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 SEPTEMBER 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 November 10, 2000
----- -----------------
Common Stock ($0.01 par value) 30,394,088
<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. . . . . . . . 28
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. . . . . . . . . . . . . . . . . . . . 40
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 41
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
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -----------
ASSETS
------
Current assets:
Cash and cash equivalents . . . . . . . $ 17,467 23,308
Trade receivables, net of allowances
of $9,928 and $9,871 in 2000
and 1999, respectively. . . . . . . . 225,540 270,593
Notes receivable and advances to
real estate ventures. . . . . . . . . 3,466 4,519
Other receivables . . . . . . . . . . . 4,397 7,045
Income tax refund receivable. . . . . . 1,093 14,500
Prepaid expenses. . . . . . . . . . . . 10,857 9,598
Deferred tax assets . . . . . . . . . . 16,022 13,673
Other assets. . . . . . . . . . . . . . 9,340 5,446
---------- ---------
Total current assets. . . . . . 288,182 348,682
Property and equipment, at cost, less
accumulated depreciation of $70,014
and $55,943 in 2000 and 1999,
respectively. . . . . . . . . . . . . . 82,730 76,470
Intangibles resulting from business
acquisitions and JLW merger, net of
accumulated amortization of $38,875
and $27,515 in 2000 and 1999,
respectively. . . . . . . . . . . . . . 348,571 367,215
Investments in real estate ventures . . . 71,412 67,305
Other investments . . . . . . . . . . . . 12,410 --
Long-term receivables, net. . . . . . . . 23,360 27,962
Prepaid pension asset . . . . . . . . . . 19,239 23,956
Deferred tax assets . . . . . . . . . . . 5,222 5,270
Debt issuance costs . . . . . . . . . . . 5,235 2,279
Other assets, net . . . . . . . . . . . . 6,851 5,661
---------- ----------
$ 863,212 924,800
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities$ 82,639 88,257
Accrued compensation. . . . . . . . . . 109,131 142,960
Short-term borrowings . . . . . . . . . 13,293 162,643
Deferred tax liabilities. . . . . . . . 36 --
Other liabilities . . . . . . . . . . . 18,499 26,259
---------- ----------
Total current liabilities . . . 223,598 420,119
Long-term liabilities:
Credit facilities . . . . . . . . . . . 146,493 159,743
Notes . . . . . . . . . . . . . . . . . 146,378 --
Deferred tax liabilities. . . . . . . . 6,629 7,535
Other . . . . . . . . . . . . . . . . . 14,141 12,878
---------- ----------
Total liabilities . . . . . . . 537,239 600,275
Commitments and contingencies
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED BALANCE SHEETS - CONTINUED
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(in thousands, except share data)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -----------
Minority interest in consolidated
subsidiaries. . . . . . . . . . . . . . 640 589
Stockholders' equity:
Common stock, $.01 par value per share,
100,000,000 shares authorized;
30,861,683 and 30,285,472 shares
issued and outstanding as of 2000
and 1999, respectively. . . . . . . . 309 303
Additional paid-in capital. . . . . . . 452,648 442,699
Unallocated ESOT shares . . . . . . . . (7) (7)
Deferred stock compensation . . . . . . (21,574) (70,106)
Retained deficit. . . . . . . . . . . . (91,850) (50,050)
Accumulated other comprehensive
income (loss) . . . . . . . . . . . . (14,193) 1,097
---------- ----------
Total stockholders' equity. . . 325,333 323,936
---------- ----------
$ 863,212 924,800
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, except share data)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Fee-based services. . . . . . . . $ 221,462 190,979 618,123 467,449
Equity in earnings from
unconsolidated ventures . . . . 1,116 2,371 15,803 4,422
Other income. . . . . . . . . . . 2,029 822 3,344 2,866
---------- ---------- ---------- ----------
Total revenue . . . . . . . 224,607 194,172 637,270 474,737
Operating expenses:
Compensation and benefits . . . . 134,349 135,170 407,122 335,249
Operating, administrative and other 51,390 36,587 156,357 115,177
Depreciation and amortization . . 10,298 9,665 31,789 26,726
---------- ---------- ---------- ----------
Total operating expenses
before merger related
non-recurring charges . . 196,037 181,422 595,268 477,152
---------- ---------- ---------- ----------
Operating income (loss)
before merger related
non-recurring charges . . 28,570 12,750 42,002 (2,415)
Merger related non-recurring charges:
Stock compensation expense. . . . 18,191 14,942 55,382 82,383
Integration and transition expenses -- 10,800 -- 32,989
---------- ---------- ---------- ----------
Total merger related
non-recurring charges . . 18,191 25,742 55,382 115,372
---------- ---------- ---------- ----------
Total operating expenses. . 214,228 207,164 650,650 592,524
---------- ---------- ---------- ----------
Operating income (loss) . . 10,379 (12,992) (13,380) (117,787)
Interest expense, net of interest
income. . . . . . . . . . . . . . 8,226 4,967 21,565 12,312
---------- ---------- ---------- ----------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, except share data)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Income (loss) before
provision (benefit)
for income taxes and
minority interest . . . . 2,153 (17,959) (34,945) (130,099)
Net provision (benefit) for
income taxes. . . . . . . . . . . 7,428 (1,022) 6,795 (20,043)
Minority interests in earnings
of subsidiaries . . . . . . . . . 60 -- 60 --
---------- ---------- ---------- ----------
Net loss. . . . . . . . . . $ (5,335) (16,937) (41,800) (110,056)
========== ========== ========== ==========
Other comprehensive income (loss),
net of tax:
Foreign currency translation
adjustments . . . . . . . . . . $ (4,137) 2,881 (15,290) 2,987
---------- ---------- ---------- ----------
Comprehensive loss. . . . . . . . . $ (9,472) (14,056) (57,090) (107,069)
========== ========== ========== ==========
Basic loss per common share . . . . $ (0.21) (0.70) (1.69) (4.98)
========== ========== ========== ==========
Basic weighted average shares
outstanding . . . . . . . . . . . 25,168,964 24,110,884 24,701,106 22,109,143
========== ========== ========== ==========
Diluted loss per common share . . . $ (0.21) (0.70) (1.69) (4.98)
========== ========== ========== ==========
Diluted weighted average shares
outstanding . . . . . . . . . . . 25,168,964 24,110,884 24,701,106 22,109,143
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIODS ENDED SEPTEMBER 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. . . . . . -- -- -- -- -- (41,800) -- (41,800)
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. . . -- -- -- -- 950 -- -- 950
Stock purchase
programs. . . . 171,617 2 3,336 -- -- -- -- 3,338
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)
Adjustment shares
subsequently
retained. . . . (372) -- (144) -- -- -- -- (144)
Stock compensa-
tion adjustments. -- -- 1,759 -- (1,336) -- -- 423
Amortization of
deferred stock
compensation. . . -- -- -- -- 54,736 -- -- 54,736
Other . . . . . . . -- -- -- -- -- -- (15,290) (15,290)
---------- ----- ------- ------- -------- -------- -------- --------
Balances at
September 30,
2000. . . . . . . 30,861,683 $ 309 452,648 (7) (21,574) (91,850) (14,193) 325,333
========== ===== ======= ======= ======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, unless otherwise noted)
(UNAUDITED)
2000 1999
---------- ----------
Cash flows provided by (used in)
operating activities:
Net loss. . . . . . . . . . . . . . . . . $ (41,800) (110,056)
Reconciliation of net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . 31,789 26,726
Equity in earnings from unconsolidated
ventures. . . . . . . . . . . . . . . (15,803) (4,422)
Provision for loss on receivables and
other assets. . . . . . . . . . . . . 5,336 1,544
Stock compensation expense. . . . . . . 55,382 81,942
Amortization of deferred compensation . 2,449 --
Changes in:
Receivables . . . . . . . . . . . . . . 57,070 18,941
Prepaid expenses and other assets . . . 5,106 (4,146)
Deferred tax assets and income tax
refund receivable . . . . . . . . . . 10,511 (24,929)
Accounts payable, accrued liabilities
and accrued compensation. . . . . . . (74,561) (50,528)
---------- ----------
Net cash provided by (used in)
operating activities. . . . . . . 35,479 (64,928)
Cash flows used in investing activities:
Net capital additions - property and
equipment . . . . . . . . . . . . . . . (30,806) (23,641)
Cash paid in connection with Jones
Lang Wootton merger, net of cash
balances assumed. . . . . . . . . . . . -- (37,375)
Other acquisitions and investments,
net of cash balances assumed. . . . . . (13,048) (3,003)
Investments in real estate ventures:
Capital contributions and advances to
real estate ventures. . . . . . . . . (9,159) (8,963)
Distributions, repayments of advances
and sale of investments . . . . . . . 21,302 25,055
---------- ----------
Net cash used in
investing activities. . . . . . . (31,711) (47,927)
Cash flows provided by (used in)
financing activities:
Proceeds from borrowings under credit
facilities. . . . . . . . . . . . . . . 229,998 262,156
Repayments of borrowings under credit
facilities. . . . . . . . . . . . . . . (392,598) (147,775)
Net proceeds from issuance of the Euro
Notes . . . . . . . . . . . . . . . . . 149,454 --
Common stock issued under stock option
plan and stock purchase programs. . . . 3,537 3,126
---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . (9,609) 117,507
---------- ----------
<PAGE>
JONES LANG LASALLE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(in thousands, unless otherwise noted)
(UNAUDITED)
2000 1999
---------- ----------
Net increase (decrease) in
cash and cash equivalents . . . . (5,841) 4,652
Cash and cash equivalents,
beginning of period . . . . . . . . . . . 23,308 16,941
---------- ----------
Cash and cash equivalents, end of period. . $ 17,467 21,593
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 17,405 13,524
Taxes, net of refunds . . . . . . . . . (3,407) 13,077
Non-cash investing and financing
activities:
Acquisitions, merger and investments:
Shares issued in connection with
merger. . . . . . . . . . . . . . . $ -- 142,053
Fair value of assets acquired . . . . (14,474) (214,026)
Fair value of liabilities assumed . . 20,413 186,270
Goodwill. . . . . . . . . . . . . . . (6,577) (154,675)
Other investments . . . . . . . . . . (12,410) --
---------- --------
Cash paid, net of cash
balances assumed. . . . . . . . $ (13,048) (40,378)
========== ========
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.
In particular, the Form 8-K dated August 11, 2000.
(1) ACCOUNTING POLICIES
INTERIM INFORMATION
The consolidated financial statements as of September 30, 2000 and
for the three and nine month periods ended September 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 September
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 nine months ended
September 30, 2000 was to reduce compensation expense by approximately
$10.3 million and $19.0 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 25.2 million and 24.7
million for the three and nine month periods ended September 30, 2000,
respectively. For the three and nine months ended September 30, 1999,
basic and diluted losses per common share were calculated based on basic
weighted average shares outstanding of 24.1 million and 22.1 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 $0.3 million and telecommunication lease termination costs of
$0.8 million related to the closing of offices with geographic overlap in
the United States. As of September 30, 2000, employee termination costs
have been paid. Approximately $0.8 million of office closure costs remain
unpaid as of September 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 nine months ended
September 30, 2000 primarily related to the amortization of deferred
compensation totaled $18.2 million and $55.4 million, respectively, net of
the quarterly adjustment for the change in stock price. Compensation
expense incurred for the three and nine months ended September 30, 1999
related to the issuance of shares and amortization of deferred compensation
totaled $14.9 million and $82.4 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 September 30, 2000
totaled $16.7 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 nine months ended
September 30, 1999 include only seven months of results of the former JLW
operations.
Summarized unaudited financial information by business segment for
the three and nine month periods ended September 30, 2000 and 1999 is as
follows ($ in thousands):
<PAGE>
<TABLE>
<CAPTION>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OWNER AND OCCUPIER SERVICES -
AMERICAS
Revenue:
Implementation services . . . . $ 43,581 45,592 98,792 87,800
Management services . . . . . . 37,001 26,257 96,958 81,606
Equity earnings (losses). . . . (444) 178 (510) 279
Other services. . . . . . . . . 224 319 599 1,211
Intersegment revenue. . . . . . 412 1,619 790 1,759
---------- ---------- ---------- ----------
80,774 73,965 196,629 172,655
Operating expenses:
Compensation, operating and
administrative expenses . . . 66,085 61,895 182,494 179,412
Depreciation and amortization . 4,989 5,076 15,855 15,152
---------- ---------- ---------- ----------
Operating income (loss) . $ 9,700 6,994 (1,720) (21,909)
========== ========== ========== ==========
EUROPE
Revenue:
Implementation services . . . . $ 59,872 51,493 189,722 126,418
Management services . . . . . . 18,770 16,018 60,115 36,576
Equity losses . . . . . . . . . -- (132) -- (225)
Other services. . . . . . . . . 731 416 1,278 820
---------- ---------- ---------- ----------
79,373 67,795 251,115 163,589
Operating expenses:
Compensation, operating and
administrative expenses . . . 64,667 65,230 218,697 146,605
Depreciation and amortization . 2,868 2,399 8,456 5,371
---------- ---------- ---------- ----------
Operating income. . . . . $ 11,838 166 23,962 11,613
========== ========== ========== ==========
<PAGE>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
ASIA PACIFIC
Revenue:
Implementation services . . . . $ 19,639 21,152 59,932 49,520
Management services . . . . . . 10,935 10,560 34,020 25,114
Other services. . . . . . . . . 1,040 (35) 1,400 204
---------- ---------- ---------- ----------
31,614 31,677 95,352 74,838
Operating expenses:
Compensation, operating and
administrative expenses . . . 31,913 26,973 93,607 68,387
Depreciation and amortization . 1,511 1,200 4,526 3,254
---------- ---------- ---------- ----------
Operating income (loss) . $ (1,810) 3,504 (2,781) 3,197
========== ========== ========== ==========
HOTEL SERVICES -
Revenue:
Implementation services . . . . $ 3,481 3,455 10,453 7,232
Management services . . . . . . (724) 6 22 (23)
Other services. . . . . . . . . -- 254 2 541
---------- ---------- ---------- ----------
2,757 3,715 10,477 7,750
Operating expenses:
Compensation, operating and
administrative expenses . . . 3,138 3,182 10,384 7,721
Depreciation and amortization . 44 45 100 106
---------- ---------- ---------- ----------
Operating income (loss) . $ (425) 488 (7) (77)
========== ========== ========== ==========
<PAGE>
SEGMENT OPERATING RESULTS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
INVESTMENT MANAGEMENT -
Revenue:
Implementation services . . . . $ 1,317 2,114 5,315 8,222
Advisory fees . . . . . . . . . 27,598 14,153 62,802 44,957
Equity earnings . . . . . . . . 1,560 2,325 16,313 4,368
Other services. . . . . . . . . 26 47 57 117
---------- ---------- ---------- ----------
30,501 18,639 84,487 57,664
Operating expenses:
Compensation, operating and
administrative expenses . . . 20,348 16,096 59,087 50,060
Depreciation and amortization . 886 945 2,852 2,843
---------- ---------- ---------- ----------
Operating income. . . . . $ 9,267 1,598 22,548 4,761
========== ========== ========== ==========
Total segment revenue . . . . . . . $ 225,019 195,791 638,060 476,496
Intersegment revenue eliminations . (412) (1,619) (790) (1,759)
---------- ---------- ---------- ----------
Total revenue . . . . . . $ 224,607 194,172 637,270 474,737
========== ========== ========== ==========
Total segment operating expenses. . $ 196,449 183,041 596,058 478,911
Intersegment operating expense
eliminations. . . . . . . . . . . (412) (1,619) (790) (1,759)
---------- ---------- ---------- ----------
Total operating expenses
before merger related
non-recurring charges . $ 196,037 181,422 595,268 477,152
========== ========== ========== ==========
Operating income (loss)
before merger related
non-recurring charges . $ 28,570 12,750 42,002 (2,415)
========== ========== ========== ==========
</TABLE>
<PAGE>
(4) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly-owned subsidiary of Jones Lang LaSalle, issued 9% Senior Notes with
an aggregate principal amount of Euro 165 million, due 2007 (the "Euro
Notes"). The payment obligations under the Euro Notes are fully and
unconditionally guaranteed by Jones Lang LaSalle Incorporated and certain
of its wholly-owned subsidiaries; Jones Lang LaSalle 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 Incorporated's remaining subsidiaries (the "Non-Guarantor
Subsidiaries") are owned by the Guarantor Subsidiaries. The following
supplemental Condensed Consolidating Balance Sheets as of September 30,
2000 and December 31, 1999, Condensed Consolidating Statement of Earnings
for the three and nine months ended September 30, 2000 and September 30,
1999, and Condensed Consolidating Statement of Cash Flows for the nine
months ended September 30, 2000 and September 30, 1999 present financial
information for (i) Jones Lang LaSalle Incorporated (carrying any
investment in subsidiaries under the equity method), (ii) Jones Lang
LaSalle Finance B.V. (the issuer of the Euro Notes), (iii) on a combined
basis the Guarantor Subsidiaries (carrying any investment in Non-Guarantor
subsidiaries under the equity method) and (iv) on a combined basis the Non-
Guarantor Subsidiaries (carrying its investment in JLL Finance under the
equity method). Separate financial statements of the Guarantor
Subsidiaries are not presented because the guarantors are jointly,
severally, and unconditionally liable under the guarantees, and Jones Lang
LaSalle Incorporated believes that separate financial statements and other
disclosures regarding the Guarantor Subsidiaries are not material to
investors. In general, historically, Jones Lang LaSalle Incorporated has
entered into third party borrowings, financing its subsidiaries via
intercompany accounts that are then converted into equity on a periodic
basis. Certain Guarantor and Non-Guarantor Subsidiaries also enter into
third party borrowings on a limited basis. All intercompany activity has
been included as subsidiary activity in investing activities in the
Condensed Consolidating Statements of Cash Flows. Cash is managed on a
consolidated basis and there is a right of offset between bank accounts in
the different groupings of legal entities in the condensed consolidating
financial information. Therefore, in certain cases, negative cash balances
have not been reallocated to payables as they legally offset positive cash
balances elsewhere in Jones Lang LaSalle Incorporated. In certain cases,
taxes have been calculated on the basis of a group position that includes
both Guarantor and Non-Guarantor Subsidiaries. In such cases, the taxes
have been allocated to individual legal entities on the basis of that legal
entity's pre tax income.
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 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. . $ 2,155 126 (2,546) 17,732 -- 17,467
Trade receivables,
net of allowances . 88 -- 97,703 127,749 -- 225,540
Other current assets. 17,530 -- 22,023 5,622 -- 45,175
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets. . . . . 19,773 126 117,180 151,103 -- 288,182
Property and equipment,
at cost, less accumu-
lated depreciation . 1,949 -- 49,904 30,877 -- 82,730
Intangibles resulting
from business acquisi-
tions and JLW merger,
net of accumulated
amortization . . . . -- -- 264,368 84,203 -- 348,571
Other assets, net . . 8,597 -- 51,977 83,155 -- 143,729
Investments in
subsidiaries . . . . 282,290 -- 283,370 141 (565,801) --
---------- ---------- ---------- ---------- ---------- ----------
$ 312,609 126 766,799 349,479 (565,801) 863,212
========== ========== ========== ========== ========== ==========
<PAGE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED
As of September 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 $ 9,802 3,742 21,028 48,067 -- 82,639
Short-term borrowings -- -- 9,406 3,887 -- 13,293
Other current
liabilities . . . . (23,175) (295,945) 451,147 (4,361) -- 127,666
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities . . (13,373) (292,203) 481,581 47,593 -- 223,598
Long-term liabilities:
Credit facilities . -- 146,493 -- -- -- 146,493
Notes . . . . . . . -- 145,695 539 144 -- 146,378
Other . . . . . . . 649 -- 2,389 17,732 -- 20,770
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (12,724) (15) 484,509 65,469 -- 537,239
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . -- -- -- 640 -- 640
Stockholders' equity. 325,333 141 282,290 283,370 (565,801) 325,333
---------- ---------- ---------- ---------- ---------- ----------
$ 312,609 126 766,799 349,479 (565,801) 863,212
========== ========== ========== ========== ========== ==========
</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 . . . . . . . 1,155 -- (7,009) 26,267 -- 20,413
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 62,250 -- 510,444 27,581 -- 600,275
Commitments and
contingencies
Minority interest in
consolidated
subsidiaries . . . . -- -- -- 589 -- 589
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 September 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 . . . . . . . $ -- -- 104,483 120,124 -- 224,607
Equity earnings (loss)
from subsidiaries. . 15,078 -- 12,335 56 (27,469) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 15,078 -- 116,818 120,180 (27,469) 224,607
Operating expenses
before merger related
non-recurring charges 4,672 1 95,360 96,004 -- 196,037
Merger related non-
recurring charges. . 18,191 -- (5) 5 -- 18,191
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (7,785) (1) 21,463 24,171 (27,469) 10,379
Interest expense,
net of interest
income . . . . . . . 2,796 (79) 5,858 (349) -- 8,226
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes
and minority
interest. . . . (10,581) 78 15,605 24,520 (27,469) 2,153
Net provision for
income taxes . . . . (5,246) 22 527 12,125 -- 7,428
Minority interests
in earnings of
subsidiaries . . . . -- -- -- 60 -- 60
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (5,335) 56 15,078 12,335 (27,469) (5,335)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Nine Months Ended September 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 . . . . . . . $ -- -- 290,194 347,076 -- 637,270
Equity earnings (loss)
from subsidiaries. . 21,308 -- 24,855 56 (46,219) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . 21,308 -- 315,049 347,132 (46,219) 637,270
Operating expenses
before merger related
non-recurring charges 10,904 1 281,239 303,124 -- 595,268
Merger related non-
recurring charges. . 55,039 -- 240 103 -- 55,382
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (44,635) (1) 33,570 43,905 (46,219) (13,380)
Interest expense,
net of interest
income . . . . . . . 7,989 (79) 14,014 (359) -- 21,565
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes and
minority
interest. . . . (52,624) 78 19,556 44,264 (46,219) (34,945)
Net provision (benefit)
for income taxes . . (10,824) 22 (1,752) 19,349 -- 6,795
Minority interests
in earnings of
subsidiaries . . . . -- -- -- 60 -- 60
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (41,800) 56 21,308 24,855 (46,219) (41,800)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Three Months Ended September 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 . . . . . . . $ -- -- 82,950 111,222 -- 194,172
Equity earnings (loss)
from subsidiaries. . (11,995) -- 16,426 -- (4,431) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (11,995) -- 99,376 111,222 (4,431) 194,172
Operating expenses
before merger related
non-recurring charges 2,079 -- 98,239 81,104 -- 181,422
Merger related non-
recurring charges. . 1,785 -- 21,742 2,215 -- 25,742
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (15,859) -- (20,605) 27,903 (4,431) (12,992)
Interest expense,
net of interest
income . . . . . . . 1,650 -- 3,260 57 -- 4,967
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes. . (17,509) -- (23,865) 27,846 (4,431) (17,959)
Net provision (benefit)
for income taxes . . (572) -- (11,870) 11,420 -- (1,022)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (16,937) -- (11,995) 16,426 (4,431) (16,937)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
For the Nine Months Ended September 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 . . . . . . . $ -- -- 214,733 260,004 -- 474,737
Equity earnings (loss)
from subsidiaries. . (22,359) -- 24,833 -- (2,474) --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue . . (22,359) -- 239,566 260,004 (2,474) 474,737
Operating expenses
before merger related
non-recurring charges 8,557 -- 254,411 214,184 -- 477,152
Merger related non-
recurring charges. . 82,383 -- 28,359 4,630 -- 115,372
---------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss). . . . . (113,299) -- (43,204) 41,190 (2,474) (117,787)
Interest expense,
net of interest
income . . . . . . . 1,829 -- 10,579 (96) -- 12,312
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss)
before provision
(benefit) for
income taxes. . (115,128) -- (53,783) 41,286 (2,474) (130,099)
Net provision (benefit)
for income taxes . . (5,072) -- (31,424) 16,453 -- (20,043)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) . $ (110,056) -- (22,359) 24,833 (2,474) (110,056)
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 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 Incorporated
------------ ----------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities. . . . . . . . . . $ 9,863 3,788 6,285 15,543 35,479
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . . . . . (1,259) -- (16,214) (13,333) (30,806)
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 -- -- (12,410) (638) (13,048)
Subsidiary activity . . . . . . . . . . 309,699 (302,465) 9,410 (16,644) --
Investments in real estate ventures . . -- -- 909 11,234 12,143
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . 308,440 (302,465) (18,305) (19,381) (31,711)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit facility. . (316,214) 146,493 8,447 (1,326) (162,600)
Net proceeds from issuance of the Euro
Notes . . . . . . . . . . . . . . . . (2,856) 152,310 -- -- 149,454
Common stock issued under stock option
plan and stock purchase programs. . . 3,537 -- -- -- 3,537
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . (315,533) 298,803 8,447 (1,326) (9,609)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . 2,770 126 (3,573) (5,164) (5,841)
Cash and cash equivalents,
beginning of period . . . . . . . . . . (615) -- 1,027 22,896 23,308
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period. $ 2,155 126 (2,546) 17,732 17,467
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
JONES LANG LASALLE INCORPORATED
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 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 Incorporated
------------ ----------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities . . . . . . . . . . $ (14,483) -- (88,533) 38,088 (64,928)
Cash flows provided by (used in)
investing activities:
Net capital additions -
property and equipment. . . . . . . . (34) -- (22,261) (1,346) (23,641)
Cash balances assumed in Jones Lang
Wootton merger, net of cash paid
and transaction cost. . . . . . . . . -- -- (8,297) (29,078) (37,375)
Other acquisitions and investments, net
of cash acquired and transaction costs -- -- (1,000) (2,003) (3,003)
Subsidiary activity . . . . . . . . . . (113,282) -- 114,856 (1,574) --
Investments in real estate ventures . . -- -- 11,448 4,644 16,092
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . (113,316) -- 94,746 (29,357) (47,927)
Cash flows provided by (used in)
financing activities:
Net borrowings under credit facility. . 121,537 -- (6,658) (498) 114,381
Common stock issued under stock option
plan and stock purchase programs. . . 3,126 -- -- -- 3,126
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities. . . . . . . 124,663 -- (6,658) (498) 117,507
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . (3,136) -- (445) 8,233 4,652
Cash and cash equivalents,
beginning of period . . . . . . . . . . 1,703 -- 2,160 13,078 16,941
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period. $ (1,433) -- 1,715 21,311 21,593
========== ========== ========== ========== ==========
</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 nine
months ended September 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 Form 8-K filed August 11, 2000.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1999
Operating results in 1999 include the results of JLW effective
March 1, 1999, therefore results for the nine months ended September 30,
1999 include only seven months of results for the former JLW operations.
REVENUE
Total revenue, after elimination of intersegment revenue, increased
$30.4 million, or 15.7%, to $224.6 million for the three months ended
September 30, 2000 from $194.2 million for the three months ended
September 30, 1999. For the nine months ended September 30, 2000 revenues
increased $162.6 million, or 34.3%, to $637.3 million from $474.7 million
for the nine months ended September 30, 1999. A primary driver in the
increase in the nine months ended September 30, 2000 was the inclusion of
an additional two months of revenue for the former JLW operations compared
to the nine months ended September 30, 1999 due to the timing of the JLW
merger. For both the three months and nine months ended September 30,
2000, the Europe region of Owner and Occupier Services benefitted from
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 $11.4
million for the nine months ended September 30, 2000 when compared to the
prior year period 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. Revenues in
the third quarter also include performance-related fees of $7.4 million
from the Oregon Public Employees' Retirement Fund (OPERF) account following
the Company's resignation from this business. The increase in revenues for
the three and nine months ended September 30, 2000 were somewhat reduced in
US Dollar terms due to the decline over these periods in key currencies in
which Jones Lang LaSalle operates, primarily the Euro, Pound Sterling and
Australian Dollar.
OPERATING EXPENSES
Total operating expenses, after elimination of intersegment expenses
and excluding the effect of merger related non-recurring charges, increased
$14.6 million, or 8.0%, to $196.0 million for the three months ended
September 30, 2000 as compared with $181.4 million for the three months
ended September 30, 1999. For the nine months ended September 30, 2000
operating expenses increased $118.1 million, or 24.7%, to $595.3 million
from $477.2 million for the nine months ended September 30, 1999. The
increase for the nine month period was primarily due to the timing of the
JLW merger, resulting in there being only seven months of the former JLW
operations in 1999. 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
<PAGE>
expenses resulting from the continued success in the implementation of cost
savings initiatives in the Americas region of the Owner and Occupier
Services segment. The increase in operating expenses were also offset by
the decline in key currencies in which Jones Lang LaSalle operates,
primarily the Euro, Pound Sterling and Australian Dollar. A change in
Jones Lang LaSalle's method of estimating and allocating bonus incentive
compensation to interim periods has caused operating expenses to be lower
by $10.3 and $19.0 million for the three and nine months ended September
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.
Merger related non-recurring charges totaled $18.2 million and $55.4
million for the three and nine months ended September 30, 2000,
respectively, compared to $25.7 million and $115.4 million for the three
and nine months ended September 30, 1999, respectively. For both 2000 and
1999, these charges include primarily 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 $10.8 million and $33.0 million of non-recurring transition
and integration costs for the three and nine months ended September 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, the performance-related fees from
the OPERF account resignation 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 third quarter. However, we
still believe we will have significantly higher profitability in the fourth
quarter than in the other quarters. Consistent with this, our operating
income for the three and nine months ended September 30, 2000, excluding
the effect of merger related non-recurring charges, totaled $28.6 million
and $42.0 million, respectively, as compared to operating income of $12.8
for the three months ended September 30, 1999 and operating losses of $2.4
million for the nine months ended September 30, 1999. This improvement
over the prior year periods is primarily due to the gain on sale and
performance-related fee from the liquidation of the French investment fund,
the performance-related fees from the OPERF account resignation, 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 September 30, 2000 totaled
$10.4 million compared to a loss of $13.0 million for the three months
ended September 30, 1999. The operating loss for the nine months ended
September 30, 2000 totaled $13.4 million compared to a loss of $117.8
million for the nine months ended September 30, 1999.
<PAGE>
PERFORMANCE OUTLOOK
The Management Plan originally prepared by Jones Lang LaSalle for the
year 2000 anticipated a 30 percent growth in net earnings per share before
merger related non-recurring charges. In developing this plan, certain
assumptions were made about the expected average prevailing currency
exchange rates for 2000. In particular, the exchange rates for the Pound
Sterling, Euro and Australian Dollar for 2000 were assumed to be $1.62,
$1.04 and $0.64, respectively. In establishing these rates, management
based their estimates on the current trading range at that point in time as
well as the consensus viewpoint of financial institutions. Through the
first nine months of 2000, these currencies have been significantly weaker
than expected versus the US Dollar such that at September 30, 2000 they
were trading at between eight and sixteen percent below the assumed
exchange rates. This has reduced both revenues and expenses when compared
to the Management Plan exchange rates. The year to date reported after tax
earnings have been reduced by $2.0 million, of which $0.6 million was the
impact on the third quarter. This adverse impact on the year to date
earnings has been offset by the better than expected performance of the
Europe Owner and Occupier Services and LaSalle Investment Management
businesses. For the fourth quarter, the Company expects that the continued
strength of the US Dollar together with weakness in the Asia Pacific Owner
and Occupier Services business will continue to negatively impact the
healthy performance of the Europe Owner and Occupier Services business
relative to the original Management Plan. As a result, Jones Lang LaSalle
currently expects growth of at least 25 percent in net earnings per share
before merger related non-recurring charges over 1999, exclusive of the
possible impact of Staff Accounting Bulletin No. 101 which is discussed in
the Other Matters section below.
SEGMENT OPERATING RESULTS
See Note 3 in Notes to Consolidated Financial Statements, included
herein, for a discussion of Jones Lang LaSalle's segment reporting.
OWNER AND OCCUPIER SERVICES
AMERICAS
Revenue for the Americas region increased $6.8 million, or 9.2%, to
$80.8 million for the three months ended September 30, 2000, as compared to
$74.0 million for the three months ended September 30, 1999. The revenue
growth was 13.8% to $196.6 million for the nine months ending September 30,
2000, compared to $172.7 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.
In July 2000, Jones Lang LaSalle exercised its option to repurchase
LPI Service Corporation, effective January 1, 2000. Pursuant to the
agreement, the Americas results for the three and nine months ended
September 30, 2000 include the results of operations of LPI Service
Corporation for the nine months ended September 30, 2000. Approximately
$4.0 million of revenues related to LPI Service Corporation are included in
the Americas revenue for the three and nine months ended September 30,
2000.
<PAGE>
Operating expenses for the Americas region increased by $4.1 million
to $71.1 million for the three months ended September 30, 2000 from $67.0
million for the three months ended September 30, 1999. Operating expenses
increased $3.7 million to $198.3 million for the nine months ended
September 30, 2000, from $194.6 million for the same period in 1999. 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. As
discussed above, the Americas results include for the first time the
operations of the recently acquired LPI Service Corporation for the nine
months ended September 20, 2000. For the three and nine months ended
September 30, 2000, the Americas region has included $2.0 million in
operating expenses related to the operations of LPI Service Corporation.
The increased costs in the Americas region 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 through early 2000.
EUROPE
Revenue for the Europe region totaled $79.4 million for the three
months ended September 30, 2000, as compared to $67.8 million for the three
months ended September 30, 1999, an increase of 17.1%. This increase is
due primarily to continued strong activity in the UK, Germany and France in
the current period. The revenue of the Europe region for the nine months
ended September 30, 2000 was $251.1 million, as compared to $163.6 million
for the nine months ended September 30, 1999. This increase was a result
of the strong broad based business activity, together with the timing of
the JLW merger. Also, 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 effect of a strong
transaction flow was partially offset by a weakening of the Euro and the
British Pound against the US dollar in both the three and nine month
periods ended September 30, 2000, as compared to the prior year period.
Operating expenses for the region were $67.5 million for the three
months ended September 30, 2000, as compared to $67.6 million for the three
months ended September 30, 1999. For the nine months ended September 30,
2000, operating expenses increased $75.2 million to $227.2 million from
$152.0 million. The increase in the nine month period is in part due to
the timing of the JLW merger, and the associated amortization of goodwill.
In addition, the year-to-date increase 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. Incentive compensation was also increased by the strong
performance of the region. These increased costs were somewhat offset by
the weakening of the Euro and British Pound discussed above.
ASIA PACIFIC
Revenue for the Asia Pacific region totaled $31.6 million and $95.4
million for the three and nine months ended September 30, 2000,
respectively. This compares to $31.7 million and $74.8 million for the
three and nine months ended September 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. Australia, a key market in the Asia Pacific
region saw a slow down in activity in the third quarter as the introduction
<PAGE>
of a Goods and Services Tax ("GST") effective July 1, 2000, pulled
transactions into the first half of the year that otherwise would have
taken place later in the year. Transaction activity was also reduced as a
result of the Summer Olympics taking place in Australia during the third
quarter. The continued weakening of the Australian currency relative to
the US Dollar has also contributed to a lower reported US Dollar revenue
number. The impact of the declining exchange rate has been to reduce
revenues by $1.7 million and $3.6 million for the three and nine month
periods, respectively, when compared to the rates in effect during the same
periods last year. Despite these factors Australasia has 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 expanded operations in Japan and
India.
Operating expenses for Asia Pacific totaled $33.4 million for the
three months ended September 30, 2000, as compared to $28.2 million for the
three months ended September 30, 1999. For the nine months ended
September 30, 2000, operating expenses were $98.1 million as compared to
$71.6 million for the comparable period in 1999. The increase in the nine
month period is primarily a result of the timing of the JLW merger, and the
associated amortization of goodwill. 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 Australian business also
incurred costs in the second quarter associated with preparing the business
for the introduction of GST. Operating expenses for the Asia Pacific
region have also increased due to the implementation of a new
infrastructure to support the long-term growth potential for this region.
These increases were partially offset by the change in the method of
estimating and allocating bonus incentive compensation to interim periods
discussed above. Additionally, the weakening of the Australian Dollar,
discussed above, has reduced operating expenses by $1.8 million and $3.6
million for the three and nine months ended September 30, 2000,
respectively.
HOTEL SERVICES
Hotel Services had total revenue of $2.8 million for the three months
ended September 30, 2000, as compared to $3.7 million for the three months
ended September 30, 1999 a decrease of 24.3%. This decrease is
attributable to the timing of transactions that are now expected to close
in the fourth quarter. Revenues increased from $7.8 million for the nine
months ended September 30, 1999 to $10.5 million for the nine months ended
September 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 in the first six months of 2000. 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 remained flat at $3.2 million for
the three months ended September 30, 2000 and 1999. For the nine months
ended September 30, 2000, operating expenses were $10.5 million which was a
$2.7 million increase on the prior year period when expenses were $7.8
million. These expenses mainly represent personnel costs and office
occupancy costs. The increase is primarily related to the timing of the
merger with JLW.
<PAGE>
INVESTMENT MANAGEMENT
Investment Management revenue increased $11.9 million, or 64.0%, to
$30.5 million for the three months ended September 30, 2000 from $18.6
million for the three months ended September 30, 1999. For the nine months
ended September 30, 2000, Investment Management revenue increased $26.8
million, or 46.4%, to $84.5 million from $57.7 million for the nine months
ended September 30, 1999. The increase for the nine months ended
September 30, 2000, 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. Revenue for the
three months ended September 30, 2000 include performance-related fees of
$7.4 million from the OPERF account following the Company's resignation
from this business. There have also been increased advisory fees and
equity earnings from growth in funds launched during the fourth quarter of
1999.
Operating expenses increased $4.2 million, or 24.7%, to $21.2 million
for the three months ended September 30, 2000, as compared with $17.0
million for the three months ended September 30, 1999. For the nine months
ended September 30, 2000, operating expenses increased $9.0 million, or
17.0%, to $61.9 million from $52.9 million for the nine months ended
September 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.
INTEREST EXPENSE
Interest expense, net of interest income, increased $3.2 million to
$8.2 million for the three months ended September 30, 2000, and $9.3
million to $21.6 million for the nine months ended September 30, 2000 from
the prior year periods. This increase is a result of the higher average
level of borrowings outstanding on the credit facilities, higher interest
rates and increased borrowing spreads for both periods as compared to the
prior year. The larger outstanding borrowings were driven by higher
working capital needs, primarily for the payment of bonuses during the
first quarter of 2000, and the payment of integration and transition
expenses related to the JLW merger. The effective interest rate on
outstanding debt was 8.8% and 8.4% for the three and nine months ended
September 30, 2000, respectively, as compared to 6.2% and 6.0% for the
three and nine months ended September 30, 1999, respectively. 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,
generally increasing interest rates and borrowing spreads.
On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a
wholly-owned subsidiary of Jones Lang LaSalle, issued 9%
Senior Notes with an aggregate principal amount of Euro 165 million, due
2007 (the "Euro Notes"). The fixed interest rate of 9% through 2007 will
serve, in part, to stabilize interest expense.
PROVISION FOR INCOME TAXES
The provision for income taxes was $7.4 million for the three months
ended September 30, 2000 as compared to a benefit of $1.0 million for the
three months ended September 30, 1999. The provision for income taxes was
$6.8 million for the nine months ended September 30, 2000 as compared to a
benefit of $20.0 million for the nine months ended September 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 connec-
tion with the merger. This compensation expense is largely nondeductible
<PAGE>
for tax purposes. Excluding the impact of merger related non-recurring
charges, the effective tax rate on recurring operations was 38.0% for the
three and nine months ended September 30, 2000 and 1999.
NET INCOME/LOSS
Net income, excluding the effect of merger related non-recurring
charges, was $12.6 million for the three months ended September 30, 2000 as
compared to net income of $4.8 million for the three months ended
September 30, 1999, an increase of $7.8 million. For the nine months
ending September 30, 2000, net income excluding the effect of merger
related non-recurring charges was $12.6 million as compared to a net loss
of $9.1 million in the prior year.
Including the effect of the merger related non-recurring charges, the
net loss for the three and nine months ended September 30, 2000 was $5.3
million and $41.8 million, respectively. This compares to net losses of
$16.9 million and $110.1 million for the three and nine months ended
September 30, 1999, respectively.
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. During the first half of 2000, 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. This was
comprised of a $250.0 million revolving facility maturing in October 2002
and a $175.0 million term facility, which was scheduled to mature on
October 15, 2000. On July 26, 2000, Jones Lang LaSalle closed its offering
of the Euro Notes, receiving net proceeds of $149.5 million which were used
to paydown the term facility. On August 29, 2000, the remaining borrowings
under the term facility were fully repaid using proceeds from the revolving
credit facility and the term facility was terminated.
As of September 30, 2000, Jones Lang LaSalle had $250 million
available under the revolving credit facility for working capital needs,
investments and acquisitions, Jones Lang LaSalle also had the Euro Notes of
Euro 165 million and the ability to borrow up to $50 million under local
overdraft facilities. As of September 30, 2000 there was $145.7 million
outstanding under the revolving credit facility, Euro 165 million, which
equated to $146.4 US dollars, of borrowings under the Euro Notes, and
short-term borrowings of $13.3 million.
The revolving credit facility and the Euro Notes (the "Facilities")
are guaranteed by certain of Jones Lang LaSalle's subsidiaries. With
respect to the revolving credit facility, 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 and disposing of a
significant portion of its assets. Lender approval is required for certain
levels of co-investment. The revolving credit facility bears 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 8.4% for
the nine months ended September 30, 2000, including the effect of interest
rate swap agreements. As of September 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 of
subsidiaries in Europe and Asia Pacific. The aggregate amount available
under these facilities is approximately $34.9 million, of which $7.2
million was outstanding as of September 30, 2000.
<PAGE>
Management believes that the revolving credit facility, together with
the Euro Notes, local borrowing facilities and cash flow generated from
operations, will provide adequate liquidity and financial flexibility to
meet working capital requirements.
During the nine months ended September 30, 2000, cash flows provided
by operating activities totaled $35.5 million compared to cash flows used
of $64.9 million for the nine months ended September 30, 1999. The source
of cash is primarily the result of the significant improvement in the cash
operating earnings of the business and improved working capital management.
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 $21.0 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
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. Significant equity earnings have been recorded in 2000
relating to the disposition of the French investment fund of which $10.4
million was recognized in the nine months ended September 30, 2000 with
$0.7 million of this being recognized in the third quarter. As of
September 30, 2000, there were total investments of $71.4 million in 29
separate property or fund co-investments with additional capital
commitments of $21.0 million for future fundings of co-investments.
Capital expenditures are anticipated to be approximately $40.0 million
for 2000, of which $30.8 million was spent in the nine months ended
September 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 $31.7 million for the nine
months ended September 30, 2000 compared with $47.9 million for the nine
months ended September 30, 1999. The decreased use of cash is primarily
attributable to the net cash paid in connection with the JLW merger in the
first nine months of 1999 of $37.4 million and the distributions from the
French property co-investment in the first nine months of the current year.
This is partially offset by the increased capital needs since the merger
with JLW for upgrades and improvements to information systems and computer
hardware and by investments in E-Commerce initiatives of $12.4 million
during the nine months ended September 30, 2000.
<PAGE>
Net cash used in financing activities of $9.6 million for the nine
months ended September 30, 2000 was comprised primarily of repayments of
borrowings under credit facilities, net of proceeds from borrowings under
credit facilities and issuance of the Notes, of $13.1 million. Repayments
of borrowings under the credit facility were funded by cash flows from
operations. Cash flows provided by financing activities of $117.5 million
for the nine months ended September 30, 1999 were primarily composed of
borrowings under credit facilities, net of repayments, of $114.4 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
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.
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,
<PAGE>
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 sought to provide increased interpretive guidance. In
late October of 2000, the SEC issued additional interpretive guidance.
Until Jones Lang LaSalle has thoroughly reviewed this new guidance, it
believes that it is prudent to delay implementation while it determines how
it should be applied. Therefore, SAB 101 will be adopted by Jones Lang
LaSalle in the fourth quarter of 2000.
Jones Lang LaSalle has reviewed the impact of modifying its revenue
recognition policy in accordance with its original understanding of the
SEC's interpretation of SAB 101. If SAB 101 had been adopted in this
manner in the third 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.
This change in accounting policy will not impact the timing or amount
of 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 net 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. The net reduction of loss of $2.1 million for
the first quarter includes both the recognition of $3.6 million of revenues
which were included as part of the one-time charge and the reversal of $1.5
million of revenues which would not have been recognized in the first
quarter. The impact on the second quarter would have been to increase the
net loss before cumulative change in accounting principle by $1.0 million.
The net increase in losses of $1.0 million for the second quarter includes
both the recognition of $3.2 million of revenues which were included as
part of the one-time charge and the reversal of $4.2 million of revenues
which would not have been recognized in the second quarter. The impact on
the third quarter would have been to increase the net loss before
cumulative change in accounting principle by $1.1 million. The net
increase in losses of $1.1 million for the third quarter includes both the
recognition of $4.1 million of revenues which were included as part of the
one-time charge and the reversal of $5.2 million of revenues which would
not have been recognized in the third quarter. Therefore, the adoption of
SAB 101 as of January 1, 2000 would have had no impact on the net loss
before cumulative change in accounting principle for the nine months ended
September 30, 2000. Although there was no net impact on losses for the
nine months, this net amount includes both the recognition of $10.9 million
of revenues which were included as part of the one-time charge and the
reversal of $10.9 million of revenues which would not have been recognized
during the nine month period.
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 a change in accounting policy related to SAB
101 would 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.
<PAGE>
E-COMMERCE INITIATIVES
Through the first nine 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. On April 26,
2000, Jones Lang LaSalle announced its involvement in a consortium to
develop a property "vortal" (a vertically integrated portal) called
propbuzz.com. Propbuzz.com will be a one-stop complete property resource
portal with a wide range of residential and commercial property listings,
current property transacted prices, premier research information and a
whole host of supporting services in the property transaction chain. 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. Jones Lang LaSalle intends to reduce its interest in SiteStuff
through the introduction of additional partners before year end. We will
continue to seek additional e-commerce opportunities which enhance our
product and service offerings.
All investments in E-Commerce initiatives are accounted for under the
cost method.
Jones Lang LaSalle expects to commit between $20 and $30 million
through 2001 for our e-commerce initiatives, including commitments already
made in connection with the five ventures described above.
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.
<PAGE>
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 September 30,
2000, Jones Lang LaSalle had no interest rate swap agreements outstanding.
Given that the Euro Notes will be a substantial portion of the outstanding
debt and carry 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
September 30, 2000, the outstanding borrowings on the revolving credit
facility were $146.5 million. As of September 30, 2000, the US dollar
equivalent of the Euro Notes was $145.7 million. The revolving credit
facility bears variable rates of interest based on market rates.
The effective interest rate on outstanding debt was 8.8% and 8.4%
for the three and nine months ended September 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 both the three and nine months ended
September 30, 2000 (excluding the effect of merger related non-recurring
stock compensation expense) Jones Lang LaSalle reported net income of $12.6
million. For the three months ended September 30, 2000, net income of $7.6
million was attributable to operations having U.S. dollars as their
functional currency and $5.0 million was attributable to operations having
other functional currencies. For the nine months ended September 30, 2000,
net losses of $4.9 million were attributable to operations having U.S.
dollars as their functional currency and net income of $17.5 million 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. As a means of hedging
intercompany financing, at September 30, 2000, Jones Lang LaSalle had
forward exchange contracts in effect with a notional value of approximately
$63.0 million with a market value and carrying value of $0.2 million.
Jones Lang LaSalle does not enter into forward foreign currency exchange
contracts for trading or speculative purposes.
<PAGE>
DISCLOSURE OF LIMITATIONS
As the information presented above includes only those exposures that
exist as of September 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.
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 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 this Quarterly Report on Form 10-Q in
Item 2 "Management's Discussion and Analysis of Financial Condition and
Results of Operations", Item 3 "Quantitative and Qualitative Disclosure
about Market Risk" and elsewhere, and in other reports filed with the
Securities and Exchange Commission. Jones Lang LaSalle expressly disclaims
any obligation or undertaking to update or revise any forward-looking
statements to reflect any changes in events or circumstances or in its
expectations or results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A list of exhibits is set forth in the Exhibit Index which
immediately precedes the exhibits and which is incorporated by reference
herein.
(b) Reports on Form 8-K
None.
<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: November 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
------- -----------
27.1 Financial Data Schedule.
99 Press release issued by Jones Lang LaSalle
on October 31, 2000.
