SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 1999 Commission File Number 1-13145
JONES LANG LASALLE INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
----------------------- ------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
200 East Randolph Drive, Chicago, IL 60601
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
The Annual Report on Form 10-K of Jones Lang LaSalle Incorporated for
the fiscal year ended December 31, 1999 (the "1999 Form 10-K") is being
amended by this Form 10-K/A (1) to revise Item 6 - Selected Financial Data
by removing the line items "Total operating expenses before merger related
non-recurring charges" and "Merger related non-recurring charges," from the
Statement of Operations Data (2) to revise the Consolidated Statements of
Earnings and Comprehensive Income contained in Item 8 -Financial Statements
and Supplementary Data by removing the line items "Total operating expenses
before merger related non-recurring charges" and "Total merger related non-
recurring charges" and (3) to revise footnote 3 in the financial statements
contained in Item 8 - Financial Statements and Supplementary Data by adding
additional information relating to integration and transition expenses.
No other changes to the 1999 Form 10-K have been made.
The undersigned registrant hereby amends the following section of its
Report for the year ended December 31, 1999 on Form 10-K as set forth in
the pages attached hereto:
PART II -
Item 6. Selected Financial Data - Pages 23 through 29
Item 8. Financial Statements and Supplementary Data -
Pages 45 through 85
EXHIBIT -
EXHIBIT 23.1
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
/S/ WILLIAM E. SULLIVAN
----------------------------------
By: William E. Sullivan
Executive Vice President
and Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
Dated: December 26, 2000
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
The following table sets forth summary historical consolidated financial data for Jones Lang LaSalle. The
information should be read in conjunction with Jones Lang LaSalle's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement
of Opera-
tions Data:
Total
revenue
(4). . . .$ 755,439 304,464 224,773 159,453 138,618 813,899 848,325 232,984 189,398
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Operating
income
(loss). . . .(71,303) 37,842 35,114 26,901 20,116 (88,087) (76,121) 34,651 30,177
Interest
expense . . . 18,211 4,153 3,995 5,730 3,806 18,118 14,736 1,000 1,075
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Earnings (loss)
before pro-
vision for
income
taxes . . . .(89,514) 33,689 31,119 21,171 16,310 (106,205) (90,857) 33,651 29,102
Net provision
for income
taxes . . . . 5,328 13,224 5,279 1,207 505 2,065 16,850 12,956 11,204
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Net earnings
(loss). . . .$ (94,842) 20,465 25,840 19,964 15,805 (108,253) (108,365) 20,695 17,898
========== ========== ========== ========== ========== ========== ========== ========== ==========
Adjustments
(1) (2):
Merger re-
lated non-
recurring
charges. . . 160,528 163,504
Tax benefit
associated
with merger
related non-
recurring
charges. . . (20,004) (10,877)
---------- ---------- --------------------- ---------- ---------- ---------- ---------- ----------
Adjusted
net earn-
ings (1)(2) . 32,271 44,262 20,695 17,898
========== ========== ========== ========== ========== ========== ========== ========== ==========
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Basic
earnings
(loss) per
common (5) (6) (6)
share . . . .$ (4.20) 1.26 1.50 1.28 1.10
========== ========== ========== ========== ==========
Basic
weighted
average
shares
outstand-
ing . . . . .22,607,35016,215,47816,200,000 30,144,521 30,469,594 16,200,000 16,200,000
========== ========== ========== =========== ========== ========== ==========
Diluted
earnings
(loss) per
common (5) (6) (6)
share . . . .$ (4.20) 1.25 1.49 1.27 1.10
========== ========== ========== ========== ==========
Diluted
weighted
average
shares
outstand-
ing . . . . .22,607,35016,387,72116,329,613 30,298,332 30,644,227 16,329,555 16,329,555
========== ========== ========== =========== ========== ========== ==========
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Other Data:
Adjusted
EBITDA
(7). . . . .$ 116,774 61,318 44,207 32,317 24,356 112,164 123,800 44,407 37,624
Cash flows
provided by
(used in):
Operating
activi-
ties . . . .$ (32,766) 19,238 40,577 13,964 13,553 29,114 83,658 33,027 13,646
Investing
activi-
ties . . . .(67,143) (235,365) (14,126) (32,478) (5,706) (108,463) (318,467) (14,367) (31,852)
Financing
activi-
ties . . . .106,717 202,377 (3,128) 17,189 (12,365) 110,051 209,011 (10,996) 37,605
Investments
under
management
(8) . . . . .21,500,00014,200,00014,700,000 15,200,000 11,500,000 21,500,000 20,300,000 14,700,000 15,200,000
Square feet
under manage-
ment-Corporate
Property
Services
(9) . . . . .250,000 188,000 98,900 66,700 66,700 250,000 220,000 98,900 97,500
Total square
feet under
management
(10). . . . .700,000 400,500 202,700 131,600 125,700 700,000 650,000 202,700 200,000
========== ========== ========== ========== ========= ========== ========== ========== ==========
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1999 1998
Adjusted Adjusted 1997 1996
Pro Forma Pro Forma Pro Forma Pro Forma
1999 1998 1997 1996 1995 (1) (2) (3) (3)
---------- --------- ---------- --------- ---------- ---------- ---------- ---------- ----------
(in thousands, except share data)
Balance
Sheet
Data:
Cash and
cash equi-
valents . . .$ 23,308 16,941 30,660 7,207 8,322
Total
assets. . . .924,800 490,921 219,887 156,614 115,001
Long-term
debt. . . . .159,743 202,923 -- 55,551 40,805
Total
liabil-
ities . . . .600,275 321,349 72,990 132,367 100,004
Total
partners'
capital/
stockholders'
equity. . . .323,936 169,572 146,897 24,247 14,997
<PAGE>
<FN>
(1) Adjusted Pro Forma results for 1999 give effect to the operations of
the Jones Lang Wootton companies for the two months ended February 28,
1999, the period prior to their merger with LaSalle Partners Incorporated,
amortization expense of the goodwill resulting from the merger as if the
merger occurred on January 1, 1999 and a benefit for taxes as if the Jones
Lang Wootton companies and LaSalle Partners Incorporated were taxable
entities at an effective tax rate of 40% as of January 1, 1999. No effect
has been given to the compensation expense incurred associated with the
issuance of shares to former employees of Jones Lang Wootton. Management
believes that Adjusted Pro Forma is useful to investors as a measure of
operating performance, cash generation and ability to service debt.
However, Adjusted Pro Forma should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(2) Adjusted Pro Forma results for 1998 give effect to the operations of
COMPASS and the Jones Lang Wootton companies for the twelve months ended
December 31, 1998 as if the acquisition and merger occurred on January 1,
1998, amortization of intangible assets and goodwill resulting from the
transactions, incremental interest expense resulting from borrowings used
to fund the COMPASS acquisition and a benefit for taxes as if COMPASS, the
Jones Lang Wootton companies and LaSalle Partners Incorporated were taxable
entities at an effective tax rate of 38% as of January 1, 1998. No effect
has been given to the compensation expense incurred associated with the
issuance of shares to former employees of Jones Lang Wootton. Management
believes that Adjusted Pro Forma is useful to investors as a measure of
operating performance, cash generation and ability to service debt.
However, Adjusted Pro Forma should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(3) Pro forma results give effect to: (i) the acquisition of Galbreath
on April 22, 1997, as adjusted for the Tenant Representation and Investment
Banking units which were not acquired, as if such acquisition had occurred
on January 1, 1996; (ii) the provision for income taxes as though Jones
Lang LaSalle and Galbreath were taxable entities as of January 1, 1996 at
an effective tax rate of 38.5%; and (iii) estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of Jones Lang LaSalle's long-term notes payable out of the
proceeds of the initial public offering as if the Offering had occurred on
January 1, 1996.
(4) Historical revenue and operating expenses have been reclassified to
reflect personnel cost reimbursements received on property management or
specific client assignments on a net rather than gross basis. There was no
effect on operating income or net earnings as historically reported.
(5) Basic and diluted earnings per common share for 1997 are calculated
based on net earnings for the period from conversion to corporate form,
July 22, 1997, through December 31, 1997.
(6) Pro forma basic earnings per common share are calculated based on the
16,200,000 shares outstanding upon completion of the initial public
offering. Pro forma diluted earnings per common share give further effect
to the impact of outstanding dilutive options in accordance with SFAS No.
128.
<PAGE>
(7) Adjusted EBITDA represents earnings before interest expense, income
taxes, depreciation and amortization and merger related non-recurring
charges. Management believes that Adjusted EBITDA is useful to investors as
a measure of operating performance, cash generation and ability to service
debt. However, Adjusted EBITDA should not be considered as an alternative
either to: (i) net earnings (determined in accordance with GAAP); (ii)
operating cash flow (determined in accordance with GAAP); or (iii)
liquidity.
(8) Investments under management represent the aggregate fair market
value or cost basis of assets managed by the Jones Lang LaSalle Investment
Management segment as of the end of the periods reflected.
(9) Represents the square footage of properties for which Jones Lang
LaSalle provided corporate property services as of the end of the periods
reflected.
(10) Represents the total square footage of properties for which Jones
Lang LaSalle provided property management and leasing or corporate property
services as of the end of the periods reflected.
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
JONES LANG LASALLE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
Report of KPMG LLP, Independent Auditors . . . . . . . . . . . . . . 46
Consolidated Balance Sheets as of
December 31, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . 47
Consolidated Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997 . . . . . . . 49
Consolidated Statements of Stockholders'
Equity For the Years Ended December 31,
1999, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997 . . . . . . . 54
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 57
Quarterly Results of Operations (Unaudited). . . . . . . . . . . . . 80
SCHEDULES SUPPORTING THE CONSOLIDATED FINANCIAL STATEMENTS:
II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . 83
All other schedules have been omitted since the required information
is presented in the financial statements and related notes or is not
applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and
Board of Directors of
Jones Lang LaSalle Incorporated:
We have audited the accompanying consolidated financial statements of
Jones Lang LaSalle Incorporated and subsidiaries and their predecessors as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Jones Lang LaSalle Incorporated and subsidiaries and their predecessors as
of December 31, 1999 and 1998, and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/S/ KPMG LLP
Chicago, Illinois
February 7, 2000
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
($ in thousands, except share data)
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 23,308 16,941
Trade receivables, net of allowances of $9,871 and $3,978 in
1999 and 1998, respectively. . . . . . . . . . . . . . . . . . . . . . 270,593 116,965
Notes receivable and advances to real estate ventures. . . . . . . . . . 4,519 17,042
Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,045 3,385
Income tax refund receivable . . . . . . . . . . . . . . . . . . . . . . 14,500 --
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,598 2,185
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 13,673 9,926
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,446 --
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 348,682 166,444
Property and equipment, at cost, less accumulated
depreciation of $55,943 and $35,859
in 1999 and 1998, respectively . . . . . . . . . . . . . . . . . . . . . 76,470 28,773
Intangibles resulting from business acquisitions and JLW merger,
net of accumulated amortization of $27,515 and
$11,961 in 1999 and 1998, respectively . . . . . . . . . . . . . . . . . 367,215 229,437
Investments in real estate ventures. . . . . . . . . . . . . . . . . . . . 67,305 52,976
Long-term receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 27,962 10,950
Prepaid pension asset. . . . . . . . . . . . . . . . . . . . . . . . . . . 23,956 --
Deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,270 660
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,940 1,681
-------- --------
$924,800 490,921
======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
1999 1998
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . $ 88,257 51,101
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 142,960 58,398
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 162,643 --
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,259 8,324
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 420,119 117,823
Long-term liabilities:
Credit facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,743 202,923
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7,535 --
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,878 603
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 600,275 321,349
Commitments and contingencies
Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . 589 --
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,285,472 and 16,264,176 shares issued and
outstanding as of December 31, 1999 and 1998, respectively . . . . . . 303 163
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 442,699 123,543
Unallocated ESOT shares. . . . . . . . . . . . . . . . . . . . . . . . . (7) --
Deferred stock compensation. . . . . . . . . . . . . . . . . . . . . . . (70,106) --
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . (50,050) 44,792
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . 1,097 1,074
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 323,936 169,572
-------- --------
$924,800 490,921
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands, except share data)
<CAPTION>
1999 1998 1997 (1)
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Fee based services . . . . . . . . . . . . . . . . . $736,042 298,296 219,911
Equity in earnings from unconsolidated
ventures . . . . . . . . . . . . . . . . . . . . . 6,218 3,911 3,238
Gain on sale of business . . . . . . . . . . . . . . 7,502 -- --
Other income . . . . . . . . . . . . . . . . . . . . 5,677 2,257 1,624
-------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . 755,439 304,464 224,773
Operating expenses:
Compensation and benefits. . . . . . . . . . . . . . 477,658 172,982 123,281
Operating, administrative and other. . . . . . . . . 161,007 70,164 57,285
Depreciation and amortization. . . . . . . . . . . . 36,676 13,455 9,093
Merger related non-recurring charges:
Stock compensation expense . . . . . . . . . . . . . 101,579 -- --
Integration and transition expenses. . . . . . . . . 49,822 10,021 --
-------- -------- --------
Total operating expenses . . . . . . . . . . . 826,742 266,622 189,659
Operating income (loss). . . . . . . . . . . . . . . (71,303) 37,842 35,114
Interest expense, net of interest income . . . . . . . 18,211 4,153 3,995
-------- -------- --------
Earnings (loss) before provision
for income taxes . . . . . . . . . . . . . . . . . (89,514) 33,689 31,119
Net provision for income taxes . . . . . . . . . . . . 5,328 13,224 5,279
-------- -------- --------
Net earnings (loss). . . . . . . . . . . . . . . . . . $(94,842) 20,465 25,840
======== ======== ========
Other comprehensive income, net of tax:
Foreign currency translation adjustments . . . . . . 23 444 (469)
-------- -------- --------
Comprehensive income (loss). . . . . . . . . $(94,819) 20,909 25,371
======== ======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
1999 1998 1997 (1)
------------ ------------ ------------
Basic earnings (loss) per common share . . . . . . . . $ (4.20) 1.26 1.50
========== ========== ==========
Basic weighted average shares outstanding. . . . . . . 22,607,350 16,215,478 16,200,000
========== ========== ==========
Diluted earnings (loss) per common share . . . . . . . $ (4.20) 1.25 1.49
========== ========== ==========
Diluted weighted average shares outstanding. . . . . . 22,607,350 16,387,721 16,329,613
========== ========== ==========
<FN>
(1) Earnings per share for 1997 is calculated based on earnings for the period from conversion to corporate
form, July 22, 1997, through December 31, 1997.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands, except share data)
<CAPTION>
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996. . . . . . . . -- -- -- -- -- -- 23,148 1,099 24,247
Net earnings
(through
July 21,
1997) . . . . . . -- -- -- -- -- -- 1,513 -- 1,513
Distributions. . . -- -- -- -- -- -- (14,835) -- (14,835)
Acquisition
of Galbreath
common
stock. . . . . . -- -- -- -- -- -- 29,292 -- 29,292
Effect of
the reorgani-
zation . . . . . 12,200,000 $ 122 38,996 -- -- -- (39,118) -- --
Net proceeds
from the
initial
Offering . . . . 4,000,000 40 82,782 -- -- -- -- -- 82,822
Cumulative
effect of
foreign
currency
translation
adjustments. . . -- -- -- -- -- -- -- (565) (565)
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances after
the reorgani-
zation and
initial
Offering. . . . . . 16,200,000 162 121,778 -- -- -- -- 534 122,474
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Net earnings
(July 22,
1997 through
December 31,
1997) . . . . . . -- -- -- -- -- 24,327 -- -- 24,327
Cumulative
effect of
foreign
currency
translation
adjustments . . . -- -- -- -- -- -- -- 96 96
---------- ----- ------- -------- -------- -------- -------- ------- ------
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
Cumulative
effect of
foreign
currency
translation
adjustments. . . -- -- -- -- -- -- -- 444 444
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances at
December 31,
1998. . . . . . . . 16,264,176 163 123,543 -- -- 44,792 -- 1,074 169,572
Net loss. . . . . -- -- -- -- -- (94,842) -- -- (94,842)
Shares issued in
connection with:
Stock option
plan . . . . . 21,292 -- 495 -- -- -- -- -- 495
Stock purchase
programs . . . 199,587 2 3,695 -- -- -- -- -- 3,697
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Partners' Accumu-
Capital lated
(Deficit) Other
Additi- Unallo- Deferred Pre- Compre-
Common Stock tional cated Stock Retained decessor hensive
------------------- Paid-In ESOT Compen- Earnings Partner- Income
Shares Amount Capital Shares sation (Deficit) ships (Loss) Total
---------- ------ -------- ------- -------- --------- -------- ------- -------
Share activity
related to JLW
merger:
Shares issued
at closing . . 14,254,116 143 355,233 (9) (160,253) -- -- -- 195,114
Adjustment
shares sub-
sequently
retained . . . (453,699) (5) (8,462) -- -- -- -- -- (8,467)
ESOT shares
allocated. . . -- -- 1,597 2 -- -- -- -- 1,599
Stock compensa-
tion adjust-
ments . . . . . -- -- (33,402) -- 27,906 -- -- -- (5,496)
Amortization of
deferred stock
compensation. . -- -- -- -- 62,241 -- -- -- 62,241
Cumulative
effect of
foreign
currency
translation
adjustments . . -- -- -- -- -- -- -- 23 23
---------- ----- ------- -------- -------- -------- -------- -------- --------
Balances at
December 31,
1999. . . . . . . . 30,285,472 $ 303 442,699 (7) (70,106) (50,050) -- 1,097 323,936
========== ===== ======= ======== ======== ======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands)
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss). . . . . . . . . . . . . . . . . $(94,842) 20,465 25,840
Reconciliation of net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization. . . . . . . . . . . 36,676 13,455 9,093
Equity in earnings and gain on sale from
unconsolidated ventures. . . . . . . . . . . . . (6,218) (3,911) (3,238)
Provision for loss on receivables and
other assets . . . . . . . . . . . . . . . . . . 2,744 4,009 2,640
Stock compensation expense . . . . . . . . . . . . 101,143 -- --
Amortization of deferred compensation. . . . . . . 2,070 229 --
Tax benefit on conversion to corporate form. . . . -- -- (6,842)
Changes in:
Receivables. . . . . . . . . . . . . . . . . . . . (49,962) (28,504) 9,631
Prepaid expenses and other assets. . . . . . . . . (10,442) (3,760) 1,864
Deferred tax assets and income tax
refund receivable. . . . . . . . . . . . . . . . (19,479) -- --
Accounts payable, accrued liabilities
and accrued compensation . . . . . . . . . . . . 5,544 17,255 (2,429)
---------- ---------- ----------
Net cash (used in) provided by
operating activities . . . . . . . . . . . (32,766) 19,238 36,559
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998 1997
------------ ------------ ------------
Cash flows provided by (used in) investing
activities:
Net capital additions--property and equipment. . . (36,848) (15,592) (6,277)
Cash paid in connection with merger with
Jones Lang Wootton, net of cash balances
assumed (Note 3) . . . . . . . . . . . . . . . . (27,704) -- --
Other acquisitions, net of cash balances
assumed. . . . . . . . . . . . . . . . . . . . . (3,030) (178,919) 1,008
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures . . . . . . . . . . . . . (25,491) (51,347) (16,546)
Distributions, repayments of advances
and sale of investments. . . . . . . . . . . . 25,930 10,493 11,707
---------- ---------- ----------
Net cash used in investing activities . . . (67,143) (235,365) (10,108)
Cash flows provided by (used in) financing
activities:
Proceeds from borrowings under credit
facilities . . . . . . . . . . . . . . . . . . . 326,004 356,929 92,300
Repayments of borrowings under credit
facilities . . . . . . . . . . . . . . . . . . . (223,479) (154,552) (126,202)
Net repayments under long-term notes payable . . . -- -- (37,213)
Common stock issued under stock option plan
and stock purchase programs. . . . . . . . . . . 4,192 -- --
Distributions to partners. . . . . . . . . . . . . -- -- (14,835)
Net proceeds from the initial Offering . . . . . . -- -- 82,822
---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . 106,717 202,377 (3,128)
Effects of foreign currency translation
on cash balances. . . . . . . . . . . . . . . . . . (441) 31 130
---------- ---------- ----------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
1999 1998 1997
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . 6,367 (13,719) 23,453
Cash and cash equivalents, January 1 . . . . . . . . 16,941 30,660 7,207
---------- ---------- ----------
Cash and cash equivalents, December 31 . . . . . . . $ 23,308 16,941 30,660
========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 20,448 3,215 4,195
Taxes, net of refunds. . . . . . . . . . . . . . . 20,763 2,881 9,910
Non-cash investing and financing activities:
Acquisitions and merger:
Shares issued in connection with
merger and acquisition . . . . . . . . . . . . $ 141,918 -- 29,292
Fair value of assets acquired. . . . . . . . . . (218,514) (23,257) (12,448)
Fair value of liabilities assumed. . . . . . . . 197,556 22,652 14,740
Goodwill . . . . . . . . . . . . . . . . . . . . (151,694) (178,314) (30,576)
---------- ---------- ----------
Cash paid, net of cash balances
assumed. . . . . . . . . . . . . . . . . . $ (30,734) (178,919) 1,008
========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except where otherwise noted)
(1) ORGANIZATION
Jones Lang LaSalle Incorporated ("Jones Lang LaSalle") is a leading
full-service real estate services firm that provides investment management,
hotel acquisition, disposition, strategic advisory and valuation, property
management, corporate property services, development services, project
management, tenant and agency leasing, investment disposition, acquisition,
financing and capital placement services on a local, regional and global
basis. With over 7,000 employees in more than 100 markets on five
continents, Jones Lang LaSalle is able to satisfy local, regional and
international service needs. The ability to provide this network of
services around the globe was solidified effective March 11, 1999 with the
merger of the business of the Jones Lang Wootton companies ("JLW") with
those of LaSalle Partners Incorporated ("LaSalle Partners"). In connection
with this merger, the name of the company was changed from LaSalle Partners
Incorporated to Jones Lang LaSalle Incorporated (see Note 3).
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. On July 22, 1997, LaSalle
Partners completed an initial public offering (the "Offering") of 4,000,000
shares of LaSalle Partners 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 LaSalle Partners, pursuant to
agreements among the general and limited partners, in exchange for an
aggregate of 12,200,000 shares of common stock. The contribution occurred
immediately prior to the closing of the Offering. The 4,000,000 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 Jones Lang LaSalle'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
financial statements include the financial positions and results of
operations of the Predecessor Partnerships at their historical basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jones
Lang LaSalle and their majority-owned-and-controlled partnerships and
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
CASH HELD FOR OTHERS
Jones Lang LaSalle controls certain cash and cash equivalents as
agents for its investment and property management clients. Such amounts are
not included in the accompanying Consolidated Balance Sheets.
STATEMENT OF CASH FLOWS
Cash and cash equivalents include demand deposits and investments in
U.S. Treasury instruments (generally held available for sale) with
maturities of three months or less. The combined carrying value of such
investments of $5.6 million and $3.0 million at December 31, 1999 and 1998,
respectively, approximates their market value.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed
for impairment whenever events or a change in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
INVESTMENTS IN REAL ESTATE VENTURES
Jones Lang LaSalle has limited partner, general partner and limited
liability company interests in various real estate ventures with interests
generally ranging from less than 1% to 49.5% which are accounted for using
the equity method. In instances where Jones Lang LaSalle exercises
temporary control over co-investments, such investments are accounted for
under the equity method.
INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS AND JLW MERGER
Intangibles resulting from business acquisitions and the JLW merger
are amortized on a straight-line basis over the estimated lives (generally
eight to 40 years) of the related assets. Jones Lang LaSalle periodically
evaluates the recoverability of the carrying amount of intangibles
resulting from business acquisitions and mergers by assessing whether any
impairment indications are present, including substantial recurring
operating deficits or significant adverse changes in legal or economic
factors that affect the businesses acquired. If such analysis indicates
impairment, the intangible asset would be adjusted in the period such
changes occurred based on its estimated fair value, which is derived from
expected cash flow of the businesses.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
Jones Lang LaSalle's financial instruments include cash and cash
equivalents, receivables, accounts payable, notes payable, interest rate
swap agreements and foreign currency exchange contracts. The estimated
fair value of cash and cash equivalents, receivables and payables
approximates their carrying amounts due to the short maturity of these
instruments. The estimated fair value of Jones Lang LaSalle's credit
facilities approximates their carrying value due to their variable interest
rate terms. The fair value of interest rate swaps is estimated, using
third-party quotes, as the amount that Jones Lang LaSalle would receive or
pay to execute a new agreement with terms identical to those remaining on
the current agreement, considering current interest rates. The fair value
of forward foreign currency exchange contracts is estimated by valuing the
net position of the contracts using the applicable spot rates and forward
rates as of the reporting date.
FOREIGN CURRENCY TRANSLATION
The financial statements of subsidiaries located outside the United
States, except those subsidiaries located in highly inflationary economies,
are generally measured using the local currency as the functional currency.
The assets and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date with the resulting translation
adjustments included as a separate component of stockholders' equity and
comprehensive income. Income and expense are translated at average monthly
rates of exchange. Gains and losses from foreign currency transactions are
included in net earnings. For subsidiaries operating in highly inflationary
economies, the associated gains and losses from balance sheet translation
adjustments are included in net earnings.
DERIVATIVE INSTRUMENTS
Jones Lang LaSalle has entered into interest rate swap agreements as a
hedge against a portion of its credit facilities in order to manage
interest rate risk. Fees, if any, related to these agreements are
amortized using the effective interest method over the life of the
agreements. As of December 31, 1999 and 1998, Jones Lang LaSalle had
interest rate swap agreements in effect with a notional amount of $55.0
million with an approximate market value of $.2 million.
Interest rate swap agreements are contracts that represent an exchange
of interest payments and the underlying principal balances of the assets or
liabilities are not affected. Net settlement amounts are reported as
adjustments to interest income or interest expense. Gains and losses from
the termination of interest rate swaps are deferred and amortized over the
remaining lives of the interest rate swap agreements. If the balance of
the liability falls below that of the notional amount of the derivative,
the excess portion of the derivative is marked-to-market with a
corresponding effect on current earnings.
Jones Lang LaSalle also enters into forward foreign currency exchange
contracts on a limited basis to manage currency risks and reduce its
exposure resulting from fluctuations in the designated foreign currency
associated with existing commitments, assets or liabilities. The
associated gains and losses are deferred and are recognized in income upon
settlement of the related transaction. At December 31, 1999, Jones Lang
LaSalle had forward foreign currency exchange contracts in effect with a
notional value of $5.7 million with no market value and no carrying value.
There were no forward exchange contracts in effect at December 31, 1998.
Jones Lang LaSalle does not enter into derivative financial
instruments for trading or speculative purposes.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
EARNINGS PER SHARE
The basic and diluted losses per common share for the year ended
December 31, 1999 were calculated based on basic weighted average shares
outstanding of 22,607,350. 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 year ended December 31, 1999 do
not give effect to common stock equivalents as to do so would be anti-
dilutive. These common stock equivalents consist principally of
consideration shares issued in connection with the JLW merger that are
subject to vesting provisions or are contingently returnable. Basic
earnings per share for the year ended December 31, 1998 and for the period
from conversion to corporate form, July 22, 1997, through December 31, 1997
were based on weighted average shares outstanding of 16,215,478 and
16,200,000, respectively. Diluted earnings per share for the year ended
December 31, 1998 and for the period from conversion to corporate form,
July 22, 1997, through December 31, 1997 were based on weighted average
shares outstanding of 16,387,721 and 16,329,613, respectively. These
amounts reflect an increase of 172,243 shares and 129,613 shares,
respectively, primarily representing the dilutive effect of outstanding
stock options whose exercise price was less than the average market price
of Jones Lang LaSalle's stock for the period, and, to a lesser extent, the
dilutive effect of shares to be issued under employee stock compensation
programs.
REVENUE RECOGNITION
Advisory and management fees are recognized in the period in which the
services are performed. Transaction commissions are recorded as income at
the time the related services are provided unless significant future
contingencies exist. Development services fees are generally recognized as
billed, which approximates the percentage of completion method of
accounting. Incentive fees are recorded in accordance with specific terms
of each compensation agreement and are typically tied to performance that
is measured at contractual milestones, such as the disposition of an asset,
or at the conclusion of a given project. Fees recognized in the current
period that are expected to be received beyond one year have been
discounted to the present value of future expected payments. Pursuant to
contractual arrangements, accounts receivable includes unbilled amounts of
$70.9 million and $32.3 million at December 31, 1999 and 1998,
respectively.
For financial statement presentation purposes, certain one-time
leasing commission payments, aggregating $10.8 million in 1997, made to
former Galbreath employees related to contracts in progress at the
acquisition date have been presented as a reduction of related commission
revenue.
DEPRECIATION
Depreciation and amortization is calculated for financial reporting
purposes primarily using the straight-line method based on the estimated
useful lives of the assets. Furniture, fixtures and equipment totaling
$34.4 million and $18.0 million at December 31, 1999 and 1998,
respectively, are generally depreciated over seven years. Computer
equipment and software totaling $59.7 million and $33.3 million at
December 31, 1999 and 1998, respectively, are generally depreciated over
three to five years. Leasehold improvements totaling $26.2 million and
$13.3 million at December 31, 1999 and 1998, respectively, are amortized
over the lease periods which generally range from one to ten years.
Automobiles totaling $12.1 million at December 31, 1999 are generally
depreciated using a declining balance method over three to five years.
There were no automobiles at December 31, 1998.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
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 pro forma disclosures required by the Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-
Based Compensation."
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with
the 1999 presentation.
(3) ACQUISITIONS AND MERGER
ACQUISITIONS
On October 1, 1998, Jones Lang LaSalle acquired all of the common
stock of the following real estate service companies formerly owned by Lend
Lease Corporation ("Lend Lease"): Compass Management and Leasing, Inc. and
its wholly owned subsidiaries; The Yarmouth Group Property Management,
Inc.; and ERE Yarmouth Retail, Inc. (formerly Compass Retail, Inc.). On
October 31, 1998, Jones Lang LaSalle also acquired Compass Management and
Leasing (Australia) Pty Limited, the Lend Lease property management and
corporate property services business in Australia. Atlanta-based Compass
Management and Leasing, Inc. was a global real estate management firm, with
operations across the United States, United Kingdom, South America and
Australia. Jones Lang LaSalle paid $180.0 million in cash for all of the
acquired companies ("COMPASS"). The purchase of the companies also
includes provisions for an earnout payment of up to $77.5 million over five
years. The acquisition was accounted for as a purchase and, accordingly,
operating results of this business subsequent to the date of acquisition
are included in the accompanying Consolidated Statements of Earnings. The
excess purchase price over the fair value of the identifiable assets and
liabilities acquired was $175.6 million, including transaction costs, of
which $35.1 million was allocated to management contracts and is being
amortized on a straight-line basis over eight years, and $140.5 million was
allocated to goodwill and is being amortized on a straight-line basis over
40 years based on Jones Lang LaSalle's estimate of useful lives.
On April 22, 1997, Jones Lang LaSalle acquired all of the common stock
of Galbreath, a property, facility and development management company. In
consideration for the stock, Jones Lang LaSalle issued a 17.5% limited
partnership interest in the Predecessor Partnerships to the former
stockholders of Galbreath. The acquisition was accounted for as a purchase
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
and, accordingly, operating results of this business subsequent to the date
of acquisition are included in the accompanying Consolidated Statements of
Earnings. The excess purchase price over the fair value of the
identifiable assets and liabilities acquired was $30.6 million, including
transaction costs, of which $6.1 million was allocated to management
contracts that are being amortized on a straight-line basis over eight
years and $24.5 million was allocated to goodwill which is being amortized
on a straight-line basis over 40 years based on Jones Lang LaSalle's
estimate of useful lives.
JONES LANG WOOTTON MERGER
On March 11, 1999, LaSalle Partners merged its business with that of
JLW and changed its name to Jones Lang LaSalle Incorporated. In accordance
with the purchase and sale agreements, Jones Lang LaSalle issued 14.3
million shares of its common stock on March 11, 1999, 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 stock 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 shares that were allocated on March 11,
1999 and .2 million that were allocated on December 31, 1999, with the
remaining .7 million shares to be allocated on December 31, 2000. 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.
Included in the 14.3 million shares originally issued were 1.2 million
shares which were subject to a post-closing net worth adjustment. The
procedures related to the post-closing net worth calculation were completed
during the third quarter and resulted in .5 million shares being retained
by Jones Lang LaSalle and an additional $.5 million in cash consideration
being due to certain of the former JLW shareholders.
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" as reflected in the following table.
Accordingly, JLW's operating results have been included in Jones Lang
LaSalle's results as of March 1, 1999, the effective date of the merger for
accounting purposes.
Accounting Method No. of % of Shares
(shares in millions) Shares Issued
-------------------- -------- -----------
APB Opinion No. 16 7.2 52%
APB Opinion No. 25 -
Fixed Award 5.3 38%
Variable Award 1.3 10%
---- ----
Net Shares Issued 13.8 100%
==== ====
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As noted in the previous table, 7.2 million shares, or 52% of the
shares issued, are subject to accounting under APB Opinion No. 16. The
value of those shares totaled $141.9 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 approximately $6.2 million and
capitalizable transaction costs of approximately $15.8 million were
allocated to the identifiable assets acquired and liabilities assumed,
based on management's estimate of fair value, which totaled $252.6 million
and $240.7 million, respectively. Included in the assets acquired is $32.2
million in cash. Included in the liabilities assumed is $47.4 million of
obligations to former partners for undistributed earnings, of which $9.5
million remains unpaid at December 31, 1999. The resulting excess purchase
price of $152.0 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 6.6 million shares, or 48% 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 6.6 million shares are
1.3 million shares that are subject to variable stock award plan
accounting. The remaining 5.3 million shares and the $.4 million in cash
paid are subject to fixed stock award plan accounting. Compensation expense
incurred for the year ended December 31, 1999 totaled $101.6 million,
inclusive of the compensation expense recognized at closing and the
amortization of deferred compensation for the periods.
UNAUDITED COMBINED PRO FORMA RESULTS
The following unaudited combined pro forma results give effect to the
merger with JLW as if it had occurred on January 1, 1998 and the
acquisitions of COMPASS and Galbreath and estimated incremental general and
administrative costs associated with operations as a public company and the
repayment of Jones Lang LaSalle's long-term debt out of the proceeds of the
Offering, as if these events occurred on January 1, 1997 ($ in thousands):
1999 1998 1997
-------- -------- --------
Total revenue $813,899 $848,325 $317,788
Net earnings (loss) (108,253) (108,365) 16,683
Basic earnings (loss)
per common share (4.50) (4.47) 1.03
Diluted earnings (loss)
per common share (4.50) (4.47) 1.02
The above combined pro forma results are based upon available
information and certain assumptions that management believes are
reasonable. These pro forma results are not necessarily indicative of what
the actual results of operations would have been for the three-year period
ended December 31, 1999 had Jones Lang LaSalle completed the merger with
JLW, the acquisitions of COMPASS and the Galbreath common stock and
consummated its conversion to corporate form and the Offering transactions
as of the dates indicated nor does it purport to represent the future
financial position or results of operations of Jones Lang LaSalle.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
MERGER RELATED INTEGRATION AND TRANSACTION EXPENSES
As a result of the acquisition of Compass in late 1998 and the JLW
merger in 1999, Jones Lang LaSalle has incurred substantial non-recurring
integration and transition expenses. These expenses can be grouped into
the following categories:
Twelve Months
Ended
December 31,
1999
------------
Severance and Other Payroll Costs 24.7 million
Marketing and Branding Initiatives 8.7 million
Professional Fees 7.9 million
Travel/Meeting Costs 4.7 million
Office Closures 3.8 million
Total $49.8 million
The severance and other payroll costs primarily relate to the
redundancy costs associated with the costs of reengineering the back-office
service delivery model in the United States, former LaSalle Partners
employees who were made redundant as a result of these transactions and
redundancies across the three former companies that were not anticipated or
planned at the original transaction dates. The integration efforts post
the JLW merger resulted in certain excess LaSalle Partners offices in the
United States being identified. The closure of these offices incurred
expense including the write off of leasehold improvements, furniture and
equipment together with an estimate of the lease obligation from the date
that the office was vacated. The former JLW legal entities incurred
significant audit, legal and other professional fees related to the ongoing
regulatory process that could not be capitalized under APB 16.
Professional fees were also incurred with regard to both the integration of
technology and communication systems and the back-office review discussed
above.
As a result of the JLW Merger, a significant and aggressive global re-
branding initiative was launched to better communicate the strengths of
the new business and its global platform. This included logo design,
creation and installation of new signage on all office buildings, purchase
of new letterhead and business cards and creation of new marketing
materials. The complexity of the JLW merger and the importance to the
merged business of employee retention meant that it was essential there was
proper communication and understanding of the merger and the one firm
concept within the respective firms. To facilitate this, a number of
meetings were held with global attendees. In addition, senior management
held a number of meetings around the world to better inform clients,
analysts and investors on the benefits of the JLW merger. No further
integration and transition expenses related to the acquisition of Compass
or the JLW merger will be incurred in 2000.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(4) DISPOSITION
Effective December 31, 1996, Jones Lang LaSalle sold its Construction
Management business and certain related assets to a former member of
management for a $9.1 million note. The note, which is secured by the
current and future assets of the business, is due December 31, 2006 and
bears interest at rates of 6.8% to 10.0%, with interest payments due
annually. Annual principal repayments began in January 1998.
Under the terms of the Asset Purchase Agreement, Jones Lang LaSalle
agreed to provide certain financial assistance and administrative and
financial services, at cost, beginning in January 1997. The nature of
these arrangements prohibited Jones Lang LaSalle from recognizing the sale
as a divestiture prior to December 31, 1999. As such, Jones Lang LaSalle
accounted for the results of operations, including principal and interest
received on the note, in a method similar to the equity method of
accounting. As such, principal and interest received under the note were
treated as a reduction of such net assets and as a reserve, if necessary,
for any anticipated financial exposure under the terms of the Asset
Purchase Agreement with the remainder recognized as income. Revenue
recognized for the years ended December 31, 1999, 1998 and 1997 was $1.8
million, $1.3 million and $1.1 million, respectively, and has been
reflected in Fee Based Services in the accompanying Consolidated Statements
of Earnings.
As of December 31, 1999, Jones Lang LaSalle had received substantial
principal payments on its note receivable and is no longer obligated to
provide financial assistance to the Construction Management business under
the Asset Purchase Agreement. Accordingly, Jones Lang LaSalle recognized
the disposition as a divestiture at December 31, 1999 and has recognized a
resulting gain of $7.5 million in the Consolidated Statement of Earnings.
(5) 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. In the
fourth quarter of 1999, Jones Lang LaSalle consolidated its operations in
Asia and Australasia into a unified region now known as Asia Pacific.
Accordingly, operations are now classified into five business segments:
two global businesses, (i) Investment Management and (ii) Hotel Services;
and three geographic regions, (iii) the Americas, (iv) Europe and (v) Asia
Pacific. The Investment Management segment provides real estate investment
management services to institutional investors, corporations, and high net
worth individuals. The Hotel Services segment provides strategic advisory,
sales, acquisition, valuation and asset management services related solely
to hotel, conference and resort properties. The geographic regions of the
Americas, Europe and Asia Pacific 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 management,
corporate property services, development and project management services
(collectively, "management fees"). Results for 1998 and 1997 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. Jones Lang LaSalle
allocates all expenses, other than interest and income taxes, as nearly all
expenses incurred benefit one or more of the segments. Merger related non-
recurring charges are not allocated to the segments.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Summarized financial information by business segment for 1999, 1998
and 1997 are as follows ($ in thousands):
1999 1998 1997
-------- -------- --------
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services. . . . $151,769 119,928 90,817
Management fees. . . . . . . . 117,395 82,330 48,264
Equity earnings. . . . . . . . 873 369 816
Other services . . . . . . . . 11,883 10,168 6,270
Gain on sale of business . . . 7,502 -- --
Intersegment revenue . . . . . 3,661 2,353 1,659
-------- -------- --------
293,083 215,148 147,826
Operating expenses:
Compensation, operating and
administrative expenses. . . 243,883 176,184 118,683
Depreciation and
amortization . . . . . . . . 19,843 8,787 4,796
-------- -------- --------
Operating income . . . . $ 29,357 30,177 24,347
======== ======== ========
EUROPE
Revenue:
Implementation services. . . . $171,935 831 710
Management fees. . . . . . . . 79,454 755 --
Equity losses. . . . . . . . . (219) -- --
Other services . . . . . . . . 1,998 168 --
-------- -------- --------
253,168 1,754 710
Operating expenses:
Compensation, operating and
administrative expenses. . . 215,830 1,243 625
Depreciation and
amortization . . . . . . . . 8,047 47 --
-------- -------- --------
Operating income . . . . $ 29,291 464 85
======== ======== ========
ASIA PACIFIC
Revenue:
Implementation services. . . . $ 69,899 1,543 319
Management fees. . . . . . . . 36,651 81 --
Equity earnings. . . . . . . . 117 -- --
Other services . . . . . . . . 7,577 6 --
-------- -------- --------
114,244 1,630 319
Operating expenses:
Compensation, operating and
administrative expenses. . . 101,642 2,883 971
Depreciation and
amortization . . . . . . . . 4,976 107 6
-------- -------- --------
Operating income
(loss) . . . . . . . . $ 7,626 (1,360) (658)
======== ======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1999 1998 1997
-------- -------- --------
HOTEL SERVICES
Revenue:
Implementation services. . . . $ 10,089 -- --
Management fees. . . . . . . . 1,301 -- --
Other services . . . . . . . . 2,375 -- --
-------- -------- --------
13,765 -- --
Operating expenses:
Compensation, operating and
administrative expenses. . . 11,340 -- --
Depreciation and
amortization . . . . . . . . 149 -- --
-------- -------- --------
Operating income . . . . $ 2,276 -- --
======== ======== ========
INVESTMENT MANAGEMENT
Revenue:
Implementation services. . . . $ 11,488 6,402 3,600
Advisory fees. . . . . . . . . 67,560 77,140 70,817
Equity earnings. . . . . . . . 5,447 3,542 2,422
Other services . . . . . . . . 345 1,201 738
Intersegment revenue . . . . . 136 -- --
-------- -------- --------
84,976 88,285 77,577
Operating expenses:
Compensation, operating and
administrative expenses. . . 69,767 65,189 61,946
Depreciation and
amortization . . . . . . . . 3,661 4,514 4,291
-------- -------- --------
Operating income . . . . $ 11,548 18,582 11,340
======== ======== ========
Total segment revenue. . . . . . . $759,236 306,817 226,432
Intersegment revenue
eliminations . . . . . . . . . . (3,797) (2,353) (1,659)
-------- -------- --------
Total revenue. . . . . . 755,439 304,464 224,773
-------- -------- --------
Total segment operating
expenses . . . . . . . . . . . . 679,138 258,954 191,318
Intersegment operating
expense eliminations . . . . . . (3,797) (2,353) (1,659)
-------- -------- --------
Total operating
expenses before
merger related
non-recurring
charges (1) . . . . . . 675,341 256,601 189,659
-------- -------- --------
Merger related non-
recurring charges (1) . 151,401 10,021 --
-------- -------- --------
Operating income
(loss). . . . . . . . . $(71,303) 37,842 35,114
======== ======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
------------
(1) Merger related non-recurring charges consist of integration and
transition costs related to the merger with JLW and the COMPASS acquisition
and compensation expense incurred associated with the issuance of shares to
former employees of JLW.
Identifiable assets by segment are those assets that are used by or
are a result of each segment's business. Corporate assets are principally
cash and cash equivalents, office furniture and computer hardware and
software.
The following table reconciles segment identifiable assets to
consolidated assets, investments in real estate ventures to consolidated
investments in real estate ventures and fixed asset expenditures to
consolidated fixed asset expenditures.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- --------
Invest- Invest-
ments Fixed ments Fixed Fixed
Identi- in Real Asset Identi- in Real Asset Asset
fiable Estate Expen- fiable Estate Expen- Expen-
($ in thousands) Assets Ventures ditures Assets Ventures ditures ditures
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Owner and Occupier Services:
Americas . . . . . . . . . . . . . $428,226 $ 9,604 $ 19,294 $355,840 $ 7,059 $14,022 $ 5,536
Europe . . . . . . . . . . . . . . 226,535 -- 10,328 5,221 -- -- --
Asia Pacific . . . . . . . . . . . 149,365 -- 5,867 14,859 -- 30 117
Hotel Services . . . . . . . . . . . 5,193 -- 20 -- -- -- --
Investment Management. . . . . . . . 107,000 57,701 3,999 98,060 45,917 1,540 624
Corporate. . . . . . . . . . . . . . 8,481 -- 763 16,941 -- -- --
-------- -------- -------- -------- ------- ------- -------
Consolidated . . . . . . . . . . . . $924,800 $ 67,305 $ 40,271 $490,921 $52,976 $15,592 $ 6,277
======== ======== ======== ======== ======= ======= =======
</TABLE>
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Jones Lang LaSalle conducts business in two countries which
individually comprise over 10% of total revenue and total assets in 1999.
Geographic segment information is as follows ($ in thousands):
Total Long-Lived
Revenue Assets
-------- ----------
United States. . . . . . . . . . $339,339 292,102
United Kingdom . . . . . . . . . 160,238 108,788
Other foreign countries. . . . . 255,862 156,695
-------- --------
$755,439 557,585
======== ========
Long-lived assets exclude intangibles resulting from business
acquisitions and the JLW merger.
(6) INVESTMENTS IN REAL ESTATE VENTURES
Jones Lang LaSalle has invested in certain real estate ventures that
own and operate commercial real estate. These investments include
noncontrolling general and limited partnership ownership interests
generally ranging from less than 1% to 49.5% of the respective ventures.
Jones Lang LaSalle has made initial capital contributions to the ventures
and had remaining commitments to certain ventures for additional capital
contributions of approximately $28.7 million as of December 31, 1999.
Substantially all venture interests are held by corporate subsidiaries of
Jones Lang LaSalle. Accordingly, Jones Lang LaSalle's exposure to
liabilities and losses of the ventures is limited to its initial and
remaining commitments. To the extent Jones Lang LaSalle's investment basis
differs from its share of the equity of an unconsolidated investment, such
difference is amortized over the depreciable lives of the investee's
investment assets.
Included in investment in real estate ventures is an investment in
LaSalle Hotel Properties ("LHO"), a real estate investment trust, which
completed its initial public offering in April 1998. LHO was formed to own
hotel properties and to continue and expand the hotel investment activities
of Jones Lang LaSalle by investing principally in upscale and luxury full-
service hotels located primarily in major business and urban, resort and
convention markets. Jones Lang LaSalle provides advisory, acquisition and
administrative services to LHO for which it receives a base advisory fee
calculated as a percentage of net operating income, as well as performance
fees based on growth in funds from operations on a per share basis. Such
performance fees, if any, are paid in the form of LHO common stock or
units, at Jones Lang LaSalle's option. LHO was formed with 10 hotels, nine
of which Jones Lang LaSalle had a nominal co-investment in and acted as the
investment advisor for. In accordance with the individual investment
advisory agreements, Jones Lang LaSalle earned and received performance
fees totaling $15.2 million on the disposition of certain of the assets.
Jones Lang LaSalle contributed its ownership interests in the hotels as
well as the related performance fees to LHO for an effective ownership
interest of approximately 6.4%.
Such investments have been accounted for under the equity method of
accounting in the accompanying Consolidated Financial Statements. As such,
Jones Lang LaSalle recognizes its share of the underlying profits and
losses of the ventures as revenue in the accompanying Consolidated
Statements of Earnings. Jones Lang LaSalle generally is entitled to
operating distributions in accordance with its respective ownership
interests.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Summarized combined financial information for the above unconsolidated
ventures is presented below ($ in thousands):
1999 1998 1997
---------- --------- ---------
Balance Sheet:
Investments in real estate . . . $2,081,747 2,021,372 1,236,217
Total assets . . . . . . . . . . $2,603,815 2,513,483 1,406,236
========== ========= =========
Mortgage indebtedness. . . . . . $ 695,442 614,349 579,310
Total liabilities. . . . . . . . $1,327,824 977,194 631,807
========== ========= =========
Total equity . . . . . . . . . . $1,275,991 1,536,289 774,429
========== ========= =========
Investments in real estate
ventures . . . . . . . . . . . . . $ 66,538 52,083 17,100
Statements of Operations:
Revenues . . . . . . . . . . . . $ 403,557 298,886 288,709
Net earnings . . . . . . . . . . $ 115,571 104,095 96,725
========== ========= =========
Equity in earnings from
real estate ventures . . . . . . . $ 6,218 3,911 3,238
========== ========= =========
During 1999, 1998 and 1997, Jones Lang LaSalle made loans to certain
of these real estate ventures, of which $6.7 million, $15.5 million and
$4.7 million was outstanding at December 31, 1999, 1998 and 1997,
respectively, and is included in notes and other receivables in the
accompanying Consolidated Balance Sheets. These notes, which bear interest
rates of 7.25% to 8.0%, are to be repaid by 2005.
Jones Lang LaSalle also has investments that are accounted for using
the cost method that totaled $.8 million, $.9 million and $1.0 million at
December 31, 1999, 1998 and 1997, respectively.
(7) DEBT
CREDIT FACILITIES
On October 27, 1999, Jones Lang LaSalle closed a new $380.0 million
unsecured credit agreement. The agreement includes a $223.5 million three-
year revolving facility and a $156.5 million term facility due October 15,
2000 (collectively, the "New Facilities"). Jones Lang LaSalle is
authorized under the agreement to increase the revolving facility up to a
total of $250.0 million and the term facility up to a total of $175.0
million through the expansion of its existing bank group. Jones Lang
LaSalle is currently in discussions with additional banks to increase the
New Facilities, however, there can be no guarantee as to the final outcome
of these discussions. The New Facilities replaced the five-year unsecured
$150.0 million revolving credit facility, $175.0 million term credit
facility and $30.0 million short-term facility (the "Previous Facilities").
The revolving facility is available for working capital, co-investments and
acquisitions. As of December 31, 1999, there was $316.2 million
outstanding on the New Facilities, of which $156.5 million is classified as
current.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The New Facilities are guaranteed by certain of Jones Lang LaSalle's
subsidiaries. Jones Lang LaSalle must maintain a certain level of
consolidated net worth and a ratio of funded debt to earnings before
interest expense, taxes, depreciation and amortization ("EBITDA"). Jones
Lang LaSalle must also meet a minimum interest coverage ratio, a minimum
liquidity ratio and minimum EBITDA. Additionally, Jones Lang LaSalle is
restricted from, among other things, incurring certain levels of
indebtedness to lenders outside of the New Facilities, disposing of a
significant portion of its assets, and paying dividends until the term
facility is repaid. Lender approval is required for certain levels of co-
investment. The New Facilities bear variable rates of interest based on
market rates. Jones Lang LaSalle uses interest rate swaps to convert a
portion of the floating rate indebtedness to a fixed rate. The effective
interest rate on the Previous Facilities and the New Facilities was 6.48%
for the year ended December 31, 1999, including the effect of interest rate
swap agreements. The effective interest rate on the Previous Facilities
for the year ended December 31, 1998 was 6.1%, including the effect of
interest rate swap agreements.
Jones Lang LaSalle also has various interest bearing overdraft
facilities and short-term credit facilities in Europe and Asia Pacific.
The aggregate amount available under these facilities approximates $32.8
million, of which $4.1 million was outstanding as of December 31, 1999.
Borrowings on these facilities are currently limited to $50.0 million under
the terms of the New Facilities.
(8) LEASES
Jones Lang LaSalle leases office space in various buildings for its
own use. The terms of these non-cancelable operating leases provide for
Jones Lang LaSalle to pay base rent and a share of increases in operating
expenses and real estate taxes in excess of defined amounts. Jones Lang
LaSalle also leases equipment under both operating and capital lease
arrangements.
Minimum future lease payments (i.e., base rent for leases of office
space) due in each of the next five years ending December 31 and thereafter
are as follows ($ in thousands):
Operating Capital
Leases Leases
--------- --------
2000 . . . . . . . . . . $ 36,270 $ 1,957
2001 . . . . . . . . . . 33,408 1,314
2002 . . . . . . . . . . 26,813 461
2003 . . . . . . . . . . 21,077 386
2004 . . . . . . . . . . 17,091 169
Thereafter . . . . . . . 37,410 92
-------- --------
$172,069 $ 4,379
======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Assets recorded under capital leases in the Consolidated Balance Sheet
at December 31, 1999 are as follows ($ in thousands):
1999
--------
Furniture, fixtures and equipment $ 2,244
Computer equipment and software 2,492
Automobiles 455
Leasehold improvements 1,775
--------
6,966
Less accumulated depreciation
and amortization (3,557)
--------
Net assets under capital leases $ 3,409
========
Rent expense was $45.0 million, $9.8 million and $7.1 million, during
1999, 1998 and 1997, respectively.
(9) INCOME TAXES
For the year ended December 31, 1999, 1998 and for the period
subsequent to conversion to corporate form in 1997, Jones Lang LaSalle's
provision for income taxes aggregated $5.3 million, $13.2 million and $11.0
million, respectively, and consisted of the following ($ in thousands):
Year Ended December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
U.S. Federal:
Current. . . . . . . . $(11,762) $ 11,843 $ 3,930
Deferred tax . . . . . 2,570 (1,970) 2,656
-------- -------- --------
(9,192) 9,873 6,586
-------- -------- --------
State and Local:
Current. . . . . . . . (2,979) 2,819 823
Deferred tax . . . . . 901 (144) 1,000
-------- -------- --------
(2,078) 2,675 1,823
-------- -------- --------
Foreign:
Current. . . . . . . . 17,959 1,506 2,600
Deferred tax . . . . . (1,361) (830) --
-------- -------- --------
16,598 676 2,600
-------- -------- --------
Total. . . . . . . . . . $ 5,328 $ 13,224 $ 11,009
======== ======== ========
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For the period prior to the incorporation of the Predecessor
Partnerships, the accompanying Consolidated Statements of Earnings include
a federal and state income tax provision for wholly owned corporate
subsidiaries and a state tax provision for certain states that require
partnerships to pay income taxes. For the period January 1, 1997 through
July 21, 1997, such amounts aggregated $1.1 million. No other provision
for income taxes was made for those periods as the liability for such taxes
would have been that of the respective partners of the Predecessor
Partnerships. As a result of Jones Lang LaSalle's conversion from
partnership to corporate form in July 1997, a tax benefit of $6.8 million
was recognized related to deferred tax assets recorded in accordance with
the provisions of SFAS No. 109 arising from temporary differences between
the book and tax basis of Jones Lang LaSalle's assets and liabilities at
the date of conversion.
Income tax expense for 1999, 1998 and for the period subsequent to
conversion to corporate form for 1997 differed from the amounts computed by
applying the U.S. federal income tax rate of 35% to earnings before
provision for income taxes (a loss of $89.5 million for the year ended
December 31, 1999, income of $33.7 million for the year ended December 31,
1998 and income of $28.6 million for the period July 22, 1997 through
December 31, 1997) as a result of the following ($ in thousands):
1999 1998 1997
---------------- ----------------- --------------
Computed "expected"
tax expense
(benefit) . . . . . .$(31,330) 35.0% $11,791 35.0% $10,009 35.0%
Increase (reduction)
in income taxes
resulting from:
Nondeductible
stock compensa-
tion expense. . . . 34,078 (38.1%) -- -- -- --
State and local
income taxes,
net of federal
income tax benefit. (1,350) 1.5% 1,739 5.2% 1,185 4.1%
Amortization of
goodwill and
other intangibles . 76 (0.1%) (1,182) (3.5%) (573) (2.0%)
Nondeductible
expenses. . . . . . 2,402 (2.7%) 807 2.4% 205 0.7%
Foreign earnings
taxed at varying
rates . . . . . . . (1,022) 1.1% -- -- -- --
Valuation
allowances. . . . . 1,552 (1.7%) -- -- -- --
Other, net . . . . . . 922 (1.0%) 69 0.2% 183 0.7%
------- ------ ------- ------ ------- ------
$ 5,328 (6.0%) $13,224 39.3% $11,009 38.5%
======= ====== ======= ====== ======= ======
Domestic and foreign losses before provision for income taxes for the
year ended December 31, 1999 were $35.6 million and $53.9 million,
respectively. Domestic and foreign earnings before provision for income
taxes for the year ended December 31, 1998 were $29.9 million and $3.8
million, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below ($ in thousands):
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31,
---------------------------------------
1999 1998 1997
-------- -------- --------
Deferred tax assets:
Accrued expenses . . . $ 13,525 $ 3,957 $ 2,205
Allowances for
uncollectible
accounts. . . . . . . 3,983 3,238 2,208
Foreign tax credit
carryforwards . . . . 3,634 3,800 2,600
Foreign loss carry-
forwards. . . . . . . 3,326 830 --
Property and
equipment . . . . . . 2,233 1,644 1,397
Investments in real
estate ventures . . . 1,208 -- --
Alternative minimum
tax credit
carryover . . . . . . 750 -- --
Other. . . . . . . . . 639 355 554
-------- -------- --------
29,298 13,824 8,964
Less valuation
allowances . . . . . 2,020 -- --
-------- -------- --------
$ 27,278 $ 13,824 $ 8,964
======== ======== ========
Deferred tax liabilities:
Prepaid pension
asset . . . . . . . . $ 6,978 $ -- $ --
Intangible assets. . . 3,743 -- --
Income deferred for
tax purposes. . . . . 3,329 -- --
Investments in real
estate ventures . . . -- 2,483 2,820
Other. . . . . . . . . 1,820 716 1,065
-------- -------- --------
$ 15,870 $ 3,199 $ 3,885
======== ======== ========
In connection with the merger with JLW, Jones Lang LaSalle recorded
deferred tax assets of $13.3 million and deferred tax liabilities of $8.2
million as part of its purchase price allocation. In connection with the
COMPASS acquisition, Jones Lang LaSalle recorded deferred tax assets of
$2.6 million as part of its purchase price allocation.
A deferred U.S. tax liability has not been provided on the unremitted
earnings of foreign subsidiaries because it is the intent of Jones Lang
LaSalle to permanently reinvest such earnings.
As of December 31, 1999, Jones Lang LaSalle has available $3.6 million
of foreign tax credit carryforwards for U.S. federal income tax purposes,
which expire in 2002 through 2004. There were also foreign loss
carryforwards at December 31, 1999 approximating $10.8 million which expire
in 2003 and thereafter.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The net deferred tax asset of $11.4 million at December 31, 1999 is
considered realizable given past income and estimates of future income.
These considerations include, but are not limited to, net operating losses,
earnings trends and tax planning strategies. Valuation allowances have
been provided with regard to the tax benefit of certain foreign net
operating loss carryforwards for which utilization is not probable.
(10) RETIREMENT PLANS
DEFINED CONTRIBUTION PLANS
Jones Lang LaSalle has a qualified profit sharing plan that
incorporates IRC Section 401(k) for its eligible U.S. employees.
Contributions under the qualified profit sharing plan are made via a
combination of employer match and an annual contribution on behalf of
eligible employees. Included in the accompanying Consolidated Statements
of Earnings for the years ended December 31, 1999, 1998 and 1997 are
contributions of $4.2 million, $1.8 million and $1.7 million, respectively.
Related trust assets of the Plan are managed by trustees and are excluded
from the accompanying Consolidated Financial Statements.
Jones Lang LaSalle maintains several defined contribution retirement
plans for its eligible non-U.S. employees. Contributions to these plans
were approximately $2.0 million for the year ended December 31, 1999.
Amounts contributed to similar plans for the year ended December 31, 1998,
prior to the merger with JLW, were immaterial.
DEFINED BENEFIT PLANS
Jones Lang LaSalle maintains several contributory defined benefit
pension plans to provide retirement benefits to eligible employees in
certain countries. It is Jones Lang LaSalle's policy to fund the minimum
annual contributions required by applicable regulations.
Net periodic pension cost consisted of the following ($ in thousands):
1999
--------
Employer service cost - benefits earned
during the year . . . . . . . . . . . . . . . . . $ 5,902
Interest cost on projected benefit
obligation. . . . . . . . . . . . . . . . . . . . 3,680
Expected (return) loss on plan assets . . . . . . . (5,332)
Net amortization/deferrals. . . . . . . . . . . . . (1,224)
--------
Net periodic pension cost . . . . . . . . . . . . . $ 3,026
========
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The change in benefit obligation and plan assets and reconciliation of
funded status as of December 31, 1999 are as follows ($ in thousands):
1999
--------
Change in benefit obligation:
Projected benefit obligation at
beginning of year . . . . . . . . . . . . . . . $ --
Merger with JLW . . . . . . . . . . . . . . . . . 85,311
Service cost. . . . . . . . . . . . . . . . . . . 5,902
Interest cost . . . . . . . . . . . . . . . . . . 3,680
Benefits paid . . . . . . . . . . . . . . . . . . (1,631)
Actuarial loss. . . . . . . . . . . . . . . . . . (4,309)
Changes in foreign exchange rates . . . . . . . . 210
--------
Projected benefit obligation at
end of year . . . . . . . . . . . . . . . . . $ 89,163
========
Change in plan assets:
Fair value of plan assets at
beginning of year . . . . . . . . . . . . . . . $ --
Merger with JLW . . . . . . . . . . . . . . . . . 111,197
Actual return on plan assets. . . . . . . . . . . 5,729
Benefits paid . . . . . . . . . . . . . . . . . . (2,610)
Changes in foreign exchange rates . . . . . . . . 408
--------
Fair value of plan assets at end of year. . . . $114,724
========
Reconciliation of funded status:
Funded status . . . . . . . . . . . . . . . . . . $ 25,561
Unrecognized actuarial loss . . . . . . . . . . . (2,153)
--------
Net amount recognized . . . . . . . . . . . . . $ 23,408
========
The amounts recognized in the accompanying Consolidated Balance Sheet
as of December 31, 1999 are as follows ($ in thousands):
1999
--------
Prepaid pension asset . . . . . . . . . . . . . . . $ 23,956
Accrued pension liability . . . . . . . . . . . . . (548)
--------
Net amount recognized . . . . . . . . . . . . . . . $ 23,408
========
For one of the plans, the accumulated benefit obligation exceeded the
fair value of the plan assets at December 31, 1999. The related aggregate
benefit obligation was $2.4 million and the aggregate fair value of the
plan assets was $1.9 million.
Weighted average assumptions used in developing the projected benefit
obligation as of December 31 were generally as follows:
1999
--------
Discount rate used in determining
present values. . . . . . . . . . . . . . . . . . 6.25%
Annual increase in future compensation
levels. . . . . . . . . . . . . . . . . . . . . . 4.00%
Expected long-term rate of return
on assets . . . . . . . . . . . . . . . . . . . . 7.50%
Plan assets consist of a diversified portfolio of fixed-income
investments and equity securities.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(11) STOCK OPTION AND STOCK COMPENSATION PLANS
STOCK AWARD AND INCENTIVE PLAN
In 1997, Jones Lang LaSalle adopted a stock award and incentive plan
that provides for the granting of options to purchase a specified number of
shares of common stock and other stock awards to eligible participants of
Jones Lang LaSalle. Under the plan, the total number of shares of common
stock available to be issued is 4,160,000. The options are granted at the
market value of common stock at the date of grant. The options vest at
such times and conditions as the Compensation Committee of the Board of
Directors of Jones Lang LaSalle determines and sets forth in the award
agreement. Such options granted in 1999 and 1998 vest over a period of
zero to five years. Such options granted in 1997 vest over a period of one
to six years. Certain 1997 options having a six-year vesting period are
subject to an accelerated vesting schedule based on the future average
stock price. At December 31, 1999 and 1998, there were 2,127,662 and
973,100 additional shares, respectively, available for grant under the
stock award and incentive plan.
The per share weighted-average fair value of options granted during
1999, 1998 and 1997 was $17.63, $16.44 and $11.63 on the date of grant
using the Black Scholes option-pricing model with the following weighted-
average assumptions:
1999 1998 1997
-------------- ------------- -------------
Expected dividend yield. . 0.00% 0.00% 0.00%
Risk-free interest rate. . 6.90% 4.95% 6.95%
Expected life. . . . . . . 6 to 9 years 6 to 9 years 6 to 9 years
Expected volatility. . . . 47.34% 41.50% 16.50%
Contractual terms. . . . . 7 to 10 years 7 to 10 years 7 to 10 years
Jones Lang LaSalle accounts for its stock option and compensation
plans under the provisions of SFAS No. 123, which allows entities to
continue to apply the provisions of APB No. 25 and provide pro forma net
income and net income per share disclosures for employee option grants as
if the fair-value-based method defined in SFAS No. 123 had been applied.
Jones Lang LaSalle has elected to apply the provisions of APB No. 25 in
accounting for its stock award and incentive plan, and, accordingly, no
compensation cost has been recognized for its stock award and incentive
plan in the Consolidated Financial Statements. Had Jones Lang LaSalle
determined compensation cost based upon the fair value at the date of grant
for its options as set forth under SFAS No. 123, Jones Lang LaSalle's net
earnings (loss), basic earnings (loss) per common share and diluted
earnings (loss) per common share would have been as follows ($ in
thousands, except share data):
1999 1998 1997 (1)
-------- -------- --------
Net earnings (loss). . . . . . . . $(98,767) $ 15,689 $ 23,924
Basic earnings (loss) per
common share . . . . . . . . . . (4.37) 0.97 1.48
Diluted earnings (loss) per
common share . . . . . . . . . . (4.37) 0.96 1.47
-----------
(1) Earnings per share for 1997 is calculated based on earnings for the
period from conversion to corporate form, July 22, 1997, through December
31, 1997.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock option activity is as follows (shares in thousands):
1999 1998 1997
----------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
------ --------- ------ --------- ------ ---------
Outstanding
at beginning
of year . . . . 1,241.9 $26.75 738.0 $23.29 -- $ --
Granted. . . . . 997.6 31.45 524.9 31.71 740.5 23.29
Exercised. . . . (21.3) 23.25 -- -- -- --
Forfeited. . . . (207.2) 31.39 (21.0) 29.56 (2.5) 23.00
------- ------- -----
Outstanding
at end of
year. . . . . . 2,011.0 $28.67 1,241.9 $26.75 738.0 $23.29
======= ======= =====
At December 31, 1999, 1998 and 1997, the range of exercise prices and
weighted-average remaining contractual life of outstanding options was
$9.31-$43.88 and 6.5 years, $23.00-$43.88 and 7.6 years, and $23.00-$35.06
and 9.5 years, respectively. At December 31, 1999 and 1998, approximately
645,333 and 534,000 options were exercisable, respectively. None of the
options were exercisable at December 31, 1997.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
OTHER STOCK COMPENSATION PROGRAMS
In 1999, Jones Lang LaSalle established a stock compensation program
for certain of its employees pursuant to which they are awarded a portion
of their annual bonus in the form of restricted shares of Jones Lang
LaSalle common stock. The number of shares awarded was enhanced by Jones
Lang LaSalle by 20% in 1999 and will be enhanced by 15% in future years.
The shares vest 50% at eighteen months from the date of grant and the
remaining 50% at thirty months from the date of grant. The related
compensation cost is amortized to expense over the vesting period.
In 1997 and 1998, Jones Lang LaSalle maintained a Stock Compensation
Program ("SCP") for eligible employees. Under this plan, employee
contributions for stock purchases were enhanced by Jones Lang LaSalle
through an additional contribution of 15%. Employee contributions vested
immediately while Jones Lang LaSalle contributions were subject to various
vesting periods. The related compensation cost is amortized to expense
over the vesting period. As of December 31, 1999, 37,598 shares have been
issued under this plan. The plan was suspended in 1999.
In 1998, Jones Lang LaSalle adopted an Employee Stock Purchase Plan
("ESPP") for eligible employees. Under this plan, employee contributions
for stock purchases will be enhanced by Jones Lang LaSalle through an
additional contribution of 15%. Employee contributions and Jones Lang
LaSalle contributions vest immediately. As of December 31, 1999, 226,165
shares have been issued under this plan.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(12) TRANSACTIONS WITH AFFILIATES
Certain officers of Jones Lang LaSalle are trustees for real estate
funds that were organized by a subsidiary. Jones Lang LaSalle earns
advisory and management fees for services rendered to the funds. Included
in the accompanying Consolidated Financial Statements are revenues of $.2
million, $2.3 million and $4.2 million for 1999, 1998 and 1997,
respectively, as well as receivables of $.03 million and $.1 million at
December 31, 1999 and 1998, respectively, related to such services.
Jones Lang LaSalle also earns fees and commissions for services
rendered to affiliates of Dai-ichi Life Property Holdings, Inc. and
Galbreath Holdings, LLC, two significant stockholders and real estate
ventures in which Jones Lang LaSalle has an equity interest. Included in
the accompanying Consolidated Financial Statements are revenues from such
affiliates of $39.0 million, $45.9 million and $33.0 million for 1999, 1998
and 1997, respectively, as well as receivables for reimbursable expenses
and revenues as of December 31, 1999 and 1998 of $8.7 million and $9.3
million, respectively.
(13) COMMITMENTS AND CONTINGENCIES
At December 31, 1999, Jones Lang LaSalle has several completion and
budget guarantees relating to development projects. Management does not
expect to incur any material losses under these guarantees.
Jones Lang LaSalle is a defendant in various litigation matters
arising in the ordinary course of business, some of which involve claims
for damages that are substantial in amount. Many of these litigation
matters are covered by insurance. In the opinion of Management, the
ultimate resolution of such litigation matters is not expected to have a
material adverse effect on the financial position, results of operations or
liquidity of Jones Lang LaSalle.
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited consolidated
statements of earnings data for each of Jones Lang LaSalle's last eight
quarters. In the opinion of Management, this information has been presented
on the same basis as the audited consolidated financial statements
appearing elsewhere in this report, and includes all adjustments,
consisting only of normal recurring adjustments and accruals, that Jones
Lang LaSalle considers necessary for a fair presentation. The unaudited
consolidated quarterly information should be read in conjunction with Jones
Lang LaSalle's Consolidated Financial Statements and the notes thereto.
The operating results for any quarter are not necessarily indicative of the
results for any future period.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
QUARTERLY INFORMATION
(UNAUDITED)
<CAPTION>
1999
-------------------------------------------------------
($ in thousands, except share data) March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue (1):
Owner & Occupier Services:
Americas . . . . . . . . . . . . . . . . . . . . . $ 44,111 54,439 72,346 118,526 289,422
Europe . . . . . . . . . . . . . . . . . . . . . . 27,783 68,011 67,795 89,579 253,168
Asia Pacific . . . . . . . . . . . . . . . . . . . 9,727 33,434 31,677 39,406 114,244
Hotel Services . . . . . . . . . . . . . . . . . . . 854 3,181 3,715 6,015 13,765
Investment Management. . . . . . . . . . . . . . . . 18,946 20,079 18,639 27,176 84,840
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $101,421 179,144 194,172 280,702 755,439
Merger related non-recurring charges (2) . . . . . . . 54,043 35,587 25,742 36,029 151,401
Operating income (loss) (1). . . . . . . . . . . . . . $(66,333) (38,462) (12,992) 46,484 (71,303)
Net earnings (loss). . . . . . . . . . . . . . . . . . $(55,415) (37,704) (16,937) 15,214 (94,842)
Basic earnings (loss) per common share . . . . . . . . $ (3.09) (1.62) (0.70) .63 (4.20)
Diluted earnings (loss) per common share . . . . . . . $ (3.09) (1.62) (0.70) .63 (4.20)
<PAGE>
JONES LANG LASALLE INCORPORATED
QUARTERLY INFORMATION - CONTINUED
1998
-------------------------------------------------------
($ in thousands, except share data) March 31 June 30 Sept. 30 Dec. 31 Year
-------- -------- -------- -------- --------
Revenue (1):
Owner & Occupier Services:
Americas . . . . . . . . . . . . . . . . . . . . . $ 27,752 44,649 48,339 92,055 212,795
Europe . . . . . . . . . . . . . . . . . . . . . . 3 270 437 1,044 1,754
Asia Pacific . . . . . . . . . . . . . . . . . . . 46 170 120 1,294 1,630
Hotel Services . . . . . . . . . . . . . . . . . . . -- -- -- -- --
Investment Management. . . . . . . . . . . . . . . . 23,264 29,123 15,936 19,962 88,285
-------- -------- -------- -------- --------
Total revenue. . . . . . . . . . . . . . . . . $ 51,065 74,212 64,832 114,355 304,464
Merger related non-recurring charges (2) . . . . . . . -- -- -- 10,021 10,021
Operating income (loss) (1). . . . . . . . . . . . . . $ (5,349) 12,220 8,229 22,742 37,842
Net earnings (loss). . . . . . . . . . . . . . . . . . $ (3,440) 7,310 4,806 11,789 20,465
Basic earnings (loss) per common share . . . . . . . . $ (0.21) 0.45 0.30 0.73 1.26
Diluted earnings (loss) per common share . . . . . . . $ (0.21) 0.45 0.29 0.72 1.25
<FN>
(1) Excludes intersegment revenue and intersegment expense.
(2) Merger related non-recurring charges include integration and transition costs related to the merger with JLW
and the COMPASS acquisition and compensation expense incurred associated with the issuance of shares to former
employees of JLW.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
($ in thousands)
<CAPTION>
Additions
Balance at -------------------------- Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts Deductions of Period
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1999
Accounts Receivable
Reserves . . . . . . . . . $ 3,978 2,744 8,722(A) 5,573(D) $9,871
1998
Accounts Receivable
Reserves . . . . . . . . . $ 2,679 4,009 107(B) 2,817(D) $3,978
1997
Accounts Receivable
Reserves . . . . . . . . . $ 1,900 2,640 1,530(C) 3,391(D) $2,679
<FN>
(A) Represents reserve acquired as a result of the merger with JLW.
(B) Represents reserve acquired as a result of the COMPASS acquisition.
(C) Represents reserve acquired as a result of the Galbreath acquisition.
(D) Includes primarily write-offs of uncollectible accounts.
</TABLE>
<PAGE>
EXHIBIT 23.1
------------
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
23.1 Consent of KPMG LLP, independent auditors.
Board of Directors
Jones Lang LaSalle Incorporated:
We consent to incorporation by reference in the registration statements
(Nos. 333-42193 and 333-50720) on Form S-8 and the registration statement
(No. 333-70969) on Form S-3 of Jones Lang LaSalle Incorporated of our
report dated February 7, 2000, relating to the consolidated balance sheets
of Jones Lang LaSalle Incorporated and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1999, and related schedule, which report
appears in this Amendment No. 1 on Form 10-K/A to the Annual Report on Form
10-K of Jones Lang LaSalle Incorporated and subsidiaries for the fiscal
year ended December 31, 1999.
/s/ KPMG LLP
Chicago, Illinois
December 22, 2000
