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JLL > SEC Filings for JLL > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for JONES LANG LASALLE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for JONES LANG LASALLE INC


8-May-2013

Quarterly Report


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 months ended March 31, 2013, and Jones Lang LaSalle's audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2012, which are included in our 2012 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 2012 Annual Report on Form 10-K.

The following discussion and analysis contains certain forward-looking statements which we generally identify 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 2012 Annual Report on Form 10-K for a complete 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 revenue 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 they are reasonable. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material.

A discussion of our critical accounting policies and estimates used in the preparation of our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2013.


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The following are the critical accounting policies and estimates discussed in Item 7 of our Annual Report on Form 10-K:

Revenue Recognition;

Allowance for Uncollectible Accounts Receivable;

Asset Impairments;

Income Tax; and

Self-Insurance Programs

In addition to the aforementioned critical accounting policies, we believe the calculation of our quarterly tax provision is critical to understanding the estimates and assumptions used in preparing the Consolidated Financial Statements in Part I.

Quarterly Income Tax Provision
Our fiscal year estimated effective tax rate is based on estimates that are updated each quarter. Our effective tax rate for the three months ended March 31, 2013, and our forecasted tax rate for 2013, is 24.9%. 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 the impact of tax planning activities. We evaluate our estimated effective tax rate on a quarterly basis to reflect forecast changes in; (1) our geographic mix of income, (2) legislative actions on statutory tax rates, and
(3) the impact of tax planning. The geographic mix of our income can significantly impact our effective tax rate. Lower tax rate jurisdictions (those with effective national and local combined tax rates of 25% or lower) with meaningful contributions to our effective tax rate include; The Netherlands (25%), The People's Republic of China (25%), Switzerland (21.1%), Russia (20%), Saudi Arabia (20%), Turkey (20%), Poland (19%), Singapore (17%), Hong Kong (16.5%), Macau (12%) and Cyprus (10%).

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. These macroeconomic conditions have had, and we expect to continue to have, a significant impact on the variability of our results of operations.

LaSalle Investment Management Revenue
Our investment management business is in part compensated through the receipt of incentive fees where performance of underlying funds' investments exceeds agreed-to benchmark levels. Depending upon performance and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period.

Equity in earnings (losses) from real estate ventures also may vary substantially from period to period for a variety of reasons, including as a result of (1) impairment charges, (2) changes in fair value, (3) realized gains or losses on asset dispositions, or (4) 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, Business Segments, of the Notes to Consolidated Financial Statements and is discussed further in Segment Operating Results included herein.

Transactional-Based Revenue
Transactional-based services for leasing, real estate investment banking, capital markets activities and other transactional-based services within our RES businesses increase the variability of the revenue we receive that relate to the size and timing of our clients' transactions from period to period. The timing and the magnitude of these fees can vary significantly from period to period.

Foreign Currency
We conduct business using a variety of currencies, but report our results in U.S. dollars, as a result of which the volatility of currencies against the U.S. dollar may positively or negatively impact our reported results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because these results may demonstrate a rate of growth or decline that might not have been consistent with the real underlying rate of growth or decline 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 included herein.


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Seasonality
Our quarterly revenue and profits tend to grow progressively by quarter throughout the year. This is the result of a general focus in the real estate industry on completing transactions by fiscal year-end and the fact that certain of our 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 RES segments, revenue for capital markets activities relates to the size and timing of our clients' transactions and can fluctuate significantly from period to period.

A significant portion of our Compensation and benefit expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. These processes can result in significant fluctuations in quarterly Compensation and benefit expense from period to period. Non-variable operating expenses, which we treat as expenses when they are incurred during the year, are relatively constant on a quarterly basis. Consequently, the results for the periods ended March 31, 2013 and 2012, are not indicative of the results to be obtained for the full fiscal year.

Results of Operations

Reclassifications
We report Equity in earnings (losses) from real estate ventures in our consolidated statements of comprehensive income (loss) after Operating income. However, for segment reporting we reflect Equity in earnings (losses) from real estate ventures within Total revenue. Also, vendor and subcontract costs on certain client assignments in property and facilities management, and project and development services ("gross contract costs"), are presented on a gross basis in our consolidated statement of comprehensive income (loss), but are excluded from revenue and operating expenses in determining "fee revenue" and "fee-based operating expenses," in our segment reporting. See Note 4, Business Segments, of the Notes to Consolidated Financial Statements for Equity in earnings (losses) from real estate ventures reflected within segment revenue, as well as discussion of how the Chief Operating Decision Maker (as defined in Note
4) measures segment results with Equity in earnings (losses) from real estate ventures included in segment revenue.


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Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012 In order to provide more meaningful year-over-year comparisons of our reported results, we have included in the table below both the U.S. dollar and local currency movements in the consolidated statements of earnings.

                                 Three Months       Three Months                         % Change
                                        Ended              Ended        Change in        in Local
($ in millions)                March 31, 2013     March 31, 2012       U.S. dollars      Currency
Revenue
Real Estate Services:
Leasing                      $          229.2              230.2      (1.0 )     0  %           0  %
Capital Markets & Hotels                120.7               88.7      32.0      36  %          37  %
Property & Facility
Management (1)                          212.1              201.1      11.0       5  %           7  %
Project & Development
Services (1)                             77.1               78.4      (1.3 )    (2 )%          (1 )%
Advisory, Consulting and
Other                                    81.7               79.0       2.7       3  %           5  %
LaSalle Investment
Management                               59.7               67.5      (7.8 )   (12 )%         (11 )%
Fee revenue                  $          780.5              744.9      35.6       5  %           6  %
Gross contract costs                     75.5               68.4       7.1      10  %          12  %
Total revenue                $          856.0              813.3      42.7       5  %           6  %
Operating expenses,
excluding gross contract
costs                                   757.2              721.4      35.8       5  %           6  %
Gross contract costs                     75.5               68.4       7.1      10  %          12  %
Restructuring and
acquisition charges                       3.2                8.9      (5.7 )   (64 )%         (67 )%
Total operating expenses                835.9              798.7      37.2       5  %           6  %
Operating income             $           20.1               14.6       5.5      38  %          41  %


(1) Amounts have been adjusted to remove gross contract costs.

Revenue for the first quarter of 2013 grew 5%, 6% in local currency, in comparison to the first quarter of 2012. This growth was driven by a 37% local currency increase in Capital Markets & Hotels as a result of robust growth in the Americas and EMEA. Despite stable performance in Advisory fees, LaSalle Investment Management revenue decreased 11% in local currency, as result of a strong 2012 first quarter that included $8 million of non-recurring incentive fees.

For the first quarter of 2013, fee based operating expenses, excluding restructuring and acquisition charges, were $757 million, an increase of 5%, 6% in local currency, primarily due to increased compensation costs from a larger employee base and higher incentive compensation related to improved performance.

Segment Operating Results

We manage and report our operations as four business segments:

The three geographic regions of Real Estate Services ("RES"):
(i) Americas,

(ii) Europe, Middle East and Africa ("EMEA"),

(iii) Asia Pacific; and

(iv) Investment Management, 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 services, energy management and sustainability, construction management, and advisory, consulting and valuation services. We consider "property management" to be services provided to non-occupying property investors and "facilities management" to be services provided to owner-occupiers. The Investment Management segment provides investment management services to institutional investors and high-net-worth individuals.


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For segment reporting, we show revenue net of gross contract costs in our RES segments. Excluding these costs from revenue and expenses in a "net" presentation of "fee revenue" and "fee-based operating expense" more accurately reflects how we manage our expense base and operating margins. See Note 3, Revenue Recognition, of the Notes to the Consolidated Financial Statements for additional information on our gross and net accounting. For segment reporting we also show Equity in earnings (losses) 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 and certain acquisition related costs. Certain prior year amounts have been reclassified among reporting segments to conform with our current presentation of business segment results. These amounts relate to the presentation of revenues and associated expenses and have an insignificant impact on previously reported operating income.

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