UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-13145
JONES LANG LASALLE INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
200 East Randolph Drive, Chicago, IL 60601
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 14, 1999
----- --------------
Common Stock ($0.01 par value) 30,562,182
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 18
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . . 25
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 26
Item 4. Submission of Matters to a Vote of
Securities Holders . . . . . . . . . . . . . . . . . 27
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 28
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
($ in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
---------- -----------
ASSETS
- ------
Current assets:
Cash and cash equivalents. . . . . . . . . $ 39,987 16,941
Trade receivables, net of allowances
of $10,257 and $3,978 in 1999 and
1998, respectively . . . . . . . . . . . 204,760 116,965
Notes receivable and advances to
real estate ventures . . . . . . . . . . 18,169 17,042
Other receivables. . . . . . . . . . . . . 9,364 3,385
Prepaid expenses . . . . . . . . . . . . . 7,194 2,185
Other assets . . . . . . . . . . . . . . . 2,568 --
Deferred and current tax benefit . . . . . 27,819 9,926
---------- ---------
Total current assets . . . . . . . 309,861 166,444
Property and equipment, at cost,
less accumulated depreciation of
$39,649 and $35,859 in 1999
and 1998, respectively . . . . . . . . . . 63,411 28,773
Intangibles resulting from
business acquisitions, net of
accumulated amortization of $17,860
and $11,961 in 1999 and 1998,
respectively . . . . . . . . . . . . . . . 390,304 229,437
Investments in real estate ventures. . . . . 49,908 52,976
Long-term receivables, net . . . . . . . . . 21,109 10,950
Deferred tax assets. . . . . . . . . . . . . 7,518 660
Prepaid pension asset. . . . . . . . . . . . 21,583 --
Other assets, net. . . . . . . . . . . . . . 3,194 1,681
---------- ----------
$ 866,888 490,921
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities. . . . . . . . . . . $ 116,109 51,101
Accrued compensation . . . . . . . . . . . 64,849 58,398
Short-term borrowings. . . . . . . . . . . 19,951 --
Other liabilities. . . . . . . . . . . . . 56,901 8,324
---------- ----------
Total current liabilities. . . . . 257,810 117,823
Long-term liabilities:
Credit facilities. . . . . . . . . . . . . 292,378 202,923
Other. . . . . . . . . . . . . . . . . . . 4,343 603
Commitments and contingencies
---------- ----------
Total liabilities. . . . . . . . . 554,531 321,349
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
MARCH 31, 1999 AND DECEMBER 31, 1998
($ in thousands, except share data)
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
---------- -----------
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,560,307 shares issued and
outstanding. . . . . . . . . . . . . . . 306 163
Additional paid-in capital . . . . . . . . 472,365 123,543
Deferred stock compensation. . . . . . . . (150,379) --
Unallocated ESOT shares. . . . . . . . . . (9) --
Retained earnings/(deficit). . . . . . . . (10,623) 44,792
Accumulated other comprehensive
income . . . . . . . . . . . . . . . . . 697 1,074
---------- ----------
Total stockholders' equity . . . . 312,357 169,572
---------- ----------
$ 866,888 490,921
========== ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ in thousands, except share data)
(UNAUDITED)
1999 1998
---------- ----------
Revenue:
Fee-based services . . . . . . . . . . . . . $ 100,704 49,902
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . 181 692
Other income . . . . . . . . . . . . . . . . 536 471
---------- --------
Total revenue. . . . . . . . . . . . . 101,421 51,065
Operating expenses:
Compensation and benefits. . . . . . . . . . 75,439 37,353
Operating, administrative and other. . . . . 31,317 16,445
Depreciation and amortization. . . . . . . . 6,955 2,616
---------- --------
Total operating expenses before merger
related non-recurring charges. . . . 113,711 56,414
---------- --------
Operating loss before merger
related non-recurring charges. . . . (12,290) (5,349)
Merger related non-recurring charges:
Stock compensation expense . . . . . . . . . 46,199 --
Integration and transition expenses. . . . . 7,844 --
---------- --------
Total merger related non-recurring
charges. . . . . . . . . . . . . . . 54,043 --
---------- --------
Total operating expenses . . . . . . . 167,754 56,414
---------- --------
Operating loss . . . . . . . . . . . . (66,333) (5,349)
Interest expense . . . . . . . . . . . . . . . 2,642 244
---------- --------
Loss before benefit for
income taxes . . . . . . . . . . . . (68,975) (5,593)
Net benefit for income taxes . . . . . . . . . (13,560) (2,153)
---------- --------
Net loss . . . . . . . . . . . . . . . $ (55,415) (3,440)
========== ========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ in thousands, except share data)
(UNAUDITED)
1999 1998
---------- ----------
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments. . . . . . . . . . . . . . . . $ (433) 295
---------- ----------
Comprehensive loss . . . . . . . . . . . . . . $ (55,848) (3,145)
========== ==========
Basic loss per common share. . . . . . . . . . $ (3.09) (.21)
========== ==========
Weighted average shares outstanding. . . . . . 17,914,221 16,200,000
========== ==========
Diluted loss per common share. . . . . . . . . $ (3.09) (.21)
========== ==========
Diluted weighted average shares
outstanding. . . . . . . . . . . . . . . . . 17,914,221 16,359,961
========== ==========
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED MARCH 31, 1999 AND DECEMBER 31, 1998
($ in thousands, except share data)
(UNAUDITED)
Deferred Effect of
Common Stock Additional Retained Stock Unallocated Cumulative
------------------- Paid-In Earnings Compen- ESOT Translation
Shares Amount Capital (Deficit) sation Shares Adjustment Total
---------- ------ ---------- --------- ---------- ------------ ----------- ---------
Balances at
December 31,
1997 . . . . . . . . . 16,200,000 162 121,778 24,327 -- -- 630 146,897
Net earnings. . . . . -- -- -- 20,465 -- -- -- 20,465
Shares issued
under stock
purchase plan. . . . 64,176 1 1,765 -- -- -- -- 1,766
Other . . . . . . . . -- -- -- -- -- -- 444 444
---------- ----- -------- ------ -------- ------- ------ --------
Balances at
December 31, 1998 . . . 16,264,176 163 123,543 44,792 -- -- 1,074 169,572
Net loss. . . . . . . -- -- -- (55,415) -- -- -- (55,415)
Shares issued in
connection with:
Stock option
plan . . . . . . . 4,417 -- 107 -- -- -- -- 107
Stock compensa-
tion program . . . 37,598 -- 1,256 -- -- -- -- 1,256
Merger with JLW. . . 14,254,116 143 355,233 -- (160,253) (9) -- 195,114
Stock compensa-
tion adjustments. . -- -- (7,774) -- 6,383 -- -- (1,391)
Amortization of
deferred stock
compensation. . . . -- -- -- -- 3,491 -- -- 3,491
Other . . . . . . . . -- -- -- -- -- -- (377) (377)
---------- ----- -------- ------- -------- ------- ------ --------
Balances at
March 31, 1999 . . . . 30,560,307 $ 306 472,365 (10,623) (150,379) (9) 697 312,357
========== ===== ======== ======= ======== ======= ====== ========
<FN>
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ in thousands, unless otherwise noted)
(UNAUDITED)
1999 1998
-------- --------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $(55,415) (3,440)
Reconciliation of net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . 6,955 2,616
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . . (181) (692)
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . . . 2,524 1,043
Stock compensation expense . . . . . . . . . . 46,199 --
Changes in:
Receivables. . . . . . . . . . . . . . . . . . 31,729 515
Prepaid expenses and other assets. . . . . . . (4,894) 517
Deferred and current tax benefit . . . . . . . (20,180) 185
Accounts payable, accrued liabilities and
compensation and other liabilities . . . . . (97,057) (29,518)
-------- --------
Net cash used in operating activities. . . (90,320) (28,774)
Cash flows provided by (used in) investing
activities:
Net capital additions - property and
equipment. . . . . . . . . . . . . . . . . . . (5,888) (2,863)
Cash balances assumed in Jones Lang Wootton
merger, net of cash paid (Note 4). . . . . . . 26,039 --
Acquisition of Compass Birmann Asset
Management Services, net of cash acquired. . . (1,380) --
Acquisition of Satulah Group, net of
cash acquired. . . . . . . . . . . . . . . . . -- (5,465)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . . . (366) (11,549)
Distributions, repayments of advances
and sale of investments. . . . . . . . . . . 3,525 878
-------- --------
Net cash provided by (used in)
investing activities . . . . . . . . . . 21,930 (18,999)
Cash flows provided by (used in) financing
activities:
Net borrowings under long-term credit
facilities . . . . . . . . . . . . . . . . . . 91,397 30,519
Common stock issued under stock option plan. . . 107 --
-------- --------
Net cash provided by financing activities. 91,504 30,519
Effects of foreign currency translation on
cash balances. . . . . . . . . . . . . . . . . . (68) 68
-------- --------
Net increase (decrease) in
cash and cash equivalents. . . . . . . . 23,046 (17,186)
Cash and cash equivalents, beginning of period . . 16,941 30,660
-------- --------
Cash and cash equivalents, end of period . . . . . $ 39,987 13,474
======== ========
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ in thousands, unless otherwise noted)
(UNAUDITED)
Supplemental disclosure of cash flow information:
Interest paid was $2.6 million and $.2 million for the periods
ended March 31, 1999 and 1998, respectively.
Taxes paid were $10.0 million and $1.5 million for the periods
ended March 31, 1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
($ in millions, except where otherwise noted)
(UNAUDITED)
Readers of this quarterly report should refer to our audited financial
statements for the year ended December 31, 1998, which are included in our
1998 Form 10-K, filed with the Securities and Exchange Commission, as
certain footnote disclosures which would substantially duplicate those
contained in such audited financial statements have been omitted from this
report.
(1) ORGANIZATION
Jones Lang LaSalle Incorporated ("Jones Lang LaSalle"), formerly
LaSalle Partners Incorporated [successor to LaSalle Partners Limited
Partnership and LaSalle Partners Management Limited Partnership
(collectively, the "Predecessor Partnerships")], was incorporated in
Maryland on April 15, 1997 (collectively referred to as the "Company"). On
July 22, 1997, the Company completed an initial public offering (the
"Offering") of 4.0 million shares of Jones Lang LaSalle common stock, $.01
par value per share (the "Common Stock"). In addition, all of the
partnership interests held in the Predecessor Partnerships were contributed
to the Company, pursuant to agreements among the general and limited
partners, in exchange for an aggregate of 12.2 million shares of common
stock. The contribution occurred immediately prior to the closing of the
Offering. The 4.0 million shares were offered at $23 per share,
aggregating $82.8 million, net of offering costs, of which $63.5 million
was used to retire long-term debt and related interest.
The Predecessor Partnerships were subject to a reorganization as part
of the Company's incorporation. Due to the existence of a paired share
arrangement between the Predecessor Partnerships and between the former
general partners of the Predecessor Partnerships, as well as the existence
of identical ownership before and after the incorporation of the
Predecessor Partnerships, such transactions were accounted for in a manner
similar to the accounting used for a pooling of interests. Thus, the
Company's financial statements include the financial positions and results
of operations of the Predecessor Partnerships at their historical basis.
On March 11, 1999, LaSalle Partners Incorporated and Jones Lang
Wootton ("JLW") completed the merger of their operations. In connection
with the merger, LaSalle Partners changed its name to Jones Lang LaSalle
Incorporated.
(2) INTERIM INFORMATION
The consolidated financial statements as of March 31, 1999 and for
the three months ended March 31, 1999 and 1998 are unaudited; however, in
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been
included. The results for the periods ended March 31, 1999 and 1998 are
not necessarily indicative of the results to be obtained for the full
fiscal year.
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
(3) STOCK-BASED COMPENSATION
Jones Lang LaSalle grants stock options for a fixed number of shares
to employees with an exercise price equal to the fair value of the shares
at the date of grant. Jones Lang LaSalle follows the requirements of the
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" in accounting for stock-based compensation, and,
accordingly, recognizes no compensation expense for stock option grants,
but provides the annual pro forma disclosures required by the Statement of
Financial accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation".
In connection with the merger with JLW, Jones Lang LaSalle issued
shares to former employees of JLW which are subject to vesting provisions
or are contingently returnable. Shares issued that are contingently
returnable are accounted for as a variable stock award plan. The remaining
shares issued are accounted for as a fixed stock award plan. Compensation
expense associated with shares subject to vesting is recognized over the
vesting period.
(4) JONES LANG WOOTTON MERGER
In accordance with the purchase and sale agreements, Jones Lang
LaSalle issued 14.3 million shares of its common stock, which is subject to
a post-closing net worth adjustment, plus $6.2 million in cash
(collectively, the "Consideration") in connection with the acquisition of
the property and asset management, advisory and other real estate
businesses operated by a series of JLW partnerships and corporations in
Europe, Asia, Australia, North America and New Zealand. Approximately 12.5
million of the shares were issued to former JLW equity owners (having both
direct and indirect ownership) and 1.8 million of the shares were placed in
an employee ownership trust ("ESOT") to be distributed by December 31, 2000
to selected employees of the former JLW entities. Issuance of the shares
was not registered under the U.S. securities laws, and the shares are
generally subject to a contractual one-year restriction on sale.
The transaction, which was principally structured as a share
exchange, has been treated as a purchase and is being accounted for using
both APB Opinion No. 16, "Business Combinations" and APB Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, JLW's operating
results will be included in Jones Lang LaSalle's results as of March 1,
1999, the effective date of the merger for accounting purposes.
Assuming that the closing net worth requirements are met, 7.6 million
shares, or 53% of the shares issued, are subject to accounting under APB
Opinion No. 16. The value of those shares totaled $149.5 million for
accounting purposes based on the five-day average closing stock price
surrounding the date the financial terms of the merger with JLW were
substantially complete, discounted at a rate of 20% for transferability
restrictions. The value of the shares, in addition to a cash payment of
$5.7 million and capitalizable transaction costs of approximately $12.5
million were allocated to the identifiable assets and liabilities acquired,
based on management's estimate of fair value, totaling $238.3 million and
$220.4 million, respectively. Included in the assets acquired is $26.0
million in cash, of which $6.5 million represents cash held on behalf of
clients and $11.2 million represents cash held pursuant to regulatory
requirements. Included in the liabilities assumed is $34.0 million due to
former equity owners of JLW primarily representing prior year profit
distributions. The excess purchase price of $155.4 million was allocated
to goodwill which is being amortized on a straight-line basis over 40 years
based on management's estimate of useful lives.
The remaining 6.7 million shares, or 47% of the shares issued, and
$.4 million in cash paid are subject to accounting under APB Opinion No.
25. Accordingly, shares issued are being accounted for as compensation
expense or deferred compensation expense to the extent they are subject to
forfeiture or vesting provisions. Included in the 6.7 million shares are
1.6 million shares that are subject to variable stock award plan
accounting. The remaining 5.1 million shares and the $.4 million in cash
paid are subject to fixed stock award plan accounting. Compensation expense
incurred for the three months ended March 31, 1999 totaled $46.2 million,
inclusive of the compensation expense recognized at closing and the
amortization of deferred compensation for the period.
(5) EARNINGS PER SHARE
The basic and diluted losses per common share were calculated based
on basic weighted average shares outstanding of 17.9 million for the three
months ended March 31, 1999. Consideration shares issued as a result of
the merger with JLW, to the extent included, have been weighted as of March
11, 1999. As a result of the operating loss incurred for the period,
diluted weighted average shares outstanding for the three months ended
March 31, 1999 do not give effect to common stock equivalents, consisting
principally of consideration shares issued in connection with the JLW
merger that are subject to vesting provisions or are contingently
returnable, as to do so would create an anti-dilutive effect. Basic and
diluted losses per common share for the three months ended March 31, 1998
were based on weighted average shares outstanding of 16.2 million and 16.4
million, respectively. The 1998 diluted weighted average shares
outstanding reflect an increase of .2 million shares primarily representing
the dilutive effect of outstanding stock options whose exercise price was
less than the average market price of the Company's stock for the period
and, to a lesser extent, the dilutive effect of shares to be issued under
the Company's employee stock benefit plans.
(6) BUSINESS SEGMENTS
As a result of the merger with JLW, Jones Lang LaSalle is managing
its business along a combination of functional and geographic lines.
Accordingly, operations have been classified into six business segments,
two global functional businesses: (i) Investment Management and (ii) Hotel
Services; and four geographic regions consisting of the: (iii) Americas;
(iv) Europe; (v) Asia; and (vi) Australasia. The Investment Management
segment provides real estate investment management services to
institutional investors, corporations, and high net worth individuals. The
Hotels Services segment provides strategic advisory, sales, acquisition and
asset management services. The geographic regions of the Americas, Europe,
Asia and Australasia each provide Owner and Occupier Services which consist
primarily of tenant representation and agency leasing, investment
disposition and acquisition, and valuation services (collectively,
"implementation services") and property, facility, development and project
management services (collectively, "management fees"). Results for 1998
have been realigned based upon the current business segments.
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. The Company allocates
all expenses, other than interest and income taxes, as substantially all
expenses incurred benefit one or more of the segments. Merger related non-
recurring charges are not allocated to the segments.
Summarized unaudited financial information by business segment for
the three month periods ended March 31, 1999 and 1998 is as follows ($ in
thousands):
SEGMENT
OPERATING RESULTS
--------------------------
1999 1998
---------- ----------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . . . . . . . $ 15,434 10,801
Management fees. . . . . . . . . . . . . . 26,610 15,666
Equity earnings. . . . . . . . . . . . . . (180) (5)
Other services . . . . . . . . . . . . . . 2,247 1,290
Intersegment revenue . . . . . . . . . . . 62 71
---------- ----------
44,173 27,823
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 57,086 38,037
Depreciation and amortization. . . . . . . 5,043 994
---------- ----------
Operating loss . . . . . . . . . . . $ (17,956) (11,208)
========== ==========
EUROPE
Revenue:
Implementation services. . . . . . . . . . $ 18,434 --
Management fees. . . . . . . . . . . . . . 6,331 3
Equity earnings. . . . . . . . . . . . . . (21) --
Other services . . . . . . . . . . . . . . 3,039 --
---------- ----------
27,783 3
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 21,189 285
Depreciation and amortization. . . . . . . 615 --
---------- ----------
Operating income (loss). . . . . . . $ 5,979 (282)
========== ==========
AUSTRALASIA
Revenue:
Implementation services. . . . . . . . . . $ 3,232 --
Management fees. . . . . . . . . . . . . . 1,575 --
Equity earnings. . . . . . . . . . . . . . (24) --
Other services . . . . . . . . . . . . . . 463 --
---------- ----------
5,246 --
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 6,370 --
Depreciation and amortization. . . . . . . 198 --
---------- ----------
Operating loss . . . . . . . . . . . $ (1,322) --
========== ==========
SEGMENT
OPERATING RESULTS
--------------------------
1999 1998
---------- ----------
ASIA
Revenue:
Implementation services. . . . . . . . . . $ 2,300 45
Management fees. . . . . . . . . . . . . . 1,893 --
Other services . . . . . . . . . . . . . . 288 1
---------- ----------
4,481 46
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 5,001 381
Depreciation and amortization. . . . . . . 208 2
---------- ----------
Operating loss . . . . . . . . . . . $ (728) (337)
========== ==========
HOTEL SERVICES -
Revenue:
Implementation services. . . . . . . . . . $ 854 --
---------- ----------
854 --
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 920 --
Depreciation and amortization. . . . . . . 11 --
---------- ----------
Operating loss . . . . . . . . . . . $ (77) --
========== ==========
INVESTMENT MANAGEMENT -
Revenue:
Implementation services. . . . . . . . . . $ 1,606 952
Advisory fees. . . . . . . . . . . . . . . 16,614 21,416
Equity earnings. . . . . . . . . . . . . . 406 697
Other services . . . . . . . . . . . . . . 320 199
Intersegment revenue . . . . . . . . . . . 35 --
---------- ----------
18,981 23,264
Operating expenses:
Compensation, operating and
administrative expenses. . . . . . . . . 16,286 16,022
Depreciation and amortization. . . . . . . 881 764
---------- ----------
Operating income . . . . . . . . . . $ 1,814 6,478
========== ==========
Total segment revenue. . . . . . . . . . . . . $ 101,518 51,136
Intersegment revenue eliminations. . . . . . . (97) (71)
---------- ----------
Total revenue. . . . . . . . . . . . $ 101,421 51,065
========== ==========
Total segment operating expenses . . . . . . . $ 113,808 56,485
Intersegment operating expense
eliminations . . . . . . . . . . . . . . . . (97) (71)
---------- ----------
Total operating expenses
before merger related
non-recurring charges. . . . . . . $ 113,711 56,414
========== ==========
Operating loss before
merger related
non-recurring charges. . . . . . . $ (12,290) (5,349)
========== ==========
(7) PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma results for the three months ended March 31,
1999 give effect to the merger with JLW as if it occurred on January 1,
1999. Jones Lang LaSalle Actual results reflect the results of operations
of the LaSalle Partners' businesses for the two months ended February 28,
1999 and the operations of the merged Jones Lang LaSalle businesses for the
month ended March 31, 1999. JLW Results reflect operating results for each
of the JLW companies for the two months ended February 28, 1999, as
adjusted for market compensation, taxes and other costs associated with the
integration of the companies. Acquisition Adjustments represent the impact
of the additional amortization of goodwill resulting from the merger, and
income taxes as if Jones Lang LaSalle was taxable for the period at an
effective tax rate of 38%. Merger-Related Adjustments reflect the
additional non-cash compensation expense associated with certain shares
issued in connection with the JLW merger and the related income tax effect
as if the merger had occurred on January 1, 1999. Pro Forma weighted
average shares outstanding include shares issued in connection with the
merger with JLW, excluding those shares which are contingently returnable
or subject to vesting provisions, as though they were issued on January 1,
1999.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable. The pro forma
consolidated financial statements are not necessarily indicative of what
the actual results of operations would have been for the period ended
March 31, 1999 had the JLW merger been completed as of the dates indicated
nor does it purport to represent the future financial position or results
of operations of Jones Lang LaSalle.
Jones Lang Merger-
LaSalle JLW Acquisition Adjusted Related
Actual Results Adjustments Pro Forma Adjustments Pro Forma
---------- ---------- ----------- ---------- ----------- ----------
Revenue:
Fee-based services . . . . . $ 100,704 58,039 -- 158,743 -- 158,743
Equity in earnings from uncon-
solidated ventures . . . . 181 -- -- 181 -- 181
Other income . . . . . . . . 536 421 -- 957 -- 957
---------- ---------- ---------- ---------- ---------- ----------
Total revenue. . . . . 101,421 58,460 -- 159,881 -- 159,881
Operating expenses:
Compensation and benefits. . 75,439 43,610 -- 119,049 -- 119,049
Operating, administrative
and other. . . . . . . . . 31,317 18,360 -- 49,677 -- 49,677
Depreciation and
amortization . . . . . . . 6,955 2,197 850 10,002 -- 10,002
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses before
merger related non-
recurring charges. . 113,711 64,167 850 178,728 -- 178,728
---------- ---------- ---------- ---------- ---------- ----------
Operating loss before
merger related non-
recurring charges. . (12,290) (5,707) (850) (18,847) -- (18,847)
Merger related non-recurring charges:
Compensation expense
associated with shares
issued . . . . . . . . . 46,199 -- -- 46,199 8,663 54,862
Integration and transition
expenses . . . . . . . . 7,844 12,325 -- 20,169 -- 20,169
---------- ---------- ---------- ---------- ---------- ----------
Total merger related
non-recurring
charges. . . . . . . 54,043 12,325 -- 66,368 8,663 75,031
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses . . . . . . 167,754 76,492 850 245,096 8,663 253,759
---------- ---------- ---------- ---------- ---------- ----------
Operating loss . . . . (66,333) (18,032) (850) (85,215) (8,663) (93,878)
Interest expense, net. . . . 2,642 (93) -- 2,549 -- 2,549
---------- ---------- ---------- ---------- ---------- ----------
Jones Lang Merger-
LaSalle JLW Acquisition Adjusted Related
Actual Results Adjustments Pro Forma Adjustments Pro Forma
---------- ---------- ----------- ---------- ----------- ----------
Loss before benefit
for income taxes . . (68,975) (17,939) (850) (87,764) (8,663) (96,427)
Net provision (benefit)
for income taxes . . . . . (13,560) (2,133) (323) (16,016) 328 (15,688)
---------- ---------- ---------- ---------- ---------- ----------
Net loss . . . . . . . $ (55,415) (15,806) (527) (71,748) (8,991) (80,739)
========== ========== ========== ========== ========== ==========
Basic loss per common share. $ (3.09) $ (3.47)
========== ==========
Weighted average shares
outstanding. . . . . . . . 17,914,221 23,269,711
========== ==========
Diluted loss per common
share. . . . . . . . . . . $ (3.09) $ (3.47)
========== ==========
Diluted weighted average
shares outstanding . . . . 17,914,221 23,269,711
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Jones Lang LaSalle Incorporated (formerly LaSalle Partners
Incorporated) is a leading full-service real estate services firm that
provides investment management, hotel acquisition, disposition, strategic
advisory and valuation, property management, facility management,
development management, project management, tenant and agency leasing,
investment disposition and acquisition and financing and capital placement
services on a local, regional and global basis. With over 6,000 employees
in 96 major markets spanning 34 countries and five continents, Jones Lang
LaSalle is able to satisfy local service needs on a regional and
international basis. The ability to provide this network of services
around the globe was solidified effective March 11, 1999 with the merger of
LaSalle Partners Incorporated with the Jones Lang Wootton ("JLW")
companies.
In accordance with the purchase and sale agreements, Jones Lang
LaSalle issued 14.3 million shares of common stock, which is subject to a
post closing net worth adjustment, in addition to $6.2 million in cash
(collectively, the "Consideration"). Included in the 14.3 million shares
are 1.2 million shares subject to the closing net worth adjustment.
Management anticipates that these calculations will be completed in the
second quarter of 1999 with the resulting impact on shares issued resolved
shortly thereafter. Approximately 12.5 million of those shares were issued
to former JLW equity owners and 1.8 million shares were placed in an
employee ownership trust ("ESOT") to be distributed by December 31, 2000 to
selected employees of the former JLW entities. Included in the total ESOT
shares are .9 million that were allocated on March 11, 1999, with the
remaining shares of .3 million and .6 million to be allocated on
December 31, 1999 and 2000, respectively. Issuance of the shares was not
registered under the U.S. securities laws, and the shares are generally
subject to a contractual one-year restriction on sale.
The merger, which was principally structured as a share exchange, has
been treated as an acquisition and is being accounted for using both APB
Opinion No. 16, "Business Combinations" and APB Opinion No. 25, "Accounting
for Stock Issued to Employees". In accordance with the purchase and sale
agreements, the merger is effective for accounting purposes as of March 1,
1999. Accordingly, the results of operations for the former JLW entities
have been included in the first quarter results of Jones Lang LaSalle from
that date.
As a general matter, the accounting treatment of the Consideration is
dependent on whether the recipient (i) had a legal ownership interest in
the JLW entities prior to the integration of those entities ("Current JLW
Owners"); (ii) obtained their legal ownership interest in the JLW entities
as part of the JLW integration ("New JLW Owners"); or, (iii) will receive
their shares from the ESOT. The accounting treatment is further dependent
on whether the shares issued are non-restricted ("Non-restricted Shares"),
issued from the ESOT ("ESOT Shares"), or are subject to (i) forfeiture
provisions ("Forfeiture Shares); (ii) indemnification provisions
("Indemnification Shares"); or, (iii) closing net worth requirements
("Adjustment Shares").
All Consideration paid to Current JLW Owners, excluding Forfeiture
Shares, has been accounted for using the purchase method of accounting
under APB Opinion No. 16. Such Consideration, assuming the net worth
requirements are met, consists of 7.6 million shares and $5.7 million in
cash. The shares were valued based on the average price of Jones Lang
LaSalle (formerly LaSalle Partners Incorporated) common stock of $24.66 per
share for the five day period that includes the two trading days
immediately preceding, the trading day of, and the two trading days
immediately following the date of substantial completion of negotiations
regarding the principal financial terms of the merger (October 9, 1998)
discounted at a rate of 20%, to account for transferability restrictions
applicable to such shares. The total value attributed to the issuance of
shares, $149.5 million, in addition to the cash payment and capitalizable
transaction costs of approximately $12.5 million have been allocated to the
identifiable assets and liabilities acquired with the excess value being
allocated to goodwill which is being amortized over its estimated useful
life of 40 years.
Accounting under APB Opinion No. 25 is being applied to the remaining
6.7 million shares which represents all shares issued to New JLW Owners,
shares allocated from the ESOT and Forfeiture Shares issued to Current JLW
Owners. Shares issued or allocated from the ESOT at March 11, 1999 were
valued at $35.375, the market price of Jones Lang LaSalle common stock on
March 10, 1999. Shares to be allocated from the ESOT on December 31, 1999
and 2000, totaling .9 million, will be valued based on the prevailing
market price of the common stock on those dates.
Of the 5.8 million shares issued or allocated from the ESOT on
March 11, 1999, 1.4 million shares, which are deemed to be contingently
returnable, are being accounted for as a variable stock award plan. Such
shares include Forfeiture Shares issued to the JLW Asia Shareholders (which
are subject to indemnification provisions) in addition to Adjustment and
Indemnification Shares issued to New JLW Owners and allocated from the ESOT
at March 11, 1999. 1.2 million shares subject to forfeiture or vesting
provisions have been accounted for as deferred compensation with
compensation expense to be recognized over the forfeiture or vesting
period. The value of the remaining .2 million shares was accounted for as
compensation expense on March 11, 1999. Under a variable stock award plan,
the amount of compensation expense and value of deferred compensation will
be adjusted at the end of each quarter based on the change in stock price
from the previous quarter until the final number of shares to be issued is
known.
The remaining 4.4 million shares issued or allocated from the ESOT on
March 11, 1999 subject to accounting under APB Opinion No. 25 are being
accounted for as a fixed stock award plan. Such shares include Forfeiture
Shares issued to Current JLW Owners (excluding Forfeiture Shares issued to
JLW Asia Shareholders which are subject to indemnification provisions) and
New JLW Owners in addition to shares allocated from the ESOT on March 11,
1999 which are not subject to indemnity and adjustment provisions. 3.4
million of those shares are subject to forfeiture or vesting provisions and
have been accounted for as deferred compensation with compensation expense
to be recognized over the forfeiture or vesting period. The value of the
remaining 1.0 million shares, in addition to a cash payment of $.4 million,
were accounted for as compensation expense on March 11, 1999.
Compensation expense incurred for the three months ended March 31,
1999 related to the issuance of shares and the amortization of deferred
compensation totaled $46.2 million, net of the quarterly adjustment for the
change in stock price from March 11, 1999 to March 31, 1999. Deferred
compensation at March 31, 1999 totaled $150.4 million, including the effect
of the quarterly adjustment for the change in stock price, which will be
amortized into compensation expense through December 31, 2000. Such
compensation expense, in addition to compensation expense anticipated to be
incurred at December 31, 1999 and 2000 associated with the final
allocations of ESOT shares, is expected to result in significant non-cash
net losses for Jones Lang LaSalle for those periods.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
Operating results for the three months ended March 31, 1999 include
the results of the acquired Compass businesses (the acquisition was
completed in October 1998) and the results of the JLW entities effective
March 1, 1999. Total revenue, after elimination of intersegment revenue,
increased $50.4 million to $101.4 million for the three months ended
March 31, 1999 from $51.1 million in the prior year period, primarily as a
result of these two transactions. Total operating expenses, after
elimination of intersegment expenses and excluding the effect of merger
related non-recurring charges, increased $57.3 million to $113.7 million
for the three months ended March 31, 1999 from $56.4 million in the prior
year period, also substantially a result of these transactions, and, to a
lesser extent, to increased personnel and related personnel and facility
costs in the Americas Region as a result of the continued strength in the
United States real estate environment.
Merger related non-recurring charges totaled $54.0 million for the
three months ended March 31, 1999. $46.2 million of these charges
represent non-cash compensation expense recorded as a result of shares
issued to certain former employees of JLW in connection with the merger.
$7.8 million of these charges represent non-recurring transition and
integration costs of which approximately 50% are attributable to the
integration of the acquired Compass businesses. The remaining transition
expense relates to the merger with JLW, and represents non-capitalizable
expenses such as rebranding, office consolidations, and information
technology initiatives.
SEGMENT OPERATING RESULTS
INVESTMENT MANAGEMENT. Investment Management revenue decreased $4.3
million to $19.0 million for the three months ended March 31, 1999 from
$23.3 million for the prior year period. This decrease is primarily
attributable to performance fees generated in the first quarter of 1998 on
the disposition of certain assets under management, partially offset by
increased advisory and acquisition fees earned as a result of the merger
with JLW. Operating expenses increased $.4 million to $17.2 million for
the three months ended March 31, 1999 from $16.8 million in the prior year
period primarily as a result of the merger with JLW, partially offset by
decreased incentive compensation levels in the first quarter of 1999
consistent with the lower operating income.
HOTEL SERVICES. Hotel Services, a new reportable segment as a result
of the recent merger, had total revenue of $.9 million. Services provided
represented a combination of valuation, disposition and acquisition
services. Operating expenses for the segment totaled $.9 million for the
three months ended March 31, 1999.
AMERICAS REGION. Revenue for the Americas Region increased $16.4
million to $44.2 million for the three months ended March 31, 1999 from
$27.8 million in the prior year period. The increase is primarily
attributable to the acquisition of Compass and the resulting increase in
leasing, property management and facility management fees, and, to a lesser
extent, to performance fees generated on the disposition of certain assets
by the Investment Banking Unit, an increased number of strategic alliance
clients for the Project Management unit and the merger with JLW. Operating
expenses for the segment increased to $23.1 million to $62.1 million for
the three months ended March 31, 1999 from $39.0 million in the prior year
period. The increase is primarily a result of the acquisition of Compass
and the merger with JLW, and, to a lesser extent, to increased staffing
levels and related facility costs associated with the continued strength of
the United States economy and resulting deal flow.
EUROPE REGION. Revenue for the Europe Region, which is substantially
a new reportable segment as a result of the merger and the acquisition of
Compass, totaled $27.8 million for the three months ended March 31, 1999.
The revenue generated by the Region primarily reflects robust activity
within the United Kingdom primarily in the form of tenant and agency
leasing activities and investment sales and acquisition transactions, and
to a lesser extent to property and facility management activities.
Operating expenses for the region totaled $21.8 million for the three
months ended March 31, 1999.
ASIA REGION. Revenue for the Asia Region, also substantially a new
reportable segment as a result of the merger, totaled $4.5 million for the
three months ended March 31, 1999, primarily reflecting strong activity
within Hong Kong representing management fees, agency leasing activity and
valuation services. Operating expenses totaled $5.2 million for the three
months ended March 31, 1999.
AUSTRALASIA REGION. Revenue for the Australasia Region, a new
reportable segment as a result of the merger and the acquisition of
Compass, totaled $5.2 million for the three months ended March 31, 1999.
Operating expenses totaled $6.6 million for the three months ended
March 31, 1999.
OPERATING LOSS
The operating loss, excluding the effect of merger related non-
recurring charges increased $6.9 million to a loss of $12.3 million for the
three months ended March 31, 1999 from a loss of $5.3 million for the prior
year period. Operating expenses, excluding merger related non-recurring
charges, remained relatively constant as a percentage of revenue at 112%
for the three months ended March 31, 1999 compared to 110% for the prior
year period.
Including the effect of the merger related non-recurring charges, the
operating loss increased $61.0 million to a loss of $66.3 million for the
three months ended March 31, 1999 from a loss of $5.3 million in the prior
year period.
INTEREST EXPENSE
Interest expense increased $2.4 million to $2.6 million for the three
months ended March 31, 1999 from $.2 million in the prior year period,
primarily as a result of the acquisition of Compass and the related
borrowings on the acquisition facility.
BENEFIT FOR INCOME TAXES
The benefit for income taxes increased $11.4 million to $13.6 million
for the three months ended March 31, 1999 from $2.2 million in the prior
year period as a result of the increased net loss, exclusive of the
compensation expense associated with the issuance of shares to former JLW
employees in connection with the merger, at an effective tax rate of 38%.
In addition, a benefit has been recognized on a portion of the stock
compensation expense, which is largely non-deductible for tax purposes,
based on the rates prevailing in the applicable country.
NET LOSS
The net loss increased $52.0 million to $55.4 million for the three
months ended March 31, 1999 from a loss of $3.4 million in the prior year
period. Exclusive of the merger related non-recurring charges and the
associated tax benefit, the net loss for the three months ended March 31,
1999 represented 9% of operating revenue compared to 7% in the prior year
period. The increase is primarily attributed to the increase in interest
expense associated with the acquisition of Compass and related borrowings
on the acquisition facility.
LIQUIDITY AND CAPITAL RESOURCES
Jones Lang LaSalle meets its cash requirements primarily from
operating activities. No one client accounts for more than 10% of total
revenue. During the three months ended March 31, 1999, cash flows used in
operating activities totaled $90.3 million, an increase of $61.5 million
over the prior year period. The increased use is primarily a result of
higher bonus accruals at December 31, 1998 as compared to December 31,
1997, which are paid in the first quarter of the following year, resulting
from stronger operating results. Additionally, increased operating
expenses resulting from the acquisition of Compass and the merger with JLW,
and the related payment of integration and transition expenses further
impacted the operating cash use.
Jones Lang LaSalle will continue to pursue co-investment opportunities
with investment management clients, for which the holding period typically
ranges from three to seven years. Management anticipates that co-
investment activity within the Americas and Europe regions will increase
with potential expansion into Asia and Australasia, as appropriate
opportunities arise. This strategy should serve to grow the assets under
management, generate returns on investment and create potential
opportunities to provide other services. Such co-investments are
represented by non-controlling general partner and limited partner
interests. In addition to a share of investment returns, we typically earn
investment management fees, and in some cases, property management and
leasing fees on these investments. The equity earnings from these co-
investments have had a relatively small impact on our current earnings and
cash flow. However, our increased participation could increase
fluctuations in our net earnings and cash flow as a result of the timing
and magnitude of the gains or losses and potential incentive participation
fees, if any, to be recognized upon the disposition of these assets. In
certain of these investments, we will not have complete discretion to
control the timing of the disposition of such investments. As of March 31,
1999, we had a total investment of $49.7 million in 31 separate property or
fund co-investments with additional capital commitments of $15.8 million
for future fundings of co-investments.
Net cash provided by investing activities was $21.9 million for the
three months ended March 31, 1999 compared with net cash used in investing
activities of $18.9 million for the prior year period. The increased cash
provided of $40.8 million is primarily attributable to the net cash
balances assumed in the merger with JLW of $26.0 million, of which $6.5
million represents cash held on behalf of clients and $11.2 million
represents cash held pursuant to regulatory requirements. The 1999
increase, as compared to the prior year period, is further impacted by the
higher level of co-investment during 1998 in addition to the acquisition of
the project management business of the Satulah Group Inc. in January 1998
for $5.5 million in cash. Finally, we experienced increased net capital
expenditures of $3.0 million primarily as a result of the continued
customization and implementation of a new property accounting and
information system and expansion of corporate offices as a result of the
recent merger and acquisition, in addition to the recurring replacement of
personal computers. We anticipate that future capital expenditures will
increase as a result of the needs of our expanded global organization as
well as due to the integration of our operations, including improvements
for our global accounting and communication systems.
Historically, we have financed our operations, acquisitions and co-
investments with internally generated funds, ownership equity and
borrowings under revolving credit facilities. In addition to our existing
five year unsecured revolving credit facility of $150 million and our $175
million credit facility which was used exclusively to finance the
acquisition of Compass, we obtained a short-term facility of $45.0 million
in May 1999 which bears variable rates of interest based on market rates
and matures on July 31, 1999. We are also in the process of increasing our
revolving credit facility through our existing lenders or new lenders.
There can be no assurance as to the terms and conditions of such increased
facility. The revolving credit facility and short-term credit facility are
available for working capital, co-investment, and acquisitions. The
facilities are guaranteed by certain of our subsidiaries. We must maintain
a certain level of consolidated net worth and ratio of funded debt to
EBITDA, and must meet a minimum fixed charge coverage 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, and are subject to lender approval on
certain levels of co-investment. The facilities bear variable rates of
interest based on market rates. We had outstanding borrowings of $292.4
million as of March 31, 1999 on our long-term credit facilities. Our
effective interest rate on our long-term revolving credit facilities was
5.8% and 6.4% for the three months ended March 31, 1999 and 1998,
respectively.
Jones Lang LaSalle has additional access to capital via various
overdraft facilities and short-term credit facilities in Europe, Asia and
Australia. The amount available under these facilities totals $38.4
million, of which $20.0 million was outstanding at March 31, 1999.
Borrowings on these facilities are limited to $25.0 million under the terms
of the revolving credit facility.
Net cash provided by financing activities was $91.5 million for the
three months ended March 31, 1999 compared with $30.5 million in the prior
year period. The increase in cash flows is primarily a result of increased
borrowings on our long-term credit facilities as a result of increased
bonus compensation paid in 1999 related to higher 1998 operating profits,
the $6.2 million cash payment at closing related to the merger with JLW and
payments of integration and transition expenses as previously discussed.
To a lesser extent, the increase in cash flows are due to increased
borrowings on our revolving credit facility to fund the Compass Birmann
Asset Management Services Group acquisition and capital expenditures as
previously discussed. Management believes, based on current operating
plans, that cash generated from operations, available borrowings, and
ownership equity will be sufficient to meet our capital and liquidity
requirements for the foreseeable future.
SEASONALITY
Historically, our revenue, operating profits and net earnings in the
first three calendar quarters are substantially lower than in the fourth
quarter. This seasonality is due to a calendar year-end focus on the
completion of transactions, which is consistent with the real estate
industry generally. In contrast, our Investment Management segment earns
performance fees on client's returns on their real estate investments.
Such performance fees are generally earned when the asset is disposed of,
the timing of which we do not have complete discretion over. Our non-
variable operating expenses, which are treated as expenses when incurred
during the year, are relatively constant on a quarterly basis. Therefore,
we typically sustain a loss in the first quarter of each calendar year,
typically report a small profit or loss in the second and third quarters
and record a substantial majority of our earnings in the fourth calendar
quarter, barring the recognition of investment generated performance fees.
INFLATION
Jones Lang LaSalle's operations are directly affected by various
national and local economic conditions, including interest rates, the
availability of credit to finance real estate transactions and the impact
of tax laws. To date, we do not believe that general inflation has had a
material impact on operations, as revenue, commissions, and other variable
costs related to revenue are primarily impacted by real estate supply and
demand rather than general inflation.
OTHER MATTERS
ACCOUNTING MATTERS
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" becomes effective for all
fiscal quarters for fiscal years beginning after June 15, 1999 and is not
expected to have a material impact on our financial statements.
YEAR 2000 ISSUES
The "Year 2000 Issue" is the result of computer programs and systems
having been designed and developed to use two digits, rather than four, to
define the applicable year. As a result, these computer programs and
systems may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in system failure or miscalculations causing
disruption of operations, including, among other things, a temporary
inability to process transactions, pay invoices or engage in similar normal
business activities. Jones Lang LaSalle has defined five key phases in
addressing the Year 2000 Issue: awareness, assessment, renovation,
validation and implementation.
Under the guidance of a Year 2000 program team, whose strategy is
supported by senior management, we have in place a firmwide awareness phase
and will continue this phase through December 31, 1999 to maintain a
heightened sense of awareness to the Year 2000 Issue. As part of the
assessment phase, we have reviewed the year 2000 readiness of our
information technology systems through the creation of critical
applications, systems software and hardware inventories. These inventories
included detailed information relating to the potential impact of the
Year 2000 issue to Jones Lang LaSalle. The global assessment phase was
completed in early 1999.
Renovation and validation efforts have commenced throughout the Year
2000 program. We conduct our business primarily with commercial software
purchased from third-party vendors versus in house developed software.
Over the last two years, we have significantly upgraded our information
systems capabilities, and are currently in the final stages of rolling out
new property and client accounting systems. Continued upgrades of critical
business systems provide a historically sound software infrastructure, and
positively impact the degree of effort necessary related to the renovation
process of converting, replacing or eliminating selected platforms,
applications, databases and utilities, as well as the validation process of
testing and verifying for Year 2000 readiness. The schedule for completion
of these renovations and validation efforts remains on schedule with
anticipated completion by the third quarter of 1999.
The continuing implementation phase, which involves returning the
tested systems to operational status and the development of contingency
plans for critical business systems, is also anticipated to be completed by
the third quarter of 1999.
Management expects that the cost of additional modifications to our
software to meet Year 2000 requirements will not be material. Factors that
could impact our ability to make the necessary modifications of replacement
to our software include, but are not limited to, the availability and cost
of trained personnel and the ability of such personnel to locate and
correct all relevant computer codes. If such modifications are not
completed on a timely basis or are more costly to implement than
anticipated financial condition or results of operations could be
materially adversely affected.
Properties for which we provide management services rely on a variety
of third party suppliers to provide critical operating services. These
suppliers may utilize systems and embedded technologies to control the
operation of building systems such as utilities, lighting, security,
elevators, heating, ventilation and air conditioning systems. Jones Lang
LaSalle is in the process of obtaining assurances from suppliers as to
their Year 2000 readiness and preparing contingency plans, including the
identification of alternative suppliers. We do not control these third
party suppliers, and for some suppliers, such as utility companies, there
may be no feasible alternative suppliers available. The failure to these
suppliers' systems could have a material adverse effect on the operations
of the affected property, and widespread failures could have a material
adverse effect on Jones Lang LaSalle. Plans for a complete millennium
period staffing and communication strategy are underway to address any
concerns.
A corporate business resumption strategy has been defined to create
specific response action plans throughout our organization to deal with
situations that arise that could cause interruption to or have serious
impact on the continuation of normal business operations. The strategy
includes specific remedies and implementation plans to be instituted at the
time of an emergency, and will allow our resources to effectively react to
critical issues resulting from any Year 2000 related occurrences.
The ability of third parties with whom we transact business or
companies that we may acquire to adequately address their Year 2000 issues
is outside Jones Lang LaSalle's control. At this time we are in the
process of reviewing the Year 2000 readiness of our major suppliers and
customers. There can be no assurance that the failure of major suppliers
and customers to adequately address Year 2000 issues will not have a
material adverse effect on our business, financial condition, and results
of operations.
Although we are not aware of any threatened claims related to the
Year 2000, we may become subject to litigation arising from such claims
and, depending on the outcome, such litigation could have a material
adverse affect on Jones Lang LaSalle. It is not clear whether our
insurance coverage would be adequate to offset these and other business
risks related to the Year 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Jones Lang LaSalle is exposed to interest rate changes primarily as a
result of our lines of credit used to maintain liquidity and to fund
capital expenditures, acquisitions and expansion of our real estate
investment portfolio and operations. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and
cash flows and to lower our overall borrowing costs. To achieve our
objectives, we borrow primarily at variable rates and enter into derivative
financial instruments such as interest rate swap agreements when
appropriate. We do not enter into derivative or interest rate transactions
for speculative purposes.
As of March 31, 1999, the outstanding borrowings on our long-term
credit facilities were $292.4 million. The long-term credit facilities
bear a variable rate of interest based on market rates which approximated
5.8% for the quarter ended March 31, 1999. In addition, we have entered
into interest rate swap agreements with a notional amount of $65.0 million
providing for an average fixed interest rate of approximately 4.83% through
September 21, 1999. Such interest rate swap agreements had an approximate
market value of $.1 million. The carrying value of the debt approximates
its fair value.
FOREIGN CURRENCY RISK
Jones Lang LaSalle's reporting currency is the U.S. Dollar. We
transact business in various foreign currencies throughout Europe, Asia,
and Australasia. The financial statements of subsidiaries outside the
U.S., except those located in highly inflationary economies, are generally
measured using the local currency as the functional currency. As a result,
fluctuations in the U.S. Dollar relative to the other currencies in which
we generate earnings can impact our business, operating results and
financial condition. For the quarter ended March 31, 1999, on a pro forma
basis (excluding the effect of stock compensation expense), 60.5% of our
net loss was denominated in U.S. Dollars and 39.5% was denominated in other
currencies. Our revenues and expenses have primarily been earned and
incurred in the currency of the location where the operations generating
the revenues and expenses have occurred. Therefore, our exposure to
exchange rate fluctuations has been limited.
On a limited basis, we enter into forward currency exchange contracts
to manage currency risks and reduce our exposure resulting from
fluctuations in the designated foreign currency associated with existing
commitments, assets or liabilities. There were no forward exchange
contracts in effect at March 31, 1999. We do not use foreign currency
exchange contracts for trading purposes.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of March 31, 1999, it does not consider those exposures or
positions which could arise after that date. Moreover, because firm
commitments are not presented, the information presented has limited
predictive value. As a result, our ultimate realized gain or loss with
respect to interest rate and foreign currency fluctuations will depend on
the exposures that arise during the period, our hedging strategies at the
time and interest and foreign currency rates.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Jones Lang LaSalle is a defendant in various litigation matters
arising in the ordinary course of business, some of which involve claims
for damages that are substantial in amount. Most of these matters are
covered by insurance. In the opinion of management, the ultimate resolution
of such litigation matters is not expected to have a material adverse
effect on our financial position, results of operations and liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 11, 1999, Jones Lang LaSalle issued 14,254,116 shares of
common stock in connection with the acquisition of the property and asset
management, advisory and other real estate businesses which had been
operated by a series of partnerships and corporations in Europe, Asia,
Australia, North America and New Zealand under the name "Jones Lang
Wootton" or "JLW". The shares were issued to owners and employees of these
businesses and certain other persons. The shares issued to persons in the
United States were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, and the shares
issued to persons outside the United States were issued in reliance upon
the exemption from registration provided by Regulation S promulgated under
the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the special meeting of stockholders held on March 10, 1999, the
following business was conducted:
A. Stockholders approved the issuance of up to 14,254,116 shares
of common stock in connection with the acquisition of the property and
asset management, advisory and other real estate businesses which had been
operated by a series of partnerships and corporations in Europe, Asia,
Australia, North America and New Zealand under the name "Jones Lang
Wootton" or "JLW" as follows:
Votes for: 13,550,771
Votes against: 113,231
Votes abstained: 2,850
B. Stockholders approved the amendment to the charter to change
the name of the Company from "LaSalle Partners Incorporated" to "Jones Lang
LaSalle Incorporated" as follows:
Votes for: 13,611,884
Votes against: 45,838
Votes abstained: 9,130
C. Stockholders approved the amendment to the 1997 Stock award and
Incentive Plan to increase the number of shares issuable thereunder to
4,160,000 from 2,215,000 as follows:
Votes for: 13,437,777
Votes against: 216,651
Votes abstained: 12,425
ITEM 5. OTHER MATTERS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995:
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 our 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 (i) 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 Disclosures About Market
Risk", and elsewhere, (ii) our Annual Report on Form 10-K for the year
ended December 31, 1998, 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, and (iii) our Proxy Statement dated February 4, 1999 under the
captions "Risk Factors", "The Transactions", "The Purchase Agreements",
"JLW Management's Discussion and Analysis of Financial Condition and
Results of Operations of the JLW Companies", and elsewhere, and in other
reports filed with the Securities and Exchange Commission. We expressly
disclaim any obligation or undertaking to update or revise any
forward-looking statements to reflect any changes in events or
circumstances or in our 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
The following Form 8-K's were filed during the 1999 first quarter:
1. Form 8-K, dated February 22, 1999, to provide a press
release issued on that date which contained 1998 financial information for
LaSalle Partners and Jones Lang Wootton.
2. Form 8-K, dated March 11, 1999, to announce the closing
of the merger with Jones Lang Wootton which included the required
historical financial statements of each of the JLW companies acquired and
pro forma financial information on a combined basis.
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.
LASALLE PARTNERS INCORPORATED
Dated: May 14, 1999 BY:/S/ WILLIAM E. SULLIVAN
------------------------------
William E. Sullivan
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Articles of Amendment to the Company's
Articles of Incorporation, dated March 11, 1999.
10.1 Second Amendment to the Company's
$150,000,000 Multicurrency Credit Agreement, dated as of March 10, 1999.
10.2 First Amendment to the Company's $175,000,000
Credit Agreement, dated as of March 10, 1999.
27.1 Financial Data Schedule.
99.1 Jones Lang LaSalle press release announcing
first quarter 1999 earnings.