UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-13145
JONES LANG LASALLE INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
200 East Randolph Drive, Chicago, IL 60601
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 11, 2001
----- --------------
Common Stock ($0.01 par value) 29,774,135
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 27
Item 3. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 34
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 35
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . . 35
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 35
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . $ 12,904 18,843
Trade receivables, net of allowances
of $11,759 and $9,261 in 2001
and 2000, respectively . . . . . . . . . 205,268 244,201
Notes receivable and advances to
real estate ventures . . . . . . . . . . 3,222 4,286
Other receivables. . . . . . . . . . . . . 5,649 6,655
Income tax refund receivable . . . . . . . 976 976
Prepaid expenses . . . . . . . . . . . . . 10,145 10,811
Deferred tax assets. . . . . . . . . . . . 23,501 23,959
Other assets . . . . . . . . . . . . . . . 17,334 11,330
---------- ---------
Total current assets . . . . . . . 278,999 321,061
Property and equipment, at cost, less
accumulated depreciation of $80,865
and $76,427 in 2001 and 2000,
respectively . . . . . . . . . . . . . . . 87,250 90,306
Intangibles resulting from business
acquisitions and JLW merger, net of
accumulated amortization of $46,109
and $43,028 in 2001 and 2000,
respectively . . . . . . . . . . . . . . . 338,374 350,129
Investments in real estate ventures. . . . . 56,143 74,565
Other investments. . . . . . . . . . . . . . 11,910 12,884
Long-term receivables, net . . . . . . . . . 21,300 23,136
Prepaid pension asset. . . . . . . . . . . . 16,956 18,730
Deferred tax assets. . . . . . . . . . . . . 9,138 12,317
Debt issuance costs. . . . . . . . . . . . . 4,480 4,848
Other assets, net. . . . . . . . . . . . . . 6,173 6,069
--------- ----------
$ 830,723 914,045
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities . $ 94,412 111,738
Accrued compensation . . . . . . . . . . . 66,853 170,323
Short-term borrowings. . . . . . . . . . . 15,119 8,836
Deferred tax liabilities . . . . . . . . . 199 226
Other liabilities. . . . . . . . . . . . . 19,066 16,583
--------- ----------
Total current liabilities. . . . . 195,649 307,706
Long-term liabilities:
Credit facilities. . . . . . . . . . . . . 146,773 85,565
Notes. . . . . . . . . . . . . . . . . . . 144,656 155,546
Deferred tax liabilities . . . . . . . . . 5,627 9,547
Other. . . . . . . . . . . . . . . . . . . 21,799 22,776
--------- ----------
Total liabilities. . . . . . . . . 514,504 581,140
Commitments and contingencies
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
MARCH 31, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- -----------
Minority interest in consolidated
subsidiaries . . . . . . . . . . . . . . . 538 567
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
29,774,135 and 30,700,150 shares
issued and outstanding as of March 31,
2001 and December 31, 2000,
respectively . . . . . . . . . . . . . . 298 307
Additional paid-in capital . . . . . . . . 454,660 461,272
Deferred stock compensation. . . . . . . . (3,925) (4,322)
Retained deficit . . . . . . . . . . . . . (110,656) (107,110)
Stock held in trust. . . . . . . . . . . . (1,397) (397)
Accumulated other comprehensive loss . . . (23,299) (17,412)
--------- ----------
Total stockholders' equity . . . . 315,681 332,338
--------- ----------
$ 830,723 914,045
========= ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands, except share data)
(UNAUDITED)
2001 2000
---------- ----------
Revenue:
Fee based services . . . . . . . . . . . . $ 193,748 183,030
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . 2,516 5,940
Other income . . . . . . . . . . . . . . . 845 617
---------- ----------
Total revenue. . . . . . . . . . . . 197,109 189,587
Operating expenses:
Compensation and benefits. . . . . . . . . 134,477 130,237
Operating, administrative and other. . . . 52,230 50,812
Depreciation and amortization. . . . . . . 11,331 10,694
Merger related non-recurring stock
compensation expense . . . . . . . . . . -- 18,326
---------- ----------
Total operating expenses . . . . . . 198,038 210,069
Operating loss . . . . . . . . . . . (929) (20,482)
Interest expense, net of interest income . . 4,846 6,675
---------- ----------
Loss before benefit for
income taxes and minority
interest . . . . . . . . . . . . . (5,775) (27,157)
Net benefit for income taxes . . . . . . . . (2,195) (4,208)
Minority interest in losses
of subsidiaries. . . . . . . . . . . . . . (34) (27)
---------- ----------
Net loss before cumulative
effect of change in
accounting principle . . . . . . . $ (3,546) (22,922)
========== ==========
Cumulative effect of change in
accounting principle . . . . . . . . . . . -- (14,249)
---------- ----------
Net loss . . . . . . . . . . . . . . $ (3,546) (37,171)
========== ==========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001 AND 2000 - CONTINUED
2001 2000
---------- ----------
Other comprehensive loss, net of tax:
Foreign currency translation
adjustments. . . . . . . . . . . . . . . $ (5,887) (5,110)
---------- ----------
Comprehensive loss . . . . . . . . . . . . . $ (9,433) (42,281)
========== ==========
Basic loss per common share before
cumulative effect of change in
accounting principle . . . . . . . . . . . $ (0.12) (0.94)
Cumulative effect of change in
accounting principle . . . . . . . . . . . -- (0.58)
---------- ----------
Basic loss per common share. . . . . . . . . $ (0.12) (1.52)
========== ==========
Basic weighted average shares outstanding. . 30,120,466 24,395,021
========== ==========
Diluted loss per common share before
cumulative effect of change
in accounting principle. . . . . . . . . . $ (0.12) (0.94)
Cumulative effect of change in
accounting principle . . . . . . . . . . . -- (0.58)
---------- ----------
Diluted loss per common share. . . . . . . . $ (0.12) (1.52)
========== ==========
Diluted weighted average shares
outstanding. . . . . . . . . . . . . . . . 30,120,466 24,395,021
========== ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD ENDED MARCH 31, 2001
(in thousands, except share data)
(UNAUDITED)
Accumu-
lated
Other
Additi- Unallo- Deferred Compre-
Common Stock tional cated Stock Retained Shares hensive
------------------- Paid-In ESOT Compen- Earnings Held in Income
Shares Amount Capital Shares sation (Deficit) Trust (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Balances at
December 31,
2000. . . . . . . 30,700,150 $307 461,272 -- (4,322) (107,110) (397) (17,412) 332,338
Net loss . . . . . -- -- -- -- -- (3,546) -- -- (3,546)
Shares issued in
connection with:
Stock option
plan. . . . . . 1,667 -- 20 -- -- -- -- -- 20
Other stock
option plan
adjustments . . (461,249) (5) 5 -- -- -- -- -- --
Amortization of
shares issued
in connection
with stock
option plan . . -- -- -- -- 397 -- -- -- 397
Stock purchase
programs. . . . 7,529 -- 301 -- -- -- -- -- 301
Shares held
in trust. . . . . -- -- -- -- -- -- (1,000) -- (1,000)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Accumu-
lated
Other
Additi- Unallo- Deferred Compre-
Common Stock tional cated Stock Retained Shares hensive
------------------- Paid-In ESOT Compen- Earnings Held in Income
Shares Amount Capital Shares sation (Deficit) Trust (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Shares repurchased
under share
repurchase
program . . . . . (473,962) (4) (6,938) -- -- -- -- -- (6,942)
Cumulative effect
of foreign
currency
translation
adjustments . . . -- -- -- -- -- -- -- (5,887) (5,887)
---------- ---- ------- -------- -------- -------- -------- -------- -------
Balances at
March 31, 2001 . 29,774,135 $298 454,660 -- (3,925) (110,656) (1,397) (23,299) 315,681
========== ==== ======= ======== ======== ======== ======== ======== =======
<FN>
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows used in operating activities:
Cash flows from earnings:
Net loss . . . . . . . . . . . . . . . . . $ (3,546) (37,171)
Reconciliation of net loss to net cash
provided by earnings:
Cumulative effect of change in
accounting principle . . . . . . . . . -- 14,249
Depreciation and amortization. . . . . . 11,331 10,694
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . (2,516) (5,940)
Operating distributions from real
estate ventures. . . . . . . . . . . . 2,816 2,003
Provision for loss on receivables and
other assets . . . . . . . . . . . . . 5,051 1,455
Stock compensation expense . . . . . . . -- 18,326
Amortization of deferred compensation. . 1,563 691
Amortization of debt issuance costs. . . 301 --
---------- ----------
Net cash provided by earnings. . . . . 15,000 4,307
Cash flows from changes in working capital:
Receivables. . . . . . . . . . . . . . . . 37,564 30,332
Prepaid expenses and other assets. . . . . (4,834) (1,552)
Deferred tax assets and income tax
refund receivable. . . . . . . . . . . . (310) (8,169)
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . (120,184) (76,948)
---------- ----------
Net cash flows from changes
in working capital . . . . . . . . . (87,764) (56,337)
---------- ----------
Net cash used in operating
activities . . . . . . . . . . . . . (72,764) (52,030)
Cash flows provided by (used in)
investing activities:
Net capital additions - property and
equipment. . . . . . . . . . . . . . . . . (7,930) (10,266)
Other acquisitions and investments,
net of cash balances assumed . . . . . . . -- (1,250)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . (827) (2,363)
Distributions, repayments of advances
and sale of investments. . . . . . . . . 17,606 2,472
---------- ----------
Net cash provided by (used in)
investing activities . . . . . . . . 8,849 (11,407)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities . . . . . . . . . . . . . . . . 152,762 117,356
Repayments of borrowings under credit
facilities . . . . . . . . . . . . . . . . (85,271) (63,882)
Shares repurchased for payment of
taxes on ESOT distribution . . . . . . . . (2,894) --
Shares repurchased under share repurchase
program. . . . . . . . . . . . . . . . . . (6,942) --
Common stock issued under stock option
plan and stock purchase programs . . . . . 321 2,426
---------- ----------
Net cash provided by
financing activities . . . . . . . . 57,976 55,900
---------- ----------
Net decrease in cash and
cash equivalents . . . . . . . . . . (5,939) (7,537)
Cash and cash equivalents,
beginning of period. . . . . . . . . . . . . 18,843 23,308
---------- ----------
Cash and cash equivalents, end of period . . . $ 12,904 15,771
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . $ 1,692 5,665
Taxes, net of refunds. . . . . . . . . . . 6,090 2,609
Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Fair value of assets acquired. . . . . . $ -- 174
Fair value of liabilities assumed. . . . -- 3,797
Goodwill . . . . . . . . . . . . . . . . -- (3,971)
---------- --------
Cash paid, net of cash
balances assumed . . . . . . . . . $ -- --
========== ========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except where otherwise noted)
(UNAUDITED)
Readers of this quarterly report should refer to our audited financial
statements for the year ended December 31, 2000, which are included in
Jones Lang LaSalle's 2000 Form 10-K, filed with the Securities and Exchange
Commission, as certain footnote disclosures which would substantially
duplicate those contained in such audited financial statements have been
omitted from this report.
(1) ACCOUNTING POLICIES
INTERIM INFORMATION
The consolidated financial statements as of March 31, 2001 and for
the three month period ended March 31, 2001 and 2000 are unaudited;
however, in the opinion of management, all adjustments (consisting solely
of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been
included. The results for the periods ended March 31, 2001 and 2000 are
not necessarily indicative of the results to be obtained for the full
fiscal year.
Certain prior year amounts have been reclassified to conform with the
current presentation.
EARNINGS PER SHARE
The basic and diluted losses per common share were calculated based
on basic weighted average shares outstanding of 30,120,466 and 24,395,021
for the three month periods ended March 31, 2001 and 2000, respectively.
As a result of the net losses incurred for these periods, diluted weighted
average shares outstanding do not give effect to common stock equivalents,
as to do so would be anti-dilutive. For the three months ending March 31,
2000, these common stock equivalents consist principally of consideration
shares issued in connection with the JLW merger that were subject to
vesting provisions or were contingently returnable. For both periods, to a
lesser extent, common stock equivalents also include outstanding stock
options whose exercise price was less than the average market price of
Jones Lang LaSalle's stock for the period and shares to be issued under
employee stock compensation programs.
STATEMENT OF CASH FLOWS
The effects of foreign currency translation on cash balances are
reflected in cash flows from operating activities on the Consolidated
Statements of Cash Flows.
(2) JONES LANG WOOTTON MERGER
On March 11, 1999, LaSalle Partners Incorporated merged its
businesses with those of the Jones Lang Wootton companies ("JLW") and
changed its name to Jones Lang LaSalle Incorporated. In accordance with
the purchase and sale agreements, Jones Lang LaSalle issued 14.3 million
shares of common stock and paid cash consideration of $6.2 million. This
transaction, which was principally structured as a share exchange, has been
treated as an acquisition and was accounted for using both APB Opinion No.
16, "Business Combinations" and APB Opinion No. 25, "Accounting for Stock
Issued to Employees." See Jones Lang LaSalle's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000 for a full discussion of this
transaction and the related accounting treatment.
In relation to the transaction, 4.6 million of the shares issued were
subject to forfeiture or vesting provisions and therefore, pursuant to APB
Opinion No. 25, were accounted for as deferred compensation with
compensation expense recognized over the forfeiture or vesting period. In
addition, 1.3 million shares were deemed to be contingently returnable and
therefore, were accounted for as a variable stock award plan. Under a
variable stock award plan, the amount of compensation expense and value of
merger related non-recurring deferred compensation was adjusted at the end
of each quarter based on the change in stock price from the previous
quarter until the final number of shares was known. As of December 31,
2000, all compensation expense related to the issuance of shares to former
employees of JLW has been recognized. Therefore there will be no such
expense after December 31, 2000.
Compensation expense incurred for the three months ended March 31,
2000 related to the amortization of merger related non-recurring deferred
compensation totaled $18.3 million, net of the quarterly adjustment for the
change in stock price.
(3) BUSINESS SEGMENTS
Jones Lang LaSalle manages its business along a combination of
functional and geographic lines. The comparative segment operating results
for the three months ended March 31, 2000 have been restated to reflect the
impact of the adoption of SAB 101 (see Note 6) as of January 1, 2000 and
the consolidation of the Hotel Services segment from a separate segment
into its respective Owner and Occupier Services segments. Operations are
now classified into four business segments: the three geographic regions of
Owner and Occupier Services, (i) Americas, (ii) Europe and (iii) Asia
Pacific; and (iv) the global business of Investment Management. The Owner
and Occupier Services business is operated on a geographic basis and
consists primarily of tenant representation and agency leasing, capital
markets and valuation services (collectively, "implementation services")
and property management, corporate property services, development services
and project management services (collectively, "management services"). The
Investment Management segment provides real estate investment management
services to institutional investors, corporations, and high net worth
individuals.
Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. Jones Lang LaSalle
allocates all expenses, other than interest and income taxes, as nearly all
expenses incurred benefit one or more of the segments. Merger related non-
recurring deferred compensation was not allocated to the segments.
Summarized unaudited financial information by business segment for
the three month periods ended March 31, 2001 and 2000 is as follows ($ in
thousands):
SEGMENT
OPERATING RESULTS
--------------------------
MARCH 31,
2001 2000
---------- ----------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . . . . $ 24,699 24,370
Management services. . . . . . . . . 35,017 29,229
Equity losses. . . . . . . . . . . . -- (360)
Other services . . . . . . . . . . . 286 188
Intersegment revenue . . . . . . . . 160 395
---------- ----------
60,162 53,822
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . 65,242 60,231
Depreciation and amortization. . . . 5,690 5,382
---------- ----------
Operating loss . . . . . . . . $ (10,770) (11,791)
========== ==========
EUROPE
Revenue:
Implementation services. . . . . . . $ 64,495 61,660
Management services. . . . . . . . . 22,387 20,198
Other services . . . . . . . . . . . 187 237
---------- ----------
87,069 82,095
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . 76,231 73,682
Depreciation and amortization. . . . 3,057 2,766
---------- ----------
Operating income . . . . . . . $ 7,781 5,647
========== ==========
ASIA PACIFIC
Revenue:
Implementation services. . . . . . . $ 15,251 19,635
Management services. . . . . . . . . 12,089 11,036
Other services . . . . . . . . . . . 343 167
---------- ----------
27,683 30,838
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . 28,802 28,682
Depreciation and amortization. . . . 1,594 1,561
---------- ----------
Operating income (loss). . . . $ (2,713) 595
========== ==========
SEGMENT
OPERATING RESULTS
--------------------------
MARCH 31,
2001 2000
---------- ----------
INVESTMENT MANAGEMENT -
Revenue:
Implementation services. . . . . . . $ 795 2,969
Advisory fees. . . . . . . . . . . . 18,984 13,933
Equity earnings. . . . . . . . . . . 2,516 6,300
Other services . . . . . . . . . . . 60 25
---------- ----------
22,355 23,227
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . 16,592 18,849
Depreciation and amortization. . . . 990 985
---------- ----------
Operating income . . . . . . . $ 4,773 3,393
========== ==========
Total segment revenue. . . . . . . . . . $ 197,269 189,982
Intersegment revenue eliminations. . . . (160) (395)
---------- ----------
Total revenue. . . . . . . . . $ 197,109 189,587
========== ==========
Total segment operating expenses . . . . $ 198,198 192,138
Intersegment operating expense
eliminations . . . . . . . . . . . . . (160) (395)
---------- ----------
Total operating expenses
before merger related
non-recurring charges. . . . $ 198,038 191,743
========== ==========
Operating loss before merger
related non-recurring
charges. . . . . . . . . . . $ (929) (2,156)
========== ==========
(4) SHARE REPURCHASE
On February 6, 2001, Jones Lang LaSalle announced that its Board of
Directors approved a share repurchase program. On March 8, 2001, Jones
Lang LaSalle repurchased and cancelled 473,962 shares of its own common
stock at a price of $14.65 per share, totaling $6.9 million.
(5) HIH INSURANCE
On March 16, 2001, Jones Lang LaSalle became aware that HIH Insurance
Ltd. ("HIH") and its subsidiaries, an Australian insurance group, had
entered provisional liquidation on the previous evening and thus had ceased
writing new business and was to be placed in run-off mode. HIH had
provided public liability coverage to the Australian operations of JLW for
the years from 1994 to 1997, which coverage would typically provide
protection against, among other things, personal injury claims arising out
of accidents occurring in properties for which Jones Lang LaSalle had
property management responsibilities. Under the terms of the policies,
Jones Lang LaSalle's deductible on these claims was $0, and therefore HIH
had responsibility for "day-to-day" management of claims and potential
claims once they had been notified of such claims. Given the nature of
these claims, there are a large number that have yet to be resolved, and it
is possible that further claims will be made.
It is likely that a "Scheme of Arrangement" will be put in place to
deal with outstanding claim payments, and it is unclear at this stage the
extent to which claims will be paid. In addition, given the difficult
nature of estimating liabilities for this type of insurance company, it is
unlikely that there will be sufficient certainty as to allow any claim
payments to be paid by HIH for at least twelve months. Jones Lang LaSalle
is currently working with its professional advisors to better understand
and quantify (1) the claims which remain open and may be made, (2) the
ongoing exposures related to these claims, (3) the likelihood that HIH will
be able to fund these exposures, and (4) the potential for these claims to
be covered by other insurance policies with other insurance companies.
In the opinion of management, the ultimate resolution of the HIH
situation is not expected to have a material adverse effect on the
financial condition or liquidity of Jones Lang LaSalle.
(6) IMPLEMENTATION OF SAB 101
Effective January 1, 2000, as a result of the implementation of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), Jones Lang LaSalle recorded a one-time, non-cash, after-tax
cumulative effect of change in accounting principle of $14.2 million, net
of taxes of $8.7 million. This adjustment represents revenues of $22.9
million that had been recognized prior to January 1, 2000 that would not
have been recognized if the new accounting policy had been in effect in the
years prior to 2000. These revenues have been recognized as the underlying
contingencies are satisfied. Jones Lang LaSalle recognized $3.5 million of
these revenues in the three months ended March 31, 2001 and $16.2 million
of these revenues in the twelve months ended December 31, 2000. The
balance of $3.2 million will be recognized over the remainder of 2001 and
2002.
The statement of earnings and comprehensive income for the three
months ended March 31, 2000 have been restated to include the impact of
implementing SAB 101 as of January 1, 2000. Excluding the one-time, $14.2
million cumulative effect of change in accounting principle mentioned
above, the net impact of this restatement on first quarter 2000 net
earnings was an increase in net earnings of $2.1 million. This increase in
net earnings of $2.1 million consisted of a net deferral of 2000 revenue of
($2.4) million, recognition of revenues of $5.8 million which were deferred
as part of the one-time cumulative effect of change in accounting
principle, and a net tax effect of ($1.3) million.
(7) DERIVATIVES AND HEDGING ACTIVITIES
On January 1, 2001, Jones Lang LaSalle adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133, as amended, establishes accounting and
reporting standards for derivative instruments. Specifically, SFAS No. 133
requires an entity to recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and to measure those
instruments at fair value. Additionally, the fair value adjustments will
affect either stockholders' equity or net income depending on whether the
derivative instrument qualifies as a hedge for accounting purposes and, if
so, the nature of the hedging activity.
In the normal course of business, Jones Lang LaSalle uses derivative
financial instruments to manage foreign currency risk. Jones Lang LaSalle
has used interest rate swap agreements to limit the impact of changes in
interest rates on earnings and cash flows. Jones Lang LaSalle did not
enter into any interest rate swap agreements during the first quarter of
2001, and there were no such agreements outstanding as of March 31, 2001.
Jones Lang LaSalle requires that hedging derivative instruments be
effective in reducing the exposure that they are designated to hedge. This
effectiveness is essential to qualify for hedge accounting treatment. Any
derivative instrument used for risk management that does not meet the
hedging criteria is marked-to-market each period.
To determine the fair values of derivative instruments, Jones Lang
LaSalle uses a variety of methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. For the majority
of financial instruments, including most derivatives, long-term investments
and long-term debt, standard market conventions and techniques such as
discounted cash flow analysis, option pricing models, replacement cost, and
termination costs are used to determine fair value. All methods of
assessing fair value result in a general approximation of value, and such
value may or may not actually be realized.
Jones Lang LaSalle uses foreign currency forward contracts as a means
of hedging exposure to foreign currency transactions. SFAS 133 requires
that unrealized gains and losses on these derivatives be recognized
currently in earnings. The gain or loss on the re-measurement of the
foreign currency transactions being hedged is also recognized in earnings.
The net impact on earnings of Jones Lang LaSalle during the three months
ended March 31, 2001 of the unrealized loss on foreign currency contracts,
offset by the gain resulting from re-measurement of foreign currency
transactions, was not significant.
The effect of implementing SFAS 133 did not have a material impact on
the consolidated financial statements.
(8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly-owned subsidiary of Jones Lang LaSalle, issued 9% Senior Notes with
an aggregate principal amount of Euro 165 million, due 2007 (the "Euro
Notes"). The payment obligations under the Euro Notes are fully and
unconditionally guaranteed by Jones Lang LaSalle Incorporated and certain
of its wholly-owned subsidiaries: Jones Lang LaSalle Americas, Inc.;
LaSalle Investment Management, Inc.; Jones Lang LaSalle International,
Inc.; Jones Lang LaSalle Co-Investment, Inc.; LaSalle Hotel Advisors, Inc.;
and Jones Lang LaSalle Ltd. (the "Guarantor Subsidiaries"). All of Jones
Lang LaSalle Incorporated's remaining subsidiaries (the "Non-Guarantor
Subsidiaries") are owned by the Guarantor Subsidiaries. The following
supplemental Condensed Consolidating Balance Sheets as of March 31, 2001
and December 31, 2000, Condensed Consolidating Statement of Earnings for
the three months ended March 31, 2001 and March 31, 2000, and Condensed
Consolidating Statement of Cash Flows for the three months ended March 31,
2001 and March 31, 2000 present financial information for (i) Jones Lang
LaSalle Incorporated (carrying any investment in subsidiaries under the
equity method), (ii) Jones Lang LaSalle Finance B.V. (the issuer of the
Euro Notes), (iii) on a combined basis the Guarantor Subsidiaries (carrying
any investment in Non-Guarantor subsidiaries under the equity method) and
(iv) on a combined basis the Non-Guarantor Subsidiaries (carrying their
investment in JLL Finance under the equity method). Separate financial
statements of the Guarantor Subsidiaries are not presented
because the guarantors are jointly, severally, and unconditionally
liable under the guarantees, and Jones Lang LaSalle Incorporated believes
that separate financial statements and other disclosures regarding the
Guarantor Subsidiaries are not material to investors. In general Jones
Lang LaSalle Incorporated has historically entered into third party
borrowings, financing its subsidiaries via intercompany accounts that are
then converted into equity on a periodic basis. Certain Guarantor and Non-
Guarantor Subsidiaries also enter into third party borrowings on a limited
basis. All intercompany activity has been included as subsidiary activity
in investing activities in the Condensed Consolidating Statements of Cash
Flows. Cash is managed on a consolidated basis and there is a right of
offset between bank accounts in the different groupings of legal entities
in the condensed consolidating financial information. Therefore, in
certain cases, negative cash balances have not been reallocated to payables
as they legally offset positive cash balances elsewhere in Jones Lang
LaSalle Incorporated. In certain cases, taxes have been calculated on the
basis of a group position that includes both Guarantor and Non-Guarantor
Subsidiaries. In such cases, the taxes have been allocated to individual
legal entities on the basis of that legal entity's pre tax income.
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2001
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
ASSETS
- ------
Cash and
cash equivalents . . $ 567 47 221 12,069 -- 12,904
Trade receivables,
net of allowances. . 86 -- 83,553 121,629 -- 205,268
Other current assets . 6,867 -- 29,640 24,320 -- 60,827
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets . . . . . 7,520 47 113,414 158,018 -- 278,999
Property and equipment,
at cost, less accumu-
lated depreciation. . 3,259 -- 49,474 34,517 -- 87,250
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization. . . . . -- -- 243,905 94,469 -- 338,374
Other assets, net. . . 8,406 -- 69,534 48,160 -- 126,100
Investments in
subsidiaries. . . . . 274,050 -- 232,128 370 (506,548) --
---------- ---------- ---------- ---------- ---------- ----------
$ 293,235 47 708,455 335,534 (506,548) 830,723
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of March 31, 2001
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Accounts payable and
accrued liabilities. $ 18,450 4,343 19,667 51,952 -- 94,412
Short-term borrowings. -- -- 7,862 7,257 -- 15,119
Other current
liabilities. . . . . (41,953) (295,987) 395,583 28,475 -- 86,118
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities. . . (23,503) (291,644) 423,112 87,684 -- 195,649
Long-term liabilities:
Credit facilities. . -- 146,665 -- 108 -- 146,773
Notes. . . . . . . . -- 144,656 -- -- -- 144,656
Other. . . . . . . . 1,057 -- 11,293 15,076 -- 27,426
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities. (22,446) (323) 434,405 102,868 -- 514,504
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries. . . . . -- -- -- 538 -- 538
Stockholders' equity . 315,681 370 274,050 232,128 (506,548) 315,681
---------- ---------- ---------- ---------- ---------- ----------
$ 293,235 47 708,455 335,534 (506,548) 830,723
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2000
($ in thousands)
Jones Lang Consoli-
LaSalle Jones Lang dated
Incorporated LaSalle Jones Lang
(Parent and Finance Guarantor Non-Guarantor LaSalle
Guarantor) B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ---------- ------------ ------------- ------------ ------------
ASSETS
- ------
Cash and cash
equivalents. . . . . . $ 3,689 152 (3,665) 18,667 -- 18,843
Trade receivables,
net of allowances. . . 124 -- 98,120 145,957 -- 244,201
Other current assets . . 9,285 -- 26,881 21,851 -- 58,017
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets . . . . . . 13,098 152 121,336 186,475 -- 321,061
Property and equipment,
at cost, less accumu-
lated depreciation . . 3,093 -- 51,566 35,647 -- 90,306
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . . -- -- 249,586 100,543 -- 350,129
Other assets, net. . . . 12,270 -- 74,254 66,025 -- 152,549
Investment in
subsidiaries . . . . . 278,523 -- 262,888 213 (541,624) --
---------- ---------- ---------- ---------- ---------- ----------
$ 306,984 152 759,630 388,903 (541,624) 914,045
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of December 31, 2000
($ in thousands)
Jones Lang Consoli-
LaSalle Jones Lang dated
Incorporated LaSalle Jones Lang
(Parent and Finance Guarantor Non-Guarantor LaSalle
Guarantor) B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ---------- ------------ ------------- ------------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
- --------------------
Accounts payable and
accrued liabilities. . $ 19,553 954 29,351 61,880 -- 111,738
Short-term borrowings. . -- -- 5,174 3,662 -- 8,836
Other current
liabilities. . . . . . (49,618) (242,126) 434,720 44,156 -- 187,132
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities. . . . (30,065) (241,172) 469,245 109,698 -- 307,706
Long-term liabilities:
Credit facilities. . . -- 85,565 -- -- -- 85,565
Notes. . . . . . . . . -- 155,546 -- -- -- 155,546
Other. . . . . . . . . 4,711 -- 11,862 15,750 -- 32,323
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities. . (25,354) (61) 481,107 125,448 -- 581,140
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . . -- -- -- 567 -- 567
Stockholders' equity . . 332,338 213 278,523 262,888 (541,624) 332,338
---------- ---------- ---------- ---------- ---------- ----------
$ 306,984 152 759,630 388,903 (541,624) 914,045
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended March 31, 2001
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
Revenue. . . . . . . . $ -- -- 95,503 101,606 -- 197,109
Equity earnings (loss)
from subsidiaries . . (1,571) -- (689) 180 2,080 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue. . . (1,571) -- 94,814 101,786 2,080 197,109
Operating expenses
before merger related
non-recurring charges 4,398 -- 93,570 100,070 -- 198,038
Merger related non-
recurring charges . . -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . (5,969) -- 1,244 1,716 2,080 (929)
Interest expense,
net of interest
income. . . . . . . . (907) (243) 3,862 2,134 -- 4,846
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest . . . . (5,062) 243 (2,618) (418) 2,080 (5,775)
Net provision (benefit)
for income taxes. . . (1,516) 63 (1,047) 305 -- (2,195)
Minority interests
in losses of
subsidiaries. . . . . -- -- -- (34) -- (34)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss). . $ (3,546) 180 (1,571) (689) 2,080 (3,546)
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended March 31, 2000
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
Revenue. . . . . . . . $ -- -- 81,942 107,645 -- 189,587
Equity earnings (loss)
from subsidiaries . . (19,781) -- 2,169 -- 17,612 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue. . . (19,781) -- 84,111 107,645 17,612 189,587
Operating expenses
before merger related
non-recurring charges 3,115 -- 91,490 97,138 -- 191,743
Merger related non-
recurring charges . . 18,326 -- -- -- -- 18,326
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . (41,222) -- (7,379) 10,507 17,612 (20,482)
Interest expense,
net of interest
income. . . . . . . . 2,373 -- 4,199 103 -- 6,675
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest . . . . (43,595) -- (11,578) 10,404 17,612 (27,157)
Net provision (benefit)
for income taxes. . . (6,424) -- (1,608) 3,824 -- (4,208)
Minority interests in
losses of sub-
sidiaries . . . . . . -- -- -- (27) -- (27)
---------- ---------- ---------- ---------- ---------- ----------
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS - CONTINUED
For the Three Months Ended March 31, 2000
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
Net earnings (loss)
before cumulative
effect of change
in accounting
principle. . . . . . (37,171) -- (9,970) 6,607 17,612 (22,922)
Cumulative effect
of change in
accounting
principle. . . . . . -- -- (9,811) (4,438) -- (14,249)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss). . $ (37,171) -- (19,781) 2,169 17,612 (37,171)
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------ ------------- ------------
Cash flows provided by (used in)
operating activities . . . . . $ 4,172 3,569 (53,510) (26,995) (72,764)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment . . . (266) -- (3,354) (4,310) (7,930)
Subsidiary activity. . . . . . 2,487 (64,774) 57,997 4,290 --
Investments in real estate
ventures . . . . . . . . . . -- -- 65 16,714 16,779
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities . . . . . . . 2,221 (64,774) 54,708 16,694 8,849
Cash flows provided by
(used in) financing
activities:
Net borrowings under
credit facility. . . . . . . -- 61,100 2,688 3,703 67,491
Shares repurchased . . . . . . (9,836) -- -- -- (9,836)
Common stock issued under
stock option plan. . . . . . 321 -- -- -- 321
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities . . . . . . . (9,515) 61,100 2,688 3,703 57,976
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents. . . (3,122) (105) 3,886 (6,598) (5,939)
Cash and cash equivalents,
January 1. . . . . . . . . . . 3,689 152 (3,665) 18,667 18,843
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
March 31,. . . . . . . . . . . $ 567 47 221 12,069 12,904
========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2000
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------ ------------- ------------
Cash flows provided by (used in)
operating activities . . . . . . . . $ 5,399 -- (31,113) (26,316) (52,030)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment . . . . . . (7) -- (5,756) (4,503) (10,266)
Other acquisitions and investments,
net of cash acquired and
transaction costs. . . . . . . . . -- -- (1,250) -- (1,250)
Subsidiary activity. . . . . . . . . (50,185) -- 28,974 21,211 --
Investments in real estate ventures. -- -- 3,750 (3,641) 109
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities . . . . . (50,192) -- 25,718 13,067 (11,407)
Cash flows provided by financing
activities:
Net borrowings under credit
facility. . . . . . . . . . . . . . 45,017 -- 2,261 6,196 53,474
Common stock issued under stock
option plan. . . . . . . . . . . . 2,426 -- -- -- 2,426
---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities . . . . . 47,443 -- 2,261 6,196 55,900
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . 2,650 -- (3,134) (7,053) (7,537)
Cash and cash equivalents,
January 1. . . . . . . . . . . . . . (615) -- 1,027 22,896 23,308
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
March 31,. . . . . . . . . . . . . . $ 2,035 -- (2,107) 15,843 15,771
========== ========== ========== ========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto for the three months
ended March 31, 2001, included herein, and Jones Lang LaSalle's audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2000 which have been filed with the Securities and
Exchange Commission as part of Jones Lang LaSalle's Annual Report on
Form 10-K.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2000
REVENUE
Total revenue, after elimination of intersegment revenue, increased
$7.5 million, or 4.0%, to $197.1 million for the three months ended March
31, 2001 from $189.6 million for the three months ended March 31, 2000.
The primary drivers of the increase in revenues were the Owner and Occupier
Services regions of Americas and Europe. The increase in revenue was
offset by a strong US dollar versus the key currencies in which Jones Lang
LaSalle operates--the euro, pound sterling and Australian dollar--which
negatively impacted revenues by approximately $9 million.
The increase in Americas was the result of strong performance in the
Project and Development Management unit, as well as the Agency Leasing
unit. Increased activity in the Americas' Hotels business also contributed
to the revenue growth. The increase in Europe was the result of continued
portfolio disposition activity, as well as the strong leasing businesses in
the UK, France and Germany.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of merger related non-recurring charges, increased
$6.3 million, or 3.3%, to $198.0 million for the three months ended
March 31, 2001 compared with $191.7 million for the three months ended
March 31, 2000. The primary driver of the increase in expenses was the
Americas region, expenses for which included a $3.5 million charge for an
unrecoverable receivable from a telecom client and a $1.0 million charge to
provide against a broadband investment. The strengthening US dollar versus
the key currencies in which Jones Lang LaSalle operates--the euro, pound
sterling and Australian dollar--reduced US dollar reported expenses by
approximately $9 million.
OPERATING LOSS
Due to the seasonal nature of Jones Lang LaSalle's business it
typically reports a loss in the first quarter (see Seasonality section for
further discussion). Consistent with this pattern of seasonality, Jones
Lang LaSalle reported an operating loss for the three months ended March
31, 2001 of $0.9 million. For the three months ended March 31, 2000, Jones
Lang LaSalle reported an operating loss of $2.2 million. The reduction of
$1.3 million in Jones Lang LaSalle's operating loss is attributable to the
overall continued revenue growth combined with continued focus on expense
management.
MERGER RELATED NON-RECURRING CHARGES
There were no merger related non-recurring charges for the three
months ended March 31, 2001. Merger related non-recurring charges for the
three months ended March 31, 2000 totaled $18.3 million, consisting of non-
cash compensation expense associated with the issuance of shares to former
employees of Jones Lang Wootton ("JLW"). The expenses related to the
issuance of shares to former employees of JLW were fully expensed by
December 31, 2000; therefore there will be no such expense after
December 31, 2000.
INTEREST EXPENSE
Interest expense, net of interest income, decreased by $1.9 million,
from $6.7 million for the three months ended March 31, 2000 to $4.8 million
for the three months ended March 31, 2001. The decrease in interest
expense was primarily due to a significantly lower average level of
borrowings. The impact of lower borrowings on interest expense was
partially offset by an overall higher weighted average interest rate
resulting from the combination of a higher interest rate on the euro 165
million notes outstanding and lower interest rates on revolving debt.
BENEFIT FOR INCOME TAXES
The benefit for income taxes decreased by $2.0 million, to $2.2
million for the three months ended March 31, 2001 from $4.2 million for the
three months ended March 31, 2000. The decrease in benefit for income
taxes is attributable to the generally lower level of losses before benefit
for income taxes, exclusive of merger related non-recurring compensation
expense associated with the issuance of shares to former JLW employees.
The decrease in benefit for income taxes is also due to a benefit provided
for merger related non-recurring compensation expense in the three months
ended March 31, 2000, whereas no such expense, or related tax benefit,
existed in the three months ended March 31, 2001. The effective tax rate
for the three months ended March 31, 2001 was 38%, consistent with that
achieved on an operational basis (excluding merger related non-recurring
expenses) in 2000.
NET LOSS
Jones Lang LaSalle's reported net loss was $3.5 million for the three
months ended March 31, 2001 as compared to $5.5 million, excluding the
effect of merger related non-recurring changes, for the three months ended
March 31, 2000, a decrease in net loss of $2.0 million, or 36.4%.
Including the effect of merger related non-recurring charges, the net
loss for the three months ended March 31, 2001 was $3.5 million as compared
to $37.2 million for the three months ended March 31, 2000, an improvement
of $33.7 million. The results for the three months ended March 31, 2000
include a one-time, non-cash, after-tax charge of $14.2 million
representing the cumulative effect of a change in accounting principle
effective January 1, 2000 associated with the adoption of the Securities
and Exchange Commission's Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"). The results for the
three months ended March 31, 2000 also include $18.3 million of merger
related non-recurring stock compensation expense.
SEGMENT OPERATING RESULTS
See Note 3 in Notes to Consolidated Financial Statements, included
herein, for a discussion of Jones Lang LaSalle's segment reporting.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas region increased $6.4 million, or 11.9%, to
$60.2 million for the three months ended March 31, 2001, as compared to
$53.8 million for the three months ended March 31, 2000. This increase in
revenues was the result of strong performance in the Project and
Development Management unit as well as in the Agency Leasing unit of
Leasing and Management. Increased activity in the Americas' Hotels
business also contributed to the revenue growth. These revenue increases
were partially offset by reduced revenues in the balance of the Leasing and
Management unit.
Operating expenses for the Americas region increased by $5.3 million,
or 8.1%, to $70.9 million for the three months ended March 31, 2001 from
$65.6 million for the three months ended March 31, 2000. The 2001 results
include a $3.5 million charge for an unrecoverable receivable from a
telecom client and a $1.0 million charge to provide against a broadband
investment. Excluding these charges, the remaining minimal increase to
operating expenses reflects the continued focus on expense management.
EUROPE
Revenue for the Europe region increased $5.0 million, or 6.1%, to
$87.1 million for the three months ended March 31, 2001, as compared to
$82.1 million for the three months ended March 31, 2000. This increase in
revenue is due primarily to continued strong portfolio disposition
activity, as well as the leasing businesses in the UK, France and Germany.
Revenue for the Europe region for the three months ended March 31, 2001 was
adversely impacted by approximately $7 million due to a weakening of the
euro and the pound sterling against the US dollar in the three months ended
March 31, 2001 as compared to the same period in 2000.
Operating expenses for the region increased by $2.8 million, or 3.7%,
to $79.3 million for the three months ended March 31, 2001 from $76.5
million for the three months ended March 31, 2000. The increase in
operating expenses is due to increased investments in infrastructure and
headcount necessary to service increased business levels. The weakening of
the euro and the pound sterling against the US dollar in the three months
ended March 31, 2001 as compared to the same period in 2000 has reduced US
dollar reported expenses by approximately $7 million.
ASIA PACIFIC
Revenue for the Asia Pacific region decreased $3.1 million, or 10.1%,
to $27.7 million for the three months ended March 31, 2001 compared to
$30.8 million for the three months ended March 31, 2000. The decrease in
revenue in the Asia Pacific region reflects a lower volume of transaction
activity, particularly in Hong Kong, driven by the economic uncertainty in
this region. Revenues in the Asia Pacific region were also negatively
impacted by approximately $2 million due to the weakness of the Australian
dollar against the US dollar. Countering the decrease in revenues are the
benefits which are beginning to be delivered in the management services
business on the investments made during 2000 in Asia Pacific regional
infrastructure.
Operating expenses for the region totaled $30.4 million for the three
months ended March 31, 2001, as compared to $30.3 million for the three
months ended March 31, 2000. The overall expense base for the Asia Pacific
region has increased, but this increase has been offset by: 1) lower
incentive compensation recorded as a result of reduced transaction
activity, and 2) the reduced US dollar reported expenses as a result of the
weakening of the Australian dollar against the US dollar. The impact of
the weakening Australian dollar against the US dollar has caused US dollar
reported expenses to be reduced by approximately $2 million.
INVESTMENT MANAGEMENT
Investment Management revenue totaled $22.4 million for the three
months ended March 31, 2001 compared to $23.2 million for the three months
ended March 31, 2000. The relatively flat performance was anticipated in
light of the strong three months ended March 31, 2000. Contributing to
the overall strong performance for the three months ended March 31, 2000,
were gains and performance related fees (recorded as equity earnings) of
$6.0 million on sales of investments in which Jones Lang LaSalle co-
invested equity with its clients. Revenues for the three months ended
March 31, 2001 included $2.6 million, of which $1.0 million was recorded as
Advisory Fees and $1.6 million was recorded as Equity Earnings, related to
Jones Lang LaSalle's sale of its investment in LaSalle Hotel Properties.
Operating expenses for Investment Management decreased by $2.2
million, or 11.1%, to $17.6 million for the three months ended March 31,
2001 from $19.8 million for the three months ended March 31, 2000. The
reduction in operating expenses was due to lower incentive compensation
recorded as a result of reduced transaction activity and a one-time cost
reduction of $0.6 million due to the disposition of Jones Lang LaSalle's
investment in LaSalle Hotel Properties.
PERFORMANCE OUTLOOK
The Management Plan prepared by Jones Lang LaSalle for the year 2001
anticipated 15 percent growth in adjusted net earnings per share before
non-recurring charges, with an earnings per share target of $1.63. In
developing this plan, certain assumptions were made about the prevailing
economic conditions and their impact on the global real estate markets. In
spite of economic conditions that were more difficult than expected,
particularly in the high technology and telecom sectors, Jones Lang
LaSalle's first quarter performance exceeded the Management Plan for the
period. This performance was in part due to the timing of the disposition
of the LaSalle Hotel Properties co-investment as well as continued strong
performance in the Europe region and reduced interest expense. Currently,
concerns about the economies in the Americas and Asia Pacific are counter-
balanced by continuing strength in the Europe region and the continued
trend in outsourcing real estate operations by multinational companies, on
which trend Jones Lang LaSalle is particularly well suited to capitalize.
Therefore, at this point, Jones Lang LaSalle does not see sufficient
reasons to alter its full year target. In line with historical, seasonal
patterns, Jones Lang LaSalle expects the second quarter results to fall in
a range surrounding break-even, followed by increasing levels of
profitability in the third and fourth quarters of 2001.
There are certain one-time, non-operational issues that may impact the
reported GAAP results in future quarters. These issues include the impact
of the current difficult conditions in the capital markets on the future
sustainability of the e-commerce investments made by Jones Lang LaSalle.
The Balance Sheet value of these investments at March 31, 2001 was $11.9
million. In addition, and as more fully discussed in Note 5 of the Notes
to the Financial Statements, HIH Insurance Limited ("HIH") filed for
bankruptcy in March of 2001. HIH had provided public liability coverage
for the former JLW partnerships in Australia for the years 1994 to 1997.
Certain exposures relating to these years remain open, and expenses
associated with these claims remain the primary responsibility of Jones
Lang LaSalle, which may not be able to recover these costs from HIH.
Finally, reflecting the difficult performance environment in Asia Pacific,
Jones Lang LaSalle is currently developing a restructuring plan that would
reorganize the region to a business line/client focus from the current
geographic focus.
CONSOLIDATED CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
During the three months ended March 31, 2001, cash flows used in
operating activities totaled $72.8 million compared to cash flows used in
operating activities for the three months ended March 31, 2000 of $52.0
million, an increase in cash used of $20.8 million. The cash flows used in
operating activities during the first quarter of 2001 can be further
divided into cash generated from operations of $15.0 million (compared to
$4.3 million in the first quarter of 2000) and cash used in balance sheet
movements (primarily working capital management) of $87.8 million (compared
to a use of $56.3 million in the first quarter of 2000). The improvement
of cash generated from operating earnings of $10.7 million reflects the
improved business performance. The increase in cash used in working
capital primarily represents higher incentive compensation accrued in
December of 2000 and paid in the first three months of 2001 as compared to
amounts accrued in December of 1999 and paid in the first three months of
2000. The higher level of incentive compensation was a result of the
strong performance during 2000.
CASH FLOWS USED IN / PROVIDED BY INVESTING ACTIVITIES
Jones Lang LaSalle generated $8.8 million from investing activities in
the three months ended March 31, 2001, compared to a use of cash of $11.4
million for the three months ended March 31, 2000. This increase in cash
flows from investing activities is primarily the result of Jones Lang
LaSalle's sale of its investment in LaSalle Hotel Properties, which
generated $18.5 million, of which $1.6 million was a distribution of
previously recorded equity earnings, and therefore, is shown in the
operating activities section of the Statement of Cash Flows. The increase
in cash flows from investing activities was offset by continued spending on
capital additions, primarily technology related.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash flows provided by financing activities increased $2.1 million to
$58.0 million for the three months ended March 31, 2001 from $55.9 million
for the three months ended March 31, 2000. Borrowings increased to fund
higher levels of incentive compensation and to repurchase shares.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Jones Lang LaSalle has financed its operations,
acquisitions and co-investment activities with internally generated funds,
the common stock of Jones Lang LaSalle and borrowings under its credit
facilities. During the first half of 2000, Jones Lang LaSalle increased
its unsecured credit agreement from $380.0 million to $425.0 million
through the addition of five banks to its credit group. This credit
agreement was comprised of a $250.0 million revolving facility maturing in
October 2002 and a $175.0 million term facility that was scheduled to
mature on October 15, 2000. On July 26, 2000, Jones Lang LaSalle closed
its offering of the Euro Notes, receiving net proceeds of $148.6 million,
which were used to pay-down the term facility. On August 29, 2000, the
remaining borrowings under the term facility were fully repaid using
proceeds from the revolving credit facility, and the term facility was
terminated.
As of March 31, 2001, Jones Lang LaSalle has a $250.0 million
revolving credit facility for working capital needs, investments and
acquisitions. Jones Lang LaSalle also had the Euro Notes of euro 165
million and, under the terms of the revolving credit facility, the
authorization to borrow up to $50.0 million under local overdraft
facilities. As of March 31, 2001, there was $146.8 million outstanding
under the revolving credit facility, euro 165.0 million ($144.7 million) of
borrowings under the Euro Notes and short-term borrowings of $15.1 million.
Certain of Jones Lang LaSalle's subsidiaries guarantee the revolving
credit facility and the Euro Notes (the "Facilities"). With respect to the
revolving credit facility, Jones Lang LaSalle must maintain a certain level
of consolidated net worth and a ratio of funded debt to EBITDA. Jones Lang
LaSalle must also meet a minimum interest coverage ratio and minimum
liquidity ratio. Additionally, Jones Lang LaSalle is restricted from,
among other things, incurring certain levels of indebtedness to lenders
outside of the Facilities and disposing of a significant portion of its
assets. Lender approval is required for certain levels of co-investment.
The revolving credit facility bears variable rates of interest based on
market rates. Jones Lang LaSalle sometimes uses interest rate swaps to
convert a portion of the floating rate indebtedness to a fixed rate. The
effective interest rate on the Facilities was 8.6% for the three months
ended March 31, 2001 (versus 8.2% during the same period of 2000),
including the effect of interest rate swap agreements. There were no
interest rate swap agreements outstanding at March 31, 2001.
Jones Lang LaSalle has additional access to liquidity via various
interest-bearing overdraft facilities and short-term credit facilities of
subsidiaries in Europe and Asia Pacific. Of the $50.0 million authorized
under the revolving credit facility for local overdraft borrowings, Jones
Lang LaSalle has facilities totaling $34.1 million, of which $6.2 million
was outstanding as of March 31, 2001.
Management believes that the revolving credit facility, together with
the Euro Notes, local borrowing facilities and cash flow generated from
operations, will provide adequate liquidity and financial flexibility to
meet working capital requirements.
Jones Lang LaSalle expects to continue to pursue co-investment
opportunities with investment management clients in the Americas and Europe
with expansion into Asia Pacific via an investment fund product that is
currently being developed. Co-investment remains very important to the
continued growth of Investment Management, which would likely be negatively
impacted if a substantial decrease in co-investment activity were to occur.
However, the future commitment to co-investment is completely discretionary
(other than with respect to the $14.7 million discussed below) and can be
increased or decreased based on the availability of capital and other
factors. As of March 31, 2001, there were total investments of $56.1
million in 25 separate property or fund co-investments, with additional
capital commitments of $14.7 million for future fundings of co-investments.
The net co-investment funding for 2001 is anticipated to be $11.0 million
(planned co-investments less return of capital from liquidated co-
investments).
Capital expenditures are anticipated to be $47.0 million for 2001,
primarily for ongoing improvements to computer hardware and information
systems, office renewals and expansions and the scheduled replacement of
fleet cars in Europe.
Jones Lang LaSalle had originally allocated up to $10.0 million for
investments in e-commerce opportunities in 2001. This allocation is
currently being re-evaluated given ongoing developments in the high
technology and e-commerce markets. During the three months ended March 31,
2001, Jones Lang LaSalle provided a charge of $1 million against a
broadband investment. The balance sheet at March 31, 2001 includes $11.9
million of e-commerce related investments.
SEASONALITY
Historically, Jones Lang LaSalle's revenue, operating income and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. Other than for Investment Management, this
seasonality is due to a calendar-year-end focus, primarily in the U.S., on
the completion of real estate transactions, which is consistent with the
real estate industry generally. The Investment Management segment earns
performance fees on clients' returns on their real estate investments.
Such performance fees are generally earned when the asset is sold, the
timing of which Jones Lang LaSalle does not have complete discretion over.
Non-variable operating expenses, which are treated as expenses when they
are incurred during the year, are relatively constant on a quarterly basis.
INFLATION
Jones Lang LaSalle's operations are directly affected by various
national and local economic conditions, including interest rates,
inflation, the availability of credit to finance real estate transactions
and the impact of tax laws. To date, Jones Lang LaSalle does not believe
that general inflation has had a material impact on operations, as revenue,
bonuses and other variable costs related to revenue are primarily impacted
by real estate supply and demand rather than general inflation.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for Jones Lang LaSalle in
the fiscal year beginning January 1, 2001. See Note 6 of the Notes to the
Financial Statements for further discussion. The effect of implementing
SFAS 133 did not have a material impact on the consolidated financial
statements.
On February 14, 2001, the Financial Accounting Standards Board
("FASB") issued for public comment its tentative decisions on the
accounting for goodwill in a limited Exposure Draft, "Business Combinations
and Intangible Assets - Accounting for Goodwill." Among the tentative
decisions of this Exposure Draft are that goodwill should not be amortized,
but instead should be tested for impairment when events or circumstances
occur indicating that an impairment might exist. The FASB plans to issue a
final Statement on the accounting for goodwill in June 2001, but there is
uncertainty as to the expected effective date, which may be delayed.
EURO CONVERSION ISSUES
On January 1, 1999, certain countries of the European Monetary Union
("EMU") adopted a common currency, the euro. For a three-and-one-half-year
transition period, non-cash transactions may be denominated in either the
euro or in the old national currencies. After July 1, 2002, the euro will
be the sole legal tender for the EMU countries. The adoption of the euro
affected a multitude of financial systems and business applications, as the
commerce of these nations is now transacted in the euro and the existing
national currency.
Although the impact of the January 1, 1999 euro conversion was
minimal, Jones Lang LaSalle continues to evaluate the potential impact
relating to the EMU countries yet to convert. Management does not expect
the impact of euro conversion issues to be material to Jones Lang LaSalle,
however there can be no assurance that external factors will not have a
material adverse effect on operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET AND OTHER RISK FACTORS
MARKET RISK
The principal market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices) to which Jones Lang LaSalle is
exposed are:
. Interest rates on the multi-currency debt facility
. Foreign exchange risks.
In the normal course of business, Jones Lang LaSalle manages these
risks through a variety of strategies, including the use of hedging
transactions using various derivative financial instruments such as
interest rate swap agreements. Jones Lang LaSalle does not enter into
derivative or interest rate transactions for trading or speculative
purposes.
INTEREST RATES
Jones Lang LaSalle centrally manages its debt, considering investment
opportunities and risks, tax consequences and overall financing strategies.
Jones Lang LaSalle is primarily exposed to interest rate risk on the $250
million three-year revolving multi-currency credit facility that is
available for working capital, co-investments, capital expenditures and
acquisitions. This facility bears a variable rate of interest based on
market rates. The interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower the
overall borrowing costs. To achieve this objective, Jones Lang LaSalle
will enter into derivative financial instruments such as interest rate swap
agreements when appropriate.
As of March 31, 2001, Jones Lang LaSalle had no interest rate swap
agreements outstanding.
Including the effect of interest rate swap agreements, the effective
interest rate on Jones Lang LaSalle's debt for the three months ended
March 31, 2001 was 8.6% compared to 8.2% for the same period of 2000. The
increase in the effective interest rate is due to the higher fixed interest
rate of 9.0% associated with the Euro Notes, as well as reduced revolver
borrowings at declining market interest rates.
FOREIGN EXCHANGE
Revenues outside of the United States were 62.9% of the total revenues
of Jones Lang LaSalle in the first quarter of 2001. Operating in
international markets means that Jones Lang LaSalle is exposed to movements
in these foreign exchange rates, primarily the British pound (23.1% of
revenues) and the euro (21.9% of 2000 revenues). Changes in these foreign
exchange rates would have the largest impact on translating the operating
profit of Jones Lang LaSalle's international operations into U.S. dollars.
The British pound expenses incurred as a result of both the worldwide
operational headquarters and the Europe regional headquarters being located
in London act as a partial operational hedge against Jones Lang LaSalle's
translation exposure to the British pound.
The interest on the euro 165 million of notes issued by Jones Lang
LaSalle during 2000 acts as a partial hedge against the translation
exposure on the euro denominated earnings. Jones Lang LaSalle enters into
forward foreign currency exchange contracts to manage currency risks. At
March 31, 2001, Jones Lang LaSalle had forward exchange contracts in effect
with a notional value of $60.6 million and a market and carrying loss of
$1.3 million.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of March 31, 2001, it does not consider those exposures or
positions which could arise after that date. The information represented
herein has limited predictive value. As a result, the ultimate realized
gain or loss with respect to interest rate and foreign currency
fluctuations will depend on the exposures that arise during the period, the
hedging strategies at the time and interest and foreign currency rates.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Jones Lang LaSalle is a defendant in various litigation matters
arising in the ordinary course of business, some of which involve claims
for damages that are substantial in amount. Many of these matters are
covered by insurance. In the opinion of management, the ultimate resolution
of such litigation is not expected to have a material adverse effect on the
financial condition, results of operations and liquidity of Jones Lang
LaSalle.
ITEM 5. OTHER MATTERS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this filing and elsewhere (such as in reports,
other filings with the Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and written and oral statements) may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause Jones Lang LaSalle's
actual results, performance, achievements, plans and objectives to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in our Annual Report on Form 10-K
for the year ended December 31, 2000 in Item 1. "Business," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A. "Quantitative and Qualitative Disclosures About
Market Risk," and elsewhere, in this Quarterly Report on Form 10-Q in
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", Item 3 "Quantitative and Qualitative Disclosure
about Market Risk" and elsewhere, and in other reports filed with the
Securities and Exchange Commission. Jones Lang LaSalle expressly disclaims
any obligation or undertaking to update or revise any forward-looking
statements to reflect any changes in events or circumstances or in its
expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JONES LANG LASALLE INCORPORATED
Dated: May 15, 2001 BY: /S/ PETER C. ROBERTS
------------------------------
Peter C. Roberts
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
4.1 Form of certificate representing shares
of Jones Lang LaSalle Incorporated
Common Stock
10.1 First Amendment to the Jones Lang LaSalle
Incorporated Amended and Restated Stock
Compensation Program.
12.1 Computation of Ratio of Earnings to Fixed
Charges.
99 Press release issued by Jones Lang LaSalle
on May 2, 2001.
2158: