Trade receivables, Notes and other receivables, Warehouse receivables, restricted cash, Accounts payable, and the Warehouse facility approximate their estimated fair values due to the short-term maturity of these instruments. The carrying values of our Credit facility and Short-term borrowings approximate their estimated fair values given the variable interest rate terms and market spreads.
We estimated the fair value of our Long-term senior notes as
$289.0 million
and
$282.0 million
as of
June 30, 2016
and
December 31, 2015
, respectively, using dealer quotes that are Level 2 inputs in the fair value hierarchy. The carrying value of our Long-term senior notes was
$272.5 million
and
$272.3 million
as of
June 30, 2016
and
December 31, 2015
, respectively, and includes debt issuance costs of
$2.5 million
and
$2.7 million
, respectively.
We record Warehouse receivables at the lower of cost or fair value based on the committed purchase price. When applicable, we determine the fair value of Warehouse receivables based on readily observable Level 2 inputs.
Investments in Real Estate Ventures at Fair Value
We report certain direct investments in real estate ventures at fair value. For these fair value investments in real estate ventures, we increase or decrease our investment each reporting period by the change in the fair value of these investments. We report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings from real estate ventures.
We estimate fair value using the NAV per share (or its equivalent) our investees provide. Critical inputs to NAV estimates included valuations of the underlying real estate assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates and asset-specific market borrowing rates. We did not consider adjustments to NAV estimates provided by investees, including adjustments for any restrictions to the transferability of ownership interests embedded within investment agreements to which we are a party, to be necessary based upon (1) our understanding of the methodology utilized and inputs incorporated to estimate NAV at the investee level derived through LaSalle's role as advisor or manager of these ventures, (2) consideration of market demand for the specific types of real estate assets held by each venture, and (3) contemplation of real estate and capital markets conditions in the localities in which these ventures operate. As of
June 30, 2016
and
December 31, 2015
, investments in real estate ventures at fair value were
$203.8 million
and
$155.2 million
, respectively. As these investments are not required to be classified in the fair value hierarchy, they have been excluded from the following table.
Recurring Fair Value Measurements
The following table categorizes by level in the fair value hierarchy the estimated fair value of our assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
(in millions)
|
Level 2
|
Level 3
|
|
Level 2
|
Level 3
|
Assets
|
|
|
|
|
|
Foreign currency forward contracts receivable
|
$
|
14.1
|
|
—
|
|
|
9.5
|
|
—
|
|
Deferred compensation plan assets
|
154.4
|
|
—
|
|
|
134.3
|
|
—
|
|
Total assets at fair value
|
$
|
168.5
|
|
—
|
|
|
143.8
|
|
—
|
|
Liabilities
|
|
|
|
|
|
Foreign currency forward contracts payable
|
$
|
19.1
|
|
—
|
|
|
21.2
|
|
—
|
|
Deferred compensation plan liabilities
|
153.1
|
|
—
|
|
|
129.4
|
|
—
|
|
Earn-out liabilities
|
—
|
|
169.6
|
|
|
—
|
|
127.3
|
|
Total liabilities at fair value
|
$
|
172.2
|
|
169.6
|
|
|
150.6
|
|
127.3
|
|
Foreign Currency Forward Contracts
We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. These contracts are on our Condensed Consolidated Balance Sheets as current assets and current liabilities. We determine the fair values of these contracts based on current market rates. The inputs for these valuations are Level 2 inputs in the fair value hierarchy. As of
June 30, 2016
and
December 31, 2015
, these contracts had a gross notional value of
$2.13 billion
(
$1.21 billion
on a net basis) and
$2.28 billion
(
$1.26 billion
on a net basis), respectively.
The revaluations of our foreign currency forward contracts resulted in a net loss of
$5.0 million
and a net gain of
$3.6 million
as of
June 30, 2016
and
2015
, respectively. We recognize gains and losses from the revaluation of these contracts as a component of Operating, administrative and other expense. They are offset by the gains and losses we recognize on the revaluation of intercompany loans and other foreign currency balances. The impact to net income was not significant for either of the three or
six months ended June 30, 2016
or
2015
.
We record the asset and liability positions for our foreign currency forward contracts based on the net payable or net receivable position with the financial institutions from which we purchase these contracts. The
$14.1 million
asset as of
June 30, 2016
was comprised of gross contracts with receivable positions of
$15.8 million
and payable positions of
$1.7 million
. The
$19.1 million
liability as of
June 30, 2016
was comprised of gross contracts with receivable positions of
$0.8 million
and payable positions of
$19.9 million
. As of
December 31, 2015
, the
$9.5 million
asset was comprised of gross contracts with receivable positions of
$10.0 million
and payable positions of
$0.5 million
. The
$21.2 million
liability as of
December 31, 2015
, was comprised of gross contracts with receivable positions of
$0.9 million
and payable positions of
$22.1 million
.
Deferred Compensation Plan
We maintain a deferred compensation plan for certain of our U.S. employees that allows them to defer portions of their compensation. We invest directly in insurance contracts which yield returns to fund these deferred compensation obligations. We recognize an asset for the amount that could be realized under these insurance contracts at the balance sheet date, and we adjust the deferred compensation obligation to reflect the changes in the fair value of the amount owed to the employees. The inputs for this valuation are Level 2 inputs in the fair value hierarchy. We recorded this plan on our Condensed Consolidated Balance Sheet as of
June 30, 2016
as Deferred compensation plan assets of
$154.4 million
, long-term deferred compensation plan liabilities of
$153.1 million
, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of
$6.3 million
. We recorded this plan on our Condensed Consolidated Balance Sheet as of
December 31, 2015
as Deferred compensation plan assets of
$134.3 million
, long-term deferred compensation plan liabilities of
$129.4 million
, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of
$6.2 million
.
Earn-Out Liabilities
We classify our earn-out liabilities within Level 3 in the fair value hierarchy because the inputs we use to develop the estimated fair value include unobservable inputs. We base the fair value of our earn-out liabilities on the present value of probability-weighted future cash flows related to the earn-out performance criteria on each reporting date. We determine the probabilities of achievement we assign to the performance criteria based on the due diligence we performed at the time of acquisition as well as actual performance achieved subsequent to acquisition. See Note 5, Business Combinations, Goodwill and Intangibles, for additional discussion of our earn-out liabilities.
The tables below present a reconciliation for earn-out liabilities using significant unobservable inputs (Level 3) for the three and
six months ended June 30, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Balance as of March 31, 2016
|
Decrease due to change in assumptions
|
Foreign currency translation adjustments
|
Purchases
|
Settlements
|
Balance as of June 30, 2016
|
Earn-out liabilities
|
$
|
158.8
|
|
(1.1
|
)
|
(1.9
|
)
|
14.9
|
|
(1.1
|
)
|
169.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Balance as of December 31, 2015
|
Decrease due to change in assumptions
|
Foreign currency translation adjustments
|
Purchases
|
Settlements
|
Balance as of June 30, 2016
|
Earn-out liabilities
|
$
|
127.3
|
|
(0.9
|
)
|
(1.2
|
)
|
47.2
|
|
(2.8
|
)
|
169.6
|
|
Non-Recurring Fair Value Measurements
We review our investments in real estate ventures, except those investments otherwise reported at fair value, on a quarterly basis, or as otherwise deemed necessary, for indications of whether we may be unable to recover the carrying value of our investments and whether such investments are other than temporarily impaired. When the carrying amount of the investment is in excess of the estimated future undiscounted cash flows, we use a discounted cash flow approach or other acceptable method to determine the fair value of the investment in computing the amount of the impairment. Our determination of fair value primarily relies on Level 3 inputs. We did not recognize any investment-level impairment losses during either of the three or
six months ended June 30, 2016
or
2015
. See Note 6, Investments in Real Estate Ventures, for additional information, including information related to impairment charges recorded at the investee level.
Credit Facility
On June 21, 2016, we amended and expanded our credit facility (the "Facility"), which resulted in: (1) an increase in our borrowing capacity from
$2.0 billion
to
$2.75 billion
; (2) an extension of the maturity date from February 25, 2020 to
June 21, 2021
; (3) modifications to certain add-backs to Adjusted EBITDA (as defined in the Facility) for the calculation of the leverage ratio to provide additional operating flexibility; (4) a range of pricing from
LIBOR plus 0.95% to 2.05%
, with pricing as of
June 30, 2016
at
LIBOR
plus
1.05%
; (5) an increase in the permitted amount for certain new indebtedness; and (6) the removal of limitations on the amount of Investments in real estate ventures. Consistent with our prior agreement, our leverage ratio cannot exceed 3.50 to 1, except immediately following a material acquisition, in which case, the leverage ratio maximum is
4.00
to 1 for up to four consecutive quarters. Other key terms and conditions of the Facility were unchanged as part of the current amendment and expansion.
As of
June 30, 2016
, we had outstanding borrowings under the Facility of
$830.0 million
and outstanding letters of credit of
$18.2 million
. As of
December 31, 2015
, we had outstanding borrowings under the Facility of
$255.0 million
and outstanding letters of credit of
$18.2 million
. The average outstanding borrowings under the Facility were
$941.5 million
and
$397.4 million
during the
three months ended June 30, 2016
and
2015
, respectively, and
$747.9 million
and
$277.7 million
during the
six months ended June 30, 2016
and
2015
, respectively.
The effective interest rates on our Facility were
1.5%
and
1.1%
for the
three months ended June 30, 2016
and
2015
, respectively, and
1.5%
and
1.1%
during the
six months ended June 30, 2016
and
2015
, respectively.
We remained in compliance with all covenants under our Facility as of
June 30, 2016
, including a minimum cash interest coverage ratio of
3.00
to 1 and the maximum leverage ratio discussed above.
We will continue to use the Facility for, but not limited to, business acquisitions, working capital needs (including payment of accrued incentive compensation), co-investment activities, dividend payments, share repurchases and capital expenditures.
Short-Term
In addition to our Facility, we have the capacity to borrow up to an additional
$43.1 million
under local overdraft facilities. We had short-term borrowings (including capital lease obligations, overdrawn bank accounts and local overdraft facilities) of
$20.6 million
and
$49.2 million
as of
June 30, 2016
and
December 31, 2015
, respectively, of which
$10.5 million
and
$24.6 million
as of
June 30, 2016
and
December 31, 2015
, respectively, was attributable to local overdraft facilities.
Long-Term Senior Notes
As of
June 30, 2016
and
December 31, 2015
, we had
$275.0 million
of Long-term senior notes due
November 2022
(the "Notes") outstanding. The Notes bear interest at an annual rate of
4.4%
, subject to adjustment if a credit rating assigned to the Notes is downgraded below an investment grade rating (or subsequently upgraded). Interest is payable semi-annually on
May 15
and
November 15
.
Our issuer and senior unsecured ratings are investment grade as of
June 30, 2016
: BBB+ (stable outlook) from Standard & Poor’s Ratings Services and Baa2 (positive outlook) from Moody’s Investors Service, Inc.
|
|
10.
|
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 consolidated captive insurance company as further discussed below), but they may nevertheless be subject to large deductibles and the amounts being claimed may exceed the available insurance. Although we cannot determine the ultimate liability for these matters, 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.
In order to better manage our global insurance program and support our risk management efforts, we supplement our traditional insurance coverage for certain types of claims by using a wholly-owned captive insurance company. The level of risk retained by our captive insurance company, with respect to professional indemnity claims, is up to
$2.5 million
per claim, inclusive of the deductible. When a potential loss event occurs, management estimates the ultimate cost of the claim and accrues the related cost in Other current and long-term liabilities on our Condensed Consolidated Balance Sheets when probable and estimable.
The following table shows the professional indemnity accrual activity and related payments.
|
|
|
|
|
(in millions)
|
|
December 31, 2015
|
$
|
19.2
|
|
New claims
|
5.7
|
|
Prior year claims adjustments
|
(1.7
|
)
|
Claims paid
|
(5.4
|
)
|
June 30, 2016
|
$
|
17.8
|
|
|
|
December 31, 2014
|
$
|
9.2
|
|
New claims
|
2.5
|
|
Prior year claims adjustments
|
0.2
|
|
Claims paid
|
—
|
|
June 30, 2015
|
$
|
11.9
|
|
|
|
11.
|
RESTRUCTURING AND ACQUISITION CHARGES
|
For the three and
six months ended June 30, 2016
, we recognized Restructuring and acquisition charges of
$10.3 million
and
$17.9 million
, respectively. For the three and
six months ended June 30, 2015
, we recognized Restructuring and acquisition charges of
$1.8 million
and
$2.6 million
, respectively. In all periods, charges primarily consist of (1) severance and employment-related charges, (2) lease exit charges and fair value reserve adjustments, and (3) other acquisition and integration-related charges. For the
six months ended June 30, 2016
there was
$0.2 million
related to net increases to earn-out liabilities that arose from prior period acquisition activity. Additionally, there was a
$2.3 million
gain for both the three and
six months ended June 30, 2016
included in Restructuring and acquisition charges for a foreign currency derivative relating to an acquisition payment.
The following tables show the restructuring and acquisition accrual activity and related payments, which are exclusive of the adjustments to earn-out liabilities and foreign currency derivative activity individually noted above.
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Severance
|
Lease
Exit
|
Other
Acquisition Costs
|
Total
|
December 31, 2015
|
$
|
2.7
|
|
5.7
|
|
0.2
|
|
8.6
|
|
Accruals
|
11.1
|
|
—
|
|
8.9
|
|
20.0
|
|
Payments made
|
(3.6
|
)
|
(0.4
|
)
|
(7.8
|
)
|
(11.8
|
)
|
June 30, 2016
|
$
|
10.2
|
|
5.3
|
|
1.3
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Severance
|
Lease
Exit
|
Other
Acquisition Costs
|
Total
|
December 31, 2014
|
$
|
3.0
|
|
4.2
|
|
0.4
|
|
7.6
|
|
Accruals
|
—
|
|
0.2
|
|
2.4
|
|
2.6
|
|
Payments made
|
(1.4
|
)
|
(1.9
|
)
|
(2.6
|
)
|
(5.9
|
)
|
June 30, 2015
|
$
|
1.6
|
|
2.5
|
|
0.2
|
|
4.3
|
|
We expect the majority of accrued severance and other accrued acquisition costs as of
June 30, 2016
will be paid during 2016. Lease exit payments depend on the terms of various leases, which extend as far out as 2020.
|
|
12.
|
NONCONTROLLING INTEREST
|
We reflected changes in amounts attributable to noncontrolling interests in the Condensed Consolidated Statement of Changes in Equity. We present changes in amounts attributable to redeemable noncontrolling interests in the following table.
|
|
|
|
|
(in millions)
|
|
Redeemable noncontrolling interests as of December 31, 2015
|
$
|
11.1
|
|
Acquisition of redeemable noncontrolling interest
(1)
|
(3.6
|
)
|
Impact of exchange rate movements
|
(0.1
|
)
|
Redeemable noncontrolling interests as of June 30, 2016
|
$
|
7.4
|
|
(1) Reflects our redemption of a portion of the redeemable noncontrolling interest related to our 2014 acquisition of Tenzing AB and includes
$0.8 million
representing the difference between the redemption value and the carrying value of the acquired interest.
|
|
13.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
|
The tables below present the changes in Accumulated other comprehensive income (loss) by component.
|
|
|
|
|
|
|
|
|
(in millions)
|
Pension and postretirement benefit
|
Cumulative foreign currency translation adjustment
|
Total
|
Balance as of March 31, 2016
|
$
|
(35.8
|
)
|
(286.7
|
)
|
(322.5
|
)
|
Other comprehensive loss before reclassification
|
—
|
|
(49.7
|
)
|
(49.7
|
)
|
Amounts reclassified from AOCI after tax expense of $ - , $ - and $ -
|
—
|
|
—
|
|
—
|
|
Other comprehensive income (loss) after tax expense of $ - , $ - and $ -
|
—
|
|
(49.7
|
)
|
(49.7
|
)
|
Balance as of June 30, 2016
|
$
|
(35.8
|
)
|
(336.4
|
)
|
(372.2
|
)
|
|
|
|
|
(in millions)
|
Pension and postretirement benefit
|
Cumulative foreign currency translation adjustment
|
Total
|
Balance as of March 31, 2015
|
$
|
(62.5
|
)
|
(245.9
|
)
|
(308.4
|
)
|
Other comprehensive income before reclassification
|
—
|
|
53.7
|
|
53.7
|
|
Amounts reclassified from AOCI after tax expense of $ - , $ - and $ -
|
—
|
|
—
|
|
—
|
|
Other comprehensive income after tax expense of $ - , $ - and $ -
|
—
|
|
53.7
|
|
53.7
|
|
Balance as of June 30, 2015
|
$
|
(62.5
|
)
|
(192.2
|
)
|
(254.7
|
)
|
|
|
|
|
(in millions)
|
Pension and postretirement benefit
|
Cumulative foreign currency translation adjustment
|
Total
|
Balance as of December 31, 2015
|
$
|
(35.8
|
)
|
(300.5
|
)
|
(336.3
|
)
|
Other comprehensive loss before reclassification
|
—
|
|
(35.9
|
)
|
(35.9
|
)
|
Amounts reclassified from AOCI after tax expense of $ - , $ - and $ -
|
—
|
|
—
|
|
—
|
|
Other comprehensive income (loss) after tax expense of $ - , $ - and $ -
|
—
|
|
(35.9
|
)
|
(35.9
|
)
|
Balance as of June 30, 2016
|
$
|
(35.8
|
)
|
(336.4
|
)
|
(372.2
|
)
|
|
|
|
|
(in millions)
|
Pension and postretirement benefit
|
Cumulative foreign currency translation adjustment
|
Total
|
Balance as of December 31, 2014
|
$
|
(63.4
|
)
|
(136.8
|
)
|
(200.2
|
)
|
Other comprehensive income (loss) before reclassification
|
0.9
|
|
(55.4
|
)
|
(54.5
|
)
|
Amounts reclassified from AOCI after tax expense of $ - , $ - and $ -
|
—
|
|
—
|
|
—
|
|
Other comprehensive income (loss) after tax expense of $ - , $ - and $ -
|
0.9
|
|
(55.4
|
)
|
(54.5
|
)
|
Balance as of June 30, 2015
|
$
|
(62.5
|
)
|
(192.2
|
)
|
(254.7
|
)
|
For pension and postretirement benefits, we report amounts reclassified from Accumulated other comprehensive income (loss) in Compensation and benefits within the Condensed Consolidated Statements of Comprehensive Income.
On August 1, 2016, we closed on our previously announced acquisition of Integral UK Ltd. The cash consideration payable, excluding amounts attributable to working capital, was
$251 million
. Integral UK Ltd. has the potential to earn future payments, based on an earn-out structure tied to performance, such that total consideration payable could be up to
$341 million
.
Subsequent to June 30, 2016, we announced the completion of the following additional business acquisitions:
|
|
•
|
BRG - a workplace technology consulting, technology implementation, and space and move management services business located in the United States,
|
|
|
•
|
MSCI's global corporate occupiers benchmarking (Global Occupiers) business,
|
|
|
•
|
Sage Capital Advisors, LLC - an investment sales, equity and debt advisory firm located in the United States, and
|
|
|
•
|
Travis Commercial Real Estate Services - a property leasing and management company located in the United States.
|
Total consideration payable for these additional acquisitions could be up to
$100 million
.