UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-13145
JONES LANG LASALLE INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
200 East Randolph Drive, Chicago, IL 60601
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 10, 2002
----- --------------
Common Stock ($0.01 par value) 30,265,896
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . 27
Item 3. Quantitative and Qualitative Disclosures
about Market Risk. . . . . . . . . . . . . . . . . 35
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 36
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 37
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 37
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001
---------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . $ 11,893 10,446
Trade receivables, net of allowances
of $8,260 and $6,305 in 2002
and 2001, respectively. . . . . . . . 167,867 222,590
Notes receivable and advances to
real estate ventures. . . . . . . . . 3,748 3,847
Other receivables . . . . . . . . . . . 8,933 9,553
Prepaid expenses. . . . . . . . . . . . 11,685 11,802
Deferred tax assets . . . . . . . . . . 16,658 16,935
Other assets. . . . . . . . . . . . . . 15,809 11,340
---------- ---------
Total current assets. . . . . . 236,593 286,513
Property and equipment, at cost, less
accumulated depreciation of $109,063
and $102,401 in 2002 and 2001,
respectively. . . . . . . . . . . . . . 86,546 92,503
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $35,198 and $35,327 in 2002 and 2001,
respectively. . . . . . . . . . . . . . 305,616 305,688
Negative goodwill, at cost, less
accumulated amortization of ($565)
in 2001 . . . . . . . . . . . . . . . . -- (846)
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $24,413 and $23,195
in 2002 and 2001, respectively. . . . . 22,063 23,327
Investments in real estate ventures . . . 60,298 56,899
Long-term receivables, net. . . . . . . . 21,423 17,375
Prepaid pension asset . . . . . . . . . . 12,683 14,384
Deferred tax assets . . . . . . . . . . . 24,082 25,770
Debt issuance costs . . . . . . . . . . . 5,047 5,407
Other assets, net . . . . . . . . . . . . 8,560 8,707
--------- ----------
$ 782,911 835,727
========= ==========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
MARCH 31, 2002 AND DECEMBER 31, 2001
(in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 106,047 116,968
Accrued compensation. . . . . . . . . . 64,667 131,680
Short-term borrowings . . . . . . . . . 10,594 15,497
Deferred tax liabilities. . . . . . . . 212 23
Other liabilities . . . . . . . . . . . 23,451 23,467
--------- ----------
Total current liabilities . . . 204,971 287,635
Long-term liabilities:
Credit facilities . . . . . . . . . . . 89,911 59,854
9% Senior Notes, due 2007 . . . . . . . 143,831 146,768
Deferred tax liabilities. . . . . . . . 4,480 6,567
Other . . . . . . . . . . . . . . . . . 24,567 19,733
--------- ----------
Total liabilities . . . . . . . 467,760 520,557
Commitments and contingencies
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 855 789
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,234,324 and 30,183,450 shares
issued and outstanding as of
March 31, 2002 and December 31,
2001, respectively. . . . . . . . . . 302 302
Additional paid-in capital. . . . . . . 469,770 463,926
Deferred stock compensation . . . . . . (9,614) (6,038)
Retained deficit. . . . . . . . . . . . (126,556) (122,521)
Stock held in trust . . . . . . . . . . (658) (1,658)
Accumulated other comprehensive loss. . (18,948) (19,630)
--------- ----------
Total stockholders' equity. . . 314,296 314,381
--------- ----------
$ 782,911 835,727
========= ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except share data)
(UNAUDITED)
2002 2001
---------- ----------
Revenue:
Fee based services. . . . . . . . . . . . . $ 160,275 195,488
Equity in earnings (losses) from
unconsolidated ventures . . . . . . . . . (158) 2,516
Other income. . . . . . . . . . . . . . . . 1,685 845
---------- ----------
Total revenue . . . . . . . . . . . . 161,802 198,849
Operating expenses:
Compensation and benefits, excluding
non-recurring charges . . . . . . . . . . 110,943 134,477
Operating, administrative and other,
excluding non-recurring charges . . . . . 45,500 52,915
Depreciation and amortization . . . . . . . 9,471 11,331
Non-recurring charges:
Compensation and benefits . . . . . . . . -- --
Operating, administrative and other . . . -- 1,055
---------- ----------
Total operating expenses. . . . . . . 165,914 199,778
Operating loss. . . . . . . . . . . . (4,112) (929)
Interest expense, net of interest income. . . 3,918 4,846
---------- ----------
Loss before benefit for
income taxes and minority interest. (8,030) (5,775)
Net benefit for income taxes. . . . . . . . . (3,212) (2,195)
Minority interest in earnings (losses)
of subsidiaries . . . . . . . . . . . . . . 63 (34)
---------- ----------
Net loss before cumulative effect
of change in accounting principle . (4,881) (3,546)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, except share data)
(UNAUDITED)
2002 2001
---------- ----------
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . 846 --
---------- ----------
Net loss. . . . . . . . . . . . . . . . . . . $ (4,035) (3,546)
========== ==========
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustments . . . . . . . . . . . . . . . $ 682 (5,887)
---------- ----------
Comprehensive loss. . . . . . . . . . . . . . $ (3,353) (9,433)
========== ==========
Basic loss per common share before cumulative
effect of change in accounting principle. . $ (0.16) (0.12)
Cumulative effect of change in
accounting principle. . . . . . . . . . . . 0.03 --
---------- ----------
Basic loss per common share . . . . . . . . . $ (0.13) (0.12)
========== ==========
Basic weighted average
shares outstanding. . . . . . . . . . . . . 30,207,897 30,120,466
========== ==========
Diluted loss per common share before
cumulative effect of change in
accounting principle. . . . . . . . . . . . $ (0.16) (0.12)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . 0.03 --
---------- ----------
Diluted loss per common share . . . . . . . . $ (0.13) (0.12)
========== ==========
Diluted weighted average
shares outstanding. . . . . . . . . . . . . 30,207,897 30,120,466
========== ==========
See accompanying notes to consolidated financial statements.
<table> JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD ENDED MARCH 31, 2002
(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,
2001 . . . . . . 30,183,450 $302 463,926 (6,038) (122,521) (1,658) (19,630) 314,381
Net loss. . . . . -- -- -- -- (4,035) -- -- (4,035)
Shares issued in
connection with:
Stock option
plan . . . . . 32,473 -- 5,367 (4,819) -- -- -- 548
Amortization of
shares issued
in connection
with stock
option plan. . -- -- -- 408 -- -- -- 408
Reduction in
deferred stock
compensation
rights out-
standing. . . -- -- (69) 69 -- -- -- --
Stock purchase
programs . . . 25,096 -- 667 (258) -- -- 1 410
Amortization of
shares issued in
connection with
stock purchase
programs . . . -- -- -- 1,024 -- -- -- 1,024
Shares repur-
chased for pay-
ment of taxes
on shares issued
pursuant to
stock purchase
programs . . . (6,695) -- (121) -- -- -- -- (121)
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. . . . . . -- -- -- -- -- 1,000 -- 1,000
Cumulative effect
of foreign
currency
translation
adjustments. . . -- -- -- -- -- -- 681 681
---------- ---- ------- -------- -------- -------- -------- -------
Balances at
March 31,
2002. . . . . . 30,234,324 $302 469,770 (9,614) (126,556) (658) (18,948) 314,296
========== ==== ======= ======== ======== ======== ======== =======
<fn>
See accompanying notes to consolidated financial statements.
</table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, unless otherwise noted)
(UNAUDITED)
2002 2001
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . $ (4,035) (3,546)
Reconciliation of net loss to net cash
provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . (846) --
Depreciation and amortization . . . . 9,471 11,331
Equity in earnings and gain on sale
from unconsolidated ventures. . . . 158 (2,516)
Operating distributions from real
estate ventures . . . . . . . . . . 787 2,816
Provision for loss on receivables and
other assets. . . . . . . . . . . . 2,707 5,051
Stock compensation expense. . . . . . 139 --
Amortization of deferred compensation 2,106 1,563
Amortization of debt issuance costs . 321 301
---------- ----------
Net cash provided by earnings . . . 10,808 15,000
Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . 49,441 37,564
Prepaid expenses and other assets . . (3,178) (4,834)
Deferred tax assets . . . . . . . . . 67 (310)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . (73,869) (120,184)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . (27,539) (87,764)
---------- ----------
Net cash used in operating
activities. . . . . . . . . . . . (16,731) (72,764)
Cash flows provided by (used in)
investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . (2,082) (7,930)
Investments in e-commerce ventures. . . (224) --
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . (7,966) (827)
Distributions, repayments of advances
and sale of investments . . . . . . 2,887 17,606
---------- ----------
Net cash provided by (used in)
investing activities. . . . . . (7,385) 8,849
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(in thousands, unless otherwise noted)
(UNAUDITED)
2002 2001
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 129,717 152,762
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (104,563) (85,271)
Shares repurchased for payment of
taxes on stock awards . . . . . . . . . -- (2,894)
Shares repurchased under share
repurchase program. . . . . . . . . . . -- (6,942)
Common stock issued under stock option
plan and stock purchase programs. . . . 409 321
---------- ----------
Net cash provided by financing
activities. . . . . . . . . . . . 25,563 57,976
---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . 1,447 (5,939)
Cash and cash equivalents,
beginning of period . . . . . . . . . . . 10,446 18,843
---------- ----------
Cash and cash equivalents, end of period. . $ 11,893 12,904
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 276 1,692
Taxes, net of refunds . . . . . . . . . (506) 6,090
Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Fair value of assets acquired . . . . $ -- --
Fair value of liabilities assumed . . -- --
Goodwill. . . . . . . . . . . . . . . -- --
---------- --------
Cash paid, net of cash
balances assumed. . . . . . . . $ -- --
========== ========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except where otherwise noted)
(UNAUDITED)
Readers of this quarterly report should refer to Jones Lang LaSalle
Incorporated's ("Jones Lang LaSalle", which may be referred to as we, us,
our or the Company) audited financial statements for the year ended
December 31, 2001, which are included in Jones Lang LaSalle's 2001 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
Our consolidated financial statements as of March 31, 2002 and for
the three month ended March 31, 2002 and 2001 are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been
included. The results for the periods ended March 31, 2002 and 2001 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 30.2 million and 30.1
million for the three months ended March 31, 2002 and 2001, 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. These common stock equivalents consist
principally of shares to be issued under employee stock compensation
programs and outstanding stock options whose exercise price was less than
the average market price of our stock during these periods.
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
We provide for the effects of income taxes on interim financial
statements based on our estimate of the effective tax rate for the full
year. Based on our 2002 forecasted results we have estimated an effective
tax rate of 40% for 2002. We believe that this is an achievable effective
tax rate, particularly in light of the effective tax rate benefit provided
by SFAS 142, which is discussed further in Note 6. For the three months
ended March 31, 2001, we used an 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 was anticipated to be in jurisdictions
with
high tax rates), in the third quarter of 2001 we revised our
estimated year-to-date tax rate on recurring operations from 38% to 42%.
An effective tax rate of 42% on recurring operations was achieved for the
full year of 2001. The non-recurring and restructuring charges incurred in
2001 have been separately tax-effected based on the projected tax
deductibility of those items.
(2) BUSINESS SEGMENTS
We manage our business along a combination of geographic and
functional lines. Operations are reported as four business segments: the
three geographic regions of Owner and Occupier Services ("OOS"), (i)
Americas, (ii) Europe and (iii) Asia Pacific, which offer our full range of
corporate, investor, and capital markets services; and (iv) Investment
Management, which offers investment management services on a global basis.
The OOS business consists primarily of tenant representation and agency
leasing, capital markets and valuation services (collectively,
"implementation services") and property management, corporate property
services, project and development management services (collectively,
"management services"). The Investment Management segment provides real
estate investment management services to institutional investors,
corporations, and high net worth individuals.
Total revenue by industry segment includes revenue derived from
services provided to other segments. Operating income represents total
revenue less direct and indirect allocable expenses. We allocate all
expenses, other than interest and income taxes, as nearly all expenses
incurred benefit one or more of the segments.
During the third quarter of 2001, we changed our measure of segment
operating results to exclude non-recurring and restructuring charges.
Amounts reported for the first three 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-recurring charges incurred in
the first quarter of 2001 related to the write down of investments in e-
commerce ventures. See Note 3 for a detailed discussion of these non-
recurring charges. We have determined that it is not meaningful to
investors to allocate these non-recurring charges to our 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 months ended March 31, 2002 and 2001 is as follows ($ in
thousands):
SEGMENT
OPERATING RESULTS
----------------------
MARCH 31,
2002 2001
-------- --------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . . . . $ 20,581 25,496
Management services . . . . . . . . . 31,235 35,017
Equity losses . . . . . . . . . . . . (10) --
Other services. . . . . . . . . . . . 357 286
Intersegment revenue. . . . . . . . . 117 160
-------- --------
52,280 60,959
Operating expenses:
Compensation, operating and
administrative expenses . . . . . . 49,510 65,985
Depreciation and amortization . . . . 4,893 5,690
-------- --------
Operating loss. . . . . . . . . $ (2,123) (10,716)
======== ========
SEGMENT
OPERATING RESULTS
----------------------
MARCH 31,
2002 2001
-------- --------
EUROPE
Revenue:
Implementation services . . . . . . . $ 45,146 65,235
Management services . . . . . . . . . 18,344 20,266
Other services. . . . . . . . . . . . 847 187
-------- --------
64,337 85,688
Operating expenses:
Compensation, operating and
administrative expenses . . . . . . 61,511 74,015
Depreciation and amortization . . . . 2,556 3,057
-------- --------
Operating income. . . . . . . . $ 270 8,616
======== ========
ASIA PACIFIC
Revenue:
Implementation services . . . . . . . $ 14,892 16,388
Management services . . . . . . . . . 10,927 11,155
Other services. . . . . . . . . . . . 405 343
-------- --------
26,224 27,886
Operating expenses:
Compensation, operating and
administrative expenses . . . . . . 27,534 28,839
Depreciation and amortization . . . . 1,719 1,594
-------- --------
Operating loss. . . . . . . . . $ (3,029) (2,547)
======== ========
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . . . . $ 353 795
Advisory fees . . . . . . . . . . . . 18,791 21,105
Equity earnings (losses). . . . . . . (148) 2,516
Other services. . . . . . . . . . . . 82 60
-------- --------
19,078 24,476
Operating expenses:
Compensation, operating and
administrative expenses . . . . . . 18,005 18,713
Depreciation and amortization . . . . 303 990
-------- --------
Operating income. . . . . . . . $ 770 4,773
======== ========
Total segment revenue . . . . . . . . . . $161,919 199,009
Intersegment revenue eliminations . . . . (117) (160)
-------- --------
Total revenue . . . . . . . . . $161,802 198,849
======== ========
Total segment operating expenses. . . . . $166,031 198,883
Intersegment operating expense
eliminations. . . . . . . . . . . . . . (117) (160)
-------- --------
Total operating expenses before
non-recurring charges . . . . $165,914 198,723
======== ========
SEGMENT
OPERATING RESULTS
----------------------
MARCH 31,
2002 2001
-------- --------
Operating income (loss) before
non-recurring charges . . . . $ (4,112) 126
======== ========
Non-recurring charges . . . . . $ -- 1,055
======== ========
Operating loss. . . . . . . . . $ (4,112) (929)
======== ========
(3) NON-RECURRING CHARGES
For the three months ended March 31, 2001 we incurred non-recurring
charges of $1.1 million in the America's OOS segment related to the write-
off of investments in e-commerce ventures. In 2001 we reviewed our e-
commerce investments on an investment by investment basis, evaluating
actual business performance against original expectations, projected future
performance and associated cash flows, and capital needs and availability.
By the end of 2001, we had written off all of our investments in e-commerce
ventures. It is currently our policy to expense any additional
investments, primarily contractual commitments to fund operating expenses
of existing investments, that are made into these ventures in the period
they are made. These charges are booked as ordinary recurring charges. In
the three months ended March 31, 2002, we expensed $224,000 of such
investments.
In the last six months of 2001, we implemented a broad based
restructuring of our business. The total charge for severance and related
costs was $43.9 million. Of these costs, $9.9 million had been paid at
December 31, 2001; an additional $16.4 million was paid in the first
quarter of 2002, with the balance of $17.6 million to be paid out during
the remainder of 2002. Included in the $43.9 million was $40 million of
severance costs and approximately $3 million of professional fees. The
balance of the expenses included relocation and other severance related
expenses.
(4) 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"), we 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 represented 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 are now recognized as the underlying
contingencies are satisfied. We recognized $5.8 million and $16.2 million
of these revenues in the twelve months ended December 31, 2001 and 2000,
respectively, and $0.1 million of these revenues in the three months ended
March 31, 2002. The balance of $0.8 million is expected to be recognized
over the remainder of 2002.
(5) DERIVATIVES AND HEDGING ACTIVITIES
On January 1, 2001, we 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, we use derivative financial
instruments to manage foreign currency risk. At March 31, 2002, we had
forward exchange contracts in effect with a notional value of $74.6 million
and a market and carrying loss of $0.9 million. We have used interest rate
swap agreements to limit the impact of changes in interest rates on
earnings and cash flows. We did not enter into any interest rate swap
agreements during 2002 or 2001, and there were no such agreements
outstanding as of Mach 31, 2002.
We require 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.
We use 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 our earnings during the three months ended March 31, 2002 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
our consolidated financial statements.
We do not enter into derivative financial instruments for trading or
speculative purposes.
(6) ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE
ASSETS
Effective July 2001, we adopted SFAS No. 141, Business Combinations,
("SFAS 141"). 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. We have not completed any purchase business
combinations after June 30, 2001.
Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and
Other Intangible Assets ("SFAS 142"). SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead they must be tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 also requires 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").
In connection with the transitional goodwill impairment evaluation,
SFAS 142 requires us to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To
accomplish this evaluation, we 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. We have until June 30, 2002 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 we must perform the second step of the transitional impairment
test. In the second step, we 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 December 31, 2002. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle in
our statement of earnings. Also, unamortized negative goodwill, which
existed at the date we adopted SFAS 142, has been credited to the income
statement as the cumulative effect of a change in accounting principle.
We have $327.7 million of unamortized intangibles as of March 31,
2002, which are subject to the provisions of SFAS 142. A significant
portion of these unamortized intangibles are denominated in currencies
other than U.S. dollars, therefore, a portion of the movements in these
balances is attributable to movements in currency exchange rates. $305.6
million of these intangibles represent goodwill with an indefinite useful
life and have ceased to be amortized beginning January 1, 2002. The
amortization savings in the first quarter of 2002 was $2.4 million. As a
result of adopting SFAS 142, on January 1, 2002 we credited to the income
statement, as the cumulative effect of a change in accounting principle,
$846,000, which represented our negative goodwill balance at January 1,
2002. The remaining $22.1 million of identified intangibles (principally
representing management contracts acquired) will be amortized over their
remaining definite useful lives. Because of the extensive effort needed to
comply with adopting SFAS 142, we cannot reasonably estimate the overall
impact, if any, of adopting these Statements on our financial statements at
the date of this report, including whether we will be required to recognize
any transitional impairment losses as the cumulative effect of a change in
accounting principle. Although we are currently in the process of
evaluating the effects of adoption and thus no assurance of the impact can
be given, we currently do not believe that adoption will result in any
significant impairment charge against goodwill. Other than the prospective
non-amortization of goodwill, which results in a non-cash improvement in
our operating results, we do not expect the adoption to have a material
effect on our revenue, operating results or liquidity.
In accordance with SFAS 142, the effect of this accounting change is
applied prospectively. Supplemental comparative disclosure as if the
change had been retroactively applied to the prior period is as follows (in
thousands, except share data):
For the
Three Months Ended
March 31,
------------------
2002 2001
-------- --------
Reported Net loss. . . . . . . . $ (4,035) (3,546)
Add back: Cumulative effect of
change in accounting principle (846) --
Add back: Amortization of
Goodwill with indefinite useful
lives, net of tax. . . . . . . -- 1,492
-------- --------
Adjusted net income. . . . . . . $ (4,881) (2,054)
======== ========
Basic loss per common share. . . $ (0.13) (0.12)
Cumulative effect of change in
accounting principle . . . . . (0.03) --
Amortization of Goodwill with
indefinite useful lives,
net of tax . . . . . . . . . . -- 0.05
-------- --------
Adjusted basic loss per common
share. . . . . . . . . . . . . $ (0.16) (0.07)
======== ========
Diluted loss per common share. . $ (0.13) (0.12)
Cumulative effect of change in
accounting principle . . . . . (0.03) --
Amortization of Goodwill with
indefinite useful lives,
net of tax . . . . . . . . . . -- 0.05
-------- --------
Adjusted basic loss per
common share . . . . . . . . . $ (0.16) (0.07)
======== ========
(7) 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 March 31, 2002 and December 31, 2001, Condensed
Consolidating Statement of Earnings for the three months ended March 31,
2002 and 2001, and Condensed Consolidating Statement of Cash Flows for the
three months ended March 31, 2002 and 2001 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, historically, Jones Lang LaSalle Incorporated has
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 March 31, 2002
($ 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. . $ 3,974 83 (1,825) 9,661 -- 11,893
Trade receivables,
net of allowances . -- -- 57,708 110,159 -- 167,867
Other current assets. (2,011) -- 29,487 29,357 -- 56,833
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 1,963 83 85,370 149,177 -- 236,593
Property and equipment,
at cost, less accumu-
lated depreciation . 4,485 -- 44,138 37,923 -- 86,546
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 237,257 90,422 -- 327,679
Other assets, net . . 28,142 -- 71,336 32,615 -- 132,093
Investments in
subsidiaries . . . . 217,932 -- 211,041 535 (429,508) --
---------- ---------- ---------- ---------- ---------- ----------
$ 252,522 83 649,142 310,672 (429,508) 782,911
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2002
($ 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 $ 11,789 4,459 38,081 51,718 -- 106,047
Short-term borrowings -- -- 2,707 7,887 -- 10,594
Other current
liabilities . . . . (79,433) (238,653) 376,976 29,440 -- 88,330
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (67,644) (234,194) 417,764 89,045 -- 204,971
Long-term liabilities:
Credit facilities . -- 89,911 -- -- -- 89,911
9% senior notes,
due 2007. . . . . -- 143,831 -- -- -- 143,831
Other . . . . . . . 5,870 -- 13,446 9,731 -- 29,047
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (61,774) (452) 431,210 98,776 -- 467,760
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . -- -- -- 855 -- 855
Stockholders' equity. 314,296 535 217,932 211,041 (429,508) 314,296
---------- ---------- ---------- ---------- ---------- ----------
$ 252,522 83 649,142 310,672 (429,508) 782,911
========== ========== ========== ========== ========== ==========
</table>
<table>
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2001
($ 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 . . . . $ 3,142 52 (2,843) 10,095 -- 10,446
Trade receivables,
net of allowances . 132 -- 84,492 137,966 -- 222,590
Other current assets. (4,575) -- 31,389 26,663 -- 53,477
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . (1,301) 52 113,038 174,724 -- 286,513
Property and equipment,
at cost, less accumu-
lated depreciation. 4,388 -- 48,817 39,298 -- 92,503
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization. . . . -- -- 240,063 88,106 -- 328,169
Other assets, net . . 26,154 -- 68,745 33,643 -- 128,542
Investment in
subsidiaries. . . . 216,825 -- 212,452 367 (429,644) --
---------- ---------- ---------- ---------- ---------- ----------
$ 246,066 52 683,115 336,138 (429,644) 835,727
========== ========== ========== ========== ========== ==========
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of December 31, 2001
($ 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 $ 10,572 836 42,568 62,992 -- 116,968
Short-term borrowings -- -- 9,147 6,350 -- 15,497
Other current
liabilities . . . . (81,592) (207,773) 400,555 43,980 -- 155,170
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (71,020) (206,937) 452,270 113,322 -- 287,635
Long-term liabilities:
Credit facilities . -- 59,854 -- -- -- 59,854
9% Senior Notes,
due 2007. . . . . -- 146,768 -- -- -- 146,768
Other . . . . . . . 2,705 -- 14,020 9,575 -- 26,300
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (68,315) (315) 466,290 122,897 -- 520,557
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries. . . . -- -- -- 789 -- 789
Stockholders' equity. 314,381 367 216,825 212,452 (429,644) 314,381
---------- ---------- ---------- ---------- ---------- ----------
$ 246,066 52 683,115 336,138 (429,644) 835,727
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended March 31, 2002
($ 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 . . . . . . . . .$ -- -- 71,995 89,807 -- 161,802
Equity earnings (loss)
from subsidiaries. . . . (3,228) -- (1,444) 58 4,614 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . . (3,228) -- 70,551 89,865 4,614 161,802
Operating expenses. . . . 3,406 16 72,053 90,439 -- 165,914
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . . . (6,634) (16) (1,502) (574) 4,614 (4,112)
Interest expense, net
of interest income . . . (2,387) (230) 3,584 2,951 -- 3,918
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority interest. . (4,247) 214 (5,086) (3,525) 4,614 (8,030)
Net provision (benefit)
for income taxes . . . . (212) 156 (1,858) (1,298) -- (3,212)
Minority interests
in earnings of
subsidiaries . . . . . . -- -- -- 63 -- 63
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss),
before cumulative
effect of change in
accounting principle . . (4,035) 58 (3,228) (2,290) 4,614 (4,881)
Cumulative effect of
change in accounting
principle. . . . . . . . -- -- -- 846 -- 846
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . .$ (4,035) 58 (3,228) (1,444) 4,614 (4,035)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended March 31, 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 . . . . . . . $ -- -- 97,040 101,809 -- 198,849
Equity earnings (loss)
from subsidiaries. . (1,571) -- (689) 180 2,080 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (1,571) -- 96,351 101,989 2,080 198,849
Operating expenses
before non-recurring
charges. . . . . . . 4,398 -- 94,052 100,273 -- 198,723
Non-recurring charges -- -- 1,055 -- -- 1,055
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (5,969) -- 1,244 1,716 2,080 (929)
Interest expense,
net of interest
income . . . . . . . (907) (243) 3,862 2,134 -- 4,846
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (5,062) 243 (2,618) (418) 2,080 (5,775)
Net provision (benefit)
for income taxes . . (1,516) 63 (1,047) 305 -- (2,195)
Minority interests
in losses of
subsidiaries . . . . -- -- -- (34) -- (34)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (3,546) 180 (1,571) (689) 2,080 (3,546)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2002
($ 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. . . . . $ (311) 3,791 (13,027) (7,184) (16,731)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . (397) -- (174) (1,511) (2,082)
Investments in e-commerce
ventures. . . . . . . . . . -- -- (224) -- (224)
Subsidiary activity . . . . . 1,131 (33,817) 25,234 7,452 --
Investments in real estate
ventures. . . . . . . . . . -- -- (4,351) (728) (5,079)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . 734 (33,817) 20,485 5,213 (7,385)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit
facility. . . . . . . . . . -- 30,057 (6,440) 1,537 25,154
Common stock issued under
stock option plan . . . . . 409 -- -- -- 409
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . 409 30,057 (6,440) 1,537 25,563
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . 832 31 1,018 (434) 1,447
Cash and cash equivalents,
beginning of period . . . . . 3,142 52 (2,843) 10,095 10,446
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period . . . . . . . . $ 3,974 83 (1,825) 9,661 11,893
========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------ ------------- ------------
<s> <c> <c> <c> <c> <c>
Cash flows provided by (used in)
operating activities. . . . . $ 4,172 3,569 (53,510) (26,995) (72,764)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . (266) -- (3,354) (4,310) (7,930)
Subsidiary activity . . . . . 2,487 (64,774) 57,997 4,290 --
Investments in real estate
ventures. . . . . . . . . . -- -- 65 16,714 16,779
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . 2,221 (64,774) 54,708 16,694 8,849
Cash flows provided by
(used in) financing
activities:
Net borrowings under
credit facility . . . . . . -- 61,100 2,688 3,703 67,491
Shares repurchased. . . . . . (9,836) -- -- -- (9,836)
Common stock issued under
stock option plan . . . . . 321 -- -- -- 321
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . (9,515) 61,100 2,688 3,703 57,976
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents . . (3,122) (105) 3,886 (6,598) (5,939)
Cash and cash equivalents,
January 1 . . . . . . . . . . 3,689 152 (3,665) 18,667 18,843
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
March 31, . . . . . . . . . . $ 567 47 221 12,069 12,904
========== ========== ========== ========== ==========
</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 months
ended March 31, 2002, included herein, and Jones Lang LaSalle's audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2001 which have been filed with the Securities and
Exchange Commission as part of Jones Lang LaSalle's Annual Report on
Form 10-K.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
An understanding of our accounting policies is necessary for a
complete analysis of our results, financial position, liquidity and trends.
We focus your attention on the following:
PRINCIPLES OF CONSOLIDATION - Our financial statements include the
accounts of Jones Lang LaSalle and its majority-owned-and-controlled
affiliates. All material intercompany balances and transactions have been
eliminated in consolidation. Investments in unconsolidated affiliates over
which we exercise significant influence, but not control, are accounted for
by the equity method. Under this method we maintain an investment account,
which is increased by contributions made and our share of net income of the
unconsolidated affiliates, and decreased by distributions received and our
share of net losses of the unconsolidated affiliates. Our share of each
unconsolidated affiliate's net income or loss, including gains and losses
from capital transactions, is reflected on our statement of earnings as
"equity in earnings from unconsolidated ventures." Investments in
unconsolidated affiliates over which we are not able to exercise
significant influence are accounted for under the cost method. Under the
cost method our investment account is increased by contributions made and
decreased by distributions representing return of capital. Distributions
of income are reflected as "equity in earnings from unconsolidated
ventures".
REVENUE RECOGNITION - We recognize advisory and management fees in the
period in which we perform the service. Transaction commissions are
recognized as income when we provide the service unless future
contingencies exist. If future contingencies exist, we defer recognition
of this revenue until the respective contingencies are released.
Development management fees are generally recognized as billed, which we
believe approximates the percentage of completion method of accounting.
Incentive fees are generally tied to some form of contractual milestone and
are recorded in accordance with the specific terms of the underlying
compensation agreement. The Securities and Exchange Commission's Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition, provides guidance
on the application of generally accepted accounting principles to selected
revenue recognition issues. We believe that our revenue recognition policy
is appropriate and in accordance with accounting principles generally
accepted in the United States of America and SAB No. 101. We implemented
SAB 101 in 2000 and this is discussed more fully in Note 4 to Notes to
Consolidated Financial Statements.
We estimate the allowance necessary to provide for uncollectible
accounts receivable. This estimate includes specific accounts for which
payment has become unlikely. This estimate is also based on historical
experience, combined with a careful review of current developments and with
a strong focus on credit control.
ASSET IMPAIRMENT - We apply SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, to recognize and measure impairment of long-lived assets. We review
long-lived assets, including investments in real estate ventures,
intangibles and property and equipment for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable. The review of recoverability is based on an estimate of the
future undiscounted cash flows expected to be generated by the asset. If
impairment exists due to the inability to recover the carrying value of an
asset an impairment loss is recorded to the extent that the carrying value
exceeds estimated fair value.
During 2001, we reviewed our e-commerce investments on an investment
by investment basis, evaluating actual business performance against
original expectations, projected future performance and associated cash
flows, and capital needs and availability. As a result of this evaluation
we determined that our investments in e-commerce were impaired, and fully
wrote off these investments by the end of 2001. It is currently our policy
to expense any additional investments, primarily contractual commitments to
fund operating expenses of existing investments, that are made into these
ventures in the period they are made. These charges are booked as ordinary
recurring charges.
INCOME TAXES - We account for income taxes under the asset and
liability method. Because of the global and cross border nature of our
business, our corporate tax position is complex. We generally provide
taxes in each tax jurisdiction in which we operate based on local tax
regulations and rules. Such taxes are provided on net earnings and include
the provision of taxes on substantively all differences between accounting
principles generally accepted in the United States of America and tax
accounting, excluding certain non-deductible items and permanent
differences. Our income tax expense reflects our best estimate of the
ultimate deductibility of certain of our expenses for tax purposes.
Based on our historical experience and future business plans we do not
expect to repatriate our foreign source earnings to the United States. As
a result, we have not provided deferred taxes on such earnings or the
difference between tax rates in the United States and the various foreign
jurisdictions where such amounts were earned. Further, there are various
limitations on our ability to utilize foreign tax credits on such earnings
when repatriated. As such, we may incur taxes in the United States upon
repatriation without credits for foreign taxes paid on such earnings. We
have established valuation allowances against the possible future tax
benefits of current losses where expected future taxable income does not
support the realization of the deferred tax assets.
COMMITMENTS AND CONTINGENCIES - We are subject to various claims and
contingencies related to lawsuits, taxes and environmental matters as well
as commitments under contractual obligations. We recognize the liability
associated with commitments and contingencies when a loss is probable and
estimable. Our contractual obligations relate to the provision of services
by us in the normal course of our business.
ACCOUNTING FOR BUSINESS COMBINATIONS - We have historically grown
through a series of acquisitions and one substantial merger. As a result
of this activity, and consistent with the services nature of the businesses
we acquired, the largest assets on our balance sheet are intangibles
resulting from business acquisitions and the JLW merger. Historically we
have amortized these over their estimated useful lives (generally eight to
40 years). SFAS 142, which we adopted January 1, 2002, requires that we
cease amortizing the goodwill element of these intangibles, which is $306
million. This will reduce our annual amortization expense by $10 million.
We are currently evaluating the effects of adopting SFAS 142, but do not
believe that adoption will result in any significant impairment charge
against goodwill.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2001
REVENUE
Total revenue, after elimination of intersegment revenue, decreased
$37.1 million, or 18.7%, to $161.8 million for three months ended March 31,
2002 from $198.9 million for the three months ended March 31, 2001. The
reduction in our revenues year over year reflects the weak global economy
and was primarily a result of reduced transaction activity in the real
estate industry when compared to the first quarter of 2001 when activity
was strong. Fees earned from transaction activity were down 25% ($27
million). We had anticipated the decline in revenues as we had not
anticipated a turn around in overall economic conditions during the first
quarter of 2002.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
decreased $32.8 million, or 16.5%, to $165.9 million for the three months
ended March 31, 2002 compared to $198.7 million, excluding non-recurring
charges, for the three months ended March 31, 2001. The reduction in
expenses is largely the result of restructuring actions taken in 2001 to
bring ongoing operating expenses in line with anticipated future business
in light of current economic conditions together with a reduction in
incentive compensation reflecting the lower revenues. Compensation and
benefit expense was down $23.5 million, of which $11.7 million relates to a
reduction in incentive compensation. The reduction in incentive
compensation is anticipated to reverse over the balance of the year
depending on performance. Operating, administrative and other expenses
were down $7.4 million, largely due to cost containment initiatives put
into place in 2001. The benefit resulting from adopting SFAS 142
(discussed in Note 6 to Notes to Consolidated Financial Statements) was a
saving in amortization expense of $2.4 million.
OPERATING INCOME/(LOSS)
Due to the seasonal nature of our business we typically report a loss
in the first quarter (see Seasonality section for further discussion).
Consistent with this pattern of seasonality, we reported operating losses
of $4.1 million and $0.9 million for the three months ended March 31, 2002
and 2001, respectively.
INTEREST EXPENSE
Interest expense, net of interest income, decreased by $0.9 million,
from $4.8 million for the three months ended March 31, 2001 to $3.9 million
for the three months ended March 31, 2002. The decrease in interest
expense is the result of lower average revolver borrowings at declining
interest rates.
PROVISION/(BENEFIT) FOR INCOME TAXES
The benefit for income taxes was $3.2 million for the first quarter of
2002, as compared to a benefit of $2.2 million for the same period of 2001.
Our estimated effective tax rate for the first quarter of 2002 was 40%, as
compared to 38% for 2001. See Income Tax Provision section of Note 1 to
Notes to Consolidated Financial Statements for further discussion of our
effective tax rate.
NET INCOME/(LOSS)
Our net loss, excluding the cumulative effect of change in accounting
principle related to the adoption of SFAS 142, for the first quarter of
2002 was $4.9 million. Our net loss for the first quarter of 2001 was $3.5
million.
Including the cumulative effect of change in accounting principle (a
net benefit of $0.8 million) related to the adoption of SFAS 142, which is
discussed in detail at Note 6 to Notes to Consolidated Financial
Statements, our net loss for the first quarter of 2002 was $4.0 million.
SEGMENT OPERATING RESULTS
See Note 2 in Notes to Consolidated Financial Statements, included
herein, for a discussion of our segment reporting.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas region decreased $8.7 million, or 14.3%, to
$52.3 million for the three months ended March 31, 2002, as compared to
$61.0 million for the three months ended March 31, 2001. The decline in
implementation services revenue, which is largely transaction based,
reflects the weak economic environment. However, there were increases in
implementation services revenues year over year in the Capital Markets unit
and the Tenant Representation unit. These increases reflect the timing of
transactions and were largely offset by weakness in the Leasing and
Management unit. The expected decline in management services revenue was
mainly driven by the Project and Development Management unit, which had a
strong first quarter in 2001 due to several large telecom projects.
Operating expenses for the Americas region decreased $17.3 million, or
24.1%, to $54.4 million in the first quarter of 2002, as compared to $71.7
million in the first quarter of 2001. The decline in expenses is primarily
attributable to the strong focus placed on cost containment, including
significant reductions in compensation due to reduced headcount. Also
contributing to the decline in expenses is a reduction in incentive
compensation of $2.8 million, which is the result of reduced revenues.
This reduction in incentive compensation is anticipated to reverse over the
balance of the year depending on performance. In addition, as a result of
adopting SFAS 142 (discussed in Note 6 to Notes to Consolidated Financial
Statements), amortization expense in the first quarter of 2002 was reduced
by $1.1 million.
EUROPE
Revenue for the Europe region totaled $64.3 million for the first
quarter of 2002, as compared to $85.7 million, a decrease of 25.0%. The
most significant declines occurred in England and France, reflecting the
difficult economic conditions in these countries. Revenue was adversely
impacted by approximately $2 million due to the weakening of the euro and
the pound sterling against the US dollar in the first quarter of 2002 as
compared to the first quarter of 2001.
Operating expenses for the region decreased by $13.0 million, or
16.9%, to $64.1 million for the three months ended March 31, 2002 from
$77.1 million for the three months ended March 31, 2001. The strong focus
placed on cost containment initiatives drove down expenses, including
reductions in compensation due to reduced headcount. Due to the reduction
in revenues, incentive compensation was reduced by $8.0 million, which is
anticipated to reverse over the balance of the year depending on
performance. Operating expenses were reduced by approximately $2 million
due to the weakening of the euro and the pound sterling against the US
dollar in the first quarter of 2002 as compared to the first quarter of
2001. In addition, as a result of adopting SFAS 142 (discussed in Note 6
to Notes to Consolidated Financial Statements), amortization expense in the
first quarter of 2002 was reduced by $0.4 million.
ASIA PACIFIC
Revenue for the Asia Pacific region decreased by $1.7 million, or
6.1%, to $26.2 million for the three months ended March 31, 2002 compared
to $27.9 million for the three months ended March 31, 2001. Revenues by
country in this region were mixed, with declines in Australia, Hong Kong
and Singapore, partially offset by increases in Japan, Korea and China.
There was no significant year over year impact on revenues due to movements
in exchange rates between the US dollar and Australian dollar, our most
significant currency in the Asia Pacific region.
Operating expenses for the region totaled $29.3 million for the three
months ended March 31, 2002, as compared to $30.4 million for the three
months ended March 31, 2001. The reduction in operating expenses year over
year is attributable to; 1) a lower level of compensation due to reduced
headcount, 2) reduced incentive compensation of $0.4 million due to the
reduction in revenues (this reduction in incentive compensation is
anticipated to reverse over the balance of the year depending on
performance), and 3) the adoption of SFAS 142 (discussed in Note 6 to Notes
to Consolidated Financial Statements), which reduced amortization expense
by $0.5 million. These declines in expenses were partially offset by
increased depreciation expense on information technology investments made
last year during the restructuring of this region. There was no
significant year over year impact on operating expenses due to movements in
exchange rates between the US dollar and Australian dollar, our most
significant currency in the Asia Pacific region.
INVESTMENT MANAGEMENT
Investment Management revenue totaled $19.1 million for the three
months ended March 31, 2002 compared to $24.5 million for the three months
ended March 31, 2001. The reduction in revenues is primarily due to the
first quarter of 2001 including a one-time gain from the disposition of our
interest in LaSalle Hotel Properties. Also two fund closings, which were
originally planned to close in the first quarter of 2002, have been delayed
until the second quarter of this year.
Operating expenses decreased $1.4 million, or 7.1%, to $18.3 million
for the three months ended March 31, 2002, as compared with $19.7 million
for the three months ended March 31, 2001. Compensation expense increased
slightly as staffing increased to support new fund activity. Incentive
compensation was reduced by $0.5 million from the first quarter of last
year due to the reduction in revenues. This reduction in incentive
compensation is anticipated to reverse over the balance of the year
depending on performance. There were also savings in administrative costs
due to cost containment initiatives put into place in the middle of last
year. The adoption of SFAS 142 (discussed in Note 6 to Notes to
Consolidated Financial Statements) reduced amortization expense by $0.4
million.
PERFORMANCE OUTLOOK
Our estimate of our second quarter and full year performance reflects
our caution around the timing of the recovery in the economy, and the
historical six to nine month lag to recovery in the real estate markets.
We expect our second quarter results to be a profit of $0.05 to $0.15
earnings per share. At this point, we continue to expect that the full
year earnings per share will fall in the previously disclosed range of
$1.65 to $1.70. However, if there is a weak or extensively delayed
economic recovery, we expect to be toward the lower end of this full year
range.
CONSOLIDATED CASH FLOWS
CASH FLOWS PROVIDED BY/USED IN OPERATING ACTIVITIES
During the three months ended March 31, 2002 cash flows used in
operating activities totaled $16.7 million compared to $72.8 million used
in the three months ended March 31, 2001. The cash flows used in operating
activities during the first quarter of 2002 can be further divided into
cash generated from operations of $10.8 million (compared to $15.0 million
in the first quarter of 2001) and cash used in balance sheet movements
(primarily working capital management) of $ $27.5 million (compared to a
use of $87.8 million in the first quarter of 2001). The decline in cash
generated from operations is due to reduced performance year over year.
The decrease in cash used in working capital primarily represents higher
incentive compensation accrued at December of 2000 and paid in the first
three months of 2001 as compared to amounts accrued in December of 2001 and
paid in the first quarter of 2002. The higher level of incentive
compensation accrued at December 2000 is a result of the strong performance
during 2000. Partially offsetting this reduction in cash used in working
capital is lower incentive compensation accruals in the first quarter of
2002 as compared to the first quarter of 2001, which have reduced accrued
liabilities in 2002, and resulted in a smaller source of cash. Also
partially offsetting the reduction in cash used in working capital are
payments of restructuring charges, which were accrued in the latter half of
2001. In addition, our continued focus on receivables has resulted in
improved cash flow of $11.8 million.
CASH FLOWS PROVIDED BY/USED IN INVESTING ACTIVITIES
We used $7.4 million in investing activities during the three months
ended March 31, 2002, as compared to cash provided of $8.8 million during
the three months ended March 31, 2001. The primary driver of this change
is the sale of our investment in LaSalle Hotel Properties in the first
quarter of 2001, which generated $18.5 million of cash. Of this $18.5
million, $1.6 million was a distribution of previously recorded equity
earnings, and therefore, is shown in the operating activities section of
the Statement of Cash Flows. Partially offsetting the increase in cash
used in 2002 is a $5.8 million reduction in net capital additions, which
have been intensely scrutinized in 2002. In 2001 there were significant
capital additions to technology related improvements.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash flows provided by financing activities decreased $32.4 million to
$25.6 million during the three months ended March 31, 2002 from $58.0
million during the three months ended March 31, 2001. The need for
borrowings were reduced in the first quarter of 2002 as compared to the
first quarter of 2001 as there were lower incentive compensation payments
in 2002 and there were share repurchases in 2001 that did take place in
2002. This reduced level of borrowing has been partially offset by the
repayment of debt with cash from operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations, acquisitions and co-
investment activities with internally generated funds, our common stock and
borrowings under our credit facilities. As of March 31, 2002, we have a
$275.0 million revolving credit facility for working capital needs, co-
investments, capital expenditures and acquisitions. Under the terms of the
revolving credit facility, we have the authorization to borrow up to an
additional $50.0 million under local overdraft facilities. We also have
outstanding the 9% Senior Euro Notes (the "Euro Notes") of euro 165
million. The Euro Notes mature on June 15, 2007. Beginning June 15, 2004,
the Euro Notes can be redeemed, at our option, at the following redemption
prices; during the twelve-month period commencing June 15, 2004 at 104.50%
of principal, during the twelve-month period commencing June 15, 2005 at
102.25% of principal and commencing June 15, 2006 and thereafter at 100.00%
of principal.
As of March 31, 2002, there was $89.9 million outstanding under the
revolving credit facility, euro 165 million ($143.8 million) of borrowings
outstanding under the Euro Notes and short-term borrowings (including
capital lease obligations) of $10.6 million.
Certain of our subsidiaries guarantee the revolving credit facility
and the Euro Notes (the "Facilities"). With respect to the revolving credit
facility, we must maintain a certain level of consolidated net worth and a
ratio of funded debt to EBITDA. We must also meet a minimum interest
coverage ratio and minimum liquidity ratio. Additionally, we are restricted
from, among other things, incurring certain levels of indebtedness to
lenders outside of the Facilities and disposing of a significant portion of
our assets. Lender approval is required for certain levels of co-
investment. The revolving credit facility bears variable rates of interest
based on market rates. We are authorized to use interest rate swaps to
convert a portion of the floating rate indebtedness to a fixed rate,
however, none were used during 2002 or 2001 and none were outstanding as of
March 31, 2002. The effective interest rate on the Facilities was 7.8% for
the three months ended March 31, 2002 (versus an effective rate of 8.6%
during the same period of 2001).
We have 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, we have facilities totaling $39.0 million, of which
$10.0 million was outstanding as of March 31, 2002.
We believe 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.
We expect to continue to pursue co-investment opportunities with our
investment management clients in the Americas, Europe and Asia Pacific.
Co-investment remains very important to the continued growth of Investment
Management, which would likely be negatively impacted if a substantial
decrease in co-investment activity were to occur. As of March 31, 2002,
there were total investments of $60.3 million in 24 separate property or
fund co-investments, with additional capital commitments of $122.8 million
for future fundings of co-investments. With respect to certain co-
investment indebtedness, we also had repayment guarantees outstanding at
March 31, 2002 of $7.7 million. Included in the $7.7 million are
residential land co-investment indebtedness guarantees of $3.7 million,
which are offset by a cross guarantee from another investor in the amount
of $2.0 million. The $122.8 million of capital commitment includes a
commitment of $121.0 million to LaSalle Investment Limited Partnership
("LILP"). We expect that LILP will draw down on our commitment over the
next three to five years as it enters into new commitments. LILP is a
47.85% owned English limited partnership that is intended to be our co-
investment vehicle for substantially all new co-investments. Primarily
institutional investors, including a significant shareholder in Jones Lang
LaSalle, hold the remaining 52.15% interest in LILP. In addition, our
Chairman and certain other Directors of Jones Lang LaSalle are investors in
LILP on equivalent terms to other investors. At March 31, 2002, LILP has
unfunded capital commitments of $55.0 million for future fundings of co-
investments. LILP has no external debt, nor any current intention to
leverage its partners' capital.
Our net co-investment funding for 2002 is anticipated to be $20
million (planned co-investment less return of capital from liquidated co-
investments).
Capital expenditures are anticipated to be $30 million for 2002,
primarily for ongoing improvements to computer hardware and information
systems, office renewals and expansions. As noted earlier, we continue to
place significant focus and control on capital expenditures.
SEASONALITY
Historically, our 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 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 we do 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.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
In October 2001, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses issues relating to
the implementation of FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be disposed
Of" ("SFAS 121"). SFAS 144 establishes accounting and reporting standards
for the impairment or disposal of long-lived assets by requiring those
long-lived assets be measured at the lower of carrying costs or fair value
less selling costs, whether reported in continuing operations or in
discontinued operations. The provisions of SFAS 144 are effective for
financial statements issued for fiscal years beginning after December 15,
2001. We adopted SFAS 144 on January 1, 2002. The effect of implementing
SFAS 144 did not have a material impact on our consolidated financial
statements.
In November 2001, the FASB's Emerging Issues Task Force ("EITF")
issued EITF No. 01-14, "Income Statement Characterization of Reimbursements
Received for 'Out-of-Pocket' Expenses Incurred", effective for financial
statements issued for fiscal years beginning after December 15, 2001. This
EITF requires that reimbursements received for out-of-pocket expenses
incurred should be characterized as revenue in the income statement, as
opposed to being shown as a reduction of expenses. We are currently in the
process of reconfiguring our reporting systems in order to comply with this
EITF. We have preliminarily estimated the amounts of our out-of-pocket
reimbursements, which are currently reported as a reduction of expenses,
and determined that the adoption of this EITF will not have a material
impact on our consolidated financial statements.
EURO CONVERSION ISSUES
On January 1, 1999, certain member countries of the European Union
fixed conversion rates between their existing currencies ("legacy
currencies") and one 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 legacy currency. After July 1, 2002 the euro will be
the sole legal tender for these countries.
In January 2002, we converted our legacy currency general ledgers to
the euro. There has been no adverse impact resulting from this conversion.
We are continuing to evaluate the potential impact of euro related issues
on information systems, currency exchange rate risk and other business
activities, but we do not expect the impact of euro conversion to be
material to us. There can be no assurance that external factors will not
have a material adverse impact on our 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 we are exposed are:
. Interest rates on the multi-currency credit facility
. Foreign exchange risks.
In the normal course of business, we manage these risks through a
variety of strategies, including the use of hedging transactions using
various derivative financial instruments such as interest rate swap
agreements and forward exchange contracts. We do not enter into derivative
financial instruments for trading or speculative purposes.
INTEREST RATES
We centrally manage our debt, considering investment opportunities and
risks, tax consequences and overall financing strategies. We are primarily
exposed to interest rate risk on the $275.0 million revolving multi-
currency credit facility, due in September 2004, 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, we have entered into derivative
financial instruments such as interest rate swap agreements when
appropriate and may do so in the future. We entered into no such
agreements in 2002 or 2001, and none were outstanding as of March 31, 2002.
The effective interest rate on our debt for the three months ended
March 31, 2002 was 7.8% as compared to a rate of 8.6% for the same period
of 2001. The decrease in the effective interest rate is due to reduced
revolver borrowings at declining market interest rates.
FOREIGN EXCHANGE
Revenues outside of the United States were 63.1% of our total revenues
for the three months ended March 31, 2002. Operating in international
markets means that we are exposed to movements in foreign exchange rates,
primarily the British pound (21.3% of revenues for the three months ended
March 31, 2002), the euro (20.2% of revenues for the three months ended
March 31, 2002) and the Australian dollar (5.7% of revenues for the three
months ended March 31, 2002). Changes in these foreign exchange rates
would have the largest impact on translating the operating profit of our
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 our translation
exposure to the British pound.
The interest on the euro 165 million of notes acts as a partial hedge
against our translation exposure on our euro denominated earnings. We
enter into forward foreign currency exchange contracts to manage currency
risks. At March 31, 2002, we had forward exchange contracts in effect with
a notional value of $74.6 million and a market and carrying loss of $0.9
million. The net impact on our earnings during the three months ended
March 31, 2002 of the unrealized loss on foreign currency contracts, offset
by the gain resulting from re-measurement of foreign currency transactions,
was not significant.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of March 31, 2002, 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
We are a defendant in various litigation matters arising in the
ordinary course of business, some of which involve claims for damages that
are substantial in amount. Many of these matters are covered by insurance.
We believe the ultimate resolution of such litigation will not have a
material adverse effect on our financial position, results of operations or
liquidity.
ITEM 5. OTHER MATTERS
CAUTIONARY STATEMENT 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, 2001 in Item 1. "Business," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A. "Quantitative and Qualitative Disclosures About
Market Risk," and elsewhere, in this Quarterly Report on Form 10-Q in
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", Item 3 "Quantitative and Qualitative Disclosure
about Market Risk" and elsewhere, and in other reports filed with the
Securities and Exchange Commission. Jones Lang LaSalle expressly disclaims
any obligation or undertaking to update or revise any forward-looking
statements to reflect any changes in events or circumstances or in its
expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JONES LANG LASALLE INCORPORATED
Dated: May 15, 2002 BY: /S/ LAURALEE E. MARTIN
------------------------------
Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
99.1 Press release issued by Jones Lang LaSalle on May 1,
2002 attached hereto as Exhibit 99.1.