Item 1. Financial Statements
Item 1. Financial Statements
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data) June 30, 2022 December 31, 2021
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 568.0 593.7
Trade receivables, net of allowance of $ 74.5 and $ 67.6
1,859.8 2,004.1
Notes and other receivables 400.6 389.3
Reimbursable receivables 1,780.0 1,734.5
Warehouse receivables 634.8 822.3
Short-term contract assets, net of allowance of $ 2.7 and $ 2.5
354.3 343.1
Prepaid and other 552.3 500.7
Total current assets 6,149.8 6,387.7
Property and equipment, net of accumulated depreciation of $ 944.3 and $ 909.1
731.7 740.0
Operating lease right-of-use assets 771.4 723.4
Goodwill 4,519.9 4,611.6
Identified intangibles, net of accumulated amortization of $ 394.2 and $ 340.1
871.9 887.0
Investments, including $ 786.1 and $ 639.6 at fair value
901.9 745.7
Long-term receivables 289.2 316.4
Deferred tax assets, net 277.9 330.8
Deferred compensation plan 528.1 528.8
Other 230.5 233.6
Total assets $ 15,272.3 15,505.0
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities $ 947.0 1,262.8
Reimbursable payables 1,308.3 1,350.0
Accrued compensation and benefits 1,351.1 2,029.5
Short-term borrowings 128.3 147.9
Current maturities of long-term debt, net of debt issuance costs of $ 0.2 and $ 0.3
274.8 274.7
Short-term contract liabilities and deferred income 235.4 208.2
Short-term acquisition-related obligations 47.5 45.8
Warehouse facilities 622.3 795.7
Short-term operating lease liabilities 153.1 153.8
Other 269.4 218.1
Total current liabilities 5,337.2 6,486.5
Credit facility, net of debt issuance costs of $ 10.7 and $ 11.8
1,364.3 138.2
Long-term debt, net of debt issuance costs of $ 1.4 and $ 1.4
364.4 395.6
Deferred tax liabilities, net 211.6 179.7
Deferred compensation 490.9 525.4
Long-term acquisition-related obligations 54.3 66.3
Long-term operating lease liabilities 748.6 714.4
Other 547.1 577.7
Total liabilities 9,118.4 9,083.8
Redeemable noncontrolling interest 7.2 7.8
Company shareholders' equity:
Common stock, $ 0.01 par value per share, 100,000,000 shares authorized; 52,084,171 and 52,076,800 shares issued; 48,240,672 and 50,024,139 outstanding
0.5 0.5
Additional paid-in capital 2,050.7 2,053.7
Retained earnings 5,275.4 4,937.6
Treasury stock, at cost, 3,843,499 and 2,052,661 shares
( 824.7 ) ( 406.3 )
Shares held in trust ( 5.1 ) ( 5.2 )
Accumulated other comprehensive loss ( 583.9 ) ( 395.4 )
Total Company shareholders’ equity 5,912.9 6,184.9
Noncontrolling interest 233.8 228.5
Total equity 6,146.7 6,413.4
Total liabilities, redeemable noncontrolling interest and equity $ 15,272.3 15,505.0
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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue $ 5,278.4 4,495.0 $ 10,079.8 8,532.1
Operating expenses:
Compensation and benefits $ 2,554.4 2,208.8 $ 4,965.2 4,197.8
Operating, administrative and other 2,407.6 1,989.3 4,548.6 3,886.5
Depreciation and amortization 55.4 54.5 109.8 107.5
Restructuring and acquisition charges 25.9 18.1 45.4 35.3
Total operating expenses $ 5,043.3 4,270.7 $ 9,669.0 8,227.1
Operating income $ 235.1 224.3 $ 410.8 305.0
Interest expense, net of interest income 15.7 10.6 25.9 21.0
Equity earnings 53.6 40.8 72.1 89.3
Other income (expense) 135.3 ( 0.2 ) 135.5 11.6
Income before income taxes and noncontrolling interest 408.3 254.3 592.5 384.9
Income tax provision 72.8 54.9 113.1 83.1
Net income 335.5 199.4 479.4 301.8
Net income (loss) attributable to noncontrolling interest 141.6 ( 0.6 ) 139.9 ( 1.2 )
Net income attributable to common shareholders $ 193.9 200.0 $ 339.5 303.0
Basic earnings per common share $ 3.98 3.90 $ 6.89 5.91
Basic weighted average shares outstanding (in 000's) 48,718 51,288 49,247 51,231
Diluted earnings per common share $ 3.90 3.82 $ 6.75 5.80
Diluted weighted average shares outstanding (in 000's) 49,651 52,324 50,292 52,253
Net income attributable to common shareholders $ 193.9 200.0 $ 339.5 303.0
Change in pension liabilities, net of tax — 0.7 — 0.5
Foreign currency translation adjustments ( 164.4 ) ( 0.2 ) ( 188.5 ) ( 6.4 )
Comprehensive income attributable to common shareholders $ 29.5 200.5 $ 151.0 297.1
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 SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Company Shareholders' Equity
Common Stock Additional Shares
(in millions, except share and
per share data) (unaudited) Shares Outstanding Amount Paid-In Retained Held in Treasury Total
Capital Earnings Trust Stock AOCI (1)
NCI (2)
Equity
December 31, 2021 50,024,139 $ 0.5 2,053.7 4,937.6 ( 5.2 ) ( 406.3 ) ( 395.4 ) 228.5 $ 6,413.4
Net income (loss) — — — 145.6 — — — ( 1.7 ) 143.9
Shares issued under stock-based compensation programs 305,435 — ( 3.6 ) — — 5.5 — — 1.9
Shares repurchased for payment of taxes on stock-based compensation ( 105,295 ) — ( 1.9 ) — — ( 1.9 ) — — ( 3.8 )
Amortization of stock-based compensation — — 18.6 — — — — — 18.6
Shares held in trust — — — — 0.1 — — — 0.1
Repurchase of common stock ( 615,351 ) — — — — ( 150.0 ) — — ( 150.0 )
Foreign currency translation adjustments — — — — — — ( 24.1 ) — ( 24.1 )
Increase in amounts attributable to noncontrolling interest — — — — — — — 15.2 15.2
March 31, 2022 49,608,928 $ 0.5 2,066.8 5,083.2 ( 5.1 ) ( 552.7 ) ( 419.5 ) 242.0 $ 6,415.2
Net income (loss) (3)
— — — 193.9 — — — 141.7 335.6
Shares issued under stock-based compensation programs 36,251 — ( 25.4 ) ( 1.7 ) — 42.2 — — 15.1
Shares repurchased for payment of taxes on stock-based compensation ( 6,592 ) — ( 16.5 ) — — ( 16.5 ) — — ( 33.0 )
Amortization of stock-based compensation — — 25.8 — — — — — 25.8
Repurchase of common stock ( 1,397,915 ) — — — — ( 297.7 ) — — ( 297.7 )
Foreign currency translation adjustments — — — — — — ( 164.4 ) — ( 164.4 )
Decrease in amounts attributable to noncontrolling interest — — — — — — — ( 149.9 ) ( 149.9 )
Balances at June 30, 2022 48,240,672 $ 0.5 2,050.7 5,275.4 ( 5.1 ) ( 824.7 ) ( 583.9 ) 233.8 $ 6,146.7
(1) AOCI: Accumulated other comprehensive income (loss)
(2) NCI: Noncontrolling interest
(3) Excludes net (loss) income attributable to redeemable noncontrolling interest of $( 0.1 ) million for the three months ended June 30, 2022
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Company Shareholders' Equity
Common Stock Additional Shares
(in millions, except share and
per share data) (unaudited) Shares Outstanding Amount Paid-In Retained Held in Treasury Total
Capital Earnings Trust Stock AOCI (1)
NCI (2)
Equity
December 31, 2020 51,105,417 $ 0.5 2,023.3 3,975.9 ( 5.6 ) ( 96.1 ) ( 377.2 ) 89.2 $ 5,610.0
Net income (loss)
— — — 103.0 — — ( 0.6 ) 102.4
Shares issued under stock-based compensation programs 290,563 — ( 15.6 ) — — 15.9 — — 0.3
Shares repurchased for payment of taxes on stock-based compensation ( 89,780 ) — ( 9.7 ) — — ( 5.5 ) — — ( 15.2 )
Amortization of stock-based compensation — — 17.5 — — — — — 17.5
Shares held in trust — — — — 0.2 — — — 0.2
Change in pension liabilities, net of tax — — — — — — ( 0.2 ) — ( 0.2 )
Foreign currency translation adjustments — — — — — — ( 6.2 ) — ( 6.2 )
Decrease in amounts attributable to noncontrolling interest — — — — — — — ( 1.9 ) ( 1.9 )
March 31, 2021 51,306,200 $ 0.5 2,015.5 4,078.9 ( 5.4 ) ( 85.7 ) ( 383.6 ) 86.7 $ 5,706.9
Net income (loss) — — — 200.0 — — — ( 0.6 ) 199.4
Shares issued under stock-based compensation programs 13,712 — ( 1.0 ) — — 1.5 — — 0.5
Shares repurchased for payment of taxes on stock-based compensation ( 2,184 ) — ( 0.2 ) — — ( 0.2 ) — — ( 0.4 )
Amortization of stock-based compensation — — 26.3 — — — — — 26.3
Shares held in trust — — — — 0.1 — — — 0.1
Change in pension liabilities, net of tax — — — — — — 0.7 — 0.7
Repurchase of common stock ( 172,500 ) — — — — ( 37.9 ) — — ( 37.9 )
Foreign currency translation adjustments — — — — — — ( 0.2 ) — ( 0.2 )
Increase in amounts attributable to noncontrolling interest — — — — — — — 4.3 4.3
Balances at June 30, 2021 51,145,228 $ 0.5 2,040.6 4,278.9 ( 5.3 ) ( 122.3 ) ( 383.1 ) 90.4 $ 5,899.7
(1) AOCI: Accumulated other comprehensive income (loss)
(2) NCI: Noncontrolling interest
See accompanying notes to Condensed Consolidated Financial Statements.
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JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(in millions) (unaudited) 2022 2021
Cash flows from operating activities:
Net income $ 479.4 301.8
Reconciliation of net income to net cash used in operating activities:
Depreciation and amortization 109.8 107.5
Equity earnings ( 72.1 ) ( 89.3 )
Net gain on dispositions ( 134.8 ) ( 11.4 )
Distributions of earnings from investments 9.9 4.6
Provision for loss on receivables and other assets 11.8 ( 0.2 )
Amortization of stock-based compensation 44.4 43.8
Net non-cash mortgage servicing rights and mortgage banking derivative activity ( 7.6 ) ( 15.4 )
Accretion of interest and amortization of debt issuance costs 2.5 2.2
Other, net 2.6 ( 21.1 )
Change in:
Receivables 64.6 70.1
Reimbursable receivables and reimbursable payables ( 94.2 ) ( 77.4 )
Prepaid expenses and other assets ( 21.3 ) ( 75.8 )
Deferred tax assets, net 78.8 1.3
Accounts payable and accrued liabilities ( 339.6 ) ( 265.7 )
Accrued compensation ( 673.6 ) ( 221.1 )
Net cash used in operating activities ( 539.4 ) ( 246.1 )
Cash flows from investing activities:
Net capital additions – property and equipment ( 86.9 ) ( 69.8 )
Net investment asset activity (less than wholly-owned) 137.0 ( 41.8 )
Business acquisitions, net of cash acquired ( 2.0 ) ( 0.2 )
Capital contributions to investments ( 121.4 ) ( 77.4 )
Distributions of capital from investments 13.1 13.5
Other, net ( 2.9 ) ( 38.1 )
Net cash used in investing activities ( 63.1 ) ( 213.8 )
Cash flows from financing activities:
Proceeds from borrowings under credit facility 4,060.0 2,373.0
Repayments of borrowings under credit facility ( 2,835.0 ) ( 2,023.0 )
Net (repayments of) proceeds from short-term borrowings ( 12.5 ) 47.6
Payments of deferred business acquisition obligations and earn-outs ( 9.2 ) ( 54.3 )
Repurchase of common stock ( 447.7 ) ( 37.9 )
Noncontrolling interest (distributions) contributions, net ( 134.6 ) 2.2
Other, net ( 19.7 ) 7.1
Net cash provided by financing activities 601.3 314.7
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash ( 37.6 ) ( 9.7 )
Net change in cash, cash equivalents and restricted cash ( 38.8 ) ( 154.9 )
Cash, cash equivalents and restricted cash, beginning of the period 841.6 839.8
Cash, cash equivalents and restricted cash, end of the period $ 802.8 684.9
Supplemental disclosure of cash flow information:
Restricted cash, beginning of period $ 247.9 265.5
Restricted cash, end of period 234.8 190.9
Cash paid during the period for:
Interest $ 26.4 19.9
Income taxes, net of refunds 201.6 114.8
Operating leases 91.5 98.6
Non-cash activities:
Business acquisitions (including contingent consideration) $ 2.0 3.8
Non-cash consideration received for disposition 15.8 23.9
Deferred business acquisition obligations 1.4 —
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, 2021, which are included in our 2021 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission ("SEC") and also available on our website ( www.jll.com ), since we have omitted from this quarterly report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to the "Summary of Critical Accounting Policies and Estimates" section within Item 7. 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 2021 Annual Report on Form 10-K for further discussion of our significant accounting policies and estimates.
Our Condensed Consolidated Financial Statements as of June 30, 2022, and for the periods ended June 30, 2022 and 2021, are unaudited. In the opinion of management, we have included all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements for these interim periods. We have also reclassified certain prior year amounts to conform to the current presentation, specifically the incorporation of directly reimbursed expenses within Compensation and benefits, and Operating, administrative and other on our Condensed Consolidated Statements of Comprehensive Income, compared with its historical separate 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 certain expenses are recognized evenly throughout the year. Growth in our Property Management and Workplace Management businesses as well as other annuity-based services has, to an extent, lessened the seasonality in our revenue and profits during the past several years. Within our Markets Advisory and Capital Markets segments, revenue from transaction-based activities is driven by the size and timing of our clients' transactions and can fluctuate significantly from period to period. 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.
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 can impact our estimated effective tax rate.
As a result of the items mentioned above, the results for the periods ended June 30 are not fully indicative of what our results will be for the full fiscal year.
Change in Reporting Segments
Effective January 1, 2022, we changed from our geographic-centric Real Estate Services segments of Americas, EMEA and Asia Pacific to global business line segments of Markets Advisory, Capital Markets, Work Dynamics and JLL Technologies. Our real estate investment management business, LaSalle, continues as a reporting segment. As our segment financial results are presented on this global business line view, the comparable period has been recast to align with the new reporting structure. Refer to Note 2, Revenue Recognition, and Note 3, Business Segments, for additional information, including detail financial information, on our segments.
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2. REVENUE RECOGNITION
We earn revenue from the following services (segments are bolded).
• Markets Advisory
◦ Leasing
◦ Property Management
◦ Advisory, Consulting and Other
• Capital Markets
◦ Investment Sales, Debt/Equity Advisory and Other
◦ Loan Servicing
◦ Valuation Advisory
• Work Dynamics
◦ Workplace Management
◦ Project Management
◦ Portfolio Services and Other
• JLL Technologies
• LaSalle
Markets Advisory
Leasing
Leasing revenue is earned from brokerage commissions as we represent tenants and/or landlords in connection with real estate leases. Our performance obligation is to facilitate the execution of a lease agreement, which is satisfied at a point in time, upon lease execution. Generally, we are either entitled to the full consideration upon lease execution or in part upon lease execution with the remainder upon the occurrence of a future event outside of our control (e.g., tenant occupancy, lease commencement, or rent commencement). The majority of the events that preclude our entitlement to the full consideration upon lease execution are considered to be “normal course of business” and, therefore, do not result in a constraint upon the recognition of revenue. In the infrequent instance our fee entitlement in a contract with a customer is predicated on the occurrence of a future event(s) uncertain of occurring, we constrain the recognition of revenue until the uncertainty is resolved or the future event occurs. Generally, less than 5% of our Leasing revenue recognized in a period had previously been constrained.
Property Management
Property Management provides on-site day-to-day real estate management services for owners of office, industrial, retail, multifamily residential and various other types of properties, representing a series of daily performance obligations delivered over time. Pricing is generally in the form of a monthly management fee based upon property-level cash receipts, square footage under management or some other variable metric.
Although we are principal in limited situations, we generally act as agent on behalf of our Property Management clients in relation to third-party vendors and subcontractors engaged to deliver operational services to our clients' properties. In these situations, we arrange, but do not control, the services provided by third party vendors and subcontractors prior to the transfer of the services to the client. As a result, the third-party costs incurred on behalf of clients, along with the corresponding revenue, are presented net on our Condensed Consolidated Statements of Comprehensive Income.
Advisory, Consulting and Other
Advisory, Consulting and Other includes a variety of different service offerings, whereby our performance obligation is to provide services as specified in the contract. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous transfer of control to our clients.
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Capital Markets
Investment Sales, Debt/Equity Advisory and Other
We provide brokerage and other services for capital transactions, such as real estate sales or loan originations and refinancing. Our performance obligation is to facilitate the execution of capital transactions, and we are generally entitled to the full consideration at the point in time upon which our performance obligation is satisfied, at which time we recognize revenue. In addition, revenue related to mortgage servicing rights ("MSR" or "MSRs") and loan origination fees are reported within Investment Sales, Debt/Equity Advisory and Other.
Loan Servicing
We service substantially all the loans we originate and sell, and service loans we did not originate but subsequently acquire the rights to service. We obtain a periodic fee for each loan we service based on a proportion of the cash collections.
Capital Markets revenue excluded from the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC Topic 606")
Our mortgage banking and servicing operations, comprised of (i) all Loan Servicing revenue and (ii) activities related to MSRs and loan origination fees (included in Investment Sales, Debt/Equity Advisory and Other), are not considered revenue from contracts with customers, and accordingly are excluded from the scope of ASC Topic 606. Such out-of-scope revenue is presented below.
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Revenue excluded from scope of ASC Topic 606 $ 76.5 63.4 $ 146.5 133.6
Valuation Advisory
Valuation Advisory service offerings include (but are not limited to) asset appraisal, business valuation, property tax advisory, complex litigation, and environmental property consulting. Our performance obligation is to provide services as specified in the contract and our pricing is negotiated based on the scale and complexity of each assignment. Typically, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of an appraisal or report for which client acceptance is required.
Work Dynamics
Workplace Management
Workplace Management, previously referred to as Integrated Facilities Management (IFM), provides comprehensive, on-site day-to-day real estate management services to corporations and institutions across a broad range of industries that outsource the management of the real estate they occupy, representing a series of daily performance obligations delivered over time. Pricing generally includes a management fee and, in many instances, an incentive fee or other form of variable consideration.
Although we may act as agent on behalf of our clients with respect to certain mandates, we generally act as principal for our Workplace Management contracts with respect to third-party vendors and subcontractors engaged to deliver operational services to our clients' facilities. In these situations, we control the services provided by such third-party vendors and subcontractors prior to the transfer of the services to the client. As a result, the third-party costs incurred on behalf of our clients, along with the corresponding reimbursement revenue, are presented gross on our Condensed Consolidated Statements of Comprehensive Income.
Project Management
Project Management, previously referred to as Project & Development Services, provides short-term construction-related services ranging from development and design to general contracting and project management for owners and occupiers of real estate. Depending on the terms of our engagement, our performance obligation is either to arrange for the completion of a project or to assume responsibility for completing a project on behalf of a client. Our obligations to clients are satisfied over time due to the continuous transfer of control of the underlying asset. Therefore, we recognize revenue over time, generally using input measures (e.g., to-date costs incurred relative to total estimated costs at completion).
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Typically, we are entitled to consideration at distinct milestones over the term of an engagement. For certain contracts where we assume responsibility for completing a project, we control the services provided by third-party vendors and subcontractors prior to transfer of the assets to the client. In these situations, the third-party costs incurred on behalf of clients, along with the associated reimbursement revenue, are presented gross on our Condensed Consolidated Statements of Comprehensive Income. In contrast, where we act as agent on behalf of clients, third-party costs incurred and the associated revenue are presented net on our Condensed Consolidated Statements of Comprehensive Income.
Portfolio Services and Other
Portfolio Services and Other includes a variety of different service offerings, including advising clients on how to optimize their workplace strategies and occupancy planning efforts, and overall portfolio strategy management and administration for our clients. Our performance obligation is to provide services as specified in the contract. For event-driven point-in-time transactions, we record revenue when our performance obligation is complete, such as the delivery of a report where client acceptance is required, whereas revenue is recorded over time for services with a continuous transfer of control to our clients.
JLL Technologies
JLL Technologies offers multiple cloud-based software solutions that generate value for investors and businesses by enabling higher-quality decision-making through improved data and analytics. We recognize cloud-based software revenue over time commensurate with the length and terms of the contract. In addition, we offer professional services such as program and project management, implementation and support, managed services, and advisory services. We recognize professional services revenue at the time our performance obligation is satisfied.
LaSalle
LaSalle provides real estate investment management services to clients and generally earns consideration in the form of advisory fees, transaction fees and incentive fees. Typically, our performance obligation is to manage clients’ capital for a specified period of time and is delivered as a series of daily performance obligations over time. Revenue recognition for transaction and incentive fees is generally constrained until all contingencies have cleared due to the possibility of a significant reversal until completion of the events necessary to realize the associated consideration. Substantially all incentive fees recognized as revenue were previously constrained.
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.
(in millions) June 30, 2022 December 31, 2021
Contract assets, gross $ 449.2 438.7
Contract asset allowance ( 2.7 ) ( 2.8 )
Contract assets, net $ 446.5 435.9
Contract liabilities $ 156.5 128.9
Remaining performance obligations - Remaining performance obligations represent the aggregate transaction price for contracts where our performance obligations have not yet been satisfied. As of June 30, 2022, 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.
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3. BUSINESS SEGMENTS
On February 28, 2022, we announced a new organizational structure that became effective on January 1, 2022. Under the new structure, we organize our operations around, and publicly report our financial results on, five global business segments:
(1) Markets Advisory,
(2) Capital Markets,
(3) Work Dynamics,
(4) JLL Technologies, and
(5) LaSalle.
Markets Advisory offers a wide range of real estate services, including agency leasing and tenant representation, property management, advisory, and consulting services. Capital Markets service offerings include investment sales, equity and debt advisory, loan servicing, and valuation advisory. Our Work Dynamics business provides a broad suite of integrated services to occupiers of real estate, including facility and project management, as well as portfolio and other services. Our JLL Technologies segment offers software products, solutions and services, while 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 functional costs across the globe, which we allocate to the business segments using an expense-specific driver-based methodology.
Adjusted EBITDA does not include (i) depreciation and amortization, (ii) restructuring and acquisition charges, (iii) interest expense, net of interest income, (iv) provision for income tax, (v) gain on disposal, (vi) net non-cash MSR and mortgage which are otherwise included in Net income on the Condensed Consolidated Statements of Comprehensive Income.
The Chief Operating Decision Maker ("CODM") of JLL measures and evaluates the segment results based on Adjusted EBITDA for purposes of making decisions about allocating resources and assessing performance. Our CODM is not provided with total asset information by segment and accordingly does not measure or allocate resources based on total assets information. Therefore, we have not disclosed asset information by segment.
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Summarized financial information by business segment is as follows.
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Markets Advisory
Leasing $ 708.4 572.4 $ 1,309.3 989.0
Property Management 378.2 347.8 748.7 695.4
Advisory, Consulting and Other 31.6 31.1 59.7 59.6
Revenue $ 1,118.2 951.3 $ 2,117.7 1,744.0
Depreciation and amortization (a)
$ 16.3 16.7 $ 33.4 32.6
Equity earnings $ 0.4 0.1 $ 0.9 0.5
Adjusted EBITDA $ 134.0 113.9 $ 245.2 179.9
Capital Markets
Investment Sales, Debt/Equity Advisory and Other $ 549.7 430.1 $ 1,025.8 732.1
Valuation Advisory 94.4 91.4 179.0 171.1
Loan Servicing 40.4 30.6 80.3 60.6
Revenue $ 684.5 552.1 $ 1,285.1 963.8
Depreciation and amortization $ 15.4 16.7 $ 31.0 32.6
Equity earnings $ 0.6 1.4 $ 1.4 1.8
Adjusted EBITDA $ 126.7 120.8 $ 244.9 179.9
Work Dynamics
Workplace Management $ 2,434.0 2,107.2 $ 4,754.4 4,155.6
Project Management 754.8 617.8 1,367.1 1,169.6
Portfolio Services and Other 121.7 111.2 222.6 209.1
Revenue $ 3,310.5 2,836.2 $ 6,344.1 5,534.3
Depreciation and amortization $ 17.0 16.8 $ 33.5 33.0
Equity earnings (losses) $ 0.9 ( 0.3 ) $ 1.2 ( 0.2 )
Adjusted EBITDA $ 57.6 51.2 $ 92.8 76.1
JLL Technologies
Revenue $ 50.7 39.6 $ 100.1 83.0
Depreciation and amortization $ 3.9 2.2 $ 7.7 5.1
Equity earnings $ 44.7 16.2 $ 63.5 50.8
Adjusted EBITDA $ 12.9 ( 1.5 ) $ 0.6 12.5
LaSalle
Advisory fees $ 103.2 89.6 $ 200.2 173.1
Transaction fees and other 10.3 11.0 27.4 18.7
Incentive fees 1.0 15.2 5.2 15.2
Revenue $ 114.5 115.8 $ 232.8 207.0
Depreciation and amortization $ 1.8 2.1 $ 3.2 4.2
Equity earnings $ 7.0 23.4 $ 5.1 36.4
Adjusted EBITDA $ 27.8 48.0 $ 49.1 74.1
(a) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
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The following table is a reconciliation of Adjusted EBITDA to Net income attributable to common shareholders.
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Adjusted EBITDA - Markets Advisory $ 134.0 113.9 $ 245.2 179.9
Adjusted EBITDA - Capital Markets 126.7 120.8 244.9 179.9
Adjusted EBITDA - Work Dynamics 57.6 51.2 92.8 76.1
Adjusted EBITDA - JLL Technologies 12.9 ( 1.5 ) 0.6 12.5
Adjusted EBITDA - LaSalle 27.8 48.0 49.1 74.1
Adjusted EBITDA - Consolidated $ 359.0 332.4 $ 632.6 522.5
Adjustments:
Restructuring and acquisition charges $ ( 25.9 ) ( 18.1 ) $ ( 45.4 ) ( 35.3 )
Net (loss) gain on disposition ( 7.5 ) — ( 7.5 ) 12.0
Net non-cash MSR and mortgage banking derivative activity 11.2 5.7 7.6 15.4
Interest expense, net of interest income ( 15.7 ) ( 10.6 ) ( 25.9 ) ( 21.0 )
Provision for income taxes ( 72.8 ) ( 54.9 ) ( 113.1 ) ( 83.1 )
Depreciation and amortization (a)
( 54.4 ) ( 54.5 ) ( 108.8 ) ( 107.5 )
Net income attributable to common shareholders $ 193.9 200.0 $ 339.5 303.0
(a) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
4. BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
2022 Business Combinations Activity
During the six months ended June 30, 2022, there were no strategic acquisitions. We paid $ 13.9 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years.
2021 Business Combinations Activity
During the six months ended June 30, 2021 we completed no strategic acquisitions.
Earn-Out Payments
($ in millions) June 30, 2022 December 31, 2021
Number of acquisitions with earn-out payments subject to the achievement of certain performance criteria 18 19
Maximum earn-out payments (undiscounted) $ 134.6 149.9
Short-term earn-out liabilities (fair value) (1)
30.2 39.0
Long-term earn-out liabilities (fair value) (1)
44.7 45.1
(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 7, Fair Value Measurements, and Note 10, Restructuring and Acquisition Charges, for additional discussion of our earn-out liabilities.
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Goodwill and Other Intangible Assets
In conjunction with our new organizational structure described more fully in Note 3, Business Segments, we reassessed our reporting units as of January 1, 2022, and reassigned goodwill to reflect our new segment structure using a relative fair value allocation approach. Under this methodology, the fair value of each impacted reporting unit was determined using a combination of the income approach and the market approach, and this resulting relative fair value was used to reassign the balance of goodwill.
We considered the change to our reportable segments a triggering event requiring the testing of our goodwill for impairment as of January 1, 2022. We performed a quantitative test relying on the discounted cash flow (“DCF”) method, an income approach, in determining the estimated fair value of our reporting units. Our DCF analysis relied on significant judgements 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. Our analysis indicated that no impairment existed as the estimated fair value of each of our reporting units exceeded its respective carrying value.
Goodwill and unamortized intangibles as of June 30, 2022 consisted of: (1) goodwill of $ 4,519.9 million, (2) identifiable intangibles of $ 824.6 million amortized over their remaining finite useful lives, and (3) $ 47.3 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.
The following table details, by reporting segment, movements in goodwill.
(in millions) Markets Advisory Capital Markets Work Dynamics JLL Technologies LaSalle Consolidated
Balance as of January 1, 2022 $ 1,782.9 1,983.9 539.9 247.5 57.4 $ 4,611.6
Additions, net of adjustments — 0.8 4.6 0.4 — 5.8
Impact of exchange rate movements ( 40.2 ) ( 43.5 ) ( 11.8 ) ( 0.2 ) ( 1.8 ) ( 97.5 )
Balance as of June 30, 2022 $ 1,742.7 1,941.2 532.7 247.7 55.6 $ 4,519.9
(in millions)
The following tables detail, by intangible type, movements in the gross carrying amount and accumulated amortization of our identifiable intangibles.
(in millions) MSRs Other Intangibles Consolidated
Gross Carrying Amount
Balance as of December 31, 2021 $ 669.7 557.4 $ 1,227.1
Additions, net of adjustments (1)
78.1 4.9 83.0
Adjustment for fully amortized intangibles ( 33.8 ) ( 2.5 ) ( 36.3 )
Impact of exchange rate movements — ( 7.7 ) ( 7.7 )
Balance as of June 30, 2022 $ 714.0 552.1 $ 1,266.1
Accumulated Amortization
Balance as of December 31, 2021 $ ( 191.0 ) ( 149.1 ) $ ( 340.1 )
Amortization, net (2)
( 58.8 ) ( 33.7 ) ( 92.5 )
Adjustment for fully amortized intangibles 33.8 2.5 36.3
Impact of exchange rate movements — 2.1 2.1
Balance as of June 30, 2022 $ ( 216.0 ) ( 178.2 ) $ ( 394.2 )
Net book value as of June 30, 2022 $ 498.0 373.9 $ 871.9
(1) Included in this amount for MSRs was $ 16.7 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 within the Condensed Consolidated Statements of Comprehensive Income.
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(in millions) MSRs Other Intangibles Total
Gross Carrying Amount
Balance as of December 31, 2020 $ 572.1 403.0 $ 975.1
Additions, net of adjustments (1)
61.9 3.8 65.7
Adjustment for fully amortized intangibles ( 17.2 ) ( 28.8 ) ( 46.0 )
Impact of exchange rate movements — ( 1.6 ) ( 1.6 )
Balance as of June 30, 2021 $ 616.8 376.4 $ 993.2
Accumulated Amortization
Balance as of December 31, 2020 $ ( 147.8 ) ( 147.5 ) $ ( 295.3 )
Amortization, net (2)
( 44.9 ) ( 26.3 ) ( 71.2 )
Adjustment for fully amortized intangibles 17.2 28.8 46.0
Impact of exchange rate movements — ( 0.2 ) ( 0.2 )
Balance as of June 30, 2021 $ ( 175.5 ) ( 145.2 ) $ ( 320.7 )
Net book value as of June 30, 2021 $ 441.3 231.2 $ 672.5
(1) Included in this amount for MSRs was $ 7.6 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 within the Condensed Consolidated Statements of Comprehensive Income.
5. INVESTMENTS
As of June 30, 2022 and December 31, 2021, we had investments of $ 901.9 million and $ 745.7 million, respectively. Summarized investment balances are presented in the following table.
(in millions) June 30, 2022 December 31, 2021
JLL Technologies investments $ 511.6 353.6
LaSalle co-investments 356.1 354.6
Other investments 34.2 37.5
Total $ 901.9 745.7
Approximately 90% of our investments, as of June 30, 2022, are (i) investments by JLL Technologies in proptech funds and early to mid-stage proptech companies, or (ii) direct investments in 55 separate property or commingled funds, where we co-invest alongside our clients and for which we also have an advisory agreement. The remaining 10% of our investments, as of June 30, 2022, were attributable to investment vehicles that use our capital and outside capital primarily provided by institutional investors to invest, generally, 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 $ 344.9 million as of June 30, 2022. Of this amount, while we remain contractually obligated, we do not expect a call on the $ 60.3 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.
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Summarized financial information for our consolidated VIEs is presented in the following tables.
(in millions) June 30, 2022 December 31, 2021
Property and equipment, net $ 187.4 184.7
Investments 10.6 10.2
Other assets 25.6 17.7
Total assets $ 223.6 212.6
Other current liabilities $ 2.2 2.1
Mortgage indebtedness (included in Other liabilities) 111.9 107.5
Total liabilities 114.1 109.6
Members' equity (included in Noncontrolling interest) 109.5 103.0
Total liabilities and members' equity $ 223.6 212.6
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Revenue $ 5.1 2.9 $ 8.6 5.5
Operating and other expenses ( 6.0 ) ( 3.5 ) ( 11.7 ) ( 6.7 )
Net gains on sale of investments (1)
142.3 — 142.3 —
Net income/(loss) $ 141.4 ( 0.6 ) $ 139.2 ( 1.2 )
(1) The gain was included in Other income (expense) on the Condensed Consolidated Statements of Comprehensive Income.
We allocate the members' equity and net income/(loss) of the consolidated VIEs to the noncontrolling interest holders as Noncontrolling interest on our Condensed Consolidated Balance Sheets and as Net income/(loss) attributable to noncontrolling interest in our Condensed Consolidated Statements of Comprehensive Income, respectively.
Impairment
There were no significant other-than-temporary impairment charges on investments for the six months ended June 30, 2022 and 2021.
Fair Value
We report a majority of our investments 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 reported at fair value.
(in millions) 2022 2021
Fair value investments as of January 1, $ 639.6 340.3
Investments 121.8 98.6
Distributions ( 21.4 ) ( 15.9 )
Change in fair value, net 65.3 85.1
Foreign currency translation adjustments, net ( 19.2 ) ( 3.1 )
Fair value investments as of June 30, $ 786.1 505.0
See Note 7, Fair Value Measurements, for additional discussion of our investments reported at fair value.
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6. 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 March 31, 2022 786.8 466.1 1,252.9 $ 152.62 1.84
Granted 188.5 113.0 301.5 224.59
Vested ( 28.6 ) — ( 28.6 ) 129.96
Forfeited ( 7.7 ) ( 2.2 ) ( 9.9 ) 173.02
Unvested as of June 30, 2022 939.0 576.9 1,515.9 $ 167.23 1.98
Unvested as of March 31, 2021 940.3 439.1 1,379.4 $ 134.84 1.70
Granted 200.5 107.2 307.7 186.21
Vested ( 10.7 ) — ( 10.7 ) 142.07
Forfeited ( 12.0 ) ( 1.1 ) ( 13.1 ) 123.85
Unvested as of June 30, 2021 1,118.1 545.2 1,663.3 $ 144.01 1.92
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, 2021 912.4 646.0 1,558.4 $ 152.27 1.99
Granted 188.5 113.0 301.5 223.61
Vested ( 151.4 ) ( 175.1 ) ( 326.5 ) 147.57
Forfeited ( 10.5 ) ( 7.0 ) ( 17.5 ) 173.44
Unvested as of June 30, 2022 939.0 576.9 1,515.9 $ 167.23 1.98
Unvested as of December 31, 2020 1,096.2 531.5 1,627.7 $ 137.42 1.69
Granted 257.1 107.2 364.3 179.95
Vested ( 218.1 ) ( 79.0 ) ( 297.1 ) 150.45
Forfeited ( 17.1 ) ( 14.5 ) ( 31.6 ) 138.47
Unvested as of June 30, 2021 1,118.1 545.2 1,663.3 $ 144.01 1.92
As of June 30, 2022, we had $ 121.8 million of unamortized deferred compensation related to unvested RSUs and PSUs, which we anticipate recognizing over varying periods into 2026.
7. 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.
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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, including its current portion, as $ 622.9 million and $ 687.2 million as of June 30, 2022 and December 31, 2021, respectively, using dealer quotes that are Level 2 inputs in the fair value hierarchy. The carrying value of our Long-term debt includes (i) the current portion of $ 274.8 million and $ 274.7 million as of June 30, 2022 and December 31, 2021, respectively, which included debt issuance costs of $ 0.2 million and $ 0.3 million, respectively; and (ii) the long-term portion of $ 364.4 million and $ 395.6 million, as of June 30, 2022 and December 31, 2021, respectively, which included debt issuance costs of $ 1.4 million as of both June 30, 2022 and December 31, 2021.
Investments at Fair Value - Net Asset Value ("NAV")
We report a significant portion of our investments 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 a subset 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. We did not consider any adjustments to NAV estimates provided by investees, including adjustments for any restrictions to the transferability of ownership interests embedded within investment agreements to which we are a party, to be necessary based upon (i) our understanding of the methodology utilized and inputs incorporated to estimate NAV at the investee level, (ii) consideration of market demand for the specific types of real estate assets held by each venture and (iii) contemplation of real estate and capital markets conditions in the localities in which these ventures operate. As of June 30, 2022 and December 31, 2021, investments at fair value using NAV were $ 267.0 million and $ 251.6 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
During the second quarter of 2022, certain investments previously reported as NAV investments were reclassified as Level 3 within the fair value hierarchy. Prior period amounts within the fair value table below have been reclassified to reflect the current period presentation. The following table categorizes by level in the fair value hierarchy the estimated fair value of our assets and liabilities measured at fair value on a recurring basis.
June 30, 2022 December 31, 2021
(in millions) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Investments - fair value $ 58.7 — 460.4 84.5 — 303.5
Foreign currency forward contracts receivable — 7.8 — — 15.9 —
Warehouse receivables — 634.8 — — 822.3 —
Deferred compensation plan assets — 528.1 — — 528.8 —
Mortgage banking derivative assets — — 128.8 — — 60.4
Total assets at fair value $ 58.7 1,170.7 589.2 84.5 1,367.0 363.9
Liabilities
Foreign currency forward contracts payable $ — 1.2 — — 0.8 —
Deferred compensation plan liabilities — 484.9 — — 513.0 —
Earn-out liabilities — — 74.9 — — 84.1
Mortgage banking derivative liabilities — — 107.2 — — 38.5
Total liabilities at fair value $ — 486.1 182.1 — 513.8 122.6
Investments
We classify one investment as Level 1 in the fair value hierarchy as quoted price are readily available. We increase or decrease our investment each reporting period by the change in the fair value of the investment. We report the 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 or date of most recent financing raise 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 June 30, 2022 and December 31, 2021, these contracts had a gross notional value of $ 1.83 billion ($ 1.14 billion on a net basis) and $ 2.61 billion ($ 1.51 billion on a net basis), respectively.
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 $ 7.8 million asset as of June 30, 2022, was composed of gross contracts with receivable positions of $ 8.9 million and payable positions of $ 1.1 million. The $ 1.2 million liability as of June 30, 2022, was composed of gross contracts with receivable positions of $ 0.2 million and payable positions of $ 1.4 million. As of December 31, 2021, the $ 15.9 million asset was composed of gross contracts with receivable positions of $ 19.2 million and payable positions of $ 3.3 million. The $ 0.8 million liability as of December 31, 2021, was composed of gross contracts with receivable positions of $ 0.2 million and payable positions of $ 1.0 million.
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Warehouse Receivables
As of June 30, 2022 and December 31, 2021, 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 June 30, 2022 as Deferred compensation plan assets of $ 528.1 million, long-term deferred compensation plan liabilities of $ 484.9 million, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $ 5.1 million. We recorded this plan on our Condensed Consolidated Balance Sheet as of December 31, 2021 as Deferred compensation plan assets of $ 528.8 million, long-term deferred compensation plan liabilities of $ 513.0 million, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $ 5.2 million.
Earn-Out Liabilities
We classify our earn-out liabilities within Level 3 in the fair value hierarchy because the inputs we use to develop the estimated fair value include unobservable inputs. See Note 4, 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 March 31, 2022 Net change in fair value Foreign CTA (1)
Purchases / Additions Settlements Balance as of
June 30, 2022
Investments $ 344.2 45.3 — 71.1 ( 0.2 ) $ 460.4
Mortgage banking derivative assets and liabilities, net 37.1 2.2 — 48.4 ( 66.1 ) 21.6
Earn-out liabilities 79.5 1.0 ( 0.3 ) — ( 5.3 ) 74.9
Balance as of March 31, 2021 Net change in fair value Foreign CTA (1)
Purchases / Additions Settlements Level transfer out (2)
Balance as of June 30, 2021
Investments $ 140.1 6.3 — 37.1 — ( 1.9 ) $ 181.6
Mortgage banking derivative assets and liabilities, net 32.9 ( 7.6 ) — 29.6 ( 42.3 ) — 12.6
Earn-out liabilities 68.2 1.1 — — ( 51.3 ) — 18.0
(in millions) Balance as of December 31, 2021 Net change in fair value Foreign CTA (1)
Purchases / Additions Settlements Balance as of
June 30, 2022
Investments $ 303.5 62.5 — 94.6 ( 0.2 ) $ 460.4
Mortgage banking derivative assets and liabilities, net 21.9 22.6 — 86.0 ( 108.9 ) 21.6
Earn-out liabilities 84.1 0.3 ( 0.4 ) 2.0 ( 11.1 ) 74.9
(in millions) Balance as of December 31, 2020 Net change in fair value Foreign CTA (1)
Purchases / Additions Settlements Level transfer out (2)
Balance as of June 30, 2021
Investments $ 59.3 38.1 — 86.2 ( 0.1 ) ( 1.9 ) $ 181.6
Mortgage banking derivative assets and liabilities, net 13.7 11.3 — 70.7 ( 83.1 ) — 12.6
Earn-out liabilities 85.7 1.0 ( 0.3 ) 3.8 ( 72.2 ) — 18.0
(1) CTA: Currency translation adjustments
(2) In 2021, an investment previously treated as a Level 3 investment became publicly traded on the NYSE and was considered a Level 1 investment immediately.
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 Equity earnings
Other current assets - Mortgage banking derivative assets Revenue
Other current liabilities - Mortgage banking derivative liabilities Revenue
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Non-Recurring Fair Value Measurements
We review our investments, 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 six months ended June 30, 2022 or 2021. See Note 5, Investments, for additional information, including information related to impairment charges recorded at the investee level.
8. DEBT
Debt is composed of the following obligations.
($ in millions) June 30, 2022 December 31, 2021
Short-term debt:
Local overdraft facilities $ 4.1 9.2
Other short-term borrowings 124.2 138.7
Long-term senior notes, 4.4 %, face amount of $ 275.0 , due November 2022, net of debt issuance costs of $ 0.2 and $ 0.3
274.8 274.7
Total short-term debt $ 403.1 422.6
Credit facility, net of debt issuance costs of $ 10.7 and $ 11.8
1,364.3 138.2
Long-term senior notes, 1.96 %, face amount of € 175.0 , due June 2027, net of debt issuance costs of $ 0.6 and $ 0.6
182.3 197.9
Long-term senior notes, 2.21 %, face amount of € 175.0 , due June 2029, net of debt issuance costs of $ 0.8 and $ 0.8
182.1 197.7
Total debt $ 2,131.8 956.4
Credit Facility
On June 16, 2022, we executed Amendment No. 3 ("Amendment No. 3") to the Second Amended and Restated Multicurrency Credit Agreement dated as of June 21, 2016 (as amended, the "Credit Agreement") with a syndicate of lenders. The borrowing capacity under the Credit Agreement remains at $ 2.75 billion, with no changes to the maturity date of April 14, 2026. The features of the Credit Agreement, as amended, provide for (i) Greenhouse Gas Emissions KPI to align with the World Green Building Council ("WGBC") Commitment to reach net zero by 2030 and (ii) incorporates the Adjusted Term Secured Overnight Financing Rate ("SOFR") successor rates for USD and other currency borrowings.
Pricing on the unsecured revolving credit facility (the "Facility") ranges from Adjusted Term SOFR plus 0.875% to 1.35% , with pricing as of June 30, 2022 at Adjusted Term SOFR 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 as of both June 30, 2022 and December 31, 2021.
The following tables provides additional information on our Facility.
Three Months Ended June 30, Six Months Ended June 30,
($ in millions) 2022 2021 2022 2021
Average outstanding borrowings under the Facility $ 1,581.9 612.5 $ 1,135.0 399.6
Effective interest rate on the Facility 1.6 % 1.0 % 1.4 % 1.0 %
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, share repurchases and capital expenditures.
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Short-Term and Long-Term Debt
In addition to our Facility, we have the capacity to borrow up to an additional $ 52.1 million under local overdraft facilities. Amounts outstanding are presented in the debt table above.
As of June 30, 2022, our issuer and senior unsecured ratings are investment grade: Baa1 from Moody’s Investors Service, Inc. and BBB+ from Standard & Poor’s Ratings Services.
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 June 30, 2022.
Warehouse Facilities
June 30, 2022 December 31, 2021
($ in millions) Outstanding Balance Maximum Capacity Outstanding Balance Maximum Capacity
Warehouse facilities:
BSBY plus 1.30% , expires September 19, 2022
$ 226.4 700.0 516.9 700.0
LIBOR plus 1.30% , expires September 16, 2022
301.7 1,200.0 74.7 1,200.0
LIBOR plus 1.30% , expires August 27, 2022
94.6 300.0 192.8 300.0
LIBOR plus 1.60% , expires July 30, 2022 (1)
— 400.0 — 400.0
Fannie Mae ASAP (2) program, SOFR plus 1.25%
— n/a 12.5 n/a
Gross warehouse facilities 622.7 2,600.0 796.9 2,600.0
Debt issuance costs ( 0.4 ) n/a ( 1.2 ) n/a
Total warehouse facilities $ 622.3 2,600.0 795.7 2,600.0
(1) In July 2022, we extended the term of the Warehouse facility to July 28, 2023 and amended the interest rate to SOFR plus 1.40%.
(2) As Soon As Pooled ("ASAP") funding program.
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 facilities, we are required to comply with certain financial covenants regarding (i) minimum net worth, (ii) minimum servicing-related loans and (iii) minimum adjusted leverage ratios. We remained in compliance with all covenants under our facilities as of June 30, 2022.
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9. 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.
Professional Indemnity Insurance
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. Effective April 1, 2022, the level of risk retained by our captive insurance company, with respect to professional indemnity claims, increased from $2.5 million to $10.0 million per claim, inclusive of the deductible. We contract third-party insurance companies to provide coverage of risk in excess of this 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 $ 22.5 million as of both June 30, 2022 and December 31, 2021, 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, 2021 $ 1.2
New claims —
Prior year claims adjustments (including foreign currency changes) ( 0.1 )
Claims paid —
June 30, 2022 $ 1.1
December 31, 2020 $ 48.2
New claims 1.3
Prior year claims adjustments (including foreign currency changes) ( 30.7 )
Claims paid ( 11.9 )
June 30, 2021 $ 6.9
Delegated Underwriting and Servicing ("DUS") Program Loan Loss-Sharing
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 June 30, 2022 and December 31, 2021, we had loans subject to such loss-sharing arrangements with an aggregate unpaid principal balance of $ 16.5 billion and $ 15.4 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 June 30, 2022 and December 31, 2021, the loss-sharing guarantee obligations were $ 26.3 million and $ 24.6 million, respectively, and are included in Other liabilities on our Condensed Consolidated Balance Sheets. There were no loan losses incurred for the three and six months ended June 30, 2022 and 2021.
The loss-sharing aspect of the program represents an off-balance sheet credit exposure. We record a separate contingent reserve for this risk calculated on an individual loan level. As of June 30, 2022 and December 31, 2021, the loan loss guarantee reserve was $ 20.0 million and $ 22.9 million, respectively, and is included within Other liabilities on our Condensed Consolidated Balance Sheets.
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10. RESTRUCTURING AND ACQUISITION CHARGES
Restructuring and acquisition charges include cash and non-cash expenses. Cash-based charges primarily consist of (i) 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, (ii) acquisition, transaction and integration-related charges, and (iii) other restructuring, including lease exit charges. Non-cash charges include (i) stock-based compensation expense for retention awards issued in conjunction with the HFF, Inc. ("HFF") acquisition and (ii) 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 June 30, Six Months Ended June 30,
(in millions) 2022 2021 2022 2021
Severance and other employment-related charges $ 8.3 ( 0.9 ) $ 11.6 0.9
Restructuring, pre-acquisition and post-acquisition charges 13.9 11.9 28.1 21.4
Stock-based compensation expense for HFF retention awards 2.7 6.0 5.4 12.0
Fair value adjustments to earn-out liabilities 1.0 1.1 0.3 1.0
Restructuring and acquisition charges $ 25.9 18.1 $ 45.4 35.3
We expect nearly all expenses related to (i) severance and other employment-related charges and (ii) restructuring, pre-acquisition and post-acquisition charges as of June 30, 2022 will be paid during the next twelve months.
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11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT
The tables below present the changes in Accumulated other comprehensive income (loss) ("AOCI") by component.
(in millions) Pension and postretirement benefit Cumulative foreign currency translation adjustment Total
Balance as of March 31, 2022 $ ( 42.7 ) ( 376.8 ) $ ( 419.5 )
Other comprehensive loss before reclassification — ( 164.4 ) ( 164.4 )
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ - — — —
Other comprehensive loss after tax expense of $ - , $ - and $ - — ( 164.4 ) ( 164.4 )
Balance as of June 30, 2022 $ ( 42.7 ) ( 541.2 ) $ ( 583.9 )
(in millions) Pension and postretirement benefit Cumulative foreign currency translation adjustment Total
Balance as of March 31, 2021 $ ( 81.4 ) ( 302.2 ) $ ( 383.6 )
Other comprehensive income before reclassification — ( 0.2 ) ( 0.2 )
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ - 0.7 — 0.7
Other comprehensive income after tax expense of $ - , $ - and $ - 0.7 ( 0.2 ) 0.5
Balance as of June 30, 2021 $ ( 80.7 ) ( 302.4 ) $ ( 383.1 )
(in millions) Pension and postretirement benefit Cumulative foreign currency translation adjustment Total
Balance as of December 31, 2021 $ ( 42.7 ) ( 352.7 ) $ ( 395.4 )
Other comprehensive loss before reclassification — ( 188.5 ) ( 188.5 )
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ - — — —
Other comprehensive loss after tax expense of $ - , $ - and $ - — ( 188.5 ) ( 188.5 )
Balance as of June 30, 2022 $ ( 42.7 ) ( 541.2 ) $ ( 583.9 )
(in millions) Pension and postretirement benefit Cumulative foreign currency translation adjustment Total
Balance as of December 31, 2020 $ ( 81.2 ) ( 296.0 ) $ ( 377.2 )
Other comprehensive loss before reclassification — ( 6.4 ) ( 6.4 )
Amounts reclassified from AOCI after tax expense of
$ - , $ - and $ - 0.5 — 0.5
Other comprehensive loss after tax expense of $ - , $ - and $ - 0.5 ( 6.4 ) ( 5.9 )
Balance as of June 30, 2021 $ ( 80.7 ) ( 302.4 ) $ ( 383.1 )
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.
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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.