UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 1-13145
JONES LANG LASALLE INCORPORATED
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 36-4150422
------------------------- ---------------------------------
(State or other jurisdic- (IRS Employer Identification No.)
tion of incorporation or
organization)
200 East Randolph Drive, Chicago, IL 60601
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312/782-5800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class August 10, 2000
----- ----------------
Common Stock ($0.01 par value) 30,859,772
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 29
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . 39
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 40
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 40
Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 41
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 41
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
------------- -----------
ASSETS
------
Current assets:
Cash and cash equivalents . . . . . . . $ 13,167 23,308
Trade receivables, net of allowances
of $11,777 and $9,871 in 2000
and 1999, respectively. . . . . . . . 236,548 270,593
Notes receivable and advances to
real estate ventures. . . . . . . . . 3,591 4,519
Other receivables . . . . . . . . . . . 2,775 7,045
Income tax refund receivable. . . . . . 14,500 14,500
Prepaid expenses. . . . . . . . . . . . 9,894 9,598
Deferred tax assets . . . . . . . . . . 18,021 13,673
Other assets. . . . . . . . . . . . . . 13,505 5,446
---------- ---------
Total current assets. . . . . . 312,001 348,682
Property and equipment, at cost,
less accumulated depreciation of
$66,655 and $55,943 in 2000
and 1999, respectively. . . . . . . . . 79,637 76,470
Intangibles resulting from business
acquisitions and JLW merger, net of
accumulated amortization of $35,812
and $27,515 in 2000 and 1999,
respectively. . . . . . . . . . . . . . 356,648 367,215
Investments in real estate ventures . . . 69,126 67,305
Long-term receivables, net. . . . . . . . 23,311 27,962
Prepaid pension asset . . . . . . . . . . 20,914 23,956
Deferred tax assets . . . . . . . . . . . 5,566 5,270
Other assets, net . . . . . . . . . . . . 8,418 7,940
---------- ----------
$ 875,621 924,800
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and
accrued liabilities . . . . . . . . . $ 85,944 88,257
Accrued compensation. . . . . . . . . . 87,165 142,960
Short-term borrowings . . . . . . . . . 190,612 162,643
Deferred tax liabilities. . . . . . . . 36 --
Other liabilities . . . . . . . . . . . 19,429 26,259
---------- ----------
Total current liabilities . . . 383,186 420,119
Long-term liabilities:
Credit facilities . . . . . . . . . . . 154,483 159,743
Deferred tax liabilities. . . . . . . . 6,808 7,535
Other . . . . . . . . . . . . . . . . . 14,009 12,878
---------- ----------
Total liabilities . . . . . . . 558,486 600,275
Commitments and contingencies
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
JUNE 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
------------- -----------
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 590 589
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,859,772 and 30,285,472 shares
issued and outstanding as of 2000
and 1999, respectively. . . . . . . . 309 303
Additional paid-in capital. . . . . . . 453,209 442,699
Unallocated ESOT shares . . . . . . . . (7) (7)
Deferred stock compensation . . . . . . (40,395) (70,106)
Retained deficit. . . . . . . . . . . . (86,515) (50,050)
Accumulated other comprehensive
income (loss) . . . . . . . . . . . . (10,056) 1,097
---------- ----------
Total stockholders' equity. . . 316,545 323,936
---------- ----------
$ 875,621 924,800
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands, except share data)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Fee-based services. . . . . . . . $ 216,238 175,766 396,661 276,470
Equity in earnings from
unconsolidated ventures . . . . 8,747 1,870 14,687 2,051
Other income. . . . . . . . . . . 698 1,508 1,315 2,044
---------- ---------- ---------- ----------
Total revenue . . . . . . . 225,683 179,144 412,663 280,565
Operating expenses:
Compensation and benefits . . . . 142,536 124,640 272,773 200,079
Operating, administrative and other 53,482 47,273 104,967 78,590
Depreciation and amortization . . 10,797 10,106 21,491 17,061
---------- ---------- ---------- ----------
Total operating expenses
before merger related
non-recurring charges . . 206,815 182,019 399,231 295,730
---------- ---------- ---------- ----------
Operating income (loss)
before merger related
non-recurring charges . . 18,868 (2,875) 13,432 (15,165)
Merger related non-recurring charges:
Stock compensation expense. . . . 18,865 21,242 37,191 67,441
Integration and transition expenses -- 14,345 -- 22,189
---------- ---------- ---------- ----------
Total merger related
non-recurring charges . . 18,865 35,587 37,191 89,630
---------- ---------- ---------- ----------
Total operating expenses. . 225,680 217,606 436,422 385,360
---------- ---------- ---------- ----------
Operating income (loss) . . 3 (38,462) (23,759) (104,795)
Interest expense, net of interest
income. . . . . . . . . . . . . . 6,664 4,703 13,339 7,345
---------- ---------- ---------- ----------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Loss before provision
(benefit) for income taxes (6,661) (43,165) (37,098) (112,140)
Net provision (benefit) for
income taxes. . . . . . . . . . . 4,832 (5,461) (633) (19,021)
---------- ---------- ---------- ----------
Net loss. . . . . . . . . . $ (11,493) (37,704) (36,465) (93,119)
========== ========== ========== ==========
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments . . . . . . . . . . $ (6,043) 483 (11,153) 106
---------- ---------- ---------- ----------
Comprehensive loss. . . . . . . . . $ (17,536) (37,221) (47,618) (93,013)
========== ========== ========== ==========
Basic loss per common share . . . . $ (0.47) (1.62) (1.49) (4.52)
========== ========== ========== ==========
Basic weighted average shares
outstanding . . . . . . . . . . . 24,559,305 23,297,467 24,472,122 20,620,715
========== ========== ========== ==========
Diluted loss per common share . . . $ (0.47) (1.62) (1.49) (4.52)
========== ========== ========== ==========
Diluted weighted average shares
outstanding . . . . . . . . . . . 24,559,305 23,297,467 24,472,122 20,620,715
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED JUNE 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data)
(UNAUDITED)
<CAPTION>
Accumu-
lated
Other
Additi- Unallo- Deferred Compre-
Common Stock tional cated Stock Retained hensive
------------------- Paid-In ESOT Compen- Earnings Income
Shares Amount Capital Shares sation (Deficit) (Loss) Total
---------- ------ -------- ------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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
---------- ----- ------- -------- -------- -------- -------- --------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED
Accumu-
lated
Other
Additi- Unallo- Deferred Compre-
Common Stock tional cated Stock Retained hensive
------------------- Paid-In ESOT Compen- Earnings Income
Shares Amount Capital Shares sation (Deficit) (Loss) Total
---------- ------ -------- ------- -------- --------- ------- -------
Balances at
December 31,
1999 . . . . . . . 30,285,472 303 442,699 (7) (70,106) (50,050) 1,097 323,936
Net loss. . . . . . -- -- -- -- -- (36,465) -- (36,465)
Shares issued in
connection with:
Stock option plan 472,500 5 5,813 -- (5,818) -- -- --
Amortization of
shares issued
in connection
with stock
option plan. . . -- -- -- -- 542 -- -- 542
Stock purchase
programs. . . . 169,335 2 3,308 -- -- -- -- 3,310
Share activity re-
lated to JLW merger:
Shares repurchased
for payment of
taxes on ESOT
Shares allocated
at December 31,
1999. . . . . . (67,534) (1) (815) -- -- -- -- (816)
Stock compensa-
tion adjustments. -- -- 2,204 -- (1,781) -- -- 423
Amortization of
deferred stock
compensation. . . -- -- -- -- 36,768 -- -- 36,768
Other . . . . . . . -- -- -- -- -- -- (11,153) (11,153)
---------- ----- ------- ------- -------- -------- -------- --------
Balances at
June 30, 2000 . . 30,859,773 $ 309 453,209 (7) (40,395) (86,515) (10,056) 316,545
========== ===== ======= ======= ======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands, unless otherwise noted)
(UNAUDITED)
2000 1999
---------- ----------
Cash flows used in operating activities:
Net loss. . . . . . . . . . . . . . . . . $ (36,465) (93,119)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . 21,491 17,061
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . . (14,687) (2,051)
Provision for loss on receivables and
other assets. . . . . . . . . . . . . 3,990 4,537
Stock compensation expense. . . . . . . 37,191 67,000
Amortization of deferred compensation . 1,912 --
Changes in:
Receivables . . . . . . . . . . . . . . 36,164 34,152
Prepaid expenses and other assets . . . 949 (6,046)
Deferred tax assets and income tax
refund receivable . . . . . . . . . . (5,279) (22,486)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . . (75,102) (53,130)
---------- ----------
Net cash used in
operating activities. . . . . . . (29,836) (54,082)
Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . (19,298) (12,715)
Cash paid in connection with Jones
Lang Wootton merger, net of cash
balances assumed. . . . . . . . . . . . -- (36,373)
Other acquisitions and investments,
net of cash balances assumed. . . . . . (1,946) (3,195)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . . (2,959) (3,528)
Distributions, repayments of advances
and sale of investments . . . . . . . 17,680 6,611
---------- ----------
Net cash used in
investing activities. . . . . . . (6,523) (49,200)
Cash flows provided by financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 169,188 185,031
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (146,479) (63,152)
Common stock issued under stock option
plan and stock purchase programs. . . . 3,509 3,126
---------- ----------
Net cash provided by
financing activities. . . . . . . 26,218 125,005
---------- ----------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(in thousands, unless otherwise noted)
(UNAUDITED)
2000 1999
---------- ----------
Net increase (decrease) in
cash and cash equivalents . . . . (10,141) 21,723
Cash and cash equivalents,
beginning of period . . . . . . . . . . . 23,308 16,941
---------- ----------
Cash and cash equivalents, end of period. . $ 13,167 38,664
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 12,739 7,537
Taxes, net of refunds . . . . . . . . . 2,115 11,892
Non-cash investing and financing
activities:
Acquisitions and merger:
Shares issued in connection with
merger. . . . . . . . . . . . . . . $ -- 149,521
Fair value of assets acquired . . . . (2) (214,499)
Fair value of liabilities assumed . . 4,199 190,334
Goodwill. . . . . . . . . . . . . . . (4,893) (164,924)
Other investments . . . . . . . . . . (1,250) --
--------- --------
Cash paid, net of cash
balances assumed. . . . . . . . $ (1,946) (39,568)
========= ========
See accompanying notes to consolidated financial statements.
<PAGE>
JONES LANG LASALLE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except where otherwise noted)
(UNAUDITED)
Readers of this quarterly report should refer to our audited financial
statements for the year ended December 31, 1999, which are included in our
1999 Form 10-K, filed with the Securities and Exchange Commission, as
certain footnote disclosures which would substantially duplicate those
contained in such audited financial statements have been omitted from this
report. Readers of this quarterly report should also refer to any Forms 8-
K filed with the Securities and Exchange Commission during the year 2000.
(1) ACCOUNTING POLICIES
INTERIM INFORMATION
The consolidated financial statements as of June 30, 2000 and for the
three and six month periods ended June 30, 2000 and 1999 are unaudited;
however, in the opinion of management, all adjustments (consisting solely
of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements for these interim periods have been
included. The results for the periods ended June 30, 2000 and 1999 are not
necessarily indicative of the results to be obtained for the full fiscal
year.
Certain prior year amounts have been reclassified to conform with the
current presentation.
BONUS INCENTIVE COMPENSATION
In the first quarter of 2000, Jones Lang LaSalle changed its method
of estimating and allocating bonus incentive compensation to interim
periods. The impact of this change for the three and six months ended June
30, 2000 was to reduce compensation expense by approximately $500,000 and
$8.7 million, respectively. This change does not impact the overall
compensation cost that will be incurred during the year ended December 31,
2000, but rather the periods in which it is recognized.
EARNINGS PER SHARE
The basic and diluted losses per common share were calculated based
on basic weighted average shares outstanding of 24.6 million and 24.5
million for the three and six month periods ended June 30, 2000,
respectively. For the three and six months ended June 30, 1999, basic and
diluted losses per common share were calculated based on basic weighted
average shares outstanding of 23.3 million and 20.6 million, respectively.
As a result of the net losses incurred for these periods, diluted weighted
average shares outstanding do not give effect to common stock equivalents,
as to do so would be anti-dilutive. These common stock equivalents consist
principally of consideration shares issued in connection with the JLW
merger that are subject to vesting provisions or are contingently
returnable. To a lesser extent, common stock equivalents also include
outstanding stock options whose exercise price was less than the average
market price of Jones Lang LaSalle's stock for the period and shares to be
issued under employee stock compensation programs.
STATEMENT OF CASH FLOWS
The effects of foreign currency translation on cash balances are
reflected in cash flows from operating activities on the Consolidated
Statements of Cash Flows.
<PAGE>
(2) JONES LANG WOOTTON MERGER
On March 11, 1999, LaSalle Partners Incorporated merged its
businesses with those of the Jones Lang Wootton companies ("JLW") and
changed its name to Jones Lang LaSalle Incorporated. In accordance with
the purchase and sale agreements, Jones Lang LaSalle issued 14.3 million
shares of common stock and paid cash consideration of $6.2 million. This
transaction, which was principally structured as a share exchange, has been
treated as an acquisition and is being accounted for using both APB Opinion
No. 16, "Business Combinations" and APB Opinion No. 25, "Accounting for
Stock Issued to Employees." See our Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 for a full discussion of this
transaction and the related accounting treatment.
The total value attributed to the issuance of the 7.2 million shares
accounted for under APB No. 16 of $141.9 million, in addition to the cash
payment of $6.2 million and capitalizable transaction costs of
approximately $15.8 million, have been allocated to the identifiable assets
acquired and liabilities assumed, based on management's estimates of fair
value, which totaled $251.4 million and $244.8 million, respectively. The
resulting excess purchase price of $157.3 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. Included in the assets acquired was
$32.2 million in cash and included in the liabilities assumed was $47.4
million of obligations to former partners of undistributed earnings. The
liabilities assumed also included employee termination costs of $9.3
million, as well as office rental payments in excess of sublease rental
income of $.3 million and telecommunication lease termination costs of $.8
million related to the closing of offices with geographic overlap in the
United States. As of June 30, 2000, $0.1 million of employee termination
costs remain unpaid and will be paid in the remainder of 2000.
Approximately $0.9 million of office closure costs remain unpaid as of June
30, 2000. These amounts will be paid through 2002.
In relation to the transaction, 4.6 million of the shares issued are
subject to forfeiture or vesting provisions and therefore, pursuant to APB
Opinion No. 25, have been accounted for as deferred compensation with
compensation expense to be recognized over the forfeiture or vesting
period. In addition, 1.3 million shares are deemed to be contingently
returnable and therefore, are being accounted for as a variable stock award
plan. Under a variable stock award plan, the amount of compensation expense
and value of deferred compensation will be adjusted at the end of each
quarter based on the change in stock price from the previous quarter until
the final number of shares to be issued is known.
Compensation expense incurred for the three and six months ended
June 30, 2000 related to the amortization of deferred compensation totaled
$18.9 million and $37.2 million, respectively, net of the quarterly
adjustment for the change in stock price. Compensation expense incurred for
the three and six months ended June 30, 1999 related to the issuance of
shares and amortization of deferred compensation totaled $21.2 million and
$67.4 million, respectively, net of the quarterly adjustment for the change
in stock price. Deferred compensation, related to the issuance of shares
to JLW, not yet amortized at June 30, 2000 totaled $35.1 million, including
the effect of the quarterly adjustment for the change in stock price, which
will be amortized into compensation expense during the remainder of 2000.
Such compensation expense, in addition to compensation expense anticipated
to be incurred at December 31, 2000 associated with the final allocation of
the shares in the employee stock ownership trust ("ESOT"), is expected to
result in a significant non-cash net loss for Jones Lang LaSalle for the
year.
<PAGE>
(3) BUSINESS SEGMENTS
Operations are classified into five business segments: two global
businesses, (i) Investment Management and (ii) Hotel Services; and Owner
and Occupier Services which is divided into 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
Hotels Services segment provides strategic advisory, sales, acquisition,
valuation and asset management services related solely to hotel, conference
and resort properties. Owner and Occupier Services consist primarily of
tenant representation and agency leasing, investment disposition,
acquisition, and valuation services (collectively, "implementation
services") and property management, corporate property services and
development and project management services (collectively, "management
services").
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.
Operating results in 1999 include the results of JLW effective
March 1, 1999, therefore, segment results for the six months ended June 30,
1999 include only four months of results of the former JLW operations.
Summarized unaudited financial information by business segment for
the three and six month periods ended June 30, 2000 and 1999 is as follows
($ in thousands):
<PAGE>
<TABLE>
<CAPTION>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . $ 34,507 25,049 55,211 42,208
Management services . . . . . . 30,728 28,739 59,957 55,349
Equity earnings (losses). . . . 294 281 (66) 101
Other services. . . . . . . . . 187 370 375 892
Intersegment revenue. . . . . . (17) 78 378 140
---------- ---------- ---------- ----------
65,699 54,517 115,855 98,690
Operating expenses:
Compensation, operating and
administrative expenses . . . 56,815 60,431 116,409 117,517
Depreciation and amortization . 5,484 5,033 10,866 10,076
---------- ---------- ---------- ----------
Operating income (loss) . $ 3,400 (10,947) (11,420) (28,903)
========== ========== ========== ==========
EUROPE
Revenue:
Implementation services . . . . $ 70,264 53,457 129,850 74,925
Management services . . . . . . 21,169 14,227 41,345 20,558
Equity losses . . . . . . . . . -- (72) -- (93)
Other services. . . . . . . . . 311 399 547 404
---------- ---------- ---------- ----------
91,744 68,011 171,742 95,794
Operating expenses:
Compensation, operating and
administrative expenses . . . 81,902 60,186 154,030 81,375
Depreciation and amortization . 2,839 2,357 5,588 2,972
---------- ---------- ---------- ----------
Operating income. . . . . $ 7,003 5,468 12,124 11,447
========== ========== ========== ==========
<PAGE>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
ASIA PACIFIC
Revenue:
Implementation services . . . . $ 21,605 22,158 40,293 28,368
Management services . . . . . . 11,671 11,128 23,085 14,554
Equity earnings . . . . . . . . -- 24 -- --
Other services. . . . . . . . . 193 124 360 239
---------- ---------- ---------- ----------
33,469 33,434 63,738 43,161
Operating expenses:
Compensation, operating and
administrative expenses . . . 33,501 30,043 61,694 41,414
Depreciation and amortization . 1,465 1,648 3,015 2,054
---------- ---------- ---------- ----------
Operating income (loss) . $ (1,497) 1,743 (971) (307)
========== ========== ========== ==========
HOTEL SERVICES -
Revenue:
Implementation services . . . . $ 3,592 2,923 6,972 3,777
Management services . . . . . . 402 (29) 746 (29)
Other services. . . . . . . . . 1 287 2 287
---------- ---------- ---------- ----------
3,995 3,181 7,720 4,035
Operating expenses:
Compensation, operating and
administrative expenses . . . 3,893 3,619 7,246 4,539
Depreciation and amortization . 28 50 56 61
---------- ---------- ---------- ----------
Operating income (loss) . $ 74 (488) 418 (565)
========== ========== ========== ==========
<PAGE>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . $ 1,029 4,247 3,998 6,108
Advisory fees . . . . . . . . . 21,271 14,190 35,204 30,804
Equity earnings . . . . . . . . 8,453 1,637 14,753 2,043
Other services. . . . . . . . . 6 5 31 70
Intersegment revenue. . . . . . -- (35) -- --
---------- ---------- ---------- ----------
30,759 20,044 53,986 39,025
Operating expenses:
Compensation, operating and
administrative expenses . . . 19,890 17,678 38,739 33,964
Depreciation and amortization . 981 1,017 1,966 1,898
---------- ---------- ---------- ----------
Operating income. . . . . $ 9,888 1,349 13,281 3,163
========== ========== ========== ==========
Total segment revenue . . . . . . . $ 225,666 179,187 413,041 280,705
Intersegment revenue eliminations . 17 (43) (378) (140)
---------- ---------- ---------- ----------
Total revenue . . . . . . $ 225,683 179,144 412,663 280,565
========== ========== ========== ==========
Total segment operating expenses. . $ 206,798 182,062 399,609 295,870
Intersegment operating expense
eliminations. . . . . . . . . . . 17 (43) (378) (140)
---------- ---------- ---------- ----------
Total operating expenses
before merger related
non-recurring charges . $ 206,815 182,019 399,231 295,730
========== ========== ========== ==========
Operating income (loss)
before merger related
non-recurring charges . $ 18,868 (2,875) 13,432 (15,165)
========== ========== ========== ==========
</TABLE>
<PAGE>
(4) SUBSEQUENT EVENTS
On July 26, 2000, Jones Lang LaSalle closed its offering of Euro 165
million aggregate principal amount of 9% Senior Notes, due 2007 (the
"Notes"). The net proceeds of $149.5 million were used to repay borrowings
under the $175 million term facility that matures on October 15, 2000. The
Notes were issued by Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly owned subsidiary of Jones Lang LaSalle. Jones Lang LaSalle also has
a $250 million revolving facility maturing in October 2002.
In July 2000, Jones Lang LaSalle exercised its option to repurchase
LPI Service Corporation for a nominal amount. LPI Service Corporation
provides the services of approximately 2,800 janitorial, engineering and
property maintenance employees for certain properties managed by Jones Lang
LaSalle in the United States. The costs of these employees are directly
reimbursed by the properties.
On July 31, 2000, Jones Lang LaSalle received a Federal tax refund of
$13.5 million. The remaining balance of the income tax refund receivable
represents state income tax refunds that are expected to be collected over
the balance of the year.
On July 12, 2000, it was announced that Jones Lang LaSalle together
with two other leading U.S. real estate services firms had participated in
a $30 million preferred stock financing for SiteStuff.com, Inc., an e-
marketplace for owners and operators of commercial and multi-family real
estate properties. On July 19, 2000, Jones Lang LaSalle funded its $10.0
million participation.
(5) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
As discussed in Note 4, JLL Finance issued the Notes on July 26,
2000. The payment obligations under the Notes are fully and
unconditionally guaranteed by Jones Lang LaSalle and certain of its wholly-
owned subsidiaries; Jones Lang LaSalle America's Inc., LaSalle Investment
Management, Inc., Jones Lang LaSalle International, Inc., Jones Lang
LaSalle Co-Investment, Inc., LaSalle Hotel Advisors, Inc., and Jones Lang
LaSalle Ltd. (the "Guarantor Subsidiaries"). All of Jones Lang LaSalle's
remaining subsidiaries (the "Non-Guarantor Subsidiaries") are owned by the
Guarantor Subsidiaries. The following supplemental Condensed Consolidating
Balance Sheets as of June 30, 2000 and December 31, 1999, Condensed
Consolidating Statement of Earnings for the three and six months ended June
30, 2000 and June 30, 1999, and Condensed Consolidating Statement of Cash
Flows for the six months ended June 30, 2000 and June 30, 1999 present
financial information for (i) Jones Lang LaSalle (carrying any investment
in subsidiaries under the equity method), (ii) Jones Lang LaSalle Finance
B.V. (the issuer of the Notes), (iii) on a combined basis the Guarantor
Subsidiaries (carrying any investment in
<PAGE>
Non-Guarantor subsidiaries under the equity method) and (iv) on a
combined basis the Non-Guarantor Subsidiaries. Separate financial
statements of the Guarantor Subsidiaries are not presented because the
guarantors are jointly, severally, and unconditionally liable under the
guarantees, and Jones Lang LaSalle believes that separate financial
statements and other disclosures regarding the Guarantor Subsidiaries are
not material to investors. In general, historically, Jones Lang LaSalle
has entered into third party borrowings, financing its subsidiaries via
intercompany accounts that are then converted into equity on a periodic
basis. All intercompany activity has been included as subsidiary activity
in investing activities in the Condensed Consolidating Statements of Cash
Flows. Cash is managed on a consolidated basis and there is a right of
offset between bank accounts in the different groupings of legal entities
in the condensed consolidating financial information. Therefore, in
certain cases, negative cash balances have not been reallocated to payables
as they legally offset positive cash balances elsewhere in Jones Lang
LaSalle. In certain cases, taxes have been calculated on the basis of a
group position that includes both Guarantor and Non-Guarantor Subsidiaries.
In such cases, the taxes have been allocated to individual legal entities
on the basis of that legal entity's pre tax income.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2000
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash and
cash equivalents. . $ 2,786 -- (2,365) 12,746 -- 13,167
Trade receivables,
net of allowances . 127 -- 102,196 134,225 -- 236,548
Other current assets. 25,557 -- 23,677 13,052 -- 62,286
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 28,470 -- 123,508 160,023 -- 312,001
Property and equipment,
at cost, less accumu-
lated depreciation . 1,183 -- 49,525 28,929 -- 79,637
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 279,236 77,412 -- 356,648
Other assets, net . . 4,831 -- 37,544 84,960 -- 127,335
Investments in
subsidiaries . . . . 372,075 -- 369,462 -- (741,537) --
---------- ---------- ---------- ---------- ---------- ----------
$ 406,559 -- 859,275 351,324 (741,537) 875,621
========== ========== ========== ========== ========== ==========
<PAGE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of June 30, 2000
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Accounts payable and
accrued liabilities $ 10,624 -- 29,475 45,845 -- 85,944
Short-term borrowings 175,000 -- 4,145 11,467 -- 190,612
Other current
liabilities . . . . (250,742) -- 450,607 (93,235) -- 106,630
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (65,118) -- 484,227 (35,923) -- 383,186
Long-term liabilities:
Credit facilities . 154,483 -- -- -- -- 154,483
Other long-term
liabilities . . . 649 -- 2,973 17,785 -- 21,407
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 90,014 -- 487,200 (18,138) -- 559,076
Commitments and
contingencies
Stockholders' equity. 316,545 -- 372,075 369,462 (741,537) 316,545
---------- ---------- ---------- ---------- ---------- ----------
$ 406,559 -- 859,275 351,324 (741,537) 875,621
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1999
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash and
cash equivalents. . $ (615) -- 1,027 22,896 -- 23,308
Trade receivables,
net of allowances . 2,070 -- 128,599 139,924 -- 270,593
Other current assets. 23,379 -- 15,223 16,179 -- 54,781
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 24,834 -- 144,849 178,999 -- 348,682
Property and equipment,
at cost, less accumu-
lated depreciation . 749 -- 48,491 27,230 -- 76,470
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 287,848 79,367 -- 367,215
Other assets, net . . 3,010 -- 38,147 91,276 -- 132,433
Investments in
subsidiaries . . . . 357,593 -- 348,702 -- (706,295) --
---------- ---------- ---------- ---------- ---------- ----------
$ 386,186 -- 868,037 376,872 (706,295) 924,800
========== ========== ========== ========== ========== ==========
<PAGE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of December 31, 1999
($ in thousands)
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Accounts payable and
accrued liabilities $ (4,847) -- 30,516 62,588 -- 88,257
Short-term borrowings 156,471 -- 959 5,213 -- 162,643
Other current
liabilities . . . . (250,272) -- 485,978 (66,487) -- 169,219
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (98,648) -- 517,453 1,314 -- 420,119
Long-term liabilities:
Credit facilities . 159,743 -- -- -- -- 159,743
Other long-term
liabilities . . . 1,155 -- (7,009) 26,856 -- 21,002
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 62,250 -- 510,444 28,170 -- 600,864
Commitments and
contingencies
Stockholders' equity. 323,936 -- 357,593 348,702 (706,295) 323,936
---------- ---------- ---------- ---------- ---------- ----------
$ 386,186 -- 868,037 376,872 (706,295) 924,800
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 2000
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ -- -- 105,993 119,690 -- 225,683
Equity earnings (loss)
from subsidiaries. . 13,812 -- 6,584 -- (20,396) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 13,812 -- 112,577 119,690 (20,396) 225,683
Operating expenses
before merger related
non-recurring charges 3,117 -- 94,389 109,309 -- 206,815
Merger related non-
recurring charges. . 18,522 -- 245 98 -- 18,865
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (7,827) -- 17,943 10,283 (20,396) 3
Interest expense,
net of interest
income . . . . . . . 2,820 -- 3,957 (113) -- 6,664
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
for income
taxes . . . . . (10,647) -- 13,986 10,396 (20,396) (6,661)
Net provision for
income taxes . . . . 846 -- 174 3,812 -- 4,832
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (11,493) -- 13,812 6,584 (20,396) (11,493)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 2000
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ -- -- 185,711 226,952 -- 412,663
Equity earnings (loss)
from subsidiaries. . 6,230 -- 12,520 -- (18,750) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 6,230 -- 198,231 226,952 (18,750) 412,663
Operating expenses
before merger related
non-recurring charges 6,232 -- 185,879 207,120 -- 399,231
Merger related non-
recurring charges. . 36,848 -- 245 98 -- 37,191
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (36,850) -- 12,107 19,734 (18,750) (23,759)
Interest expense,
net of interest
income . . . . . . . 5,193 -- 8,156 (10) -- 13,339
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes. . (42,043) -- 3,951 19,744 (18,750) (37,098)
Net provision (benefit)
for income taxes . . (5,578) -- (2,279) 7,224 -- (633)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (36,465) -- 6,230 12,520 (18,750) (36,465)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended June 30, 1999
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ -- -- 77,294 101,850 -- 179,144
Equity earnings (loss)
from subsidiaries. . 5,677 -- 6,706 -- (12,383) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 5,677 -- 84,000 101,850 (12,383) 179,144
Operating expenses
before merger related
non-recurring charges 4,217 -- 89,348 88,454 -- 182,019
Merger related non-
recurring charges. . 32,464 -- 1,059 2,064 -- 35,587
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (31,004) -- (6,407) 11,332 (12,383) (38,462)
Interest expense,
net of interest
income . . . . . . . 1,224 -- 3,351 128 -- 4,703
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes. . (32,228) -- (9,758) 11,204 (12,383) (43,165)
Net provision (benefit)
for income taxes . . 5,476 -- (15,435) 4,498 -- (5,461)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (37,704) -- 5,677 6,706 (12,383) (37,704)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Six Months Ended June 30, 1999
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang Jones Lang
(Parent and LaSalle Guarantor Non-Guarantor LaSalle
Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated
------------ ----------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . $ -- -- 131,783 148,782 -- 280,565
Equity earnings (loss)
from subsidiaries. . (10,364) -- 8,407 -- 1,957 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (10,364) -- 140,190 148,782 1,957 280,565
Operating expenses
before merger related
non-recurring charges 6,478 -- 156,172 133,080 -- 295,730
Merger related non-
recurring charges. . 80,598 -- 6,617 2,415 -- 89,630
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (97,440) -- (22,599) 13,287 1,957 (104,795)
Interest expense,
net of interest
income . . . . . . . 179 -- 7,319 (153) -- 7,345
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes. . (97,619) -- (29,918) 13,440 1,957 (112,140)
Net provision (benefit)
for income taxes . . (4,500) -- (19,554) 5,033 -- (19,021)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (93,119) -- (10,364) 8,407 1,957 (93,119)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2000
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang
(Parent and Guarantor Non-Guarantor LaSalle
Guarantor) Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . $ 5,054 (14,146) (20,744) (29,836)
Cash flows provided by (used in) investing
activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . . . (455) (10,086) (8,757) (19,298)
Cash balances assumed in Jones Lang Wootton
merger, net of cash paid and transaction
cost. . . . . . . . . . . . . . . . . . . . -- -- -- --
Other acquisitions and investments, net of
cash acquired and transaction costs . . . . -- (1,250) (696) (1,946)
Subsidiary activity . . . . . . . . . . . . . (17,976) 13,479 4,497 --
Investments in real estate ventures . . . . . -- 5,425 9,296 14,721
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . . . . (18,431) 7,568 4,340 (6,523)
Cash flows provided by financing activities:
Net borrowings under credit facility. . . . . 159,748 3,186 6,254 169,188
Proceeds from borrowings under credit facility (146,479) -- -- (146,479)
Common stock issued under stock option plan
and stock purchase programs . . . . . . . . 3,509 -- -- 3,509
---------- ---------- ---------- ----------
Net cash provided by financing
activities. . . . . . . . . . . . . . . 16,778 3,186 6,254 26,218
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . 3,401 (3,392) (10,150) (10,141)
Cash and cash equivalents, January 1. . . . . . (615) 1,027 22,896 23,308
---------- ---------- ---------- ----------
Cash and cash equivalents, June 30. . . . . . . $ 2,786 (2,365) 12,746 13,167
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1999
($ in thousands)
<CAPTION>
Jones Lang
LaSalle Consolidated
Incorporated Jones Lang
(Parent and Guarantor Non-Guarantor LaSalle
Guarantor) Subsidiaries Subsidiaries Incorporated
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . $ (12,697) (89,677) 48,292 (54,082)
Cash flows provided by (used in) investing
activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . . . (289) (6,110) (6,316) (12,715)
Cash balances assumed in Jones Lang Wootton
merger, net of cash paid and transaction
cost. . . . . . . . . . . . . . . . . . . . -- (3,187) (33,186) (36,373)
Other acquisitions and investments, net of
cash acquired and transaction costs . . . . -- (3,195) -- (3,195)
Subsidiary activity . . . . . . . . . . . . . (116,608) 104,703 11,905 --
Investments in real estate ventures . . . . . -- 738 2,345 3,083
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . . . . (116,897) 92,949 (25,252) (49,200)
Cash flows provided by (used in) financing
activities:
Net borrowings under credit facility. . . . . 185,031 -- -- 185,031
Proceeds from borrowings under credit facility (60,109) (902) (2,141) (63,152)
Common stock issued under stock option plan
and stock purchase programs . . . . . . . . 3,126 -- -- 3,126
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . . . . 128,048 (902) (2,141) 125,005
---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . (1,546) 2,370 20,899 21,723
Cash and cash equivalents, January 1. . . . . . 1,703 2,160 13,078 16,941
---------- ---------- ---------- ----------
Cash and cash equivalents, June 30. . . . . . . $ 157 4,530 33,977 38,664
========== ========== ========== ==========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto for the three and six
months ended June 30, 2000, included herein, and our audited consolidated
financial statements and notes thereto for the fiscal year ended
December 31, 1999 which have been filed with the Securities and Exchange
Commission as part of our Annual Report on Form 10-K.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE AND SIX
MONTHS ENDED JUNE 30, 1999
Operating results in 1999 include the results of JLW effective
March 1, 1999, therefore results for the six months ended June 30, 1999
include only four months of results for the former JLW operations.
REVENUE
Total revenue, after elimination of intersegment revenue, increased
$46.6 million, or 26.0%, to $225.7 million for the three months ended
June 30, 2000 from $179.1 million for the three months ended June 30, 1999.
For the six months ended June 30, 2000 revenues increased $132.1 million,
or 47.1%, to $412.7 million from $280.6 million for the six months ended
June 30, 1999. A primary driver in the increase in the six months ended
June 30, 2000 was the inclusion of an additional two months of revenue for
the former JLW operations compared to the six months ended June 30, 1999
due to the timing of the JLW merger. For both the three months and six
months ended June 30, 2000, the Europe region of Owner and Occupier
Services benefitted from the strong European economy with significant
increased transaction activity in the United Kingdom, Germany and France.
Additionally, current year revenues in that region were increased by the
Scandinavian JV that was established in December 1999. The increase in the
equity earnings component of total revenues of $6.8 million and $12.6
million for the three months and six months ended June 30, 2000 when
compared to prior year periods, respectively, is primarily related to our
share of the gain on sale and the performance-related fee from the partial
liquidation of a French investment fund managed by the Investment
Management segment.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of merger related non-recurring charges, increased
$24.8 million, or 13.6%, to $206.8 million for the three months ended
June 30, 2000 as compared with $182.0 million for the three months ended
June 30, 1999. For the six months ended June 30, 2000 operating expenses
increased $103.5 million, or 35.0%, to $399.2 million from $295.7 million
for the six months ended June 30, 1999. The increase for the six month
period was primarily due to the timing of the JLW merger, resulting in
there being only four months of the former JLW operations in the prior
year. This transaction also resulted in increases in personnel and office
occupancy costs related to the global infrastructure added to support the
larger size of the combined company, as well as an increase in amortization
expense due to the amortization of the resulting goodwill. These increases
were partially offset by decreases in operating expenses resulting from the
continued success in the implementation of cost savings initiatives in the
Americas region of the Owner and Occupier services segment. A change in
Jones Lang LaSalle's method of estimating and allocating bonus incentive
compensation to interim periods has caused a decrease of $500,000 and $8.7
million in operating expenses for the three and six months ended June 30,
2000, respectively. This change does not impact the overall compensation
cost that will be incurred during the year ended December 31, 2000, but
rather the periods in which it is recognized. This change is weighted
towards the Americas region of the Owner and Occupier Services segment,
which is the most seasonal of the segments.
<PAGE>
Merger related non-recurring charges totaled $18.9 million and $37.2
million for the three and six months ended June 30, 2000, respectively,
compared to $35.6 million and $89.6 million for the three and six months
ended June 30, 1999, respectively. For both 2000 and 1999, these charges
include non-cash compensation expense recorded as a result of shares issued
to certain former employees of JLW in connection with the merger. In 1999,
merger related non-recurring charges also included $14.3 million and $22.2
million of non-recurring transition and integration costs for the three and
six months ended June 30, 1999, respectively. There were no transition and
integration costs in the current year.
OPERATING INCOME
Due to the seasonal nature of our business, Jones Lang LaSalle
typically reports a loss in the first quarter, followed by rising
profitability throughout the remainder of the year (see Seasonality section
for further discussion). The size and timing of the equity earnings
related to the French investment fund, and the impact of the change in
method of estimating and allocating bonus incentive compensation to interim
periods have somewhat mitigated this seasonality in the second quarter.
The current year results have also benefited from the earlier than expected
closing of several large transactions. However, we still believe we will
have significantly higher profitability in the fourth quarter than the
other quarters. Consistent with this, our operating income for the three
and six months ended June 30, 2000, excluding the effect of merger related
non-recurring charges, totaled $18.9 million and $13.4 million,
respectively, as compared to operating losses of $2.9 and $15.2 million for
the three and six months ended June 30, 1999, respectively. This
improvement over the prior year period is primarily due to the gain on sale
and performance-related fee from the liquidation of the French investment
fund, the positive effects of cost-saving initiatives implemented by the
Americas region of Owner and Occupier Services and the change in the method
of estimating and allocating bonus incentive compensation to interim
periods as discussed above.
Including the effect of the merger related non-recurring charges, the
operating income for the three months ended June 30, 2000 totaled $0
million compared to a loss of $38.5 million for the three months ended June
30, 1999. The operating loss for the six months ended June 30, 2000
totaled $23.8 million compared to a loss of $104.8 million for the six
months ended June 30, 1999.
SEGMENT OPERATING RESULTS
See Note 3 in Notes to Consolidated Financial Statements, included
herein, for a discussion of Jones Lang LaSalle's segment reporting.
INVESTMENT MANAGEMENT
Investment Management revenue increased $10.8 million, or 54.0%, to
$30.8 million for the three months ended June 30, 2000 from $20.0 million
for the three months ended June 30, 1999. For the six months ended June
30, 2000, Investment Management revenue increased $15.0 million, or 38.5%,
to $54.0 million from $39.0 million for the six months ended June 30, 1999.
The increase for both periods is primarily attributable to the equity
earnings recognized in relation to our share of the gain on sale and the
performance-related fee from the partial liquidation of the segment's
French investment fund. This fund was structured in such a manner that the
performance incentive fee is received as a preferred distribution of
earnings. Consequently, for financial reporting purposes, the fee is
classified as equity earnings rather than advisory fees. There have also
been increased advisory fees and equity earnings from growth in funds
launched during the fourth quarter of 1999. Additionally, two dispositions
with total performance fees of $4 million closed in the three months ended
June 30, 2000 that were originally expected to close later in the year.
<PAGE>
Operating expenses increased $2.2 million, or 11.8%, to $20.9 million
for the three months ended June 30, 2000, as compared with $18.7 million
for the three months ended June 30, 1999. For the six months ended
June 30, 2000, operating expenses increased $4.8 million, or 13.4%, to
$40.7 million from $35.9 million for the six months ended June 30, 2000.
The increases are primarily attributable to an increase in personnel and
office occupancy costs related to new hires for various new product
launches together with increased incentive compensation consistent with
performance.
HOTEL SERVICES
Hotel Services had total revenue of $4.0 million for the three months
ended June 30, 2000, as compared to $3.2 million for the three months ended
June 30, 1999 an increase of 25%, reflecting strong activity in the
Americas hotel market. Revenues increased from $4.0 million for the six
months ended June 30, 1999 to $7.7 million for the six months ended
June 30, 2000. This increase was a result of the timing of the JLW merger
which resulted in an additional two months of revenue in the current year,
as well as strong activity in both the Europe and Americas hotel markets.
This activity was partially the result of transactions which closed in the
first six months of 2000, that were delayed from closing in the fourth
quarter of 1999 as originally expected.
Operating expenses for the segment were $3.9 million for the three
months ended June 30, 2000, as compared to $3.7 million for the three
months ended June 30, 1999. For the six months ended June 30, 2000,
operating expenses were $7.3 million which was a $2.7 million increase on
the prior year period when expenses were $4.6 million. These expenses
mainly represent personnel costs and office occupancy costs. The increase
is primarily related to the timing of the merger with JLW.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas region increased $11.2 million, or 20.6%, to
$65.7 million for the three months ended June 30, 2000, as compared to
$54.5 million for the three months ended June 30, 1999. The revenue growth
was 17.4% to $115.9 million for the six months ending June 30, 2000,
compared to $98.7 million for the same period in 1999. The increased
revenues are in part attributable to increased focus by the senior
management group on growing the business in the current year as compared to
the early part of 1999 when they expended significant efforts on merger and
integration issues. The region has benefitted from an increased volume of
leasing transactions completed by the Leasing and Management and Tenant
Representation units, and an increased number of projects in process by the
Project Development unit. These revenue gains were partially offset by
reduced performance fees generated by the Capital Markets unit as compared
to the prior year period, as well as a reduction in the number of
investment dispositions performed.
Operating expenses for the Americas region decreased by $3.2 million
to $62.3 million for the three months ended June 30, 2000 from $65.5
million for the three months ended June 30, 1999. The current year
operating expenses at $127.3 million for the six months ending June 30,
2000 were essentially flat with the same period in the prior year. The
Americas region has experienced increased compensation levels resulting
from annual performance evaluations, increased headcount generally as a
result of higher transaction volumes and new client engagements, as well as
higher office occupancy costs associated with the increased capacity needs
resulting from the merger with JLW and increased personnel levels.
However, these increased costs were offset by the change in the method of
estimating and allocating bonus incentive compensation to interim periods,
as well as the cost reduction program initiated during the second half of
1999, and further expanded during February of 2000.
<PAGE>
EUROPE
Revenue for the Europe region totaled $91.7 million for the three
months ended June 30, 2000, as compared to $68.0 million for the three
months ended June 30, 1999, an increase of 34.9%. This increase is due
primarily to continued strong activity in the UK, Germany and France in the
current period. The region also benefitted from several exceptionally
large transactions in the quarter including advising on the UK's largest
property investment portfolio sale for Aegon UK and Belgium's largest
single real estate company transaction for the AXA Group. In addition,
contributing to the increase was our property management venture with
Skandia Fastighet AB, the real estate subsidiary of Sweden's leading
insurance company which became operational January 1, 2000. This 55% owned
venture, which is consolidated in these financial statements, established
Jones Lang LaSalle as one of the leading real estate services firms in the
Nordic region.
The revenue of the Europe region for the six months ended June 30,
2000 was $171.7 million, as compared to $95.8 million for the six months
ended June 30, 1999. This increase was a result of the strong broad based
business activity described above, together with the timing of the JLW
merger. The effect of a strong transaction flow was partially offset by a
weakening of the euro, and to a lesser extent the British pound, against
the U.S. dollar in the six month period ended June 30, 2000, as compared to
the prior year period.
Operating expenses for the region were $84.7 million for the three
months ended June 30, 2000, as compared to $62.5 million for the three
months ended June 30, 1999. For the six months ended June 30, 2000,
operating expenses increased $75.3 million to $159.6 million from $84.3
million. The increase in the six month period is in part due to the timing
of the JLW merger. In addition, the increase for both the current quarter
and the year-to-date resulted from higher personnel and office occupancy
costs related to infrastructure and personnel added in the latter half of
1999 in anticipation of strong business prospects throughout Europe
together with increased bonus costs as a result of the change in the method
of estimating and allocating bonus incentive compensation to interim
periods. Incentive compensation was also increased by the strong
performance of the region. The increase in operating expenses was also
contributed to by the amortization of goodwill associated with the JLW
merger.
ASIA PACIFIC
Revenue for the Asia Pacific region totaled $33.5 million and $63.7
million for the three and six months ended June 30, 2000, respectively.
This compares to $33.4 million and $43.2 million for the three and six
months ended June 30, 1999. The increase year-to-date was due primarily to
the timing of the JLW merger as this was substantially a new segment post
merger. This region continues to benefit from several positive trends in
the Australian real estate market, including continued economic growth
fueled by strong consumer spending and the outsourcing of property
management functions by corporations and the Australian government.
Additionally, the introduction in Australia of a Goods and Services Tax
("GST") effective July 1, 2000, increased transaction activity in the
Residential area as efforts were made to close transactions ahead of the
imposition of GST. For the three months ended June 30, 2000, Australasia
experienced strong activity in its Agency Leasing, Property Management and
Residential units. Asia's real estate activity continues to be boosted by
a gradual economic recovery within the Asian markets. However, conditions
vary from country to country, and the benefits from the recovery in Hong
Kong, Singapore and Shanghai were partially offset by the stagnant market
conditions in other areas of Asia, particularly Thailand and Indonesia. The
region also saw revenue growth from the newer operations in Japan and
India.
<PAGE>
Operating expenses for Asia Pacific totaled $35.0 million for the
three months ended June 30, 2000, as compared to $31.7 million for the
three months ended June 30, 1999. For the six months ended June 30, 2000,
operating expenses were $64.7 million as compared to $43.5 million for the
comparable period in 1999. The increase in the six month period is
primarily a result of the timing of the JLW merger. These expenses mainly
represent personnel costs and office occupancy costs, and the increases are
in part due to added infrastructure to support the needs of public company
reporting and enhanced technology support. The Australasia business also
incurred costs in the second quarter associated with preparing the business
for the introduction of GST. Amortization of goodwill associated with the
JLW merger also contributed to this increase. These increases were
partially offset by the change in the method of estimating and allocating
bonus incentive compensation to interim periods discussed above.
INTEREST EXPENSE
Interest expense, net of interest income, increased $2.0 million to
$6.7 million for the three months ended June 30, 2000, and $6.0 million to
$13.3 million for the six months ended June 30, 2000 from the prior year
periods. This increase is a result of the higher average level of
borrowings outstanding on the credit facilities for both periods as
compared to the prior year together with an increase in the effective
interest rate. The increase in the average level of borrowings was due to
higher working capital needs, primarily for the payment of higher bonus
accruals in early 2000, as compared to early 1999, as well as borrowings
made during 1999 to fund the payment of integration and transition expenses
related to the JLW merger. The effective interest rate was 8.3% and 8.2%
for the three and six months ended June 30, 2000, respectively, as compared
to 5.8% for the three and six months ended June 30, 1999. Interest expense
is expected to be significantly higher in 2000 than in 1999 as a result of
an increase in the average level of borrowings outstanding and generally
increasing interest rates. The refinancing of a portion of the Facilities
with the Notes is expected to slightly increase the effective interest rate
for the balance of the year.
PROVISION FOR INCOME TAXES
The provision for income taxes was $4.8 million for the three months
ended June 30, 2000 as compared to a benefit of $5.5 million for the three
months ended June 30, 1999. The benefit for income taxes was $0.6 million
for the six months ended June 30, 2000 as compared to a benefit of $19.0
million for the six months ended June 30, 1999. This is primarily
attributable to the move to profitability of our operations before income
taxes, exclusive of the compensation expense associated with the issuance
of shares to former JLW employees in connection with the merger. This
compensation expense is largely nondeductible for tax purposes. Excluding
the impact of merger related non-recurring charges, the effective tax rate
on recurring operations was 38% for the three and six months ended June 30,
2000 and 1999.
NET INCOME/LOSS
Net income, excluding the effect of merger related non-recurring
charges, was $7.6 million for the three months ended June 30, 2000 as
compared to a net loss of $4.7 million for the three months ended June 30,
1999, an increase of $12.3 million. For the six months ending June 30,
2000, net income excluding the effect of merger related non-recurring
charges was $0.1 million as compared to a net loss of $14.0 million in the
prior year.
Including the effect of the merger related non-recurring charges, the
net loss for the three and six months ended June 30, 2000 was $11.5 million
and $36.5 million, respectively. This compares to $37.7 million and $93.1
million for the three and six months ended June 30, 1999, respectively.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, Jones Lang LaSalle has financed its operations,
acquisitions and co-investment activities with internally generated funds,
the common stock of Jones Lang LaSalle and borrowings under its credit
facilities. Jones Lang LaSalle had increased its unsecured credit
agreement from $380.0 million to $425.0 million, through the addition of
five banks to its credit group. The credit agreement at June 30, 2000 was
comprised of a $250.0 million revolving facility maturing in October 2002
and a $175.0 million term facility, which matures on October 15, 2000
(collectively, the "Facilities"). Jones Lang LaSalle was also authorized
under the terms of the Facilities to borrow up to an additional $50 million
through local facilities in its international operations. On July 26,
2000, Jones Lang LaSalle closed its offering of the Notes, the net proceeds
of $149.5 million were used to paydown borrowings under the term facility.
The balance of the term facility will be repaid via a combination of
internally generated funds and borrowings under the revolving facility.
The revolving facility is available for working capital, co-investments and
acquisitions. As of June 30, 2000 there was $329.5 million outstanding on
the Facilities, of which $175.0 million was under the term facility and
classified as current. The balance of current borrowings of $15.6 million
at June 30, 2000, related to local borrowings by the international
operations and the current portion of capital lease obligations.
The 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 and minimum
liquidity ratio. Additionally, Jones Lang LaSalle is restricted from,
among other things, incurring certain levels of indebtedness to lenders
outside of the Facilities, 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 Facilities
bear variable rates of interest based on market rates. Jones Lang LaSalle
sometimes uses interest rate swaps to convert a portion of the floating
rate indebtedness to a fixed rate. The effective interest rate on the
Facilities was 8.2% for the six months ended June 30, 2000, including the
effect of interest rate swap agreements. As of June 30, 2000, Jones Lang
LaSalle had no interest rate swap agreements outstanding.
Jones Lang LaSalle has additional access to liquidity via various
interest-bearing overdraft facilities and short-term credit facilities in
Europe and Asia Pacific. The aggregate amount available under these
facilities is approximately $41.0 million, of which $15.2 million was
outstanding as of June 30, 2000. Borrowings on these facilities are
currently limited to $50.0 million under the terms of the Facilities.
Management believes that the Facilities, together with the Notes,
local borrowing facilities and cash flow generated from operations, will
provide adequate liquidity and financial flexibility to meet working
capital requirements.
During the six months ended June 30, 2000, cash flows used in
operating activities totaled $29.8 million compared to $54.1 million for
the six months ended June 30, 1999. The reduced use of cash is primarily
the result of the significant reduction in the cash losses of the business.
Jones Lang LaSalle expects to continue to pursue co-investment
opportunities with investment management clients for which the holding
period typically ranges from three to seven years. While this program
remains very important to the continued growth of the Investment Management
segment, the future commitment to co-investment is completely discretionary
(other than with respect to the $26.9 million of commitments discussed
below) and can be increased or decreased based on the availability of
capital and other factors. The performance of the Investment Management
segment would likely be negatively impacted if a substantial decrease in
<PAGE>
co-investment activity were to occur. Management anticipates that co-
investment activity within the Americas and Europe regions will continue,
with probable expansion into Asia Pacific, as appropriate opportunities
arise. This strategy should serve to grow the assets under management,
generate returns on investment and create potential opportunities to
provide other services. Such co-investments are generally represented by
non-controlling general partner, limited partner and limited liability
company interests. In addition to a share of investment returns, Jones Lang
LaSalle typically earns investment management fees, and in some cases,
property management, leasing, financing and disposition fees, on these
investments. The equity earnings from these co-investments have
historically had a relatively small impact on current earnings and cash
flow. However, increased investment participation and changes in the
structure of underlying performance fees could increase fluctuations in net
earnings and cash flow as a result of the timing and magnitude of the gains
or losses and potential performance fees, if any, to be recognized upon the
disposition of these assets. Jones Lang LaSalle generally does not have
complete discretion to control the timing of the disposition of such
investments. Jones Lang LaSalle anticipates that significant equity
earnings will be recorded in 2000 relating to the disposition of the French
investment fund of which $9.7 million was recognized for the six months
ended June 30, 2000 with $5.7 million of this being recognized in the
second quarter. As of June 30, 2000, there were total investments of $69.1
million in 31 separate property or fund co-investments with additional
capital commitments of $26.9 million for future fundings of co-investments.
Capital expenditures are anticipated to be approximately $40.0 million
for 2000, of which $19.3 million was spent in the six months ended June 30,
2000. These 2000 expenditures are associated primarily with the ongoing
improvements to Jones Lang LaSalle's computer hardware and information
systems, including the implementation of global reporting and communication
systems, office renewals and expansions and the scheduled replacement of
fleet cars primarily within the European countries.
Net cash used in investing activities was $6.5 million for the six
months ended June 30, 2000 compared with $49.2 million for the six months
ended June 30, 1999. The decreased use of cash is primarily attributable
to the net cash paid in connection with the JLW merger in the first six
months of 1999 of $36.4 million and the distributions from the French
property co-investment in the first six months of the current year. This
decrease is partially offset by the increased capital needs since the
merger with JLW for upgrades and improvements to information systems and
computer hardware.
Net cash provided by financing activities of $26.2 million for the six
months ended June 30, 2000 was comprised primarily of proceeds from
borrowings under credit facilities, net of repayments, of $22.7 million to
fund working capital requirements. Cash flows provided by financing
activities of $125.0 million for the six months ended June 30, 1999 were
primarily composed of borrowings under credit facilities, net of
repayments, of $121.9 million to fund the payment of transaction costs and
integration and transition expenses related to the JLW merger and the
acquisition of COMPASS.
SEASONALITY
Historically, Jones Lang LaSalle's revenue, operating profits and net
earnings in the first three calendar quarters are substantially lower than
in the fourth quarter. Other than in Investment Management, this
seasonality is due to a calendar-year-end focus, primarily in the United
States, on the completion of transactions, which is consistent with the
real estate industry generally. The Investment Management segment earns
performance fees on clients' returns on their real estate investments. Such
performance fees are generally earned when the asset is disposed of, the
timing of which Jones Lang LaSalle does not have complete discretion over.
Non-variable operating expenses, which are treated as expenses when
incurred during the year, are relatively constant on a quarterly basis.
Therefore, Jones Lang LaSalle typically sustains a loss in the first
quarter of each calendar year, reports a small profit or loss in the second
<PAGE>
and third quarters and records a substantial majority of its earnings in
the fourth calendar quarter, barring the recognition of investment
generated gains and performance fees in earlier quarters. As discussed
earlier, Jones Lang LaSalle changed its method of estimating and allocating
bonus incentive compensation to interim periods to more meaningfully
reflect the seasonal nature of the underlying business. Also, as discussed
earlier, the timing of recognition of the equity earnings from the French
investment fund have reduced the seasonality of the overall results in the
second quarter.
INFLATION
Jones Lang LaSalle's operations are directly affected by various
national and local economic conditions, including interest rates, the
availability of credit to finance real estate transactions and the impact
of tax laws. To date, management does not believe that general inflation
has had a material impact on operations, as revenue, bonuses and other
variable costs related to revenue are primarily impacted by real estate
supply and demand rather than general inflation.
OTHER MATTERS
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended, becomes
effective for all fiscal quarters for fiscal years beginning after
December 15, 2000 and is not expected to have a material impact on our
consolidated financial statements.
During December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," ("SAB 101"), which provides guidance on various revenue
recognition matters. Jones Lang LaSalle had intended to adopt the
provisions of SAB 101 related to how we understood the SEC staff believed
it applied to revenue recognition on second half lease commissions.
Historically, Jones Lang LaSalle and certain other real estate service
companies have recorded the full amount of lease commissions as revenue
upon the completion of leasing services and the closing of the transaction,
when invoicing for a portion of the commission was to be delayed until
actual tenant occupancy. This policy was based upon the fact that Jones
Lang LaSalle had fulfilled all of its contractual obligations and the
likelihood of the tenant defaulting under the lease was extremely remote.
Jones Lang LaSalle understood that the SEC staff believed that under
SAB 101, such lease commission revenue should be deferred until the parties
to the lease contract have fulfilled their respective obligations.
However, in late June, the SEC issued an amendment to SAB 101 that
permitted companies to delay implementation until the fourth quarter of
2000 while the SEC seeks to provide increased interpretive guidance. As a
result, Jones Lang LaSalle believes that it is prudent to delay
implementation until the SEC has clarified whether SAB 101 is applicable
and, if so, how it should be applied. Therefore, while it is likely that
SAB 101 will be adopted by Jones Lang LaSalle, it will not be adopted until
at least the fourth quarter of 2000.
Jones Lang LaSalle has reviewed the impact of modifying its revenue
recognition policy in accordance with its current understanding of the
SEC's interpretation of SAB 101. If SAB 101 had been adopted in this
manner in the second quarter, a cumulative catch up adjustment for a change
in accounting principle effective as of January 1, 2000 would have been
recorded. This would have been reflected by a one-time, after-tax non-cash
charge of $13.9 million (net of taxes of $8.4 million) to defer commission
revenue where the contractual right to invoice was contingent on the
occupancy of the leased space by the tenant. Thereafter, Jones Lang
LaSalle would recognize the revenue associated with those remaining
commissions generally at the time the tenant occupies the leased space.
<PAGE>
This change in accounting policy will not affect cash flows or the
amount of earnings the company will ultimately recognize. The one-time
after-tax charge will be recognized as earnings in future periods when the
revenue is recognized. The impact of the revised revenue recognition
policy on the first quarter of 2000 would have been to reduce the net loss
before cumulative change in accounting principle by $2.1 million. This
includes an after-tax benefit of $3.6 million (net of tax of $2.2 million)
of revenue that had been included in the cumulative catch up adjustment.
The impact on the second quarter would have been to increase the net loss
before cumulative change in accounting principle by $1.0 million. This
includes an after-tax benefit of $3.2 million (net of tax of $2.0 million)
of revenue that had been included in the cumulative catch up adjustment.
Therefore, the impact for the six months ending June 30, 2000 would have
been to reduce the net loss before cumulative change in accounting
principle by $1.1 million. This would include an after-tax benefit of $6.8
million (net of taxes of $4.2 million) of revenue that had been deferred
through the cumulative catch up adjustment.
It is not possible at this time to estimate the potential impact on
the full year 2000 net loss before cumulative change in accounting
principle, but management believes that it may increase the net loss by up
to $5 million. This will be dependent upon the mix and timing of revenues
together with the underlying contractual terms of our customer contracts.
Management believes that this change in accounting policy will help to
reduce the seasonality in the financial performance reported by Jones Lang
LaSalle by shifting some lease commission revenue out of the fourth quarter
and into other quarters.
E-COMMERCE INITIATIVES
Through the first six months of 2000, Jones Lang LaSalle has evaluated
a number of e-business opportunities. On April 26, 2000, Jones Lang
LaSalle announced the formation of Octane, an e-commerce alliance with two
other leading U.S. real estate services firms. This alliance will develop
e-business solutions for the real estate services industry and will focus
on procurement, transactions, support services and other business-to-
business activities. On May 5, 2000, Jones Lang LaSalle announced its
intent to join eleven other leading North American real estate firms to
form Constellation, a real estate e-business company. This company will
form, incubate and sponsor real estate-related Internet, e-commerce and
broadband enterprises; acquire interests in existing leading companies on a
synergistic basis; and act as an opportunistic consolidator across property
sectors in the emerging real estate technology area. On June 29, 2000,
Jones Lang LaSalle announced that together with two other leading
international property services firms and an international business to
business publisher, it would be developing a pan-European commercial
property listings, information and data research portal. The venture will
be an unaffiliated, independently managed company with its own brand and
may ultimately include other content and technology partners. The final
terms and conditions of the agreements related to these ventures are
currently being negotiated.
On July 12, 2000, it was announced that Jones Lang LaSalle together
with two other leading U.S. real estate services firms had participated in
a $30 million preferred stock financing for SiteStuff.com, Inc., an e-
marketplace for owners and operators of commercial and multi-family real
estate properties. On July 19, 2000, Jones Lang LaSalle funded its $10.0
million participation. Through SiteStuff, Jones Lang LaSalle has the
ability to aggregate the purchase of property management maintenance,
repair and operations products and services for the benefit of clients in
the U.S. We will continue to seek additional e-commerce opportunities
which enhance our product and service offerings.
We expect to commit up to $20 million over the next eighteen months
for our e-commerce initiatives, including commitments already made in
connection with the four ventures described above.
<PAGE>
EURO CONVERSION ISSUES
On January 1, 1999, certain countries of the European Monetary Union
("EMU") adopted a common currency, the euro. For a three-and-one-half-year
transition period, non-cash transactions may be denominated in either the
euro or in the old national currencies. After July 1, 2002, the euro will
be the sole legal tender for the EMU countries. The adoption of the euro
affected a multitude of financial systems and business applications as the
commerce of these nations is now transacted in the euro and the existing
national currency.
Although the impact of the January 1, 1999 euro conversion was
minimal, Jones Lang LaSalle continues to evaluate the potential impact
relating to the EMU countries yet to convert. Management does not expect
the impact of euro conversion issues to be material to Jones Lang LaSalle,
however there can be no assurance that external factors will not have a
material adverse effect on operations.
YEAR 2000 ISSUES
The "Year 2000 Issue" was the result of computer programs and systems
having been designed and developed to use two digits, rather than four, to
define the applicable year. As a result, these computer programs and
systems had the potential to recognize a date using "00" as the year 1900
rather than the year 2000. This could have resulted in system failure or
miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, pay invoices or
engage in similar normal business activities.
Jones Lang LaSalle successfully modified its software and hardware to
meet Year 2000 requirements and experienced no significant disruption of
its operations.
The total cost of such modifications was $4.8 million of operating
expenses associated with testing and other matters and $1.5 million of
capital expenditures primarily representing system upgrades which provide
operational benefits above and beyond Year 2000 compliance.
Although Jones Lang LaSalle is not aware of any threatened claims
related to the Year 2000, it may become subject to litigation arising from
such claims, and, depending on the outcome, such litigation could have a
material adverse affect on Jones Lang LaSalle. It is not clear whether
insurance coverage would be adequate to offset these and other business
risks related to the Year 2000.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Jones Lang LaSalle is exposed to interest rate changes primarily as a
result of its lines of credit used to maintain liquidity and to fund
capital expenditures, acquisitions, co-investments and operations. Jones
Lang LaSalle's interest rate risk management objective is to limit the
impact of interest rate changes on earnings and cash flows and to lower
overall borrowing costs. To achieve this objective, Jones Lang LaSalle
historically has borrowed at variable rates and has entered into derivative
financial instruments such as interest rate swap agreements when
appropriate. Jones Lang LaSalle does not enter into derivative or interest
rate transactions for trading or speculative purposes. As of June 30,
2000, Jones Lang LaSalle had no interest rate swap agreements outstanding.
Given that the Notes will be a substantial portion of the outstanding debt
and charges a fixed rate of interest, Jones Lang LaSalle's exposure to
interest rate changes will be reduced from its historical exposure.
The carrying value of the debt approximates its fair value. As of
June 30, 2000, the outstanding borrowings on the Facilities were $329.5
million. The Facilities bear variable rates of interest based on market
rates. The effective interest rate on the Facilities was 8.3% and 8.2% for
the three and six months ended June 30, 2000, including the effect of
interest rate swap agreements.
FOREIGN CURRENCY RISK
Jones Lang LaSalle's reporting currency is the U.S. dollar. Business
is transacted in various other currencies. The financial statements of
subsidiaries outside the United States, except those located in highly
inflationary economies, are generally measured using the local currency as
the functional currency. As a result, fluctuations in the U.S. dollar
relative to the other currencies in which earnings are generated can impact
Jones Lang LaSalle's business, operating results and financial condition as
reported in U.S. dollars. For the three and six months ended June 30, 2000
(excluding the effect of stock compensation expense) Jones Lang LaSalle
reported net income of $7.6 and $0.1 million, respectively, of which $1.5
million of net income and $12.4 million of net losses were attributable to
operations having U.S. dollars as their functional currency and $6.1
million and $12.5 million of net income for the three and six months ended
June 30, 2000, respectively, was attributable to operations having other
functional currencies. Revenues and expenses are primarily earned and
incurred in the currency of the location where the operations generating
the revenues and expenses have occurred, thereby limiting exposure to
exchange rate fluctuations to some extent.
On a limited basis, Jones Lang LaSalle enters into forward foreign
currency exchange contracts to manage currency risks and reduce exposure
resulting from fluctuations in the designated foreign currency associated
with existing commitments, assets or liabilities. At June 30, 2000, Jones
Lang LaSalle had forward exchange contracts in effect with a notional value
of approximately $37.8 million with no market value and no carrying value.
Jones Lang LaSalle does not enter into forward foreign currency exchange
contracts for trading or speculative purposes.
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of June 30, 2000, it does not consider those exposures or
positions, which could arise after that date. Moreover, because firm
commitments are not presented, the information represented herein has
limited predictive value. As a result, the ultimate realized gain or loss
with respect to interest rate and foreign currency fluctuations will depend
on the exposures that arise during the period, the hedging strategies at
the time and interest and foreign currency rates.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Jones Lang LaSalle is a defendant in various litigation matters
arising in the ordinary course of business, some of which involve claims
for damages that are substantial in amount. Many of these matters are
covered by insurance. In the opinion of management, the ultimate resolution
of such litigation is not expected to have a material adverse effect on the
financial condition, results of operations and liquidity of Jones Lang
LaSalle.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the annual meeting of stockholders held on May 15, 2000, the
following business was conducted:
A. Stockholders elected six directors as follows:
(i) The following two Class I Directors were elected for
terms expiring at the 2001 annual meeting of stockholders and until their
successors are elected and qualify:
M.G. Rose: 26,412,818 votes for and 92,954 votes
withheld.
Michael J. Smith: 26,412,978 votes for and 92,974 votes
withheld.
(ii) The following four Class III Directors were elected for
terms expiring at the 2003 annual meeting of stockholders and until their
successors are elected and qualify:
Christopher M. G. Brown: 26,412,978 votes for and 92,794
votes withheld.
Derek A. Higgs: 26,411,878 votes for and 93,894 votes
withheld.
Thomas C. Theobald: 26,412,878 votes for and 92,894
votes withheld.
Lynn C. Thurber: 26,412,389 votes for and 93,383 votes
withheld.
B. Stockholders approved an amendment to the Jones Lang LaSalle
Employee Stock Purchase Plan to increase the number of shares available
thereunder to 1,000,000 from 250,000 as follows:
Votes for: 21,881,524
Votes against: 423,128
Votes abstained: 4,201,120
C. Stockholders ratified the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year ending December 31, 2000
as follows:
Votes for: 22,282,059
Votes against: 73,664
Votes abstained: 4,150,049
<PAGE>
ITEM 5. OTHER MATTERS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this filing and elsewhere (such as in reports,
other filings with the Securities and Exchange Commission, press releases,
presentations and communications by Jones Lang LaSalle or its management
and written and oral statements) may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause Jones Lang LaSalle's
actual results, performance, achievements, plans and objectives to be
materially different from any future results, performance, achievements,
plans and objectives expressed or implied by such forward-looking
statements. Such factors are discussed in our Annual Report on Form 10-K
for the year ended December 31, 1999 in Item 1. "Business," Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Item 7A. "Quantitative and Qualitative Disclosures About
Market Risk," and elsewhere, in our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 in Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations", Item 3
"Quantitative and Qualitative Disclosure about Market Risk" and elsewhere,
and in other reports filed with the Securities and Exchange Commission.
Jones Lang LaSalle expressly disclaims any obligation or undertaking to
update or revise any forward-looking statements to reflect any changes in
events or circumstances or in its expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
JONES LANG LASALLE INCORPORATED
Dated: August 14, 2000 BY: /S/ WILLIAM E. SULLIVAN
------------------------------
William E. Sullivan
Executive Vice President and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.1 Indenture, dated as of July 26, 2000,
governing 9% Senior Notes due 2007.
4.2 Registration Rights Agreement, dated as
of July 19, 2000, with respect to 9%
Senior Notes due 2007.
10.1 Second Amendment and Restated Multicurrency
Credit Agreement, dated as of July 26, 2000.
10.2 Third Amendment to the Jones Lang LaSalle
Incorporated Employee Stock Purchase Plan.
27.1 Financial Data Schedule.
