UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission file number 1-13145 JONES LANG LASALLE INCORPORATED ----------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 36-4150422 ------------------------- --------------------------------- (State or other jurisdic- (IRS Employer Identification No.) tion of incorporation or organization) 200 East Randolph Drive, Chicago, IL 60601 - --------------------------------------- ---------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312/782-5800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class August 10, 2001 ----- --------------- Common Stock ($0.01 par value) 30,077,685
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. . . . . . . . 30 Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . 38 PART II OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 39 Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . . . . . . . . . . . 39 Item 5. Other Matters. . . . . . . . . . . . . . . . . . . 40 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 40
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JONES LANG LASALLE INCORPORATED CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (in thousands, except share data) (UNAUDITED) JUNE 30, DECEMBER 31, 2001 2000 --------- ----------- ASSETS - ------ Current assets: Cash and cash equivalents . . . . . . . $ 10,075 18,843 Trade receivables, net of allowances of $9,164 and $9,261 in 2001 and 2000, respectively. . . . . . . . . . 185,751 244,201 Notes receivable and advances to real estate ventures. . . . . . . . . 2,557 4,286 Other receivables . . . . . . . . . . . 10,414 6,655 Income tax refund receivable. . . . . . -- 976 Prepaid expenses. . . . . . . . . . . . 11,031 10,811 Deferred tax assets . . . . . . . . . . 24,216 23,959 Other assets. . . . . . . . . . . . . . 22,292 11,330 ---------- --------- Total current assets. . . . . . 266,336 321,061 Property and equipment, at cost, less accumulated depreciation of $88,533 and $76,427 in 2001 and 2000, respectively. . . . . . . . . . . . . . 89,493 90,306 Intangibles resulting from business acquisitions and JLW merger, net of accumulated amortization of $50,266 and $43,028 in 2001 and 2000, respectively. . . . . . . . . . . . . . 335,738 350,129 Investments in real estate ventures . . . 53,229 74,565 Other investments . . . . . . . . . . . . 13,864 12,884 Long-term receivables, net. . . . . . . . 20,928 23,136 Prepaid pension asset . . . . . . . . . . 15,598 18,730 Deferred tax assets . . . . . . . . . . . 9,068 12,317 Debt issuance costs . . . . . . . . . . . 4,184 4,848 Other assets, net . . . . . . . . . . . . 5,991 6,069 --------- ---------- $ 814,429 914,045 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable and accrued liabilities $ 84,701 111,738 Accrued compensation. . . . . . . . . . 56,066 170,323 Short-term borrowings . . . . . . . . . 8,954 8,836 Deferred tax liabilities. . . . . . . . 125 226 Other liabilities . . . . . . . . . . . 21,168 16,583 --------- ---------- Total current liabilities . . . 171,014 307,706 Long-term liabilities: Credit facilities . . . . . . . . . . . 155,621 85,565 Notes . . . . . . . . . . . . . . . . . 140,085 155,546 Deferred tax liabilities. . . . . . . . 5,670 9,547 Other . . . . . . . . . . . . . . . . . 22,169 22,776 --------- ---------- Total liabilities . . . . . . . 494,559 581,140 Commitments and contingencies
JONES LANG LASALLE INCORPORATED CONSOLIDATED BALANCE SHEETS - CONTINUED JUNE 30, 2001 AND DECEMBER 31, 2000 (in thousands, except share data) (UNAUDITED) JUNE 30, DECEMBER 31, 2001 2000 --------- ----------- Minority interest in consolidated subsidiaries. . . . . . . . . . . . . . 1,062 567 Stockholders' equity: Common stock, $.01 par value per share, 100,000,000 shares authorized; 29,876,385 and 30,700,150 shares issued and outstanding as of June 30, 2001 and December 31, 2000, respectively. . . . . . . . . . . . . 299 307 Additional paid-in capital. . . . . . . 455,806 461,272 Deferred stock compensation . . . . . . (3,527) (4,322) Retained deficit. . . . . . . . . . . . (112,578) (107,110) Stock held in trust . . . . . . . . . . (1,099) (397) Accumulated other comprehensive loss. . (20,093) (17,412) --------- ---------- Total stockholders' equity. . . 318,808 332,338 --------- ---------- $ 814,429 914,045 ========= ========== See accompanying notes to consolidated financial statements.
<table> JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (in thousands, except share data) (UNAUDITED) <caption> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <s> <c> <c> <c> <c> Revenue: Fee based services. . . . . . . . . . . . $ 196,202 213,873 389,950 396,903 Equity in earnings from unconsolidated ventures . . . . . . . . 1,341 8,747 3,857 14,687 Other income. . . . . . . . . . . . . . . 1,038 698 1,883 1,315 ---------- ---------- ---------- ---------- Total revenue . . . . . . . . . . . 198,581 223,318 395,690 412,905 Operating expenses: Compensation and benefits . . . . . . . . 129,219 142,536 263,696 272,773 Operating, administrative and other . . . 53,478 52,552 105,708 103,364 Depreciation and amortization . . . . . . 12,091 10,797 23,422 21,491 Merger related non-recurring stock compensation expense. . . . . . . . . . -- 18,865 -- 37,191 ---------- ---------- ---------- ---------- Total operating expenses. . . . . . 194,788 224,750 392,826 434,819 Operating income (loss) . . . . . . 3,793 (1,432) 2,864 (21,914) Interest expense, net of interest income. . 5,981 6,664 10,827 13,339 ---------- ---------- ---------- ---------- Loss before provision (benefit) for income taxes and minority interest (2,188) (8,096) (7,963) (35,253) Net provision (benefit) for income taxes. . (831) 4,281 (3,026) 73 Minority interest in earnings (losses) of subsidiaries . . . . . . . . . . . . . 565 15 531 (12) ---------- ---------- ---------- ---------- Net loss before cumulative effect of change in accounting principle (1,922) (12,392) (5,468) (35,314) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . -- -- -- (14,249) ---------- ---------- ---------- ---------- Net loss. . . . . . . . . . . . . . . . . . $ (1,922) (12,392) (5,468) (49,563) ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME - CONTINUED THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (in thousands, except share data) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments . . . . . . . . . . . . . . $ 3,206 (6,043) (2,681) (11,153) ---------- ---------- ---------- ---------- Comprehensive income (loss) . . . . . . . . $ 1,284 (18,435) (8,149) (60,716) ========== ========== ========== ========== Basic loss per common share before cumulative effect of change in accounting principle. $ (0.06) (0.50) (0.18) (1.44) Cumulative effect of change in accounting principle. . . . . . . . . . . -- -- -- (0.58) ---------- ---------- ---------- ---------- Basic loss per common share . . . . . . . . $ (0.06) (0.50) (0.18) (2.02) ========== ========== ========== ========== Basic weighted average shares outstanding. . . . . . . . . . . . 29,775,259 24,559,305 29,946,909 24,472,122 ========== ========== ========== ========== Diluted loss per common share before cumulative effect of change in accounting principle. $ (0.06) (0.50) (0.18) (1.44) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . -- -- -- (0.58) ---------- ---------- ---------- ---------- Diluted loss per common share . . . . . . . $ (0.06) (0.50) (0.18) (2.02) ========== ========== ========== ========== Diluted weighted average shares outstanding. . . . . . . . . . . . 29,775,259 24,559,305 29,946,909 24,472,122 ========== ========== ========== ========== <fn> See accompanying notes to consolidated financial statements. </table>
<table> JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2001 (in thousands, except share data) (UNAUDITED) <caption> Accumu- lated Other Additi- Deferred Compre- Common Stock tional Stock Retained Shares hensive ------------------- Paid-In Compen- Earnings Held in Income Shares Amount Capital sation (Deficit) Trust (Loss) Total ---------- ------ -------- -------- --------- -------- ------- ------- <s> <c> <c> <c> <c> <c> <c> <c> <c> Balances at December 31, 2000 . . . . . . 30,700,150 $307 461,272 (4,322) (107,110) (397) (17,412) 332,338 Net loss. . . . . -- -- -- -- (5,468) -- -- (5,468) Shares issued in connection with: Stock option plan . . . . . 1,667 -- 20 -- -- -- -- 20 Other stock option plan adjustments. . (461,249) (5) 5 -- -- -- -- -- Amortization of shares issued in connection with stock option plan. . -- -- -- 795 -- -- -- 795 Stock purchase programs . . . 109,779 1 1,447 -- -- -- -- 1,448 Shares held in trust . . . . -- -- -- -- -- (1,000) -- (1,000) Distribution of shares held in trust. . . . . . -- -- -- -- -- 298 -- 298
JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED Accumu- lated Other Additi- Deferred Compre- Common Stock tional Stock Retained Shares hensive ------------------- Paid-In Compen- Earnings Held in Income Shares Amount Capital sation (Deficit) Trust (Loss) Total ---------- ------ -------- -------- --------- -------- ------- ------- Shares repurchased under share repurchase program. . . . . (473,962) (4) (6,938) -- -- -- -- (6,942) Cumulative effect of foreign currency translation adjustments. . . -- -- -- -- -- -- (2,681) (2,681) ---------- ---- ------- -------- -------- -------- -------- ------- Balances at June 30, 2001 . 29,876,385 $299 455,806 (3,527) (112,578) (1,099) (20,093) 318,808 ========== ==== ======= ======== ======== ======== ======== ======= <fn> See accompanying notes to consolidated financial statements. </table>
JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (in thousands, unless otherwise noted) (UNAUDITED) 2001 2000 ---------- ---------- Cash flows used in operating activities: Cash flows from earnings: Net loss. . . . . . . . . . . . . . . . $ (5,468) (49,563) Reconciliation of net loss to net cash provided by earnings: Cumulative effect of change in accounting principle. . . . . . . . -- 14,249 Depreciation and amortization . . . . 23,422 21,491 Equity in earnings from unconsolidated ventures. . . . . . . . . . . . . . (3,857) (14,687) Operating distributions from real estate ventures . . . . . . . . . . 4,442 12,479 Provision for loss on receivables and other assets. . . . . . . . . . . . 8,478 3,990 Stock compensation expense. . . . . . -- 37,191 Amortization of deferred compensation 3,077 1,912 Amortization of debt issuance costs . 595 -- ---------- ---------- Net cash provided by earnings . . . 30,689 27,062 Cash flows from changes in working capital: Receivables . . . . . . . . . . . . . 54,205 34,307 Prepaid expenses and other assets . . (10,254) (5,893) Deferred tax assets and income tax refund receivable . . . . . . . (10) (3,968) Accounts payable, accrued liabilities and accrued compensation. . . . . . (140,662) (68,865) ---------- ---------- Net cash flows from changes in working capital . . . . . . . . . (96,721) (44,419) ---------- ---------- Net cash used in operating activities. . . . . . . . . . . . (66,032) (17,357) Cash flows used in investing activities: Net capital additions - property and equipment . . . . . . . . . . . . . . (17,657) (19,298) Other acquisitions and investments, net of cash balances assumed. . . . . (2,983) (1,946) Investments in real estate ventures: Capital contributions and advances to real estate ventures. . . . . . . . (3,154) (2,959) Distributions, repayments of advances and sale of investments . . . . . . 19,773 5,201 ---------- ---------- Net cash used in investing activities. . . . . . . . . . . (4,021) (19,002)
JONES LANG LASALLE INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (in thousands, unless otherwise noted) (UNAUDITED) 2001 2000 ---------- ---------- Cash flows provided by financing activities: Proceeds from borrowings under credit facilities. . . . . . . . . . . . . . . 228,109 169,188 Repayments of borrowings under credit facilities. . . . . . . . . . . . . . . (157,935) (146,479) Shares repurchased for payment of taxes on ESOT distribution. . . . . . . (3,114) -- Shares repurchased under share repurchase program. . . . . . . . . . . (6,942) -- Common stock issued under stock option plan and stock purchase programs. . . . 1,167 3,509 ---------- ---------- Net cash provided by financing activities. . . . . . . 61,285 26,218 ---------- ---------- Net decrease in cash and cash equivalents. . . . . . . . . (8,768) (10,141) Cash and cash equivalents, beginning of period . . . . . . . . . . . 18,843 23,308 ---------- ---------- Cash and cash equivalents, end of period. . $ 10,075 13,167 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest. . . . . . . . . . . . . . . . $ 10,746 12,739 Taxes, net of refunds . . . . . . . . . 16,367 2,115 Non-cash investing and financing activities: Acquisitions, merger and investments: Fair value of assets acquired . . . . $ -- (2) Fair value of liabilities assumed . . -- 4,199 Goodwill. . . . . . . . . . . . . . . -- (4,893) ---------- -------- Cash paid, net of cash balances assumed. . . . . . . . $ -- (696) ========== ======== See accompanying notes to consolidated financial statements.
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, 2000, which are included in Jones Lang LaSalle's 2000 Form 10-K, filed with the Securities and Exchange Commission, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report. (1) ACCOUNTING POLICIES INTERIM INFORMATION The consolidated financial statements as of June 30, 2001 and for the three and six month periods ended June 30, 2001 and 2000 are unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements for these interim periods have been included. The results for the periods ended June 30, 2001 and 2000 are not necessarily indicative of the results to be obtained for the full fiscal year. Certain prior year amounts have been reclassified to conform with the current presentation. EARNINGS PER SHARE The basic and diluted losses per common share were calculated based on basic weighted average shares outstanding of 29.8 million and 29.9 million for the three and six month periods ended June 30, 2001, respectively. For the three and six month periods ended June 30, 2000, basic and diluted losses per common share were calculated based on basic weighted average shares outstanding of 24.6 million and 24.5 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. For the three and six months ending June 30, 2000, these common stock equivalents consist principally of consideration shares issued in connection with the JLW merger that were subject to vesting provisions or were contingently returnable. For the three and six months ended June 30, 2001 and 2000 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.
(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 was accounted for using both APB Opinion No. 16, "Business Combinations" and APB Opinion No. 25, "Accounting for Stock Issued to Employees." See Jones Lang LaSalle's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for a full discussion of this transaction and the related accounting treatment. In relation to the transaction, 4.6 million of the shares issued were subject to forfeiture or vesting provisions and therefore, pursuant to APB Opinion No. 25, were accounted for as deferred compensation with compensation expense recognized over the forfeiture or vesting period. In addition, 1.3 million shares were deemed to be contingently returnable and therefore, were accounted for as a variable stock award plan. Under a variable stock award plan, the amount of compensation expense and value of merger related non-recurring deferred compensation was adjusted at the end of each quarter based on the change in stock price from the previous quarter until the final number of shares was known. As of December 31, 2000, all compensation expense related to the issuance of shares to former employees of JLW has been recognized. Therefore there will be no such expense after December 31, 2000. Compensation expense incurred for the three and six months ended June 30, 2000 related to the amortization of merger related non-recurring deferred compensation totaled $18.9 million and $37.2 million, respectively, net of the quarterly adjustment for the change in stock price. (3) BUSINESS SEGMENTS Jones Lang LaSalle manages its business along a combination of functional and geographic lines. The comparative segment operating results for the three and six months ended June 30, 2000 have been restated to reflect the impact of the adoption of SAB 101 (see Note 6) as of January 1, 2000 and the consolidation of the Hotel Services segment from a separate segment into its respective Owner and Occupier Services segments. Operations are now classified into four business segments: the three geographic regions of Owner and Occupier Services, (i) Americas, (ii) Europe and (iii) Asia Pacific; and (iv) the global business of Investment Management. The Owner and Occupier Services business is operated on a geographic basis and consists primarily of tenant representation and agency leasing, capital markets and valuation services (collectively, "implementation services") and property management, corporate property services, development services and project management services (collectively, "management services"). The Investment Management segment provides real estate investment management services to institutional investors, corporations, and high net worth individuals. Total revenue by business segment includes revenue derived from services provided to other segments. Operating income represents total revenue less direct and indirect allocable expenses. Jones Lang LaSalle allocates all expenses, other than interest and income taxes, as nearly all expenses incurred benefit one or more of the segments. Merger related non- recurring deferred compensation was not allocated to the segments. Summarized unaudited financial information by business segment for the three and six month periods ended June 30, 2001 and 2000 is as follows ($ in thousands):
<table> <caption> SEGMENT OPERATING RESULTS THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------------- ---------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <s> <c> <c> <c> <c> OWNER AND OCCUPIER SERVICES - AMERICAS Revenue: Implementation services . . . . $ 37,229 36,213 61,928 60,583 Management services . . . . . . 35,913 30,728 70,930 59,957 Equity earnings (losses). . . . 335 294 335 (66) Other services. . . . . . . . . 437 187 723 375 Intersegment revenue. . . . . . 550 (17) 710 378 ---------- ---------- ---------- ---------- 74,464 67,405 134,626 121,227 Operating expenses: Compensation, operating and administrative expenses . . . 66,016 58,041 131,258 118,272 Depreciation and amortization . 6,300 5,485 11,990 10,867 ---------- ---------- ---------- ---------- Operating income (loss) . $ 2,148 3,879 (8,622) (7,912) ========== ========== ========== ========== EUROPE Revenue: Implementation services . . . . $ 55,057 69,931 119,552 131,591 Management services . . . . . . 22,872 21,169 45,259 41,367 Other services. . . . . . . . . 249 312 436 549 ---------- ---------- ---------- ---------- 78,178 91,412 165,247 173,507 Operating expenses: Compensation, operating and administrative expenses . . . 70,019 83,393 146,250 157,075 Depreciation and amortization . 3,128 2,854 6,185 5,620 ---------- ---------- ---------- ---------- Operating income. . . . . $ 5,031 5,165 12,812 10,812 ========== ========== ========== ========== ASIA PACIFIC Revenue: Implementation services . . . . $ 16,710 23,174 31,961 43,709 Management services . . . . . . 11,261 10,358 23,350 20,494 Other services. . . . . . . . . 354 193 697 360 ---------- ---------- ---------- ---------- 28,325 33,725 56,008 64,563
SEGMENT OPERATING RESULTS THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------------- ---------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Operating expenses: Compensation, operating and administrative expenses . . . 29,547 33,747 58,349 62,429 Depreciation and amortization . 1,681 1,477 3,275 3,038 ---------- ---------- ---------- ---------- Operating loss. . . . . . $ (2,903) (1,499) (5,616) (904) ========== ========== ========== ========== INVESTMENT MANAGEMENT - Revenue: Implementation services . . . . $ 1,044 1,029 1,839 3,998 Advisory fees . . . . . . . . . 16,095 21,271 35,079 35,204 Equity earnings . . . . . . . . 1,006 8,453 3,522 14,753 Other services. . . . . . . . . 19 6 79 31 ---------- ---------- ---------- ---------- 18,164 30,759 40,519 53,986 Operating expenses: Compensation, operating and administrative expenses . . . 17,665 19,890 34,257 38,739 Depreciation and amortization . 982 981 1,972 1,966 ---------- ---------- ---------- ---------- Operating income (loss) . $ (483) 9,888 4,290 13,281 ========== ========== ========== ========== Total segment revenue . . . . . . . $ 199,131 223,301 396,400 413,283 Intersegment revenue eliminations . (550) 17 (710) (378) ---------- ---------- ---------- ---------- Total revenue . . . . . . $ 198,581 223,318 395,690 412,905 ========== ========== ========== ========== Total segment operating expenses. . $ 195,338 205,868 393,536 398,006 Intersegment operating expense eliminations. . . . . . . . . . . (550) 17 (710) (378) ---------- ---------- ---------- ---------- Total operating expenses before merger related non-recurring charges . $ 194,788 205,885 392,826 397,628 ========== ========== ========== ========== Operating income before merger related non- recurring charges . . . $ 3,793 17,433 2,864 15,277 ========== ========== ========== ========== </table>
(4) SHARE REPURCHASE On February 6, 2001, Jones Lang LaSalle announced that its Board of Directors approved a share repurchase program authorizing purchases of up to $10.0 million. On March 8, 2001, Jones Lang LaSalle repurchased and cancelled 473,962 shares of its own common stock at a price of $14.65 per share, totaling $6.9 million. The Board of Directors of Jones Lang LaSalle has increased the total amount authorized for share repurchase back to $10.0 million. As of June 30, 2001, no further purchases have taken place and, therefore, Jones Lang LaSalle has $10.0 million currently authorized for share repurchases. (5) HIH INSURANCE On March 15, 2001, HIH Insurance Ltd. ("HIH") and its subsidiaries, an Australian insurance group, entered provisional liquidation and was placed in run-off mode. HIH had provided public liability coverage to the Australian operations of JLW for the years from 1994 to 1997, which coverage would typically provide protection against, among other things, personal injury claims arising out of accidents occurring in properties for which Jones Lang LaSalle had property management responsibilities. Under the terms of the policies, Jones Lang LaSalle's deductible on these claims was $0, and therefore HIH had responsibility for "day-to-day" management of claims and potential claims once they had been notified of such claims. Approximately 30 claims have been identified that are in varying stages of litigation. A review is currently underway to determine the exposure to these claims, but the exposure is not expected to exceed $1.5 million. There is one large claim which is very complex with multiple defendants and plaintiffs which Jones Lang LaSalle believes is likely to be covered by another class of insurance. It is also possible that further claims may be made. As a range of probable exposures has not yet been determined by Jones Lang LaSalle, no reserve has been reflected in the financial statements for any exposure related to HIH. It is likely that a "Scheme of Arrangement" will be put in place to deal with outstanding claim payments, and it is unclear at this stage the extent to which claims will be paid. In addition, given the difficult nature of estimating liabilities for this type of insurance company, it is unlikely that there will be sufficient certainty as to allow any claim payments to be paid by HIH for at least twelve months. Jones Lang LaSalle is currently working with its professional advisors to better understand and quantify (1) the claims which remain open and may be made, (2) the ongoing exposures related to these claims, (3) the likelihood that HIH will be able to fund these exposures, and (4) the potential for these claims to be covered by other insurance policies with other insurance companies. In the opinion of management, the ultimate resolution of the HIH situation is not expected to have a material adverse effect on the financial condition or liquidity of Jones Lang LaSalle. (6) IMPLEMENTATION OF SAB 101 Effective January 1, 2000, as a result of the implementation of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), Jones Lang LaSalle recorded a one-time, non-cash, after-tax cumulative effect of change in accounting principle of $14.2 million, net of taxes of $8.7 million. This adjustment represents revenues of $22.9 million that had been recognized prior
to January 1, 2000 that would not have been recognized if the new accounting policy had been in effect in the years prior to 2000. These revenues have been recognized as the underlying contingencies were satisfied. Jones Lang LaSalle recognized $0.2 million and $3.7 million of these revenues in the three and six months ended June 30, 2001, respectively, and $16.2 million of these revenues in the twelve months ended December 31, 2000. The balance of $3.0 million is expected to be recognized over the remainder of 2001 and 2002. The statement of earnings and comprehensive income for the three and six months ended June 30, 2000 have been restated to include the impact of implementing SAB 101 as of January 1, 2000. Excluding the one-time, $14.2 million cumulative effect of change in accounting principle mentioned above, the net impact of this restatement on the three and six months ended June 30, 2000 was an increase in net loss of $0.9 million and a decrease in net loss of $1.2 million, respectively. The increase in net loss for the three months ended June 30, 2000 of $0.9 million consisted of a net deferral of 2000 revenue of $(6.4) million, recognition of revenues of $4.9 million which were deferred as part of the one-time cumulative effect of change in accounting principle and a net tax effect of $0.6 million. The decrease in net loss for the six months ended June 30, 2000 of $1.2 million consisted of a net deferral of 2000 revenue of $(8.8) million, recognition of revenues of $10.7 million which were deferred as part of the one-time cumulative effect of change in accounting principle and a net tax effect of $(0.7) million. (7) DERIVATIVES AND HEDGING ACTIVITIES On January 1, 2001, Jones Lang LaSalle adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments. Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheet and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either stockholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. In the normal course of business, Jones Lang LaSalle uses derivative financial instruments to manage foreign currency risk. At June 30, 2001, Jones Lang LaSalle had forward exchange contracts in effect with a notional value of $64.1 million and a market and carrying loss of $0.5 million. Jones Lang LaSalle has used interest rate swap agreements to limit the impact of changes in interest rates on earnings and cash flows. Jones Lang LaSalle did not enter into any interest rate swap agreements during the second quarter of 2001, and there were no such agreements outstanding as of June 30, 2001. Jones Lang LaSalle requires that hedging derivative instruments be effective in reducing the exposure that they are designated to hedge. This effectiveness is essential to qualify for hedge accounting treatment. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period with changes in unrealized gains or losses recognized currently in earnings.
To determine the fair values of derivative instruments, Jones Lang LaSalle uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments, including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination costs are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may or may not actually be realized. Jones Lang LaSalle uses foreign currency forward contracts as a means of hedging exposure to foreign currency transactions. SFAS 133 requires that unrealized gains and losses on these derivatives be recognized currently in earnings. The gain or loss on the re-measurement of the foreign currency transactions being hedged is also recognized in earnings. The net impact on earnings of Jones Lang LaSalle during the six months ended June 30, 2001 of the unrealized loss on foreign currency contracts, offset by the gain resulting from re-measurement of foreign currency transactions, was not significant. The effect of implementing SFAS 133 did not have a material impact on the consolidated financial statements. (8) ACCOUNTING FOR BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS In July 2001, the FASB issued Statement No. 141, Business Combinations, ("SFAS 141") and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead they will be tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of "SFAS 121". Jones Lang LaSalle is required to adopt the provisions of SFAS 141 immediately, and SFAS 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for permanent impairment. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized until January 1, 2002. In connection with the transitional goodwill impairment evaluation, SFAS 142 will require Jones Lang LaSalle to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this evaluation, Jones Lang LaSalle must determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. Jones Lang LaSalle will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and Jones Lang LaSalle must perform the second step of the transitional impairment test. In the second step, Jones Lang LaSalle must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in Jones Lang LaSalle's statement of earnings. Also, any unamortized negative goodwill existing at the date SFAS 142 is adopted must be credited to the income statement as the cumulative effect of a change in accounting principle. Based on goodwill balances as of June 30, 2001 and projected amortization based on current foreign currency exchange rates, Jones Lang LaSalle will have approximately $328 million of unamortized intangibles as of January 1, 2002, which will be subject to the transition provisions of SFAS 141 and SFAS 142. Approximately $306 million of the projected January 1, 2002 intangibles balance will represent goodwill with an indefinite useful life and will cease to be amortized January 1, 2002. The annual amortization saving in 2002 will be approximately $10 million. Approximately ($1) million of the projected January 1, 2002 intangibles balance will constitute negative goodwill and will be credited to the income statement as the cumulative effect of change in accounting principle. The remaining $23 million of intangibles will be reviewed over the balance of 2001 to determine if any portion should be considered to have indefinite useful lives. Intangibles that do not have indefinite useful lives will be amortized over their remaining definite useful life. Because of the extensive effort needed to comply with adopting SFAS 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on Jones Lang LaSalle's financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. Although Jones Lang LaSalle is currently in the process of evaluating the effects of adoption and thus no assurance of the impact can be given, it currently does not believe that adoption will result in any significant impairment charge against goodwill. And, other than the prospective non-amortization of goodwill, which will result in a non-cash improvement in operating results, Jones Lang LaSalle does not expect the adoption to have a material effect on its revenue, operating results or liquidity.
(9) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS On July 26, 2000, Jones Lang LaSalle Finance B.V. ("JLL Finance"), a wholly-owned subsidiary of Jones Lang LaSalle, issued 9% Senior Notes with an aggregate principal amount of Euro 165 million, due 2007 (the "Euro Notes"). The payment obligations under the Euro Notes are fully and unconditionally guaranteed by Jones Lang LaSalle Incorporated and certain of its wholly-owned subsidiaries: Jones Lang LaSalle Americas, Inc.; LaSalle Investment Management, Inc.; Jones Lang LaSalle International, Inc.; Jones Lang LaSalle Co-Investment, Inc.; and Jones Lang LaSalle Ltd. (the "Guarantor Subsidiaries"). All of Jones Lang LaSalle Incorporated's remaining subsidiaries (the "Non-Guarantor Subsidiaries") are owned by the Guarantor Subsidiaries. The following supplemental Condensed Consolidating Balance Sheets as of June 30, 2001 and December 31, 2000, Condensed Consolidating Statement of Earnings for the three and six months ended June 30, 2001 and 2000, and Condensed Consolidating Statement of Cash Flows for the six months ended June 30, 2001 and 2000 present financial information for (i) Jones Lang LaSalle Incorporated (carrying any investment in subsidiaries under the equity method), (ii) Jones Lang LaSalle Finance B.V. (the issuer of the Euro Notes), (iii) on a combined basis the Guarantor Subsidiaries (carrying any investment in Non-Guarantor subsidiaries under the equity method) and (iv) on a combined basis the Non-Guarantor Subsidiaries (carrying their investment in JLL Finance under the equity method). Separate financial statements of the Guarantor Subsidiaries are not presented because the guarantors are jointly, severally, and unconditionally liable under the guarantees, and Jones Lang LaSalle Incorporated believes that separate financial statements and other disclosures regarding the Guarantor Subsidiaries are not material to investors. In general Jones Lang LaSalle Incorporated has historically 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.
<table> JONES LANG LASALLE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 2001 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> ASSETS - ------ Cash and cash equivalents. . $ 2,908 18 (1,523) 8,672 -- 10,075 Trade receivables, net of allowances . 124 -- 71,250 114,377 -- 185,751 Other current assets. 6,481 -- 33,614 30,415 -- 70,510 ---------- ---------- ---------- ---------- ---------- ---------- Total current assets. . . . . 9,513 18 103,341 153,464 -- 266,336 Property and equipment, at cost, less accumu- lated depreciation . 3,643 -- 48,513 37,337 -- 89,493 Intangibles resulting from business acquisi- tions and JLW merger, net of accumulated amortization . . . . -- -- 240,861 94,877 -- 335,738 Other assets, net . . 8,094 -- 71,016 43,752 -- 122,862 Investments in subsidiaries . . . . 279,033 -- 233,837 517 (513,387) -- ---------- ---------- ---------- ---------- ---------- ---------- $ 300,283 18 697,568 329,947 (513,387) 814,429 ========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 2001 ($ in thousands) Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------- Accounts payable and accrued liabilities $ 10,852 1,104 20,209 52,536 -- 84,701 Short-term borrowings -- -- 3,394 5,560 -- 8,954 Other current liabilities . . . . (30,434) (297,309) 383,994 21,108 -- 77,359 ---------- ---------- ---------- ---------- ---------- ---------- Total current liabilities . . (19,582) (296,205) 407,597 79,204 -- 171,014 Long-term liabilities: Credit facilities . -- 155,621 -- -- -- 155,621 Notes . . . . . . . -- 140,085 -- -- -- 140,085 Other . . . . . . . 1,057 -- 10,938 15,844 -- 27,839 ---------- ---------- ---------- ---------- ---------- ---------- Total liabilities (18,525) (499) 418,535 95,048 -- 494,559 Commitments and contingencies Minority interest in consolidated subsidiaries . . . . -- -- -- 1,062 -- 1,062 Stockholders' equity. 318,808 517 279,033 233,837 (513,387) 318,808 ---------- ---------- ---------- ---------- ---------- ---------- $ 300,283 18 697,568 329,947 (513,387) 814,429 ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2000 ($ in thousands) <caption> Jones Lang Consoli- LaSalle Jones Lang dated Incorporated LaSalle Jones Lang (Parent and Finance Guarantor Non-Guarantor LaSalle Guarantor) B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ---------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> ASSETS - ------ Cash and cash equivalents . . . . $ 3,689 152 (3,665) 18,667 -- 18,843 Trade receivables, net of allowances . 124 -- 98,120 145,957 -- 244,201 Other current assets. 9,285 -- 26,881 21,851 -- 58,017 ---------- ---------- ---------- ---------- ---------- ---------- Total current assets. . . . . 13,098 152 121,336 186,475 -- 321,061 Property and equipment, at cost, less accumu- lated depreciation. 3,093 -- 51,566 35,647 -- 90,306 Intangibles resulting from business acquisi- tions and JLW merger, net of accumulated amortization. . . . -- -- 249,586 100,543 -- 350,129 Other assets, net . . 12,270 -- 74,254 66,025 -- 152,549 Investment in subsidiaries. . . . 278,523 -- 262,888 213 (541,624) -- ---------- ---------- ---------- ---------- ---------- ---------- $ 306,984 152 759,630 388,903 (541,624) 914,045 ========== ========== ========== ========== ========== ==========
JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING BALANCE SHEET - CONTINUED As of December 31, 2000 ($ in thousands) Jones Lang Consoli- LaSalle Jones Lang dated Incorporated LaSalle Jones Lang (Parent and Finance Guarantor Non-Guarantor LaSalle Guarantor) B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ---------- ------------ ------------- ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------- Accounts payable and accrued liabilities $ 19,553 954 29,351 61,880 -- 111,738 Short-term borrowings -- -- 5,174 3,662 -- 8,836 Other current liabilities . . . . (49,618) (242,126) 434,720 44,156 -- 187,132 ---------- ---------- ---------- ---------- ---------- ---------- Total current liabilities . . (30,065) (241,172) 469,245 109,698 -- 307,706 Long-term liabilities: Credit facilities . -- 85,565 -- -- -- 85,565 Notes . . . . . . . -- 155,546 -- -- -- 155,546 Other . . . . . . . 4,711 -- 11,862 15,750 -- 32,323 ---------- ---------- ---------- ---------- ---------- ---------- Total liabilities (25,354) (61) 481,107 125,448 -- 581,140 Commitments and contingencies Minority interest in consolidated subsidiaries. . . . -- -- -- 567 -- 567 Stockholders' equity. 332,338 213 278,523 262,888 (541,624) 332,338 ---------- ---------- ---------- ---------- ---------- ---------- $ 306,984 152 759,630 388,903 (541,624) 914,045 ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF EARNINGS For the Three Months Ended June 30, 2001 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> Revenue . . . . . . . $ 13 -- 93,428 105,140 -- 198,581 Equity earnings (loss) from subsidiaries. . 525 -- 2,800 168 (3,493) -- ---------- ---------- ---------- ---------- ---------- ---------- Total revenue . . 538 -- 96,228 105,308 (3,493) 198,581 Operating expenses. . 4,102 -- 92,670 98,016 -- 194,788 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss). . . . . (3,564) -- 3,558 7,292 (3,493) 3,793 Interest expense, net of interest income . . . . . . . (791) (197) 4,049 2,920 -- 5,981 ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) before provision (benefit) for income taxes and minority interest. . . . (2,773) 197 (491) 4,372 (3,493) (2,188) Net provision (benefit) for income taxes . . (851) 29 (1,016) 1,007 -- (831) Minority interests in earnings of subsidiaries . . . . -- -- -- 565 -- 565 ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) . $ (1,922) 168 525 2,800 (3,493) (1,922) ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF EARNINGS For the Six Months Ended June 30, 2001 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> Revenue . . . . . . . $ 13 -- 188,931 206,746 -- 395,690 Equity earnings (loss) from subsidiaries. . (1,046) -- 2,111 348 (1,413) -- ---------- ---------- ---------- ---------- ---------- ---------- Total revenue . . (1,033) -- 191,042 207,094 (1,413) 395,690 Operating expenses. . 8,500 -- 186,240 198,086 -- 392,826 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss). . . . . (9,533) -- 4,802 9,008 (1,413) 2,864 Interest expense, net of interest income . . . . . . . (1,698) (440) 7,911 5,054 -- 10,827 ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) before provision (benefit) for income taxes and minority interest. . . . (7,835) 440 (3,109) 3,954 (1,413) (7,963) Net provision (benefit) for income taxes . . (2,367) 92 (2,063) 1,312 -- (3,026) Minority interests in earnings of subsidiaries . . . . -- -- -- 531 -- 531 ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) . $ (5,468) 348 (1,046) 2,111 (1,413) (5,468) ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF EARNINGS For the Three Months Ended June 30, 2000 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> Revenue . . . . . . . $ -- -- 104,519 118,799 -- 223,318 Equity earnings (loss) from subsidiaries. . 12,913 -- 6,599 -- (19,512) -- ---------- ---------- ---------- ---------- ---------- ---------- Total revenue . . 12,913 -- 111,118 118,799 (19,512) 223,318 Operating expenses before merger related non-recurring charges 3,117 -- 94,389 108,379 -- 205,885 Merger related non- recurring charges. . 18,522 -- 245 98 -- 18,865 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) . . . . . (8,726) -- 16,484 10,322 (19,512) (1,432) Interest expense, net of interest income . . . . . . . 2,820 -- 3,957 (113) -- 6,664 ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) before provision (benefit) for income taxes and minority interest (11,546) -- 12,527 10,435 (19,512) (8,096) Net provision (benefit) for income taxes . . 846 -- (386) 3,821 -- 4,281 Minority interest in losses of subsidiaries -- -- -- 15 -- 15 ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) before cumulative effect of change in accounting principle (12,392) -- 12,913 6,599 (19,512) (12,392) Cumulative effect of change in accounting principles . . . . . -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) . $ (12,392) -- 12,913 6,599 (19,512) (12,392) ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF EARNINGS For the Six Months Ended June 30, 2000 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Eliminations Incorporated ------------ ----------- ------------ ------------- ------------ ------------ <s> <c> <c> <c> <c> <c> <c> Revenue . . . . . . . $ -- -- 186,461 226,444 -- 412,905 Equity earnings (loss) from subsidiaries. . (6,868) -- 8,768 -- (1,900) -- ---------- ---------- ---------- ---------- ---------- ---------- Total revenue . . (6,868) -- 195,229 226,444 (1,900) 412,905 Operating expenses before merger related non-recurring charges 6,232 -- 185,879 205,517 -- 397,628 Merger related non- recurring charges. . 36,848 -- 245 98 -- 37,191 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) . . . . . (49,948) -- 9,105 20,829 (1,900) (21,914) Interest expense,net of interest income . 5,193 -- 8,156 (10) -- 13,339 ---------- ---------- ---------- ---------- ---------- ---------- Earnings (loss) before provision (benefit) for income taxes and minority interest (55,141) -- 949 20,839 (1,900) (35,253) Net provision (benefit) for income taxes . . (5,578) -- (1,994) 7,645 -- 73 Minority interest in losses of subsidiaries -- -- -- (12) -- (12) ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) before cumulative effect of change in accounting principle (49,563) -- 2,943 13,206 (1,900) (35,314) Cumulative effect of change in accounting principles . . . . . -- -- (9,811) (4,438) -- (14,249) ---------- ---------- ---------- ---------- ---------- ---------- Net earnings (loss) . $ (49,563) -- (6,868) 8,768 (1,900) (49,563) ========== ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2001 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang Jones Lang (Parent and LaSalle Guarantor Non-Guarantor LaSalle Guarantor) Finance B.V. Subsidiaries Subsidiaries Incorporated ------------ ------------ ------------ ------------- ------------ <s> <c> <c> <c> <c> <c> Cash flows provided by (used in) operating activities. . . . . $ (4,194) 498 (35,053) (27,283) (66,032) Cash flows provided by (used in) investing activities: Net capital additions - property and equipment. . . (973) -- (7,064) (9,620) (17,657) Other acquisitions and invest- ments, net of cash acquired and transaction costs . . . -- -- (2,983) -- (2,983) Subsidiary activity . . . . . 13,275 (70,688) 52,482 4,931 -- Investments in real estate ventures. . . . . . . . . . -- -- (3,460) 20,079 16,619 ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities. . . . . . . 12,302 (70,688) 38,975 15,390 (4,021) Cash flows provided by (used in) financing activities: Net borrowings under credit facility. . . . . . . . . . -- 70,056 (1,780) 1,898 70,174 Shares repurchased. . . . . . (10,056) -- -- -- (10,056) Common stock issued under stock option plan . . . . . 1,167 -- -- -- 1,167 ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities. . . . . . . (8,889) 70,056 (1,780) 1,898 61,285 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents. . . . . (781) (134) 2,142 (9,995) (8,768) Cash and cash equivalents, January 1 . . . . . . . . . . 3,689 152 (3,665) 18,667 18,843 ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents, June 30,. . . . . . . . . . . $ 2,908 18 (1,523) 8,672 10,075 ========== ========== ========== ========== ========== </table>
<table> JONES LANG LASALLE INCORPORATED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2000 ($ in thousands) <caption> Jones Lang LaSalle Consolidated Incorporated Jones Lang 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 . . . . . . . . . $ 5,054 -- (13,056) (9,355) (17,357) Cash flows provided by (used in) investing activities: Net capital additions - property and equipment. . . . . . . (455) -- (10,086) (8,757) (19,298) Cash balances assumed in Jones Lang Wootton merger, net of cash paid and transaction cost. . . -- -- -- -- -- Other acquisitions and investments, net of cash acquired and transaction costs . . . . . . . . . -- -- (1,250) (696) (1,946) Subsidiary activity . . . . . . . . . (17,976) -- 13,479 4,497 -- Investments in real estate ventures . -- -- 4,335 (2,093) 2,242 ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities. . . . . . (18,431) -- 6,478 (7,049) (19,002) Cash flows provided by financing activities: Net borrowings under credit facility. 13,269 -- 3,186 6,254 22,709 Common stock issued under stock option plan and stock purchase programs. . . . . . . . . . . . . . 3,509 -- -- -- 3,509 ---------- ---------- ---------- ---------- ---------- Net cash provided by financing activities. . . . . . 16,778 -- 3,186 6,254 26,218 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . 3,401 (3,392) (10,150) (10,141) Cash and cash equivalents, January 1. . (615) -- 1,027 22,896 23,308 ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents, June 30. . . $ 2,786 -- (2,365) 12,746 13,167 ========== ========== ========== ========== ========== </table>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto for the three and six months ended June 30, 2001, included herein, and Jones Lang LaSalle's audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2000 which have been filed with the Securities and Exchange Commission as part of Jones Lang LaSalle's Annual Report on Form 10-K. RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2000 REVENUE Total revenue, after elimination of intersegment revenue, decreased $24.7 million, or 11.1%, to $198.6 million for the three months ended June 30, 2001 from $223.3 million for the three months ended June 30, 2000. For the six months ended June 30, 2001 revenues decreased $17.2 million, or 4.2%, to $395.7 million from $412.9 million for the six months ended June 30, 2000. The decrease in revenue for the quarter and the first six months of 2001 is the result of Jones Lang LaSalle's strong second quarter performance in 2000, the impact of the relative strength during 2001 versus 2000 of the US dollar against the key currencies in which Jones Lang LaSalle operates and the continued slowing in the global economy. During the second quarter of 2000 Jones Lang LaSalle benefited from the confluence of a number of significant fees. These included two large capital markets fees totaling almost $12 million in the Europe region of Owner and Occupier Services, significant performance fees (totaling $4 million) and equity earnings (totaling $6.8 million) in the Investment Management segment, a substantial portion of which occurred earlier in that year than anticipated. The confluence of these fees significantly impacted last year's quarterly results such that the second quarter in 2000 was atypical of our normal seasonal pattern of earnings. Jones Lang LaSalle believes this year has returned to a more normal pattern. In addition, revenue for the three and six months ended June 30, 2001 was adversely impacted relative to the prior year periods by approximately $8 million and $17 million, respectively, due to the strong US dollar against the 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, decreased $11.1 million, or 5.4%, to $194.8 million for the three months ended June 30, 2001 as compared with $205.9 million for the three months ended June 30, 2000. For the six months ended June 30, 2001 operating expenses decreased $4.8 million, or 1.2%, to $392.8 million from $397.6 million for the six months ended June 30, 2000. The decrease in operating expenses from the prior year is primarily the result of a reduction in incentive compensation of $18.4 million and $23.7 million in the second quarter and year-to-date, respectively, when compared to the same periods last year. This reduction in incentive compensation is due to the reduction in revenues and will likely reverse over the balance of the year, depending on performance. Partly offsetting this decrease in incentive compensation are increases in headcount and associated expenses in the regions of America and Europe to service new business. The strengthening US dollar against the key currencies in which Jones Lang LaSalle operates the euro, pound sterling and Australian dollar-reduced US dollar reported expenses by approximately $8 million and $17 million for the three and six months ended June 30, 2001, respectively, relative to the same periods last year.
OPERATING INCOME The decrease in operating income is primarily the result of factors discussed above, namely Jones Lang LaSalle's strong prior year results and the continued slowing global economy. MERGER RELATED NON-RECURRING CHARGES There were no merger related non-recurring charges for the three or six months ended June 30, 2001. Merger related non-recurring charges for the three and six months ended June 30, 2000 totaled $18.9 million and $37.2 million, respectively, consisting of non-cash compensation expense associated with the issuance of shares to former employees of Jones Lang Wootton ("JLW"). The expenses related to the issuance of shares to former employees of JLW were fully expensed by December 31, 2000. Therefore, there is no such expense after December 31, 2000. INTEREST EXPENSE Interest expense, net of interest income, decreased $0.7 million, to $6.0 million, for the three months ended June 30, 2001, and $2.5 million, to $10.8 million, for the six months ended June 30, 2001 from the prior year periods. The decrease in interest expense in 2001 as compared to the prior year periods is the result of lower average borrowings and lower overall interest rates on revolver borrowings in 2001, partially offset by the higher fixed interest rate on the euro 165 million notes outstanding and the increase in amortization of debt issuance costs. PROVISION/BENEFIT FOR INCOME TAXES The benefit for income taxes was $0.8 million for the three months ended June 30, 2001 as compared to a provision of $4.3 million for the three months ended June 30, 2000. The benefit for income taxes was $3.0 million for the six months ended June 30, 2001 as compared to a provision of $0.1 million for the six months ended June 30, 2000. The effective tax rate for the three and six months ended June 30, 2001 was 38%, consistent with that achieved on an operational basis (excluding merger related non- recurring charges) in 2000. The move from a tax provision in 2000 to a tax benefit in 2001 is attributable to the reduction in 2001 of income before taxes, exclusive of merger related non-recurring compensation expense associated with the issuance of shares to former JLW employees. This merger related non-recurring compensation expense is largely nondeductible for tax purposes. NET INCOME/LOSS Jones Lang LaSalle's reported net loss was $1.9 million for the three months ended June 30, 2001 as compared to net income, excluding the effect of merger related non-recurring charges, of $6.7 million for the same period last year. For the six months ended June 30, 2001, Jones Lang LaSalle reported a net loss of $5.5 million as compared to net income, excluding the effect of merger related non-recurring charges and the cumulative effect of change in accounting principle related to the adoption of SAB 101, of $1.2 million in the prior year. Including the effect of $18.9 million of merger related non-recurring charges, the net loss for the three months ended June 30, 2000 was $12.4 million. Including the effects of $37.2 million of merger related non- recurring charges and the one-time, non-cash, after-tax charge of $14.2 million representing the cumulative effect of change in accounting principle related to the adoption of SAB 101, the net loss for the six months ended June 30, 2000 was $49.6 million. 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 $7.1 million, or 10.5%, to $74.5 million for the three months ended June 30, 2001, as compared to $67.4 million for the three months ended June 30, 2000. For the six months ending June 30, 2001, revenue grew by 11.1%, to $134.6 million, from $121.2 million for the same period in 2000. This increase in revenues for the quarter and year-to-date June 2001 as compared to the prior year was the result of strong performance in the Project and Development Management unit, the Tenant Representation Services unit and the Capital Markets unit. These revenue increases were partially offset by reduced revenues in the Leasing and Management unit. Operating expenses for the Americas region increased by $8.8 million, or 13.9%, to $72.3 million for the three months ended June 30, 2001 from $63.5 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, operating expenses increased $14.1 million, or 10.9%, to $143.2 million from $129.1 million in the prior year. The six months ended June 30, 2001 include a $3.9 million charge for unrecoverable receivables from technology related clients, of which $0.4 million was provided for in the second quarter. The first half of 2001 also includes a $2.0 million charge to provide against two separate e-commerce investments, $1.0 million of which was provided for in the second quarter. The second quarter also includes severance costs in the amount of $1.5 million. Excluding these charges, the remaining increase in operating expenses primarily reflects increased headcount and associated expenses to service new business. EUROPE Revenue for the Europe region totaled $78.2 million for the three months ended June 30, 2001, as compared to $91.4 million for the three months ended June 30, 2000, a decrease of 14.4%. Revenue of the Europe region for the six months ended June 30, 2001 was $165.2 million, as compared to $173.5 million for the six months ended June 30, 2000. Included in the second quarter of 2000 are two large capital markets transactions that provided approximately $12 million in revenue. Revenues for the Europe region for the three and six months ended June 30, 2001 were adversely impacted by approximately $6 million and $13 million, respectively, due to a weakening of the euro and the pound sterling against the US dollar during 2001 as compared to the same periods in 2000. After removing the revenue impact of the capital markets transactions and the exchange rate fluctuations, revenues increased $4.8 million and $16.7 million in the three and six months ended June 30, 2001, respectively, when compared to the same periods last year. The increase in revenues in the second quarter of 2001 over the second quarter of 2000 is primarily attributable to Jones Lang LaSalle's 55% owned joint venture with Skandia Fastighet AB. The increase in revenues in the first half of 2001 as compared to 2000 is primarily due to the strong first quarter of 2001 and, to a lesser extent, the joint venture mentioned above. Operating expenses for the region were $73.1 million for the three months ended June 30, 2001, as compared to $86.2 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, operating expenses decreased $10.3 million to $152.4 million from $162.7 million. The weakening of the euro and the pound sterling against the US dollar in the three and six months ended June 30, 2001 has reduced US dollar reported expenses by approximately $6 million and $13 million, respectively, as compared to the same periods in 2000. After adjusting for the impact of exchange rate movements, the change in operating expenses is primarily attributable to a reduction in incentive compensation of approximately $10.0 million and $10.9 million for the three and six months ended June 30, 2001 as compared to the same periods last year. This decrease in incentive compensation is due to the reduction in revenues and will likely reverse over the balance of the year, depending on performance. These decreases were partly offset by an increase in headcount and associated expenses to service new business.
ASIA PACIFIC Revenue for the Asia Pacific region totaled $28.3 million and $56.0 million for the three and six months ended June 30, 2001, respectively. These figures compare to $33.7 million and $64.6 million for the three and six months ended June 30, 2000. The decrease in revenue in the Asia Pacific region reflects a lower volume of transaction activity, particularly in Hong Kong and Australia, driven by the economic weakness in the region. Offsetting the decrease in transaction revenues are the benefits that are being delivered in the management services business on the investments made during 2000. Revenues in the Asia Pacific region were also negatively impacted in the three and six months ended June 30, 2001, as compared to the same periods last year, by approximately $2 million and $4 million, respectively, due to the weakness of the Australian dollar against the US dollar. Operating expenses for Asia Pacific totaled $31.2 million for the three months ended June 30, 2001, as compared to $35.2 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, operating expenses were $61.6 million as compared to $65.5 million for the comparable period in 2000. The overall expense base for the Asia Pacific region has increased due to regional infrastructure costs, but this increase has been offset by: 1) lower incentive compensation of $3.5 million and $4.4 million in the three and six months ended June 30, 2001, respectively, as compared to the same periods last year because of reduced transaction activity resulting in lower revenues, and 2) the reduced US dollar reported expenses as a result of the weakening of the Australian dollar against the US dollar. The reduction in incentive compensation will likely reverse over the balance of the year, depending on performance. The impact of the weakening Australian dollar against the US dollar has caused US dollar reported expenses to be reduced by approximately $2 million for the quarter, and $4 million for the six months ended June 30, 2001, when compared to the same periods last year. INVESTMENT MANAGEMENT Investment Management revenue decreased $12.6 million, or 40.9%, to $18.2 million for the three months ended June 30, 2001 from $30.8 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, Investment Management revenue decreased $13.5 million, or 25.0%, to $40.5 million from $54.0 million for the six months ended June 30, 2000. The reduced performance for this segment was anticipated in light of the very strong year in 2000. Contributing to the overall strong performance for the three and six months ended June 30, 2000, were gains and performance related fees (recorded as equity earnings) of approximately $6.8 million and $12.6 million, respectively, on sales of investments in which Jones Lang LaSalle co-invested equity with its clients. Additionally, two dispositions with total performance fees of $4 million closed in the three months ended June 30, 2000 that were originally expected to close later in that year. Revenues for the six months ended June 30, 2001 included $2.6 million of revenue, of which $1.0 million was recorded as Advisory Fees and $1.6 million was recorded as Equity Earnings, related to Jones Lang LaSalle's sale of its investment in LaSalle Hotel Properties. Operating expenses decreased $2.3 million, or 11.0%, to $18.6 million for the three months ended June 30, 2001, as compared with $20.9 million for the three months ended June 30, 2000. For the six months ended June 30, 2001, operating expenses decreased $4.5 million, or 11.1%, to $36.2 million from $40.7 million for the six months ended June 30, 2000. The reduction in operating expenses was due: (1) to lower incentive compensation recorded as a result of reduced revenues, which will likely reverse over the balance of the year, depending on performance, and (2) a one-time cost reduction of $0.6 million in the six months ended June 30, 2001 due to the disposition of Jones Lang LaSalle's investment in LaSalle Hotel Properties.
PERFORMANCE OUTLOOK The Management Plan prepared by Jones Lang LaSalle for the year 2001 included an adjusted earnings per share target, before non-recurring charges, of $1.63, reflecting almost 25% growth over the $1.31 adjusted earnings per share achieved in 2000. In developing this plan, certain assumptions were made about the anticipated prevailing economic conditions and their impact on the global real estate markets. These assumptions included a soft landing for the US economy followed by a recovery during the second half of 2001, continued growth, albeit at a slower pace, in Europe and the beginning of a recovery in the economies of the Asia Pacific region. Economic conditions have proven to be more difficult than expected, particularly in the high technology and telecom sectors, with a persistent downturn in global economic conditions. In addition, due to a greater proportion of income forecasted for the remainder of the year in jurisdictions with high tax rates, Jones Lang LaSalle's effective tax rate may increase from the expected 38% to between 40% and 42%. Concern over the uncertain timing of recovery in the global economy has caused Jones Lang LaSalle to lower its full year target for 2001 earnings, before non-operational charges discussed below, to be at least equal to 2000 adjusted net earnings per share, before merger related non- recurring charges, of $1.31 per share. In line with its more normal, seasonal pattern of earnings, Jones Lang LaSalle expects to earn $0.35 to $0.45 cents per share in the third quarter, with $1.05 to $1.15 per share in the fourth quarter. There are certain one-time, non-operational issues that may impact the reported GAAP results in future quarters. As noted above, the revised earnings expectation of a minimum of $1.31 per share is before taking into account any charges that may be incurred with regard to these non- operational issues. These issues include the impact of the current difficult conditions in the capital markets on the future substainability of the e-commerce investments made by Jones Lang LaSalle. The Balance Sheet value of these investments at June 30, 2001 is $13.9 million, of which Jones Lang LaSalle's investment in SiteStuff.com, Inc. represents $9.0 million. In addition, and as more fully discussed in Note 5 of the Notes to the Financial Statements, there is an undetermined exposure relating to the liquidation of HIH Insurance Ltd., which is not expected to exceed $1.5 million. In the light of the current difficult economic conditions, Jones Lang LaSalle is carefully reviewing discretionary costs in all areas of its business with the objective of reducing its cost base over the balance of the year. Opportunities for further operational efficiencies are being evaluated. Any potential one-time costs associated with the implementation of these operational efficiencies are not included in the revised target of $1.31 per share. CONSOLIDATED CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES During the six months ended June 30, 2001, cash flows used in operating activities totaled $66.0 million compared to $17.4 million used during the six months ended June 30, 2000, an increase in cash used of $48.6 million. The cash flows used in operating activities can be further divided into cash generated from operations for the six months ended June 30, 2001 of $30.7 million (compared to $27.1 million in the first six months of 2000) and cash used in balance sheet movements (primarily working capital changes) of $96.7 million (compared to $44.4 million in 2000). Excluding the non-cash charges in 2000 for the cumulative effect of change in accounting principle and merger related non-recurring stock compensation expense, the improvement of $3.6 million in cash generated from operations is primarily the result of higher non-cash charges against earnings in the
first six months of 2001 as compared to 2000; these non-cash charges consist of depreciation and amortization, provision for losses on receivables and other assets, deferred compensation amortization and amortization of debt issuance costs. The improvement in cash generated from operations is also attributed to cash operating distributions from ventures in relation to non-cash equity earnings recorded. The increase in cash used in working capital primarily represents higher incentive compensation accrued at December of 2000 and paid in the first six months of 2001 as compared to amounts accrued in December of 1999 and paid in the first six months of 2000. The higher level of incentive compensation accrued at December 2000 is a result of the strong performance during 2000. In addition, lower incentive compensation accruals in the first six months of 2001 as compared to the first six months of 2000 have reduced accrued liabilities, contributing to the increase in cash used in working capital. Jones Lang LaSalle's continued focus on working capital management, particularly in the area of receivables, is reflected in the increase in cash provided by receivables of $19.9 million in the first six months of 2001 as compared to the first six months of 2000. CASH FLOWS USED IN INVESTING ACTIVITIES Jones Lang LaSalle used $4.0 million in investing activities during the six months ended June 30, 2001, compared to a use of $19.0 million during the six months ended June 30, 2000. This decrease in cash used in investing activities is primarily the result of Jones Lang LaSalle's sale of its investment in LaSalle Hotel Properties, which generated $18.5 million, of which $1.6 million was a distribution of previously recorded equity earnings and therefore is shown in the operating activities section of the Statement of Cash Flows. CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Cash flows provided by financing activities increased $35.1 million to $61.3 million during the first six months of 2001 from $26.2 million during the first six months of 2000. Borrowings increased to fund higher levels of incentive compensation paid in early 2001, which related to 2000, and to repurchase shares. 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 increased its unsecured credit agreement from $380.0 million to $425.0 million through the addition of five banks to its credit group. This credit agreement was comprised of a $250.0 million revolving facility maturing in October 2002 and a $175.0 million term facility that 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 $148.6 million, which were used to pay-down 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 June 30, 2001, Jones Lang LaSalle has a $250.0 million revolving credit facility for working capital needs, investments and acquisitions. Jones Lang LaSalle also has the Euro Notes of euro 165 million and, under the terms of the revolving credit facility, the authorization to borrow up to $50.0 million under local overdraft facilities. As of June 30, 2001, there was $155.6 million outstanding under the revolving credit facility, euro 165.0 million ($140.1 million) of borrowings under the Euro Notes and short-term borrowings (including capital lease obligations) of $9.0 million.
Certain of Jones Lang LaSalle's subsidiaries guarantee the revolving credit facility and the Euro Notes (the "Facilities"). 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 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 8.1% for the six months ended June 30, 2001 (versus 8.2% during the same period of 2000), including the effect of interest rate swap agreements. There were no interest rate swap agreements outstanding at June 30, 2001. Jones Lang LaSalle has additional access to liquidity via various interest-bearing overdraft facilities and short-term credit facilities of subsidiaries. Of the $50.0 million authorized under the revolving credit facility for local overdraft borrowings, Jones Lang LaSalle has facilities totaling $33.6 million, of which $4.8 million was outstanding as of June 30, 2001. 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. Jones Lang LaSalle expects to continue to pursue co-investment opportunities with investment management clients in the Americas, Europe and Asia Pacific. Co-investment remains very important to the continued growth of Investment Management, which would likely be negatively impacted if a substantial decrease in co-investment activity were to occur. However, the future commitment to co-investment is completely discretionary (other than with respect to the $16.1 million discussed below) and can be increased or decreased based on the availability of capital and other factors. As of June 30, 2001, there were total investments of $53.2 million in 24 separate property or fund co-investments, with additional capital commitments of $16.1 million for future fundings of co-investments. The net co-investment activity for 2001 is anticipated to be a net return of capital of approximately $6 million (planned co-investment funding less return of capital from liquidated co-investments). Capital expenditures are anticipated to be $47 million for 2001, primarily for ongoing improvements to computer hardware and information systems, office renewals and expansions. Jones Lang LaSalle had originally allocated up to $10.0 million for investments in e-commerce opportunities in 2001. This allocation is currently being re-evaluated given ongoing developments in the high technology and e-commerce markets. During the six months ended June 30, 2001, Jones Lang LaSalle provided charges against two e-commerce investments of $1.0 million each. The balance sheet at June 30, 2001 includes $13.9 million of e-commerce related investments. As of June 30, 2001, Jones Lang LaSalle did not believe that the remainder of its investments in e-commerce were not realizable. As explained in greater detail in Note 4 to the Notes to Consolidated Financial Statements herein, Jones Lang LaSalle's Board of Directors has authorized the repurchase of shares of Jones Lang LaSalle common stock in the amount of $10.0 million. Although it has no immediate plans to repurchase shares, the repurchase of shares is one area of capital spending that Jones Lang LaSalle considers.
SEASONALITY Historically, Jones Lang LaSalle's revenue, operating income and net earnings in the first three calendar quarters are substantially lower than in the fourth quarter. Other than for Investment Management, this seasonality is due to a calendar-year-end focus, primarily in the U.S., on the completion of real estate transactions, which is consistent with the real estate industry generally. The Investment Management segment earns performance fees on clients' returns on their real estate investments. Such performance fees are generally earned when the asset is sold, the timing of which Jones Lang LaSalle does not have complete discretion over. Non-variable operating expenses, which are treated as expenses when they are incurred during the year, are relatively constant on a quarterly basis. INFLATION Jones Lang LaSalle's operations are directly affected by various national and local economic conditions, including interest rates, inflation, the availability of credit to finance real estate transactions and the impact of tax laws. To date, Jones Lang LaSalle 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 In July 2001, the FASB issued Statement No. 141, Business Combinations, ("SFAS 141") and Statement No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). For a detailed discussion of these new statements please refer to Note 8 of the Notes to the Financial Statements. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET AND OTHER RISK FACTORS MARKET RISK The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which Jones Lang LaSalle is exposed are: . Interest rates on the multi-currency debt facility . Foreign exchange risks. In the normal course of business, Jones Lang LaSalle manages these risks through a variety of strategies, including the use of hedging transactions using various derivative financial instruments such as interest rate swap agreements. Jones Lang LaSalle does not enter into derivative or interest rate transactions for trading or speculative purposes. INTEREST RATES Jones Lang LaSalle centrally manages its debt, considering investment opportunities and risks, tax consequences and overall financing strategies. Jones Lang LaSalle is primarily exposed to interest rate risk on the $250 million three-year revolving multi-currency credit facility that is available for working capital, co-investments, capital expenditures and acquisitions. This facility bears a variable rate of interest based on market rates. The interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower the overall borrowing costs. To achieve this objective, Jones Lang LaSalle will enter into derivative financial instruments such as interest rate swap agreements when appropriate. As of June 30, 2001, Jones Lang LaSalle had no interest rate swap agreements outstanding. Including the effect of interest rate swap agreements, the effective interest rate on Jones Lang LaSalle's debt for the six months ended June 30, 2001 was 8.1% compared to 8.2% for the same period of 2000. The decrease in the effective interest rate is due to reduced revolver borrowings at declining market interest rates, offset by the higher fixed interest rate of 9.0% associated with the Euro Notes. FOREIGN EXCHANGE Revenues outside of the United States were 58.8% and 60.9% of the total revenues of Jones Lang LaSalle for the three and six months ended June 30, 2001, respectively. Operating in international markets means that Jones Lang LaSalle is exposed to movements in these foreign exchange rates, primarily the British pound (21.0% and 22.0% of revenues for the three and six months ended June 30, 2001, respectively) and the euro (17.6% and 19.7% of revenues for the three and six months ended June 30, 2001, respectively). Changes in these foreign exchange rates would have the largest impact on translating the operating profit of Jones Lang LaSalle's international operations into U.S. dollars. The British pound expenses incurred as a result of both the worldwide operational headquarters and the Europe regional headquarters being located in London act as a partial operational hedge against Jones Lang LaSalle's translation exposure to the British pound.
The interest on the euro 165 million of notes issued by Jones Lang LaSalle during 2000 acts as a partial hedge against the translation exposure on the euro denominated earnings. Jones Lang LaSalle enters into forward foreign currency exchange contracts to manage currency risks. At June 30, 2001, Jones Lang LaSalle had forward exchange contracts in effect with a notional value of $64.1 million and a market and carrying loss of $0.5 million. DISCLOSURE OF LIMITATIONS As the information presented above includes only those exposures that exist as of June 30, 2001, it does not consider those exposures or positions which could arise after that date. The information represented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate and foreign currency fluctuations will depend on the exposures that arise during the period, the hedging strategies at the time and interest and foreign currency rates. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Jones Lang LaSalle is a defendant in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Many of these matters are covered by insurance. In the opinion of management, the ultimate resolution of such litigation is not expected to have a material adverse effect on the financial condition, results of operations and liquidity of Jones Lang LaSalle. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS At the annual meeting of stockholders held on May 14, 2001, the following business was conducted: A. Stockholders elected six directors as follows: (i) The following five Class I Directors were elected for terms expiring at the 2004 annual meeting of stockholders and until their successors are elected and qualify: Henri-Claude de Bettignies: 23,623,684 votes for and 584,318 votes withheld. Darryl Hartley-Leonard: 23,623,684 votes for and 584,318 votes withheld. Robert S. Orr: 22,290,089 votes for and 1,917,913 votes withheld. William E. Sullivan: 22,283,353 votes for and 1,924,649 votes withheld. Earl E. Webb: 22,285,720 votes for and 1,922,281 votes withheld. (ii) The following one Class II Director was elected for term expiring at the 2002 annual meeting of stockholders and until his successor is elected and qualified: Robin S. Broadhurst: 23,618,876 votes for and 589,126 votes withheld.
B. Stockholders approved an amendment to the Jones Lang LaSalle 1997 Stock Award and Incentive Plan to increase the number of shares available thereunder to 8,610,000 from 4,160,000 as follows: Votes for: 20,203,569 Votes against: 2,456,976 Votes abstained: 16,628 C. Stockholders ratified the appointment of KPMG LLP as the Jones Lang LaSalle's independent auditors for the fiscal year ending December 31, 2001 as follows: Votes for: 23,956,405 Votes against: 245,881 Votes abstained: 5,715 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, 2000 in Item 1. "Business," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," Item 7A. "Quantitative and Qualitative Disclosures About Market Risk," and elsewhere, in this Quarterly Report on Form 10-Q in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations", Item 3 "Quantitative and Qualitative Disclosure about Market Risk" and elsewhere, and in other reports filed with the Securities and Exchange Commission. Jones Lang LaSalle expressly disclaims any obligation or undertaking to update or revise any forward-looking statements to reflect any changes in events or circumstances or in its expectations or results. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) A list of exhibits is set forth in the Exhibit Index which immediately precedes the exhibits and which is incorporated by reference herein. (b) Reports on Form 8-K On April 9, 2001, Jones Lang LaSalle filed a Report on Form 8-K (to which its Annual Report to shareholders was attached as an exhibit) announcing that it had sent to stockholders material for its Annual Meeting to be held May 14, 2001.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JONES LANG LASALLE INCORPORATED Dated: August 14, 2001 BY: /S/ PETER C. ROBERTS ------------------------------ Peter C. Roberts Executive Vice President and Chief Financial Officer (Authorized Officer and Principal Financial Officer)
EXHIBIT INDEX Exhibit Number Description - ------- ----------- 10.1 Fifth Amendment to the Jones Lang LaSalle Incorporated 1997 Stock Award and Incentive Plan, attached hereto as Exhibit 10.1. 99 Press release issued by Jones Lang LaSalle on July 31, 2001 attached hereto as Exhibit 99.