UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 12, 2002
----- ---------------
Common Stock ($0.01 par value) 30,765,596
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 . . . . . . . . . . . . . . . . . 45
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 46
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . 46
Item 5. Other Matters . . . . . . . . . . . . . . . . . . . 47
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 47
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(in thousands)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
---------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents . . . . . . . . $ 7,964 10,446
Trade receivables, net of allowances
of $8,149 and $6,305 in 2002
and 2001, respectively. . . . . . . . . 169,572 222,590
Notes receivable and advances to
real estate ventures. . . . . . . . . . 3,808 3,847
Other receivables . . . . . . . . . . . . 10,380 9,553
Prepaid expenses. . . . . . . . . . . . . 15,413 11,802
Deferred tax assets . . . . . . . . . . . 17,579 16,935
Other assets. . . . . . . . . . . . . . . 15,045 11,340
---------- ---------
Total current assets. . . . . . . 239,761 286,513
Property and equipment, at cost, less
accumulated depreciation of $116,920
and $102,401 in 2002 and 2001,
respectively. . . . . . . . . . . . . . . 84,821 92,503
Goodwill, with indefinite useful lives,
at cost, less accumulated amortization
of $36,020 and $35,327 in 2002 and 2001,
respectively. . . . . . . . . . . . . . . 312,148 305,688
Negative goodwill, at cost, less
accumulated amortization of ($565)
in 2001 . . . . . . . . . . . . . . . . . -- (846)
Identified intangibles, with definite
useful lives, at cost, less accumulated
amortization of $26,118 and $23,195
in 2002 and 2001, respectively. . . . . . 20,896 23,327
Investments in real estate ventures . . . . 66,350 56,899
Long-term receivables, net. . . . . . . . . 22,986 17,375
Prepaid pension asset . . . . . . . . . . . 12,086 14,384
Deferred tax assets . . . . . . . . . . . . 24,066 25,770
Debt issuance costs . . . . . . . . . . . . 4,857 5,407
Other assets, net . . . . . . . . . . . . . 8,311 8,707
--------- ----------
$ 796,282 835,727
========= ==========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
JUNE 30, 2002 AND DECEMBER 31, 2001
(in thousands)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities. $ 91,051 116,968
Accrued compensation. . . . . . . . . . . 59,874 131,680
Short-term borrowings . . . . . . . . . . 15,765 15,497
Deferred tax liabilities. . . . . . . . . 206 23
Other liabilities . . . . . . . . . . . . 18,384 23,467
--------- ----------
Total current liabilities . . . . 185,280 287,635
Long-term liabilities:
Credit facilities . . . . . . . . . . . . 88,716 59,854
9% Senior Notes, due 2007 . . . . . . . . 163,564 146,768
Deferred tax liabilities. . . . . . . . . 4,827 6,567
Other . . . . . . . . . . . . . . . . . . 24,701 19,733
--------- ----------
Total liabilities . . . . . . . . 467,088 520,557
Commitments and contingencies
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . . 2,266 789
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,386,902 and 30,183,450 shares
issued and outstanding as of
June 30, 2002 and December 31,
2001, respectively. . . . . . . . . . . 304 302
Additional paid-in capital. . . . . . . . 474,478 463,926
Deferred stock compensation . . . . . . . (10,714) (6,038)
Retained deficit. . . . . . . . . . . . . (123,050) (122,521)
Stock held in trust . . . . . . . . . . . (460) (1,658)
Accumulated other comprehensive loss. . . (13,630) (19,630)
--------- ----------
Total stockholders' equity. . . . 326,928 314,381
--------- ----------
$ 796,282 835,727
========= ==========
See accompanying notes to consolidated financial statements.
<table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands, except share data)
(UNAUDITED)
<caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
<s> <c> <c> <c> <c>
Revenue:
Fee based services. . . . . . . . . . . . . . $ 189,549 198,597 349,824 394,085
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . . . . . 659 1,341 501 3,857
Other income. . . . . . . . . . . . . . . . . 726 1,038 2,411 1,883
---------- ---------- ---------- ----------
Total revenue . . . . . . . . . . . . . 190,934 200,976 352,736 399,825
Operating expenses:
Compensation and benefits, excluding
non-recurring charges . . . . . . . . . . . 119,859 127,912 230,802 262,389
Operating, administrative and other,
excluding non-recurring charges . . . . . . 49,166 54,585 94,666 107,500
Depreciation and amortization . . . . . . . . 9,350 12,091 18,821 23,422
Non-recurring charges:
Compensation and benefits . . . . . . . . . -- 1,307 -- 1,307
Operating, administrative and other . . . . -- 1,288 -- 2,343
---------- ---------- ---------- ----------
Total operating expenses. . . . . . . . 178,375 197,183 344,289 396,961
Operating income. . . . . . . . . . . . 12,559 3,793 8,447 2,864
Interest expense, net of interest income. . . . 4,669 5,981 8,587 10,827
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes and
minority interest . . . . . . . . . . 7,890 (2,188) (140) (7,963)
Net provision (benefit) for income taxes. . . . 3,155 (831) (57) (3,026)
Minority interest in earnings of
subsidiaries. . . . . . . . . . . . . . . . . 1,229 565 1,292 531
---------- ---------- ---------- ----------
Net income (loss) before cumulative
effect of change in accounting
principle . . . . . . . . . . . . . . 3,506 (1,922) (1,375) (5,468)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . -- -- 846 --
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . $ 3,506 (1,922) (529) (5,468)
========== ========== ========== ==========
Other comprehensive income (loss), net of tax:
Foreign currency translation
adjustments . . . . . . . . . . . . . . . . $ 5,318 3,206 6,000 (2,681)
---------- ---------- ---------- ----------
Comprehensive income (loss) . . . . . . . . . . $ 8,824 1,284 5,471 (8,149)
========== ========== ========== ==========
Basic earnings (loss) per common share before
cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . $ 0.12 (0.06) (0.05) (0.18)
Cumulative effect of change in
accounting principle. . . . . . . . . . . . . -- -- 0.03 --
---------- ---------- ---------- ----------
Basic earnings (loss) per common share. . . . . $ 0.12 (0.06) (0.02) (0.18)
========== ========== ========== ==========
Basic weighted average
shares outstanding. . . . . . . . . . . . . . 30,278,032 29,775,259 30,244,245 29,946,909
========== ========== ========== ==========
Diluted earnings (loss) per common share
before cumulative effect of change in
accounting principle. . . . . . . . . . . . . $ 0.11 (0.06) (0.05) (0.18)
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . -- -- 0.03 --
---------- ---------- ---------- ----------
Diluted earnings (loss) per common share. . . . $ 0.11 (0.06) (0.02) (0.18)
========== ========== ========== ==========
Diluted weighted average
shares outstanding. . . . . . . . . . . . . . 31,871,256 29,775,259 30,244,245 29,946,909
========== ========== ========== ==========
<fn>
See accompanying notes to consolidated financial statements.
</table>
<table> JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 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. . . . . . -- -- -- -- (529) -- -- (529)
Shares issued in
connection with
Stock option
plan . . . . . . 106,804 1 1,871 -- -- -- -- 1,872
Restricted stock
grants. . . . . . -- -- 6,562 (6,562) -- -- -- --
Amortization of
shares issued
in connection
with restricted
stock . . . . . . -- -- -- 1,095 -- -- -- 1,095
Reduction in
restricted
stock compen-
sation rights
outstanding . . . -- -- (69) 69 -- -- -- --
Stock purchase
program grants. . -- -- 458 (458) -- -- -- --
Shares issued in
connection with
stock purchase
programs. . . . . 104,456 1 1,873 -- -- -- -- 1,874
Amortization of
shares issued in
connection with
stock purchase
programs. . . . . -- -- -- 1,180 -- -- (1) 1,179
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
SIX MONTHS ENDED JUNE 30, 2002
(in thousands, except share data)
(UNAUDITED)
Accumu-
lated
Other
Additi- Deferred Compre-
Common Stock tional Stock Retained Shares hensive
------------------- Paid-In Compen- Earnings Held in Income
Shares Amount Capital sation (Deficit) Trust (Loss) Total
---------- ------ -------- -------- --------- -------- ------- -------
Shares repur-
chased for pay-
ment of taxes
on shares issued
pursuant to
stock purchase
programs. . . . . (7,808) -- (143) -- -- -- -- (143)
Distribution of
shares held in
trust. . . . . . . -- -- -- -- -- 1,198 -- 1,198
Cumulative effect
of foreign
currency
translation
adjustments. . . . -- -- -- -- -- -- 6,001 6,001
---------- ---- ------- -------- -------- -------- -------- -------
Balances at
June 30,
2002. . . . . . . 30,386,902 $304 474,478 (10,714) (123,050) (460) (13,630) 326,928
========== ==== ======= ======== ======== ======== ======== =======
<fn>
See accompanying notes to consolidated financial statements.
</table>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands)
(UNAUDITED)
2002 2001
---------- ----------
Cash flows from operating activities:
Cash flows from earnings:
Net loss. . . . . . . . . . . . . . . . . $ (529) (5,468)
Reconciliation of net loss to net cash
provided by earnings:
Cumulative effect of change in
accounting principle. . . . . . . . . (846) --
Minority interest . . . . . . . . . . . 1,292 531
Depreciation and amortization . . . . . 18,821 23,422
Equity in earnings and gain on sale
from unconsolidated ventures. . . . . (501) (3,857)
Operating distributions from real
estate ventures . . . . . . . . . . . 1,572 4,442
Provision for loss on receivables and
other assets. . . . . . . . . . . . . 2,820 8,478
Stock compensation expense. . . . . . . 139 --
Amortization of deferred compensation . 4,178 3,077
Amortization of debt issuance costs . . 645 595
---------- ----------
Net cash provided by earnings . . . . 27,591 31,220
Cash flows from changes in
working capital:
Receivables . . . . . . . . . . . . . . 41,136 54,205
Prepaid expenses and other assets . . . 2,321 (10,254)
Deferred tax assets . . . . . . . . . . (497) (10)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . . (89,995) (141,193)
---------- ----------
Net cash flows from changes in
working capital . . . . . . . . . . (47,035) (97,252)
---------- ----------
Net cash used in
operating activities. . . . . . . . (19,444) (66,032)
Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . (5,360) (17,657)
Investments in e-commerce ventures. . . . (224) (2,983)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . . (15,688) (3,154)
Distributions, repayments of advances
and sale of investments . . . . . . . 6,244 19,773
---------- ----------
Net cash used in
investing activities. . . . . . . (15,028) (4,021)
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(in thousands)
(UNAUDITED)
2002 2001
---------- ----------
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . . 218,892 228,109
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . . (189,762) (157,935)
Shares repurchased for payment of
taxes on stock awards . . . . . . . . . . -- (3,114)
Shares repurchased under share
repurchase program. . . . . . . . . . . . -- (6,942)
Common stock issued under stock option
plan and stock purchase programs. . . . . 2,860 1,167
---------- ----------
Net cash provided by financing
activities. . . . . . . . . . . . . 31,990 61,285
---------- ----------
Net decrease in cash and
cash equivalents. . . . . . . . . . (2,482) (8,768)
Cash and cash equivalents,
beginning of period . . . . . . . . . . . . 10,446 18,843
---------- ----------
Cash and cash equivalents, end of period. . . $ 7,964 10,075
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . $ 9,465 10,746
Taxes, net of refunds . . . . . . . . . . 4,579 16,367
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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. Readers
of this quarterly report should also refer to the "Summary of Critical
Accounting Policies" section within Item 2., "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained herein
for further discussion of our accounting policies.
(1) ACCOUNTING POLICIES
INTERIM INFORMATION
Our consolidated financial statements as of June 30, 2002 and for the
three and six month ended June 30, 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 June 30, 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
For the three months ended June 30, 2002, basic earnings per share
were calculated based on basic weighted average shares outstanding of
30.3 million, and diluted earnings per share were calculated based on
diluted weighted average shares outstanding of 31.9 million. The
increase of 1.6 million in weighted average shares outstanding
reflects the dilutive effect 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 this period.
For the six months ended June 30, 2002, the basic and diluted loss
per common share was calculated based on basic weighted average
shares outstanding of 30.2 million. For the three and six month
periods ended June 30, 2001, basic and diluted losses per common
share were calculated based on basic weighted average shares
outstanding of 29.8 million and 29.9 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. 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 and actions we have
implemented to date 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 and
six months ended June 30, 2001, we used an effective tax rate of 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.
Allocated expenses primarily consist of corporate global overhead,
including certain globally managed stock compensation programs.
These corporate global overhead expenses are allocated to the
business segments based on the relative revenue of each segment.
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 six months of 2001 have been
reclassified to conform to the current period measure. Prior year
results were not materially impacted by this change. See Note 3 for
a detailed discussion of these non-recurring and restructuring
charges. We have determined that it is not meaningful to investors
to allocate these non-recurring and restructuring 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 and six months ended June 30, 2002 and 2001 is as follows
($ in thousands):
<table>
<caption>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
<s> <c> <c> <c> <c>
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . . . $ 26,482 38,301 47,063 63,797
Management services . . . . . . . . 31,847 35,913 63,082 70,930
Equity earnings (losses). . . . . . (472) 335 (482) 335
Other services. . . . . . . . . . . 310 437 667 723
Intersegment revenue. . . . . . . . 85 550 202 710
-------- -------- -------- --------
58,252 75,536 110,532 136,495
Operating expenses:
Compensation, operating and
administrative expenses . . . . . 50,466 65,678 99,976 131,663
Depreciation and amortization . . . 4,739 6,300 9,632 11,990
-------- -------- -------- --------
Operating income (loss) . . . $ 3,047 3,558 924 (7,158)
======== ======== ======== ========
EUROPE
Revenue:
Implementation services . . . . . . $ 58,193 56,046 103,339 121,281
Management services . . . . . . . . 20,803 21,304 39,147 41,570
Other services. . . . . . . . . . . 155 249 1,002 436
-------- -------- -------- --------
79,151 77,599 143,488 163,287
Operating expenses:
Compensation, operating and
administrative expenses . . . . . 70,473 68,771 131,984 142,786
Depreciation and amortization . . . 2,712 3,128 5,268 6,185
-------- -------- -------- --------
Operating income. . . . . . . $ 5,966 5,700 6,236 14,316
======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
ASIA PACIFIC
Revenue:
Implementation services . . . . . . $ 19,685 16,766 34,577 33,154
Management services . . . . . . . . 12,030 11,539 22,957 22,694
Other services. . . . . . . . . . . 253 354 658 697
-------- -------- -------- --------
31,968 28,659 58,192 56,545
Operating expenses:
Compensation, operating and
administrative expenses . . . . . 29,106 29,365 56,640 58,204
Depreciation and amortization . . . 1,587 1,681 3,306 3,275
-------- -------- -------- --------
Operating income (loss) . . . $ 1,275 (2,387) (1,754) (4,934)
======== ======== ======== ========
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . . . $ -- 1,044 353 1,839
Advisory fees . . . . . . . . . . . 20,517 17,663 39,308 38,768
Equity earnings . . . . . . . . . . 1,131 1,006 983 3,522
Other services. . . . . . . . . . . -- 19 82 79
-------- -------- -------- --------
21,648 19,732 40,726 44,208
Operating expenses:
Compensation, operating and
administrative expenses . . . . . 19,065 19,233 37,070 37,946
Depreciation and amortization . . . 312 982 615 1,972
-------- -------- -------- --------
Operating income (loss) . . . $ 2,271 (483) 3,041 4,290
======== ======== ======== ========
Total segment revenue . . . . . . . . . $191,019 201,526 352,938 400,535
Intersegment revenue eliminations . . . (85) (550) (202) (710)
-------- -------- -------- --------
Total revenue . . . . . . . . $190,934 200,976 352,736 399,825
======== ======== ======== ========
Total segment operating expenses. . . . $178,460 195,138 344,491 394,021
Intersegment operating expense
eliminations. . . . . . . . . . . . . (85) (550) (202) (710)
-------- -------- -------- --------
Total operating expenses before
non-recurring charges . . . $178,375 194,588 344,289 393,311
======== ======== ======== ========
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Operating income before
non-recurring charges . . . $ 12,559 6,388 8,447 6,514
======== ======== ======== ========
Non-recurring charges . . . . $ -- 2,595 -- 3,650
======== ======== ======== ========
Operating income. . . . . . . $ 12,559 3,793 8,447 2,864
======== ======== ======== ========
</table>
(3) NON-RECURRING AND RESTRUCTURING CHARGES
For the three and six months ended June 30, 2001 we incurred non-
recurring and restructuring charges of $2.6 million and $3.7 million,
respectively.
Non-recurring charges include the write-down of our 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, which are made
into these ventures in the period they are made. These charges are
booked as ordinary recurring charges. In the six months ended
June 30, 2002, the Americas OOS segment expensed a total of $224,000
of such investments.
Restructuring charges include severance and professional fees
associated with the realignment of our business. The Asia Pacific
business underwent a realignment from a traditional geographic
structure to one that is managed according to business lines. In
addition, in the second half of 2001 we implemented a broad based
restructuring of our business that reduced headcount by approximately
9%.
The following table details the consolidated non-recurring and
restructuring charges by segment (amounts in millions);
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------------- -------------------
Non- Restruc- Non- Restruc-
Recurring turing Recurring turing
--------- -------- --------- --------
Owner & Occupier
Services
Americas . . . . . . 0.9 1.1 2.0 1.1
Europe . . . . . . . 0.1 0.1 0.1 0.1
Asia Pacific . . . . -- 0.4 -- 0.4
---- ---- ---- ----
Consolidated. . . . 1.0 1.6 2.1 1.6
==== ==== ==== ====
The total charge for the full year of 2001 for severance and related
costs was $43.9 million. Of these costs, $9.9 million had been paid
at December 31, 2001; $16.4 million was paid in the first quarter of
2002, and $8.3 million was paid in the second quarter of 2002, with
the balance of $9.3 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
none and $0.1 million of these revenues in the three and six months
ended June 30, 2002, respectively. 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 June 30, 2002, we
had forward exchange contracts in effect with a notional value of
$73.7 million and a market and carrying gain of $6.1 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 June 30, 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.
As a firm, we do not enter into derivative financial instruments for
trading or speculative purposes. We hedge any foreign exchange risk
resulting from intercompany loans through the use of foreign currency
forward contracts. 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 six months ended June 30, 2002 of
the unrealized gain on foreign currency contracts, offset by the loss
resulting from re-measurement of foreign currency transactions, was a
loss of $39,000.
The effect of implementing SFAS 133 did not have a material impact on
our consolidated financial statements.
(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 required us to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. To
accomplish this evaluation, we determined 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 determined the fair value of each
reporting unit on the basis of a discounted cash flow methodology and
compared it to the reporting unit's carrying amount. In all cases,
the fair value of each reporting unit exceeded its carrying amount,
and therefore no impairment loss has been recognized on our goodwill.
Also, unamortized negative goodwill of $846,000 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 $333.0 million of unamortized intangibles as of June 30,
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, which means that a portion of the
movements in the reported book value of these balances is
attributable to movements in currency exchange rates. $312.1 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 three and six months ended June 30, 2002
were $2.4 million and $4.8 million, respectively. 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 gross carrying amount of this negative
goodwill (which related to the Americas OOS reporting segment) at
January 1, 2002 was $1,410,000 with accumulated amortization of
$565,000. The remaining $20.9 million of identified intangibles
(principally representing management contracts acquired) will be
amortized over their remaining definite useful lives. 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 For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
-------- -------- -------- --------
Reported net income
(loss). . . . . . . . . $ 3,506 (1,922) (529) (5,468)
Add back: Cumulative
effect of change in
accounting principle. . -- -- (846) --
Add back: Amortization
of Goodwill with
indefinite useful
lives, net of tax . . . -- 1,587 -- 3,079
-------- -------- -------- --------
Adjusted net income
(loss). . . . . . . . . $ 3,506 (335) (1,375) (2,389)
======== ======== ======== ========
Basic earnings (loss)
per common share. . . . $ 0.12 (0.06) (0.02) (0.18)
Cumulative effect of
change in accounting
principle . . . . . . . -- -- (0.03) --
Amortization of Goodwill
with indefinite useful
lives, net of tax . . . -- 0.05 -- 0.10
-------- -------- -------- --------
Adjusted basic earnings
(loss) per common
share . . . . . . . . . $ 0.12 (0.01) (0.05) (0.08)
======== ======== ======== ========
Diluted earnings (loss)
per common share. . . . $ 0.11 (0.06) (0.02) (0.18)
Cumulative effect of
change in accounting
principle . . . . . . . -- -- (0.03) --
Amortization of Goodwill
with indefinite useful
lives, net of tax . . . -- 0.05 -- 0.10
-------- -------- -------- --------
Adjusted diluted
earnings (loss) per
common share. . . . . . $ 0.11 (0.01) (0.05) (0.08)
======== ======== ======== ========
The following table sets forth, by reporting segment, the current
year movements in the gross carrying amount and accumulated
amortization of our goodwill with indefinite useful lives (amounts in
thousands):
Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2002 . . .$179,263 62,382 79,603 19,767 341,015
Impact of exchange
rate movements. . . . 32 3,441 3,125 555 7,153
-------- -------- -------- -------- --------
Balance as of
June 30, 2002 . . . .$179,295 65,823 82,728 20,322 348,168
Accumulated
Amortization
- ------------
Balance as of
January 1, 2002 . . .$(15,516) (4,901) (5,607) (9,303) (35,327)
Impact of exchange
rate movements. . . . (22) (305) (224) (142) (693)
-------- -------- -------- -------- --------
Balance as of
June 30, 2002 . . . .$(15,538) (5,206) (5,831) (9,445) (36,020)
Net book value. . . . .$163,757 60,617 76,897 10,877 312,148
======== ======== ======== ======== ========
The following table sets forth, by reporting segment, the current
year movements in the gross carrying amount and accumulated
amortization of our goodwill with definite useful lives as well as
estimated future amortization expense (amounts in thousands, unless
otherwise noted).
Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Gross Carrying
Amount
- --------------
Balance as of
January 1, 2002 . . .$ 39,377 742 2,071 4,332 46,522
Impact of exchange
rate movements. . . . -- 41 220 231 492
-------- -------- -------- -------- --------
Balance as of
June 30, 2002 . . . .$ 39,377 783 2,291 4,563 47,014
Owner and Occupier Services Invest-
----------------------------- ment
Asia Manage- Consol-
Americas Europe Pacific ment idated
-------- -------- -------- -------- --------
Accumulated
Amortization
- ------------
Balance as of
January 1, 2002 . . .$(17,720) (302) (841) (4,332) (23,195)
Amortization expense
- Q1. . . . . . . . . (1,207) (23) (66) -- (1,296)
Amortization expense
- Q2. . . . . . . . . (1,207) (23) (72) -- (1,302)
Impact of exchange
rate movements. . . . 20 (19) (95) (231) (325)
-------- -------- -------- -------- --------
Balance as of
June 30, 2002 . . . .$(20,114) (367) (1,074) (4,563) (26,118)
Net book value. . . . .$ 19,263 416 1,217 -- 20,896
======== ======== ======== ======== ========
ESTIMATED ANNUAL AMORTIZATION EXPENSE
Remaining 2002 Amortization $2.6 million
For Year Ended 12/31/03 $5.2 million
For Year Ended 12/31/04 $5.2 million
For Year Ended 12/31/05 $4.7 million
For Year Ended 12/31/06 $3.2 million
For Year Ended 12/31/07 None
(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 June 30, 2002 and December 31,
2001, Condensed Consolidating Statement of Earnings for the three and
six months ended June 30, 2002 and 2001, and Condensed Consolidating
Statement of Cash Flows for the six months ended June 30, 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, or long-term notes, on a periodic basis. Certain Guarantor
and Non-Guarantor Subsidiaries also enter into third party borrowings
on a limited basis. All intercompany activity has been included as
subsidiary activity in investing activities in the Condensed
Consolidating Statements of Cash Flows. Cash is managed on a
consolidated basis and there is a right of offset between bank
accounts in the different groupings of legal entities in the
condensed consolidating financial information. Therefore, in certain
cases, negative cash balances have not been reallocated to payables
as they legally offset positive cash balances elsewhere in Jones Lang
LaSalle Incorporated. In certain cases, taxes have been calculated
on the basis of a group position that includes both Guarantor and
Non-Guarantor Subsidiaries. In such cases, the taxes have been
allocated to individual legal entities on the basis of that legal
entity's pre tax income.
<table>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 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. . . $ 4,800 34 (4,312) 7,442 -- 7,964
Trade receivables,
net of allowances . . -- -- 55,803 113,769 -- 169,572
Other current assets. . (312) -- 32,503 30,034 -- 62,225
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . . 4,488 34 83,994 151,245 -- 239,761
Property and equipment,
at cost, less accumu-
lated depreciation . . 5,006 -- 40,787 39,028 -- 84,821
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . . -- -- 240,187 92,857 -- 333,044
Other assets, net . . . 27,443 -- 77,507 33,706 -- 138,656
Investments in
subsidiaries . . . . . 228,379 -- 223,717 677 (452,773) --
---------- ---------- ---------- ---------- ---------- ----------
$ 265,316 34 666,192 317,513 (452,773) 796,282
========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 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 . $ 9,964 1,370 27,317 52,400 -- 91,051
Short-term borrowings . (7) -- 5,218 10,554 -- 15,765
Other current
liabilities . . . . . (77,073) (254,293) 390,927 18,903 -- 78,464
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . . (67,116) (252,923) 423,462 81,857 -- 185,280
Long-term liabilities:
Credit facilities . . -- 88,716 -- -- -- 88,716
9% senior notes,
due 2007. . . . . . -- 163,564 -- -- -- 163,564
Other . . . . . . . . 5,504 -- 14,351 9,673 -- 29,528
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities . (61,612) (643) 437,813 91,530 -- 467,088
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . . -- -- -- 2,266 -- 2,266
Stockholders' equity. . 326,928 677 228,379 223,717 (452,773) 326,928
---------- ---------- ---------- ---------- ---------- ----------
$ 265,316 34 666,192 317,513 (452,773) 796,282
========== ========== ========== ========== ========== ==========
</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 June 30, 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 . . . . . . . . . $ -- -- 87,805 103,129 -- 190,934
Equity earnings (loss)
from subsidiaries. . . . 2,453 -- 1,048 80 (3,581) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . . 2,453 -- 88,853 103,209 (3,581) 190,934
Operating expenses. . . . 2,234 1 80,383 95,757 -- 178,375
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . . . 219 (1) 8,470 7,452 (3,581) 12,559
Interest expense, net
of interest income . . . (955) (231) 3,776 2,079 -- 4,669
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority interest. . 1,174 230 4,694 5,373 (3,581) 7,890
Net provision (benefit)
for income taxes . . . . (2,332) 150 2,241 3,096 -- 3,155
Minority interests
in earnings of
subsidiaries . . . . . . -- -- -- 1,229 -- 1,229
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss),
before cumulative
effect of change in
accounting principle . . 3,506 80 2,453 1,048 (3,581) 3,506
Cumulative effect of
change in accounting
principle. . . . . . . . -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . $ 3,506 80 2,453 1,048 (3,581) 3,506
========== ========== ========== ========== ========== ==========
</table>
<table> JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 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 . . . . . . . . . $ -- -- 159,800 192,936 -- 352,736
Equity earnings (loss)
from subsidiaries. . . . (775) -- (396) 138 1,033 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . . (775) -- 159,404 193,074 1,033 352,736
Operating expenses. . . . 5,640 17 152,436 186,196 -- 344,289
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss) . . . . . . . (6,415) (17) 6,968 6,878 1,033 8,447
Interest expense, net
of interest income . . . (3,342) (461) 7,360 5,030 -- 8,587
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority interest. . (3,073) 444 (392) 1,848 1,033 (140)
Net provision (benefit)
for income taxes . . . . (2,544) 306 383 1,798 -- (57)
Minority interests
in earnings of
subsidiaries . . . . . . -- -- -- 1,292 -- 1,292
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss),
before cumulative
effect of change in
accounting principle . . (529) 138 (775) (1,242) 1,033 (1,375)
Cumulative effect of
change in accounting
principle. . . . . . . . -- -- -- 846 -- 846
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . $ (529) 138 (775) (396) 1,033 (529)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . . $ 13 -- 95,489 105,474 -- 200,976
Equity earnings (loss)
from subsidiaries. . . 525 -- 2,800 168 (3,493) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . 538 -- 98,289 105,642 (3,493) 200,976
Operating expenses
before non-recurring
charges. . . . . . . . 4,102 -- 92,518 97,968 -- 194,588
Non-recurring charges . -- -- 2,213 382 -- 2,595
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . . (3,564) -- 3,558 7,292 (3,493) 3,793
Interest expense,
net of interest
income . . . . . . . . (791) (197) 4,049 2,920 -- 5,981
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . . (2,773) 197 (491) 4,372 (3,493) (2,188)
Net provision (benefit)
for income taxes . . . (851) 29 (1,016) 1,007 -- (831)
Minority interests
in earnings of
subsidiaries . . . . . -- -- -- 565 -- 565
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . $ (1,922) 168 525 2,800 (3,493) (1,922)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<s> <c> <c> <c> <c> <c> <c>
Revenue . . . . . . . . $ 13 -- 192,529 207,283 -- 399,825
Equity earnings (loss)
from subsidiaries. . . (1,046) -- 2,111 348 (1,413) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . . (1,033) -- 194,640 207,631 (1,413) 399,825
Operating expenses
before non-recurring
charges. . . . . . . . 8,500 -- 186,570 198,241 -- 393,311
Non-recurring charges . -- -- 3,268 382 -- 3,650
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . . (9,533) -- 4,802 9,008 (1,413) 2,864
Interest expense,
net of interest
income . . . . . . . . (1,698) (440) 7,911 5,054 -- 10,827
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . . (7,835) 440 (3,109) 3,954 (1,413) (7,963)
Net provision (benefit)
for income taxes . . . (2,367) 92 (2,063) 1,312 -- (3,026)
Minority interests
in earnings of
subsidiaries . . . . . -- -- -- 531 -- 531
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . . $ (5,468) 348 (1,046) 2,111 (1,413) (5,468)
========== ========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 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. . . . . . $ (7,877) 23,652 (26,780) (8,439) (19,444)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . (1,232) -- (898) (3,230) (5,360)
Investments in e-commerce
ventures. . . . . . . . . . . -- -- (224) -- (224)
Subsidiary activity . . . . . . 7,914 (52,532) 38,259 6,359 --
Investments in real estate
ventures. . . . . . . . . . . -- -- (7,897) (1,547) (9,444)
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . . 6,682 (52,532) 29,240 1,582 (15,028)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit
facility. . . . . . . . . . . (7) 28,862 (3,929) 4,204 29,130
Common stock issued under
stock option plan . . . . . . 2,860 -- -- -- 2,860
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . . 2,853 28,862 (3,929) 4,204 31,990
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . 1,658 (18) (1,469) (2,653) (2,482)
Cash and cash equivalents,
beginning of period . . . . . . 3,142 52 (2,843) 10,095 10,446
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period . . . . . . . . . $ 4,800 34 (4,312) 7,442 7,964
========== ========== ========== ========== ==========
</table>
<table>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2001
($ in thousands)
<caption>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------ ------------- ------------
<s> <c> <c> <c> <c> <c>
Cash flows provided by (used in)
operating activities. . . . . . $ (4,194) 498 (35,053) (27,283) (66,032)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . (973) -- (7,064) (9,620) (17,657)
Investments in e-commerce
ventures. . . . . . . . . . . -- -- (2,983) -- (2,983)
Subsidiary activity . . . . . . 13,275 (70,688) 52,482 4,931 --
Investments in real estate
ventures. . . . . . . . . . . -- -- (3,460) 20,079 16,619
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities. . . . . . . . 12,302 (70,688) 38,975 15,390 (4,021)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit
facility. . . . . . . . . . . -- 70,056 (1,780) 1,898 70,174
Shares repurchased. . . . . . . (10,056) -- -- -- (10,056)
Common stock issued under
stock option plan . . . . . . 1,167 -- -- -- 1,167
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities. . . . . . . . (8,889) 70,056 (1,780) 1,898 61,285
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . (781) (134) 2,142 (9,995) (8,768)
Cash and cash equivalents,
beginning of period . . . . . . 3,689 152 (3,665) 18,667 18,843
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period . . . . . . . . . $ 2,908 18 (1,523) 8,672 10,075
========== ========== ========== ========== ==========
</table>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto for the three and six
months ended June 30, 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 satisfied.
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.
PERIODIC ACCOUNTING FOR INCENTIVE COMPENSATION - An important part of
our overall compensation package is incentive compensation, which is
typically paid out to employees in the first quarter of the year after it
is earned. In our interim financial statements we accrue for incentive
compensation based on the percentage of revenue and compensation costs
recorded to date relative to forecasted revenue and compensation costs for
the full year. The impact of this incentive compensation accrual
methodology is that we accrue very little incentive compensation in the
first six months of the year with the majority of our incentive
compensation accrued in the fourth quarter. We adjust the incentive
compensation accrual in those unusual cases where earned incentive
compensation has been paid to employees. In addition we exclude from the
standard accrual methodology, incentive compensation pools that are not
subject to the normal performance criteria. These pools are accrued for on
a straight-line basis. As a result of competitive pressures and the
difficult underlying economic environment, in the second quarter of 2002 we
have chosen to guarantee a portion of the incentive compensation pool for
certain European based employees. The effect of excluding the incentive
compensation pool relating to these employees from the accrual methodology
and expensing the guaranteed minimum on a straight line basis over the
final three quarters of 2002 has been to increase the Q2 incentive
compensation expense by $4 million.
ASSET IMPAIRMENT - We apply SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), to recognize and
measure impairment of long-lived assets. 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.
We review long-lived assets, including investments in real estate
ventures, intangibles and property and equipment for impairment on an
annual basis, or 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.
Although the Development Group was sold in Q3 2001, we have retained
certain investments originated by this group. Included in investments in
real estate ventures as of June 30, 2002 is the book value of the four
remaining investment projects of $1.9 million. This book value is net of
an impairment charge, recorded through equity earnings during the second
quarter of 2002, of $472,000 against two of these investments. We continue
to evaluate these investments for impairment, and any impairment charges
are booked as ordinary recurring charges in the Americas OOS segment. We
currently expect to have liquidated the Development Group investments by
the end of 2003.
Although the Land Investment Group was closed down in 2001, we have
retained certain investments originated by this group. Included in
investments in real estate ventures as of June 30, 2002 is the book value
of the five remaining Land Investment Group investments of $4.4 million.
This book value is net of $3.5 million of impairment charges booked in 2001
as part of our non-recurring charges. We have also provided guarantees
associated with these projects of $1.6 million. In the first six months of
2002 there were no additional impairment charges taken, although we
continue to monitor the portfolio very carefully and are in the process of
a detailed re-evaluation of one particular investment with a book value of
$1.4 million that was not part of the 2001 charge. Any impairment charges
relating to the Land Investment Group would be booked as ordinary recurring
charges in the Investment Management segment. We currently expect to have
liquidated the Land Investment Group investments by the end of 2005.
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 as part of our non-recurring
charges. 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 six months
ended June 30, 2002, the Americas OOS segment expensed a total of $224,000
of such investments.
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. 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.
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. The tax environment
that we operate in is complex as a result of the number of jurisdictions
that we do business in and the cross border nature of certain of our
transactions. Our global effective tax rate is also sensitive to changes
in the mix of our geographic profitability as local statutory tax rates
range from 16% to 40% in the countries in which we have significant
operations. We continuously seek to develop and implement potential
strategies and/or actions that would reduce our overall effective tax rate.
We reflect the benefit from tax planning actions when we believe it is
probable that they will be successful, which usually requires certain
actions to have been initiated. We are currently reviewing a number of
actions that may have the impact of reducing our global effective tax rate
to a sustainable level of 36%-37%.
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.
HEDGING ACTIVITIES - As a firm, we do not enter into derivative
financial instruments for trading or speculative purposes. However, the
global nature of our business means that we are often required to enter
into cross-border loans between Jones Lang LaSalle legal entities in order
to facilitate the use of our cash for debt repayment. An intercompany loan
will create foreign exchange risk if it is denominated in a currency that
is different from the functional currency of one or both of the Jones Lang
LaSalle legal entities party to the loan. We hedge any foreign exchange
risk resulting from intercompany loans through the use of foreign currency
forward contracts. At June 30, 2002, we had forward exchange contracts in
effect with a notional value of $73.7 million and a market and carrying
gain of $6.1 million.
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
forty years). SFAS 142, which we adopted January 1, 2002, requires that we
cease amortizing the goodwill element of these intangibles, which is $312.1
million. This will reduce our annual amortization expense by $10 million.
We will continue to amortize intangibles with definite useful lives, which
primarily represent the value placed on management contracts that are
acquired as part of our acquisition of a company.
In connection with the transitional goodwill impairment evaluation,
SFAS 142 required us to perform an assessment of whether there was an
indication that goodwill was impaired as of the date of adoption. To
accomplish this evaluation, we determined 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 determined the fair value of each reporting unit
on the basis of a discounted cash flow methodology and compared it to the
reporting unit's carrying amount. In all cases, the fair value of each
reporting unit exceeded its carrying amount, and therefore no impairment
loss has been recognized on our goodwill.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 2001
ITEMS AFFECTING COMPARABILITY
NON-RECURRING AND RESTRUCTURING CHARGES
In the three months ended June 30, 2001, we incurred $1.0 and $1.6
million of non-recurring and restructuring charges, respectively. In the
six months ended June 30, 2001, we incurred $2.1 and $1.6 million of non-
recurring and restructuring charges, respectively. We have no similar
costs in 2002. The non-recurring charges resulted from the write-down of
two specific e-commerce investments. By the end of 2001 we had written off
all of our investments in e-commerce ventures, at a cost of $18.0 million.
The restructuring charges include severance and professional fees
associated with the realignment of our business. The majority of our
restructuring was implemented in the second half of 2001 and the total
charge for the full year for severance and related costs was $43.9 million.
The non-recurring and restructuring charges are described more fully in
Note 3 to Notes to Consolidated Financial Statements.
ADOPTION OF STATEMENT NO. 142, GOODWILL AND OTHER INTANGIBLE ASSETS
("SFAS 142")
We adopted the provisions of SFAS 142 effective January 1, 2002. This
adoption is described more fully in Note 6 to Notes to Consolidated
Financial Statements. As a result of implementing SFAS 142, we recorded an
after-tax credit to earnings representing a cumulative change in accounting
principle effective January 1, 2002 of $846,000. During the first six
months of 2002, the net impact of SFAS 142 was to increase operating income
by $4.8 million as a result of stopping amortizing goodwill with indefinite
lives.
LASALLE INVESTMENT MANAGEMENT FEES
Our Investment Management business is in part compensated through the
receipt of incentive fees where investment performance exceeds agreed
benchmark levels. Dependent upon performance, these fees can be
significant and will generally be recognized when agreed events or
milestones are reached. The timing of recognition may impact comparability
between quarters, in any one year, or compared to a prior year.
REVENUE
Total revenue, after elimination of intersegment revenue, decreased
$10.1 million, or 5.0%, to $190.9 million for three months ended June 30,
2002 from $201.0 million for the three months ended June 30, 2001. For the
six months ended June 30, 2002 revenues decreased $47.1 million, or 11.8%,
to $352.7 million from $399.8 million for the six months ended June 30,
2001. The reduction in our revenues year over year reflects the impact of
the weak global economy particularly on transaction activity. We had
anticipated the decline in revenues as we had not anticipated a turnaround
in overall economic conditions during the second quarter of 2002. In
addition, the US dollar reported revenues were favorably impacted by $4
million and $2 million in the three and six months ended June 30, 2002,
respectively, as compared to the same periods last year, due to the
weakening US dollar against the key currencies in which we operate,
primarily the euro, pound sterling and the Australian dollar.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
decreased $16.2 million, or 8.3%, to $178.4 million for the three months
ended June 30, 2002 compared to $194.6 million, excluding non-recurring
charges, for the three months ended June 30, 2001. For the six months
ended June 30, 2002 operating expenses decreased $49.0 million, or 12.5%,
to $344.3 million from $393.3 million for the six months ended June 30,
2001, excluding non-recurring charges. 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. The reduction in operating expenses was
mitigated by the increase in US dollar reported operating expenses of $4
million and $2 million in the three and six months ended June 30, 2002,
respectively, as compared to the same periods last year, due to the
weakening US dollar against the key currencies in which we operate,
primarily the euro, pound sterling and the Australian dollar. Compensation
and benefit expense was down $8.0 million for the three months ended June
30, 2002, and down $31.6 million for the six months ended June 30, 2002
primarily as a result of the 2001 restructuring actions. The reduction in
compensation and benefit expense in the first half of 2002 is also
attributable to reduced levels of incentive compensation expense of $11.4
million. The reduction in incentive compensation may reverse over the
balance of the year depending on performance. Operating, administrative
and other expenses were down $5.4 million and $12.8 million for the three
and six months ended June 30, 2002, respectively, 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 an amortization savings of $2.4 million and $4.8 million
for the three and six months ended June 30, 2002, respectively.
OPERATING INCOME
Due to the seasonal nature of our business we typically report an
operating loss in the first quarter followed by moderate operating income
in the second quarter (see Seasonality section for further discussion).
Consistent with this pattern of seasonality, we reported operating income
for the three months ended June 30, 2002 of $12.6 million. For the three
months ended June 30, 2001 we reported $6.4 million of operating income,
excluding non-recurring charges discussed in Note 3 of Notes to
Consolidated Financial Statements. For the six months ended June 30, 2002
we reported operating income of $8.4 million compared to an operating
income of $6.5 million for six months ended June 30, 2001, excluding non-
recurring charges.
INTEREST EXPENSE
Interest expense, net of interest income, decreased $1.3 million, to
$4.7 million for the three months ended June 30, 2002 and $2.2 million, to
$8.6 million for the six months ended June 30, 2002 from the prior periods.
The decrease in interest expense is the result of lower average revolver
borrowings at declining interest rates partially offset by the impact of
the strengthening euro on the reported U.S. dollar value of the interest
expense on the Euro Bonds.
PROVISION/(BENEFIT) FOR INCOME TAXES
The provision for income taxes was $3.2 million for the three months
ended June 30, 2002, as compared to a benefit of $0.8 million for the same
period of 2001. The benefit for income taxes was $0.1 million for the six
months ended June 30, 2002 as compared to a benefit of $3.0 million for the
same period of 2001. Our estimated effective tax rate for the second
quarter and first half of 2002 was 40%, as compared to 38% for the same
periods of 2001. See Income Tax Provision section of Note 1 to Notes to
Consolidated Financial Statements and Summary of Critical Accounting
Policies herein for further discussion of our effective tax rate.
NET INCOME/(LOSS)
Our net income for the three months ended June 30, 2002 was $3.5
million. Our net loss, excluding non-recurring charges, for the three
months ended June 30, 2001 was $0.3 million. Our net loss, excluding the
cumulative effect of change in accounting principle related to the adoption
of SFAS 142, for the six months ended June 30, 2002 was $1.4 million. Our
net loss, excluding non-recurring charges, for the six months ended
June 30, 2002 was $3.2 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 six months ended June 30, 2002 was $0.5
million. Including the non-recurring charges of $2.6 million and $3.7
million, which are discussed in detail at Note 3 to Notes to Consolidated
Financial Statements, our net loss for the three and six months ended
June 30, 2001 was $1.9 million and $5.5 million, respectively.
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 $17.2 million, or 22.8%, to
$58.3 million for the three months ended June 30, 2002, as compared to
$75.5 million for the three months ended June 30, 2001. For the six months
ended June 30, 2002, revenue decreased $26.0 million, or 19.1%, to $110.5
million, as compared to $136.5 million for the six months ended June 30,
2001. The reduced revenue reflects the continued weakness in the economy.
The most significant revenue declines during the three and six months ended
June 30, 2002, as compared to the same periods last year, are attributable
to the Capital Markets unit, the Leasing and Management unit and the
Project and Development unit. Included in the equity earnings for the
second quarter of 2002 is an impairment charge of $472,000 relating to a
legacy development investment that had been made by the Development Group
that we sold in the third quarter of 2001. We have retained an interest in
certain of this groups' portfolio of investments. The remaining book value
at June 30, 2002 of investments related to this group was $1.9 million. We
continue to manage our exposure to these investments and expect that we
will be able to liquidate the remaining investments by the end of 2003. It
is likely that we will continue to realize gains and losses as we continue
the program of planned liquidation.
Operating expenses for the Americas region decreased $16.8 million, or
23.3%, to $55.2 million for the three months ended June 30, 2002, as
compared to $72.0 million for the three months ended June 30, 2001. For
the six months ended June 30, 2002, operating expenses decreased $34.1
million, or 23.7%, to $109.6 million, as compared to $143.7 million for the
six months ended June 30, 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 $3.3 million and $6.1 million for the three and six months
ended June 30, 2002, respectively, which is the result of reduced revenues.
This reduction in incentive compensation may 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 was reduced by $1.2 million and $2.3
million for the three and six months ended June 30, 2002, respectively.
EUROPE
Revenue for the Europe region totaled $79.2 million for the three
months ended June 30, 2002, as compared to $77.6 million for the same
period in 2001, an increase of 2.0%. For the six months ended June 30,
2002, revenue totaled $143.5 million, as compared to $163.3 million for the
same period in 2001, a decrease of 12.1%. The most significant revenue
declines in the second quarter and first half of 2002, as compared to the
prior year periods, occurred in England, France and Germany, reflecting the
difficult economic conditions in these countries. Revenue was up from
prior year periods in the Netherlands and Sweden. The increase in revenues
in Sweden relate to a significant incentive fee, which is, in accordance
with equity method accounting, 45% offset in the Minority Interest line of
the Consolidated Statement of Earnings. We are currently in discussion
with our joint venture partner in Sweden to purchase the remaining 45% of
the joint venture that we do not own. We expect to complete the
negotiations by the end of 2002. Reported US dollar revenues were
positively impacted by approximately $3 million and $1 million in the three
and six months ended June 30, 2002, respectively, as compared to the same
periods last year, due to the strengthening of the euro and the pound
sterling against the US dollar.
Operating expenses for the region increased by $1.3 million, or 1.8%,
to $73.2 million for the three months ended June 30, 2002 from $71.9
million for the three months ended June 30, 2001. For the six months ended
June 30, 2002, operating expenses decreased $11.7 million, or 7.9%, to
$137.3 million from $149.0 million for the same period in 2001. Reported
US dollar operating expenses were increased by approximately $3 million and
$1 million during the second quarter and first half of 2002, as compared to
the same periods last year, due to the strengthening of the euro and the
pound sterling against the US dollar. As discussed in the critical
accounting policies section, in response to competitive pressures and the
difficult underlying economic conditions, regional management decided to
guarantee a portion of the incentive compensation pool for certain
employees. The effect of excluding the incentive compensation pool
relating to these employees from the incentive compensation accrual
methodology and expensing the guaranteed minimum on a straight line basis
over the final three quarters of 2002 has been to increase the Q2 incentive
compensation expense by $4 million over what would have been accrued if
this had not been done. As a result of this, the incentive compensation
expense for the second quarter of 2002 was $3.2 million higher when
compared to the second quarter of 2001. Reflecting the reduction in
revenues in the six months ended June 30, 2002 incentive compensation was
decreased by $4.8 million from the first half of 2001, which is anticipated
to reverse over the balance of the year depending on performance. The
strong focus placed on cost containment initiatives drove down expenses,
including reductions in compensation due to reduced headcount. In
addition, as a result of adopting SFAS 142 (discussed in Note 6 to Notes to
Consolidated Financial Statements), amortization expense was reduced by
$0.3 million and $0.7 million for the three and six months ended June 30,
2002, respectively.
ASIA PACIFIC
Revenue for the Asia Pacific region increased by $3.3 million, or
11.5%, to $32.0 million for the three months ended June 30, 2002 compared
to $28.7 million for the three months ended June 30, 2001. For the six
months ended June 30, 2002, revenues increased $1.7 million, or 3.0%, to
$58.2 million compared to $56.5 million for the six months ended June 30,
2001. Strong revenues in Australia and Hong Kong, and growth in northern
Asia was offset by the continued slowness in the Singapore economy.
Reported US dollar revenues for the three and six months ended June 30,
2002 were increased by $1 million over last year 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 $30.7 million for the three
months ended June 30, 2002, as compared to $31.0 million for the three
months ended June 30, 2001. For the six months ended June 30, 2002,
operating expenses decreased $1.6 million, or 2.6%, to $59.9 million
compared to $61.5 million for the six months ended June 30, 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 $0.1 million and $0.5 million for the three and six months
ended June 30, 2002, respectively, reflecting anticipated continued revenue
growth in the second half of 2002 (this reduction in incentive compensation
may 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
and $1.0 million for the three and six months ended June 30, 2002,
respectively. These declines in expenses were partially offset by
increased depreciation expense on systems related capital expenditure put
into place last year during the restructuring of this region, as well as
additional expenses related to the growth opportunity areas of Japan, China
and Korea. In addition, reported US dollar operating expenses for the
three and six months ended June 30, 2002 were $1 million higher than the
prior year due to the strengthening of the Australian dollar against the US
dollar.
INVESTMENT MANAGEMENT
Investment Management revenue totaled $21.6 million for the three
months ended June 30, 2002, a 9.6% increase from $19.7 million for the
three months ended June 30, 2001. For the six months ended June 30, 2002,
revenues totaled $40.7 million, a 7.9% decrease from $44.2 million for the
same period 2001. Advisory fees increased 15.8% and 1.3% during the second
quarter and first half of 2002, respectively, as compared to the same
periods last year. The reduction in equity earnings during the first half
of 2002, as compared to 2001, is partially due to the first quarter of 2001
including a gain from the disposition of our remaining investment in
LaSalle Hotel Properties. Included in equity earnings in the second
quarter of 2002 is a gain of $593,000 relating to the finalization of the
dissolution of a joint venture established in 1998 to evaluate hotel
investment opportunities in Asia.
Operating expenses totaled $19.4 million for the three months ended
June 30, 2002, as compared with $20.2 million for the three months ended
June 30, 2001. For the six months ended June 30, 2002, operating expenses
decreased $2.2 million, or 5.5%, to $37.7 million from $39.9 million for
the six months ended June 30, 2001. Compensation expense increased slightly
as staffing increased to support new fund activity. Incentive compensation
in the second quarter of 2002 was flat with the second quarter of 2001, and
was reduced by $0.5 million in the first half of 2002, when compared to the
same period in 2001, due to the reduction in revenues. This reduction in
incentive compensation may reverse over the balance of the year depending
on performance. There were also savings 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 and $0.8 million for the
three and six months ended June 30, 2002, respectively.
PERFORMANCE OUTLOOK
We continue to be cautious about the balance of the year as economic
messages around the world are mixed and the timing of recoveries remains
uncertain. However, taking into account our aggressive focus on costs,
continued debt reduction and interest expense savings and efforts to
improve our overall effective tax rate to 36%, we are not at this point
changing our target range for the year. For the third quarter we expect
earnings to be in the range of $0.35 to $0.45 and for the full year, $1.65
to $1.70 per fully diluted share. Given the continuing difficult economic
conditions and uncertainty around economic recovery, we now believe that
our full year earnings will be at the lower end of that range.
CONSOLIDATED CASH FLOWS
CASH FLOWS USED IN OPERATING ACTIVITIES
During the six months ended June 30, 2002 cash flows used in operating
activities totaled $19.4 million compared to $66.0 million used in the six
months ended June 30, 2001. The cash flows used in operating activities
for the six months ended June 30, 2002 can be further divided into cash
generated from operations of $27.6 million (compared to $31.2 million in
2001) and cash used in balance sheet movements (primarily working capital
management) of $47.0 million (compared to a use of $97.3 million in 2001).
The decline in cash provided by earnings is due to the year over year
performance improvement being the result of reduced non-cash charges and
provisions in the first half of 2002, as well as the implementation of SFAS
142 which has reduced amortization (a non-cash expense) by $4.8 million.
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 $13.1 million.
CASH FLOWS USED IN INVESTING ACTIVITIES
We used $15.0 million in investing activities during the six months
ended June 30, 2002, as compared to $4.0 million used during the six months
ended June 30, 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 which $1.6 million was a distribution of
previously recorded equity earnings, and therefore, is shown in the
operating activities section of the Statement of Cash Flows. Partially
offsetting the increase in cash used in 2002 is a $12.3 million reduction
in capital expenditures, which have been intensely scrutinized in 2002. In
2001 there were significant capital expenditures to technology related
improvements.
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Cash flows provided by financing activities decreased $29.3 million to
$32.0 million during the six months ended June 30, 2002 from $61.3 million
during the six months ended June 30, 2001. The need for borrowings was
reduced as there were lower incentive compensation payments and share
repurchases.
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 June 30, 2002, we have a
$275.0 million revolving credit facility for working capital needs,
investments 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, which 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, 1004 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 June 30, 2002, there was $88.7 million outstanding under the
revolving credit facility, euro 165 million ($163.6 million) of borrowings
outstanding under the Euro Notes and short-term borrowings (including
capital lease obligations) of $15.8 million. The increase in the reported
US Dollar book value of the Euro Notes of $16.8 million in the first half
of 2002 was solely as a result of the strengthening euro. No additional
Euro Notes have been issued.
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
June 30, 2002. The effective interest rate on the Facilities was 7.29% for
the six months ended June 30, 2002 (versus an effective rate of 8.1% 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 $42.4 million, of which
$14.0 million was outstanding as of June 30, 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 our needs
to fund working capital, capital expenditures and co-investment activity.
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 June 30, 2002,
there were total investments of $66.4 million in 21 separate property or
fund co-investments, with additional capital commitments of $133.1 million
for future fundings of co-investments. With respect to certain co-
investment indebtedness, we also had repayment guarantees outstanding at
June 30, 2002 of $4.9 million. The $133.1 million of capital commitments
includes a commitment of $132.8 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. Our investment in
LILP is accounted for under the equity method of accounting in the
accompanying Consolidated Financial Statements. In addition, our Chairman
and certain other Directors of Jones Lang LaSalle are investors in LILP on
equivalent terms to other investors. At June 30, 2002, LILP has unfunded
capital commitments of $47.0 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 $18.1
million (planned co-investment less return of capital from liquidated co-
investments). For the six months ended June 30, 2002, we have funded a net
$12.1 million of 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. As a result
of this focus, capital expenditures for the first six months of 2002 was
$7.9 million.
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 June 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for costs associated
with an exit or disposal activity be recognized when the liability is
incurred rather than when a company commits to such an activity and also
establishes fair value as the objective for initial measurement of the
liability. SFAS 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. We have not yet fully assessed the
impact of SFAS 146 on our consolidated financial statements, but do not
anticipate it to be material.
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. However, there can be no assurance that external factors
relating to the euro conversion 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 June 30, 2002.
The effective interest rate on our debt for the six months ended
June 30, 2002 was 7.29% as compared to a rate of 8.1% for the same period
of 2001. The decrease in the effective interest rate is due to declining
market interest rates.
FOREIGN EXCHANGE
Revenues outside of the United States were 65.1% and 64.2% of our
total revenues for the three and six months ended June 30, 2002,
respectively. Operating in international markets means that we are exposed
to movements in foreign exchange rates, primarily the British pound (24.7%
and 23.1% of revenues for the three and six months ended June 30, 2002,
respectively), the euro (16.7% and 18.3% of revenues for the three and six
months ended June 30, 2002, respectively) and the Australian dollar (6.5%
and 6.2% of revenues for the three and six months ended June 30, 2002,
respectively). 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 June 30, 2002, we had forward exchange contracts in effect with
a notional value of $73.7 million and a market and carrying gain of $6.1
million. The net impact on our earnings during the six months ended June
30, 2002 of the unrealized gain on foreign currency contracts, offset by
the loss resulting from re-measurement of foreign currency transactions,
was a loss of $39,000.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 14, 2002, the
following business was conducted:
A. Stockholders elected six directors as follows:
(i) The following one Class I Director was elected for a term
expiring at the 2004 annual meeting of stockholders and until
his successor is elected and qualified:
Peter C. Roberts: 22,361,474 votes for and
1,666,253 withheld
(ii) The following five Class I Directors were elected
for a term expiring at the 2005 annual meeting of stockholders
and until their successors are elected and qualify:
Robin S. Broadhurst: 22,362,380 votes for and
1,665,347 withheld
Christopher A. Peacock: 22,363,999 votes for and
1,663,728 withheld
Stuart L. Scott: 22,340,688 votes for and
1,687,039 withheld
Sheila A. Penrose: 22,581,436 votes for and
1,446,291 withheld
Jackson P. Tai: 22,580,908 votes for and
1,446,819 withheld
B. Stockholders ratified the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year ending December 31, 2002
as follows:
Votes for: 22,769,146
Votes against: 1,253,317
Votes abstained: 5,264
C. Stockholders rejected the stockholder proposal to declassify
the Board of Directors of the Company as follows:
Votes for: 7,823,914
Votes against: 14,457,815
Votes abstained: 355,780
Broker non-votes: 1,390,218
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
On April 4, 2002, Jones Lang LaSalle filed a Report on Form 8-K
(to which its Annual Review to Shareholders was attached as an
exhibit) announcing that it had sent to stockholders material for
its Annual Meeting to be held May 14, 2002.
On June 3, 2002, Jones Lang LaSalle filed a Report on Form 8-K
incorporating an Investor Relations Presentation.
On June 27, 2002, Jones Lang LaSalle filed a Report on Form 8-K
incorporating an Investor Relations Presentation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JONES LANG LASALLE INCORPORATED
Dated: August 13, 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
- ------- -----------
10.1 Jones Lang LaSalle Incorporated Amended and Restated
Stock Award and Incentive Plan dated May 14, 2002.
99.1 Certification of Chief Executive Officer dated
August 13, 2002.
99.2 Certification of Chief Financial Officer dated
August 13, 2002.
99.3 Press release issued by Jones Lang LaSalle on July 31,
2002 attached hereto as Exhibit 99.3.