UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 10, 2001
----- ---------------
Common Stock ($0.01 par value) 30,077,685
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. . . . . . . . 30
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . 38
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 39
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . 39
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 40
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 40
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000
--------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . $ 10,075 18,843
Trade receivables, net of allowances
of $9,164 and $9,261 in 2001 and
2000, respectively. . . . . . . . . . 185,751 244,201
Notes receivable and advances to
real estate ventures. . . . . . . . . 2,557 4,286
Other receivables . . . . . . . . . . . 10,414 6,655
Income tax refund receivable. . . . . . -- 976
Prepaid expenses. . . . . . . . . . . . 11,031 10,811
Deferred tax assets . . . . . . . . . . 24,216 23,959
Other assets. . . . . . . . . . . . . . 22,292 11,330
---------- ---------
Total current assets. . . . . . 266,336 321,061
Property and equipment, at cost, less
accumulated depreciation of $88,533
and $76,427 in 2001 and 2000,
respectively. . . . . . . . . . . . . . 89,493 90,306
Intangibles resulting from business
acquisitions and JLW merger, net of
accumulated amortization of $50,266
and $43,028 in 2001 and 2000,
respectively. . . . . . . . . . . . . . 335,738 350,129
Investments in real estate ventures . . . 53,229 74,565
Other investments . . . . . . . . . . . . 13,864 12,884
Long-term receivables, net. . . . . . . . 20,928 23,136
Prepaid pension asset . . . . . . . . . . 15,598 18,730
Deferred tax assets . . . . . . . . . . . 9,068 12,317
Debt issuance costs . . . . . . . . . . . 4,184 4,848
Other assets, net . . . . . . . . . . . . 5,991 6,069
--------- ----------
$ 814,429 914,045
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 84,701 111,738
Accrued compensation. . . . . . . . . . 56,066 170,323
Short-term borrowings . . . . . . . . . 8,954 8,836
Deferred tax liabilities. . . . . . . . 125 226
Other liabilities . . . . . . . . . . . 21,168 16,583
--------- ----------
Total current liabilities . . . 171,014 307,706
Long-term liabilities:
Credit facilities . . . . . . . . . . . 155,621 85,565
Notes . . . . . . . . . . . . . . . . . 140,085 155,546
Deferred tax liabilities. . . . . . . . 5,670 9,547
Other . . . . . . . . . . . . . . . . . 22,169 22,776
--------- ----------
Total liabilities . . . . . . . 494,559 581,140
Commitments and contingencies
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
JUNE 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000
--------- -----------
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 1,062 567
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
29,876,385 and 30,700,150 shares
issued and outstanding as of June 30,
2001 and December 31, 2000,
respectively. . . . . . . . . . . . . 299 307
Additional paid-in capital. . . . . . . 455,806 461,272
Deferred stock compensation . . . . . . (3,527) (4,322)
Retained deficit. . . . . . . . . . . . (112,578) (107,110)
Stock held in trust . . . . . . . . . . (1,099) (397)
Accumulated other comprehensive loss. . (20,093) (17,412)
--------- ----------
Total stockholders' equity. . . 318,808 332,338
--------- ----------
$ 814,429 914,045
========= ==========
See accompanying notes to consolidated financial statements.
<table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, except share data)
(UNAUDITED)
<caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
Revenue:
Fee based services. . . . . . . . . . . . $ 196,202 213,873 389,950 396,903
Equity in earnings from
unconsolidated ventures . . . . . . . . 1,341 8,747 3,857 14,687
Other income. . . . . . . . . . . . . . . 1,038 698 1,883 1,315
---------- ---------- ---------- ----------
Total revenue . . . . . . . . . . . 198,581 223,318 395,690 412,905
Operating expenses:
Compensation and benefits . . . . . . . . 129,219 142,536 263,696 272,773
Operating, administrative and other . . . 53,478 52,552 105,708 103,364
Depreciation and amortization . . . . . . 12,091 10,797 23,422 21,491
Merger related non-recurring stock
compensation expense. . . . . . . . . . -- 18,865 -- 37,191
---------- ---------- ---------- ----------
Total operating expenses. . . . . . 194,788 224,750 392,826 434,819
Operating income (loss) . . . . . . 3,793 (1,432) 2,864 (21,914)
Interest expense, net of interest income. . 5,981 6,664 10,827 13,339
---------- ---------- ---------- ----------
Loss before provision (benefit) for
income taxes and minority interest (2,188) (8,096) (7,963) (35,253)
Net provision (benefit) for income taxes. . (831) 4,281 (3,026) 73
Minority interest in earnings (losses)
of subsidiaries . . . . . . . . . . . . . 565 15 531 (12)
---------- ---------- ---------- ----------
Net loss before cumulative effect
of change in accounting principle (1,922) (12,392) (5,468) (35,314)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . -- -- -- (14,249)
---------- ---------- ---------- ----------
Net loss. . . . . . . . . . . . . . . . . . $ (1,922) (12,392) (5,468) (49,563)
========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustments . . . . . . . . . . . . . . $ 3,206 (6,043) (2,681) (11,153)
---------- ---------- ---------- ----------
Comprehensive income (loss) . . . . . . . . $ 1,284 (18,435) (8,149) (60,716)
========== ========== ========== ==========
Basic loss per common share before cumulative
effect of change in accounting principle. $ (0.06) (0.50) (0.18) (1.44)
Cumulative effect of change in
accounting principle. . . . . . . . . . . -- -- -- (0.58)
---------- ---------- ---------- ----------
Basic loss per common share . . . . . . . . $ (0.06) (0.50) (0.18) (2.02)
========== ========== ========== ==========
Basic weighted average
shares outstanding. . . . . . . . . . . . 29,775,259 24,559,305 29,946,909 24,472,122
========== ========== ========== ==========
Diluted loss per common share before cumulative
effect of change in accounting principle. $ (0.06) (0.50) (0.18) (1.44)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . -- -- -- (0.58)
---------- ---------- ---------- ----------
Diluted loss per common share . . . . . . . $ (0.06) (0.50) (0.18) (2.02)
========== ========== ========== ==========
Diluted weighted average
shares outstanding. . . . . . . . . . . . 29,775,259 24,559,305 29,946,909 24,472,122
========== ========== ========== ==========
<fn>
See accompanying notes to consolidated financial statements.
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(in thousands, except share data)
(UNAUDITED)
<caption>
Accumu-
lated
Other
Additi- Deferred Compre-
Common Stock tional Stock Retained Shares hensive
------------------- Paid-In Compen- Earnings Held in Income
Shares Amount Capital sation (Deficit) Trust (Loss) Total
---------- ------ -------- -------- --------- -------- ------- -------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Balances at
December 31,
2000 . . . . . . 30,700,150 $307 461,272 (4,322) (107,110) (397) (17,412) 332,338
Net loss. . . . . -- -- -- -- (5,468) -- -- (5,468)
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. . -- -- -- 795 -- -- -- 795
Stock purchase
programs . . . 109,779 1 1,447 -- -- -- -- 1,448
Shares held
in trust . . . . -- -- -- -- -- (1,000) -- (1,000)
Distribution of
shares held in
trust. . . . . . -- -- -- -- -- 298 -- 298
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Accumu-
lated
Other
Additi- Deferred Compre-
Common Stock tional Stock Retained Shares hensive
------------------- Paid-In Compen- Earnings Held in Income
Shares Amount Capital 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. . . -- -- -- -- -- -- (2,681) (2,681)
---------- ---- ------- -------- -------- -------- -------- -------
Balances at
June 30, 2001 . 29,876,385 $299 455,806 (3,527) (112,578) (1,099) (20,093) 318,808
========== ==== ======= ======== ======== ======== ======== =======
<fn>
See accompanying notes to consolidated financial statements.
</table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows used in operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . $ (5,468) (49,563)
Reconciliation of net loss to net cash
provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . -- 14,249
Depreciation and amortization . . . . 23,422 21,491
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . (3,857) (14,687)
Operating distributions from real
estate ventures . . . . . . . . . . 4,442 12,479
Provision for loss on receivables and
other assets. . . . . . . . . . . . 8,478 3,990
Stock compensation expense. . . . . . -- 37,191
Amortization of deferred compensation 3,077 1,912
Amortization of debt issuance costs . 595 --
---------- ----------
Net cash provided by earnings . . . 30,689 27,062
Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . 54,205 34,307
Prepaid expenses and other assets . . (10,254) (5,893)
Deferred tax assets and income
tax refund receivable . . . . . . . (10) (3,968)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . (140,662) (68,865)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . (96,721) (44,419)
---------- ----------
Net cash used in operating
activities. . . . . . . . . . . . (66,032) (17,357)
Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . (17,657) (19,298)
Other acquisitions and investments,
net of cash balances assumed. . . . . (2,983) (1,946)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . (3,154) (2,959)
Distributions, repayments of advances
and sale of investments . . . . . . 19,773 5,201
---------- ----------
Net cash used in investing
activities. . . . . . . . . . . (4,021) (19,002)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 228,109 169,188
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (157,935) (146,479)
Shares repurchased for payment of
taxes on ESOT distribution. . . . . . . (3,114) --
Shares repurchased under share
repurchase program. . . . . . . . . . . (6,942) --
Common stock issued under stock option
plan and stock purchase programs. . . . 1,167 3,509
---------- ----------
Net cash provided by
financing activities. . . . . . . 61,285 26,218
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . (8,768) (10,141)
Cash and cash equivalents,
beginning of period . . . . . . . . . . . 18,843 23,308
---------- ----------
Cash and cash equivalents, end of period. . $ 10,075 13,167
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 10,746 12,739
Taxes, net of refunds . . . . . . . . . 16,367 2,115
Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Fair value of assets acquired . . . . $ -- (2)
Fair value of liabilities assumed . . -- 4,199
Goodwill. . . . . . . . . . . . . . . -- (4,893)
---------- --------
Cash paid, net of cash
balances assumed. . . . . . . . $ -- (696)
========== ========
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 June 30, 2001 and for the
three and six month periods ended June 30, 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 June 30, 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 29.8 million and 29.9
million for the three and six month periods ended June 30, 2001,
respectively. For the three and six month periods ended June 30, 2000,
basic and diluted losses per common share were calculated based on basic
weighted average shares outstanding of 24.6 million and 24.5 million,
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 and
six months ending June 30, 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 the three and six months ended June 30, 2001 and 2000
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 and six months ended
June 30, 2000 related to the amortization of merger related non-recurring
deferred compensation totaled $18.9 million and $37.2 million,
respectively, net of the quarterly adjustment for the change in stock
price.
(3) BUSINESS SEGMENTS
Jones Lang LaSalle manages its business along a combination of
functional and geographic lines. The comparative segment operating results
for the three and six months ended June 30, 2000 have been restated to
reflect the impact of the adoption of SAB 101 (see Note 6) as of January 1,
2000 and the consolidation of the Hotel Services segment from a separate
segment into its respective Owner and Occupier Services segments.
Operations are now classified into four business segments: the three
geographic regions of Owner and Occupier Services, (i) Americas, (ii)
Europe and (iii) Asia Pacific; and (iv) the global business of Investment
Management. The Owner and Occupier Services business is operated on a
geographic basis and consists primarily of tenant representation and agency
leasing, capital markets and valuation services (collectively,
"implementation services") and property management, corporate property
services, development services and project management services
(collectively, "management services"). The Investment Management segment
provides real estate investment management services to institutional
investors, corporations, and high net worth individuals.
Total revenue by business segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. Jones Lang LaSalle
allocates all expenses, other than interest and income taxes, as nearly all
expenses incurred benefit one or more of the segments. Merger related non-
recurring deferred compensation was not allocated to the segments.
Summarized unaudited financial information by business segment for
the three and six month periods ended June 30, 2001 and 2000 is as follows
($ in thousands):
<table>
<caption>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . $ 37,229 36,213 61,928 60,583
Management services . . . . . . 35,913 30,728 70,930 59,957
Equity earnings (losses). . . . 335 294 335 (66)
Other services. . . . . . . . . 437 187 723 375
Intersegment revenue. . . . . . 550 (17) 710 378
---------- ---------- ---------- ----------
74,464 67,405 134,626 121,227
Operating expenses:
Compensation, operating and
administrative expenses . . . 66,016 58,041 131,258 118,272
Depreciation and amortization . 6,300 5,485 11,990 10,867
---------- ---------- ---------- ----------
Operating income (loss) . $ 2,148 3,879 (8,622) (7,912)
========== ========== ========== ==========
EUROPE
Revenue:
Implementation services . . . . $ 55,057 69,931 119,552 131,591
Management services . . . . . . 22,872 21,169 45,259 41,367
Other services. . . . . . . . . 249 312 436 549
---------- ---------- ---------- ----------
78,178 91,412 165,247 173,507
Operating expenses:
Compensation, operating and
administrative expenses . . . 70,019 83,393 146,250 157,075
Depreciation and amortization . 3,128 2,854 6,185 5,620
---------- ---------- ---------- ----------
Operating income. . . . . $ 5,031 5,165 12,812 10,812
========== ========== ========== ==========
ASIA PACIFIC
Revenue:
Implementation services . . . . $ 16,710 23,174 31,961 43,709
Management services . . . . . . 11,261 10,358 23,350 20,494
Other services. . . . . . . . . 354 193 697 360
---------- ---------- ---------- ----------
28,325 33,725 56,008 64,563
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Operating expenses:
Compensation, operating and
administrative expenses . . . 29,547 33,747 58,349 62,429
Depreciation and amortization . 1,681 1,477 3,275 3,038
---------- ---------- ---------- ----------
Operating loss. . . . . . $ (2,903) (1,499) (5,616) (904)
========== ========== ========== ==========
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . $ 1,044 1,029 1,839 3,998
Advisory fees . . . . . . . . . 16,095 21,271 35,079 35,204
Equity earnings . . . . . . . . 1,006 8,453 3,522 14,753
Other services. . . . . . . . . 19 6 79 31
---------- ---------- ---------- ----------
18,164 30,759 40,519 53,986
Operating expenses:
Compensation, operating and
administrative expenses . . . 17,665 19,890 34,257 38,739
Depreciation and amortization . 982 981 1,972 1,966
---------- ---------- ---------- ----------
Operating income (loss) . $ (483) 9,888 4,290 13,281
========== ========== ========== ==========
Total segment revenue . . . . . . . $ 199,131 223,301 396,400 413,283
Intersegment revenue eliminations . (550) 17 (710) (378)
---------- ---------- ---------- ----------
Total revenue . . . . . . $ 198,581 223,318 395,690 412,905
========== ========== ========== ==========
Total segment operating expenses. . $ 195,338 205,868 393,536 398,006
Intersegment operating expense
eliminations. . . . . . . . . . . (550) 17 (710) (378)
---------- ---------- ---------- ----------
Total operating expenses
before merger related
non-recurring charges . $ 194,788 205,885 392,826 397,628
========== ========== ========== ==========
Operating income before
merger related non-
recurring charges . . . $ 3,793 17,433 2,864 15,277
========== ========== ========== ==========
</table>
(4) SHARE REPURCHASE
On February 6, 2001, Jones Lang LaSalle announced that its Board of
Directors approved a share repurchase program authorizing purchases of up
to $10.0 million. 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. The Board of Directors of Jones Lang LaSalle
has increased the total amount authorized for share repurchase back to
$10.0 million. As of June 30, 2001, no further purchases have taken place
and, therefore, Jones Lang LaSalle has $10.0 million currently authorized
for share repurchases.
(5) HIH INSURANCE
On March 15, 2001, HIH Insurance Ltd. ("HIH") and its subsidiaries,
an Australian insurance group, entered provisional liquidation and was
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.
Approximately 30 claims have been identified that are in varying stages of
litigation. A review is currently underway to determine the exposure to
these claims, but the exposure is not expected to exceed $1.5 million.
There is one large claim which is very complex with multiple defendants and
plaintiffs which Jones Lang LaSalle believes is likely to be covered by
another class of insurance. It is also possible that further claims may be
made. As a range of probable exposures has not yet been determined by
Jones Lang LaSalle, no reserve has been reflected in the financial
statements for any exposure related to HIH.
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 were
satisfied. Jones Lang LaSalle recognized $0.2 million and $3.7 million of
these revenues in the three and six months ended June 30, 2001,
respectively, and $16.2 million of these revenues in the twelve months
ended December 31, 2000. The balance of $3.0 million is expected to be
recognized over the remainder of 2001 and 2002.
The statement of earnings and comprehensive income for the three and
six months ended June 30, 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 the three and six months ended
June 30, 2000 was an increase in net loss of $0.9 million and a decrease in
net loss of $1.2 million, respectively. The increase in net loss for the
three months ended June 30, 2000 of $0.9 million consisted of a net
deferral of 2000 revenue of $(6.4) million, recognition of revenues of $4.9
million which were deferred as part of the one-time cumulative effect of
change in accounting principle and a net tax effect of $0.6 million. The
decrease in net loss for the six months ended June 30, 2000 of $1.2 million
consisted of a net deferral of 2000 revenue of $(8.8) million, recognition
of revenues of $10.7 million which were deferred as part of the one-time
cumulative effect of change in accounting principle and a net tax effect of
$(0.7) 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. At June 30, 2001,
Jones Lang LaSalle had forward exchange contracts in effect with a notional
value of $64.1 million and a market and carrying loss of $0.5 million.
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
second quarter of 2001, and there were no such agreements outstanding as of
June 30, 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 with changes in unrealized
gains or losses recognized currently in earnings.
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 six months
ended June 30, 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) ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE
ASSETS
In July 2001, the FASB issued Statement No. 141, Business
Combinations, ("SFAS 141") and Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase method
of accounting be used for all business combinations completed after
June 30, 2001. SFAS 141 also specifies that intangible assets acquired in a
purchase method business combination must meet certain criteria to be
recognized and reported apart from goodwill. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead they will be tested for impairment at least annually
in accordance with the provisions of SFAS 142. SFAS 142 will also require
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
"SFAS 121".
Jones Lang LaSalle is required to adopt the provisions of SFAS 141
immediately, and SFAS 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible asset determined to have an indefinite useful
life that are acquired in a purchase business combination completed after
June 30, 2001 will not be amortized, but will continue to be evaluated for
permanent impairment. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized
until January 1, 2002.
In connection with the transitional goodwill impairment evaluation,
SFAS 142 will require Jones Lang LaSalle to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this evaluation, Jones Lang LaSalle must determine
the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to
those reporting units as of the date of adoption. Jones Lang LaSalle will
then have up to six months from the
date of adoption to determine the fair value of each reporting unit
and compare it to the reporting unit's carrying amount. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication
exists that the reporting unit's goodwill may be impaired and Jones Lang
LaSalle must perform the second step of the transitional impairment test.
In the second step, Jones Lang LaSalle must compare the implied fair value
of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets and liabilities in a manner similar
to a purchase price allocation in accordance with SFAS 141, to its carrying
amount, both of which would be measured as of the date of adoption. This
second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. Any transitional impairment loss will
be recognized as the cumulative effect of a change in accounting principle
in Jones Lang LaSalle's statement of earnings. Also, any unamortized
negative goodwill existing at the date SFAS 142 is adopted must be credited
to the income statement as the cumulative effect of a change in accounting
principle.
Based on goodwill balances as of June 30, 2001 and projected
amortization based on current foreign currency exchange rates, Jones Lang
LaSalle will have approximately $328 million of unamortized intangibles as
of January 1, 2002, which will be subject to the transition provisions of
SFAS 141 and SFAS 142.
Approximately $306 million of the projected January 1, 2002
intangibles balance will represent goodwill with an indefinite useful life
and will cease to be amortized January 1, 2002. The annual amortization
saving in 2002 will be approximately $10 million. Approximately ($1)
million of the projected January 1, 2002 intangibles balance will
constitute negative goodwill and will be credited to the income statement
as the cumulative effect of change in accounting principle. The remaining
$23 million of intangibles will be reviewed over the balance of 2001 to
determine if any portion should be considered to have indefinite useful
lives. Intangibles that do not have indefinite useful lives will be
amortized over their remaining definite useful life. Because of the
extensive effort needed to comply with adopting SFAS 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements
on Jones Lang LaSalle's financial statements at the date of this report,
including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting
principle. Although Jones Lang LaSalle is currently in the process of
evaluating the effects of adoption and thus no assurance of the impact can
be given, it currently does not believe that adoption will result in any
significant impairment charge against goodwill. And, other than the
prospective non-amortization of goodwill, which will result in a non-cash
improvement in operating results, Jones Lang LaSalle does not expect the
adoption to have a material effect on its revenue, operating results or
liquidity.
(9) 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.; 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 June 30, 2001 and December 31, 2000, Condensed
Consolidating Statement of Earnings for the three and six months ended June
30, 2001 and 2000, and Condensed Consolidating Statement of Cash Flows for
the six months ended June 30, 2001 and 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.
<table>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
ASSETS
- ------
Cash and
cash equivalents. . $ 2,908 18 (1,523) 8,672 -- 10,075
Trade receivables,
net of allowances . 124 -- 71,250 114,377 -- 185,751
Other current assets. 6,481 -- 33,614 30,415 -- 70,510
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 9,513 18 103,341 153,464 -- 266,336
Property and equipment,
at cost, less accumu-
lated depreciation . 3,643 -- 48,513 37,337 -- 89,493
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 240,861 94,877 -- 335,738
Other assets, net . . 8,094 -- 71,016 43,752 -- 122,862
Investments in
subsidiaries . . . . 279,033 -- 233,837 517 (513,387) --
---------- ---------- ---------- ---------- ---------- ----------
$ 300,283 18 697,568 329,947 (513,387) 814,429
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 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 $ 10,852 1,104 20,209 52,536 -- 84,701
Short-term borrowings -- -- 3,394 5,560 -- 8,954
Other current
liabilities . . . . (30,434) (297,309) 383,994 21,108 -- 77,359
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (19,582) (296,205) 407,597 79,204 -- 171,014
Long-term liabilities:
Credit facilities . -- 155,621 -- -- -- 155,621
Notes . . . . . . . -- 140,085 -- -- -- 140,085
Other . . . . . . . 1,057 -- 10,938 15,844 -- 27,839
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (18,525) (499) 418,535 95,048 -- 494,559
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . -- -- -- 1,062 -- 1,062
Stockholders' equity. 318,808 517 279,033 233,837 (513,387) 318,808
---------- ---------- ---------- ---------- ---------- ----------
$ 300,283 18 697,568 329,947 (513,387) 814,429
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2000
($ in thousands)
<caption>
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
------------ ---------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
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
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
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . $ 13 -- 93,428 105,140 -- 198,581
Equity earnings (loss)
from subsidiaries. . 525 -- 2,800 168 (3,493) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 538 -- 96,228 105,308 (3,493) 198,581
Operating expenses. . 4,102 -- 92,670 98,016 -- 194,788
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (3,564) -- 3,558 7,292 (3,493) 3,793
Interest expense,
net of interest
income . . . . . . . (791) (197) 4,049 2,920 -- 5,981
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (2,773) 197 (491) 4,372 (3,493) (2,188)
Net provision (benefit)
for income taxes . . (851) 29 (1,016) 1,007 -- (831)
Minority interests
in earnings of
subsidiaries . . . . -- -- -- 565 -- 565
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (1,922) 168 525 2,800 (3,493) (1,922)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . $ 13 -- 188,931 206,746 -- 395,690
Equity earnings (loss)
from subsidiaries. . (1,046) -- 2,111 348 (1,413) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (1,033) -- 191,042 207,094 (1,413) 395,690
Operating expenses. . 8,500 -- 186,240 198,086 -- 392,826
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (9,533) -- 4,802 9,008 (1,413) 2,864
Interest expense,
net of interest
income . . . . . . . (1,698) (440) 7,911 5,054 -- 10,827
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (7,835) 440 (3,109) 3,954 (1,413) (7,963)
Net provision (benefit)
for income taxes . . (2,367) 92 (2,063) 1,312 -- (3,026)
Minority interests
in earnings of
subsidiaries . . . . -- -- -- 531 -- 531
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (5,468) 348 (1,046) 2,111 (1,413) (5,468)
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2000
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . $ -- -- 104,519 118,799 -- 223,318
Equity earnings (loss)
from subsidiaries. . 12,913 -- 6,599 -- (19,512) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 12,913 -- 111,118 118,799 (19,512) 223,318
Operating expenses
before merger related
non-recurring charges 3,117 -- 94,389 108,379 -- 205,885
Merger related non-
recurring charges. . 18,522 -- 245 98 -- 18,865
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . (8,726) -- 16,484 10,322 (19,512) (1,432)
Interest expense,
net of interest
income . . . . . . . 2,820 -- 3,957 (113) -- 6,664
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority interest (11,546) -- 12,527 10,435 (19,512) (8,096)
Net provision (benefit)
for income taxes . . 846 -- (386) 3,821 -- 4,281
Minority interest in
losses of subsidiaries -- -- -- 15 -- 15
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)
before cumulative
effect of change in
accounting principle (12,392) -- 12,913 6,599 (19,512) (12,392)
Cumulative effect of
change in accounting
principles . . . . . -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (12,392) -- 12,913 6,599 (19,512) (12,392)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2000
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . $ -- -- 186,461 226,444 -- 412,905
Equity earnings (loss)
from subsidiaries. . (6,868) -- 8,768 -- (1,900) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (6,868) -- 195,229 226,444 (1,900) 412,905
Operating expenses
before merger related
non-recurring charges 6,232 -- 185,879 205,517 -- 397,628
Merger related non-
recurring charges. . 36,848 -- 245 98 -- 37,191
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . (49,948) -- 9,105 20,829 (1,900) (21,914)
Interest expense,net
of interest income . 5,193 -- 8,156 (10) -- 13,339
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority interest (55,141) -- 949 20,839 (1,900) (35,253)
Net provision (benefit)
for income taxes . . (5,578) -- (1,994) 7,645 -- 73
Minority interest in
losses of subsidiaries -- -- -- (12) -- (12)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)
before cumulative
effect of change in
accounting principle (49,563) -- 2,943 13,206 (1,900) (35,314)
Cumulative effect of
change in accounting
principles . . . . . -- -- (9,811) (4,438) -- (14,249)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (49,563) -- (6,868) 8,768 (1,900) (49,563)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------ ------------- ------------
<s> <c> <c> <c> <c> <c>
Cash flows provided by (used in)
operating activities. . . . . $ (4,194) 498 (35,053) (27,283) (66,032)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . (973) -- (7,064) (9,620) (17,657)
Other acquisitions and invest-
ments, net of cash acquired
and transaction costs . . . -- -- (2,983) -- (2,983)
Subsidiary activity . . . . . 13,275 (70,688) 52,482 4,931 --
Investments in real estate
ventures. . . . . . . . . . -- -- (3,460) 20,079 16,619
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . 12,302 (70,688) 38,975 15,390 (4,021)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit
facility. . . . . . . . . . -- 70,056 (1,780) 1,898 70,174
Shares repurchased. . . . . . (10,056) -- -- -- (10,056)
Common stock issued under
stock option plan . . . . . 1,167 -- -- -- 1,167
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . (8,889) 70,056 (1,780) 1,898 61,285
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . (781) (134) 2,142 (9,995) (8,768)
Cash and cash equivalents,
January 1 . . . . . . . . . . 3,689 152 (3,665) 18,667 18,843
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
June 30,. . . . . . . . . . . $ 2,908 18 (1,523) 8,672 10,075
========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2000
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c>
Cash flows provided by (used in)
operating activities . . . . . . . . . $ 5,054 -- (13,056) (9,355) (17,357)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . . . . (455) -- (10,086) (8,757) (19,298)
Cash balances assumed in Jones
Lang Wootton merger, net of
cash paid and transaction cost. . . -- -- -- -- --
Other acquisitions and investments,
net of cash acquired and
transaction costs . . . . . . . . . -- -- (1,250) (696) (1,946)
Subsidiary activity . . . . . . . . . (17,976) -- 13,479 4,497 --
Investments in real estate ventures . -- -- 4,335 (2,093) 2,242
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . (18,431) -- 6,478 (7,049) (19,002)
Cash flows provided by financing
activities:
Net borrowings under credit facility. 13,269 -- 3,186 6,254 22,709
Common stock issued under stock
option plan and stock purchase
programs. . . . . . . . . . . . . . 3,509 -- -- -- 3,509
---------- ---------- ---------- ---------- ----------
Net cash provided by
financing activities. . . . . . 16,778 -- 3,186 6,254 26,218
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . 3,401 (3,392) (10,150) (10,141)
Cash and cash equivalents, January 1. . (615) -- 1,027 22,896 23,308
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, June 30. . . $ 2,786 -- (2,365) 12,746 13,167
========== ========== ========== ========== ==========
</table>
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 and six
months ended June 30, 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 AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 2000
REVENUE
Total revenue, after elimination of intersegment revenue, decreased
$24.7 million, or 11.1%, to $198.6 million for the three months ended
June 30, 2001 from $223.3 million for the three months ended June 30, 2000.
For the six months ended June 30, 2001 revenues decreased $17.2 million, or
4.2%, to $395.7 million from $412.9 million for the six months ended
June 30, 2000. The decrease in revenue for the quarter and the first six
months of 2001 is the result of Jones Lang LaSalle's strong second quarter
performance in 2000, the impact of the relative strength during 2001 versus
2000 of the US dollar against the key currencies in which Jones Lang
LaSalle operates and the continued slowing in the global economy. During
the second quarter of 2000 Jones Lang LaSalle benefited from the confluence
of a number of significant fees. These included two large capital markets
fees totaling almost $12 million in the Europe region of Owner and Occupier
Services, significant performance fees (totaling $4 million) and equity
earnings (totaling $6.8 million) in the Investment Management segment, a
substantial portion of which occurred earlier in that year than
anticipated. The confluence of these fees significantly impacted last
year's quarterly results such that the second quarter in 2000 was atypical
of our normal seasonal pattern of earnings. Jones Lang LaSalle believes
this year has returned to a more normal pattern. In addition, revenue for
the three and six months ended June 30, 2001 was adversely impacted
relative to the prior year periods by approximately $8 million and $17
million, respectively, due to the strong US dollar against the key
currencies in which Jones Lang LaSalle operates, primarily the euro, pound
sterling and Australian dollar.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of merger related non-recurring charges, decreased
$11.1 million, or 5.4%, to $194.8 million for the three months ended
June 30, 2001 as compared with $205.9 million for the three months ended
June 30, 2000. For the six months ended June 30, 2001 operating expenses
decreased $4.8 million, or 1.2%, to $392.8 million from $397.6 million for
the six months ended June 30, 2000. The decrease in operating expenses
from the prior year is primarily the result of a reduction in incentive
compensation of $18.4 million and $23.7 million in the second quarter and
year-to-date, respectively, when compared to the same periods last year.
This reduction in incentive compensation is due to the reduction in
revenues and will likely reverse over the balance of the year, depending on
performance. Partly offsetting this decrease in incentive compensation are
increases in headcount and associated expenses in the regions of America
and Europe to service new business. The strengthening US dollar against
the key currencies in which Jones Lang LaSalle operates the euro, pound
sterling and Australian dollar-reduced US dollar reported expenses by
approximately $8 million and $17 million for the three and six months ended
June 30, 2001, respectively, relative to the same periods last year.
OPERATING INCOME
The decrease in operating income is primarily the result of factors
discussed above, namely Jones Lang LaSalle's strong prior year results and
the continued slowing global economy.
MERGER RELATED NON-RECURRING CHARGES
There were no merger related non-recurring charges for the three or
six months ended June 30, 2001. Merger related non-recurring charges for
the three and six months ended June 30, 2000 totaled $18.9 million and
$37.2 million, respectively, 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 is no such expense after December 31, 2000.
INTEREST EXPENSE
Interest expense, net of interest income, decreased $0.7 million, to
$6.0 million, for the three months ended June 30, 2001, and $2.5 million,
to $10.8 million, for the six months ended June 30, 2001 from the prior
year periods. The decrease in interest expense in 2001 as compared to the
prior year periods is the result of lower average borrowings and lower
overall interest rates on revolver borrowings in 2001, partially offset by
the higher fixed interest rate on the euro 165 million notes outstanding
and the increase in amortization of debt issuance costs.
PROVISION/BENEFIT FOR INCOME TAXES
The benefit for income taxes was $0.8 million for the three months
ended June 30, 2001 as compared to a provision of $4.3 million for the
three months ended June 30, 2000. The benefit for income taxes was $3.0
million for the six months ended June 30, 2001 as compared to a provision
of $0.1 million for the six months ended June 30, 2000. The effective tax
rate for the three and six months ended June 30, 2001 was 38%, consistent
with that achieved on an operational basis (excluding merger related non-
recurring charges) in 2000. The move from a tax provision in 2000 to a tax
benefit in 2001 is attributable to the reduction in 2001 of income before
taxes, exclusive of merger related non-recurring compensation expense
associated with the issuance of shares to former JLW employees. This
merger related non-recurring compensation expense is largely nondeductible
for tax purposes.
NET INCOME/LOSS
Jones Lang LaSalle's reported net loss was $1.9 million for the three
months ended June 30, 2001 as compared to net income, excluding the effect
of merger related non-recurring charges, of $6.7 million for the same
period last year. For the six months ended June 30, 2001, Jones Lang
LaSalle reported a net loss of $5.5 million as compared to net income,
excluding the effect of merger related non-recurring charges and the
cumulative effect of change in accounting principle related to the adoption
of SAB 101, of $1.2 million in the prior year.
Including the effect of $18.9 million of merger related non-recurring
charges, the net loss for the three months ended June 30, 2000 was $12.4
million. Including the effects of $37.2 million of merger related non-
recurring charges and the one-time, non-cash, after-tax charge of $14.2
million representing the cumulative effect of change in accounting
principle related to the adoption of SAB 101, the net loss for the six
months ended June 30, 2000 was $49.6 million.
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 $7.1 million, or 10.5%, to
$74.5 million for the three months ended June 30, 2001, as compared to
$67.4 million for the three months ended June 30, 2000. For the six months
ending June 30, 2001, revenue grew by 11.1%, to $134.6 million, from $121.2
million for the same period in 2000. This increase in revenues for the
quarter and year-to-date June 2001 as compared to the prior year was the
result of strong performance in the Project and Development Management
unit, the Tenant Representation Services unit and the Capital Markets unit.
These revenue increases were partially offset by reduced revenues in the
Leasing and Management unit.
Operating expenses for the Americas region increased by $8.8 million,
or 13.9%, to $72.3 million for the three months ended June 30, 2001 from
$63.5 million for the three months ended June 30, 2000. For the six months
ended June 30, 2001, operating expenses increased $14.1 million, or 10.9%,
to $143.2 million from $129.1 million in the prior year. The six months
ended June 30, 2001 include a $3.9 million charge for unrecoverable
receivables from technology related clients, of which $0.4 million was
provided for in the second quarter. The first half of 2001 also includes a
$2.0 million charge to provide against two separate e-commerce investments,
$1.0 million of which was provided for in the second quarter. The second
quarter also includes severance costs in the amount of $1.5 million.
Excluding these charges, the remaining increase in operating expenses
primarily reflects increased headcount and associated expenses to service
new business.
EUROPE
Revenue for the Europe region totaled $78.2 million for the three
months ended June 30, 2001, as compared to $91.4 million for the three
months ended June 30, 2000, a decrease of 14.4%. Revenue of the Europe
region for the six months ended June 30, 2001 was $165.2 million, as
compared to $173.5 million for the six months ended June 30, 2000.
Included in the second quarter of 2000 are two large capital markets
transactions that provided approximately $12 million in revenue. Revenues
for the Europe region for the three and six months ended June 30, 2001 were
adversely impacted by approximately $6 million and $13 million,
respectively, due to a weakening of the euro and the pound sterling against
the US dollar during 2001 as compared to the same periods in 2000. After
removing the revenue impact of the capital markets transactions and the
exchange rate fluctuations, revenues increased $4.8 million and $16.7
million in the three and six months ended June 30, 2001, respectively, when
compared to the same periods last year. The increase in revenues in the
second quarter of 2001 over the second quarter of 2000 is primarily
attributable to Jones Lang LaSalle's 55% owned joint venture with Skandia
Fastighet AB. The increase in revenues in the first half of 2001 as
compared to 2000 is primarily due to the strong first quarter of 2001 and,
to a lesser extent, the joint venture mentioned above.
Operating expenses for the region were $73.1 million for the three
months ended June 30, 2001, as compared to $86.2 million for the three
months ended June 30, 2000. For the six months ended June 30, 2001,
operating expenses decreased $10.3 million to $152.4 million from $162.7
million. The weakening of the euro and the pound sterling against the US
dollar in the three and six months ended June 30, 2001 has reduced US
dollar reported expenses by approximately $6 million and $13 million,
respectively, as compared to the same periods in 2000. After adjusting for
the impact of exchange rate movements, the change in operating expenses is
primarily attributable to a reduction in incentive compensation of
approximately $10.0 million and $10.9 million for the three and six months
ended June 30, 2001 as compared to the same periods last year. This
decrease in incentive compensation is due to the reduction in revenues and
will likely reverse over the balance of the year, depending on performance.
These decreases were partly offset by an increase in headcount and
associated expenses to service new business.
ASIA PACIFIC
Revenue for the Asia Pacific region totaled $28.3 million and $56.0
million for the three and six months ended June 30, 2001, respectively.
These figures compare to $33.7 million and $64.6 million for the three and
six months ended June 30, 2000. The decrease in revenue in the Asia
Pacific region reflects a lower volume of transaction activity,
particularly in Hong Kong and Australia, driven by the economic weakness in
the region. Offsetting the decrease in transaction revenues are the
benefits that are being delivered in the management services business on
the investments made during 2000. Revenues in the Asia Pacific region were
also negatively impacted in the three and six months ended June 30, 2001,
as compared to the same periods last year, by approximately $2 million and
$4 million, respectively, due to the weakness of the Australian dollar
against the US dollar.
Operating expenses for Asia Pacific totaled $31.2 million for the
three months ended June 30, 2001, as compared to $35.2 million for the
three months ended June 30, 2000. For the six months ended June 30, 2001,
operating expenses were $61.6 million as compared to $65.5 million for the
comparable period in 2000. The overall expense base for the Asia Pacific
region has increased due to regional infrastructure costs, but this
increase has been offset by: 1) lower incentive compensation of $3.5
million and $4.4 million in the three and six months ended June 30, 2001,
respectively, as compared to the same periods last year because of reduced
transaction activity resulting in lower revenues, and 2) the reduced US
dollar reported expenses as a result of the weakening of the Australian
dollar against the US dollar. The reduction in incentive compensation will
likely reverse over the balance of the year, depending on performance. The
impact of the weakening Australian dollar against the US dollar has caused
US dollar reported expenses to be reduced by approximately $2 million for
the quarter, and $4 million for the six months ended June 30, 2001, when
compared to the same periods last year.
INVESTMENT MANAGEMENT
Investment Management revenue decreased $12.6 million, or 40.9%, to
$18.2 million for the three months ended June 30, 2001 from $30.8 million
for the three months ended June 30, 2000. For the six months ended June 30,
2001, Investment Management revenue decreased $13.5 million, or 25.0%, to
$40.5 million from $54.0 million for the six months ended June 30, 2000.
The reduced performance for this segment was anticipated in light of the
very strong year in 2000. Contributing to the overall strong performance
for the three and six months ended June 30, 2000, were gains and
performance related fees (recorded as equity earnings) of approximately
$6.8 million and $12.6 million, respectively, on sales of investments in
which Jones Lang LaSalle co-invested equity with its clients. Additionally,
two dispositions with total performance fees of $4 million closed in the
three months ended June 30, 2000 that were originally expected to close
later in that year. Revenues for the six months ended June 30, 2001
included $2.6 million of revenue, 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 decreased $2.3 million, or 11.0%, to $18.6 million
for the three months ended June 30, 2001, as compared with $20.9 million
for the three months ended June 30, 2000. For the six months ended June 30,
2001, operating expenses decreased $4.5 million, or 11.1%, to $36.2 million
from $40.7 million for the six months ended June 30, 2000. The reduction
in operating expenses was due: (1) to lower incentive compensation
recorded as a result of reduced revenues, which will likely reverse over
the balance of the year, depending on performance, and (2) a one-time cost
reduction of $0.6 million in the six months ended June 30, 2001 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
included an adjusted earnings per share target, before non-recurring
charges, of $1.63, reflecting almost 25% growth over the $1.31 adjusted
earnings per share achieved in 2000. In developing this plan, certain
assumptions were made about the anticipated prevailing economic conditions
and their impact on the global real estate markets. These assumptions
included a soft landing for the US economy followed by a recovery during
the second half of 2001, continued growth, albeit at a slower pace, in
Europe and the beginning of a recovery in the economies of the Asia Pacific
region. Economic conditions have proven to be more difficult than
expected, particularly in the high technology and telecom sectors, with a
persistent downturn in global economic conditions. In addition, due to a
greater proportion of income forecasted for the remainder of the year in
jurisdictions with high tax rates, Jones Lang LaSalle's effective tax rate
may increase from the expected 38% to between 40% and 42%.
Concern over the uncertain timing of recovery in the global economy
has caused Jones Lang LaSalle to lower its full year target for 2001
earnings, before non-operational charges discussed below, to be at least
equal to 2000 adjusted net earnings per share, before merger related non-
recurring charges, of $1.31 per share. In line with its more normal,
seasonal pattern of earnings, Jones Lang LaSalle expects to earn $0.35 to
$0.45 cents per share in the third quarter, with $1.05 to $1.15 per share
in the fourth quarter.
There are certain one-time, non-operational issues that may impact the
reported GAAP results in future quarters. As noted above, the revised
earnings expectation of a minimum of $1.31 per share is before taking into
account any charges that may be incurred with regard to these non-
operational issues. These issues include the impact of the current
difficult conditions in the capital markets on the future substainability
of the e-commerce investments made by Jones Lang LaSalle. The Balance
Sheet value of these investments at June 30, 2001 is $13.9 million, of
which Jones Lang LaSalle's investment in SiteStuff.com, Inc. represents
$9.0 million. In addition, and as more fully discussed in Note 5 of the
Notes to the Financial Statements, there is an undetermined exposure
relating to the liquidation of HIH Insurance Ltd., which is not expected to
exceed $1.5 million. In the light of the current difficult economic
conditions, Jones Lang LaSalle is carefully reviewing discretionary costs
in all areas of its business with the objective of reducing its cost base
over the balance of the year. Opportunities for further operational
efficiencies are being evaluated. Any potential one-time costs associated
with the implementation of these operational efficiencies are not included
in the revised target of $1.31 per share.
CONSOLIDATED CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
During the six months ended June 30, 2001, cash flows used in
operating activities totaled $66.0 million compared to $17.4 million used
during the six months ended June 30, 2000, an increase in cash used of
$48.6 million. The cash flows used in operating activities can be further
divided into cash generated from operations for the six months ended
June 30, 2001 of $30.7 million (compared to $27.1 million in the first six
months of 2000) and cash used in balance sheet movements (primarily working
capital changes) of $96.7 million (compared to $44.4 million in 2000).
Excluding the non-cash charges in 2000 for the cumulative effect of change
in accounting principle and merger related non-recurring stock compensation
expense, the improvement of $3.6 million in cash generated from operations
is primarily the result of higher non-cash charges against earnings in the
first six months of 2001 as compared to 2000; these non-cash charges
consist of depreciation and amortization, provision for losses on
receivables and other assets, deferred compensation amortization and
amortization of debt issuance costs. The improvement in cash generated from
operations is also attributed to cash operating distributions from ventures
in relation to non-cash equity earnings recorded. The increase in cash
used in working capital primarily represents higher incentive compensation
accrued at December of 2000 and paid in the first six months of 2001 as
compared to amounts accrued in December of 1999 and paid in the first six
months of 2000. The higher level of incentive compensation accrued at
December 2000 is a result of the strong performance during 2000. In
addition, lower incentive compensation accruals in the first six months of
2001 as compared to the first six months of 2000 have reduced accrued
liabilities, contributing to the increase in cash used in working capital.
Jones Lang LaSalle's continued focus on working capital management,
particularly in the area of receivables, is reflected in the increase in
cash provided by receivables of $19.9 million in the first six months of
2001 as compared to the first six months of 2000.
CASH FLOWS USED IN INVESTING ACTIVITIES
Jones Lang LaSalle used $4.0 million in investing activities during
the six months ended June 30, 2001, compared to a use of $19.0 million
during the six months ended June 30, 2000. This decrease in cash used in
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.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash flows provided by financing activities increased $35.1 million to
$61.3 million during the first six months of 2001 from $26.2 million during
the first six months of 2000. Borrowings increased to fund higher levels of
incentive compensation paid in early 2001, which related to 2000, 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 June 30, 2001, Jones Lang LaSalle has a $250.0 million revolving
credit facility for working capital needs, investments and acquisitions.
Jones Lang LaSalle also has 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 June 30, 2001,
there was $155.6 million outstanding under the revolving credit facility,
euro 165.0 million ($140.1 million) of borrowings under the Euro Notes and
short-term borrowings (including capital lease obligations) of $9.0
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 8.1% for the six months ended June 30,
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 June 30, 2001.
Jones Lang LaSalle has additional access to liquidity via various
interest-bearing overdraft facilities and short-term credit facilities of
subsidiaries. Of the $50.0 million authorized under the revolving credit
facility for local overdraft borrowings, Jones Lang LaSalle has facilities
totaling $33.6 million, of which $4.8 million was outstanding as of
June 30, 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, Europe
and Asia Pacific. 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 $16.1 million discussed below) and can be
increased or decreased based on the availability of capital and other
factors. As of June 30, 2001, there were total investments of $53.2 million
in 24 separate property or fund co-investments, with additional capital
commitments of $16.1 million for future fundings of co-investments.
The net co-investment activity for 2001 is anticipated to be a net
return of capital of approximately $6 million (planned co-investment
funding less return of capital from liquidated co-investments).
Capital expenditures are anticipated to be $47 million for 2001,
primarily for ongoing improvements to computer hardware and information
systems, office renewals and expansions.
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 six months ended June 30,
2001, Jones Lang LaSalle provided charges against two e-commerce
investments of $1.0 million each. The balance sheet at June 30, 2001
includes $13.9 million of e-commerce related investments. As of June 30,
2001, Jones Lang LaSalle did not believe that the remainder of its
investments in e-commerce were not realizable.
As explained in greater detail in Note 4 to the Notes to Consolidated
Financial Statements herein, Jones Lang LaSalle's Board of Directors has
authorized the repurchase of shares of Jones Lang LaSalle common stock in
the amount of $10.0 million. Although it has no immediate plans to
repurchase shares, the repurchase of shares is one area of capital spending
that Jones Lang LaSalle considers.
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 July 2001, the FASB issued Statement No. 141, Business
Combinations, ("SFAS 141") and Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). For a detailed discussion of these new
statements please refer to Note 8 of the Notes to the Financial Statements.
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 June 30, 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 six months ended
June 30, 2001 was 8.1% compared to 8.2% for the same period of 2000. The
decrease in the effective interest rate is due to reduced revolver
borrowings at declining market interest rates, offset by the higher fixed
interest rate of 9.0% associated with the Euro Notes.
FOREIGN EXCHANGE
Revenues outside of the United States were 58.8% and 60.9% of the
total revenues of Jones Lang LaSalle for the three and six months ended
June 30, 2001, respectively. Operating in international markets means that
Jones Lang LaSalle is exposed to movements in these foreign exchange rates,
primarily the British pound (21.0% and 22.0% of revenues for the three and
six months ended June 30, 2001, respectively) and the euro (17.6% and 19.7%
of revenues for the three and six months ended June 30, 2001,
respectively). 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
June 30, 2001, Jones Lang LaSalle had forward exchange contracts in effect
with a notional value of $64.1 million and a market and carrying loss of
$0.5 million.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the annual meeting of stockholders held on May 14, 2001, the
following business was conducted:
A. Stockholders elected six directors as follows:
(i) The following five Class I Directors were elected for terms
expiring at the 2004 annual meeting of stockholders and until their
successors are elected and qualify:
Henri-Claude de Bettignies: 23,623,684 votes for and
584,318 votes withheld.
Darryl Hartley-Leonard: 23,623,684 votes for and
584,318 votes withheld.
Robert S. Orr: 22,290,089 votes for and
1,917,913 votes withheld.
William E. Sullivan: 22,283,353 votes for and
1,924,649 votes withheld.
Earl E. Webb: 22,285,720 votes for and
1,922,281 votes withheld.
(ii) The following one Class II Director was elected for term
expiring at the 2002 annual meeting of stockholders and until his successor
is elected and qualified:
Robin S. Broadhurst: 23,618,876 votes for and
589,126 votes withheld.
B. Stockholders approved an amendment to the Jones Lang LaSalle 1997
Stock Award and Incentive Plan to increase the number of shares available
thereunder to 8,610,000 from 4,160,000 as follows:
Votes for: 20,203,569
Votes against: 2,456,976
Votes abstained: 16,628
C. Stockholders ratified the appointment of KPMG LLP as the Jones Lang
LaSalle's independent auditors for the fiscal year ending December 31, 2001
as follows:
Votes for: 23,956,405
Votes against: 245,881
Votes abstained: 5,715
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
On April 9, 2001, Jones Lang LaSalle filed a Report on Form 8-K (to
which its Annual Report to shareholders was attached as an exhibit)
announcing that it had sent to stockholders material for its Annual Meeting
to be held May 14, 2001.
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: August 14, 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
- ------- -----------
10.1 Fifth Amendment to the Jones Lang LaSalle Incorporated
1997 Stock Award and Incentive Plan, attached hereto as
Exhibit 10.1.
99 Press release issued by Jones Lang LaSalle on
July 31, 2001 attached hereto as Exhibit 99.