Document

 
United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016

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
 
36-4150422
(State or other jurisdiction of incorporation or organization)
 
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
Accelerated filer o
 
 
 
 
Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting company 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 x

The number of shares outstanding of the registrant's common stock (par value $0.01) as of the close of business on August 1, 2016 was 45,179,409.
 



Table of Contents
Part I
 
 
 
 
Item 1.
Condensed Consolidated Financial Statements (unaudited):
 
 
 
 
Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
 
 
Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2016 and 2015
 
 
 
 
Statement of Changes in Equity For the Six Months Ended June 30, 2016
 
 
 
 
Statements of Cash Flows For the Six Months Ended June 30, 2016 and 2015
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 

2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
December 31,
(in millions, except share and per share data) (unaudited)
2016
2015
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
213.7

216.6

Trade receivables, net of allowances of $32.6 and $23.2
1,489.5

1,591.7

Notes and other receivables
302.5

267.3

Warehouse receivables
245.9

265.2

Prepaid expenses
74.5

77.8

Deferred tax assets, net

132.9

Other
124.4

99.3

Total current assets
2,450.5

2,650.8

Property and equipment, net of accumulated depreciation of $478.3 and $449.2
432.4

423.3

Goodwill, with indefinite useful lives
2,262.7

2,141.5

Identified intangibles, net of accumulated amortization of $156.6 and $139.0
233.7

227.2

Investments in real estate ventures, including $203.8 and $155.2 at fair value
357.8

311.5

Long-term receivables
183.1

135.2

Deferred tax assets, net
180.3

87.2

Deferred compensation plan
154.4

134.3

Other
86.4

76.1

Total assets
$
6,341.3

6,187.1

Liabilities and Equity
 

 

Current liabilities:
 

 

Accounts payable and accrued liabilities
$
661.0

712.6

Accrued compensation
672.0

1,088.9

Short-term borrowings
20.6

49.2

Deferred tax liabilities, net

21.1

Deferred income
121.1

114.8

Deferred business acquisition obligations
28.8

54.7

Warehouse facility
243.2

263.1

Other
207.5

200.8

Total current liabilities
1,954.2

2,505.2

Credit facility, net of debt issuance costs of $21.5 and $15.4
808.5

239.6

Long-term senior notes, net of debt issuance costs of $2.5 and $2.7
272.5

272.3

Deferred tax liabilities, net
13.6

33.0

Deferred compensation
176.6

156.2

Deferred business acquisition obligations
61.2

42.9

Other
238.1

208.5

Total liabilities
3,524.7

3,457.7

Redeemable noncontrolling interest
7.4

11.1

Company shareholders' equity:
 

 

Common stock, $.01 par value per share, 100,000,000 shares authorized;
45,127,286 and 45,049,503 shares issued and outstanding
0.5

0.5

Additional paid-in capital
1,004.2

986.6

Retained earnings
2,134.7

2,044.2

Shares held in trust
(6.3
)
(6.2
)
Accumulated other comprehensive loss
(372.2
)
(336.3
)
Total Company shareholders’ equity
2,760.9

2,688.8

Noncontrolling interest
48.3

29.5

Total equity
2,809.2

2,718.3

Total liabilities and equity
$
6,341.3

6,187.1

See accompanying notes to Condensed Consolidated Financial Statements.

3

Table of Contents

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except share and per share data) (unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2016
2015
2016
2015
Revenue
$
1,603.6

1,373.5

$
2,940.4

2,577.0

Operating expenses:
 

 

 

 

Compensation and benefits
928.0

825.1

1,738.4

1,563.1

Operating, administrative and other
520.0

418.1

978.2

805.3

Depreciation and amortization
31.4

25.5

62.6

50.4

Restructuring and acquisition charges
10.3

1.8

17.9

2.6

Total operating expenses
1,489.7

1,270.5

2,797.1

2,421.4

Operating income
113.9

103.0

143.3

155.6

Interest expense, net of interest income
(10.9
)
(7.6
)
(19.8
)
(13.6
)
Equity earnings from real estate ventures
9.2

27.1

22.2

38.5

Other income
13.3


13.3


Income before income taxes and noncontrolling interest
125.5

122.5

159.0

180.5

Provision for income taxes
31.1

31.1

39.4

45.8

Net income
94.4

91.4

119.6

134.7

Net income attributable to noncontrolling interest
15.4

1.1

14.9

2.5

Net income attributable to the Company
79.0

90.3

104.7

132.2

Dividends on unvested common stock, net of tax benefit
0.2

0.2

0.2

0.2

Net income attributable to common shareholders
$
78.8

90.1

$
104.5

132.0

Basic earnings per common share
$
1.75

2.01

$
2.32

2.94

Basic weighted average shares outstanding
(in thousands)
45,121

44,869

45,108

44,856

Diluted earnings per common share
$
1.73

1.98

$
2.30

2.91

Diluted weighted average shares outstanding
(in thousands)
45,574

45,435

45,498

45,393

Dividends declared per share
$
0.31

0.27

$
0.31

0.27

Other comprehensive income (loss):
 

 

 

 

Net income attributable to the Company
$
79.0

90.3

$
104.7

132.2

Change in pension liabilities, net of tax



0.9

Foreign currency translation adjustments
(49.7
)
53.7

(35.9
)
(55.4
)
Comprehensive income attributable to the Company
$
29.3

144.0

$
68.8

77.7

See accompanying notes to Condensed Consolidated Financial Statements.

4

Table of Contents

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2016
 
Company Shareholders' Equity
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Additional
 
Shares
Other
 
 
(in millions, except share and
per share data) (unaudited)
Common Stock
Paid-In
Retained
Held in
Comprehensive
Noncontrolling
Total
Shares
Amount
Capital
Earnings
Trust
Loss
Interest
Equity
December 31, 2015
45,049,503

$
0.5

986.6

2,044.2

(6.2
)
(336.3
)
29.5

2,718.3

Net income



104.7



14.9

119.6

Shares issued under stock-based compensation programs
105,177


0.7





0.7

Shares repurchased for payment of taxes on stock-based compensation
(27,394
)

(3.5
)




(3.5
)
Tax adjustments due to share vestings and exercises


1.2





1.2

Amortization of stock-based compensation


18.4





18.4

Dividends paid, $0.31 per share



(14.2
)



(14.2
)
Shares held in trust




(0.1
)


(0.1
)
Foreign currency translation adjustments





(35.9
)

(35.9
)
Increase in amounts attributable to noncontrolling interest






3.9

3.9

Acquisition of redeemable noncontrolling interest


0.8





0.8

June 30, 2016
45,127,286

$
0.5

1,004.2

2,134.7

(6.3
)
(372.2
)
48.3

2,809.2

See accompanying notes to Condensed Consolidated Financial Statements.

5

Table of Contents

JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30,
(in millions) (unaudited)
2016
2015
Cash flows used in operating activities:
 
 
Net income
$
119.6

134.7

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

 

Distributions of earnings from real estate ventures
18.0

10.3

Other adjustments, net
60.1

37.7

Changes in working capital, net
(480.5
)
(397.6
)
Net cash used in operating activities
(282.8
)
(214.9
)
Cash flows used in investing activities:
 

 

Net capital additions – property and equipment
(114.2
)
(45.4
)
Business acquisitions
(93.0
)
(41.7
)
Capital contributions to real estate ventures
(63.0
)
(32.3
)
Distributions of capital from real estate ventures
29.3

20.3

Other, net
41.8

6.8

Net cash used in investing activities
(199.1
)
(92.3
)
Cash flows provided by financing activities:
 

 

Proceeds from borrowings under credit facility
1,693.0

955.0

Repayments of borrowings under credit facility
(1,118.0
)
(625.2
)
Payments of deferred business acquisition obligations and earn-outs
(30.6
)
(41.5
)
Payment of dividends
(14.2
)
(12.3
)
Noncontrolling interest contributions (distributions), net
5.0

(6.8
)
Other, net
(57.7
)
(13.6
)
Net cash provided by financing activities
477.5

255.6

Effect of currency exchange rate changes on cash and cash equivalents
1.5

(7.8
)
Net change in cash and cash equivalents
(2.9
)
(59.4
)
Cash and cash equivalents, beginning of the period
216.6

250.4

Cash and cash equivalents, end of the period
$
213.7

191.0

Supplemental disclosure of cash flow information:
 

 

Cash paid during the period for:
 

 

Interest
$
16.5

10.0

Income taxes, net of refunds
75.1

70.7

Non-cash investing activities:
 

 

Business acquisitions, including contingent consideration
$
47.2

13.4

Capital leases
5.7

4.4

Non-cash financing activities:
 
 
Deferred business acquisition obligations
$
29.4

5.1

See accompanying notes to Condensed Consolidated Financial Statements.

6

Table of Contents

JONES LANG LASALLE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
INTERIM INFORMATION
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.

7

Table of Contents

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.

8

Table of Contents

3.
REVENUE RECOGNITION
We earn revenue from the following principal sources:
Transaction commissions;
Advisory and management fees;
Incentive 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.

9

Table of Contents

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.
4.
BUSINESS SEGMENTS
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.

10

Table of Contents

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


11

Table of Contents

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


12

Table of Contents

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.

13

Table of Contents

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


14

Table of Contents

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


15

Table of Contents

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.

16

Table of Contents

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.

17

Table of Contents

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

18

Table of Contents

 
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.

19

Table of Contents

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.

20

Table of Contents

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


21

Table of Contents

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.
9.
DEBT
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.

22

Table of Contents

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


23

Table of Contents

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.

24

Table of Contents

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.

25

Table of Contents

14.
SUBSEQUENT EVENTS
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.

26

Table of Contents

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 Condensed Consolidated Financial Statements, including the notes thereto, for the three and six months ended June 30, 2016, and our audited Consolidated Financial Statements and notes thereto for the fiscal year ended December 31, 2015, which are included in our 2015 Annual Report on Form 10-K, filed with the SEC and also available on our website (www.jll.com).You should also refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2015 Annual Report on Form 10-K.
The following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL'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 included within this section for further information.
We present our quarterly Management's Discussion and Analysis in the following sections:
(1)
A summary of our critical accounting policies and estimates;
(2)
Certain items affecting the comparability of results and certain market and other risks we face;
(3)
The results of our operations, first on a consolidated basis and then for each of our business segments; and
(4)
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, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2015 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 and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them 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.
A discussion of our critical accounting policies and estimates used in the preparation of our Condensed 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, 2015. There have been no material changes to these critical accounting policies and estimates during the six months ended June 30, 2016.
The following are the critical accounting policies and estimates discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015:
Revenue Recognition;
Allowance for Uncollectible Accounts Receivable;
Goodwill;
Investments in Real Estate Ventures;
Income Taxes; 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 Condensed Consolidated Financial Statements in Item 1.

27

Table of Contents

Quarterly Income Tax Provision
We base our fiscal year estimated effective tax rate on estimates we update each quarter. Our effective tax rate for the six months ended June 30, 2016 and our forecasted effective tax rate for 2016 is 24.8%. 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 we base on forecasted income by country and expected enacted tax rates. We evaluate our estimated effective tax rate on a quarterly basis to reflect forecast changes in our geographic mix of income and legislative actions on statutory tax rates and other relevant matters effective in the quarter in which the legislation is enacted.
The geographic mix of our income can significantly impact our effective tax rate. Very low tax rate jurisdictions (those with effective national and local combined tax rates of 25% or lower) that provide the most significant contributions to our effective tax rate include: Hong Kong (16.5%), Singapore (17%), the United Kingdom (20%), The People’s Republic of China (25%), and the Netherlands (25%). We do not project any other jurisdictions with effective rates of 25% or lower to materially impact our 2016 global effective tax rate.
ITEMS AFFECTING COMPARABILITY
Macroeconomic Conditions
Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends, (2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will 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, disposition activity, and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period.
Equity earnings from real estate ventures also may vary substantially from period to period for a variety of reasons, including as a result of: (1) gains (losses) on investments reported at fair value, (2) gains (losses) on asset dispositions, and (3) impairment charges. 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 Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein.
Transactional-Based Revenue
Transactional-based fees, that are impacted by the size and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our RES businesses, and LaSalle, increase the variability of the revenue we earn. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region.
Foreign Currency
We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, 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.

28

Table of Contents

Seasonality
Our quarterly revenue and profits tend to grow progressively by quarter throughout the year. This is a 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 through the year. Historically, we have reported a relatively smaller profit in the first quarter and then increasingly larger profits during each of the following three quarters, excluding the recognition of investment-generated performance fees and realized and unrealized co-investment equity gains and losses (each of which can be unpredictable). We generally recognize such performance fees and realized co-investment equity gains or losses when assets are sold, the timing of which is geared toward the benefit of our clients. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis.
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 quarterly estimation can result in significant fluctuations in quarterly Compensation and benefits expense from period to period. Consequently, the results for the periods ended June 30, 2016 and 2015 are not fully indicative of the results we expect to realize for the full fiscal year.
RESULTS OF OPERATIONS
We operate in a variety of currencies but report our results in U.S. dollars. As a result, the volatility of these currencies against the U.S. dollar may positively or negatively impact our reported results. This volatility may result in the reported U.S. dollar revenue and expenses showing increases or decreases between years that may not be consistent with the real underlying increases or decreases in local currency operations. In order to provide more meaningful year-to-year comparisons of our reported results, we have included detail of the movements in certain reported lines of the Condensed Consolidated Statements of Comprehensive Income in both U.S. dollars and in local currencies in the tables throughout this section.
We define market volumes for Leasing as gross absorption of office real estate space in square feet for the U.S., Europe and selected markets in Asia Pacific. We define market volumes for Capital Markets as the U.S. dollar equivalent value of investment sales transactions globally.
Throughout Results of Operations, discussion of percentage changes and reported Adjusted EBITDA margins are in local currency unless otherwise noted. Percentage changes presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing our performance and operations excluding the effect of foreign currency fluctuations. Because percentage changes presented on a local currency basis are not calculated under U.S. GAAP, they may not be comparable to similarly titled measures used by other companies.
Unless otherwise noted, fee revenue excludes gross contract costs. Refer to Note 3, Revenue Recognition, of the Notes to Condensed Consolidated Financial Statements for additional information on gross contract costs.
Reclassifications
We report Equity earnings from real estate ventures in our Condensed Consolidated Statements of Comprehensive Income after Operating income. However, for segment reporting we reflect Equity earnings from real estate ventures within Total segment revenue. See Note 4, Business Segments, of the Notes to Condensed Consolidated Financial Statements for Equity earnings reflected within Total segment revenue, as well as discussion of how the Chief Operating Decision Maker (as defined in Note 4) measures segment results with Equity earnings included in Total segment revenue. We have reclassified certain prior year amounts to conform to the current presentation. These reclassifications have not been material and have not affected reported net income.

29

Table of Contents

Consolidated Operating Results
 
Three Months Ended June 30,
 
 
% Change
 
Change in
in Local
($ in millions)
2016
2015
U.S. dollars
Currency
Revenue
 
 
 
 
 

Real Estate Services:
 
 
 
 
 

Leasing
$
415.4

380.0

35.4

9
%
10
%
Capital Markets & Hotels
220.0

223.0

(3.0
)
(1
)

Property & Facility Management
297.1

259.7

37.4

14

17

Project & Development Services
155.5

121.4

34.1

28

30

Advisory, Consulting and Other
130.4

117.6

12.8

11

14

LaSalle
127.0

80.1

46.9

59

56

Total fee revenue
$
1,345.4

1,181.8

163.6

14
%
15
%
Gross contract costs
258.2

191.7

66.5

35

39

Total revenue
$
1,603.6

1,373.5

230.1

17
%
19
%
Compensation, operating and administrative expenses excluding gross contract costs
1,189.8

1,051.5

138.3

13

15

Gross contract costs
258.2

191.7

66.5

35

39

Depreciation and amortization
31.4

25.5

5.9

23

25

Restructuring and acquisition charges
10.3

1.8

8.5

n.m.

n.m.

Total operating expenses
$
1,489.7

1,270.5

219.2

17
%
19
%
Operating income
$
113.9

103.0

10.9

11
%
10
%
Adjusted EBITDA
$
159.8

156.0

3.8

2
%
1
%
n.m. - not meaningful

30

Table of Contents

Consolidated Operating Results (continued)
 
Six Months Ended June 30,
 
 
% Change
 
Change in
in Local
($ in millions)
2016
2015
U.S. dollars
Currency
Revenue
 
 
 
 
 

Real Estate Services:
 
 
 
 
 

Leasing
$
735.2

685.4

49.8

7
%
8
%
Capital Markets & Hotels
389.7

400.9

(11.2
)
(3
)
(1
)
Property & Facility Management
585.1

520.5

64.6

12

16

Project & Development Services
286.9

222.6

64.3

29

32

Advisory, Consulting and Other
238.5

215.5

23.0

11

14

LaSalle
227.5

166.0

61.5

37

36

Total fee revenue
$
2,462.9

2,210.9

252.0

11
%
13
%
Gross contract costs
477.5

366.1

111.4

30

36

Total revenue
$
2,940.4

2,577.0

363.4

14
%
17
%
Compensation, operating and administrative expenses excluding gross contract costs
2,239.1

2,002.3

236.8

12

14

Gross contract costs
477.5

366.1

111.4

30

36

Depreciation and amortization
62.6

50.4

12.2

24

26

Restructuring and acquisition charges
17.9

2.6

15.3

n.m.

n.m.

Total operating expenses
$
2,797.1

2,421.4

375.7

16
%
18
%
Operating income
$
143.3

155.6

(12.3
)
(8
%)
(11
%)
Adjusted EBITDA
$
244.8

244.4

0.4

%
(2
%)
n.m. - not meaningful
Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") represents Net income attributable to common shareholders before interest expense net of interest income, income taxes, depreciation and amortization, further adjusted for items we do not consider indicative of our ongoing performance, including restructuring and acquisition charges as well as mortgage servicing rights ("MSR") - net non-cash activity. MSR - net non-cash activity consists of the balances presented within Revenue comprised of (a) the gains we recognized in conjunction with the origination and sale of mortgage loans offset by (b) the amortization of the corresponding MSR intangible assets generated upon such gain recognition over the estimated period during which we project net servicing income will be received. We calculate such gains and the corresponding MSR intangible assets as the present value of estimated cash flows over the estimated mortgage servicing periods. Although Adjusted EBITDA and EBITDA are non-GAAP financial measures, they are used extensively by management in budgeting, managing, and assessing business performance, and are useful to investors and lenders as metrics for evaluating operating performance from period to period in a meaningful and consistent manner in addition to standard financial measurements under U.S. GAAP. We also use EBITDA in the calculations of certain covenants related to our revolving credit facility. However, Adjusted EBITDA and EBITDA should not be considered as alternatives to net income determined in accordance with U.S. GAAP. Because Adjusted EBITDA and EBITDA are not calculated under U.S. GAAP, our Adjusted EBITDA and EBITDA may not be comparable to similarly titled measures used by other companies.

31

Table of Contents

Adjusted operating income excludes the impact of restructuring and acquisition charges, MSR - net non-cash activity, and amortization of acquisition-related intangibles, which we do not consider to be indicative of our ongoing performance. Although adjusted operating income is a non-GAAP financial measure, it is used extensively by management in budgeting, managing, and assessing business performance net of the impact of capital expenditures reflected through depreciation expense, but excluding the results of our co-investment in real estate ventures accounted for under the equity method, and is useful to investors as a metric for evaluating operating performance. However, adjusted operating income should not be considered as an alternative to operating income determined in accordance with U.S. GAAP. Because adjusted operating income is not calculated under U.S. GAAP, our adjusted operating income may not be comparable to similarly titled measures used by other companies.
Below is the reconciliation of revenue and operating expenses to fee revenue and fee-based operating expenses as well as operating income to adjusted operating income.
 
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2016
2015
2016
2015
Revenue
$
1,603.6

1,373.5

$
2,940.4

2,577.0

Gross contract costs
(258.2
)
(191.7
)
(477.5
)
(366.1
)
Fee revenue
$
1,345.4

1,181.8

$
2,462.9

2,210.9

 
 
 
 
 
Operating expenses
$
1,489.7

1,270.5

$
2,797.1

2,421.4

Gross contract costs
(258.2
)
(191.7
)
(477.5
)
(366.1
)
Fee-based operating expenses
$
1,231.5

1,078.8

$
2,319.6

2,055.3

 
 
 
 
 
Operating income
$
113.9

103.0

$
143.3

155.6

 
 
 
 
 
Add:
 
 
 
 
Restructuring and acquisition charges
10.3

1.8

17.9

2.6

MSR - net non-cash activity
(2.7
)
(0.1
)
0.6


Amortization of acquisition-related intangibles
4.5

2.5

8.9

4.3

Adjusted operating income
$
126.0

107.2

$
170.7

162.5

Adjusted EBITDA margin, calculated on a local currency basis, is calculated by dividing Adjusted EBITDA by fee revenue. Below is a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA, as well as the Adjusted EBITDA margin (on a fee revenue basis):
 
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2016
2015
2016
2015
Net income attributable to common shareholders
$
78.8

90.1

$
104.5

132.0

Add:
 
 
 
 
Interest expense, net of interest income
10.9

7.6

19.8

13.6

Provision for income taxes
31.1

31.1

39.4

45.8

Depreciation and amortization
31.4

25.5

62.6

50.4

EBITDA
$
152.2

154.3

$
226.3

241.8

Add:
 
 
 
 
Restructuring and acquisition charges
10.3

1.8

17.9

2.6

MSR - net non-cash activity
(2.7
)
(0.1
)
0.6


Adjusted EBITDA
$
159.8

156.0

$
244.8

244.4

 
 
 
 
 
Adjusted EBITDA margin
11.6
%
13.2

9.6
%
11.1



32

Table of Contents

Revenue
For the second quarter of 2016, consolidated revenue was $1.60 billion, a 19% increase over consolidated revenue of $1.37 billion in the prior year quarter. Consolidated fee revenue was $1.35 billion, a 15% increase over consolidated fee revenue of $1.18 billion during the second quarter of 2015. We achieved consolidated fee revenue growth quarter-over-quarter in all reporting segments. Growth by service line was led by Project & Development Services, up 30%, Property & Facility Management, up 17%, and Leasing, up 10%, whereas Capital Markets & Hotels revenue growth held flat quarter-over-quarter against a decline in overall global market volumes. LaSalle also contributed to the growth, up 56% quarter-over-quarter.
The increases in Project & Development Services and Property & Facility Management reflected the continued growth of our annuity businesses, both from organic expansion and recent acquisitions. Specifically, Project & Development Services fee revenue has grown as a result of the continued expansion of our Tetris brand along with recently completed acquisitions, particularly in EMEA. Property & Facility Management fee revenue growth resulted from new mandates and the expansion of relationships with existing clients, fueled by recent investments in technology. The increase in our Leasing business, most notably in Americas, contrasts the 7% decrease in global gross absorption as reported by JLL Research. Performance during the second quarter in Capital Markets & Hotels reflected contributions from recent acquisitions against the 8% decline in global capital markets volumes as reported by JLL Research. Across our geographic segments, Capital Markets & Hotels performance was led by Americas, up 20%, and partially offset by EMEA, down 14%, reflecting the impact of the market and political uncertainties associated with the UK’s majority vote to leave the European Union ("EU").
Revenue growth quarter-over-quarter at LaSalle was primarily driven by incentive fees generated from asset sales within maturing funds, particularly in Americas and Asia Pacific.
The spread between revenue growth on a U.S. dollar-basis and local currency-basis was primarily driven by foreign currency exchange rate fluctuations in the British pound sterling, Japanese Yen, Australian dollar, and euro.
For the first half of 2016, consolidated revenue was $2.94 billion, up 17% from the $2.58 billion in the first six months of 2015. Over the same period in 2016, consolidated fee revenue was $2.46 billion, a 13% increase from $2.21 billion in the first six months of 2015. Project & Development Services fee revenue increased $64.3 million, or 32%, driven by increases of over 20% from prior year in Americas and EMEA. Property & Facility Management fee revenue increased 16% to $585.1 million, led by Americas, up 16%, and Asia Pacific, up 17%. Capital Markets & Hotels revenue decreased $11.2 million, or 1%, to $389.7 million, with growth of 13% in Americas more than offset by a 13% decline in EMEA.
LaSalle