Item 1. Financial Statements
Item 1. Financial Statements
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
September 30, 2020
December 31, 2019
Assets
(unaudited)
Current assets:
Cash and cash equivalents
$
440.0
451.9
Trade receivables, net of allowance of $81.3 and $68.1
1,439.9
2,034.3
Notes and other receivables
443.1
472.8
Reimbursable receivables
1,357.1
1,671.2
Warehouse receivables
1,750.6
527.1
Short-term contract assets, net of allowance of $2.8 and $-
293.0
333.4
Prepaid & other
444.8
377.9
Total current assets
6,168.5
5,868.6
Property and equipment, net of accumulated depreciation of $775.9 and $660.7
675.4
701.9
Operating lease right-of-use assets
756.8
804.4
Goodwill
4,164.0
4,168.2
Identified intangibles, net of accumulated amortization of $277.0 and $214.8
653.9
682.6
Investments in real estate ventures, including $299.0 and $328.6 at fair value
389.6
404.2
Long-term receivables
239.8
250.2
Deferred tax assets, net
235.3
245.4
Deferred compensation plan
410.7
349.9
Other
208.1
197.2
Total assets
$
13,902.1
13,672.6
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities
$
1,096.7
1,289.4
Reimbursable payables
1,030.3
1,245.8
Accrued compensation & benefits
1,113.7
1,729.2
Short-term borrowings
106.4
120.1
Short-term contract liabilities and deferred income
161.0
158.8
Short-term acquisition-related obligations
92.6
74.4
Warehouse facilities
1,723.8
515.9
Short-term operating lease liabilities
164.0
153.4
Other
313.6
203.2
Total current liabilities
5,802.1
5,490.2
Credit facility, net of debt issuance costs of $9.6 and $12.3
390.4
512.7
Long-term debt, net of debt issuance costs of $2.7 and $3.1
682.9
664.6
Deferred tax liabilities, net
42.9
106.0
Deferred compensation
405.9
374.3
Long-term acquisition-related obligations
39.6
124.1
Long-term operating lease liabilities
705.1
751.2
Other
539.1
436.2
Total liabilities
8,608.0
8,459.3
Redeemable noncontrolling interest
7.9
8.6
Company shareholders' equity:
Common stock, $0.01 par value per share, 100,000,000 shares authorized; 51,968,753 and 51,549,654 shares issued; 51,539,136 and 51,549,654 outstanding
0.5
0.5
Additional paid-in capital
2,008.1
1,962.8
Retained earnings
3,725.9
3,588.3
Treasury stock, at cost, 429,617 and - shares
( 47.8
)
—
Shares held in trust
( 5.6
)
( 5.7
)
Accumulated other comprehensive loss
( 477.4
)
( 427.8
)
Total Company shareholders’ equity
5,203.7
5,118.1
Noncontrolling interest
82.5
86.6
Total equity
5,286.2
5,204.7
Total liabilities, redeemable noncontrolling interest and equity
$
13,902.1
$
13,672.6
See accompanying notes to Condensed Consolidated Financial Statements.
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except share and per share data) (unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Revenue:
Revenue before reimbursements
$
2,091.4
2,545.8
$
6,152.9
6,855.6
Reimbursements
1,886.7
1,949.8
5,591.6
5,727.1
Total revenue
$
3,978.1
4,495.6
$
11,744.5
12,582.7
Operating expenses:
Compensation and benefits
$
1,198.7
1,488.6
$
3,698.5
4,007.2
Operating, administrative and other
649.4
762.0
1,981.5
2,241.4
Reimbursed expenses
1,886.7
1,949.8
5,591.6
5,727.1
Depreciation and amortization
54.9
53.6
166.8
145.6
Restructuring and acquisition charges
33.5
70.0
75.8
114.3
Total operating expenses
$
3,823.2
4,324.0
$
11,514.2
12,235.6
Operating income
$
154.9
171.6
$
230.3
347.1
Interest expense, net of interest income
12.3
18.0
41.8
41.2
Equity earnings
15.0
17.1
1.4
32.3
Other income
2.7
0.7
8.8
1.2
Income before income taxes and noncontrolling interest
160.3
171.4
198.7
339.4
Income tax provision
25.7
42.1
32.2
77.6
Net income
134.6
129.3
166.5
261.8
Net income attributable to noncontrolling interest
2.7
0.4
14.1
0.9
Net income attributable to the Company
131.9
128.9
152.4
260.9
Dividends on unvested common stock, net of tax benefit
—
—
—
0.2
Net income attributable to common shareholders
$
131.9
128.9
$
152.4
260.7
Basic earnings per common share
$
2.55
2.50
$
2.95
5.47
Basic weighted average shares outstanding (in 000's)
51,761
51,528
51,670
47,672
Diluted earnings per common share
$
2.52
2.47
$
2.92
5.42
Diluted weighted average shares outstanding (in 000's)
52,247
52,104
52,224
48,077
Dividends declared per share
$
—
—
$
—
0.43
Net income attributable to the Company
$
131.9
128.9
$
152.4
260.9
Change in pension liabilities, net of tax
0.7
0.1
0.7
( 1.7
)
Foreign currency translation adjustments
59.3
( 34.6
)
( 50.3
)
( 26.6
)
Comprehensive income attributable to the Company
$
191.9
94.4
$
102.8
232.6
See accompanying notes to Condensed Consolidated Financial Statements.
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Company Shareholders' Equity
Common Stock
Additional
Shares
(in millions, except share and
per share data) (unaudited)
Outstanding
Paid-In
Retained
Held in
Treasury
Total
Shares
Amount
Capital
Earnings
Trust
Stock
AOCI (1)
NCI (2)
Equity
December 31, 2019
51,549,654
$
0.5
1,962.8
3,588.3
( 5.7
)
—
( 427.8
)
86.6
$
5,204.7
Net income
—
—
—
5.3
—
—
—
12.3
17.6
Shares issued under stock-based compensation programs
363,308
—
4.4
—
—
—
—
—
4.4
Shares repurchased for payment of taxes on stock-based compensation
( 102,370
)
—
( 16.2
)
—
—
—
—
—
( 16.2
)
Amortization of stock-based compensation
—
—
18.6
—
—
—
—
—
18.6
Shares held in trust
—
—
—
—
0.1
—
—
—
0.1
Cumulative effect from adoption of new accounting for credit losses
—
—
—
( 14.9
)
—
—
—
—
( 14.9
)
Repurchase of common stock
( 187,753
)
—
—
—
—
( 25.0
)
—
—
( 25.0
)
Foreign currency translation adjustments
—
—
—
—
—
—
( 143.4
)
—
( 143.4
)
Decrease in amounts attributable to noncontrolling interest
—
—
—
—
—
—
—
( 17.0
)
( 17.0
)
March 31, 2020
51,622,839
$
0.5
1,969.6
3,578.7
( 5.6
)
( 25.0
)
( 571.2
)
81.9
$
5,028.9
Net income (3)
—
—
—
15.2
—
—
—
( 1.0
)
14.2
Shares issued under stock-based compensation programs
23,762
—
—
—
—
0.6
—
—
0.6
Shares repurchased for payment of taxes on stock-based compensation
( 4,546
)
—
( 1.0
)
—
—
—
—
—
( 1.0
)
Amortization of stock-based compensation
—
—
30.7
—
—
—
—
—
30.7
Shares held in trust
—
—
—
—
( 0.1
)
—
—
—
( 0.1
)
Foreign currency translation adjustments
—
—
—
—
—
—
33.8
—
33.8
Increase in amounts attributable to noncontrolling interest
—
—
—
—
—
—
—
2.3
2.3
June 30, 2020
51,642,055
$
0.5
1,999.3
3,593.9
( 5.7
)
( 24.4
)
( 537.4
)
83.2
$
5,109.4
Net income (3)
—
—
—
131.9
—
—
—
2.9
134.8
Shares issued under stock-based compensation programs
221,527
—
( 1.2
)
0.1
—
1.6
—
—
0.5
Shares repurchased for payment of taxes on stock-based compensation
( 66,315
)
—
( 6.3
)
—
—
—
—
—
( 6.3
)
Amortization of stock-based compensation
—
—
16.3
—
—
—
—
—
16.3
Shares held in trust
—
—
—
—
0.1
—
—
—
0.1
Repurchase of common stock
( 258,131
)
—
—
—
—
( 25.0
)
—
—
( 25.0
)
Change in pension liabilities, net of tax
—
—
—
—
—
—
0.7
—
0.7
Foreign currency translation adjustments
—
—
—
—
—
—
59.3
—
59.3
Decrease in amounts attributable to noncontrolling interest
—
—
—
—
—
—
—
( 3.6
)
( 3.6
)
September 30, 2020
51,539,136
$
0.5
2,008.1
3,725.9
( 5.6
)
( 47.8
)
( 477.4
)
82.5
$
5,286.2
(1) AOCI: Accumulated other comprehensive income (loss)
(2) NCI: Noncontrolling interest
(3) Excludes net (loss) income attributable to redeemable noncontrolling interest of $( 0.2 ) million and $ 0.1 million for the three months ended September 30, 2020 and June 30, 2020, respectively.
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
Company Shareholder's 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, 2018
45,599,418
$
0.5
1,057.3
3,095.7
( 5.8
)
( 456.2
)
43.0
$
3,734.5
Net income
—
—
—
21.3
—
—
( 0.1
)
21.2
Shares issued under stock-based compensation programs
198,575
—
2.0
—
—
—
—
2.0
Shares repurchased for payment of taxes on stock-based compensation
( 58,750
)
—
( 9.7
)
—
—
—
—
( 9.7
)
Amortization of stock-based compensation
—
—
7.0
—
—
—
—
7.0
Change in pension liabilities, net of tax
—
—
—
—
—
( 1.0
)
—
( 1.0
)
Foreign currency translation adjustments
—
—
—
—
—
31.3
—
31.3
Increase in amounts attributable to noncontrolling interest
—
—
—
—
—
—
9.8
9.8
March 31, 2019
45,739,243
$
0.5
1,056.6
3,117.0
( 5.8
)
( 425.9
)
52.7
$
3,795.1
Net income (3)
—
—
—
110.7
—
—
0.5
111.2
Shares issued under stock-based compensation programs
31,820
—
0.8
—
—
—
—
0.8
Shares repurchased for payment of taxes on stock-based compensation
( 8,375
)
—
( 0.7
)
—
—
—
—
( 0.7
)
Amortization of stock-based compensation
—
—
12.9
—
—
—
—
12.9
Dividends paid
—
—
—
( 19.9
)
—
—
—
( 19.9
)
Shares held in trust
—
—
—
—
( 0.1
)
—
—
( 0.1
)
Change in pension liabilities, net of tax
—
—
—
—
—
( 0.8
)
—
( 0.8
)
Foreign currency translation adjustments
—
—
—
—
—
( 23.3
)
—
( 23.3
)
Increase in amounts attributable to noncontrolling interest
—
—
—
—
—
—
0.1
0.1
June 30, 2019
45,762,688
$
0.5
1,069.6
3,207.8
( 5.9
)
( 450.0
)
53.3
$
3,875.3
Net income
—
—
—
128.9
—
—
0.4
129.3
Shares issued under stock-based compensation programs
49,292
—
0.9
—
—
—
—
0.9
Acquisition of HFF
5,733,603
—
841.2
—
—
—
—
841.2
Shares repurchased for payment of taxes on stock-based compensation
( 11,464
)
—
( 2.1
)
—
—
—
—
( 2.1
)
Amortization of stock-based compensation
—
—
27.7
—
—
—
—
27.7
Shares held in trust
—
—
—
—
0.2
—
—
0.2
Change in pension liabilities, net of tax
—
—
—
—
—
0.1
—
0.1
Foreign currency translation adjustments
—
—
—
—
—
( 34.6
)
—
( 34.6
)
Increase in amounts attributable to noncontrolling interest
—
—
—
—
—
—
20.1
20.1
September 30, 2019
51,534,119
$
0.5
1,937.3
3,336.7
( 5.7
)
( 484.5
)
73.8
$
4,858.1
(3) Excludes net income attributable to redeemable noncontrolling interest of $ 0.1 million for the three months ended June 30, 2019.
See accompanying notes to Condensed Consolidated Financial Statements.
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(in millions) (unaudited)
2020
2019
Cash flows from operating activities:
Net income
$
166.5
261.8
Adjustments to reconcile net income to net cash used in operating activities:
Distributions of earnings from real estate ventures
10.4
12.0
Other adjustments, net
238.8
169.2
Changes in working capital, net
( 52.6
)
( 694.5
)
Net cash provided by (used in) operating activities
363.1
( 251.5
)
Cash flows from investing activities:
Net capital additions – property and equipment
( 112.5
)
( 131.1
)
Net investment asset activity (less than wholly-owned)
( 10.2
)
( 67.6
)
Business acquisitions, net of cash acquired
—
( 789.2
)
Capital contributions to real estate ventures
( 63.2
)
( 65.6
)
Distributions of capital from real estate ventures
30.5
24.4
Other, net
31.2
35.0
Net cash used in investing activities
( 124.2
)
( 994.1
)
Cash flows from financing activities:
Proceeds from borrowings under credit facility
4,404.0
4,705.0
Repayments of borrowings under credit facility
( 4,529.0
)
( 3,580.0
)
Net (repayments of) proceeds from short-term borrowings
( 17.1
)
68.6
Payments of deferred business acquisition obligations and earn-outs
( 28.9
)
( 39.8
)
Repurchase of common stock
( 50.0
)
—
Payment of dividends
—
( 19.9
)
Other, net
( 22.8
)
60.7
Net cash (used in) provided by financing activities
( 243.8
)
1,194.6
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash
( 4.3
)
( 9.4
)
Net change in cash, cash equivalents and restricted cash
( 9.2
)
( 60.4
)
Cash, cash equivalents and restricted cash, beginning of the period
652.1
634.2
Cash, cash equivalents and restricted cash, end of the period
$
642.9
573.8
Supplemental disclosure of cash flow information:
Restricted cash, beginning of period
$
200.2
153.3
Restricted cash, end of period
202.9
171.6
Cash paid during the period for:
Interest
$
35.0
36.7
Income taxes, net of refunds
101.6
218.8
Operating leases
142.0
127.7
Non-cash activities:
Business acquisitions (including contingent consideration)
$
—
842.7
Deferred business acquisition obligations
—
6.5
See accompanying notes to Condensed Consolidated Financial Statements.
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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, 2019 , which are included in our 2019 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission ("SEC") and also available on our website ( www.us.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. Management's Discussion and Analysis of Financial Condition and Results of Operations and to Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in our 2019 Annual Report on Form 10-K for further discussion of our significant accounting policies and estimates.
Our Condensed Consolidated Financial Statements as of September 30, 2020 , and for the periods ended September 30, 2020 and 2019 , 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.
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 certain expenses are recognized evenly throughout the year. Our LaSalle Investment Management ("LaSalle") segment generally earns investment-generated performance fees on clients' real estate investment returns when assets are sold, the timing of which is geared toward the benefit of our clients, as well as co-investment equity gains and losses, primarily dependent on underlying valuations. Within our Real Estate Services ("RES") segments, revenue from transaction-based activities (e.g. leasing and capital markets) is driven by the size and timing of our clients' transactions and can fluctuate significantly from period to period. The COVID-19 pandemic may have a material impact on the historical seasonality of our revenue and profits.
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 we base on forecasted income by country and expected enacted tax rates. As required, we adjust for the impact of discrete items in the quarters in which they occur. Changes in the geographic mix of income, including as a result of the COVID-19 pandemic, can impact our estimated effective tax rate.
As a result of the items mentioned above, the results for the periods ended September 30 are not fully indicative of what our results will be for the full fiscal year.
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2.
NEW ACCOUNTING STANDARDS
Recently adopted accounting guidance
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (ASC Topic 326) , which created a new framework to evaluate financial instruments, such as trade receivables, for expected credit losses. This new framework replaced the existing incurred loss approach and is expected to result in more timely recognition of credit losses. On January 1, 2020, we adopted ASU No. 2016-13 using a modified-retrospective approach, as required by the ASU.
The adoption impacted our methodology of reserving for (i) Trade receivables, (ii) other receivable-related financial assets, specifically contract assets, and (iii) off-balance sheet credit exposures within the scope of this ASU. Specifically, we evaluated our historical reserve balances for Trade receivables and the related write-off activity and developed a forward-looking process for adoption. We also evaluated our loss-sharing guarantee obligation for certain mortgage loans we originate, sell and retain the servicing rights. The following sections discuss our updated reserve methodologies.
Trade Receivables
We estimate an allowance to provide for uncollectible accounts receivable, which is applied upon recognition of the receivable. We base this estimate on historical experience combined with a review of the receivable aging, current and expected economic conditions, and client credit quality. The estimate also includes specifically identified amounts for which payment has become unlikely. As trade receivables are due within one year, changes to economic conditions are not expected to have a significant impact on our estimate of expected credit losses. However, we will monitor economic conditions on a quarterly basis to determine if any adjustments are deemed necessary.
Notes and Other Receivables and Long-Term Receivables
We make ongoing assessments of the collectability of outstanding Notes and other receivables and Long-term receivables, considering both objective and subjective factors such as the aging profile of outstanding balances, the contractual terms of repayment, and credit quality. Aspects of credit quality considered in our assessments of collectability include historical experience, current and expected economic conditions, and our broader business relationship with the obligor. We record an allowance against the outstanding balance when our assessments determine payment has become unlikely. After all collection efforts have been exhausted by management, the outstanding balance is written off against the reserve. Historically, credit quality deterioration to the point of impairment or non-performance in our Notes and other receivables and Long-term receivables has been limited and has not had a material impact on the Condensed Consolidated Financial Statements.
Reimbursable Receivables
We record an allowance based on specific identification of an uncollectible reimbursable receivable, considering current and future economic conditions as well as client credit quality. Historically, we have not experienced any material collection issues and, as such, have not applied a formulaic reserve to these receivables.
Contract Assets
Contract assets include amounts recognized as revenue for which we are not yet entitled to payment for reasons other than the passage of time, but that do not constrain revenue recognition. Historically, we have not recognized a provision for contract assets. Under ASC Topic 326, we include Contract assets in our reserving process and assess the risk of loss similar to our methodology for Trade receivables, since Contract assets are reclassified to Trade receivables when we become entitled to payment. Accordingly, a reserve is applied upon recognition of the contract asset.
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Financial Guarantees
Certain loans we originate and sell under the Fannie Mae Delegated Underwriting and Servicing (“DUS”) program retain a percentage of the risk of loss. This loss-sharing aspect of the program represents an off-balance sheet credit exposure, and we have established a contingent reserve ("loan loss guarantee reserve") for this risk in accordance with ASC Topic 326. To estimate the reserve, we use a model that analyzes historical losses, current and expected economic conditions, and reasonable and supportable forecasts. The model also considers specific details of the underlying property used as collateral, such as occupancy and financial performance. The loan loss guarantee reserve is calculated on an individual loan level. As of September 30, 2020, the loan loss guarantee reserve was $ 45.7 million and was included within Other liabilities on the Condensed Consolidated Balance Sheets. This balance reflected a notable increase from our opening balance (reflected in the table below) as a result of incorporating, into our model, economic conditions and projections related to the COVID-19 pandemic.
The loss-sharing guarantee obligation (in accordance with ASC Topic 460, Guarantees ) represents the non-contingent obligation incurred as a result of issuing a loss-sharing guarantee as part of our participation in the DUS program and is separate from the loan loss guarantee reserve discussed above. See Note 10, Commitments and Contingencies , for further information on the DUS program and the loss-sharing guarantee obligation.
The following table details the cumulative impact to retained earnings upon adoption of ASC Topic 326.
Published
Adjustment due to
As Reported Under
December 31, 2019
adoption of
ASC Topic 326 on January 1, 2020
(in millions)
(audited)
ASC Topic 326
(unaudited)
Assets
Allowance for trade receivables
$
( 68.1
)
( 3.6
)
$
( 71.7
)
Deferred tax assets, net
245.4
5.5
250.9
Allowance for contract assets (1)
—
( 1.7
)
( 1.7
)
Liabilities and equity
Loan loss guarantee reserve (2)
$
—
15.1
$
15.1
Retained earnings
3,588.3
( 14.9
)
3,573.4
1 The portion of the allowance for long-term contract assets is included within Other assets on the Condensed Consolidated Balance Sheets.
2 Included within Other liabilities on the Condensed Consolidated Balance Sheets
3.
REVENUE RECOGNITION
Revenue excluded from the scope of ASC Topic 606 - Our mortgage banking and servicing operations - such as Mortgage Servicing Rights ("MSR")-related activity, loan origination fees, and servicing income - are excluded from the scope of ASC Topic 606. Such revenue was included entirely within Americas Capital Markets and is presented below.
Three Months Ended September 30,
Nine months ended
September 30,
(in millions)
2020
2019
2020
2019
Revenue excluded from scope of ASC Topic 606
$
72.0
74.3
$
174.7
137.6
Contract assets and liabilities - Our contract assets, net of allowance, are included in Short-term contract assets and Other assets and our contract liabilities are included in Short-term contract liabilities and deferred income on our Condensed Consolidated Balance Sheets. The majority of contract liabilities are recognized as revenue within 90 days. Such contract assets and liabilities are presented below.
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(in millions)
September 30, 2020
December 31, 2019
Contract assets, gross
$
389.8
419.3
Contract asset allowance
( 3.2
)
—
Contract assets, net
$
386.6
419.3
Contract liabilities
$
85.7
87.7
Remaining performance obligations - Remaining performance obligations represent the aggregate transaction price for contracts where our performance obligations have not yet been satisfied. As of September 30, 2020 , the aggregate amount of transaction price allocated to remaining performance obligations represented less than 5 % of our total revenue. In accordance with ASC Topic 606, excluded from the aforementioned remaining performance obligations are (i) amounts attributable to contracts expected to be completed within 12 months and (ii) variable consideration for services performed as a series of daily performance obligations, such as facilities management, property management, and LaSalle contracts. Contracts within these businesses represent a significant portion of our contracts with customers not expected to be completed within 12 months.
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.
Each geographic region offers our full range of real estate services, including agency leasing and tenant representation, capital markets, property and facility management, project and development management, energy management and sustainability, construction management, and advisory, consulting and valuation services. LaSalle provides investment management services on a global basis to institutional investors and high-net-worth individuals.
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.
Segment income does not include (i) restructuring and acquisition charges, (ii) interest expense, net of interest income, (iii) other income, and (iv) provision for income tax, which are otherwise included in Net income on the Consolidated Statements of Comprehensive Income.
The Chief Operating Decision Maker of JLL measures and evaluates the segment results based on Segment income for purposes of making decisions about allocating resources and assessing performance. As of September 30, 2020 , we define the Chief Operating Decision Maker collectively as our Global Executive Board, which comprises the following:
• Chief Executive Officer and President
• Chief Executive Officers of each of our four business segments
• Chief Financial Officer
• Chief Executive Officer of Corporate Solutions
• Chief Human Resources Officer
• Chief Executive Officer of Capital Markets
• Co-Chief Executive Officers of JLL Technologies
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Summarized financial information by business segment is as follows.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Americas
Leasing
$
325.2
472.7
$
1,022.2
1,354.3
Capital Markets
190.8
323.2
579.0
553.1
Property & Facility Management
1,433.3
1,386.3
4,331.6
4,119.2
Project & Development Services
336.2
406.0
917.9
1,091.5
Advisory, Consulting and Other
95.3
99.4
282.2
283.2
Revenue
$
2,380.8
2,687.6
$
7,132.9
7,401.3
Depreciation and amortization
$
36.4
35.3
$
112.9
88.9
Equity earnings
$
4.8
1.5
$
20.4
1.6
Segment income
$
140.0
177.9
$
277.1
359.1
EMEA
Leasing
$
58.5
72.2
$
153.3
190.3
Capital Markets
73.3
106.2
196.5
248.7
Property & Facility Management
348.7
387.1
1,044.2
1,137.0
Project & Development Services
190.8
234.2
558.3
633.9
Advisory, Consulting and Other
72.5
62.9
173.6
194.4
Revenue
$
743.8
862.6
$
2,125.9
2,404.3
Depreciation and amortization
$
9.8
10.1
$
28.0
32.7
Equity earnings (losses)
$
0.8
—
$
0.8
( 1.0
)
Segment income (loss)
$
( 1.9
)
13.8
$
( 55.8
)
( 17.9
)
Asia Pacific
Leasing
$
46.6
59.4
$
105.8
161.5
Capital Markets
20.4
50.6
66.1
128.2
Property & Facility Management
521.3
539.4
1,568.5
1,630.6
Project & Development Services
104.5
145.7
296.5
393.9
Advisory, Consulting and Other
50.4
38.7
133.7
123.5
Revenue
$
743.2
833.8
$
2,170.6
2,437.7
Depreciation and amortization
$
6.9
6.5
$
20.5
19.3
Equity earnings
$
0.9
0.7
$
0.7
1.4
Segment income
$
35.8
31.5
$
57.4
59.5
LaSalle
Advisory fees
$
84.6
79.9
$
251.1
237.0
Transaction fees & other
17.7
14.2
36.1
43.7
Incentive fees
8.0
17.5
27.9
58.7
Revenue
$
110.3
111.6
$
315.1
339.4
Depreciation and amortization
$
1.8
1.7
$
5.4
4.7
Equity earnings (losses)
$
8.5
14.9
$
( 20.5
)
30.3
Segment income
$
29.5
35.5
$
28.8
93.0
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The following table is a reconciliation of Segment income to consolidated Operating income.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Segment income - Americas
$
140.0
177.9
$
277.1
359.1
Segment income (loss) - EMEA
( 1.9
)
13.8
( 55.8
)
( 17.9
)
Segment income - APAC
35.8
31.5
57.4
59.5
Segment income - LaSalle
29.5
35.5
28.8
93.0
Less: Equity earnings
( 15.0
)
( 17.1
)
( 1.4
)
( 32.3
)
Add: Restructuring and acquisition charges
( 33.5
)
( 70.0
)
( 75.8
)
( 114.3
)
Operating income
$
154.9
171.6
$
230.3
347.1
5.
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
2020 Business Combinations Activity
During the nine months ended September 30, 2020 , we completed no new acquisitions and paid $ 58.5 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years.
2019 Business Combinations Activity
During the nine months ended September 30, 2020 , we made no adjustments to our preliminary allocation of the purchase consideration for certain acquisitions completed in 2019. As of September 30, 2020 , we have completed our analysis to assign fair values to all the identifiable intangible and tangible assets acquired for our 2019 acquisitions.
Earn-Out Payments
($ in millions)
September 30, 2020
December 31, 2019
Number of acquisitions with earn-out payments subject to the achievement of certain performance criteria
42
44
Maximum earn-out payments (undiscounted)
$
221.3
$
268.9
Short-term earn-out liabilities (fair value) 1
77.0
53.9
Long-term earn-out liabilities (fair value) 1
18.0
94.5
1 Included in Short-term and Long-term acquisition-related obligations on the Condensed Consolidated Balance Sheets.
Assuming the achievement of the applicable performance criteria, we anticipate making these earn-out payments over the next five years. Refer to Note 8, Fair Value Measurements , and Note 11, Restructuring and Acquisition Charges , for additional discussion of our earn-out liabilities.
Goodwill and Other Intangible Assets
Goodwill and unamortized intangibles as of September 30, 2020 consisted of: (1) goodwill of $ 4,164.0 million , (2) identifiable intangibles of $ 601.9 million amortized over their remaining finite useful lives, and (3) $ 52.0 million of identifiable intangibles with indefinite useful lives that are not amortized. Notable 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.
During the three months ended September 30, 2020, as part of our annual impairment test of goodwill, we have considered qualitative and quantitative factors and determined it is not more-likely-than-not that the fair value of our Americas, Asia Pacific, and LaSalle reporting units are less than their carrying values. With respect to our EMEA reporting unit reporting, we performed step 1 of the goodwill impairment analysis which indicated the estimated fair value exceeded the carrying value by over 20%. In performing step 1, we relied on the discounted cash flow (“DCF”) method, an income approach, in determining the estimated fair value. Our DCF analysis relied on significant judgments and assumptions in determining the inputs, specifically, forecasted revenue growth, forecasted profitability margin, and the discount rate used to present value the estimated future cash flows.
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The following tables detail, by reporting segment, movements in goodwill.
Real Estate Services
(in millions)
Americas
EMEA
Asia Pacific
LaSalle
Consolidated
Balance as of December 31, 2019
$
2,877.6
915.9
317.6
57.1
$
4,168.2
Dispositions
—
( 0.7
)
—
—
( 0.7
)
Impact of exchange rate movements
( 1.1
)
( 4.7
)
2.6
( 0.3
)
( 3.5
)
Balance as of September 30, 2020
$
2,876.5
910.5
320.2
56.8
$
4,164.0
Real Estate Services
(in millions)
Americas
EMEA
Asia Pacific
LaSalle
Consolidated
Balance as of December 31, 2018
$
1,452.0
906.8
316.8
22.2
$
2,697.8
Additions, net of adjustments
1,392.9
1.6
—
35.5
1,430.0
Dispositions
—
( 0.9
)
—
—
( 0.9
)
Impact of exchange rate movements
0.3
( 37.6
)
( 4.6
)
( 1.8
)
( 43.7
)
Balance as of September 30, 2019
$
2,845.2
869.9
312.2
55.9
$
4,083.2
The following tables detail, by reporting segment, movements in the gross carrying amount and accumulated amortization of our identifiable intangibles.
MSRs
Other Intangibles
(in millions)
Americas
Americas
EMEA
Asia Pacific
LaSalle
Consolidated
Gross Carrying Amount
Balance as of December 31, 2019
$
480.4
285.7
55.9
21.4
54.0
$
897.4
Additions, net of adjustments (1)
77.9
—
—
0.5
—
78.4
Adjustment for fully amortized intangibles
( 30.9
)
( 14.1
)
( 0.4
)
—
—
( 45.4
)
Impact of exchange rate movements
—
( 0.2
)
( 1.5
)
0.3
1.9
0.5
Balance as of September 30, 2020
$
527.4
271.4
54.0
22.2
55.9
$
930.9
Accumulated Amortization
Balance as of December 31, 2019
$
( 104.0
)
( 68.3
)
( 33.1
)
( 6.7
)
( 2.7
)
$
( 214.8
)
Amortization, net (2)
( 65.5
)
( 35.0
)
( 5.2
)
( 1.1
)
( 2.0
)
( 108.8
)
Adjustment for fully amortized intangibles
30.9
14.1
0.4
—
—
45.4
Impact of exchange rate movements
—
0.4
0.9
( 0.1
)
—
1.2
Balance as of September 30, 2020
$
( 138.6
)
( 88.8
)
( 37.0
)
( 7.9
)
( 4.7
)
$
( 277.0
)
Net book value as of September 30, 2020
$
388.8
182.6
17.0
14.3
51.2
$
653.9
(1) Included in this amount for MSRs was (i) $ 15.3 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights and (ii) $ 1.9 million relating to a net impairment valuation allowance.
(2) Amortization of MSRs is included in Revenue before reimbursements within the Condensed Consolidated Statements of Comprehensive Income.
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Table of Contents
MSRs
Other Intangibles
(in millions)
Americas
Americas
EMEA
Asia Pacific
LaSalle
Consolidated
Gross Carrying Amount
Balance as of December 31, 2018
$
266.2
90.0
83.1
23.5
43.9
$
506.7
Additions, net of adjustments (1)
208.3
194.5
—
—
10.3
413.1
Adjustment for fully amortized intangibles
( 21.8
)
( 0.7
)
( 22.1
)
( 2.0
)
—
( 46.6
)
Impairments
—
( 0.5
)
—
—
—
( 0.5
)
Impact of exchange rate movements
—
—
( 2.8
)
( 0.8
)
( 1.6
)
( 5.2
)
Balance as of September 30, 2019
$
452.7
283.3
58.2
20.7
52.6
$
867.5
Accumulated Amortization
Balance as of December 31, 2018
$
( 72.4
)
( 38.8
)
( 51.8
)
( 6.8
)
—
$
( 169.8
)
Amortization, net (2)
( 41.6
)
( 18.9
)
( 7.5
)
( 1.6
)
( 2.0
)
( 71.6
)
Adjustment for fully amortized intangibles
21.8
0.7
22.1
2.0
—
46.6
Impairments
—
0.5
—
—
—
0.5
Impact of exchange rate movements
—
—
2.2
0.2
—
2.4
Balance as of September 30, 2019
$
( 92.2
)
( 56.5
)
( 35.0
)
( 6.2
)
( 2.0
)
$
( 191.9
)
Net book value as of September 30, 2019
$
360.5
226.8
23.2
14.5
50.6
$
675.6
(1) Included in this amount for MSRs was $ 10.6 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights.
(2) Amortization of MSRs is included in Revenue before reimbursements within the Condensed Consolidated Statements of Comprehensive Income.
The remaining estimated future amortization expense of MSRs and other identifiable intangible assets, by year, as of September 30, 2020 , is presented in the following table.
(in millions)
MSRs
Other Intangibles
Total
2020 (remaining 3 months)
$
17.2
16.0
$
33.2
2021
66.2
48.6
114.8
2022
59.3
42.9
102.2
2023
53.0
40.5
93.5
2024
45.4
36.2
81.6
2025
37.7
18.9
56.6
Thereafter
110.0
10.0
120.0
Total
$
388.8
213.1
$
601.9
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6.
INVESTMENTS IN REAL ESTATE VENTURES
As of September 30, 2020 and December 31, 2019 , we had Investments in real estate ventures of $ 389.6 million and $ 404.2 million , respectively.
Approximately 90% of our investments, as of September 30, 2020 , are primarily (i) direct investments in 48 separate property or commingled funds, where we co-invest alongside our clients and for which we also have an advisory agreement and (ii) investments by JLL Spark in property-technology funds and early-stage companies. The remaining 10% of our Investments in real estate ventures, as of September 30, 2020 , were attributable to investment vehicles that use our capital and outside capital primarily provided by institutional investors to invest, primarily, 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 % .
We have maximum potential unfunded commitments to direct investments or investment vehicles of $ 338.8 million as of September 30, 2020 . Of this amount, while we remain contractually obligated, we do not expect a call on the $ 60.4 million relating to our investment in LIC II as its fund life terminated in January 2020.
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)
September 30, 2020
December 31, 2019
Property and equipment, net
$
132.9
126.3
Investments in real estate ventures
9.2
13.2
Other assets
9.6
14.3
Total assets
$
151.7
153.8
Other current liabilities
$
2.6
3.2
Mortgage indebtedness (included in Other liabilities)
71.3
69.7
Total liabilities
73.9
72.9
Members' equity (included in Noncontrolling interest)
77.8
80.9
Total liabilities and members' equity
$
151.7
153.8
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Revenue
$
3.6
1.9
$
10.8
4.9
Operating and other expenses
( 3.7
)
( 2.1
)
( 11.9
)
( 5.3
)
Net gains on sale of investments 1
3.1
—
15.3
—
Net income (loss)
$
3.0
( 0.2
)
$
14.2
( 0.4
)
(1) $12.2 million of the year-to-date gain is included in Equity earnings; the remaining $3.1 million is included in Other income.
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.
16
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Impairment
There were no significant other-than-temporary impairment charges on Investments in real estate ventures for the nine months ended September 30, 2020 and 2019 .
Fair Value
We report a majority of our investments in real estate ventures at fair value. For such investments, we increase or decrease our investment each reporting period by the change in the fair value and we report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings. The table below shows the movement in our investments in real estate ventures reported at fair value.
(in millions)
2020
2019
Fair value investments as of January 1,
$
328.6
247.3
Investments
36.8
67.1
Distributions
( 58.8
)
( 39.2
)
Change in fair value, net
( 9.1
)
29.8
Foreign currency translation adjustments, net
1.5
( 0.8
)
Fair value investments as of September 30,
$
299.0
304.2
See Note 8, Fair Value Measurements , for additional discussion of our investments in real estate ventures reported at fair value.
17
Table of Contents
7.
STOCK-BASED COMPENSATION
Stock Unit Awards
Restricted stock unit ("RSU") and performance stock unit ("PSU") awards activity is presented in the following tables.
RSU Shares
(in 000's)
PSU Shares
(in 000's)
Total Shares
(in 000's)
Weighted Average
Grant Date
Fair Value
Weighted Average
Remaining
Contractual Life
(in years)
Unvested as of June 30, 2020
1,343.2
558.8
1,902.0
$
137.93
2.01
Granted
11.2
4.4
15.6
107.51
Vested
( 213.5
)
—
( 213.5
)
140.38
Forfeited
( 13.0
)
( 4.5
)
( 17.5
)
134.03
Unvested as of September 30, 2020
1,127.9
558.7
1,686.6
$
137.49
1.85
Unvested as of June 30, 2019
436.7
259.6
696.3
$
144.17
2.25
Granted
1,130.1
—
1,130.1
141.14
Vested
( 45.8
)
—
( 45.8
)
122.48
Forfeited
( 8.1
)
—
( 8.1
)
138.96
Unvested as of September 30, 2019
1,512.9
259.6
1,772.5
$
142.82
2.59
RSU Shares
(in 000's)
PSU Shares
(in 000's)
Total Shares
(in 000's)
Weighted Average
Grant Date
Fair Value
Weighted Average
Remaining
Contractual Life
(in years)
Unvested as of December 31, 2019
1,532.3
286.8
1,819.1
$
141.51
2.39
Granted
173.1
276.4
449.5
114.19
Vested
( 548.4
)
—
( 548.4
)
137.92
Forfeited
( 29.1
)
( 4.5
)
( 33.6
)
136.96
Unvested as of September 30, 2020
1,127.9
558.7
1,686.6
$
137.49
1.85
Unvested as of December 31, 2018
559.6
93.1
652.7
$
131.32
2.02
Granted
1,243.4
166.9
1,410.3
149.22
Vested
( 268.3
)
—
( 268.3
)
116.25
Forfeited
( 21.8
)
( 0.4
)
( 22.2
)
134.54
Unvested as of September 30, 2019
1,512.9
259.6
1,772.5
$
142.82
2.59
As of September 30, 2020 , we had $ 84.3 million of unamortized deferred compensation related to unvested RSUs and PSUs, which we anticipate recognizing over varying periods into 2024 ; $ 41.5 million relates to the awards issued in conjunction with the HFF acquisition.
18
Table of Contents
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.
Financial Instruments
Our financial instruments include Cash and cash equivalents, Trade receivables, Notes and other receivables, Reimbursable receivables, Warehouse receivables, restricted cash, contract assets, Accounts payable, Reimbursable payables, Short-term borrowings, contract liabilities, Warehouse facilities, Credit facility, Long-term debt, and foreign currency forward contracts. The carrying amounts of Cash and cash equivalents, Trade receivables, Notes and other receivables, Reimbursable receivables, restricted cash, contract assets, Accounts payable, Reimbursable payables, contract liabilities, and the Warehouse facilities approximate their estimated fair values due to the short-term nature of these instruments. The carrying values of our Credit facility and Short-term borrowings approximate their estimated fair values given the variable interest rate terms and market spreads.
We estimated the fair value of our Long-term debt as $ 686.1 million and $ 685.9 million as of September 30, 2020 and December 31, 2019 , respectively, using dealer quotes that are Level 2 inputs in the fair value hierarchy. The carrying value of our Long-term debt was $ 682.9 million and $ 664.6 million as of September 30, 2020 and December 31, 2019 , respectively, and included debt issuance costs of $ 2.7 million and $ 3.1 million , respectively.
Investments in Real Estate Ventures at Fair Value - Net Asset Value ("NAV")
We report a significant portion of our investments in real estate ventures at fair value. For such investments, we increase or decrease our investment each reporting period by the change in the fair value and we report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings.
For the majority of our investments reported at fair value, we estimate the 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. As of September 30, 2020 and December 31, 2019 , investments in real estate ventures at fair value using NAV were $ 192.4 million and $ 224.8 million , respectively. As these investments are not required to be classified in the fair value hierarchy, they have been excluded from the following table.
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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.
September 30, 2020
December 31, 2019
(in millions)
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets
Investments in real estate ventures - fair value
$
56.4
—
50.2
69.4
—
34.4
Foreign currency forward contracts receivable
—
3.2
—
—
10.5
—
Warehouse receivables
—
1,750.6
—
—
527.1
—
Deferred compensation plan assets
—
410.7
—
—
349.9
—
Mortgage banking derivative assets
—
—
87.0
—
—
36.1
Total assets at fair value
$
56.4
2,164.5
137.2
69.4
887.5
70.5
Liabilities
Foreign currency forward contracts payable
—
10.5
—
—
4.4
—
Deferred compensation plan liabilities
—
388.4
—
—
346.1
—
Earn-out liabilities
—
—
95.0
—
—
148.5
Mortgage banking derivative liabilities
—
—
80.8
—
—
25.9
Total liabilities at fair value
$
—
398.9
175.8
—
350.5
174.4
Investments in Real Estate Ventures
We classify one investment as Level 1 in the fair value hierarchy as a quoted price is readily available. We increase or decrease our investment each reporting period by the change in the fair value of the investment. We report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings.
Investments classified as Level 3 in the fair value hierarchy represent investments in early-stage non-public entities where we elected the fair value option. The carrying value was deemed to approximate fair value for the majority of these investments due to the proximity of the investment date to the balance sheet date as well as consideration of investee-level performance updates. To the extent there are changes in fair value, a result of pricing in subsequent funding rounds or changes in business strategy, for example, we recognize such changes through Equity earnings.
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. 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 September 30, 2020 and December 31, 2019 , these contracts had a gross notional value of $ 2.03 billion ( $ 1.05 billion on a net basis) and $ 2.30 billion ( $ 1.05 billion on a net basis), respectively.
We recognize gains and losses from 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 the nine months ended September 30, 2020 or 2019 .
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 $ 3.2 million asset as of September 30, 2020 , was composed of gross contracts with receivable positions of $ 3.4 million and payable positions of $ 0.2 million . The $ 10.5 million liability as of September 30, 2020 , was composed of gross contracts with receivable positions of $ 1.9 million and payable positions of $ 12.4 million . As of December 31, 2019 , the $ 10.5 million asset was composed of gross contracts with receivable positions of $ 10.6 million and payable positions of $ 0.1 million . The $ 4.4 million liability as of December 31, 2019 , was composed of gross contracts with receivable positions of $ 0.8 million and payable positions of $ 5.2 million .
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Warehouse Receivables
As of September 30, 2020 and December 31, 2019 , all of our Warehouse receivables were under commitment to be purchased by government-sponsored enterprises ("GSEs") or by a qualifying investor as part of a U.S. government or GSE mortgage-backed security program.
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 recorded this plan on our Condensed Consolidated Balance Sheet as of September 30, 2020 , as Deferred compensation plan assets of $ 410.7 million , long-term deferred compensation plan liabilities of $ 388.4 million , included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $ 5.6 million . We recorded this plan on our Condensed Consolidated Balance Sheet as of December 31, 2019 , as Deferred compensation plan assets of $ 349.9 million , long-term deferred compensation plan liabilities of $ 346.1 million , included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $ 5.7 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. See Note 5, Business Combinations, Goodwill and Other Intangible Assets , for additional discussion of our earn-out liabilities.
Mortgage Banking Derivatives
Both our interest rate lock commitments to prospective borrowers and forward sale contracts with prospective investors are undesignated derivatives and considered Level 3 valuations due to significant unobservable inputs related to counterparty credit risk. An increase in counterparty credit risk assumptions would result in a lower fair value measurement.
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The tables below present a reconciliation for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Balance as of June 30, 2020
Net change in fair value
Foreign CTA 1
Purchases / Additions
Settlements
Balance as of September 30, 2020
Investments in real estate ventures
$
44.3
4.3
—
1.6
—
$
50.2
Mortgage banking derivative assets and liabilities, net
( 5.5
)
( 2.6
)
—
48.2
( 33.9
)
6.2
Earn-out liabilities
97.8
( 0.6
)
0.7
—
( 2.9
)
95.0
Balance as of June 30, 2019
Net change in fair value
Foreign CTA 1
Purchases / Additions
Settlements
Balance as of September 30, 2019
Investments in real estate ventures
$
20.0
0.8
—
6.5
( 0.8
)
$
26.5
Mortgage banking derivative assets and liabilities, net
( 1.3
)
( 7.1
)
—
45.3
( 9.9
)
27.0
Earn-out liabilities
180.3
0.7
( 2.4
)
—
( 4.8
)
173.8
(in millions)
Balance as of December 31, 2019
Net change in fair value
Foreign CTA 1
Purchases / Additions
Settlements
Balance as of September 30, 2020
Investments in real estate ventures
$
34.4
6.8
—
9.0
—
$
50.2
Mortgage banking derivative assets and liabilities, net
10.2
( 93.2
)
—
112.9
( 23.7
)
6.2
Earn-out liabilities
148.5
( 8.2
)
( 0.2
)
—
( 45.1
)
95.0
(in millions)
Balance as of December 31, 2018
Net change in fair value
Foreign CTA 1
Purchases / Additions
Settlements
Balance as of June 30, 2019
Investments in real estate ventures
$
11.5
0.8
—
15.0
( 0.8
)
$
26.5
Mortgage banking derivative assets and liabilities, net
6.3
( 28.8
)
—
77.8
( 28.3
)
27.0
Earn-out liabilities
192.0
20.7
( 2.6
)
1.5
( 37.8
)
173.8
1 CTA: Currency translation adjustments
Net change in fair value, included in the tables above, is reported in Net income as follows.
Category of Assets/Liabilities using Unobservable Inputs
Condensed Consolidated Statements
of Comprehensive Income Account Caption
Earn-out liabilities (Short-term and Long-term)
Restructuring and acquisition charges
Investments in real estate ventures
Equity earnings
Other current assets - Mortgage banking derivative assets
Revenue before reimbursements
Other current liabilities - Mortgage banking derivative liabilities
Revenue before reimbursements
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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 significant investment-level impairment losses during either of the three or nine months ended September 30, 2020 or 2019 . See Note 6, Investments in Real Estate Ventures , for additional information, including information related to impairment charges recorded at the investee level.
9.
DEBT
Short-term borrowings and long-term debt obligations are composed of the following.
(in millions)
September 30, 2020
December 31, 2019
Short-term borrowings:
Local overdraft facilities
$
12.2
44.8
Other short-term borrowings
94.2
75.3
Total short-term borrowings
$
106.4
120.1
Credit facility, net of debt issuance costs of $9.6 and $12.3
390.4
512.7
Long-term senior notes, 4.4%, face amount of $275.0, due November 2022, net of debt issuance costs of $0.8 and $1.2
274.2
273.8
Long-term senior notes, 1.96%, face amount of €175.0, due June 2027, net of debt issuance costs of $0.9 and $0.9
204.4
195.4
Long-term senior notes, 2.21%, face amount of €175.0, due June 2029, net of debt issuance costs of $1.0 and $1.0
204.3
195.4
Total debt
$
1,179.7
1,297.4
Credit Facility
We have a $ 2.75 billion unsecured revolving credit facility (the "Facility") that matures on May 17, 2023 . Pricing on the Facility ranges from LIBOR plus 0.875% to 1.35% , with pricing as of September 30, 2020 , at LIBOR plus 0.95 % . In addition to outstanding borrowings under the Facility presented in the above table, we had outstanding letters of credit under the Facility of $ 0.7 million and $ 0.8 million as of September 30, 2020 and December 31, 2019 , respectively.
The following tables provides additional information on our Facility.
Three Months Ended September 30,
Nine Months Ended
September 30,
($ in millions)
2020
2019
2020
2019
Average outstanding borrowings under the Facility
$
758.9
1,408.5
$
1,014.3
763.9
Effective interest rate on the Facility
1.1
%
3.1
%
1.6
%
3.2
%
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 Borrowings and Long-Term Debt
In addition to our Facility, we have the capacity to borrow up to an additional $ 85.9 million under local overdraft facilities. Amounts outstanding are presented in the debt table above.
As of September 30, 2020 , our issuer and senior unsecured ratings are investment grade: Baa1 from Moody’s Investors Service, Inc. and BBB+ from Standard & Poor’s Ratings Services.
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Covenants
Our Facility and senior notes are subject to customary financial and other covenants, including cash interest coverage ratios and leverage ratios, as well as event of default conditions. We remained in compliance with all covenants as of September 30, 2020 .
Warehouse Facilities
September 30, 2020
December 31, 2019
($ in millions)
Outstanding Balance
Maximum Capacity
Outstanding Balance
Maximum Capacity
Warehouse Facilities:
LIBOR plus 1.15%, October 21, 2020 1
$
300.2
375.0
104.4
375.0
LIBOR plus 1.40%, expires September 18, 2021 2
1,016.0
1,200.0
184.8
775.0
LIBOR plus 1.40%, expires August 27, 2021 3
85.1
200.0
11.4
100.0
Fannie Mae ASAP 4 program, LIBOR plus 1.15%
84.3
n/a
53.6
n/a
LIBOR plus 1.25% 5
239.2
500.0
151.6
1,000.0
LIBOR plus 1.25%
—
—
11.0
175.0
Gross warehouse facilities
1,724.8
2,275.0
516.8
2,425.0
Debt issuance costs
( 1.0
)
n/a
( 0.9
)
n/a
Total warehouse facilities
$
1,723.8
2,275.0
515.9
2,425.0
1 In the third quarter of 2020, JLL extended the Warehouse facility; previously, the facility had a maturity date of September 21, 2020. In October 2020, JLL extended the Warehouse facility to September 20, 2021 with a maximum capacity of $400 million and an increase to the interest rate (to LIBOR plus 1.40%).
2 In the third quarter of 2020, JLL extended the Warehouse facility with an increase to the interest rate; previously, the facility had a maturity date of September 19, 2020 and an interest rate of LIBOR plus 1.15%.
3 In the third quarter of 2020, JLL extended the Warehouse facility with an increase to the interest rate; previously, the facility had a maturity date of August 31, 2020 and an interest rate of LIBOR plus 1.15%.
4 As Soon As Pooled ("ASAP") funding program
5 In the third quarter of 2020, the maximum capacity was reduced from $1.0 billion to $500 million.
We have lines of credit established for the sole purpose of funding our Warehouse receivables. These lines of credit exist with financial institutions and are secured by the related warehouse receivables. Pursuant to these warehouse facilities, we are required to comply with certain financial covenants regarding (1) minimum net worth, (2) minimum servicing-related loans, and (3) minimum adjusted leverage ratios. We remained in compliance with all covenants under our Warehouse facilities as of September 30, 2020 .
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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. When a potential loss event occurs, we estimate the ultimate cost of the claim and accrue the amount in Other current and long-term liabilities on our Condensed Consolidated Balance Sheets when probable and estimable. In addition, we have established receivables from third-party insurance providers for claim amounts in excess of the risk retained by our captive insurance company. In total, these receivables were $ 41.0 million and $ 37.7 million as of September 30, 2020 and December 31, 2019 , respectively, and are included in Notes and other receivables and Long-term receivables on our Condensed Consolidated Balance Sheets.
The following table shows the professional indemnity accrual activity and related payments.
(in millions)
December 31, 2019
$
38.1
New claims
5.8
Prior year claims adjustments (including foreign currency changes)
0.8
Claims paid
—
September 30, 2020
$
44.7
December 31, 2018
$
43.1
New claims
0.1
Prior year claims adjustments (including foreign currency changes)
( 4.4
)
Claims paid
( 1.1
)
September 30, 2019
$
37.7
As a participant in the DUS program, we retain a portion of the risk of loss for loans that are originated and sold under the DUS program. Net losses on defaulted loans are shared with Fannie Mae based upon established loss-sharing ratios. Generally, we share approximately one-third of incurred losses, subject to a cap of 20% of the principal balance of the mortgage at origination. As of September 30, 2020 and December 31, 2019 , we had loans subject to such loss-sharing arrangements with an aggregate unpaid principal balance of $ 11.0 billion and $ 9.7 billion , respectively.
For all DUS program loans with loss-sharing obligations, we record a non-contingent liability equal to the estimated fair value of the guarantee obligations undertaken upon sale of the loan, which reduces our gain on sale of the loan. Subsequently, this liability is amortized over the estimated life of the loan and recognized as Revenue on the Condensed Consolidated Statements of Comprehensive Income. As of September 30, 2020 and December 31, 2019 , the loss-sharing guarantee obligations were $ 20.7 million and $ 20.6 million , respectively, and are included in Other liabilities on our Condensed Consolidated Balance Sheets. There were no loan losses incurred for the three and nine months ended September 30, 2020 and 2019 .
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11.
RESTRUCTURING AND ACQUISITION CHARGES
Restructuring and acquisition charges include cash and non-cash expenses. Cash-based charges primarily consist of (1) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership, or transformation of business processes, (2) acquisition, transaction and integration-related charges, and (3) other restructuring including lease exit charges. Non-cash charges include (1) stock-based compensation expense for retention awards issued in conjunction with the HFF acquisition and (2) fair value adjustments to earn-out liabilities relating to prior-period acquisition activity. Restructuring and acquisition charges are presented in table below.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Severance and other employment-related charges
$
19.3
7.2
$
27.6
17.6
Restructuring, pre-acquisition and post-acquisition charges
8.6
48.1
25.9
62.0
Stock-based compensation expense for HFF retention awards
6.2
14.0
30.5
14.0
Fair value adjustments to earn-out liabilities
( 0.6
)
0.7
( 8.2
)
20.7
Restructuring and acquisition charges
$
33.5
70.0
$
75.8
114.3
The following tables show the accrual activity and payments relating to cash-based Restructuring and acquisition charges.
(in millions)
Severance & Employment-Related
Lease
Exit
Restructuring, Acquisition and
Integration Costs
Total
December 31, 2019
$
24.3
8.4
3.8
$
36.5
Accruals
27.6
9.3
16.6
53.5
Payments made
( 22.1
)
( 16.0
)
( 20.4
)
( 58.5
)
September 30, 2020
$
29.8
1.7
—
$
31.5
(in millions)
Severance & Employment-Related
Lease
Exit
Other Restructuring,
Acquisition and Integration Costs
Total
December 31, 2018
$
14.0
0.6
0.5
$
15.1
Accruals
17.6
5.8
56.2
79.6
Payments made
( 21.2
)
( 1.5
)
( 54.8
)
( 77.5
)
September 30, 2019
$
10.4
4.9
1.9
$
17.2
We expect the majority of accrued severance and other accrued acquisition costs as of September 30, 2020 will be paid during the next twelve months. Lease exit payments depend on the terms of various leases, which extend as far out as 2022.
HFF Acquisition
Included in Restructuring and acquisition charges were $ 13.8 million and $ 55.2 million , respectively, for the three and nine months ended September 30, 2020 compared to $ 60.1 million and $ 69.8 million , respectively, for the three and nine months ended September 30, 2019 of charges relating to the acquisition and integration of HFF (including transaction/deal costs, retention and severance expense, early lease termination costs, and other integration expenses).
During the integration of HFF, we expect to incur significant charges over the two years following the acquisition in an effort to maximize the value of the combined organization. We expect to recognize approximately $ 100 million of expense over this two-year window relating to retention awards which have already been paid or granted (in the case of RSUs). In addition, we may incur other costs in connection with the integration including, but not limited to, lease termination charges and other employee-related costs, but are unable to estimate these amounts. We anticipate that other than RSU retention awards granted, substantially all of these cumulative charges will result in cash expenditures.
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12.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
The tables below present the changes in Accumulated other comprehensive income (loss) ("AOCI") by component. For pension and postretirement benefits, we report amounts reclassified from AOCI relating to employer service cost in Compensation and benefits within the Condensed Consolidated Statements of Comprehensive Income. All other reclassifications relating to pension and postretirement benefits are reported within Other income.
(in millions)
Pension and postretirement benefit
Cumulative foreign currency translation adjustment
Total
Balance as of June 30, 2020
$
( 72.0
)
( 465.4
)
$
( 537.4
)
Other comprehensive income before reclassification
—
59.3
59.3
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ -
0.7
—
0.7
Other comprehensive income after tax expense of $ - , $ - and $ -
0.7
59.3
60.0
Balance as of September 30, 2020
$
( 71.3
)
( 406.1
)
$
( 477.4
)
(in millions)
Pension and postretirement benefit
Cumulative foreign currency translation adjustment
Total
Balance as of June 30, 2019
$
( 59.2
)
( 390.8
)
$
( 450.0
)
Other comprehensive loss before reclassification
—
( 34.6
)
( 34.6
)
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ -
0.1
—
0.1
Other comprehensive loss after tax expense of $ - , $ - and $ -
0.1
( 34.6
)
( 34.5
)
Balance as of September 30, 2019
$
( 59.1
)
( 425.4
)
$
( 484.5
)
(in millions)
Pension and postretirement benefit
Cumulative foreign currency translation adjustment
Total
Balance as of December 31, 2019
$
( 72.0
)
( 355.8
)
$
( 427.8
)
Other comprehensive loss before reclassification
—
( 50.3
)
( 50.3
)
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ -
0.7
—
0.7
Other comprehensive loss after tax expense of $ - , $ - and $ -
0.7
( 50.3
)
( 49.6
)
Balance as of September 30, 2020
$
( 71.3
)
( 406.1
)
$
( 477.4
)
(in millions)
Pension and postretirement benefit
Cumulative foreign currency translation adjustment
Total
Balance as of December 31, 2018
$
( 57.4
)
( 398.8
)
$
( 456.2
)
Other comprehensive income before reclassification
—
( 26.6
)
( 26.6
)
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ -
( 1.7
)
—
( 1.7
)
Other comprehensive (loss) income after tax expense of $ - , $ - and $ -
( 1.7
)
( 26.6
)
( 28.3
)
Balance as of September 30, 2019
$
( 59.1
)
( 425.4
)
$
( 484.5
)
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.