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 SEPTEMBER 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 November 12, 2001
----- -----------------
Common Stock ($0.01 par value) 30,089,651
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. . . 33
Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . 42
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 43
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 43
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 43
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . $ 10,871 18,843
Trade receivables, net of allowances
of $7,934 and $9,261 in 2001 and
2000, respectively. . . . . . . . . . 195,959 244,201
Notes receivable and advances to
real estate ventures. . . . . . . . . 3,213 4,286
Other receivables . . . . . . . . . . . 8,624 6,655
Prepaid expenses. . . . . . . . . . . . 11,821 10,811
Deferred tax assets . . . . . . . . . . 24,445 23,959
Other assets. . . . . . . . . . . . . . 22,564 12,306
---------- ---------
Total current assets. . . . . . 277,497 321,061
Property and equipment, at cost, less
accumulated depreciation of $98,254
and $76,427 in 2001 and 2000,
respectively. . . . . . . . . . . . . . 93,096 90,306
Intangibles resulting from business
acquisitions and JLW merger, net of
accumulated amortization of $54,576
and $43,028 in 2001 and 2000,
respectively. . . . . . . . . . . . . . 333,468 350,129
Investments in real estate ventures . . . 49,058 74,565
Other investments . . . . . . . . . . . . -- 12,884
Long-term receivables, net. . . . . . . . 21,296 23,136
Prepaid pension asset . . . . . . . . . . 15,338 18,730
Deferred tax assets . . . . . . . . . . . 9,327 12,317
Debt issuance costs . . . . . . . . . . . 5,827 4,848
Other assets, net . . . . . . . . . . . . 5,575 6,069
--------- ----------
$ 810,482 914,045
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 95,616 111,738
Accrued compensation. . . . . . . . . . 78,297 170,323
Short-term borrowings . . . . . . . . . 10,193 8,836
Deferred tax liabilities. . . . . . . . 198 226
Other liabilities . . . . . . . . . . . 21,154 16,583
--------- ----------
Total current liabilities . . . 205,458 307,706
Long-term liabilities:
Credit facilities . . . . . . . . . . . 114,709 85,565
Notes . . . . . . . . . . . . . . . . . 150,234 155,546
Deferred tax liabilities. . . . . . . . 5,890 9,547
Other . . . . . . . . . . . . . . . . . 19,948 22,776
--------- ----------
Total liabilities . . . . . . . 496,239 581,140
Commitments and contingencies
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- -----------
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 768 567
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,093,055 and 30,700,150 shares
issued and outstanding as of
September 30, 2001 and December 31,
2000, respectively. . . . . . . . . . 301 307
Additional paid-in capital. . . . . . . 458,058 461,272
Deferred stock compensation . . . . . . (3,083) (4,322)
Retained deficit. . . . . . . . . . . . (119,652) (107,110)
Stock held in trust . . . . . . . . . . (1,658) (397)
Accumulated other comprehensive loss. . (20,491) (17,412)
--------- ----------
Total stockholders' equity. . . 313,475 332,338
--------- ----------
$ 810,482 914,045
========= ==========
See accompanying notes to consolidated financial statements.
<table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(in thousands, except share data)
(UNAUDITED)
<caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
Revenue:
Fee based services. . . . . . . . . . . . $ 212,516 220,945 602,466 617,848
Equity in earnings from
unconsolidated ventures . . . . . . . . 2,820 1,116 6,677 15,803
Other income. . . . . . . . . . . . . . . 1,262 2,029 3,145 3,344
---------- ---------- ---------- ----------
Total revenue . . . . . . . . . . . 216,598 224,090 612,288 636,995
Operating expenses:
Compensation and benefits, excluding
non-operational non-recurring and
restructuring charges . . . . . . . . . 130,923 134,349 393,311 407,122
Operating, administrative and other,
excluding non-operational non-recurring
and restructuring charges . . . . . . . 47,750 51,378 151,116 154,742
Depreciation and amortization . . . . . . 12,044 10,298 35,466 31,789
Non-operational non-recurring and
restructuring charges:
Compensation and benefits . . . . . . . 2,857 18,191 4,164 55,382
Operating, administrative and other . . 21,633 -- 23,976 --
---------- ---------- ---------- ----------
Total operating expenses. . . . . . 215,207 214,216 608,033 649,035
Operating income (loss) . . . . . . 1,391 9,874 4,255 (12,040)
Interest expense, net of interest income. . 4,957 8,226 15,784 21,565
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes and minority interest (3,566) 1,648 (11,529) (33,605)
Net provision for income taxes. . . . . . . 2,933 7,232 800 7,305
Minority interest in earnings (losses)
of subsidiaries . . . . . . . . . . . . . (318) 72 213 60
---------- ---------- ---------- ----------
Net loss before cumulative effect
of change in accounting principle (6,181) (5,656) (12,542) (40,970)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . -- -- -- (14,249)
---------- ---------- ---------- ----------
Net loss. . . . . . . . . . . . . . . . . . $ (6,181) (5,656) (12,542) (55,219)
========== ========== ========== ==========
Other comprehensive loss, net of tax:
Foreign currency translation
adjustments . . . . . . . . . . . . . . $ (398) (4,137) (3,079) (15,290)
---------- ---------- ---------- ----------
Comprehensive loss. . . . . . . . . . . . . $ (6,579) (9,793) (15,621) (70,509)
========== ========== ========== ==========
Basic loss per common share before cumulative
effect of change in accounting principle. $ (0.21) (0.22) (0.42) (1.66)
Cumulative effect of change in
accounting principle. . . . . . . . . . . -- -- -- (0.58)
---------- ---------- ---------- ----------
Basic loss per common share . . . . . . . . $ (0.21) (0.22) (0.42) (2.24)
========== ========== ========== ==========
Basic weighted average
shares outstanding. . . . . . . . . . . . 30,077,867 25,168,964 29,991,041 24,701,106
========== ========== ========== ==========
Diluted loss per common share before cumulative
effect of change in accounting principle. $ (0.21) (0.22) (0.42) (1.66)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . -- -- -- (0.58)
---------- ---------- ---------- ----------
Diluted loss per common share . . . . . . . $ (0.21) (0.22) (0.42) (2.24)
========== ========== ========== ==========
Diluted weighted average
shares outstanding. . . . . . . . . . . . 30,077,867 25,168,964 29,991,041 24,701,106
========== ========== ========== ==========
<fn>
See accompanying notes to consolidated financial statements.
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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. . . . . -- -- -- -- (12,542) -- -- (12,542)
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. . -- -- -- 1,155 -- -- -- 1,155
Reduction in
deferred stock
compensation
rights out-
standing. . . -- -- (84) 84 -- -- -- --
Stock purchase
programs . . . 394,174 4 4,702 -- -- -- -- 4,706
Shares repur-
chased for pay-
ment of taxes
on shares issued
pursuant to
stock purchase
programs . . . (67,725) (1) (919) -- -- -- -- (920)
Shares held in
trust. . . . . . -- -- -- -- -- (1,460) -- (1,460)
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
---------- ------ -------- -------- --------- -------- ------- -------
Distribution of
shares held in
trust. . . . . . -- -- -- -- -- 199 -- 199
Shares repurchased
under share
repurchase
program. . . . . (473,962) (4) (6,938) -- -- -- -- (6,942)
Cumulative effect
of foreign
currency
translation
adjustments. . . -- -- -- -- -- -- (3,079) (3,079)
---------- ---- ------- -------- -------- -------- -------- -------
Balances at
September 30,
2001. . . . . . 30,093,055 $301 458,058 (3,083) (119,652) (1,658) (20,491) 313,475
========== ==== ======= ======== ======== ======== ======== =======
<fn>
See accompanying notes to consolidated financial statements.
</table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows provided by (used in)
operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . $ (12,542) (55,219)
Reconciliation of net loss to net cash
provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . -- 14,249
Depreciation and amortization . . . . 35,466 31,789
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . (6,677) (15,803)
Operating distributions from real
estate ventures . . . . . . . . . . 7,762 14,844
Provision for loss on receivables and
other assets. . . . . . . . . . . . 27,429 5,336
Stock compensation expense. . . . . . -- 55,382
Amortization of deferred compensation 4,874 2,449
Amortization of debt issuance costs . 902 --
---------- ----------
Net cash provided by earnings . . . 57,214 53,027
Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . 43,781 56,599
Prepaid expenses and other assets . . (11,256) (3,134)
Deferred tax assets and income
tax refund receivable . . . . . . . (1,181) 11,845
Accounts payable, accrued liabilities
and accrued compensation. . . . . . (102,261) (68,014)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . (70,917) (2,704)
---------- ----------
Net cash provided by (used in)
operating activities. . . . . . . (13,703) 50,323
Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . (28,314) (30,806)
Other acquisitions and investments,
net of cash balances assumed. . . . . (3,702) (13,048)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . (3,440) (9,159)
Distributions, repayments of advances
and sale of investments . . . . . . 22,712 6,458
---------- ----------
Net cash used in investing
activities. . . . . . . . . . . (12,744) (46,555)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(in thousands, unless otherwise noted)
(UNAUDITED)
2001 2000
---------- ----------
Cash flows provided by (used in)
financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 289,218 229,998
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (260,824) (392,598)
Shares repurchased for payment of
taxes on stock distributions. . . . . . (4,144) --
Shares repurchased under share
repurchase program. . . . . . . . . . . (6,942) --
Net proceeds from issuance of the Euro
Notes . . . . . . . . . . . . . . . . . -- 149,454
Common stock issued under stock option
plan and stock purchase programs. . . . 1,167 3,537
---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . 18,475 (9,609)
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . (7,972) (5,841)
Cash and cash equivalents,
beginning of period . . . . . . . . . . . 18,843 23,308
---------- ----------
Cash and cash equivalents, end of period. . $ 10,871 17,467
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 13,104 17,405
Taxes, net of refunds . . . . . . . . . 19,914 (3,407)
Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Fair value of assets acquired . . . . $ (802) (14,474)
Fair value of liabilities assumed . . 667 20,413
Goodwill. . . . . . . . . . . . . . . (149) (6,577)
---------- --------
Cash paid, net of cash
balances assumed. . . . . . . . $ (284) (638)
========== ========
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 September 30, 2001 and
for the three and nine month periods ended September 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 September
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 30.1 million and 30.0
million for the three and nine month periods ended September 30, 2001,
respectively. For the three and nine month periods ended September 30,
2000, basic and diluted losses per common share were calculated based on
basic weighted average shares outstanding of 25.2 million and 24.7 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
nine months ending September 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 nine months ended September 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.
INCOME TAX PROVISION
Jones Lang LaSalle provides for the effects of income taxes on
interim financial statements based on its estimate of the effective tax
rate for the full year. Through June 30, 2001, Jones Lang LaSalle had
estimated the effective tax rate at 38% for recurring operations. The use
of an effective tax rate of 38% was based on plans existing at the time and
the effective tax rate historically achieved. As a result of a shift in
income mix (such that a greater proportion of income forecasted for the
remainder of 2001 is in jurisdictions with high tax rates), Jones Lang
LaSalle has revised its estimated year-to-date tax rate on recurring
operations from 38% to 42% during the third quarter of 2001. The non-
operational non-recurring and restructuring charges incurred in 2001 have
been separately tax-effected based on the projected tax deductibility of
these items.
(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 is no such expense
after December 31, 2000.
Compensation expense incurred for the three and nine months ended
September 30, 2000 related to the amortization of merger related non-
recurring deferred compensation totaled $18.2 million and $55.4 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 nine months ended September 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.
During the third quarter of 2001, Jones Lang LaSalle changed its
measure of segment operating results to exclude non-operational non-
recurring and restructuring charges. Amounts reported for the first six
months of 2001 have been reclassified to conform to the current period
measure. Prior year results were not materially impacted by this change.
The non-operational non-recurring charges related to the write down of
investments in e-commerce, the insolvency of two insurance providers and
the exiting of two non-strategic businesses in the Americas. The
restructuring charges include severance and professional fees associated
with the realignment of the Asia Pacific business and the exiting of two
non-strategic businesses in the Americas. See Note 5 in Notes to
Consolidated Financial Statements for a detailed discussion of these non-
operational non-recurring and restructuring charges. Jones Lang LaSalle
has determined that it is not meaningful to investors to allocate these
non-operational non-recurring and restructuring charges to its segments.
In addition, the chief operating decision maker of Jones Lang LaSalle
measures the segment results without these charges allocated.
Summarized unaudited financial information by business segment for
the three and nine month periods ended September 30, 2001 and 2000 is as
follows ($ in thousands):
<table>
<caption>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . $ 34,677 42,963 96,605 103,546
Management services . . . . . . 39,959 37,001 110,889 96,958
Equity earnings (losses). . . . (249) (444) 86 (510)
Other services. . . . . . . . . 315 224 1,038 599
Intersegment revenue. . . . . . 189 412 899 790
---------- ---------- ---------- ----------
74,891 80,156 209,517 201,383
Operating expenses:
Compensation, operating and
administrative expenses . . . 60,385 67,020 188,631 185,292
Depreciation and amortization . 6,104 4,991 18,094 15,858
---------- ---------- ---------- ----------
Segment operating income. $ 8,402 8,145 2,792 233
========== ========== ========== ==========
EUROPE
Revenue:
Implementation services . . . . $ 53,782 61,768 173,334 193,359
Management services . . . . . . 21,567 18,770 66,826 60,137
Other services. . . . . . . . . 579 731 1,015 1,280
---------- ---------- ---------- ----------
75,928 81,269 241,175 254,776
Operating expenses:
Compensation, operating and
administrative expenses . . . 68,771 65,853 214,765 222,928
Depreciation and amortization . 3,153 2,882 9,338 8,502
---------- ---------- ---------- ----------
Segment operating income. $ 4,004 12,534 17,072 23,346
========== ========== ========== ==========
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
ASIA PACIFIC
Revenue:
Implementation services . . . . $ 21,356 19,525 53,317 63,234
Management services . . . . . . 10,867 12,011 34,217 32,505
Other services. . . . . . . . . 316 1,040 1,013 1,400
---------- ---------- ---------- ----------
32,539 32,576 88,547 97,139
Operating expenses:
Compensation, operating and
administrative expenses . . . 30,141 32,918 88,108 95,347
Depreciation and amortization . 1,824 1,539 5,099 4,577
---------- ---------- ---------- ----------
Segment operating income
(loss). . . . . . . . . $ 574 (1,881) (4,660) (2,785)
========== ========== ========== ==========
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . $ 316 1,317 2,155 5,315
Advisory fees . . . . . . . . . 29,993 27,598 65,072 62,802
Equity earnings . . . . . . . . 3,069 1,560 6,591 16,313
Other services. . . . . . . . . 51 26 130 57
---------- ---------- ---------- ----------
33,429 30,501 73,948 84,487
Operating expenses:
Compensation, operating and
administrative expenses . . . 19,565 20,348 53,822 59,087
Depreciation and amortization . 963 886 2,935 2,852
---------- ---------- ---------- ----------
Segment operating income. $ 12,901 9,267 17,191 22,548
========== ========== ========== ==========
Total segment revenue . . . . . . . $ 216,787 224,502 613,187 637,785
Intersegment revenue eliminations . (189) (412) (899) (790)
---------- ---------- ---------- ----------
Total revenue . . . . . . $ 216,598 224,090 612,288 636,995
========== ========== ========== ==========
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Total segment operating expenses. . $ 190,906 196,437 580,792 594,443
Intersegment operating expense
eliminations. . . . . . . . . . . (189) (412) (899) (790)
---------- ---------- ---------- ----------
Total operating expenses
before non-operational
non-recurring and
restructuring charges . $ 190,717 196,025 579,893 593,653
========== ========== ========== ==========
Operating income before
non-operational non-
recurring and restruc-
turing charges. . . . . $ 25,881 28,065 32,395 43,342
========== ========== ========== ==========
Non-operational non-
recurring and restructur-
ing charges . . . . . . $ 24,490 18,191 28,140 55,382
========== ========== ========== ==========
Operating income (loss) . $ 1,391 9,874 4,255 (12,040)
========== ========== ========== ==========
</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 September 30, 2001, no further purchases have taken
place under this program and, therefore, Jones Lang LaSalle has $10.0
million currently authorized for share repurchases.
(5) NON-OPERATIONAL NON-RECURRING AND RESTRUCTURING CHARGES
For the three and nine months ended September 30, 2001, Jones Lang
LaSalle incurred non-operational non-recurring and restructuring charges.
The non-operational non-recurring charges relate to the write-off of
investments in e-commerce, the insolvency of two insurance providers and
the exiting of two non-strategic businesses in the Americas. The
restructuring charges include severance and professional fees associated
with the realignment of the Asia Pacific business and also the exiting of
the two non-strategic businesses in the Americas.
INVESTMENTS IN E-COMMERCE
Due to the lack of capital resulting from the tremendous uncertainty
around the e-commerce sector, Jones Lang LaSalle has determined that its
investments in e-commerce are impaired. Jones Lang LaSalle has written-off
all of its investments in e-commerce and has taken charges of $14.8 million
and $17.0 million (including contractual commitments) during the three and
nine months ended September 30, 2001, respectively. Jones Lang LaSalle has
accrued $0.4 million in the three and nine months ended September 30, 2001,
related to commitments with regard to existing e-commerce investments that
it is contractually obligated to fund.
INSOLVENT INSURANCE PROVIDERS
The charges relating to insurance providers are the result of two of
Jones Lang LaSalle's insurance providers, HIH Insurance Ltd. ("HIH") and
Independent Insurance ("Independent"), becoming insolvent.
HIH 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 at properties for which Jones Lang
LaSalle had property management responsibilities. Approximately 30 claims
relating to this period have been identified that are in varying stages of
litigation. Jones Lang LaSalle has taken a reserve of $1.5 million for the
three and nine months ended September 30, 2001 to provide for the exposure
relating to HIH. Due to the nature of these claims, it is possible that
future claims may be made. There is one large complex claim, with multiple
defendants and plaintiffs, which Jones Lang LaSalle believes is covered by
another class of insurance. Due to the likely existence of coverage, Jones
Lang LaSalle does not believe it will incur additional costs related to
this one large claim, and therefore, no reserve has been established for
this claim.
Independent has provided professional liability coverage for a number
of years to Jones Lang LaSalle's Europe and Asia Pacific OOS segments and
the Europe region of its Investment Management segment. Jones Lang LaSalle
has taken a total charge of $0.5 million in the three and nine months ended
September 30, 2001 to provide against insurance receivables and expense
prepaid insurance premiums related to Independent.
EXIT OF NON-STRATEGIC BUSINESSES
In the third quarter, Jones Lang LaSalle finalized its decision to
exit two non-strategic businesses; residential land investment in the
Americas region of the Investment Management segment and development
services in the Americas OOS segment. In the case of residential land
investment, Jones Lang LaSalle has begun a process of significantly
reducing its ongoing involvement in the day to day management of its
associated co-investments and is actively seeking and reviewing
opportunities to exit these co-investments. During the third quarter,
Jones Lang LaSalle determined that it would no longer fund these
investments beyond contractual commitments. The charges associated with
the exiting of the residential land investment businesses consists of a
non-operational non-recurring provision of $3.5 million during the three
and nine months ended September 30, 2001 against the carrying value of
certain residential land co-investments where Jones Lang LaSalle has
determined that it intends to no longer fund beyond contractual
commitments. The balance sheet value of these residential land co-
investments at September 30, 2001 was $3.9 million. In addition, Jones
Lang LaSalle had provided guarantees of $3.7 million, offset by a cross
guarantee from another co-investor of $2.0 million.
The charges associated with the transfer of the development services
business to Orix Real Estate Equities consist of a restructuring provision
for severance of $1.4 million for the three and nine months ended September
30, 2001.
RESTRUCTURING OF ASIA PACIFIC BUSINESS
The Asia Pacific business is undergoing a realignment from a
traditional geographic structure to one that is managed according to
business lines. This realignment has resulted in restructuring charges
during the three and nine months ended September 30, 2001, in the amounts
$1.6 million and $1.9 million, respectively, consisting of severance and
professional fees.
OTHER NON-OPERATIONAL COSTS
Jones Lang LaSalle is in the process of implementing a broad based
restructuring of its business that is expected to reduce worldwide
headcount by up to 9%. The majority of these actions will take place in
the fourth quarter of 2001. However, certain actions were taken in advance
of the broad based action, and severance related costs associated with
restructuring in the Americas of $0.5 million and $1.5 million were
incurred during the three and nine months ended September 30, 2001,
respectively. In addition severance related costs of $0.1 million were
incurred in Europe during the nine months ended September 30, 2001.
The following table separates the non-recurring non-operational and
restructuring charges by segment:
Three Months Ended Nine Months Ended
September 30, 2001 September 30, 2001
-------------------- --------------------
Non- Restruc- Non- Restruc-
Recurring turing Recurring turing
--------- -------- --------- --------
Owner &
Occupier Services
Americas . . . . 14.6 1.8 16.5 2.9
Europe . . . . . 0.7 -- 0.9 0.1
Asia Pacific . . 2.2 1.6 2.2 1.9
Investment
Management . . . . 3.6 -- 3.6 --
---- ---- ---- ----
Total. . . . . . 21.1 3.4 23.2 4.9
==== ==== ==== ====
(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 $1.2 million
and $4.9 million of these revenues in the three and nine months ended
September 30, 2001, respectively, and $16.2 million of these revenues in
the twelve months ended December 31, 2000. The balance of $1.8 million is
expected to be recognized over the remainder of 2001 and 2002.
The statement of earnings and comprehensive income for the three and
nine months ended September 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 nine
months ended September 30, 2000 was an increase in net loss of $0.3 million
and a decrease in net loss of $0.8 million, respectively. The increase in
net loss for the three months ended September 30, 2000 of $0.3 million
consisted of a net deferral of 2000 revenue of $(3.1) million, recognition
of revenues of $2.6 million which were deferred as part of the one-time
cumulative effect of change in accounting principle and a net tax effect of
$0.2 million. The decrease in net loss for the nine months ended September
30, 2000 of $0.8 million consisted of a net deferral of 2000 revenue of
$(11.9) million, recognition of revenues of $13.2 million which were
deferred as part of the one-time cumulative effect of change in accounting
principle and a net tax effect of $(0.5) 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 September 30,
2001, Jones Lang LaSalle had forward exchange contracts in effect with a
notional value of $67.8 million and a market and carrying gain of $35,000.
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
third quarter of 2001, and there were no such agreements outstanding as of
September 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 nine months
ended September 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 at June 30,
2001, 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
savings 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, if any, 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. 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 September 30, 2001 and December 31, 2000, Condensed
Consolidating Statement of Earnings for the three and nine months ended
September 30, 2001 and 2000, and Condensed Consolidating Statement of Cash
Flows for the nine months ended September 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 September 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. . $ 5,608 66 (5,263) 10,460 -- 10,871
Trade receivables,
net of allowances . 132 -- 71,138 124,689 -- 195,959
Other current assets. 8,022 -- 36,644 26,001 -- 70,667
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 13,762 66 102,519 161,150 -- 277,497
Property and equipment,
at cost, less accumu-
lated depreciation . 3,998 -- 49,897 39,201 -- 93,096
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 240,141 93,327 -- 333,468
Other assets, net . . 10,045 -- 58,437 37,939 -- 106,421
Investments in
subsidiaries . . . . 274,487 -- 237,485 630 (512,602) --
---------- ---------- ---------- ---------- ---------- ----------
$ 302,292 66 688,479 332,247 (512,602) 810,482
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 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 $ 10,706 4,261 27,185 53,464 -- 95,616
Short-term borrowings -- -- 4,862 5,331 -- 10,193
Other current
liabilities . . . . (23,220) (269,768) 368,182 24,455 -- 99,649
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (12,514) (265,507) 400,229 83,250 -- 205,458
Long-term liabilities:
Credit facilities . -- 114,709 -- -- -- 114,709
Notes . . . . . . . -- 150,234 -- -- -- 150,234
Other . . . . . . . 1,331 -- 13,763 10,744 -- 25,838
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (11,183) (564) 413,992 93,994 -- 496,239
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . -- -- -- 768 -- 768
Stockholders' equity. 313,475 630 274,487 237,485 (512,602) 313,475
---------- ---------- ---------- ---------- ---------- ----------
$ 302,292 66 688,479 332,247 (512,602) 810,482
========== ========== ========== ========== ========== ==========
</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 September 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) -- 102,542 114,069 -- 216,598
Equity earnings (loss)
from subsidiaries. . (4,388) -- 4,141 116 131 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (4,401) -- 106,683 114,185 131 216,598
Operating expenses
before non-operational
non-recurring and
restructuring
charges. . . . . . . 2,723 -- 90,833 97,161 -- 190,717
Non-operational non-
recurring and re-
structuring charges. 1,198 -- 15,912 7,380 -- 24,490
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (8,322) -- (62) 9,644 131 1,391
Interest expense,
net of interest
income . . . . . . . (608) (125) 3,687 2,003 -- 4,957
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (7,714) 125 (3,749) 7,641 131 (3,566)
Net provision (benefit)
for income taxes . . (1,533) 9 639 3,818 -- 2,933
Minority interests
in earnings of
subsidiaries . . . . -- -- -- (318) -- (318)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (6,181) 116 (4,388) 4,141 131 (6,181)
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Nine Months Ended September 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 . . . . . . . $ -- -- 291,473 320,815 -- 612,288
Equity earnings (loss)
from subsidiaries. . (6,327) -- 6,140 464 (277) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (6,327) -- 297,613 321,279 (277) 612,288
Operating expenses
before non-operational
non-recurring and
restructuring
charges. . . . . . . 11,223 -- 273,933 294,737 -- 579,893
Non-operational non-
recurring and re-
structuring charges. 1,198 -- 19,052 7,890 -- 28,140
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (18,748) -- 4,628 18,652 (277) 4,255
Interest expense,
net of interest
income . . . . . . . (2,306) (565) 11,598 7,057 -- 15,784
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (16,442) 565 (6,970) 11,595 (277) (11,529)
Net provision (benefit)
for income taxes . . (3,900) 101 (643) 5,242 -- 800
Minority interests
in earnings of
subsidiaries . . . . -- -- -- 213 -- 213
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (12,542) 464 (6,327) 6,140 (277) (12,542)
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended September 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 . . . . . . . . . . $ -- -- 104,413 119,677 -- 224,090
Equity earnings (loss) from
subsidiaries . . . . . . . 14,757 -- 12,058 56 (26,871) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . . . 14,757 -- 116,471 119,733 (26,871) 224,090
Operating expenses before
merger related non-recurr-
ing charges. . . . . . . . 4,672 1 95,360 95,992 -- 196,025
Merger related non-recurring
charges. . . . . . . . . . 18,191 -- (5) 5 -- 18,191
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (8,106) (1) 21,116 23,736 (26,871) 9,874
Interest expense, net of
interest income. . . . . . 2,796 (79) 5,858 (349) -- 8,226
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
provision (benefit)
for income taxes and
minority interest . . (10,902) 78 15,258 24,085 (26,871) 1,648
Net provision (benefit)
for income taxes. . . . . (5,246) 22 501 11,955 -- 7,232
Minority interests in
earnings of subsidiaries . -- -- -- 72 -- 72
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) before
cumulative effect of
change in accounting
principle. . . . . . . . . (5,656) 56 14,757 12,058 (26,871) (5,656)
Cumulative effect of change
in accounting principle. . -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . . $ (5,656) 56 14,757 12,058 (26,871) (5,656)
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Nine Months Ended September 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 . . . . . . . . . . $ -- -- 290,874 346,121 -- 636,995
Equity earnings (loss) from
subsidiaries . . . . . . . 7,889 -- 20,826 56 (28,771) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . . . 7,889 -- 311,700 346,177 (28,771) 636,995
Operating expenses before
merger related non-recurring
charges. . . . . . . . . . 10,904 1 281,239 301,509 -- 593,653
Merger related non-recurring
charges. . . . . . . . . . 55,039 -- 240 103 -- 55,382
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (58,054) (1) 30,221 44,565 (28,771) (12,040)
Interest expense, net of
interest income. . . . . . 7,989 (79) 14,014 (359) -- 21,565
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
provision (benefit)
for income taxes and
minority interest . . (66,043) 78 16,207 44,924 (28,771) (33,605)
Net provision (benefit) for
income taxes . . . . . . . (10,824) 22 (1,493) 19,600 -- 7,305
Minority interests in
earnings of subsidiaries . -- -- -- 60 -- 60
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) before
cumulative effect of change
in accounting principle. . (55,219) 56 17,700 25,264 (28,771) (40,970)
Cumulative effect of change
in accounting principle. . -- -- (9,811) (4,438) -- (14,249)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . . $ (55,219) 56 7,889 20,826 (28,771) (55,219)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 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. . . . . $ (8,936) 3,771 (9,988) 1,450 (13,703)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . (1,614) -- (12,594) (14,106) (28,314)
Other acquisitions and invest-
ments, net of cash acquired
and transaction costs . . . -- -- (3,418) (284) (3,702)
Subsidiary activity . . . . . 24,292 (33,001) 25,569 (16,860) --
Investments in real estate
ventures. . . . . . . . . . -- -- (855) 20,127 19,272
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . 22,678 (33,001) 8,702 (11,123) (12,744)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit
facility. . . . . . . . . . (1,904) 29,144 (312) 1,466 28,394
Shares repurchased. . . . . . (11,086) -- -- -- (11,086)
Common stock issued under
stock option plan . . . . . 1,167 -- -- -- 1,167
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . (11,823) 29,144 (312) 1,466 18,475
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . 1,919 (86) (1,598) (8,207) (7,972)
Cash and cash equivalents,
beginning of period . . . . . 3,689 152 (3,665) 18,667 18,843
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period . . . . . . . . $ 5,608 66 (5,263) 10,460 10,871
========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 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
operating activities. . . . . . . . . . $ 9,863 3,788 7,480 29,192 50,323
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . . . . . (1,259) -- (16,214) (13,333) (30,806)
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 -- -- (12,410) (638) (13,048)
Subsidiary activity . . . . . . . . . . 309,699 (302,465) 9,410 (16,644) --
Investments in real estate ventures . . -- -- (286) (2,415) (2,701)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . 308,440 (302,465) (19,500) (33,030) (46,555)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit facility. . (316,214) 146,493 8,447 (1,326) (162,600)
Net proceeds from issuance of the Euro
Notes . . . . . . . . . . . . . . . . (2,856) 152,310 -- -- 149,454
Common stock issued under stock option
plan and stock purchase programs. . . 3,537 -- -- -- 3,537
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . (315,533) 298,803 8,447 (1,326) (9,609)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . 2,770 126 (3,573) (5,164) (5,841)
Cash and cash equivalents,
beginning of period . . . . . . . . . . (615) -- 1,027 22,896 23,308
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period. $ 2,155 126 (2,546) 17,732 17,467
========== ========== ========== ========== ==========
</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 nine
months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2000
REVENUE
Total revenue, after elimination of intersegment revenue, decreased
$7.5 million, or 3.3%, to $216.6 million for the three months ended
September 30, 2001 from $224.1 million for the three months ended
September 30, 2000. For the nine months ended September 30, 2001 revenues
decreased $24.7 million, or 3.9%, to $612.3 million from $637.0 million for
the nine months ended September 30, 2000. The decrease in revenue for the
quarter and the first nine months of 2001 is the result of the continued
slowing in the global economy which has significantly reduced the pace of
transaction activity. In addition, reported US dollar revenues have been
adversely impacted by the relative strength during 2001 versus 2000 of the
US dollar against the key currencies in which Jones Lang LaSalle operates,
primarily the euro, pound sterling and Australian dollar. As a result of
the strong US dollar, reported revenues for the three and nine months ended
September 30, 2001 were adversely impacted relative to the prior year
periods by approximately $4 million and $21 million, respectively. The
negative impact of the slowing economy on transaction activity and the
strength of the US dollar has been partially offset by growth in management
services revenues. Jones Lang LaSalle's results for the three and nine
months ended September 30, 2001 include incentive fees and equity earnings
of $14.4 million generated by the Investment Management segment from the
sale of a major hotel investment early in the third quarter. Also
affecting comparability between years are performance related fees in 2000
of; i) $7.4 million in the third quarter related to Jones Lang LaSalle's
decision to resign from an Investment Management client, and ii) $10.4
million in the nine months related to the partial liquidation of a French
investment fund managed by the Investment Management segment.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of non-operational non-recurring and restructuring
charges, decreased $5.3 million, or 2.7%, to $190.7 million for the three
months ended September 30, 2001 as compared with $196.0 million for the
three months ended September 30, 2000. For the nine months ended
September 30, 2001 operating expenses decreased $13.8 million, or 2.3%, to
$579.9 million from $593.7 million for the nine months ended September 30,
2000. The decrease in operating expenses from the prior year is primarily
the result of a reduction in incentive compensation of $6.9 million and
$30.6 million in the third quarter and year-to-date, respectively, when
compared to the same periods last year. This reduction in incentive
compensation is primarily due to the reduction in revenues and may 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 reduction in operating, administrative and other expenses
for the quarter and year-to-date is primarily the result of the intense
focus on cost containment. 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
$4 million and $21 million for the three and nine months ended
September 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.
NON-OPERATIONAL NON-RECURRING AND RESTRUCTURING CHARGES
Non-operational non-recurring charges for the three and nine months
ended September 30, 2001 include expenses related to the write-off of
investments in e-commerce, the insolvency of two insurance providers and
the exiting of two non-strategic businesses in the Americas. The
restructuring charges include severance and professional fees associated
with the realignment of the Asia Pacific business and also the exiting of
two the non-strategic businesses in the Americas. See Note 5 in Notes to
Consolidated Financial Statements for a more detailed discussion of these
non-operational non-recurring and restructuring charges in 2001.
For the three and nine months ended September 30, 2000, non-
operational non-recurring charges relate to merger related non-recurring
non-cash compensation expense associated with the issuance of shares to
former employees of Jones Lang Wootton ("JLW"). These merger related non-
recurring charges for the three and nine months ended September 30, 2000
totaled $18.2 million and $55.4 million, respectively. 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 $3.2 million, to
$5.0 million, for the three months ended September 30, 2001, and $5.8
million, to $15.8 million, for the nine months ended September 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 FOR INCOME TAXES
The provision for income taxes was $2.9 million for the three months
ended September 30, 2001, as compared to a provision of $7.2 million for
the three months ended September 30, 2000. The provision for income taxes
was $0.8 million for the nine months ended September 30, 2001, as compared
to a provision of $7.3 million for the nine months ended September 30,
2000. On an operational basis, Jones Lang LaSalle projected and achieved a
38% effective tax rate in 2000. As a result of a shift in income mix such
that a greater proportion of income forecasted for the remainder of 2001 is
in jurisdictions with high tax rates, Jones Lang LaSalle has increased its
effective tax rate on recurring operations for the nine months ended
September 30, 2001 to 42% from the 38% used in the first half of the year.
The non-operational non-recurring and restructuring charges incurred in
2001 have been separately tax-effected based on the projected tax
deductibility of these items. The merger related non-recurring
compensation expense incurred in 2000 was largely nondeductible for tax
purposes.
NET INCOME/LOSS
Jones Lang LaSalle's net income, excluding non-operational non-
recurring and restructuring charges, was $12.6 million for the three months
ended September 30, 2001 as compared to net income, excluding the effect of
merger related non-recurring charges, of $12.2 million for the same period
last year. For the nine months ended September 30, 2001, Jones Lang
LaSalle's net income, excluding non-operational non-recurring and
restructuring charges, was $9.4 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 $13.4 million in the prior year period.
Including the effects of non-operational non-recurring and
restructuring charges of $24.5 million, the net loss for the three months
ended September 30, 2001 was $6.2 million. Including the effects of non-
operational non-recurring and restructuring charges of $28.1 million, the
net loss for the nine months ended September 30, 2001 was $12.5 million.
Including the effect of $18.2 million of merger related non-recurring
charges, the net loss for the three months ended September 30, 2000 was
$5.7 million. Including the effects of $55.4 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 nine
months ended September 30, 2000 was $55.2 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 decreased $5.3 million, or 6.6%, to
$74.9 million for the three months ended September 30, 2001, as compared to
$80.2 million for the three months ended September 30, 2000. For the nine
months ending September 30, 2001, revenue increased by 4.0%, to $209.5
million, from $201.4 million for the same period in 2000. The decrease in
revenues for the quarter was mainly driven by; i) reduced revenues in the
Leasing and Management unit due to a high level of activity in 2000, and
ii) the results of LPI Service Corporation, which, pursuant to the purchase
agreement, Jones Lang LaSalle recorded a full nine months of revenue
(approximately $4.0 million) in the third quarter of 2000. The increase in
revenues year-to-date September 2001 as compared to the prior year period
was the result of strong performance in the Project and Development
Management unit and the Tenant Representation Services unit. These revenue
increases were partially offset by reduced revenues in the Leasing and
Management unit. Implementation Services revenue is down from last year
for the three and nine months, which reflects general economic conditions.
However, Management Services revenue is up from last year for the three and
nine months, which reflects the annuity type revenue generated in this
business.
Operating expenses for the Americas region decreased by $5.5 million,
or 7.6%, to $66.5 million for the three months ended September 30, 2001
from $72.0 million for the three months ended September 30, 2000. For the
nine months ended September 30, 2001, operating expenses increased $5.5
million, or 2.7%, to $206.7 million from $201.2 million in the prior year.
The decrease in operating expenses for the quarter is the result of cost
containment initiatives and reduced incentive compensation, partially
offset by increased headcount and associated expenses to service new
business. The reduction in incentive compensation is due to the reduction
in revenues and may reverse over the balance of the year, depending on
performance. The increase in operating expenses for the nine months ended
September 30, 2001 is the result of increased headcount and associated
expenses to service new business, and a $3.9 million charge for
unrecoverable receivables from technology related clients, partially offset
by cost containment initiatives and reduced incentive compensation.
EUROPE
Revenue for the Europe region totaled $75.9 million for the three
months ended September 30, 2001, as compared to $81.3 million for the three
months ended September 30, 2000, a decrease of 6.6%. Revenue for the
Europe region for the nine months ended September 30, 2001 was $241.2
million, as compared to $254.8 million for the nine months ended September
30, 2000. Revenues for the Europe region for the three and nine months
ended September 30, 2001 were adversely impacted by approximately $2
million and $15 million, respectively, due to a weakening of European
currencies, primarily the euro and pound sterling, against the US dollar
during 2001 as compared to the same periods in 2000. Included in the
revenue for the nine months ended September 30, 2000 are two large capital
markets transactions that provided approximately $12 million in revenue.
After removing the revenue impact of the capital markets transactions and
the exchange rate fluctuations, revenues decreased $3.4 million and
increased $13.4 million in the three and nine months ended September 30,
2001, respectively, when compared to the same periods last year. The
decrease in revenues in the third quarter of 2001 over the third quarter of
2000 is primarily the result of the difficult economic conditions existing
in Europe. These difficult economic conditions have led to a reduction in
transaction activity, with the largest impacts in England and France.
Partially offsetting this downturn in revenues were strong revenues in
Germany and Holland. The increase in revenues in nine month period is
attributable to Jones Lang LaSalle's 55% owned joint venture with Skandia
Fastighet AB, as well as stronger revenues in Germany and Holland.
Operating expenses for the region were $71.9 million for the three
months ended September 30, 2001, as compared to $68.7 million for the three
months ended September 30, 2000. For the nine months ended September 30,
2001, operating expenses decreased $7.3 million to $224.1 million from
$231.4 million. The weakening of European currencies, primarily the euro
and the pound sterling, against the US dollar in the three and nine months
ended September 30, 2001 has reduced US dollar reported expenses by
approximately $2 million and $15 million, respectively, as compared to the
same periods in 2000. After adjusting for the impact of exchange rate
movements, the increase in operating expenses for the quarter and year-to-
date is primarily attributable to an increase in headcount and associated
expenses to service new business. The increase in expenses for the nine
months is partially offset by a reduction in incentive compensation of
approximately $10.7 million. This decrease in incentive compensation is
due to the reduction in revenues and may reverse over the balance of the
year, depending on performance.
ASIA PACIFIC
Revenue for the Asia Pacific region totaled $32.5 million and $88.5
million for the three and nine months ended September 30, 2001,
respectively. These figures compare to $32.6 million and $97.1 million for
the three and nine months ended September 30, 2000. The decrease in
revenue in the Asia Pacific region reflects a lower volume of transaction
activity driven by the economic weakness in the region, particularly in
Hong Kong, Singapore and Australia. The decrease in revenues is partially
offset by the inclusion of $1.6 million of revenues from the operations of
Jones Lang LaSalle's Taiwan acquisition in the third quarter of 2001.
Revenues in the Asia Pacific region were also negatively impacted in the
three and nine months ended September 30, 2001, as compared to the same
periods last year, by approximately $2 million and $6 million,
respectively, due to the weakness of the Australian dollar against the US
dollar.
Operating expenses for Asia Pacific totaled $32.0 million for the
three months ended September 30, 2001, as compared to $34.5 million for the
three months ended September 30, 2000. For the nine months ended
September 30, 2001, operating expenses were $93.2 million as compared to
$99.9 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 $1.4 million and $5.8 million in the three and nine months
ended September 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 may 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 $6 million for the nine
months ended September 30, 2001, when compared to the same periods last
year.
INVESTMENT MANAGEMENT
Investment Management revenue increased $2.9 million, or 9.5%, to
$33.4 million for the three months ended September 30, 2001 from $30.5
million for the three months ended September 30, 2000. For the nine months
ended September 30, 2001, Investment Management revenue decreased $10.6
million, or 12.5%, to $73.9 million from $84.5 million for the nine months
ended September 30, 2000. The increase in revenues of $2.9 million
quarter-over-quarter is largely due to incentive fees and equity earnings
of $14.4 million generated from the disposition of a major hotel investment
early in the quarter. This increase in revenues was offset by performance
related fees of $8.1 million generated in the third quarter of 2000,
including $7.4 million relating to the resignation from a client account.
The reduced performance for this segment year-over-year was anticipated in
light of this segments very strong performance last year.
Operating expenses decreased $0.7 million, or 3.3%, to $20.5 million
for the three months ended September 30, 2001, as compared with $21.2
million for the three months ended September 30, 2000. For the nine months
ended September 30, 2001, operating expenses decreased $5.1 million, or
8.2%, to $56.8 million from $61.9 million for the nine months ended
September 30, 2000. The reduction in operating expenses was primarily due
to lower incentive compensation recorded as a result of reduced revenues,
which may reverse over the balance of the year, depending on performance.
PERFORMANCE OUTLOOK
At the beginning of the third quarter Jones Lang LaSalle lowered its
full year target for 2001 adjusted earnings per share, before non-
operational and restructuring charges, to be at least equal to 2000
adjusted net earnings per share, before merger related non-recurring
charges, of $1.31 per share. The lowered earnings target is the result of
the continued sluggish global economy. The economic situation which exists
today has clearly affected business in all regions in which Jones Lang
LaSalle operates as clients delay, postpone and in some cases, cancel real
estate decisions. Jones Lang LaSalle currently has revenue planned for the
fourth quarter, that coupled with aggressive expense controls, is
sufficient to enable it to achieve its $1.31 adjusted earnings per share
target. However, there is risk that, in light of a continued global
economic slowdown, the level of activity in the fourth quarter does not
meet these revised expectations.
There are certain non-operational non-recurring and restructuring
items, in addition to those taken in the first nine months, that will
impact the reported GAAP results in future quarters. As noted above, the
adjusted earnings expectation of $1.31 per share for the full year 2001 is
before taking into account any charges that may be incurred with regard to
these non-operational issues. These non-operational non-recurring charges
will be the result of Jones Lang LaSalle's implementation of a program that
will even more closely align its business operations with anticipated
client needs in 2002. Jones Lang LaSalle expects this program will reduce
headcount by 9% on a global basis and result in annual savings of at least
$45 million. Jones Lang LaSalle expects to take additional restructuring
charges of at least $40 million in the fourth quarter to cover associated
severance and other costs. Jones Lang LaSalle is currently assessing the
impact of this program on cash flows. Preliminary analysis indicates that
approximately 50% of the program costs will impact cash flow in 2001, with
the remaining impacting 2002.
CONSOLIDATED CASH FLOWS
CASH FLOWS PROVIDED BY/USED IN FROM OPERATING ACTIVITIES
During the nine months ended September 30, 2001, cash flows used in
operating activities totaled $13.7 million compared to cash flows provided
by operating activities of $50.3 million during the nine months ended
September 30, 2000, a change of $64.0 million. The cash flows used in
operating activities can be further divided into cash generated from
operations for the nine months ended September 30, 2001 of $57.2 million
(compared to $53.0 million in the first nine months of 2000) and cash used
in balance sheet movements (primarily working capital changes) of $70.9
million (compared to $2.7 million in 2000). The improvement of $4.2
million in cash generated from operations is primarily the result of cash
operating distributions from ventures, which lag the recording of non-cash
equity earnings. The increase in cash used in working capital primarily
represents higher incentive compensation accrued at December of 2000 and
paid in the first nine months of 2001 as compared to amounts accrued in
December of 1999 and paid in the first nine 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 nine months of 2001 as compared to the first nine
months of 2000 have reduced accrued liabilities, contributing to the
increase in cash used in working capital.
CASH FLOWS USED IN INVESTING ACTIVITIES
Jones Lang LaSalle used $12.7 million in investing activities during
the nine months ended September 30, 2001, compared to a use of $46.6
million during the nine months ended September 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). Also contributing to the decrease
was a slowdown in cash investments in E-Commerce from $12.4 million during
the nine months ended September 30, 2000, to $3.4 million during the nine
months ended September 30, 2001.
CASH FLOWS PROVIDED BY/USED IN FINANCING ACTIVITIES
Cash flows provided by financing activities were $18.5 million during
the first nine months of 2001. Borrowings increased during 2001 to fund
higher levels of incentive compensation paid in early 2001, which related
to 2000, and to repurchase shares. Consistent with the historical pattern,
and management expectations, debt increased in the first six months of 2001
due to incentive compensation related to 2000 being paid in 2001, and the
seasonal nature of the real estate services business. In the third quarter
of 2001, debt has been paid down by nearly $40 million from June 30, 2001
and is $35 million lower than September 30, 2000. Cash flows used in
financing activities of $9.6 million during the first nine months of 2000
reflect the pay down of $13.1 million of debt, net of proceeds from the
issuance of Jones Lang LaSalle's 165 million euro denominated notes.
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. On September 21, 2001, Jones Lang LaSalle increased its
unsecured credit agreement from $250.0 million to $275.0 million, reduced
the number of participating banks to 11 from 14 and extended the maturity
date from the original due date of October 2002 to September 2004.
As of September 30, 2001, Jones Lang LaSalle has a $275.0 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 September 30, 2001, there was $114.7 million outstanding
under the revolving credit facility, euro 165 million ($150.2 million) of
borrowings under the Euro Notes and short-term borrowings (including
capital lease obligations) of $10.2 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 7.7% for the nine months ended
September 30, 2001 (versus an effective rate of 8.4%, including the effect
of interest rate swap agreements, during the same period of 2000). There
were no interest rate swap agreements outstanding at September 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 $36.2 million, of which $7.2 million was outstanding as of
September 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 the Investment Management segment, 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 $17.1 million
discussed below) and can be increased or decreased based on the
availability of capital and other factors. As of September 30, 2001, there
were total investments of $49.1 million in 22 separate property or fund co-
investments, with additional capital commitments of $17.1 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 $8 million (planned co-investment
funding less return of capital from liquidated co-investments).
Capital expenditures are anticipated to be $44 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 has been
re-evaluated given ongoing developments in the high technology and e-
commerce markets. During the nine months ended September 30, 2001, Jones
Lang LaSalle invested $3.8 million in e-commerce investments, including
contractual commitments to fund $400,000. During the third quarter of
2001, Jones Lang LaSalle determined that its e-commerce investments were
impaired and took an impairment charge of $14.8 million in fully writing
down its e-commerce investments.
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 the Investment Management segment,
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 credit 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 $275
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 September 30, 2001, Jones Lang LaSalle had no interest rate swap
agreements outstanding.
The effective interest rate on Jones Lang LaSalle's debt for the nine
months ended September 30, 2001 was 7.7% as compared to a rate of 8.4%,
including the effect of interest rate swap agreements, 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 55.0% and 58.8% of the
total revenues of Jones Lang LaSalle for the three and nine months ended
September 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 (17.5% and 20.4% of revenues for the
three and nine months ended September 30, 2001, respectively), the euro
(18.1% and 19.1% of revenues for the three and nine months ended
September 30, 2001, respectively) and the Australian dollar (5.8% and 5.6%
of revenues for the three and nine months ended September 30, 2001).
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
September 30, 2001, Jones Lang LaSalle had forward exchange contracts in
effect with a notional value of $67.8 million and a market and carrying
gain of $35,000.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of September 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 5. OTHER MATTERS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this filing and elsewhere (such as in reports,
other filings with the Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and written and oral statements) may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause Jones Lang LaSalle's
actual results, performance, achievements, plans and objectives to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in our Annual Report on Form 10-K
for the year ended December 31, 2000 in Item 1. "Business," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A. "Quantitative and Qualitative Disclosures About
Market Risk," and elsewhere, in this Quarterly Report on Form 10-Q in
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", Item 3 "Quantitative and Qualitative Disclosure
about Market Risk" and elsewhere, and in other reports filed with the
Securities and Exchange Commission. Jones Lang LaSalle expressly disclaims
any obligation or undertaking to update or revise any forward-looking
statements to reflect any changes in events or circumstances or in its
expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JONES LANG LASALLE INCORPORATED
Dated: November 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 Multicurrency Credit Agreement dated as of September 21,
2001.
99 Press release issued by Jones Lang LaSalle Incorporated
on November 5, 2001 attached hereto as Exhibit 99.