Jones Lang LaSalle Incorporated — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also provides unaudited quarterly data, including fourth-quarter results. Jones Lang LaSalle provides global commercial real estate services and investment management through the Americas, EMEA, Asia Pacific, and LaSalle Investment Management. At year-end it operated in 60 countries, managed approximately 1.8 billion square feet, and LaSalle reported $41.3 billion of assets under management.
Financial performance
| Metric | 2010 | 2009 | Change or context |
|---|---|---|---|
| Revenue | $2.926 billion | $2.481 billion | Up 18% in U.S. dollars and 17% in local currencies |
| Operating income | $260.7 million | $116.4 million | Up 124%; reported operating margin was approximately 8.9% |
| Adjusted operating margin | 9.1% | 6.6% | Excludes restructuring charges |
| Net income (loss) available to common shareholders | $153.5 million | ($4.1 million) | Returned to profitability |
| Diluted EPS | $3.48 | ($0.11) | 2009 loss per share was diluted EPS |
| Net interest expense | $45.8 million | $55.0 million | Down 16% |
| Operating cash flow | $384.3 million | $250.6 million | Increase primarily reflected higher earnings and a favorable working-capital change |
| Cash and cash equivalents | $251.9 million | $69.3 million | At December 31 |
| Total debt | $226.2 million | $198.4 million | Includes $197.5 million of facility borrowings and $28.7 million of short-term borrowings |
| Equity in losses from real estate ventures | $11.4 million | $58.9 million | 2010 losses were substantially lower, principally due to lower impairment charges |
Fourth quarter: Unaudited revenue was $956.3 million, operating income was $123.5 million, and net income available to common shareholders was $84.4 million. The comparable 2009 quarter reported revenue of $815.1 million, operating income of $81.9 million, and net income available to common shareholders of $52.0 million.
Segment results
- Americas: Revenue of $1.262 billion, up 22%; operating income of $148.3 million, up 72%.
- EMEA: Revenue of $728.8 million, up 17% in local currencies; operating income was $19.6 million, versus a $9.7 million loss in 2009.
- Asia Pacific: Revenue of $678.5 million, up 17% in local currencies; operating income was $49.4 million, up 55% in U.S. dollars.
- Investment Management: Segment revenue, including equity losses, was $245.5 million, up 16% in local currencies. Operating income was $38.4 million, compared with a $3.4 million loss. Advisory fees fell 3% in local currencies; the segment raised $5.0 billion of net capital.
Material changes versus 2009
- Real estate markets and transaction activity generally improved, driving growth in leasing and capital markets. Leasing revenue was approximately $1.0 billion, up 27% in local currencies; Capital Markets and Hotels revenue was $306 million, up 51% in local currencies.
- Property and Facilities Management revenue reached $716 million, up 11% in local currencies, supporting recurring revenue growth.
- Operating expenses increased 13% in U.S. dollars, slower than revenue growth; compensation and benefits rose 17%, while restructuring charges fell to $6.4 million from $47.4 million.
- Co-investment impairment charges fell to $14 million from $51 million. Bad-debt expense decreased to $7.1 million from $28.2 million, and the receivables allowance declined to $20.4 million from $37.0 million.
- The company paid $105.8 million of deferred acquisition obligations during 2010 and renewed its credit facility, raising capacity to $1.1 billion and extending maturity to September 2015.
Outlook, risks, and contingencies
- Management described a broad but uneven market recovery and said it expected acquisition opportunities to increase. It emphasized leveraging market positions and controlling costs; the filing provides no specific earnings or revenue guidance.
- Management expected 2011 net co-investment funding of $40 million to $50 million. This is a planned amount, not a reported result.
- Key sensitivities include real estate cycles and transaction volumes, the pace of leasing recovery, volatile incentive and transaction fees, foreign-exchange movements, and variable-rate borrowing. The company reported 55% of 2010 revenue from operations with non-U.S.-dollar functional currencies.
- The $1.1 billion unsecured facility is subject to leverage and cash-interest-coverage covenants. The company reported compliance at year-end; it had $197.5 million outstanding under the facility and $28.7 million in short-term borrowings.
- At year-end, maximum potential contingent earn-out payments on 12 acquisitions were $161.9 million; recorded business-acquisition obligations were approximately $298.5 million on a present-value basis. The company also reported maximum potential unfunded LIC II commitments of $323.2 million, including its share of underlying fund commitments.
- Pending ordinary-course litigation includes claims that may exceed insurance or be subject to deductibles. Management did not expect ultimate resolution to materially adversely affect financial position, results, or liquidity.
- Unrecognized tax benefits were $93.4 million; the company considered it reasonably possible that $59.9 million would be settled within 12 months. A hypothetical repatriation of all unremitted foreign earnings could produce up to $208 million of U.S. tax, subject to the assumptions disclosed in the filing.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at December 31, 2010.
Important facts for investors to verify
- Whether the 2010 improvement in transaction-driven revenue and fourth-quarter earnings persists, given the seasonal and cyclical nature of the business.
- How segment profitability develops, particularly EMEA’s recovery from its 2009 operating loss, and whether LaSalle advisory-fee trends improve.
- Cash conversion and working-capital movements, including receivables quality and collection trends.
- Facility covenant headroom, variable-rate exposure, and repayment of debt and acquisition obligations.
- Funding requirements and potential losses from co-investments, unfunded commitments, and contingent acquisition earn-outs.
- Outcomes of tax examinations and litigation, and any change in the stated expected financial impact.