form10q.htm


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, 2012

Or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____

Commission File Number 1-13145

Jones Lang LaSalle Incorporated
(Exact name of registrant as specified
in its charter)

Maryland
(State or other jurisdiction of incorporation or organization)

36-4150422
(I.R.S. Employer Identification No.)

200 East Randolph Drive, Chicago, IL
 
60601
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 312-782-5800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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 ¨

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 ¨
     
 
Non-accelerated filer (Do not check if a smaller reporting company) ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ 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, 2012 was 44,040,839



 
 

 

Table of Contents

Part I
 
     
Item 1.
3
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
Item 2.
18
     
Item 3.
31
     
Item 4.
32
     
     
     
Part II
 
     
Item 1.
32
     
Item 5.
32
     
Item 6.
35

 
2


Part I Financial Information
Item 1. Financial Statements

JONES LANG LASALLE INCORPORATED
Consolidated Balance Sheets
June 30, 2012 (Unaudited) and December 31, 2011
($ in thousands, except share data)

   
June 30,
       
   
2012
   
December 31,
 
Assets
 
(Unaudited)
   
2011
 
Current assets:
           
Cash and cash equivalents
  $ 115,499       184,454  
Trade receivables, net of allowances of $26,436 and $20,595
    819,946       907,772  
Notes and other receivables
    92,663       97,315  
Prepaid expenses
    54,752       45,274  
Deferred tax assets
    48,525       53,553  
Other
    24,081       12,516  
Total current assets
    1,155,466       1,300,884  
                 
Property and equipment, net of accumulated depreciation of $350,773 and $336,377
    239,202       241,415  
Goodwill, with indefinite useful lives
    1,766,978       1,751,207  
Identified intangibles, net of accumulated amortization of $104,262 and $99,801
    45,762       52,590  
Investments in real estate ventures
    210,799       224,854  
Long-term receivables
    51,212       54,840  
Deferred tax assets, net
    197,718       186,605  
Other
    126,934       120,241  
Total assets
  $ 3,794,071       3,932,636  
                 
Liabilities and Equity
               
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 365,254       436,045  
Accrued compensation
    393,344       655,658  
Short-term borrowings
    19,598       65,091  
Deferred tax liabilities
    6,095       6,044  
Deferred income
    83,132       58,974  
Deferred business acquisition obligations
    31,611       31,164  
Other
    92,218       95,641  
Total current liabilities
    991,252       1,348,617  
                 
Noncurrent liabilities:
               
Credit facility
    619,000       463,000  
Deferred tax liabilities
    7,646       7,646  
Deferred compensation
    15,262       10,420  
Pension liabilities
    15,348       17,233  
Deferred business acquisition obligations
    246,531       267,896  
Minority shareholder redemption liability
    18,692       18,402  
Other
    125,629       105,042  
Total liabilities
    2,039,360       2,238,256  
                 
Commitments and contingencies
    -       -  
                 
Company shareholders' equity:
               
Common stock, $.01 par value per share, 100,000,000 shares authorized; 43,778,163 and 43,470,271 shares issued and outstanding
    438       435  
Additional paid-in capital
    927,020       904,968  
Retained earnings
    869,670       827,297  
Shares held in trust
    (7,151 )     (7,814 )
Accumulated other comprehensive loss
    (40,090 )     (33,757 )
Total Company shareholders’ equity
    1,749,887       1,691,129  
Noncontrolling interest
    4,824       3,251  
Total equity
    1,754,711       1,694,380  
Total liabilities and equity
  $ 3,794,071       3,932,636  
 
See accompanying notes to consolidated financial statements.
 
JONES LANG LASALLE INCORPORATED
Consolidated Statements of Comprehensive (Loss) Income
For the Three and Six Months Ended June 30, 2012 and 2011
($ in thousands, except share data) (unaudited)

   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenue
  $ 921,341       845,295     $ 1,734,635       1,533,157  
                                 
Operating expenses:
                               
Compensation and benefits
    592,928       544,222       1,130,444       1,005,578  
Operating, administrative and other
    233,765       210,044       466,361       406,169  
Depreciation and amortization
    19,962       19,350       39,621       37,665  
Restructuring and acquisition charges
    16,604       6,112       25,556       6,112  
Total operating expenses
    863,259       779,728       1,661,982       1,455,524  
                                 
Operating income
    58,082       65,567       72,653       77,633  
                                 
Interest expense, net of interest income
    (7,459 )     (9,589 )     (14,885 )     (17,552 )
Equity in (losses) earnings from real estate ventures
    (47 )     4,138       11,802       2,168  
                                 
Income before income taxes and noncontrolling interest
    50,576       60,116       69,570       62,249  
                                 
Provision for income taxes
    12,846       15,029       17,671       15,562  
Net income
    37,730       45,087       51,899       46,687  
                                 
Net income attributable to noncontrolling interest
    289       991       435       1,101  
Net income attributable to the Company
    37,441       44,096       51,464       45,586  
                                 
Dividends on unvested common stock, net of tax benefit
    (253 )     (236 )     (253 )     (236 )
Net income attributable to common shareholders
  $ 37,188       43,860     $ 51,211       45,350  
                                 
Basic earnings per common share
  $ 0.85       1.02     $ 1.17       1.06  
Basic weighted average shares outstanding
    43,718,678       42,933,918       43,661,976       42,890,559  
                                 
Diluted earnings per common share
  $ 0.83       0.99     $ 1.14       1.02  
Diluted weighted average shares outstanding
    44,847,350       44,473,320       44,725,914       44,390,612  
                                 
Other comprehensive income:
                               
Net income attributable to the Company
  $ 37,441       44,096     $ 51,464       45,586  
Foreign currency translation adjustments
    (42,007 )     14,739       (6,333 )     50,124  
Comprehensive (loss) income attributable to the Company
  $ (4,566 )     58,835     $ 45,131       95,710  
 
See accompanying notes to consolidated financial statements.
 
JONES LANG LASALLE INCORPORATED
Consolidated Statement of Changes in Equity
For the Six Months Ended June 30, 2012
($ in thousands, except share data) (unaudited)

   
Company Shareholders' Equity
             
               
Additional
         
Shares
   
Other
             
   
Common Stock
   
Paid-In
   
Retained
   
Held in
   
Comprehensive
   
Noncontrolling
   
Total
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
Trust
   
Loss
   
Interest
   
Equity
 
Balances at December 31, 2011
    43,470,271     $ 435       904,968       827,297       (7,814 )     (33,757 )     3,251     $ 1,694,380  
                                                                 
Net income
                      51,464                   435       51,899  
                                                                 
Shares issued under stock compensation programs
    371,423       4       3,099                               3,103  
                                                                 
Shares repurchased for payment of taxes on stock awards
    (63,531 )     (1 )     (3,924 )                             (3,925 )
                                                                 
Tax adjustments due to vestings and exercises
                3,184                               3,184  
                                                                 
Amortization of stock compensation
                19,693                               19,693  
                                                                 
Shares held in trust
                            663                   663  
                                                                 
Dividends declared, $0.20 per share
                      (9,091 )                       (9,091 )
                                                                 
Increase in amounts due to noncontrolling interest
                                        1,138       1,138  
                                                                 
Foreign currency translation adjustments
                                  (6,333 )           (6,333 )
                                                                 
Balances at June 30, 2012
    43,778,163     $ 438       927,020       869,670       (7,151 )     (40,090 )     4,824     $ 1,754,711  
 
See accompanying notes to consolidated financial statements.

 
5


JONES LANG LASALLE INCORPORATED
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2012 and 2011
($ in thousands) (unaudited)

   
Six
   
Six
 
   
Months Ended
   
Months Ended
 
   
June 30, 2012
   
June 30, 2011
 
             
Cash flows used in operating activities:
           
Net income
  $ 51,899       46,687  
Reconciliation of net income to net cash used in operating activities:
         
Depreciation and amortization
    39,621       37,665  
Equity in earnings from real estate ventures
    (11,802 )     (2,168 )
Operating distributions from real estate ventures
    1,573       38  
Provision for loss on receivables and other assets
    11,375       9,535  
Amortization of deferred compensation
    20,038       18,252  
Accretion of interest on deferred business acquisition obligations
    7,641       10,502  
Amortization of debt issuance costs
    2,155       2,229  
Change in:                
Receivables
    70,173       (8,556 )
Prepaid expenses and other assets
    (30,969 )     (621 )
Deferred tax assets, net
    (6,034 )     15,717  
Excess tax benefit from share-based payment arrangements
    (3,184 )     (5,032 )
Accounts payable, accrued liabilities and accrued compensation
    (275,104 )     (260,560 )
Net cash used in operating activities
    (122,618 )     (136,312 )
                 
Cash flows used in investing activities:
               
Net capital additions – property and equipment
    (32,486 )     (36,195 )
Business acquisitions
    (14,380 )     (222,527 )
Capital contributions and advances to real estate ventures
    (11,588 )     (11,957 )
Distributions, repayments of advances and sale of investments
    32,556       12,752  
Net cash used in investing activities
    (25,898 )     (257,927 )
                 
Cash flows from financing activities:
               
Proceeds from borrowings under credit facilities
    995,007       851,102  
Repayments of borrowings under credit facilities
    (884,500 )     (588,100 )
Payments of deferred business acquisition obligations
    (31,699 )     (12,602 )
Debt issuance costs
    -       (2,475 )
Shares repurchased for payment of employee taxes on stock awards
    (3,925 )     (9,159 )
Excess tax adjustment from share-based payment arrangements
    3,184       5,032  
Common stock issued under option and stock purchase programs
    3,103       913  
Other loan proceeds
    7,482       -  
Payment of dividends
    (9,091 )     (6,754 )
Net cash provided by financing activities
    79,561       237,957  
                 
Net decrease in cash and cash equivalents
    (68,955 )     (156,282 )
Cash and cash equivalents, beginning of the period
    184,454       251,897  
Cash and cash equivalents, end of the period
  $ 115,499       95,615  
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 6,180       5,270  
Income taxes, net of refunds
    33,594       27,216  
Non-cash financing activities:
               
Deferred business acquisition obligations
  $ 1,290       143,526  
Provision recorded for potential earn-out obligations
    1,059       3,023  
 
See accompanying notes to consolidated financial statements.
 

JONES LANG LASALLE INCORPORATED

Notes to Consolidated Financial Statements (Unaudited)
Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle Incorporated (“Jones Lang LaSalle,” which may also be referred to as “the Company” or as “the firm,” “we,” “us” or “our”) for the year ended December 31, 2011, which are included in our 2011 Annual Report, filed with the United States Securities and Exchange Commission (“SEC”) and also available on our website (www.joneslanglasalle.com), since we have omitted from this report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to the “Summary of Critical Accounting Policies and Estimates” section within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this quarterly report and within Item 7 of our 2011 Annual Report, and to Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in our 2011 Annual Report for further discussion of our significant accounting policies and estimates.
 
(1) Interim Information
Our consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods have been included. Certain prior year amounts have been reclassified to conform to the current year presentation.

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 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 toward the benefit of our clients. Within our Real Estate Services (“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. Non-variable operating expenses, which we treat as expenses when they are incurred during the year, are relatively constant on a quarterly basis. As such, the results for the periods ended June 30, 2012 and 2011 are not indicative of what our results will be for the full fiscal year.
 
(2) New Accounting Standards
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the components of net income and other comprehensive income either in a single continuous statement or in two consecutive statements. To meet the requirements of ASU 2011-05, we have presented other comprehensive (loss) income and its components in our consolidated statement of comprehensive (loss) income starting in 2012.
 
(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 service unless future contingencies exist. If future contingencies exist, we defer recognition of this revenue until the respective contingencies have been satisfied.

We recognize advisory and management fees related to property management services, valuation services, corporate property services, consulting services and investment management as income in the period in which we perform the related services.

We recognize incentive fees based on the performance of underlying funds’ investments, contractual benchmarks and other contractual formulas.

We recognize project and development management and construction management fees by applying the percentage of completion method of accounting. We use the efforts expended method to determine the extent of progress towards completion for project and development management fees and costs incurred to total estimated costs for construction management fees.

 
7

 
Construction management fees, which are gross construction services revenue net of subcontract costs, were $1.6 million and $2.2 million for the three months ended June 30, 2012 and 2011, respectively, and $3.3 million and $4.6 million for the six months ended June 30, 2012 and 2011 , respectively. Gross construction services revenue totaled $25.3 million and $31.3 million for the three months ended June 30, 2012 and 2011, respectively, and $57.1 million and $74.6 million for the six months ended June 30, 2012 and 2011, respectively. Subcontract costs totaled $23.7 million and $29.1 million for the three months ended June 30, 2012 and 2011, respectively, and $53.8 million and $70.0 million for the six months ended June 30, 2012 and 2011, respectively.

Included in our consolidated balance sheets were costs in excess of billings on uncompleted construction contracts of $4.6 million and $7.1 million in Trade receivables as of June 30, 2012 and December 31, 2011, respectively, and billings in excess of costs on uncompleted construction contracts of $4.1 million in Deferred income at both June 30, 2012 and December 31, 2011.

Gross and Net Accounting: We follow the guidance of FASB 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 a fixed fee billing, fully inclusive of all personnel and other recoverable expenses incurred but not separately scheduled, on a gross basis. When accounting on a gross basis, our reported revenue includes the full billing 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 in facility management, tend to have characteristics that result in accounting on a gross basis. In Note 4, Business Segments, we identify vendor and subcontract costs on certain client assignments in property and facilities management, and project and development services (“gross contract costs”), and present separately their impact on both revenue and operating expense in our RES segments. We exclude these 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 Jones Lang LaSalle is generally completed simultaneously with payment of payroll or soon thereafter;

 
·
Because the property owner is contractually obligated to fund all operating costs of the property from existing cash flow or direct funding from its building operating account, Jones Lang LaSalle bears little or no credit risk; and

 
·
Jones Lang LaSalle generally earns no margin in the reimbursement aspect of the arrangement, obtaining reimbursement only for actual costs incurred.

The majority of our service contracts are accounted for on a net basis. Total costs incurred and reimbursed by our clients for service contracts that were accounted for on a net basis were $342.1 million and $359.0 million for the three months ended June 30, 2012 and 2011, respectively, and $761.3 million and $728.3 million for the six months ended June 30, 2012 and 2011, respectively.

Contracts accounted for on a gross basis resulted in certain costs reflected in revenue and operating expenses of $69.1 million and $50.0 million for the three months ended June 30, 2012 and 2011, respectively, and $137.6 million and $96.8 million for the six months ended June 30, 2012 and 2011, respectively.

Certain of our management services which provide for fixed fees inclusive of personnel and other expenses incurred were accounted for on a net basis in 2011. In 2012, these management services revenue and expenses are presented on a gross basis. For the three and six months ended June 30, 2011, gross accounting for these management services would have added $18.7 million and $37.4 million, respectively, to both revenue and expense.

The presentation of expenses pursuant to all of these arrangements under either a gross or net basis has no impact on operating income, net income or cash flows.
 
 
8

 
(4) Business Segments
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 management, energy management and sustainability, construction management, and advisory, consulting and valuation services.

The Investment Management segment provides investment management services to institutional investors and high-net-worth individuals.

Operating income (loss) represents total revenue less direct and indirect allocable expenses. We allocate all 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. We allocate these corporate global overhead expenses to the business segments based on the budgeted operating expenses of each segment.

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, for additional information on our gross and net accounting.  For segment reporting we also show Equity in (losses) earnings from real estate ventures within total segment revenue, since it is an integral part of our Investment Management segment. Finally, our measure of segment results also excludes restructuring charges and certain acquisition related costs.

The Chief Operating Decision Maker of Jones Lang LaSalle measures the segment results net of gross contract costs, with equity in (losses) earnings from real estate ventures, and without restructuring charges. We define the Chief Operating Decision Maker collectively as our Global Executive Committee, which is comprised of our Global Chief Executive Officer, Global Chief Operating and Financial Officer and the Chief Executive Officers of each of our reporting segments.

Summarized unaudited financial information by business segment for the three and six months ended June 30, 2012 and 2011 is as follows ($ in thousands):

   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30, 2012
   
June 30, 2011
   
June 30, 2012
   
June 30, 2011
 
Real Estate Services
                       
Americas
                       
Segment revenue:
                       
Revenue
  $ 408,398       346,407       754,620       633,854  
Equity in (losses) earnings
    (258 )     1,980       (208 )     2,632  
Total segment revenue
    408,140       348,387       754,412       636,486  
                                 
Gross contract costs
    (21,465 )     (1,761 )     (38,715 )     (3,314 )
Total segment fee revenue
    386,675       346,626       715,697       633,172  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    359,256       306,353       683,806       575,908  
Depreciation and amortization
    10,496       9,558       20,380       19,466  
Total segment operating expenses
    369,752       315,911       704,186       595,374  
                                 
Gross contract costs
    (21,465 )     (1,761 )     (38,715 )     (3,314 )
Total fee-based segment operating expenses
    348,287       314,150       665,471       592,060  
                                 
Operating income
  $ 38,388       32,476       50,226       41,112  
 
 
9

 
Continued: Summarized unaudited financial information by business segment for the three and six months ended June 30, 2012 and 2011 is as follows ($ in thousands):

   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30, 2012
   
June 30, 2011
   
June 30, 2012
   
June 30, 2011
 
Real Estate Services
                       
EMEA
                       
Segment revenue:
                       
Revenue
  $ 249,318       218,178       462,495       386,421  
Equity in losses
    (85 )     (197 )     (70 )     (309 )
Total segment revenue
    249,233       217,981       462,425       386,112  
                                 
Gross contract costs
    (26,625 )     (22,931 )     (52,964 )     (43,535 )
Total segment fee revenue
    222,608       195,050       409,461       342,577  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    230,597       205,970       448,092       382,280  
Depreciation and amortization
    5,683       5,593       11,885       10,503  
Total segment operating expenses
    236,280       211,563       459,977       392,783  
                                 
Gross contract costs
    (26,625 )     (22,931 )     (52,964 )     (43,535 )
Total fee-based segment operating expenses
    209,655       188,632       407,013       349,248  
                                 
Operating income (loss)
  $ 12,953       6,418       2,448       (6,671 )
                                 
Asia Pacific
                               
Segment revenue:
                               
Revenue
  $ 204,513       214,378       390,876       379,827  
Equity in earnings
    62       94       114       94  
Total segment revenue
    204,575       214,472       390,990       379,921  
                                 
Gross contract costs
    (21,060 )     (25,346 )     (45,879 )     (49,986 )
Total segment fee revenue
    183,515       189,126       345,111       329,935  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    188,058       189,749       364,418       346,748  
Depreciation and amortization
    3,326       3,129       6,414       6,074  
Total segment operating expenses
    191,384       192,878       370,832       352,822  
                                 
Gross contract costs
    (21,060 )     (25,346 )     (45,879 )     (49,986 )
Total fee-based segment operating expenses
    170,324       167,532       324,953       302,836  
                                 
Operating income
  $ 13,191       21,594       20,158       27,099  
                                 
Investment Management
                               
Segment revenue:
                               
Revenue
  $ 59,112       66,332       126,644       133,055  
Equity in earnings (losses)
    234       2,261       11,966       (249 )
Total segment revenue
    59,346       68,593       138,610       132,806  
                                 
Operating expenses:
                               
Compensation, operating and administrative expenses
    48,782       52,194       100,488       106,812  
Depreciation and amortization
    457       1,070       943       1,621  
Total segment operating expenses
    49,239       53,264       101,431       108,433  
                                 
Operating income
  $ 10,107       15,329       37,179       24,373  
                                 
Segment Reconciling Items:
                               
Total segment revenue
  $ 921,294       849,433       1,746,437       1,535,325  
Reclassification of equity in (losses) earnings
    (47 )     4,138       11,802       2,168  
Total revenue
    921,341       845,295       1,734,635       1,533,157  
                                 
Total segment operating expenses before restructuring charges
    846,655       773,616       1,636,426       1,449,412  
Restructuring charges
    16,604       6,112       25,556       6,112  
Operating income
  $ 58,082       65,567       72,653       77,633  
 
 
10

 
(5) Business Combinations, Goodwill and Other Intangible Assets

2012 Business Combinations Activity
In the first six months of 2012, we paid $14.4 million for acquisitions consisting of $2.8 million to acquire an Australian tenant advisory firm, MPS Property, and $11.6 million for contingent earn-out consideration for acquisitions completed in prior years. We also paid $31.7 million to satisfy deferred acquisition obligations, primarily for the 2011 King Sturge acquisition.

Terms of the MPS Property acquisition included (1) consideration subject only to the passage of time recorded as deferred business acquisition obligations at a current fair value of $1.3 million, and (2) additional consideration subject to earn-out provisions that will be paid only if certain conditions are achieved, recorded as a current liability, at its estimated fair value of $1.1 million. This acquisition resulted in goodwill of $5.0 million.

During the six months ended June 30, 2012, we finalized the purchase price allocation of the net assets acquired in the 2011 King Sturge acquisition resulting in $3.4 million of additional goodwill.

Earn-Out Payments
At June 30, 2012, we had the potential to make earn-out payments on 13 acquisitions that are subject to the achievement of certain performance conditions. The maximum amount of the potential earn-out payments for these acquisitions was $139.8 million at June 30, 2012. Assuming the achievement of the applicable performance conditions, we anticipate that the majority of these earn-out payments will come due by the end of 2013, with the remaining payments coming due at various times through 2015.

Approximately $127.5 million of these potential earn-out payments are the result of acquisitions completed prior to the adoption of the fair value requirements for contingent consideration under ASC 805, “Business Combinations,” and thus will be recorded as additional purchase consideration if and when the contingency is met. Changes in the estimated fair value of the remaining $12.3 million of potential earn-out payments will result in increases or decreases in Operating, administrative and other expenses in our consolidated statements of comprehensive (loss) income. The fair value of these contingent payments is based on discounted cash flow models that reflect our projection of operating results of  each respective acquisition and are based on Level 3 inputs in the fair value hierarchy.

Goodwill and Other Intangible Assets
We have $1.8 billion of unamortized intangibles and goodwill as of June 30, 2012. A significant portion of these unamortized intangibles and goodwill are denominated in currencies other than U.S. dollars, which means that a portion of the movements in the reported book value of these balances are attributable to movements in foreign currency exchange rates. The tables below detail the foreign exchange impact on our intangible and goodwill balances. Of the $1.8 billion of unamortized intangibles and goodwill: (1) goodwill of $1.8 billion with indefinite useful lives is not amortized, (2) identifiable intangibles of $37.2 million will be amortized over their remaining finite useful lives, and (3) $8.6 million of identifiable intangibles with indefinite useful lives is not amortized.

The following table details, by reporting segment, the current year movements in goodwill with indefinite useful lives ($ in thousands):
 
   
Real Estate Services
             
               
Asia
   
Investment
       
   
Americas
   
EMEA
   
Pacific
   
Management
   
Consolidated
 
Gross Carrying Amount
                             
Balance as of January 1, 2012
  $ 922,301       592,634       217,434       18,838       1,751,207  
Additions, net of adjustments
    6,315       9,143       5,033       -       20,491  
Impact of exchange rate movements
    (240 )     (4,432 )     (91 )     43       (4,720 )
Balance as of June 30, 2012
  $ 928,376       597,345       222,376       18,881       1,766,978  

 
11


The following table details, by reporting segment, the current year movements in the gross carrying amount and accumulated amortization of our identifiable intangibles ($ in thousands):
 
   
Real Estate Services
             
               
Asia
   
Investment
       
   
Americas
   
EMEA
   
Pacific
   
Management
   
Consolidated
 
Gross Carrying Amount
                             
Balance as of January 1, 2012
  $ 87,077       44,107       12,419       8,788       152,391  
Additions
    1,062       -       113       -       1,175  
Adjustment for fully amortized intangibles
    -       (3,700 )     -       -       (3,700 )
Impact of exchange rate movements
    -       173       24       (39 )     158  
Balance as of June 30, 2012
  $ 88,139       40,580       12,556       8,749       150,024  
                                         
Accumulated Amortization
                                       
Balance as of January 1, 2012
  $ (64,662 )     (24,104 )     (10,887 )     (148 )     (99,801 )
Amortization expense
    (3,587 )     (3,857 )     (694 )     -       (8,138 )
Adjustment for fully amortized intangibles
    -       3,700       -       -       3,700  
Impact of exchange rate movements
    -       (8 )     (18 )     3       (23 )
Balance as of June 30, 2012
  $ (68,249 )     (24,269 )     (11,599 )     (145 )     (104,262 )
                                         
Net book value as of June 30, 2012
  $ 19,890       16,311       957       8,604       45,762  
 
The following table shows the remaining estimated future amortization expense for our identifiable intangibles with finite useful lives at June 30, 2012 ($ in thousands):

2012  (6 months)
  $ 4,828  
2013
    7,648  
2014
    6,776  
2015
    5,768  
2016
    2,531  
2017
    2,439  
Thereafter
    7,169  
Total
  $ 37,159  
 
(6) Investments in Real Estate Ventures
As of June 30, 2012, we had total investments in real estate ventures of $210.8 million that we account for primarily under the equity method of accounting. Our investments are primarily co-investments in approximately 40 funds for which we also have an advisory agreement. Our ownership percentages in these investments generally range from less than 1% to approximately 15%.

We utilize two investment vehicles to facilitate the majority of our co-investment activity when we do not invest directly into a fund. LaSalle Investment Company I (“LIC I”) is our investment vehicle for substantially all co-investment commitments made through December 31, 2005. LIC I is fully committed to underlying real estate ventures. At June 30, 2012, our maximum potential unfunded commitment to LIC I is $4.7 million (€3.7 million). LaSalle Investment Company II (“LIC II”) is our investment vehicle for substantially all co-investment commitments made after December 31, 2005. At June 30, 2012, LIC II has unfunded capital commitments to the underlying funds of $200.7 million, of which our 48.78% share is $97.9 million. The $97.9 million commitment is part of our maximum potential unfunded total commitment to LIC II at June 30, 2012 of $182.9 million. Exclusive of our LIC I and LIC II commitment structures, we have other potential unfunded commitment obligations, the maximum of which is $92.9 million as of June 30, 2012.

LIC I and LIC II invest in certain real estate ventures that own and operate commercial real estate. We have an effective 47.85% ownership interest in LIC I, and an effective 48.78% ownership interest in LIC II; primarily institutional investors hold the remaining 52.15% and 51.22% interests in LIC I and LIC II, respectively. Additionally, a non-executive Director of Jones Lang LaSalle is an investor in LIC I on equivalent terms to other investors.

 
12


LIC I’s and LIC II’s exposures to liabilities and losses of the ventures are limited to their existing capital contributions and remaining capital commitments. We expect that LIC I will draw down on our remaining commitment over the next one to two years to satisfy its existing commitments to underlying funds, and we expect that LIC II will draw down on our commitment over the next four to eight years as it enters into new commitments. Our Board of Directors has approved the use of our co-investment capital in particular situations to control existing real estate assets or portfolios to seed future investments within LIC II.

As of June 30, 2012, LIC II maintains a $60.0 million revolving credit facility (the “LIC II Facility”), principally for working capital needs. The LIC II Facility contains a credit rating trigger and a material adverse condition clause. If either the credit rating trigger or the material adverse condition clause becomes triggered, the facility would be in default and outstanding borrowings would need to be repaid. Such a condition would require us to fund our pro-rata share of the then outstanding balance on LIC II, which is the limit of our liability. The maximum exposure to Jones Lang LaSalle, assuming that the LIC II Facility was fully drawn, would be $29.3 million. The exposure is included within and cannot exceed our maximum potential unfunded commitment to LIC II of $182.9 million. As of June 30, 2012, LIC II had $46.7 million of outstanding borrowings on the facility.

Our investments in real estate ventures include investments in entities classified as variable interest entities (“VIEs”) that we analyze for potential consolidation. We had investments of $11.0 million and $22.3 million at June 30, 2012 and December 31, 2011, respectively, in entities classified as VIEs. We evaluate each of these VIEs to determine whether we might have the power to direct the activities that most significantly impact the entity’s economic performance.  In each case, we determined that we either (a) did not have the power to direct the key activities or (b) shared power with investors, lenders, or other actively-involved third parties. Additionally, our exposure to loss in these VIEs is limited to the amount of our investment in the entities. Therefore, we concluded that we would not be deemed to (1) have a controlling financial interest in or (2) be the primary beneficiary of these VIEs. Accordingly, we do not consolidate these VIEs in our consolidated financial statements.

Impairment
We review our investments in real estate ventures that are accounted for under the equity method of accounting on a quarterly basis for indications of (1) whether the carrying value of the real estate assets underlying our investments in real estate ventures may not be recoverable or (2) whether our equity in these investments is other than temporarily impaired. When events or changes in circumstances indicate that the carrying amount of a real estate asset underlying one of our investments in real estate ventures may be impaired, we review the recoverability of the carrying amount of the real estate asset in comparison to an estimate of the future undiscounted cash flows expected to be generated by the underlying asset. When the carrying amount of the real estate asset is in excess of the future undiscounted cash flows, we use a discounted cash flow approach to determine the fair value of the asset in computing the amount of the impairment. Equity in (losses) earnings from real estate ventures included impairment charges of $2.7 million and $1.1 million, for the three months ended June 30, 2012 and 2011, respectively, and $4.3 million and $2.9 million, for the six months ended June 30, 2012 and 2011, respectively, representing our share of the impairment charges against individual assets held by our real estate ventures.

Fair Value
Starting in the third quarter of 2011, we elected the fair value option for certain investments in real estate ventures because we believe the fair value accounting method more accurately represents the value and performance of these investments. At June 30, 2012 and December 31, 2011, we had $32.7 million and $35.4 million, respectively, of investments that were accounted for under the fair value method. For investments in real estate ventures for which the fair value option has been elected, we increase or decrease our investment each reporting period by the change in the fair value of these investments. These fair value adjustments are reflected as gains or losses in our consolidated statements of comprehensive (loss) income within Equity in (losses) earnings from real estate ventures. For the three and six months ended June 30, 2012 we recognized fair value losses of $1.6 million and $1.2 million, respectively, and no fair value adjustments were recognized during the three and six months ended June 30, 2011. The fair value of these investments is based on discounted cash flow models and other assumptions that reflect our outlook for the commercial real estate market relative to these real estate assets and is primarily based on inputs that are Level 3 inputs in the fair value hierarchy. See Note 9, Fair Value Measurements, for further detail on our fair value accounting.
 
The following table shows the current year movements in our investments in real estate ventures that are accounted for under the fair value accounting method ($ in thousands):
 
Fair value investments as of January 1, 2012
  $ 35,430  
Investments
    1,816  
Distributions
    (3,072 )
Net fair value loss
    (1,248 )
Foreign currency translation adjustments, net
    (199 )
Fair value investments as of June 30, 2012
  $ 32,727  


(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 a primary element of our compensation program for Company officers, managers and professionals.

Historically a significant portion of restricted stock units granted each year have been granted in the first quarter of the year under our Stock Ownership Program (the “SOP”). The SOP generally required that from 10% to 20% of incentive compensation (or “bonus”) of our senior-most 5% of employees be deferred and delivered in restricted stock units. Under the SOP plan we have granted approximately 365,000, 212,000 and 297,000 shares of restricted stock in the first quarters of 2012, 2011 and 2010, respectively. In the second quarter of 2012, we terminated the SOP in connection with incentive compensation payments for 2012 performance. Since the start of the SOP, our employee population has grown significantly and other aspects of our compensation programs have evolved, as a result of which we have determined that (1) there are other more targeted and strategic approaches we can take in order to enhance our equity incentive compensation programs, and (2) we can do so in a way that will be less dilutive to shareholders than the SOP would be if we continued this plan. We anticipate that the termination of the SOP will significantly change the timing and number of restricted stock units granted annually starting in 2013.

Restricted stock unit activity for the three months ended June 30, 2012 is as follows:

         
Weighted Average
 
Weighted Average
 
Aggregate
 
   
Shares
   
Grant Date
 
Remaining
 
Intrinsic Value
 
   
(thousands)
   
Fair Value
 
Contractual Life
 
($ in millions)
 
Unvested at April 1, 2012
    1,703.7     $ 68.59          
Granted
    16.0       70.49          
Vested
    (3.5 )     116.79          
Forfeited
    (4.1 )     71.88          
Unvested at June 30, 2012
    1,712.1     $ 68.50  
2.06 years
  $ 136.8  
Unvested shares expected to vest
    1,660.4     $ 68.51  
2.06 years
  $ 132.7  

Restricted stock unit activity for the six months ended June 30, 2012 is as follows:

         
Weighted Average
 
Weighted Average
 
Aggregate
 
   
Shares
   
Grant Date
 
Remaining
 
Intrinsic Value
 
   
(thousands)
   
Fair Value
 
Contractual Life
 
($ in millions)
 
Unvested at January 1, 2012
    1,362.3     $ 66.29          
Granted
    577.2       66.99          
Vested
    (217.4 )     50.31          
Forfeited
    (10.0 )     76.51          
Unvested at June 30, 2012
    1,712.1     $ 68.50  
2.06 years
  $ 136.8  
Unvested shares expected to vest
    1,660.4     $ 68.51  
2.06 years
  $ 132.7  

We determine the fair value of restricted stock units based on the market price of the Company’s common stock on the grant date. As of June 30, 2012, we had $42.4 million of remaining unamortized deferred compensation related to unvested restricted stock units. We will recognize the remaining cost of unvested restricted stock units outstanding at June 30, 2012 over varying periods into 2017.

Shares vesting during the three months ended June 30, 2012 and 2011 had grant date fair values of $0.4 million and $1.7 million, respectively. Shares vesting during the six months ended June 30, 2012 and 2011 had grant date fair values of $10.9 million and $18.2 million, respectively.

Other Stock Compensation Programs
The Jones Lang LaSalle Savings Related Share Option Plan (“Save As You Earn” or “SAYE”) is for eligible employees of our United Kingdom and Ireland based operations. Under this plan, employees make an annual election to contribute to the plan to purchase stock at a 15% discount from the market price at the beginning of the plan’s three and five year vesting periods. In June 2012, we issued approximately 127,400 options under the SAYE plan at an exercise price of $59.26. In March 2011, we issued approximately 17,000 options at an exercise price of $83.72.  At June 30, 2012, there were approximately 251,700 options outstanding under the SAYE plan.

 
14


(8) Retirement Plans
We maintain five contributory defined benefit pension plans in the United Kingdom, Ireland and Holland to provide retirement benefits to eligible employees. It is our policy to fund the minimum annual contributions required by applicable regulations. We use a December 31st measurement date for our plans.  Net periodic pension cost consisted of the following for the three and six months ended June 30, 2012 and 2011 ($ in thousands):

   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30, 2012
   
June 30, 2011
   
June 30, 2012
   
June 30, 2011
 
Employer service cost – benefits earned during the period
  $ 992       835       1,984       1,645  
Interest cost on projected benefit obligation
    3,537       2,809       7,067       5,556  
Expected return on plan assets
    (4,315 )     (3,415 )     (8,620 )     (6,757 )
Net amortization of deferrals
    523       321       1,045       636  
Recognized actuarial loss
    39       56       78       112  
Net periodic pension cost
  $ 776       606       1,554       1,192  

The expected return on plan assets, included in net periodic pension cost, is based on forecasted long-term rates of return on plan assets of each individual plan; expected returns range from 5.4% to 7.0%.

For the three and six months ended June 30, 2012, we made payments of $2.2 million and $4.6 million, respectively, to these plans.  We expect to contribute an additional $7.2 million to these plans in the last six months of 2012, for a total of $11.2 million in 2012. We made $19.8 million of contributions to these plans in 2011, including $11.8 million of contributions to the plan acquired from King Sturge in May 2011.
 
(9) Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures,” establishes a framework for measuring fair value in generally accepted accounting principles and establishes the following three-tier fair value hierarchy:

 
·
Level 1. Observable inputs such as quoted prices for identical assets or liabilities in active markets;

 
·
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 
·
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. We determine the fair value of these contracts based on current market rates at each balance sheet date.  The inputs for these valuation techniques are primarily Level 2 inputs. At June 30, 2012, these forward exchange contracts had a gross notional value of $1.6 billion ($666.6 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $9.1 million and a current liability of $6.5 million. At December 31, 2011, these forward exchange contracts had a gross notional value of $1.7 billion ($758.2 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $4.2 million and a current liability of $5.6 million. Gains and losses from the revaluation of these contracts are recognized as a component of Operating, administrative and other expense and are off-set by the gains and losses recognized on the revaluation of intercompany loans and other foreign currency balances such that the net impact to earnings was not significant. The revaluations of the foreign currency forward contracts outstanding at June 30, 2012 and 2011 resulted in net gains of $2.6 million and $3.2 million, respectively.

We maintain a deferred compensation plan for certain of our U.S. employees that allows them to defer portions of their compensation. The values of the assets and liabilities of this plan are determined based on the returns of certain mutual funds and other securities. The inputs for these valuations are primarily Level 2 inputs in the fair value hierarchy. This plan is recorded on our consolidated balance sheet at June 30, 2012 as Other long-term assets of $49.5 million, Other long-term liabilities of $52.7 million, and as a reduction of equity, Shares held in trust, of $7.2 million. This plan is recorded on our consolidated balance sheet at December 31, 2011 as Other long-term assets of $39.1 million, Other long-term liabilities of $46.7 million, and as a reduction of equity, Shares held in trust, of $7.8 million.

See Note 6, Investments in Real Estate Ventures, for fair value measurements relating to our investments in real estate ventures. Also, see Note 5, Business Combinations, Goodwill and Other Intangible Assets, for fair value measurements related to our earn-out obligations that are valued based on the fair value requirements for contingent consideration under ASC 805, “Business Combinations”.

 
15


Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, receivables, accounts payable, short-term borrowings, borrowings under our credit facility and foreign currency forward contracts. The carrying values of cash and cash equivalents, receivables, accounts payable and short-term borrowings approximate their estimated fair values due to the short maturity of these instruments.

The estimated fair value of our borrowings under our credit facility approximates their carrying value due to their variable interest rate terms. At June 30, 2012, we have no recurring fair value measurements for financial assets and liabilities that are based on Level 3 inputs.
 
(10) Debt
We have a $1.1 billion unsecured revolving credit facility (the “Facility”) that matures in June 2016. We had $619.0 million and $463.0 million outstanding under the Facility, at June 30, 2012 and December 31, 2011, respectively. The average outstanding borrowings under the Facility were $760.0 million and $435.8 million during the three months ended June 30, 2012 and 2011, respectively, and $661.0 million and $332.2 million during the six months ended June 30, 2012 and 2011, respectively.

The pricing on the Facility ranges from LIBOR plus 112.5 basis points to LIBOR plus 225.0 basis points. As of June 30, 2012, pricing on the Facility was LIBOR plus 162.5 basis points. The effective interest rate on our debt was 1.5% and 1.9%, during the three months ended June 30, 2012 and 2011, respectively, and 1.6% and 2.1%, during the six months ended June 30, 2012 and 2011, respectively.

We remain in compliance with all covenants under our Facility as of June 30, 2012. The Facility requires us to maintain a leverage ratio that does not exceed 3.50 to 1 through September 2013 and 3.25 to 1 thereafter, and a minimum cash interest coverage ratio of 3.00 to 1.

In addition to our Facility, we have the capacity to borrow up to an additional $45.4 million under local overdraft facilities. We had short-term borrowings (including capital lease obligations and local overdraft facilities) of $19.6 million and $65.1 million at June 30, 2012 and December 31, 2011, respectively, of which $16.1 million and $38.7 million at June 30, 2012 and December 31, 2011, respectively, was attributable to local overdraft facilities.

(11) Earnings Per Share and Net Income Attributable to Common Shareholders
We calculate earnings per share by dividing net income available to common shareholders by weighted average shares outstanding. To calculate net income attributable to common shareholders, we subtract dividend-equivalents (net of tax) paid on outstanding but unvested shares of restricted stock units from net income in the period the dividend is declared. Included in the calculations of net income attributable to common shareholders are dividend-equivalents of $0.3 million net of tax, declared and paid in the three months ended June 30, 2012, and $0.2 million net of tax, declared and paid in the three months ended June 30, 2011.

The difference between basic weighted average shares outstanding and diluted weighted average shares outstanding is the dilutive impact of common stock equivalents. Common stock equivalents consist of shares to be issued under employee stock compensation programs.

The following table details the calculations of basic and diluted earnings per common share for the three and six months ended June 30, 2012 and 2011 ($ in thousands):

   
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income attributable to the Company
  $ 37,441       44,096       51,464       45,586  
Dividends on unvested common stock, net of tax benefit
    253       236       253       236  
Net income attributable to common shareholders
  $ 37,188       43,860       51,211       45,350  
                                 
Basic weighted average shares outstanding
    43,718,678       42,933,918       43,661,976       42,890,599  
Basic income per common share before dividends on unvested common stock
    0.86       1.03       1.18       1.06  
Dividends on unvested common stock, net of tax benefit
    (0.01 )     (0.01 )     (0.01 )     -  
Basic earnings per common share
  $ 0.85       1.02       1.17       1.06  
                                 
Diluted weighted average shares outstanding
    44,847,350       44,473,320       44,725,914       44,390,612  
Diluted income per common share before dividends on unvested common stock
  $ 0.83       0.99       1.15       1.03  
Dividends on unvested common stock, net of tax benefit
    -       -       (0.01 )     (0.01 )
Diluted earnings per common share
  $ 0.83       0.99       1.14       1.02  
 
 
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(12) Commitments and Contingencies
We are a defendant in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Many of these litigation matters are covered by insurance (including insurance provided through a captive insurance company), although they may nevertheless be subject to large deductibles and the amounts being claimed may exceed the available insurance. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial position, results of operations or liquidity.

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.

When a potential loss event occurs, management estimates the ultimate cost of the claim and accrues the related cost when probable and estimable. The accrual for professional indemnity insurance claims facilitated through our captive insurance company which relates to multiple years was $0.8 million and $0.7 million, net of receivables, as of June 30, 2012 and December 31, 2011, respectively.

(13) Restructuring and Acquisition Charges
For the three and six months ended June 30, 2012, we recognized $16.6 million and $25.6 million, respectively, of restructuring and acquisition integration costs consisting of (1) severance, (2) King Sturge employee retention bonuses, (3) lease exit charges, and (4) other acquisition and information technology integration costs.

For the three and six months ended June 30, 2011, we recognized $6.1 million of restructuring and acquisition integration costs related to the King Sturge acquisition.

The following table shows the restructuring and acquisition accrual activity, and the related payments made during the six months ended June 30, 2012 and 2011 ($ in thousands):

                     
Other
       
         
Retention
   
Lease
   
Acquisition
       
   
Severance
   
Bonuses
   
Exit
   
Costs
   
Total
 
January 1, 2012
  $ 11,712       7,555       7,912       4,778       31,957  
Accruals
    2,973       6,687       6,634       9,262       25,556  
Fixed asset disposals
    -       -       -       (1,706 )     (1,706 )
Payments made
    (9,449 )     (2,162 )     (1,172 )     (5,646 )     (18,429 )
June 30, 2012
  $ 5,236       12,080       13,374       6,688       37,378  

                     
Other
       
         
Retention
   
Lease
   
Acquisition
       
   
Severance
   
Bonuses
   
Exit
   
Costs
   
Total
 
January 1, 2011
  $ 4,267       -       546       -       4,813  
Accruals
    -       3,154       -       2,958       6,112  
Payments made
    (3,365 )     -       (528 )     (1,941 )     (5,834 )
June 30, 2011
  $ 902       3,154       18       1,017       5,091  
 
We expect that accrued severance and accrued acquisition and other costs will be paid during 2012.  Payments relating to accrued retention bonuses will be made periodically through the second quarter of 2014.  Lease exit payments are dependent on the terms of various leases, which extend as far as 2017.

(14) Subsequent Events
In July 2012, we completed two acquisitions. We acquired 360 Commercial Partners, an Orange County, California based real estate services firm that specializes in industrial sales and leasing. We also acquired Credo Real Estate, a Singapore-based real estate advisory firm specializing in collective and residential sales, valuations, auctions, research and consultancy.
 
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements, including the notes thereto, for the three and six months ended June 30, 2012, and Jones Lang LaSalle’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2011, which are included in our 2011 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 2011 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 2011 Annual Report 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.
 
Asset Impairments
We have recorded goodwill and other identified intangibles from a series of acquisitions. We also invest in certain real estate ventures that own and operate commercial real estate. We have investments in approximately 40 separate property or fund co-investments with which we have an advisory agreement. Our ownership percentages in these investments range from less than 1% to approximately 15%.
 
Goodwill — We evaluate goodwill for impairment annually by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. During our last annual impairment test, in the third quarter of 2011, we determined that no indicators of impairment existed primarily because (1) our market capitalization has consistently exceeded our book value by a significant margin, (2) our overall financial performance has been solid and improving in the face of mixed economic environments, and (3) forecasts of operating income, EBITDA and cash flows generated by our reporting units appear sufficient to support the book values of net assets of the reporting units.
 
In addition to an annual impairment evaluation, we evaluate whether events or circumstances have occurred in the period subsequent to our annual impairment testing which indicate that it is more likely than not an impairment loss has occurred.
 
It is possible our determination that goodwill for a reporting unit is not impaired could change in the future if both economic conditions and our operating performance deteriorate. We will continue to monitor the relationship between the Company’s market capitalization and book value, as well as the ability of our reporting units to deliver current and projected operating income, EBITDA and cash flows sufficient to support the book values of the net assets of their respective businesses.
 
 
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Investments in Real Estate Ventures — We review investments in real estate ventures accounted for under the equity method of accounting on a quarterly basis for indications of (1) whether the carrying value of the real estate assets underlying our investments in real estate ventures may be recoverable or (2) whether our equity in these investments is other than temporarily impaired. When events or changes in circumstances indicate that the carrying amount of a real estate asset underlying one of our investments in real estate ventu